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TABLE OF CONTENTS
TABLE OF CONTENTS 2
As filed with the Securities and Exchange Commission on June 8, 2016
Registration No. 333-211555
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Selecta Biosciences, Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
2834 (Primary Standard Industrial Classification Code Number) |
26-1622110 (I.R.S. Employer Identification No.) |
480 Arsenal Street, Building One
Watertown, Massachusetts 02472
(617) 923-1400
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Werner Cautreels, Ph.D.
President and Chief Executive Officer
Selecta Biosciences, Inc.
480 Arsenal Street, Building One
Watertown, Massachusetts 02472
(617) 923-1400
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to: | ||
Peter N. Handrinos Brandon J. Bortner Latham & Watkins LLP John Hancock Tower 200 Clarendon Street Boston, Massachusetts 02116 (617) 948-6000 |
Divakar Gupta Marc Recht Joshua A. Kaufman Cooley LLP 500 Boylston Street, 14th Floor Boston, Massachusetts 02116 (617) 937-2300 |
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. o
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. o
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. o
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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer ý (Do not check if a smaller reporting company) |
Smaller reporting company o |
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities To Be Registered |
Proposed Maximum Aggregate Offering Price(1) |
Amount of Registration Fee(2) |
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Common Stock, $0.0001 par value per share |
$78,200,000 | $7,875 | ||
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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 that 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 offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
PROSPECTUS | Preliminary, Subject to Completion | June 8, 2016 |
4,250,000 Shares
Common stock
This is the initial public offering of our common stock. No public market for our common stock currently exists. We are offering all of the 4,250,000 shares of common stock offered by this prospectus. We expect the initial public offering price to be between $14.00 and $16.00 per share.
We have applied to list our common stock on The NASDAQ Global Market under the symbol "SELB."
We are an "emerging growth company" as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.
Investing in our common stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common shares in "Risk Factors" beginning on page 15 of this prospectus.
Neither the Securities and Exchange Commission nor any other state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
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Per share |
Total |
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Public offering price |
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Underwriting discounts(1) |
$ | $ | |||||
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Proceeds, before expenses, to us |
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Certain of our existing stockholders, including entities affiliated with certain of our directors and director nominee, have indicated an interest in purchasing an aggregate of approximately $40.0 million in shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these stockholders, or any of these stockholders may determine to purchase more, less or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchased by these stockholders as they will on any other shares sold to the public in this offering.
The underwriters may also purchase up to an additional 637,500 shares of common stock from us at the public offering price, less the underwriting discounts payable by us, to cover over-allotments, if any, within 30 days from the date of this prospectus.
The underwriters expect to deliver the shares of common stock to investors on or about , 2016.
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UBS Investment Bank |
Stifel
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Canaccord Genuity | Needham & Company |
TABLE OF CONTENTS
We have not, and the underwriters have not, authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
Through and including , 2016 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
For investors outside 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 in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.
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Prospectus summary
This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the "Risk factors" section beginning on page 15 and our consolidated financial statements and the related notes appearing at the end of this prospectus, before making an investment decision. As used in this prospectus, unless the context otherwise requires, references to "we," "us," "our" and "Selecta" refer to Selecta Biosciences, Inc. together with its consolidated subsidiaries.
OVERVIEW
We are a clinical-stage biopharmaceutical company using our proprietary synthetic vaccine particle, or SVP, technology to discover and develop targeted therapies that are designed to modulate the immune system to effectively and safely treat rare and serious diseases. Many such diseases are treated with biologic therapies that are foreign to the patient's immune system and, therefore, elicit an undesired immune response. Of particular concern are anti-drug antibodies, or ADAs, which are produced by the immune system in response to biologic therapy and can adversely affect the efficacy and safety of treatment. Our proprietary SVP technology encapsulates an immunomodulator in biodegradable nanoparticles to induce antigen-specific immune tolerance to mitigate the formation of ADAs in response to life-sustaining biologic drugs. We believe our SVP technology has the potential for broad applications to both enhance existing biologic drugs and enable novel therapies. Our lead product candidate, SEL-212, is a combination of a therapeutic enzyme and our SVP technology designed to be the first biologic treatment for gout that durably controls uric acid in refractory gout and dissolves and removes harmful deposits of uric acid crystals in chronic tophaceous gout, each a painful and debilitating disease with unmet medical need. SEL-212 is currently in a comprehensive Phase 1/2 clinical program. The Phase 1/2 clinical program is comprised of two Phase 1 clinical trials and a Phase 2 clinical trial, and is designed to evaluate the ability of SEL-212 to control uric acid levels and mitigate the formation of ADAs. Based on preliminary data from our ongoing Phase 1b clinical trial, we believe that SEL-212 has the potential to control serum uric acid levels for at least 30 days after a single dose by mitigating the formation of ADAs in response to the therapeutic enzyme. We expect to receive final data from both Phase 1 clinical trials and initiate the Phase 2 clinical trial in the second half of 2016.
Despite rapid advancement in biologic treatment of rare and serious diseases, many biologic therapies are not broadly effective because they are exogenous proteins that are foreign to the patient's immune system and, therefore, may elicit an immune response, known as immunogenicity. Undesired immunogenicity includes the formation of ADAs that can compromise the drug's efficacy and cause serious allergic reactions. The formation of ADAs is known to occur in established treatments such as enzyme and protein replacement therapies, as well as in novel technologies, such as gene therapy and antibody-drug conjugates. ADAs can start developing in the body with the first dose of a biologic therapy and can render subsequent doses ineffective or unsafe, potentially depriving patients of life-saving therapeutic options and limiting the likelihood of success for many otherwise promising novel biologic drugs and technologies. We believe the co-administration of our SVP technology with biologic treatments has the potential to overcome these limitations without requiring changes in dosing or formulation. We intend to build a platform based on our SVP technology applied to the mitigation of ADAs for a wide range of biologics.
OUR SVP TECHNOLOGY
Our SVP technology utilizes a biodegradable nanoparticle to selectively modulate an immune response in an antigen-specific manner. We believe that nanoparticles are uniquely suited to deliver precise
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instructions to the immune system as a result of the natural predisposition of the immune system to interrogate nanoparticles, such as viruses.
Our SVP technology is a highly flexible nanoparticle platform, capable of incorporating a wide range of antigens and immunomodulators, allowing us to tailor our SVP products for specific applications across multiple indications. We are tailoring our SVP technology for:
SVP are designed to remain intact after injection into the body and accumulate selectively in lymphoid organs, which include lymph nodes and the spleen, where the immune response is coordinated. Depending on the type of immunomodulator encapsulated in the SVP, our technology is designed to induce either a:
A tolerogenic response is the induction of immune tolerance or non-responsiveness to a specific antigen. Cytolytic T cells are specialized antigen-specific immune cells that target and kill cells that harbor a specific antigen.
Our antigen-specific SVP tolerance programs utilize SVP-Rapamycin, our biodegradable nanoparticle encapsulating the immunomodulator rapamycin. Rapamycin is a small molecule approved for the prevention of organ rejection in kidney transplant patients. In preclinical studies, we have observed that SVP-Rapamycin, unlike free rapamycin, can be co-administered at the beginning of therapy with a biologic drug to mitigate the formation of ADAs without altering the drug or its dose regimen. As a result, we believe that SVP-Rapamycin may provide us with significant growth opportunities in the area of tolerance because SVP-Rapamycin can be co-administered at the beginning of therapy with many different biologic drugs.
In addition, we believe our SVP technology has the potential to be used for therapies that stimulate the immune system to treat cancer, infectious diseases and other diseases. Our SVP immune stimulation programs are designed to encapsulate an antigen and a toll-like receptor, or TLR, agonist. Activation of TLRs alert the immune system that a potential pathogen is present and that the immune system should mount a response. TLR agonists can be used as supplements, or adjuvants, to vaccines to increase the immune response to the vaccine by activating the TLRs in antigen-presenting cells. We currently finance these programs primarily through grants.
Our SVP technology is based in part on the pioneering research performed by our co-founders at Harvard University, Massachusetts Institute of Technology, or MIT, and Brigham and Women's Hospital, or Brigham. In connection with our company's founding, we licensed 17 patent families
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related to certain aspects of our SVP technology as applied to nanoparticles for use in vaccines from our co-founders' institutions pursuant to an agreement with MIT.
OUR PRODUCT CANDIDATE AND DISCOVERY PIPELINES
The following chart summarizes our current SVP product candidate pipeline.
Program
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Description
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Development status
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Program strategy
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SVP for immune tolerance | ||||||
Refractory and chronic tophaceous gout (SEL-212) |
SVP-Rapamycin co-administered with pegsiticase |
Final data from Phase 1a and Phase 1b trials and initiation of Phase 2 trial expected in the second half of 2016 |
Own development |
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Gene therapy for an autosomal recessive metabolic, or ARM, disorder |
SVP-Rapamycin co-administered with the Anc80 gene therapy vector, or Anc80 |
Investigational New Drug Application, or IND, filing for first indication expected by the end of 2017 |
Own development |
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Gene therapy for an X-linked metabolic, or XLM, disorder |
SVP-Rapamycin co-administered with an adeno-associated virus, or AAV |
IND filing for first indication expected in 2018 |
Own development |
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SVP for immune stimulation |
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Smoking cessation and relapse prevention (SEL-070) |
SVP-adjuvant and SVP-nicotine |
Good laboratory practice, or GLP, toxicology studies ongoing |
Own development, with grant from the National Institute on Drug Abuse, or NIDA |
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HPV-associated cancer (SEL-701) |
SVP-adjuvant and SVP-HPV antigen |
Preclinical |
Own development, with grant from the Russian-based Development Fund of New Technologies Development and Commercialization Center, or the Skolkovo Foundation |
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The following chart summarizes our current discovery pipeline.
Program
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Description
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Development status
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Program strategy
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SVP for immune tolerance | ||||||
Food allergy |
SVP-adjuvant and SVP-food allergen |
Discovery |
Sanofi worldwide exclusive license |
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Celiac disease |
SVP-Rapamycin and SVP-gluten |
Discovery |
Sanofi worldwide exclusive license |
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Type 1 diabetes |
SVP-Rapamycin and SVP-insulin |
Discovery |
Sanofi and Juvenile Diabetes Research Foundation, or JDRF, sponsored research program |
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SVP for immune stimulation |
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Malaria |
SVP-adjuvant and SVP-malaria antigen |
Discovery |
The Bill and Melinda Gates Foundation sponsored research program |
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SEL-212 FOR THE TREATMENT OF REFRACTORY AND CHRONIC TOPHACEOUS GOUT
Our lead product candidate, SEL-212, consists of SVP-Rapamycin co-administered with pegsiticase, our proprietary pegylated uricase, for the treatment of refractory and chronic tophaceous gout. Our preclinical data indicate that SVP-Rapamycin, when co-administered with pegsiticase, induces antigen-specific immune tolerance to pegsiticase and substantially reduces the formation of associated ADAs. We believe that our SEL-212 has the potential to offer a uniquely effective treatment for patients with refractory or chronic tophaceous gout, while also demonstrating the clinical effectiveness of our SVP technology. We completed the patient treatment portion of our Phase 1a trial in November 2015, initiated a Phase 1b trial in December 2015 and expect final data from both Phase 1 clinical trials in the second half of 2016.
Approximately 8.3 million and 10 million patients in the United States and the European Union, respectively, suffer from gout, which is caused by elevated levels of serum uric acid. Excessive uric acid levels result in harmful deposits of uric acid crystals in joints and tissues, causing joint damage and painful inflammation. High concentrations of serum uric acid also increase the risk for other conditions, including cardiovascular, cardiometabolic, joint and kidney disease. No treatment has been approved to remove uric acid deposits from joints and tissues. Approximately 50,000 patients in the United States have been diagnosed with chronic refractory gout, an orphan indication defined by uric acid levels that cannot be controlled by available oral therapies. The U.S. Food and Drug Administration, or 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 disease or condition with a patient population of fewer than 200,000 individuals annually 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 and making available in the United States the drug or biologic will be recovered from sales in the United States. Although we expect to seek orphan drug designation for one or more of our product candidates, we have not yet applied for or obtained such designation.
In addition, approximately 500,000 patients in the United States suffer from chronic tophaceous gout in which patients develop nodular insoluble masses of uric acid crystals referred to as tophi, which can occur either in joints such as fingers, toes or elbows or in the tissues that make up organs such as the kidney and heart. Both refractory and chronic tophaceous gout are severe diseases that can cause pain,
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arthritis and organ failure. Krystexxa, a pegylated uricase, is the only product approved by the FDA for the treatment of chronic refractory gout. There is no approved product for chronic tophaceous gout.
SEL-212 was designed specifically to overcome the challenges faced by Krystexxa. In clinical trials, Krystexxa demonstrated the ability to significantly reduce uric acid levels in serum upon initial dosing. However, despite these results, Krystexxa has not achieved broad commercial adoption. We believe this is primarily due to the product's undesired immunogenicity. The package insert information for Krystexxa indicates that during Phase 3 clinical trials, 92% of patients developed ADAs. The package insert information also indicates that during the drug's Phase 3 clinical trials, high Krystexxa-specific ADA levels in patients were associated with a failure to maintain normalization of uric acid levels. Similarly, in 2011, The Journal of the American Medical Association published the results of clinical trials finding that 58% of Krystexxa patients who received biweekly doses of Krystexxa were non-responders as measured by the high uric acid levels in patients, which was associated with the Krystexxa-specific ADA levels.
GENE THERAPY PROGRAMS
We are also applying our SVP technology to antigen-specific immune tolerance for gene therapy involving gene augmentation, replacement or editing. Gene therapies often use a viral vector, such as an AAV vector, to place corrective genetic material into cells to treat genetic diseases. One of the key hurdles for the gene therapy field is to overcome immunogenicity against the viral vector, which can manifest itself in three ways. First, pre-existing ADAs that were induced following a natural AAV infection can neutralize the viral vector and block gene transfer. Up to 50% of patients are ineligible for gene therapy due to the presence of pre-existing ADAs. Second, ADAs form in response to the first administration of a gene therapy vector and prevent effective subsequent doses of gene therapy. Subsequent doses are particularly necessary for pediatric indications due to cellular turnover in young patients. The ability to readminister gene therapies is also important for diseases where the goal is to transfect a high number of cells. Moreover, the third way in which immunogenicity can manifest itself against the viral vector is that the cellular immune system can respond to the transduced cells, which can reduce efficacy and pose safety concerns.
We have in-licensed Anc80 from the Massachusetts Eye and Ear Infirmary and The Schepens Eye Research Institute, Inc., collectively referred to as MEE. In preclinical studies, Anc80 has been observed to be a potent gene therapy vector that has demonstrated the capability of yielding superior gene expression levels in the liver compared to naturally occurring AAVs that are currently evaluated in clinical trials. As a synthetic vector, we believe Anc80 has limited cross-reactivity to naturally-occurring AAVs and therefore has the potential to treat patients with pre-existing AAV-specific ADAs. By combining SVP-Rapamycin and Anc80, we intend to develop highly differentiated gene therapies to address all three of the immunogenicity issues associated with the use of viral vectors. In collaboration with the clinical and gene therapy laboratory at the National Institutes of Health and MEE, we plan to develop a product candidate utilizing the Anc80 vector for the treatment of an ARM disorder resulting from an inborn error of metabolism. This ARM disorder can cause severe developmental defects and premature death as a result of an accumulation of toxic metabolites. Under our license agreement with MEE, we also have the option to develop gene therapies using Anc80 for several additional diseases including lysosomal storage, muscular and genetic metabolic diseases. We plan to develop another product candidate for the treatment of an XLM disorder, which is a metabolic disorder similar to ARM disorder. We are pursuing this second indication through collaborations with third parties with preclinical and clinical experience in this area.
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OTHER PROGRAMS FOR AUTOIMMUNE DISEASES, ALLERGIES AND MARKETED BIOLOGICS
We are also applying our SVP technology to the treatment of autoimmune diseases, allergies and marketed biologics. Currently, most autoimmune diseases are treated with broadly immunosuppressive therapies that indiscriminately affect the function of the entire immune system. Our SVP technology is designed to re-program the immune system to elicit tolerance to a specific antigen that is causing the autoimmune disease, without impacting the rest of the immune system. We believe that our preclinical data may support potential applications of SVP-Rapamycin to both marketed products, such as monoclonal antibodies against human tumor necrosis factor-alpha, or TNF-alpha, which are known to induce undesired immunogenicity, and novel biologic drugs that would otherwise be too immunogenic to develop. Since 2012, we have established three collaborations with Sanofi to research novel SVP products for the treatment of a life-threatening food allergy, celiac disease and type 1 diabetes. We intend to continue our strategy of out-licensing our SVP technology for antigen-specific immune tolerance for applications that are outside our areas of focus.
IMMUNE STIMULATION PROGRAMS
We also believe our SVP technology, by encapsulating antigens and adjuvants, has the potential to be used for therapies that stimulate the immune system to prevent and treat cancer, infectious diseases and other diseases. We have early-stage research programs for therapeutic vaccines for human papilloma virus, or HPV, associated cancers and for antibody-based vaccine programs for nicotine addiction and malaria. We currently finance these programs primarily through grants.
OUR STRATEGY
Our goal is to become the first biopharmaceutical company to develop and commercialize targeted therapies that are designed to modulate the immune system to effectively and safely treat rare and serious diseases. In addition, we intend to maximize the value of our SVP technology by collaborating with biopharmaceutical companies on programs that can benefit from our technology but that are outside our area of focus. The key elements of our strategy include the following.
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intend to focus our efforts on developing and commercializing proprietary SVP-enabled products for rare and serious diseases where there is high unmet medical need. Therapies for treating rare and serious diseases require focused commercial efforts and coordination with patient groups and investigators. As our product candidates advance towards commercialization, we intend to build a commercial infrastructure to market our products to capture the full value of our proprietary SVP products.
RISKS FACTORS
Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled "Risk factors" immediately following this prospectus summary. Some of these risks are:
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IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY
As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012. An "emerging growth company" may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
We may take advantage of these provisions until the last day of our 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 revenue exceeds $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.
We have elected to take advantage of certain of the reduced disclosure obligations in 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 that we provide to our stockholders may be different than 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 irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
CORPORATE INFORMATION
We were incorporated under the laws of the state of Delaware in 2007. Our principal executive offices are located at 480 Arsenal Street, Building One, Watertown, Massachusetts 02472 and our telephone number is (617) 923-1400. Our website address is www.selectabio.com. The information contained in, or accessible through, our website does not constitute a part of this prospectus.
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The offering
Common stock offered by us |
4,250,000 shares (or 4,887,500 shares if the underwriters exercise their option to purchase additional shares in full). | |
Common stock to be outstanding after this offering |
16,914,048 shares (or 17,551,548 shares if the underwriters exercise their option to purchase additional shares in full). |
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Use of proceeds |
We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and estimated offering expenses payable by us, will be approximately $55.4 million, or approximately $64.3 million if the underwriters exercise their option to purchase additional shares in full, based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus. We expect that we will use the net proceeds from this offering to support the clinical development and manufacturing scale-up of SEL-212, advance the development of our other SVP product candidates and for working capital and general corporate purposes. See "Use of proceeds" beginning on page 69. |
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Directed share program |
At our request, the underwriters have reserved up to 5% of the common stock being offered by this prospectus for sale at the initial public offering price to our directors, officers, employees and other individuals associated with us and members of their families. These sales will be made by UBS Financial Services Inc., a selected dealer affiliated with UBS Securities LLC, an underwriter of this offering, through a directed share program. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of common stock. Participants in the directed share program who purchase more than $1,000,000 of shares shall be subject to a 25-day lock-up with respect to any shares sold to them pursuant to that program. Any shares sold in the directed share program to our directors or executive officers shall be subject to a 180-day lock-up. All of these lock-up agreements will have similar restrictions to the lock-up agreements described herein. See "Shares eligible for future saleLock-up agreements." |
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Risk factors |
See "Risk factors" beginning on page 15 and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our common stock. |
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Proposed NASDAQ Global Market symbol |
"SELB" |
Certain of our existing stockholders, including entities affiliated with certain of our directors and director nominee, have indicated an interest in purchasing an aggregate of approximately $40.0 million
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in shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these stockholders, or any of these stockholders may determine to purchase more, less or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchased by these stockholders as they will on any other shares sold to the public in this offering.
The number of shares of our common stock to be outstanding after this offering is based on 2,773,468 shares of our common stock outstanding as of May 31, 2016, which included 4,415 shares of unvested restricted stock and gives effect to the conversion of our outstanding preferred stock into 9,890,580 shares of common stock, based on an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover of this prospectus, upon the closing of this offering, and excludes:
Unless otherwise indicated, this prospectus reflects and assumes the following:
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an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover of this prospectus, upon the closing of this offering;
Upon the closing of this offering, our series E preferred stock will automatically convert into a number of shares of common stock determined, in part, by the initial public offering price for this offering. Assuming an initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover of this prospectus, our series E preferred stock will automatically convert into 3,297,480 shares of common stock upon closing of this offering. A $1.00, $2.00 and $3.00 increase in the assumed initial public offering price of $15.00 per share would decrease the number of shares of common stock issuable upon conversion of our series E preferred stock by 206,093 shares, 387,938 shares and 549,581 shares, respectively. A $1.00, $2.00 and $3.00 decrease in the assumed initial public offering price of $15.00 per share would increase the number of shares of common stock issued upon conversion of our series E preferred stock by 235,538 shares, 507,308 shares and 824,372 shares, respectively. Accordingly, the number of shares of our common stock issuable upon conversion of all of our preferred stock outstanding would correspondingly decrease or increase, as applicable.
Similarly, upon the closing of this offering, outstanding warrants to purchase shares of our series E preferred stock will become warrants to purchase a number of shares of our common stock determined, in part, by the initial public offering price for this offering. Assuming an initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover of this prospectus, warrants to purchase shares of our series E preferred stock will become warrants to purchase 14,088 shares of our common stock upon closing of this offering. A $1.00, $2.00 and $3.00 increase in the assumed initial public offering price of $15.00 per share would decrease the number of shares of common stock issuable upon the exercise of these warrants by 880 shares, 1,658 shares and 2,348 shares, respectively. A $1.00, $2.00 and $3.00 decrease in the assumed initial public offering price of $15.00 per share would increase the number of shares of common stock issuable upon the exercise of these warrants by 1,006 shares, 2,168 shares and 3,522 shares, respectively.
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Summary consolidated financial data
The following tables set forth, for the periods and as of the dates indicated, our summary consolidated financial data. You should read the following information together with the more detailed information contained in "Selected consolidated financial data," "Management's discussion and analysis of financial condition and results of operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus. We have derived the consolidated statements of operations data for the years ended December 31, 2014 and 2015 from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the three months ended March 31, 2015 and 2016 and the consolidated balance sheet data as of March 31, 2016 have been derived from our unaudited condensed consolidated financial statements appearing at the end of this prospectus and have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the unaudited data reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information in those statements. Our historical results are not necessarily indicative of the results that should be expected in the future, and results for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.
12 | | |
Consolidated statement of operations data:
|
Years ended December 31, |
Three months ended March 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2015
|
2016
|
|||||||||
|
|
|
(unaudited) |
(unaudited) |
|||||||||
|
(in thousands, except share and per share data) |
||||||||||||
Grant and collaboration revenue |
$ | 3,040 | $ | 6,011 | $ | 1,034 | $ | 2,088 | |||||
Operating expenses: |
|||||||||||||
Research and development |
10,486 | 22,980 | 4,972 | 6,648 | |||||||||
General and administrative |
7,953 | 8,335 | 1,872 | 2,381 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
18,439 | 31,315 | 6,844 | 9,029 | |||||||||
Loss from operations |
(15,399 | ) | (25,304 | ) | (5,810 | ) | (6,941 | ) | |||||
Other income (expense): |
|||||||||||||
Investment income |
111 | 171 | 62 | 13 | |||||||||
Foreign currency (loss) gain |
3,004 | 933 | 194 | (220 | ) | ||||||||
Interest expense |
(552 | ) | (948 | ) | (179 | ) | (310 | ) | |||||
Other expense |
(44 | ) | (26 | ) | | (18 | ) | ||||||
| | | | | | | | | | | | | |
Total other income (expense), net |
2,519 | 130 | 77 | (535 | ) | ||||||||
| | | | | | | | | | | | | |
Net loss |
(12,880 | ) | (25,174 | ) | (5,733 | ) | (7,476 | ) | |||||
Accretion of redeemable convertible preferred stock |
(4,951 | ) | (7,335 | ) | (1,561 | ) | (2,356 | ) | |||||
Net effect of extinguishment of Series SRN redeemable convertible preferred stock |
1,459 | | | | |||||||||
| | | | | | | | | | | | | |
Net loss attributable to common stockholders |
$ | (16,372 | ) | $ | (32,509 | ) | $ | (7,294 | ) | $ | (9,832 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net loss per share attributable to common stockholders(1) |
|||||||||||||
Basic and diluted |
$ | (7.84 | ) | $ | (15.13 | ) | $ | (3.43 | ) | $ | (4.52 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted average common shares outstanding(1) |
|||||||||||||
Basic and diluted |
2,090,677 | 2,150,422 | 2,126,878 | 2,175,037 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Pro forma net loss per share attributable to common stockholders (unaudited) |
|||||||||||||
Basic and diluted(1)(2) |
$ | (2.53 | ) | $ | (0.59 | ) | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Pro forma weighted average common shares of common stock outstanding (unaudited) |
|||||||||||||
Basic and diluted(1)(2) |
9,980,469 | 12,632,923 | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | 13 |
the midpoint of the price range set forth on the cover page of this prospectus. See "Prospectus summaryThe offering" for a related offering price per share sensitivity analysis.
Consolidated balance sheet data:
|
As of March 31, 2016 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Actual
|
Pro forma(1)
|
Pro forma as adjusted(2) |
|||||||
|
|
(unaudited) |
(unaudited) |
|||||||
|
(in thousands) |
|||||||||
Cash, cash equivalents and short-term investments |
$ | 25,979 | $ | 25,979 | $ | 81,367 | ||||
Total assets |
$ | 34,723 | $ | 34,723 | $ | 90,111 | ||||
Loan payables, net of current portion |
$ | 11,169 | $ | 11,169 | $ | 11,169 | ||||
Redeemable convertible preferred stock |
$ | 139,837 | $ | | $ | | ||||
Total stockholders' equity (deficit) |
$ | (125,805 | ) | $ | 14,342 | $ | 69,730 |
Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 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 cash and cash equivalents, total assets, additional paid-in capital and total stockholders' equity (deficit) by $4.0 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1.0 million shares in the number of shares offered by us at the assumed initial public offering price of $15.00 per share would increase (decrease) each of cash and cash equivalents, total assets, additional paid-in capital and total stockholders' equity (deficit) by $14.0 million. The pro forma information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of our initial public offering determined at pricing.
14 | | |
Risk factors
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our consolidated financial statements and the related notes and "Management's discussion and analysis of results of operations and financial condition," before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment.
RISKS RELATED TO OUR FINANCIAL POSITION AND NEED FOR ADDITIONAL CAPITAL
We are a development-stage company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.
Since inception, we have incurred significant operating losses. Our net loss was $12.9 million for the year ended December 31, 2014, $25.2 for the year ended December 31, 2015 and $5.7 million and $7.5 million for the three months ended March 31, 2015 and 2016, respectively. As of March 31, 2016, we had an accumulated deficit of $121.1 million. To date, we have financed our operations primarily through issuances of preferred stock, debt, research grants and a research collaboration. We currently have no source of product revenue, and we do not expect to generate product revenue for the foreseeable future. All of our revenue to date has been collaboration and grant revenue. We have devoted substantially all of our financial resources and efforts to developing our SVP technology, identifying potential product candidates and conducting preclinical studies and our clinical trials. We are in the early stages of development of our product candidates, and we have not completed development of any SVP therapies. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We expect that our expenses will increase substantially as we:
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 testing and clinical trials of our product candidates, discovering additional product candidates, obtaining regulatory approval and securing reimbursement for these product candidates, manufacturing, marketing and selling any products for
| | 15 |
Risk factors
which we may obtain regulatory approval, and establishing and managing our collaborations at various stages of a product candidate's development. We are only in the preliminary stages of most of 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.
Because of the numerous risks and uncertainties associated with pharmaceutical and biological 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. If we are required by the U.S. Food and Drug Administration, or FDA, or other regulatory authorities to perform studies in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of any of our product candidates, our expenses could increase and revenue could be further delayed.
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 would depress our value and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or continue our operations.
In addition, we have recurring losses and negative cash flows from operations and will require additional capital to fund planned operations. There can be no assurance that we will be able to raise additional capital on reasonable terms, if at all, which could prevent us from continuing our operations. These conditions cast substantial doubt about our ability to continue as a going concern. In this regard, our independent registered public accounting firm's report on our December 31, 2014 and 2015 financial statements included an explanatory paragraph referring to our ability to continue as a going concern. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Even if this offering is successful, we will need additional funding in order to complete development of our product candidates and commercialize our products, if approved. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
We expect our expenses to increase in connection with our ongoing activities, particularly as we conduct our clinical trials of SEL-212, and continue research and development for our other product candidates. In addition, if we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Accordingly, we will need to obtain substantial additional funding to continue 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 our existing cash, cash equivalents and investments, and funding that we expect to receive under our existing collaborations, together with the expected net proceeds from this offering, will enable us to fund our operating expenses and capital expenditure requirements through at least December 31, 2017. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:
16 | | |
Risk factors
Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders, and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our stockholders. The incurrence of indebtedness could result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborators or others at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidates, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We commenced active operations in 2007, and our operations to date have been limited to developing and researching our SVP technology and related products and programs, building our intellectual property portfolio, developing our supply chain, planning our business, raising capital and providing general and administrative support for these operations. All but one of our product candidates, SEL-212, are still in preclinical development. We completed the patient treatment portion of our Phase 1a clinical trial of pegsiticase, a component of SEL-212, our lead product candidate, but have not yet completed any other clinical trials for SEL-212 or any other product candidates. We have not yet demonstrated our ability to successfully complete any Phase 2 clinical trial or any Phase 3 or other pivotal clinical trials, obtain regulatory approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Additionally, we expect our financial condition and operating results to continue to fluctuate significantly from quarter-to-quarter and year-to-year due to a variety of factors, many of which are beyond our control. Consequently, any predictions you make about our
| | 17 |
Risk factors
future success or viability may not be as accurate as they could be if we had a longer operating history.
The terms of our credit facility and subsidiary's charter 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.
We have a $12.0 million credit facility with Oxford Finance LLC, or Oxford, and Pacific Western Bank, as successor in interest to Square 1 Bank, that is secured by a lien covering substantially all of our personal property, excluding intellectual property. As of March 31, 2016, the outstanding principal balance under the credit facility was $12.0 million. The credit facility contains customary affirmative and negative covenants and events of default applicable to us and our subsidiaries. The affirmative covenants include, among others, covenants requiring us (and us to cause our subsidiaries) to maintain our legal existence and governmental approvals, deliver certain financial reports and notifications, maintain proper books of record and account, timely file and pay tax returns, maintain inventory and insurance coverage, maintain unrestricted cash in a control account equal to or greater than the lesser of 105% of all outstanding amounts under the credit facility and 100% of the cash and cash equivalents of our company and our wholly-owned subsidiary, Selecta Biosciences Security Corporation, and protect material intellectual property. The negative covenants include, among others, restrictions on us and our subsidiaries transferring collateral, changing businesses, dissolving, liquidating, engaging in mergers or acquisitions, adding new offices or locations, making certain organizational changes, incurring additional indebtedness, encumbering collateral, paying cash dividends or making other distributions, making investments, selling assets, undergoing a change in control, engaging in certain non-ordinary course material transactions with affiliates, and making certain payments or transfers to our subsidiary Selecta (RUS) LLC, or Selecta RUS, in each case subject to certain exceptions. If we default under the credit facility, Oxford, as collateral agent for the lenders, 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, the lenders' right to repayment would be senior to the rights of the holders of our common stock to receive any proceeds from the liquidation. The lenders could declare a default upon the occurrence of any event that they interpret as a material adverse effect as defined under the credit facility, thereby requiring us to repay the loan immediately or to attempt to reverse the declaration of default through negotiation or litigation. Any declaration by the lenders 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.
In addition, the charter of our subsidiary, Selecta RUS, prohibits distributions to us in violation of Russian law or if, as a result of such distribution, Selecta RUS would be insolvent or its net assets would be less than its charter capital and statutory reserves. Selecta RUS held $4.2 million of total cash in Russian banks as of March 31, 2016, including $1.5 million of cash and cash equivalents, $2.0 million of short-term deposits and $0.7 million of restricted cash.
Our ability to use our net operating loss and research and development tax credit carryforwards to offset future taxable income may be subject to certain limitations.
As of December 31, 2015, we had net operating loss carryforwards, or NOLs, for federal and state income tax purposes of $82.4 million and $76.3 million, respectively, which may be available to offset our future taxable income, if any, at various times through 2035. At December 31, 2015, we had available federal and state research and development income tax credits of approximately $1.6 million
18 | | |
Risk factors
and $1.1 million, respectively, which may be available to reduce future income taxes, if any, at various times through 2035. Our federal NOLs begin to expire in 2028. In general, under Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an "ownership change" is subject to limitations on its ability to use its pre-change NOLs to offset future taxable income. If the U.S. Internal Revenue Service, or IRS, challenges our analysis that existing NOLs will not expire before utilization due to previous ownership changes, or if we undergo an ownership change in connection with or after this public offering, our ability to use our NOLs could be limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Sections 382 and 383 of the Code. Furthermore, our ability to use NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, we may not be able to use a material portion of the NOLs reflected on our balance sheet, even if we attain profitability.
RISKS RELATED TO THE DISCOVERY, DEVELOPMENT AND REGULATORY APPROVAL OF OUR PRODUCT CANDIDATES
We are very early in our clinical development efforts and may not be successful in our efforts to use our SVP technology to build a pipeline of product candidates and develop marketable drugs.
We are primarily using our SVP technology to improve and enable biologics that treat rare and serious diseases, with an initial focus on developing SEL-212 for the treatment of refractory and chronic tophaceous gout. While we believe our preclinical and clinical data to date, together with our collaborative relationships, have validated our technology to a degree, we are at an early stage of development and our technology has not yet led to, and may never lead to, approvable or marketable drugs. We are developing additional product candidates to address the problem of anti-drug antibodies, or ADAs, and immunogenicity in biologic therapy and to treat cancer and other infectious diseases and conditions that are not responsive to currently available vaccines. We may have problems applying our technologies to these other areas, and our new product candidates may not be as effective as our initial product candidates. Even if we are successful in identifying additional product candidates, they may not be suitable for clinical development, including as a result of harmful side effects, limited efficacy or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. The success of our product candidates will depend on several factors, including the following:
| | 19 |
Risk factors
If we do not successfully develop and commercialize product candidates based upon our technological approach, we will not be able to obtain future revenues, which would result in significant harm to our financial position and adversely affect our stock price.
Our product candidates are based on our SVP technology, which is an unproven approach designed to induce antigen-specific immune tolerance to biologic drugs or stimulate the immune system.
All of our product candidates are derived from our SVP technology, which is an unproven approach to inducing antigen-specific tolerance or stimulating the immune system. In addition, SEL-212, our lead product candidate, uses pegsiticase, a biologic, which we source from Shenyang Sunshine Pharmaceutical Co., Ltd., or 3SBio, in China. We have not, nor to our knowledge has any other company, received FDA approval for a therapeutic based on SVP or for a biologic product manufactured in China. In addition, we may use biologics other than pegsiticase with our SVP technology.
As a result, we cannot be certain that our approach, or our development of SEL-212, will lead to the development or approval of marketable products. In addition:
The occurrence of any of the foregoing, would effectively prevent or delay approval of our lead and other product candidates.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on other 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 management resources, we focus on a limited number of research programs and product candidates and are currently principally focused on SEL-212. As a result, we may forego or delay our pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource-allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our
20 | | |
Risk factors
spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable drugs. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may not pursue such product candidate, or we may relinquish valuable rights to that product candidate through future collaboration, licensing or other arrangements, in cases in which it would have been more advantageous for us to retain sole development and commercialization rights.
Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
Aside from SEL-212, our other product candidates are in preclinical development. It is impossible to predict when or if any of our product candidates will prove effective and safe in humans or will receive regulatory approval, and the risk of failure through the development process is high. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and its outcome is inherently uncertain. A failed clinical trial can occur at any stage of testing. Moreover, the outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results.
SEL-212 is currently being evaluated in a Phase 1/2 clinical program that includes a Phase 1a and Phase 1b clinical trial. As of June 3, 2016, on a combined basis, we had dosed a total of 70 subjects with either SEL-212 (SVP-Rapamycin and pegsiticase), SVP-Rapamycin alone or pegsiticase alone in the Phase 1a and Phase 1b clinical trials. We expect to receive final data from both Phase 1 clinical trials in the second half of 2016. Based on preliminary results from the Phase 1 clinical trials, we have generally observed that SEL-212 and its components, SVP-Rapamycin and pegsiticase, have been well tolerated. There can be no assurance, however, that these preliminary results will be predictive of the final results of the trial. Moreover, the biological effect observed in this trial has been observed only in the subjects of the trial, and is not statistically significant and might not be observed in any other patients treated with SEL-212 or its components, SVP-Rapamycin and pegsiticase. As of June 3, 2016, there have been two serious adverse events, or SAEs, in the Phase 1 clinical trials. One SAE occurred in a 62 year-old male who received a dose level of pegsiticase alone of 0.4 mg/kg. This subject developed atrial fibrillation 13 days after administration of pegsiticase. The subject was treated and the medical records from the principal investigator indicate that this subject has recovered. The principal investigator has deemed this SAE to not have been related to the study drug, pegsiticase. The second SAE occurred in a 59 year-old male who developed a pruritic rash on his lower extremities and joint pain approximately 12 days after being dosed with SEL-212, consisting of a dose level of SVP-Rapamycin of 0.1 mg/kg and a dose level of pegsiticase of 0.4 mg/kg. This subject was treated with steroids, analgesics, anti-nausea medications and topical antihistamine cream. Following treatment, the medical records from the principal investigator indicate that the rash and joint pain experienced by the subject have been resolved. The principal investigator classified this second SAE as having been possibly related to the study drug, SEL-212. We can provide no assurance that additional SAEs or similar events will not arise in the course of our development of SEL-212 or other product candidates.
We had a prior SVP-nicotine product candidate, which entered clinical development after a promising preclinical program. However, results from a Phase 1 clinical trial conducted in smokers and non-smokers with this product candidate showed that nicotine-specific antibodies were induced at
| | 21 |
Risk factors
sub-therapeutic levels. In this regard, many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical trials after achieving positive results in preclinical development or early-stage clinical trials, and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway or safety or efficacy observations made in clinical trials, including adverse events. Moreover, preclinical and clinical data is often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or other regulatory authority approval. If we fail to produce positive results in our clinical trials of our product candidates, the development timeline and regulatory approval and commercialization prospects for our product candidates, and, correspondingly, our business and financial prospects, would be negatively impacted.
In addition, we cannot be certain as to what type and how many clinical trials the FDA will require us to conduct before we may successfully gain approval to market SEL-212 or any of our other product candidates in the United States or other countries. Prior to approving a new therapeutic product, the FDA generally requires that safety and efficacy be demonstrated in two adequate and well-controlled clinical trials. In some situations, evidence from a Phase 2 trial and a Phase 3 trial or from a single Phase 3 trial can be sufficient for FDA approval, such as in cases where the trial or trials provide highly reliable and statistically strong evidence of an important clinical benefit. We expect to conduct more than one Phase 3 trial for SEL-212 in the refractory gout indication in order to gain approval. Additional clinical trials could cause us to incur significant development costs, delay or prevent the commercialization of SEL-212 or otherwise adversely affect our business.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval for, or commercialize, our product candidates, including:
22 | | |
Risk factors
If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
Our product development costs will increase if we experience delays in clinical testing or in obtaining marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, potentially impairing our ability to successfully commercialize our product candidates and harming our business and results of operations.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate 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. In addition, from time to time our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors' product candidates.
We are initially developing our lead product candidate, SEL-212, for the treatment of chronic refractory gout, which affects approximately 50,000 patients in the United States. Accordingly, there is a limited number of patients who could enroll in our clinical studies.
In addition to the size of the patient population, patient enrollment is also affected by other factors including:
| | 23 |
Risk factors
Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which could cause the value of our common stock to decline and limit our ability to obtain additional financing.
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.
Our product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, packaging, storage, approval, advertising, promotion, adverse event reporting, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States, and by the EMA and similar regulatory authorities outside the United States. Failure to obtain marketing approval for a product candidate will prevent us from commercializing that product candidate. We have not received approval to market any of our product candidates from regulatory authorities in any jurisdiction. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third parties to assist us in this process. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate's safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval for, or prevent or limit the commercial use of, such product candidates.
The process of obtaining marketing approvals, both in the United States and abroad, is expensive and may take many years. If additional clinical trials are required for certain jurisdictions, these trials can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved, and may ultimately be unsuccessful. Changes in marketing approval policies during the development period, changes in or the enactment or promulgation of additional statutes or regulations, respectively, or changes in the regulatory review process for each submitted product application, may cause delays in the review and approval of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept a marketing application as deficient or may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
24 | | |
Risk factors
Although the FDA and other regulatory authorities have approved nanotechnology-based therapeutics in the past, they are monitoring whether nanotechnology-based therapeutics pose any specific health and human safety risks. While they have not issued any regulations to date, it is possible that the FDA and other regulatory authorities could issue regulations in the future regarding nanotechnology-based therapeutics that could adversely affect our product candidates.
If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired.
We may not be able to obtain orphan drug designation for our product candidates, and even if we do, 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 for relatively small patient populations as orphan drugs. We expect to seek orphan drug designation for several of our product candidates, although we have not yet applied for or obtained such designation. 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 annually 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 or biologic will be recovered from sales in the United States.
In the United States, orphan designation entitles a party to financial incentives such as opportunities for grant funding towards 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 a full biologics license application, or BLA, or full new drug application, or NDA, to market the same biologic or drug 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. Our competitors, including Horizon Pharma plc, may seek orphan drug status for the same biologic or drug for the same indication as our product candidates. In this regard, Krystexxa previously obtained orphan drug status for chronic refractory gout, although the exclusivity period has lapsed. However, Krystexxa could in the future obtain orphan drug status for chronic tophaceous gout, an indication we plan to pursue.
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 so 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 can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is clinically superior if it is shown to be safer, more effective or makes a major contribution to patient care.
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Any breakthrough therapy designation that we may receive from the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.
We may in the future seek breakthrough therapy designation for some of our product candidates. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. For drugs 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 designated as breakthrough therapies by the FDA are also eligible for accelerated approval.
Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. The availability of breakthrough therapy designation was established recently with the passage of the Food and Drug Administration Safety and Innovation Act of 2012. We cannot be sure that any evaluation we may make of our product candidates as qualifying for breakthrough therapy designation will meet the FDA's expectations. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that such product candidates no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
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 other comparable foreign authorities. Further, therapies such as those we are developing involve unique side effects that could be exacerbated compared to side effects from other types of therapies with singular components. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient enrollment in our clinical trials or the ability of any enrolled patients to complete such trials or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:
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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.
In addition, if our product candidates are associated with undesirable side effects in certain patient populations, such as pediatric patients or the elderly, we may need to abandon their development or limit 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, any of which would harm our business.
RISKS RELATED TO OUR DEPENDENCE ON THIRD PARTIES AND MANUFACTURING
We rely on 3SBio in China as our sole supplier of pegsiticase and on other third parties for the manufacture of our product candidates for preclinical and clinical testing, and expect to continue to do so for the foreseeable future. Our reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or that such quantities may not be available at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We obtain the biologic pegsiticase, a component of SEL-212, our lead product candidate, from 3SBio in China. Under our license agreement with 3SBio, we are not permitted to manufacture pegisticase and, as a result, expect to continue to rely on 3SBio for our supply of pegsiticase for the foreseeable future. Although we intend to seek to secure a backup supplier outside of China, we cannot assure you that we will be able to do so on acceptable terms.
Any disruption in production or inability of 3SBio in China to produce adequate quantities of pegsiticase to meet our needs, whether as a result of a natural disaster or other causes, could impair our ability to operate our business on a day-to-day basis and to continue our research and development of our future product candidates. Furthermore, since 3SBio is located in China, we are exposed to the possibility of product supply disruption and increased costs in the event of changes in the policies of the Chinese government, political unrest or unstable economic conditions in China. Any of these matters could materially and adversely affect our business and results of operations. Any issues related to the manufacturing lots or similar action regarding pegsiticase used in preclinical studies or clinical trials could delay the studies or trials or detract from the integrity of the trial data and its potential use in future regulatory filings. In addition, manufacturing interruptions or failure to comply with regulatory requirements by 3SBio could significantly delay our clinical development of potential products and reduce third-party or clinical researcher interest and support of our proposed trials. These interruptions or failures could also impede commercialization of our future product candidates and impair our competitive position. Further, we may be exposed to fluctuations in the value of the local currency in China. Future appreciation of the local currency could increase our costs. In addition, our labor costs could continue to rise as wage rates increase due to increased demand for skilled laborers and the availability of skilled labor declines in China.
In addition to 3SBio, we rely, and expect to continue to rely, on other third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial manufacture if any of our product candidates receive marketing approval. Our reliance on such third
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parties increases the risk that we will not have sufficient quantities of our product candidates on a timely basis or at all, or that such quantities will be available at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.
We may be unable to establish any agreements with third-party manufacturers on acceptable terms or at all. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including the:
Third-party manufacturers may not be able to comply with current Good Manufacturing Practices, or cGMP, regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocations, 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. If our contract manufacturer is unable to comply with cGMP regulations or if the FDA does not approve their facility upon a pre-approval inspection, our product candidate may not be approved or may be delayed in obtaining approval. In addition, there are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing our products. Therefore, our product candidates and any future products that we may develop may compete with other products for access to manufacturing facilities. Any failure to gain access to these limited manufacturing facilities could severely impact the clinical development, marketing approval and commercialization of our product candidates.
Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not currently have arrangements in place for redundant supply or a second source for required raw materials used in the manufacture of our product candidates or for the manufacture of finished product. Moreover, we often rely on one contract manufacturer to produce multiple product components. For instance, one of our contract manufacturers produces polymers used in our SVP technology. If our current contract 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 expected future dependence upon others for the manufacture of our product candidates or products could delay, prevent or impair our development and commercialization efforts.
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Our existing collaborations are important to our business, and future licenses may also be important to us. If we are unable to maintain any of these collaborations, or if these arrangements are not successful, our business could be adversely affected.
We have entered into collaborations with other parties, including pharmaceutical companies and universities, to develop products based on our SVP technology, and such collaborations and licensing arrangements currently represent a significant portion of our product pipeline. Our collaboration and license agreements include those with Sanofi, Massachusetts Institute of Technology, or MIT, 3SBio, BIND Therapeutics, Inc. and the Massachusetts Eye and Ear Infirmary and The Schepens Eye Research Institute, Inc. Our collaborations with Sanofi also provided us with important funding for some of our development programs and we expect to receive additional funding under collaborations in the future. Our existing collaborations, and any future collaborations we enter into, may pose a number of risks, including the following:
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If our collaborations do not result in the successful development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research and development funding or milestone or royalty payments under such collaborations. If we do not receive the funding we expect under these agreements, our continued development of our SVP technology and product candidates could be delayed and we may need additional resources to develop additional product candidates. All of the risks relating to product development, regulatory approval and commercialization described in this prospectus also apply to the activities of our therapeutic program collaborators and there can be no assurance that our collaborations will produce positive results or successful products on a timely basis or at all.
Additionally, subject to its contractual obligations to us, if one of our collaborators is involved in a business combination or otherwise changes its business priorities, the collaborator might deemphasize or terminate the development or commercialization of any product candidate licensed to it by us. If one of our collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and the perception of our business in the business and financial communities, and our stock price, could be adversely affected. In addition, we have a limited number of collaborations and if our relationship with any one or more of such collaborators were to cease, our business would be harmed as a result.
We may in the future collaborate with additional pharmaceutical and biotechnology companies for development and potential commercialization of therapeutic products. We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may not be able to access specific antigens that would be suitable to development with our technology, have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our programs, and our business may be materially and adversely affected.
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We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including by failing to meet deadlines for the completion of such trials.
We expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct and manage our clinical trials, including our Phase 1b clinical trial of SEL-212.
Our reliance on these third parties for research and development activities will reduce our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with regulatory standards, commonly referred to as good clinical practice, or GCP, regulations, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, safety and welfare of trial participants are protected. Other countries' regulatory agencies also have requirements for clinical trials. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, do not meet expected deadlines, experience work stoppages, terminate their agreements with us or need to be replaced, or do not conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we may need to enter into new arrangements with alternative third parties, which could be difficult, costly or impossible, and our clinical trials may be extended, delayed or terminated, or may need to be repeated. If any of the foregoing occur, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates or in commercializing our product candidates.
We also expect to rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of such product candidates, producing additional losses and depriving us of potential product revenue.
We have no experience manufacturing our product candidates at commercial scale, and if we decide to establish our own manufacturing facility, we cannot assure you that we can manufacture our product candidates in compliance with regulations at a cost or in quantities necessary to make them commercially viable.
We have a pilot manufacturing facility at our Watertown, Massachusetts location where we conduct process development, scale-up activities and the manufacture of SVP product candidates for preclinical use. We rely on the scale equipment at our CMOs for the manufacture of the clinical supply of all of our product candidates. If our facility, or our CMOs' facilities, were damaged or destroyed, or otherwise subject to disruption, it would require substantial lead-time to replace our manufacturing capabilities. In such event, we would be forced to identify and rely entirely on alternative third-party contract manufacturers for an indefinite period of time. Any disruptions or delays at our facility or its failure to meet regulatory compliance would impair our ability to develop and commercialize our product candidates, which would adversely affect our business and results of operations.
In addition, the FDA and other comparable foreign regulatory agencies must, pursuant to inspections that are conducted after submitting a BLA or relevant foreign marketing submission, confirm that the
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manufacturing processes for the product candidate meet cGMP regulations. We do not currently have any of our own manufacturing facilities that meet the FDA's cGMP requirements for the production of any product candidates used in humans, and rely on our CMOs for clinical production.
We may choose to establish a manufacturing facility for our product candidates for production at a commercial scale. However, we have no experience in commercial-scale manufacturing of our product candidates. We currently intend to develop our manufacturing capacity in part by expanding our current facility or building additional facilities. This activity will require substantial additional funds and we would need to hire and train significant numbers of qualified employees to staff these facilities. We may not be able to develop commercial-scale manufacturing facilities that are adequate to produce materials for additional later-stage clinical trials or commercial use.
The equipment and facilities employed in the manufacture of pharmaceuticals are subject to stringent qualification requirements by regulatory agencies, including validation of such facilities, equipment, systems, processes and analytics. We may be subject to lengthy delays and expense in conducting validation studies, if we can meet the requirements at all.
RISKS RELATED TO COMMERCIALIZATION OF OUR PRODUCT CANDIDATES AND OTHER LEGAL COMPLIANCE MATTERS
Even if any of our product candidates receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.
If any of our product candidates receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of our product candidates, if any, will depend on a number of factors, including:
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The research, development and commercialization of our product candidates depends upon our maintaining strong working relationships with the medical community. We rely on these professionals to provide us with considerable knowledge and experience regarding the development, marketing and commercialization of our product candidates. If we are unable to maintain our strong relationships with these professionals and continue to receive their advice and input, our products and product candidates may not be developed and marketed in line with such professionals' needs and expectations. Accordingly, the development and commercialization of our products and product candidates could suffer, which could have a material adverse effect on our business and results of operations.
We currently have no sales organization. If we are unable to establish effective sales, marketing and distribution capabilities, or enter into agreements with third parties with such capabilities, we may not be successful in commercializing our product candidates if and when they are approved.
We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any product candidate for which we obtain marketing approval, we will need to establish a sales and marketing organization or make arrangements with third parties to perform sales and marketing functions and we may not be successful in doing so.
In the future, we expect to build a focused sales and marketing infrastructure to market or co-promote our product candidates in the United States and potentially elsewhere, if and when they are approved. There are risks involved with establishing our own sales, marketing and distribution capabilities. For example, recruiting and training a sales force is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our product candidates on our own include:
Outside the United States, we may rely on third parties to sell, market and distribute our product candidates. We may not be successful in entering into arrangements with such third parties or may be unable to do so on terms that are favorable to us. In addition, our product revenue 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 do not establish sales, marketing and distribution
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capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.
Our product candidates, if approved, may fail to offer material commercial advantages over other treatments.
The therapeutic advantages that we believe may be offered by our product candidates, if approved, may fail to materialize, or may not be recognized by physicians, hospital administrators, patients, caregivers, healthcare payors and others in the medical community. For example, physicians may be skeptical to use SEL-212 for the treatment of refractory and chronic tophaceous gout. Patients may also be skeptical of using a product based on our SVP technology. The therapeutic advantages of our product candidates may not be sufficient to either move market share to us or expand the population of patients using our treatments.
We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.
The development and commercialization of new drug and biologic products and technologies is highly competitive and is characterized by rapid and substantial technological development and product innovations. We protect our products and technologies by filing patent applications in major pharmaceutical markets as well as leading emerging growth markets. We have either been granted patents or filed patent applications covering our SVP technology, our immune tolerance programs and our SEL-212 product candidate. To the extent that our product candidates and technologies are protected by such intellectual property rights, they will be protected from competition for the life of the applicable patents. However, many companies offer pharmaceutical products or technologies that may address one or more indications that our product candidates target. We face competition with respect to our current product candidates, and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide.
In this regard, SEL-212 may compete with Krystexxa, recently acquired by affiliates of Horizon Pharma plc, which contains a pegylated uricase similar to the pegsiticase component of SEL-212 and is indicated for the treatment of refractory gout. Large companies with active research to prevent the formation of ADAs and treat allergies and autoimmune diseases include Sanofi, Pfizer Inc., or Pfizer, and Merck & Co., Inc., or Merck. Small early-stage biopharmaceutical companies active in the research for new technologies to achieve antigen-specific tolerance include Anokion SA, Cour Pharmaceutical Development Company, Inc., or Cour Pharmaceutical, Apitope International NV, Evotec AG and Dendright International, Inc. Large pharmaceutical companies, including Astra Zeneca PLC, or Astra Zeneca, Roche Holding AG, Pfizer, Merck, Bristol-Myers Squibb Company, and Amgen Inc., as well as smaller biopharmaceutical companies, including Immune Design Corp., are active in the research and development of cancer vaccines. Clinical stage companies with vaccine approaches to treating HPV-associated cancer include VGX3100 from Inovio Pharmaceuticals, Inc., or Inovio, ISA-101 from ISA Pharmaceuticals B.V., GTL001 from Genticel, INO-3112 licensed by Astra Zeneca from Inovio, and others. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others may be based on entirely different approaches. For example, Anokion SA targets to induce antigen-specific tolerance by attaching an antigen to red blood cells and Cour Pharmaceutical is working on a nanoparticle encapsulating antigen without any immunomodulator to treat celiac disease. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
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Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources, established presence in the market and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and reimbursement for product candidates and in marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors.
These third parties compete with us in recruiting and retaining qualified scientific, sales and marketing and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market, especially for any competitor developing a microbiome therapeutic which will likely share our same regulatory approval requirements. 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 generic or biosimilar products.
Even if we are able to commercialize any product candidates, the products may become subject to unfavorable pricing regulations or third-party coverage or reimbursement policies, any of which would harm our business.
Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. Our ability to commercialize any product candidates successfully will depend, in part, on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels.
Obtaining and maintaining adequate reimbursement for our products may be difficult. The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the price of a product or for establishing the reimbursement rate that such a payor will pay for the product. Further, one payor's determination to provide coverage for a product does not assure that other payors will also provide coverage and adequate reimbursement for the product. We cannot be certain if and when we will obtain an adequate level of reimbursement for our products by third-party payors. Even if we do obtain adequate levels of reimbursement, third-party payors, such as government or private healthcare insurers, carefully review and increasingly question the coverage of, and challenge the prices charged for, products. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that pharmaceutical companies provide them with predetermined discounts from list prices and are challenging the prices charged for products. We may also be required to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.
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There may be significant delays in obtaining reimbursement for newly approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or similar regulatory authorities outside of the United States. Moreover, eligibility for reimbursement does not imply that a product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
The regulations that govern marketing approvals, pricing, coverage and reimbursement for new products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control, including possible price reductions, even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval. There can be no assurance that our product candidates, if they are approved for sale in the United States or in other countries, will be considered medically necessary for a specific indication or cost-effective, or that coverage or an adequate level of reimbursement will be available.
Product liability lawsuits against us could cause us to incur substantial liabilities and limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to the testing of our product candidates in clinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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We currently hold $10 million in product liability insurance coverage in the aggregate, with no per occurrence limit, which may not be adequate to cover all liabilities that we may incur. 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. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Failure to obtain marketing approval in international jurisdictions would prevent our product candidates from being marketed abroad.
Although we do not have any current plans to market and sell our products in other jurisdictions outside of the United States, we may decide to do so in the future and either we or our collaborators would need to obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval in foreign countries may differ substantially from that required to obtain FDA approval. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product candidate be approved for reimbursement before the product candidate can be approved for sale in that country. We or our collaborators may not obtain approvals for our product candidates from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions, or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our product candidates in any market.
Although we are not currently marketing our product candidates, including to healthcare providers, if and when we do, our relationships with healthcare providers, customers and third-party payors may be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, customers and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we may obtain marketing approval. Our future arrangements with third party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations may include the following:
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individual for, or the purchase, order or recommendation of, any good or service for which payment may be made 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 to have committed a violation; in addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act);
Efforts to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental laws and regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, disgorgement, contractual damages, reputational harm,
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diminished profits and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities, including our relationships with physicians and other healthcare providers, some of whom will recommend, purchase and/or prescribe our product candidates, if approved, could be subject to challenge under one or more of such laws.
Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval.
For example, in the United States, in 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the PPACA, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.
Among the provisions of the PPACA of importance to our potential product candidates are the following:
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In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding.
We expect that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and in 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 products.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA's regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA's approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
Any product candidate for which we obtain marketing approval could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unexpected problems with our products, when and if any of them are approved.
Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to the continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. We and our contract manufacturers will also be subject to continual review and periodic inspections to assess compliance with cGMP. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control.
Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including the requirement to implement a risk evaluation and mitigation strategy, or REMS, which could include requirements for a medication guide, physician communication plans or additional
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elements to ensure safe use, such as restricted distribution methods, patient registries and other risk mitigation tools. If any of our product candidates receives marketing approval, the accompanying label may limit the approved use of our product, which could limit sales of the product.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of our approved products. The FDA closely regulates the post-approval marketing and promotion of drugs and biologics to ensure they are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers' communications regarding off-label use, and if we market our products outside of their approved indications, we may be subject to enforcement action for off-label marketing. Violations of the FDA's restrictions relating to the promotion of prescription products may also lead to investigations alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
In addition, if a regulatory agency or we later discover previously unknown problems with our products, such as adverse events of unexpected severity or frequency, problems with manufacturers or manufacturing processes, or failure to comply with regulatory requirements, the regulatory agency may impose restrictions on the products or us, including requiring withdrawal of the product from the market. Any failure to comply with applicable regulatory requirements may yield various results, including:
Noncompliance with other requirements in foreign jurisdictions regarding safety monitoring or pharmacovigilance can also result in significant financial penalties. Similarly, failure to comply with
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U.S. and foreign regulatory requirements regarding the development of products for pediatric populations and the protection of personal health information can also lead to significant penalties and sanctions.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenues. If regulatory sanctions are applied or if regulatory approval is withheld or withdrawn, the value of our company and our operating results will be adversely affected.
The FDA's 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. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal liability and other serious consequences for violations, which can harm our business.
We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department's Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors and other partners from authorizing, promising, offering or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may engage third parties for clinical trials outside of the United States, to sell our product candidates abroad once we enter a commercialization phase, and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors and other partners, even if we do not explicitly authorize or have actual knowledge of such activities. Our 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.
Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.
In some countries, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidates. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing
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negotiations, and pricing negotiations may continue after coverage and reimbursement have been obtained. Reference pricing used by various countries and parallel distribution or arbitrage between low-priced and high-priced countries, can further reduce prices. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies, which is time-consuming and costly. If coverage and reimbursement of our product candidates are unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
If we or our contract manufacturers or other third parties fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
We and our contract manufacturers and other third parties with whom we do business are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including biological materials and chemicals, such as trichloroethylene. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.
Although we maintain workers' compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, 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. These current or future laws and regulations may impair our research, development or production efforts. The failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Negative public opinion and increased regulatory scrutiny of gene therapy and genetic research may damage public perception of our product candidates or compromise our ability to conduct our business or obtain regulatory approvals for our product candidates.
Gene therapy remains a novel technology. Public perception may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. In particular, our success will depend upon physicians specializing in the treatment of those diseases that our product candidates target and prescribing treatments that involve the use of our product candidates in lieu of, or in addition to, existing treatments they are already familiar with and for which greater clinical data may be available. More restrictive government regulations or negative public opinion would have a negative effect on our business or financial condition and may delay or impair the development and commercialization of our product candidates or demand for any products we may develop. Our product candidates, including our products that utilize viral delivery systems, could produce adverse events. Adverse events in our clinical trials or following approval of any of our product candidates, even if not ultimately attributable to our product candidates, could result in increased governmental regulation, unfavorable public perception, potential regulatory delays in the
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testing or approval of our product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates.
RISKS RELATED TO OUR INTELLECTUAL PROPERTY
If we are unable to adequately protect our proprietary technology, or obtain and maintain issued patents which are sufficient to protect our product candidates, others could compete against us more directly, which would negatively impact our business.
Our success depends in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and other countries with respect to our proprietary technology and products. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and product candidates. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.
The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost, in a timely manner or in all jurisdictions. Prosecution of our patent portfolio is at a very early stage, and we are just beginning to reach the statutory deadlines for deciding whether and where to initiate prosecution in specific foreign jurisdictions by filing national stage applications based on our Patent Cooperation Treaty, or PCT, applications. As those deadlines come due, we will have to decide whether and where to pursue patent protection for the various inventions claimed in our patent portfolio, and we will only have the opportunity to obtain patents in those jurisdictions where we pursue protection. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, such as, with respect to proper priority claims, inventorship, claim scope or patent term adjustments. If there are material defects in the form or preparation of our patents or patent applications, such patents or applications may be invalid and unenforceable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
In some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents covering technology that we license from third parties. We may also require the cooperation of our licensors to enforce any licensed patent rights, and such cooperation may not be provided. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. Moreover, we have obligations under our licenses, and any failure to satisfy those obligations could give our licensor the right to terminate the license. Termination of a necessary license could have a material adverse impact on our business.
We currently own nine issued U.S. patents. Although we have patent applications pending, we cannot provide any assurances that any of these pending patent applications will mature into issued patents and, if they do, that such patents or our current patents will include claims with a scope sufficient to protect our product candidates or otherwise provide any competitive advantage. Further, it is possible that a patent claim may provide coverage for some but not all parts of a product candidate or third-party product. These and other factors may provide opportunities for our competitors to design around our patents, should they issue.
Moreover, other parties may have developed technologies that may be related or competitive to our approach, and may have filed or may file patent applications, and may have received or may receive
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patents, that may overlap or conflict with our patent applications, either by claiming similar methods or by claiming subject matter that could dominate our patent position. In addition, given the early stage of prosecution of our portfolio, it may be some time before we understand how patent offices react to our patent claims and whether they identify prior art of relevance that we have not already considered.
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 know with certainty whether we were the first to make the inventions claimed in any owned patents or pending patent applications, or that we were the first to file for patent protection of such inventions, nor can we know whether those from whom we may license patents were the first to make the inventions claimed or were the first to file. For these and other reasons, the issuance, scope, validity, enforceability and commercial value of our patent rights are subject to a level of uncertainty. Our pending and future patent applications may not result in patents being issued that protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.
We may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize product candidates without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. Furthermore, an adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which in turn could affect our ability to develop, market or otherwise commercialize our product candidates. The issuance, scope, validity, enforceability and commercial value of our patents are subject to a level of uncertainty.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. Due to legal standards relating to patentability, validity, enforceability and claim scope of patents covering biotechnological and pharmaceutical inventions, our ability to obtain, maintain and enforce patents is uncertain and involves complex legal and factual questions. Even if issued, a patent's validity, inventorship, ownership or enforceability is not conclusive. Accordingly, rights under any existing patent or any patents we might obtain or license may not cover our product candidates, or may not provide us with sufficient protection for our product candidates to afford a commercial advantage against competitive products or processes, including those from branded and generic pharmaceutical companies.
In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how, information, or technology that is not covered by our patents. Although our agreements require all of our employees to assign their inventions to us, and we require all of our employees, consultants, advisors and any other third parties who have access to our trade secrets, proprietary know-how and other confidential information and technology to enter into appropriate confidentiality agreements, we cannot be certain that our trade secrets, proprietary
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know-how, and other confidential information and technology will not be subject to unauthorized disclosure or that our competitors will not otherwise gain access to or independently develop substantially equivalent trade secrets, proprietary know-how, and other information and technology. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States As a result, we may encounter significant problems in protecting and defending our intellectual property globally. If we are unable to prevent unauthorized disclosure of our intellectual property related to our product candidates and technology to third parties, we may not be able to establish or maintain a competitive advantage in our market, which could adversely affect our business and operations.
Intellectual property rights do not prevent all potential threats to competitive advantages we may have.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and intellectual property rights may not adequately protect our business or permit us to maintain our competitive advantage.
The following examples are illustrative:
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We may not identify relevant patents or may incorrectly interpret the relevance, scope or expiration of a patent, which might adversely affect our ability to develop and market our product candidates.
We cannot guarantee that any of our patent searches or analyses, including but not limited to the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete and thorough, nor can we be certain that we have identified each and every patent and pending application in the United States and abroad that is relevant to or necessary for the commercialization of our product candidates in any jurisdiction.
The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent's prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our products or pipeline molecules. We may incorrectly determine that our product candidates are not covered by a third-party patent.
Many patents may cover a marketed product, including but not limited to the composition of the product, methods of use, formulations, cell line constructs, vectors, growth media, production processes and purification processes. The identification of all patents and their expiration dates relevant to the production and sale of an originator product is extraordinarily complex and requires sophisticated legal knowledge in the relevant jurisdiction. It may be impossible to identify all patents in all jurisdictions relevant to a marketed product. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect which may negatively impact our ability to develop and market our product candidates.
Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our product candidates.
If we are unable to protect the confidentiality of our trade secrets and know-how, our business and competitive position would be harmed.
In addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, 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, contract manufacturers, consultants, advisors and other third parties. We also seek to enter into confidentiality and invention or patent assignment agreements with our employees, advisors and consultants. 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. Our trade secrets may also be obtained by third parties by other means, such as breaches of our physical or computer security systems. 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. Moreover, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to, or independently developed by, a competitor, our competitive position would be harmed.
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Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involves both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In addition, recent patent reform legislation could further increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The USPTO recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, in particular the first to file provisions, became effective on March 16, 2013. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. This requires us to be cognizant of the time from invention to filing of a patent application. Thus, for our U.S. patent applications containing a priority claim after March 16, 2013, there is a greater level of uncertainty in the patent law. Moreover, some of the patent applications in our portfolio will be subject to examination under the pre-Leahy-Smith Act law and regulations, while other patents applications in our portfolio will be subject to examination under the law and regulations, as amended by the Leahy-Smith Act. This introduces additional complexities into the prosecution and management of our portfolio.
In addition, the Leahy-Smith Act limits where a patentee may file a patent infringement suit and provides opportunities for third parties to challenge any issued patent in the USPTO. These provisions apply to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal court 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 federal court action.
Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims because it may be easier for them to do so relative to challenging the patent in a federal court action. It is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
In addition, 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. From time to time, the U.S. Supreme Court, other federal courts, the U.S. Congress or the USPTO may change the standards of patentability, and any such changes could have a negative impact on our business.
Depending on these and other decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change or be interpreted in unpredictable ways that would weaken our ability to obtain new patents or to enforce any patents that may issue to us in the future. In addition, these events may adversely affect our ability to defend any patents that may issue in procedures in the USPTO or in courts.
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We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming and ultimately unsuccessful.
Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that one of our patents is invalid or unenforceable, in whole or in part, construe the patent's claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly, which could materially and adversely affect us and our collaborators.
Any litigation to enforce or defend our patent rights, even if we were to prevail, could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful. Even if we are successful, domestic or foreign litigation, or USPTO or foreign patent office proceedings, may result in substantial costs and distraction to our management. We may not be able, alone or with our licensors or potential collaborators, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or other proceedings. In addition, during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for our common stock could be significantly harmed.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. While no such litigation has been brought against us and we have not been held by any court to have infringed a third party's intellectual property rights, we cannot guarantee that our technology, product candidates or use of our product candidates do not infringe third-party patents.
We are aware of numerous patents and pending applications owned by third parties, and we monitor patents and patent applications in the fields in which we are developing product candidates, both in the United States and elsewhere. However, we may have failed to identify relevant third-party patents or applications. For example, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Moreover, it is difficult for industry participants, including us, to identify all third-party patent rights that may be relevant to our product candidates and technologies because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. We may fail to identify relevant patents or patent applications
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or may identify pending patent applications of potential interest but incorrectly predict the likelihood that such patent applications may issue with claims of relevance to our technology. In addition, we may be unaware of one or more issued patents that would be infringed by the manufacture, sale or use of a current or future product candidate, or we may incorrectly conclude that a third-party patent is invalid, unenforceable or not infringed by our activities. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our technologies, our product candidates or the use of our product candidates.
The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. Other parties may allege that our product candidates or the use of our technologies infringes patent claims or other intellectual property rights held by them or that we are employing their proprietary technology without authorization. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our product candidates and technology, including interference or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringement claims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future. If we were to challenge the validity of an issued U.S. patent in court, such as an issued U.S. patent of potential relevance to some of our product candidates or methods of use, we would need to overcome a statutory presumption of validity that attaches to every U.S. patent. This means that in order to prevail, we would have to present clear and convincing evidence as to the invalidity of the patent's claims. There is no assurance that a court would find in our favor on questions of infringement or validity.
Patent and other types of intellectual property litigation can involve complex factual and legal questions, and their outcome is uncertain. If we are found, or believe there is a risk we may be found, to infringe a third party's intellectual property rights, we could be required or may choose to obtain a license from such third party to continue developing and marketing our product candidates and technology. However, we may not be able to obtain any such license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys' fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.
Even if we are successful in such proceedings, we may incur substantial costs and divert management time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court, or redesign our product candidates. Patent litigation is costly and time-consuming. We may not have sufficient resources to bring these actions to a successful conclusion. 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.
In addition, intellectual property litigation or claims could force us to do one or more of the following:
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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. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace.
Any of these risks coming to fruition could harm our business.
Issued patents covering our product candidates could be found invalid or unenforceable or could be interpreted narrowly if challenged in court.
Competitors may infringe our intellectual property, including our patents or the patents of our licensors. As a result, we may be required to file infringement claims to stop third-party infringement or unauthorized use. This can be expensive, particularly for a company of our size, and time-consuming. If we initiated legal proceedings against a third party to enforce a patent, if and when issued, covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement, or failure to claim patent-eligible subject matter. Grounds for unenforceability assertions include allegations that someone connected with the prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review, inter partes review, interference proceedings and equivalent proceedings in foreign jurisdictions, such as opposition proceedings. Such proceedings could result in revocation or amendment of our patents in such a way that they no longer cover our product candidates or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Moreover, even if not found invalid or unenforceable, the claims of our patents could be construed narrowly or in a manner that does not cover the allegedly infringing technology in question. Such a loss of patent protection would have a material adverse impact on our business.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent and, in some jurisdictions, during the pendency of a patent application. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions
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during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have an adverse effect on our business.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
It is our policy to enter into confidentiality and intellectual property assignment agreements with our employees, consultants, contractors and advisors. These agreements generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to us. For example, even if we have a consulting agreement in place with an academic advisor pursuant to which such academic advisor is required to assign any inventions developed in connection with providing services to us, such academic advisor may not have the right to assign such inventions to us, as it may conflict with his or her obligations to assign all such intellectual property to his or her employing institution.
Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, we could lose rights that are important to our business.
We are party to multiple license agreements that impose, and we may enter into additional licensing and funding arrangements with third parties that may impose, diligence, development and commercialization timelines, milestone payment, royalty, insurance and other obligations on us. For example, we currently rely on certain intellectual property rights licensed to us from MIT, and have licensed additional intellectual property rights under agreements with 3SBio, BIND Therapeutics, Inc. and The Massachusetts Eye and Ear Infirmary and the Schepens Eye Research Institute, Inc. Under our existing licensing agreements, we are obligated to pay royalties on net product sales of product candidates or related technologies to the extent they are covered by the agreement. Our results of operations will be affected by the level of royalty payments that we are required to pay to third parties. We cannot precisely predict the amount, if any, of royalties that we will be required to pay to third parties in the future. Any disagreements with the counterparty over the amount of royalties owed could lead to litigation, which is costly. In addition, if we fail to comply with our obligations under current or future license agreements, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product candidate that is covered by these agreements, or may face other penalties under the agreements. Such an occurrence could materially adversely affect the value of product candidates being developed using rights licensed to us under any such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or
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reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology. Furthermore, our counterparties may allege that we are operating outside the scope of the licenses granted and terminate our license or otherwise require us to alter development, manufacturing or marketing activities. For more information on our license agreements and associated obligations, please see "BusinessLicenses and collaborations."
We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
We currently have rights to certain intellectual property, through licenses from third parties and under patents and patent applications that we own, to develop our product candidates. Because we may find that our programs require the use of proprietary rights held by third parties, the growth of our business may depend in part on our ability to acquire, in-license or use these proprietary rights. We may be unable to acquire or in-license compositions, methods of use, processes or other third-party intellectual property rights from third parties that we identify as necessary for our product candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, financial 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.
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 that program and our business and financial condition could suffer.
We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may also engage advisors and consultants who are concurrently employed at universities or other organizations or who perform services for other entities. Although we try to ensure that our employees, advisors and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, advisors or consultants have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such party's former or current employer or in violation of an agreement with another party. Although we have no knowledge of any such claims being alleged to date, if such claims were to arise, litigation may be necessary to defend against any such claims.
In addition, while it is our policy to require our employees, consultants, advisors and contractors who may be involved in the 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 develops intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. Similarly, we may be subject to claims that an employee, advisor
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or consultant performed work for us that conflicts with that person's obligations to a third party, such as an employer, and thus, that the third party has an ownership interest in the intellectual property arising out of work performed for us. Litigation may be necessary to defend against these claims. Although we have no knowledge of any such claims being alleged to date, if such claims were to arise, litigation may be necessary to defend against any such claims.
If we fail in prosecuting or 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 prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.
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. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential collaborators or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. 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 secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources, and could adversely impact our financial condition or results of operations.
We will need to obtain FDA approval for any proposed product names, and any failure or delay associated with such approval may adversely affect our business.
Any proprietary name or trademark we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal trademark registration from the USPTO. The FDA typically conducts a review of proposed product names, including an evaluation of the potential for confusion with other product names. The FDA may also object to a product name if it believes the name inappropriately implies certain medical claims or contributes to an overstatement of efficacy. If the FDA objects to any product names we propose, we may be required to adopt an alternative name for our product candidates. If we adopt an alternative name, we would lose the benefit of any existing trademark applications for such product candidate and may be required to expend significant additional resources in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to commercialize our product candidates.
We will not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be able to adequately enforce our intellectual property rights even in the jurisdictions where we seek protection.
Filing, prosecuting and defending patents on product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some
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countries outside the United States could be less extensive than in the United States, assuming that rights are obtained in the United States and assuming that rights are pursued outside the United States. In this regard, in addition to the United States, we also seek to protect our intellectual property rights in other countries, including Russia. The statutory deadlines for pursuing patent protection in individual foreign jurisdictions are based on the priority date of each of our patent applications. For all of the patent families in our portfolio, including the families that may provide coverage for our lead product candidate, the relevant statutory deadlines have not yet expired. Therefore, for each of the patent families that we believe provide coverage for our lead product candidate, we will need to decide whether and where to pursue additional protection outside the United States or Russia. In addition, the laws of some foreign countries, do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, for our existing patent rights outside the United States and any foreign patent rights we may decide to pursue in the future, we may not be able to obtain relevant claims and/or 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 do not pursue and obtain 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 in the United States. These products may compete with our product candidates and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual property rights may not be effective or sufficient to prevent third parties from so competing.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to biotechnology. This could make it difficult for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.
If our ability to obtain and, if obtained, enforce our patents to stop infringing activities is inadequate, third parties may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Accordingly, our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property we develop or license.
If we do not obtain additional protection under the Hatch-Waxman Act and similar foreign legislation extending the terms of our patents for our product candidates, our business may be harmed.
Depending upon the timing, duration and specifics of FDA regulatory approval for our product candidates, one or more of our U.S. patents may be eligible for limited patent term restoration under the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years
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as compensation for patent term lost during product development and the FDA regulatory review process. Patent term restorations, however, are limited to a maximum of five years and cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval by the FDA.
The application for patent term extension is subject to approval by the USPTO, in conjunction with the FDA. It takes at least six months to obtain approval of the application for patent term extension. We may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product will be shortened, our competitors may obtain earlier approval of competing products and our ability to generate revenues could be materially adversely affected.
We may face competition from biosimilars, which may have a material adverse effect on the future commercial prospects of our product candidates.
Even if we are successful in achieving regulatory approval to commercialize a product candidate faster than our competitors, we may face competition from biosimilars. In the United States, the Biologics Price Competition and Innovation Act of 2009 created an abbreviated approval pathway for biological products that are demonstrated to be "highly similar," or biosimilar, to or "interchangeable" with an FDA-approved biological product. This new pathway could allow competitors to reference data from innovative biological products 12 years after the time of approval of the innovative biological product. This data exclusivity does not prevent another company from developing a product that is highly similar to the innovative product, generating its own data, and seeking approval. Data exclusivity only assures that another company cannot rely upon the data within the innovator's application to support the biosimilar product's approval. In his proposed budget for fiscal year 2017, President Obama proposed to cut this 12-year period of exclusivity down to seven years. He also proposed to prohibit additional periods of exclusivity due to minor changes in product formulations, a practice often referred to as "evergreening." While President Obama has proposed these measures in previous years without success, it is possible that Congress may take these or other measures to reduce or eliminate periods of exclusivity. The Biologics Price Competition and Innovation Act of 2009 is complex and only beginning to be interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and meaning is subject to uncertainty. Although it is uncertain when any such processes may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our product candidates.
RISKS RELATED TO EMPLOYEE MATTERS AND MANAGING GROWTH AND OTHER RISKS RELATED TO OUR BUSINESS
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on Werner Cautreels, Ph.D., our President and Chief Executive Officer, as well as the other principal members of our management, scientific and clinical team. Although we have entered into employment agreements or offer letters with Dr. Cautreels and certain of our executive officers, each of them may terminate their employment with us at any time. We do not maintain "key person" insurance for any of our executives or other employees.
Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. The loss of the services of our executive officers or other key
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employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize product candidates. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.
We expect to expand our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of lead discovery and product development, regulatory affairs, clinical affairs and manufacturing and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage our expected future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such expected growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
A variety of risks associated with operating in Russia and internationally could adversely affect our business.
In addition to our U.S. operations, we have operations in Russia through our wholly owned subsidiary, Selecta RUS, and may expand international operations in the future, including by conducting clinical trials of our product candidates in countries outside the United States, including Russia and Belgium. We face risks associated with our operations in Russia, including possible unfavorable regulatory, pricing and reimbursement, legal, political, tax and labor conditions, which could harm our business. For example, one of our principal shareholders, RUSNANO, is a Russian Federation controlled entity and, according to press reports, in 2015 and 2016 several current and former RUSNANO managers were under investigation for embezzlement. While we and our officers and directors were not accused of any wrongdoing, further investigations or other accusations could adversely affect us.
We may also rely on collaborators to commercialize any approved product candidates outside of the United States. Doing business in Russia and internationally involves a number of risks, including but not limited to:
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Any of these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.
Sanctions against Russia, and Russia's response to those sanctions, could adversely affect our business.
Due to Russia's recent military intervention in Ukraine, the United States and the European Union have imposed sanctions on certain individuals and six financial institutions in Russia and have proposed the use of broader economic sanctions. In response, Russia has imposed entry bans on certain U.S. lawmakers and officials. Our wholly owned subsidiary, Selecta RUS, held $4.2 million of total cash in Russian banks as of March 31, 2016, including $1.5 million of cash and cash equivalents, $2.0 million of short-term deposits and $0.7 million of restricted cash. If the United States and European Union were to impose sanctions on Russian businesses, or if Russia were to take retaliatory action against U.S. companies operating in Russia, our research and development activities with respect to our program for HPV-associated cancers currently conducted by Selecta RUS, or any other research and development activities with respect to our other immune stimulation programs conducted by Selecta RUS in the future, could be adversely affected.
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Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our current and future contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we are not aware of any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties to manufacture our product candidates and conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our product candidates could be delayed.
Our employees, independent contractors, principal investigators, CROs, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could expose us to liability and hurt our reputation.
We are exposed to the risk that our employees, independent contractors, principal investigators, CROs, consultants, commercial partners and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: (1) FDA laws and regulations, including those laws that require the reporting of true, complete and accurate information to the FDA, (2) manufacturing standards, (3) healthcare fraud and abuse laws, 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, creating fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and 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. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and financial results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Acquisitions or joint ventures could disrupt our business, cause dilution to our stockholders and otherwise harm our business.
We may acquire other businesses, product candidates or technologies as well as pursue strategic alliances, joint ventures, technology licenses or investments in complementary businesses. We have not made any acquisitions to date, and our ability to do so successfully is unproven. Any of these
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transactions could be material to our financial condition and operating results and expose us to many risks, including:
Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.
Also, the expected benefit of any acquisition may not materialize. Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition. We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results.
RISKS RELATED TO OUR COMMON STOCK AND THIS OFFERING
An active trading market for our common stock may not develop.
Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined through negotiations with the underwriters. Although we have applied to have our common stock approved for listing on The NASDAQ Global Market, an active trading market for our shares may never develop or be sustained following this offering. If an active market for our common stock does not develop, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for the shares, or at all.
The market price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock in this offering.
Our stock price is likely to be volatile. The stock market in general and the market for smaller 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, you may not be able to sell your common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including:
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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.
Upon the closing of this offering, based on the number of shares of common stock outstanding as of May 31, 2016, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock before this offering and their respective affiliates will, in the aggregate, hold shares representing approximately 45% of our outstanding voting stock, which does not take into account any potential participation by such parties in this offering. See "Certain relationships and related person transactionsParticipation in this offering." As a result, if these stockholders choose to act together, they would be able to control or significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control or significantly influence the election of directors, the composition of our management and approval of any merger, consolidation or sale of all or substantially all of our assets.
If you purchase shares of common stock in this offering, you will suffer immediate dilution of your investment.
The initial public offering price of our common stock will be substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in
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this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. To the extent shares subsequently are issued under outstanding options or warrants, you will incur further dilution. Based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $10.88 per share as of March 31, 2016, representing the difference between our pro forma as adjusted net tangible book value per share, after giving effect to this offering, and the assumed initial public offering price. In addition, purchasers of common stock in this offering will have contributed approximately 35.0% of the aggregate price paid by all purchasers of our stock but will own only approximately 25.0% of our common stock outstanding after this offering.
Upon the closing of this offering, (i) our series E preferred stock will automatically convert into a number of shares of common stock and (ii) outstanding warrants to purchase shares of our series E preferred stock will become warrants to purchase a number of shares of our common stock, in each case, determined, in part, by the initial public offering price for this offering, which we have assumed to be $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus. Accordingly, the number of shares of our common stock issuable upon conversion of all of our preferred stock and exercise of our warrants outstanding would correspondingly increase or decrease, as applicable, in the event of any change in the initial public offering price per share. See "Prospectus summaryThe offering."
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. We expect that we will use the net proceeds of this offering to support the clinical development of SEL-212, conduct preclinical studies of our other SVP product candidates in order to advance such product candidates into clinical development and for working capital and general corporate purposes. However, our use of these proceeds may differ substantially from our current plans. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
A significant portion of our total outstanding shares are eligible to be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have outstanding 16,914,048 shares of common stock based on the number of shares outstanding as of May 31, 2016. This includes the 4,250,000 shares that we are selling in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates, existing stockholders that are required to file reports pursuant to Section 16 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or participants in our directed share program who purchase more than $1,000,000 of shares. See "Prospectus summaryDirected share program" and "Shares eligible for future sale." The remaining 12,664,048 shares are currently restricted as a result of securities laws or lock-up agreements but will become eligible to be sold at various times beginning 180 days after this offering, unless held by one of our affiliates, in which case the resale of those securities will be subject to
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volume limitations under Rule 144 of the Securities Act of 1933, as amended, or Rule 144. Moreover, after this offering, holders of 12,016,162 shares of our common stock will have rights, subject to specified conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders, until such shares can otherwise be sold without restriction under Rule 144 or until the rights terminate pursuant to the terms of the investors' rights agreement between us and such holders. We also intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the "Underwriting" section of this prospectus.
We are an "emerging growth company," and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the closing 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 $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period. 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:
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 irrevocably elected not to avail ourselves of
| | 63 |
Risk factors
this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors.
We are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing whether such controls are functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our stock would be negatively impacted. In the event
64 | | |
Risk factors
we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our target animal studies and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
Provisions in our restated certificate of incorporation and restated bylaws and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our restated certificate of incorporation and our restated bylaws, which will become effective upon the closing of this offering may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions include those establishing:
| | 65 |
Risk factors
may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of us.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Our restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions 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, employees or agents.
Our restated certificate of incorporation, which will become effective upon the closing of this offering, specifies that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving claims brought against us by stockholders. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our restated certificate of incorporation described above.
We believe this provision benefits us by providing increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against our directors, officers, employees and agents as it may limit any stockholder's ability to bring a claim in a judicial forum that such stockholder finds favorable for disputes with us or our directors, officers, employees or agents. 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, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our restated certificate of incorporation to be inapplicable or unenforceable in such action. If a court were to find the choice of forum provision contained in our 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, financial condition or results of operations.
Because we do not expect paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, our credit facility with Oxford and Pacific Western Bank currently prohibits us from paying cash dividends on our equity securities, and any future debt agreements may likewise preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
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 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 management's attention and resources, which could harm our business.
66 | | |
Special note regarding forward-looking statements
This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy, prospective products and product candidates, product approvals, research and development costs, timing and likelihood of success, plans and objectives of management for future operations and future results of expected products and product candidates, 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," "contemplate," "believe," "estimate," "predict," "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 factors, risks, uncertainties and assumptions described under the sections in this prospectus entitled "Risk factors" and "Management's discussion and analysis of financial condition and results of operations" and elsewhere in this prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
| | 67 |
Industry and other data
We obtained the industry, market and competitive position data in this prospectus from our own internal estimates and research as well as from industry and general publications and research, surveys and studies conducted by third parties. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they frequently involve a number of assumptions and limitations and therefore do not guarantee the accuracy or completeness of such information. Our estimates also involve risks and uncertainties and are subject to change based on various factors, including those discussed under the headings "Risk factors," "Special note regarding forward-looking statements" and "Management's discussion and analysis of financial condition and results of operations" in this prospectus.
Trademarks, service marks and tradenames
We own or have rights to use a number of registered and common law trademarks, service marks and trade names in connection with our business in the United States and in certain foreign jurisdictions, including, but not limited to, "SELECTA."
Solely for convenience, the trademarks, service marks, logos and trade names referred to in this prospectus are included without the ® and symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names. This prospectus contains additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names appearing in this prospectus are, to our knowledge, the property of their respective owners. We do not intend our use or display of other companies' trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies or third parties.
68 | | |
Use of proceeds
We estimate that the net proceeds from our sale of 4,250,000 shares of our common stock in this offering will be approximately $55.4 million, assuming an initial public offering price of $15.00 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. If the underwriters' option to purchase additional shares from us is exercised in full, we estimate that our net proceeds will be $64.3 million. Each $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share would increase (decrease) the net proceeds to us from this offering by approximately $4.0 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 and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by $14.0 million, assuming the assumed initial public offering price stays the same.
We expect that we will use the net proceeds from this offering for the following purposes:
The expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions. We may also use a portion of the net proceeds to in-license, acquire, or invest in additional businesses, technologies, products or assets, although currently we have no specific agreements, commitments or understandings in this regard. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the closing of this offering or the amounts that we will actually spend on the uses set forth above. Predicting the cost necessary to develop product candidates can be difficult and we expect that we will need additional funds to complete the development of SEL-212 and any other product candidates we identify. The amounts and timing of our actual expenditures and the extent of clinical development may vary significantly depending on numerous factors, including the progress of our development efforts, the status of and results from preclinical studies and any ongoing clinical trials or clinical trials we may commence in the future, as well as any collaborations that we may enter into with third parties for our product candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.
Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.
| | 69 |
Dividend policy
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 and expansion of our business and do not expect to pay any cash dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, business prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing instruments. In addition, our ability to pay cash dividends is currently prohibited by the terms of our credit facility.
70 | | |
Capitalization
The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2016, as follows:
Our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this information in conjunction with our consolidated financial statements and the related notes appearing
| | 71 |
Capitalization
at the end of this prospectus and the "Management's discussion and analysis of financial condition and results of operations" section and other financial information contained in this prospectus.
|
As of March 31, 2016 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Actual
|
Pro forma
|
Pro forma as adjusted |
|||||||
|
(unaudited) |
(unaudited) |
(unaudited) |
|||||||
|
(in thousands, except for share data)
|
|||||||||
Cash, cash equivalents and short-term investments |
$ | 25,979 | $ | 25,979 | $ | 81,367 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Other long-term liabilities |
310 | | | |||||||
Loans payable, net of current portion |
11,169 |
11,169 |
11,169 |
|||||||
Redeemable convertible preferred stock (Series A, B, C, D, E and SRN), par value $0.0001 per share; 37,835,623 shares authorized, 34,127,186 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted |
139,837 |
|
|
|||||||
Preferred stock, par value $0.0001 per share; no shares authorized, issued or outstanding, actual; 10,000,000 shares authorized and no shares issued or outstanding, pro forma and pro forma as adjusted |
|
|
|
|||||||
Common stock, par value $0.0001 per share; 62,164,377 shares authorized, 2,183,541 shares issued and 2,177,858 shares outstanding (5,683 shares subject to repurchase), actual; 200,000,000 shares authorized, pro forma and pro forma as adjusted; 12,641,402 shares issued and 12,635,719 shares outstanding, pro forma; 16,891,402 shares issued and 16,885,719 shares outstanding, pro forma as adjusted |
| 1 | 1 | |||||||
Additional paid in capital |
1 | 140,147 | 195,535 | |||||||
Accumulated deficit |
(121,051 | ) | (121,051 | ) | (121,051 | ) | ||||
Accumulated other comprehensive loss |
(4,755 | ) | (4,755 | ) | (4,755 | ) | ||||
| | | | | | | | | | |
Total stockholders' equity (deficit) |
(125,805 | ) | 14,342 | 69,730 | ||||||
| | | | | | | | | | |
Total capitalization |
$ | 25,511 | $ | 25,511 | $ | 80,899 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The number of shares in the table above does not include:
72 | | |
Capitalization
become available pursuant to provisions in our 2016 ESPP that automatically increase the share reserve under our 2016 ESPP on January 1 of each subsequent calendar year as described in "Executive and director compensationIncentive plans2016 Employee Stock Purchase Plan."
In addition, upon the closing of this offering, (i) our series E preferred stock will automatically convert into a number of shares of common stock and (ii) outstanding warrants to purchase shares of our series E preferred stock will become warrants to purchase a number of shares of our common stock, in each case, determined, in part, by the initial public offering price for this offering, which we have assumed to be $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus. Accordingly, the number of shares of our common stock issuable upon conversion of all of our preferred stock and exercise of our warrants outstanding would correspondingly increase or decrease, as applicable, in the event of any change in the initial public offering price per share. See "Prospectus summaryThe offering."
| | 73 |
Dilution
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 March 31, 2016, we had a historical net tangible book value (deficit) of $(125.8) million, or $(57.76) per share of common stock. Our historical net tangible book value per share is the amount of our total tangible assets less our total liabilities and redeemable convertible preferred stock, which is not included within stockholders' equity (deficit), divided by the number of shares of our common stock outstanding as of March 31, 2016.
Our pro forma net tangible book value as of March 31, 2016 was $14.3 million, or $1.13 per share. Pro forma net tangible book value is the amount of our total tangible assets less our total liabilities and redeemable convertible preferred stock, which is not included within stockholders' equity (deficit), after giving effect to the (i) the automatic conversion of all shares of our preferred stock into common stock upon closing of this offering, which, based on an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover of this prospectus, would result in the issuance of 9,890,580 shares of our common stock, (ii) outstanding warrants to purchase series D preferred stock becoming warrants to purchase shares of our common stock, upon the closing of this offering, and outstanding warrants to purchase shares of our series E preferred stock becoming warrants to purchase 14,088 shares of our common stock, at a weighted average exercise price of $17.55 per share of common stock, based on an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover of this prospectus, upon the closing of this offering, (iii) the automatic cashless exercise of the series E common warrants for 567,306 shares of our common stock and (iv) the filing of our restated certificate of incorporation; and the pro forma net tangible book value per share represents our pro forma net tangible book value divided by the total number of shares outstanding as of March 31, 2016, after giving effect to the pro forma adjustments described above as if they had occurred on such date.
After giving further effect to the sale of 4,250,000 shares of common stock in this offering at an assumed initial public offering price of $15.00 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 March 31, 2016 would have been approximately $69.7 million, or approximately $4.12 per share. This amount represents an immediate increase in pro forma net tangible book value of $2.99 per share to our existing stockholders and an immediate dilution of approximately $10.88 per share to new investors participating in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after this offering from the
74 | | |
Dilution
amount of cash that a new investor paid for a share of common stock. The following table illustrates this dilution:
Assumed initial public offering price per share |
$ | 15.00 | |||||
Historical net tangible book value (deficit) per share as of March 31, 2016 |
$ | (57.76 | ) | ||||
Increase per share attributable to the conversion of our preferred stock and cashless exercise of our series E common warrants |
58.89 | ||||||
Pro forma net tangible book value per share as of March 31, 2016 |
1.13 | ||||||
Increase per share attributable to this offering |
2.99 | ||||||
| | | | | | | |
Pro forma as adjusted net tangible book value per share after this offering |
$ | 4.12 | |||||
| | | | | | | |
Dilution per share to new investors in this offering |
$ | 10.88 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
A $1.00, $2.00 and $3.00 increase in the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would, in each case, increase the pro forma as adjusted net tangible book value per share after this offering by $0.24 and increase dilution per share to new investors participating in this offering by $0.76, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00, $2.00 and $3.00 decrease in the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible book value per share after this offering by $0.23, $0.23 and $0.22 and decrease dilution per share to new investors by $0.77, $0.77 and $0.78, respectively, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase of 1.0 million shares in the number of shares offered by us would increase our pro forma as adjusted net tangible book value per share after this offering by $0.78 per share and decrease the dilution to new investors by $0.78 per share, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us. Each decrease of 1.0 million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible book value per share after this offering by approximately $0.88 and increase the dilution per share to new investors participating in this offering by approximately $0.88, assuming no change in the assumed initial public offering price and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters exercise their option to purchase additional shares of our common stock in full, the pro forma as adjusted net tangible book value after this offering would be $4.52 per share, the increase in pro forma net tangible book value per share would be $0.40 and the dilution per share to new investors would be $10.48 per share, in each case assuming an initial public offering price of $15.00 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 March 31, 2016, the differences between the number of shares purchased from us, the total consideration paid to us in cash and the average price per share that existing stockholders and new investors paid. The calculation below is based on an assumed initial public offering price of $15.00 per share, which is the
| | 75 |
Dilution
midpoint of the price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
|
|
|
Total consideration |
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares purchased | |
||||||||||||||
|
Average price per share |
|||||||||||||||
|
Number
|
Percent
|
Amount
|
Percent
|
||||||||||||
| | | | | | | | | | | | | | | | |
Existing stockholders(1) |
12,641,402 | 75 | % | $ | 118,547,735 | 65 | % | $ | 9.38 | |||||||
New investors |
4,250,000 | 25 | 63,750,000 | 35 | $ | 15.00 | ||||||||||
| | | | | | | | | | | | | | | | |
Total |
16,891,402 | 100 | % | $ | 182,297,735 | 100 | % | |||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The foregoing tables and calculations are based on 2,183,541 shares of our common stock outstanding as of March 31, 2016, which included 5,683 shares of unvested restricted stock, reflect the issuance of 567,306 shares of common stock issued in connection with the automatic cashless exercise of the series E common warrants on May 24, 2016, and give effect to the conversion of our outstanding preferred stock into 9,890,580 shares of common stock, based on an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover of this prospectus, upon the closing of this offering, and exclude:
76 | | |
Dilution
To the extent any of these outstanding options or warrants is exercised, there will be further dilution to new investors. If all of such outstanding options and warrants had been exercised as of March 31, 2016, the pro forma as adjusted net tangible book value per share after this offering would be $4.12, and total dilution per share to new investors would be $10.88.
If the underwriters exercise their option to purchase additional shares of our common stock in full:
In addition, upon the closing of this offering, (i) our series E preferred stock will automatically convert into a number of shares of common stock and (ii) outstanding warrants to purchase shares of our series E preferred stock will become warrants to purchase a number of shares of our common stock, in each case, determined, in part, by the initial public offering price for this offering, which we have assumed to be $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus. See "Prospectus summaryThe offering" for a related offering price per share sensitivity analysis.
| | 77 |
Selected consolidated financial data
You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the "Management's discussion and analysis of financial condition and results of operations" section of this prospectus. We have derived the consolidated statement of operations and comprehensive loss data for the years ended December 31, 2014 and 2015 and the consolidated balance sheet data as of December 31, 2014 and 2015 from our audited consolidated financial statements appearing elsewhere in this prospectus. The consolidated statement of operations data for the three months ended March 31, 2015 and 2016 and the consolidated balance sheet data as of March 31, 2016 have been derived from our unaudited condensed consolidated financial statements appearing elsewhere in this prospectus and have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the unaudited data reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information in those statements. Our historical results are not necessarily indicative of the results that should be expected in the future, and results for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.
78 | | |
Selected consolidated financial data
Consolidated statement of operations data:
|
Years ended December 31, |
Three months ended March 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2015
|
2016
|
|||||||||
|
|
|
(unaudited)
|
(unaudited)
|
|||||||||
|
(in thousands, except share and per share data)
|
||||||||||||
Grant and collaboration revenue |
$ | 3,040 | $ | 6,011 | $ | 1,034 | $ | 2,088 | |||||
Operating expenses: |
|||||||||||||
Research and development |
10,486 | 22,980 | 4,972 | 6,648 | |||||||||
General and administrative |
7,953 | 8,335 | 1,872 | 2,381 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
18,439 | 31,315 | 6,844 | 9,029 | |||||||||
Loss from operations |
(15,399 | ) | (25,304 | ) | (5,810 | ) | (6,941 | ) | |||||
Other income (expense): |
|||||||||||||
Investment income |
111 | 171 | 62 | 13 | |||||||||
Foreign currency (loss) gain |
3,004 | 933 | 194 | (220 | ) | ||||||||
Interest expense |
(552 | ) | (948 | ) | (179 | ) | (310 | ) | |||||
Other expense |
(44 | ) | (26 | ) | | (18 | ) | ||||||
| | | | | | | | | | | | | |
Total other income (expense), net |
2,519 | 130 | 77 | (535 | ) | ||||||||
| | | | | | | | | | | | | |
Net loss |
(12,880 | ) | (25,174 | ) | (5,733 | ) | (7,476 | ) | |||||
Accretion of redeemable convertible preferred stock |
(4,951 | ) | (7,335 | ) | (1,561 | ) | (2,356 | ) | |||||
Net effect of extinguishment of Series SRN redeemable convertible preferred stock |
1,459 | | | | |||||||||
| | | | | | | | | | | | | |
Net loss attributable to common stockholders |
$ | (16,372 | ) | $ | (32,509 | ) | $ | (7,294 | ) | $ | (9,832 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net loss per share attributable to common stockholders(1) |
|||||||||||||
Basic and diluted |
$ | (7.84 | ) | $ | (15.12 | ) | $ | (3.43 | ) | $ | (4.52 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted average common shares outstanding(1) |
|||||||||||||
Basic and diluted |
2,090,677 | 2,150,422 | 2,126,878 | 2,175,037 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Pro forma net loss per share attributable to common stockholders (unaudited) |
|||||||||||||
Basic and diluted(1)(2) |
$ | (2.53 | ) | $ | (0.59 | ) | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Pro forma weighted average common shares of common stock outstanding (unaudited) |
|||||||||||||
Basic and diluted(1)(2) |
9,980,469 | 12,632,923 | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | 79 |
Selected consolidated financial data
preferred stock will become warrants to purchase a number of shares of our common stock, in each case, determined, in part, by the initial public offering price for this offering, which we have assumed to be $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus. See "Prospectus summaryThe offering" for a related offering price per share sensitivity analysis.
Consolidated balance sheet data:
|
As of December 31, |
As of March 31, |
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---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2016
|
|||||||
|
|
|
(unaudited)
|
|||||||
|
(in thousands)
|
|||||||||
Cash, cash equivalents and short-term investments |
$ | 16,592 | $ | 36,462 | $ | 25,979 | ||||
Total assets |
$ | 22,228 | $ | 42,824 | $ | 34,723 | ||||
Loan payables, net of current portion |
$ | 4,824 | $ | 11,855 | $ | 11,169 | ||||
Redeemable convertible preferred stock |
$ | 94,033 | $ | 137,482 | $ | 139,837 | ||||
Total stockholders' equity (deficit) |
$ | (87,755 | ) | $ | (116,493 | ) | $ | (125,805 | ) |
80 | | |
Management's 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 "Selected consolidated financial data" and our consolidated financial statements and related notes thereto included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk factors" section of this prospectus, 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 a clinical-stage biopharmaceutical company using our proprietary synthetic vaccine particle, or SVP, technology to discover and develop targeted therapies that are designed to modulate the immune system to effectively and safely treat rare and serious diseases. Many such diseases are treated with biologic therapies that are foreign to the patient's immune system and, therefore, elicit an undesired immune response. Our proprietary SVP technology encapsulates an immunomodulator in biodegradable nanoparticles to induce antigen-specific immune tolerance to mitigate the formation of anti-drug antibodies, or ADAs, in response to life-sustaining biologic drugs. We believe our SVP technology has the potential for broad applications to both enhance existing biologic drugs and enable novel therapies. Our lead product candidate, SEL-212, is a combination of a therapeutic enzyme and our SVP technology designed to be the first biologic treatment for gout that durably controls uric acid in refractory gout and dissolves and removes harmful deposits of uric acid crystals in chronic tophaceous gout, each a painful and debilitating disease with ummet medical need. SEL-212 is currently in a comprehensive Phase 1/2 clinical program. The Phase 1/2 clinical program is comprised of two Phase 1 clinical trials and a Phase 2 clinical trial, and is designed to evaluate the ability of SEL-212 to control uric acid levels and mitigate the formation of ADAs. Based on preliminary data from our ongoing Phase 1b clinical trial, we believe that SEL-212 has the potential to control serum uric acid levels for at least 30 days after a single dose by mitigating the formation of ADAs in response to the therapeutic enzyme. We expect to receive final data from both Phase 1 clinical trials and initiate the Phase 2 clinical trial in the second half of 2016.
We were incorporated in 2007 under the laws of the State of Delaware and our corporate headquarters is in Massachusetts. Our operations to date have been limited to organizing and staffing our company, business planning, acquiring operating assets, raising capital, developing our technology, identifying potential nanoparticle immunomodulatory product candidates, research and development, undertaking preclinical studies and conducting clinical trials. To date, we have financed our operations primarily through private placements of our preferred stock, common stock and debt securities, funding received from research grants and collaboration arrangements and our credit facility. We do not have any products approved for sale and have not generated any product sales. All of our revenue to date has been generated from research grants and contracts.
Since our inception and through March 31, 2016, we have raised an aggregate of $151.6 million to fund our operations, of which $118.5 million was from the sale of preferred stock, $7.8 million was from government grants, $14.3 million was from the issuance of debt securities and $11.0 million was from grants and collaboration arrangements. As of March 31, 2016, we had cash and cash equivalents
| | 81 |
Management's discussion and analysis of financial condition and results of operations
totaling $17.1 million, of which $1.5 million of such cash and cash equivalents was held by our wholly owned Russian subsidiary and designated solely for use in its operations.
In August and September 2015, we issued and sold 8,888,888 shares of series E preferred stock for $40.0 million in gross proceeds which included 1,619,550 shares of series E preferred stock that were issued as a result of the conversion of convertible notes. As part of the series E preferred stock issuance, we also issued 569,791 common stock warrants to the stockholders who participated in that round of financing.
All shares of our redeemable convertible preferred stock will automatically convert into shares of common stock in connection with this offering, and as a result, our common stock will be the only class of stock outstanding following this offering.
Since inception, we have incurred significant operating losses. We incurred net losses of $12.9 million and $25.2 million for the years ended December 31, 2014 and 2015, respectively. Our net loss was $5.7 million and $7.5 million for the three months ended March 31, 2015 and 2016, respectively. As of March 31, 2016, we had an accumulated deficit of $121.1 million. We expect to continue incurring significant expenses and operating losses for at least the next several years as we:
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, license and collaboration agreements with partners, and research grants. We may be unable to raise capital when needed or on reasonable terms, if at all, which would force us to delay, limit, reduce or terminate our product development or future commercialization efforts. We will need to generate significant revenues to achieve profitability, and we may never do so.
The consolidated financial information presented below includes the accounts of Selecta Biosciences Inc. and our wholly owned subsidiaries, Selecta (RUS) LLC, a Russian limited liability company, or Selecta RUS, and Selecta Biosciences Security Corporation, a Massachusetts securities corporation. All intercompany accounts and transactions have been eliminated.
FINANCIAL OVERVIEW
Grant and collaboration revenue
To date, we have not generated any product sales. Our revenue consists of grant and collaboration revenue, which includes amounts recognized related to upfront and milestone payments for research
82 | | |
Management's discussion and analysis of financial condition and results of operations
and development funding under collaboration and license agreements. In addition, we earn revenue under the terms of government contracts or grants, which require the performance of certain research and development activities. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of fees, research and development reimbursements and other payments from collaborators. We do not expect to generate revenue from product sales for at least the next several years. If we or our collaborators fail to complete the development of our product candidates in a timely manner or fail to obtain regulatory approval as needed, our ability to generate future revenue will be harmed, and will affect the results of our operations and financial position. For a further description of the agreements underlying our collaboration and grant-based revenue, see Notes 2 and 12 to our consolidated financial statements included elsewhere in this prospectus.
Research and development
Research and development expenses consist of costs incurred in performing research and development activities, including compensation and benefits for full-time research and development employees, an allocation of facilities expenses, overhead expenses, manufacturing process-development and scale-up activities, clinical trial and related clinical manufacturing expenses, fees paid to contract research organizations, or CROs, and investigative sites, payments to partners under our license agreements and other outside expenses. Our research and development costs are often devoted to expanding our programs and are not necessarily allocable to a specific target.
Our research and development expenses consist of external research and development costs, which we track on a program-by-program basis and primarily include contract manufacturing organization and CRO-related costs, and internal research and development costs, which are primarily compensation expenses for our research and development employees, lab supplies, analytical testing, allocated overhead costs and other related expenses. As we expand the clinical development of SEL-212, we expect our research and development expenses to increase. The increase in external research and development spending is expected to outpace internal research and development spending. We have incurred a total of $82.1 million in research and development expenses from inception through March 31, 2016, with a majority of the expenses being spent on the development of SEL-212 and a prior nicotine vaccine, and the remainder being spent on our various discovery and preclinical stage product candidate programs and the general expansion of our technology.
We expense research and development costs as incurred. Conducting a significant amount of research and development is central to our business model. Product candidates in clinical development generally have higher development costs than those in earlier stages of development, primarily due to the size and duration of clinical trials. We plan to increase our research and development expenses for the foreseeable future as we seek to complete development of SEL-212, and to further advance our preclinical and earlier stage research and development projects. The successful development of our clinical and preclinical product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the development of SEL-212 or any of our preclinical programs or the period, if any, in which material net cash inflows from these product candidates may commence. Clinical development timelines, the probability of success and development costs can differ materially from our expectations. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those which we currently expect will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time to complete any clinical development.
| | 83 |
Management's discussion and analysis of financial condition and results of operations
The following table sets forth the components of our research and development expenses during the periods indicated (in thousands, except percentages):
|
Years ended December 31, |
|
|
Three months ended March 31, |
|
|
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Increase (decrease) |
Increase (decrease) |
|||||||||||||||||||||||
|
2014
|
2015
|
2015
|
2016
|
|||||||||||||||||||||
|
|
|
|
|
(unaudited) |
|
|
||||||||||||||||||
External research and development expenses: |
|||||||||||||||||||||||||
SEL-212 |
$ | 474 | $ | 9,335 | $ | 8,861 | | % | $ | 2,305 | $ | 2,182 | $ | (123 | ) | (5 | )% | ||||||||
Discovery and preclinical stage product programs, collectively |
38 | 856 | 818 | 2,153 | % | 259 | 1,081 | 822 | 317 | % | |||||||||||||||
Internal research and development expenses |
9,974 | 12,789 | 2,815 | 28 | % | 2,408 | 3,385 | 977 | 41 | % | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Total research and development expenses |
$ | 10,486 | $ | 22,980 | $ | 12,494 | 119 | % | $ | 4,972 | $ | 6,648 | $ | 1,676 | 34 | % | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
General and administrative
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, business development and support functions. Other general and administrative expenses include facility-related costs not otherwise allocated to research and development expenses, travel expenses for our general and administrative personnel and professional fees for auditing, tax and corporate legal services, including intellectual property-related legal services. We expect that our general and administrative expenses will increase in future periods, reflecting an expanding infrastructure and increased professional fees associated with being a public reporting company.
Investment income
Investment income consists primarily of interest income earned on our cash and cash equivalents and short term investments.
Interest expense
Interest expense consists of interest expense on amounts borrowed under our credit facility.
Other expense
Other expense for the years ended December 31, 2014 and 2015 was de minimis.
Foreign currency
The functional currency of our Russian subsidiary is the ruble. In addition to holding cash denominated in rubles, our Russian bank accounts also hold cash balances denominated in U.S. dollars to facilitate payments to be settled in U.S. dollars or other currencies. At December 31, 2014 and 2015, and March 31, 2016, we maintained cash of $7.3 million, $3.8 million and $4.2 million, respectively, in Russian banks, of which $3.0 million was denominated in U.S. dollars for the period ended March 31, 2016. The amounts denominated in U.S. dollars and used in transacting the day to day operations are subject to transaction gains and losses, which are reported as incurred.
84 | | |
Management's discussion and analysis of financial condition and results of operations
RESULTS OF OPERATIONS
Three months ended March 31, 2015 compared to the three months ended March 31, 2016
Revenue
The following is a comparison of revenue for the three months ended March 31, 2015 and 2016 (in thousands, except percentages):
|
Three months ended March 31, |
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Increase (decrease) |
||||||||||||
|
2015
|
2016
|
|||||||||||
|
(unaudited) |
|
|
||||||||||
Grant revenue |
$ | 531 | $ | 1,926 | $ | 1,395 | 263 | % | |||||
Collaboration revenue |
503 | 162 | (341 | ) | (68 | )% | |||||||
| | | | | | | | | | | | | |
Total revenue |
$ | 1,034 | $ | 2,088 | $ | 1,054 | 102 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
During the three months ended March 31, 2016, total revenue increased by $1.1 million, or 102%, as compared to the same period in the prior year, of which $1.3 million was related to a National Institute on Drug Abuse, or NIDA, grant, or the NIDA grant, awarded to us in 2014 and recognized as revenue throughout the three months ended March 31, 2016, offset by a reduction of $0.3 million related to the amortization of upfront payments from the license and research collaboration agreement with Sanofi executed in November 2012 and supplemented in May 2015. We recognized revenue increases of $0.1 million from various other grants and collaborations during the three months ended March 31, 2016 over the three months ended March 31, 2015.
Research and development
The following is a comparison of research and development expenses for the three months ended March 31, 2015 and 2016 (in thousands, except percentages):
|
Three months ended March 31, |
|
|
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Increase (decrease) |
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|
2015
|
2016
|
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|
(unaudited) |
|
|
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Research and development |
$ | 4,972 | $ | 6,648 | $ | 1,676 | 34 | % |
During the three months ended March 31, 2016, our research and development expenses increased by $1.7 million, or 34%, as compared to the same period in the prior year, due to the timing of the toxicology expenses associated with the NIDA grant, and the addition of research and development staffing to support the SEL-212 clinical trial.
| | 85 |
Management's discussion and analysis of financial condition and results of operations
General and administrative
The following is a comparison of general and administrative expenses for the three months ended March 31, 2015 and 2016 (in thousands, except percentages):
|
Three months ended March 31, |
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Increase (decrease) |
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|
2015
|
2016
|
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|
(unaudited)
|
|
|
||||||||||
General and administrative |
$ | 1,872 | $ | 2,381 | $ | 509 | 27 | % |
For the three months ended March 31, 2016, our general and administrative expenses increased $0.5 million, or 27%, as compared to the same period in the prior year, primarily due to an increase in costs for intellectual property filings and corresponding searches. Additionally, facility costs increased as a result of the termination of our sublease and subsequent utilization of the related space.
Investment income
Change in investment income during the three months ended March 31, 2016 as compared to the prior year period reflects reduced interest bearing account balances of cash and cash equivalents held by our company and our Russia subsidiary.
Foreign currency gain (loss)
We recognized a foreign currency gain of $0.2 million and foreign currency loss of $0.2 million during the three months ended March 31, 2015 and 2016, respectively, reflecting the fluctuation of the U.S. dollar to the ruble from the beginning to the end of each period.
Interest expense
Interest expense for the three months ended March 31, 2016 was $0.3 million, an increase of $0.1 million, or 50%, as compared to the same period in the prior year. The increase was primarily due to the amortization of loan issuance costs and interest accrued on the increase of the venture debt effective December 31, 2015.
Other income (expense)
Other income (expense) was de minimis for the three months ended March 31, 2015 and 2016.
Year ended December 31, 2014 compared to the year ended December 31, 2015
Revenue
The following is a comparison of revenue for the years ended December 31, 2014 and 2015 (in thousands, except percentages):
|
Years ended December 31, |
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Increase (decrease) |
||||||||||||
|
2014
|
2015
|
|||||||||||
| | | | | | | | | | | | | |
Grant and collaboration revenue |
$ | 3,040 | $ | 6,011 | $ | 2,971 | 98 | % |
During the year ended December 31, 2015, total revenue increased by $3.0 million, or 98%, as compared to the prior year, primarily due to revenue from our grants and collaborations associated
86 | | |
Management's discussion and analysis of financial condition and results of operations
with increased research and development activities, including an increase of $1.9 million of revenue recognized during the year from the NIDA grant, $0.1 million for our collaboration with JDRF, $0.4 million of revenue recognized that was previously reported as contingently repayable grant funding, $0.3 million from other collaborations initiated in 2015 and $0.3 million from other agreements.
Research and development
The following is a comparison of research and development expenses for the years ended December 31, 2014 and 2015 (in thousands, except percentages):
|
Years ended December 31, |
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Increase (decrease) |
||||||||||||
|
2014
|
2015
|
|||||||||||
| | | | | | | | | | | | | |
Research and development |
$ | 10,486 | $ | 22,980 | $ | 12,494 | 119 | % |
During the year ended December 31, 2015, our total research and development expenses increased by $12.5 million from the prior year, reflecting the costs associated with the advancement of SEL-212 into clinical trials, including related headcount growth, as compared to the prior year during which research and development expenses primarily reflected costs associated with the general pre-clinical development of SEL-212.
General and administrative
The following is a comparison of general and administrative expenses for the years ended December 31, 2014 and 2015 (in thousands, except percentages):
|
Years ended December 31, |
|
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Increase (decrease) |
||||||||||||
|
2014
|
2015
|
|||||||||||
| | | | | | | | | | | | | |
General and administrative |
$ | 7,953 | $ | 8,335 | $ | 382 | 5 | % |
During the year ended December 31, 2015, our general and administrative expenses increased by $0.4 million, or 5%, as compared to the prior year, primarily due to an increase in legal expense as a result of initiating and reviewing potential collaboration agreements and expanding intellectual property protections.
Investment income
Change in investment income was de minimis during the year ended December 31, 2015 as compared to the prior year as cash and cash equivalent balances held in interest bearing accounts and the prevailing interest rates remained relatively consistent during both years.
Foreign currency gain
We recognized a foreign currency gain of $0.9 million during the year ended December 31, 2015 as compared to $3.0 million during the year ended December 31, 2014 reflecting the continued strength of the U.S. dollar to the ruble occurring between December 31, 2014 (beginning of the period) to December 31, 2015 (end of period).
| | 87 |
Management's discussion and analysis of financial condition and results of operations
Interest expense
Interest expense was $0.9 million during the year ended December 31, 2015, as compared to $0.6 million in the prior year. The increase was primarily due to outstanding borrowings throughout 2015 as well as incremental amounts borrowed during the year. As of January 2014, we had outstanding borrowings of $3.0 million under our credit facility. In July 2014, we drew the remaining $4.5 million of available borrowings under the credit facility. As of December 31, 2015, we expanded the credit facility to a total of $12.0 million and drew all of the remaining borrowings available under the credit facility. Additionally, the increase included the amortization of loan issuance costs and interest accrued on convertible notes issued in April 2015 that were converted into our series E preferred stock in August 2015.
Other expense
Other expense for the years ended December 31, 2014 and 2015 was de minimis.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception and through March 31, 2016, we have raised an aggregate of $151.6 million to fund our operations, of which $118.5 million was from the sale of preferred stock, $7.8 million was from government grants and $14.3 million was from borrowings under our credit facility and $11.0 million was through our collaborations and license agreements.
As of March 31, 2016, our cash and cash equivalents were $17.1 million, of which $1.5 million was held by our Russian subsidiary designated solely for use in its operations and is consolidated for financial reporting purposes. Additionally, our Russian subsidiary maintained $2.0 million in short term deposits and $0.7 million in restricted cash.
In addition to our existing cash and cash equivalents, we receive research and development funding and are eligible to earn a significant amount of milestone payments under collaboration agreements. Our ability to earn these milestone payments, and the timing of achieving these milestones, is dependent upon the outcome of our research and development and regulatory activities, and is uncertain at this time. Currently, funding from research grants and payments under collaboration agreements represent our only source of committed external funds.
To date, we have financed our operations primarily through private placements of our preferred stock and common stock, issuance of debt securities, funding received from grants and collaborative arrangements and through borrowings under our credit facility. We expect that we will continue to incur losses and that such losses will increase for the foreseeable future. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, third-party funding and other collaborations and strategic alliances.
88 | | |
Management's discussion and analysis of financial condition and results of operations
Indebtedness
In August 2013, we entered into a credit facility with Oxford Finance, LLC, or Oxford, and Pacific Western Bank, as successor in interest to Square 1 Bank, as co-lenders. The credit facility initially provided funding for an aggregate principal amount of up to $7.5 million. The term loan A portion of the facility was funded on the facility's closing date in the aggregate principal amount of $3.0 million. In July 2014, we borrowed the remaining $4.5 million of the available capacity under a term loan B portion of the facility. On December 31, 2015, we expanded the credit facility to a total of $12.0 million, and drew down all available funding at the closing, with the full amount borrowed referred to as the term loan.
The credit facility is secured by substantially all of our personal property other than our intellectual property. The term loan under the credit facility bears interest at an annual rate equal to the greater of (i) 8.0% and (ii) the sum of (a) the 30-day U.S. LIBOR rate five business days prior to the applicable funding date plus (b) 7.68%. We are required to make interest payments through January 1, 2017, or the interest only period. Following the interest only period, all outstanding borrowings under the credit facility will begin amortizing with monthly payments of principal and interest being made over 30 consecutive monthly installments. All loans under the facility mature on July 1, 2019, and include a final payment fee equal to 6% of the total amount borrowed under the credit facility. This final payment has been recorded as a discount to the loan balance and is being amortized into interest expense over the life of the loan.
The term loan is prepayable at our option in whole, but not in part, subject to a prepayment fee of 3% if the term loan is prepaid prior to the first anniversary of the December 31, 2015 borrowing date, the borrowing date, 2% if the terms loans are prepaid between the first and second anniversary of the borrowing date and 1% if the term loan is prepaid after the second anniversary of the borrowing date. We are also required to prepay the term loan upon the occurrence of customary events of default set forth in the credit agreement. In addition, the term loan contains a subjective acceleration clause whereby an event of default and immediate acceleration of the borrowings under credit agreement occurs in the event of a material impairment of the perfection or priority of the lenders' lien in the collateral or the value of such collateral, a material adverse change in our business operations or condition (financial or otherwise) or a material impairment of the prospect of repayment of any portion of the obligations.
We were also required to issue the lenders warrants for the purchase of preferred stock equal to 4.0% of the term loan A and term loan B at each closing, and 2.5% for the additional borrowing on December 31, 2015. In connection with the term loan security and loan agreement, in August 2013, we issued a fully vested warrant to purchase 26,668 shares of our series D preferred stock, in July 2014, we issued an additional fully vested warrant to purchase 40,000 shares of our series D preferred stock, and in December 31, 2015, we issued an additional fully vested warrant to purchase 37,978 shares of our series E preferred stock. The exercise price for all warrants is $4.50 per share, and they have a ten year life from date of issuance. These are recorded at the fair market value and expensed through the income statement.
The credit facility includes affirmative and negative covenants applicable to us and our subsidiaries. The affirmative covenants include, among others, covenants requiring us to (and to cause our subsidiaries to) maintain our legal existence and governmental approvals, deliver certain financial reports, maintain inventory and insurance coverage, maintain unrestricted cash in a control account equal to or greater than the lesser of 105% of all outstanding amounts under the credit facility and 100% of the cash and cash equivalents of our company and our wholly owned subsidiary, Selecta Biosciences Security Corporation, and protect material intellectual property. The negative covenants
| | 89 |
Management's discussion and analysis of financial condition and results of operations
include, among others, restrictions on us and our subsidiaries transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets and allowing a change in control, in each case subject to certain exceptions. Additionally, the credit facility restricts us from making certain payments or transfers to our Russian subsidiary, Selecta RUS, subject to certain exceptions. The credit facility does not include any other financial covenants. As of March 31, 2016, we were in compliance with the covenants under our credit facility.
The credit facility also includes events of default, the occurrence and continuation of which provide the co-lenders with the right to exercise remedies against us and the collateral securing the loans under the credit facility, including our cash. These events of default include, among other things, our failure to pay any amounts due under the credit facility, a breach of covenants under the credit facility, our insolvency and the insolvency of our subsidiaries, the occurrence of a material adverse event, the occurrence of any default under certain other indebtedness, and a final judgment against us in an amount greater than $100,000. As of March 31, 2016, there had been no such events of default and the lenders had not exercised their rights with respect to an event of default under the credit facility.
Plan of operations and future funding requirements
To date, we have not generated any product sales. We do not know when, or if, we will generate revenue from product sales. We will not generate significant revenue from product sales unless and until we obtain regulatory approval and commercialize one of our current or future product candidates. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, laboratory and related supplies, clinical costs, legal and other regulatory expenses, and general overhead costs. We expect that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are subject to risks in the development of our products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. We expect that we will need substantial additional funding in connection with our continuing operations. In their report on our consolidated financial statements for the years ended December 31, 2014 and 2015, our independent registered public accounting firm included an explanatory paragraph stating that we have recurring losses from operations since inception and negative cash flows from operating activities and will require additional capital to fund planned operations. These conditions raise substantial doubt about our ability to continue as a going concern.
We expect that the net proceeds from this offering, together with our cash and cash equivalents as of March 31, 2016, and funding that we expect to receive under our existing collaborations will fund our operating expenses and capital expenditure requirements through at least December 31, 2017. 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. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress in these trials is uncertain. Because our product candidates are in various stages of clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Our future capital requirements will depend on many factors, including:
90 | | |
Management's discussion and analysis of financial condition and results of operations
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings and revenue from license and collaboration arrangements. Except for any obligations of our collaborators to reimburse us for research and development expenses or to make milestone payments under our agreements with them, upon completion of this offering, we will not have any committed external source of liquidity. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams 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 future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Cash flows
The following is a summary of cash flows for the years ended December 31, 2014 and 2015 and the three months ending March 31, 2016 (in thousands):
|
Year ended
December 31, |
Three months ended
March 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2015
|
2016
|
|||||||||
|
|
|
(unaudited)
|
(unaudited)
|
|||||||||
Beginning of the period |
$ | 8,057 | $ | 16,592 | $ | 16,592 | $ | 32,337 | |||||
Net cash used in operating activities |
(12,686 | ) | (22,463 | ) | (4,898 | ) | (10,166 | ) | |||||
Net cash used in investing activities |
(227 | ) | (4,679 | ) | (123 | ) | (3,555 | ) | |||||
Net cash provided by (used in) financing activities |
24,771 | 43,906 | (207 | ) | (1,677 | ) | |||||||
Effect of exchange rate changes on cash |
(3,323 | ) | (1,019 | ) | (230 | ) | 112 | ||||||
| | | | | | | | | | | | | |
End of the period |
$ | 16,592 | $ | 32,337 | $ | 11,134 | $ | 17,051 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | 91 |
Management's discussion and analysis of financial condition and results of operations
Net cash used in operating activities
Net cash used in operating activities was $4.9 million for the three months ended March 31, 2015 as compared to $10.2 million for the three months ended March 31, 2016. The increase in net cash used in operating activities of $5.3 million reflected an increase of (i) $1.7 million in net loss due to increased research and development expenses as we advanced from preclinical studies into the Phase 1 clinical trials, (ii) $2.0 million of restricted cash and other deposits, (iii) $1.0 million of receivables associated with pending receipts from the NIDA grant and (iv) $2.2 million from the net payments of accounts payable and other liabilities, offset by (a) $1.3 million of advance grant and collaboration receipts classified as deferred revenue and contingent repayable grant funding and (b) a $0.3 million decrease in other assets.
Net cash used in operating activities was $12.7 million for the year ended December 31, 2014, as compared to $22.5 million for the year ended December 31, 2015. The increase of $10.0 million in cash used in operating activities during the year ended December 31, 2015, was primarily related to the increased net loss position as a result of the incremental costs associated with the clinical trial.
Net cash used in investing activities
Net cash used in investing activities was $0.1 million for the three months ended March 31, 2015 as compared to net cash used in investing activities of $3.6 million of the three months ended March 31, 2016. The increase in cash used for investing activities of $3.5 million was primarily caused by the purchase of $3.5 million of short term government obligations.
Net cash used in investing activities was $0.2 million for the year ended December 31, 2014, as compared to net cash used in investing activities of $4.7 million for the year ended December 31, 2015. The increase in cash used for investing activities was caused by the purchase of $3.5 million of short-term investments and an additional $1.2 million of purchased equipment.
Net cash provided by (used in) financing activities
Net cash used in financing activities was $0.2 million for the three months ended March 31, 2015 as compared to $1.7 million for the three months ended March 31, 2016. The increase of $1.5 million used in financing activities is caused by the increase in deferred costs related to this initial public offering.
Net cash provided by financing activities was $24.8 million for the year ended December 31, 2014, as compared to net cash provided by financing activities of $43.9 million for the year ended December 31, 2015. The increase of $19.1 million reflected the difference in proceeds from the issuance of the series E preferred stock and the convertible notes (that converted into series E preferred stock) in 2015 versus the proceeds from the issuance of series D preferred stock and our series SRN preferred stock issued in 2014.
Effect of exchange rates on cash
The functional currency of our Russian subsidiary is the ruble. The statement of cash flows for our Russian subsidiary is translated using the average translation rate applicable during the period except that all cash and cash equivalents, short term investments and restricted cash at the beginning of the period is translated using the exchange rate as of the beginning balance sheet date, and short term investments and restricted cash at the end of the period is translated using the exchange rate as of the ending balance sheet date.
92 | | |
Management's discussion and analysis of financial condition and results of operations
Contractual obligations and contingent liabilities
The following summarizes our significant contractual obligations as of March 31, 2016 (in thousands):
Contractual Obligations
|
Total
|
Less than
1 year |
1 to 3 years
|
3 to 5 years
|
More than
5 years |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | |
Operating leases(1) |
$ | 1,188 | $ | 1,188 | $ | | $ | | $ | | ||||||
Research and development contract obligations(2) |
240 | 60 | 120 | 60 | | |||||||||||
Long term debt(3) |
14,745 | 2,059 | 10,637 | 2,049 | | |||||||||||
| | | | | | | | | | | | | | | | |
Total obligations |
$ | 16,173 | $ | 3,307 | $ | 10,757 | $ | 2,109 | $ | | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The contractual obligations table does not include any potential contingent payments upon the achievement by us of specified clinical, regulatory and commercial events, as applicable, or patent prosecution or royalty payments we may be required to make under license agreements we have entered into with various universities or partners pursuant to which we have in-licensed certain intellectual property, including our license agreement with MIT. We have excluded these potential payments in the contractual obligations table because the timing and likelihood of these contingent payments are not known. See "BusinessLicenses and collaborations" for additional information about these license agreements, including with respect to potential payments thereunder.
We enter into agreements in the normal course of business with manufacturers and CROs for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. As of March 31, 2016, we had approximately $7.0 million of purchase orders under these agreements. However, these agreements generally provide for termination upon notice. As a result, we have excluded payments under these agreements because (i) the timing of these payments is uncertain and contingent upon completion of future activities and (ii) we believe that our non-cancelable obligations under these agreements are not material.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
Our management's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities in our consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience, known trends and events,
| | 93 |
Management's discussion and analysis of financial condition and results of operations
and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in the notes to our consolidated financial statements included elsewhere in this prospectus, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our consolidated financial statements and understanding and evaluating our reported financial results.
Revenue recognition
Collaborative research and development and multiple-deliverable arrangements
We enter into collaborative arrangements for the development and commercialization of product candidates utilizing our SVP technology. The terms of these agreements have typically included multiple deliverables by us (for example, license rights, research and development services and manufacturing of clinical materials) in exchange for consideration to us of some combination of non-refundable upfront payments, research and development funding, payments based upon achievement of clinical development or other milestones, and royalties in the form of a designated percentage of product sales or profits.
Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable and collection is reasonably assured. When one or more of the revenue recognition criteria are not met, we defer the recognition of revenue until such time as all such criteria are met. Multiple-deliverable arrangements, such as development agreements, are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single unit of accounting. When deliverables are separable, consideration received is allocated to the separate units of accounting based on the relative selling price method and the appropriate revenue recognition principles are applied to each unit.
We determine the estimated selling price for deliverables within each agreement using vendor-specific objective evidence, or VSOE, of selling price, if available, third-party evidence, or TPE, of selling price if VSOE is not available, or best estimate of selling price if neither VSOE nor TPE is available. Determining the best estimate of selling price for a deliverable requires significant judgment. We have used our best estimate of selling price to estimate the selling price for licenses related to our proprietary technology, since we do not have VSOE or TPE of selling price for these deliverables. In those circumstances, we consider market conditions as well as entity-specific factors, including those factors contemplated in negotiating the agreements, estimated development costs, probability of success and the time needed to commercialize a product candidate pursuant to the license. In validating the best estimate of selling price, we evaluate whether changes in the key assumptions used to determine the best estimate of selling price will have a significant effect on the allocation of consideration between multiple deliverables.
We may receive upfront payments when licensing our intellectual property in conjunction with a research and development agreement. When management believes the license to our intellectual property does not have stand-alone value from the other deliverables to be provided in the arrangement, we generally recognize revenue attributed to the license over the contractual or estimated performance period. When management believes the license to our intellectual property has stand-alone value, we generally recognize revenue attributed to the license upon delivery. The periods over which revenue should be recognized are subject to estimates by management and may change over the course
94 | | |
Management's discussion and analysis of financial condition and results of operations
of the research and development agreement. Such a change could have a material impact on the amount of revenue we record in future periods. We have not experienced any significant adjustments to our estimates to date.
Payments or reimbursements resulting from our research and development efforts are recognized and presented on a gross basis as the services are performed. The rationale for presenting on a gross basis is that we are the principal for such efforts, and as long as there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the related amount is reasonably assured. Grant agreements generally provide for the reimbursement of direct costs, including salaries, benefits and supplies, as well as indirect costs.
At the inception of each agreement that includes milestones payments, we evaluate whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone, specifically reviewing factors such as the scientific and other risks that must be overcome to achieve the milestone, as well as the level of effort and investment required. Revenues from milestones, if they are nonrefundable and deemed substantive, are recognized upon successful accomplishment of the milestones. Milestones that are not considered substantive are accounted for as license payments and recognized over the remaining period of performance.
Deferred revenue
Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized within one year following the balance sheet date are classified as non-current deferred revenue.
Accrued expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing contracts and purchase orders, reviewing the terms of our vendor agreements, communicating with our applicable personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include:
We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows and expense recognition. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Our understanding of the status and timing of services performed relative to the actual status and timing of
| | 95 |
Management's discussion and analysis of financial condition and results of operations
services performed may vary and may result in our reporting changes in estimates in any particular period. We have not experienced any significant adjustments to our estimates to date.
Stock-based compensation
We issue stock-based awards to employees and non-employees, generally in the form of stock options and restricted stock. We account for our stock-based awards in accordance with the ASC 718, CompensationStock Compensation, or ASC 718. We account for stock-based awards to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees, or ASC 505-50.
Pursuant to ASC 718, we measure stock options and other stock-based awards granted to employees and directors based on the fair value on the date of grant and recognize the corresponding compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. Generally, we issue stock options and restricted stock awards with only service-based vesting conditions and record the expense for these awards using the straight-line method.
Pursuant to ASC 505-50, we measure stock-based awards granted to consultants and non-employees based on the fair value of the award on the date at which the related service is complete. Compensation expense is recognized over the period during which services are rendered by such consultants and non-employees until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model.
We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected terms of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.
Stock-based compensation for employees and non-employees were classified in the consolidated statements of operations and comprehensive loss as outlined below (in thousands):
|
Year ended
December 31, |
Three months
ended March 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2015
|
2016
|
|||||||||
|
|
|
(unaudited)
|
||||||||||
Research and development |
$ | 384 | $ | 495 | $ | 132 | $ | 167 | |||||
General and administrative |
840 | 630 | 170 | 115 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 1,224 | $ | 1,125 | $ | 302 | $ | 282 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
As of March 31, 2016, we had $3.0 million of total unrecognized compensation expense, net of related forfeiture estimates, which is expected to be recognized over a weighted average remaining vesting period of approximately 3.0 years. We expect the impact of our stock-based compensation expense for stock options and restricted stock granted to employees and non-employees to grow in future periods due to the potential increases in the value of our common stock and headcount.
96 | | |
Management's discussion and analysis of financial condition and results of operations
Common stock valuation
As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our board of directors, with input from management, considering our most recently available third-party valuations of common stock and our board of directors' assessment of additional objective and subjective factors that it believed were relevant, and factors that may have changed from the date of the most recent valuation through the date of the grant. We have periodically determined the estimated fair value of our common stock at various dates using contemporaneous valuations performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants' Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid.
The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date. In accordance with the Practice Aid, our board of directors considered the following methods.
Given the range of possible financing and exit events that existed at the time we completed our valuations, our board of directors concluded the PWERM to be the most appropriate for purposes of valuing our common stock given our expected time to a liquidity event, subjectivity with regards to estimating possible proceeds from a future liquidation event and subjectivity with regards to the ability to estimate the probability of an initial public offering, sale or other financing events. The PWERM explicitly considers the various terms of our investor related documents, including various rights of each class of our stock, at the date of the liquidity event when those rights will either be executed or abandoned.
We obtained valuations of our common stock on February 28, 2014, November 30, 2014, September 30, 2015, December 31, 2015, January 31, 2016, March 31, 2016 and April 30, 2016. All valuations utilized the PWERM methodology to allocate the enterprise value to the common stock. The fair value of our common stock was estimated using a probability-weighted analysis of the present value of the returns afforded to common stockholders under several future stockholder exit or liquidity event scenarios, either through (1) a near-term and longer-term initial public offering, or IPO, scenario; (2) a sale of our company at values deemed to be low, medium and high; or (3) a liquidation event where the value is well below the preferred stock preference levels.
The selected enterprise value in the near-term IPO scenario was based on the pre-money market data for IPOs between the median and the mean of the observed range given reasonably "like" stage companies. The selected aggregate enterprise value in the longer-term scenario was also based on the pre-money market data for IPOs of equivalent stage biotechnology companies, but with added consideration that the market may not be as robust in the near-term initial public offering time frame and we will have completed our proof-of-concept with positive findings. The selected enterprise values utilized for each of the three scenarios in the sale scenario considered management's best estimates considering program accomplishments towards one or more indications being in the clinic, the
| | 97 |
Management's discussion and analysis of financial condition and results of operations
available cash runway and additional preclinical data from our other product candidates. In the liquidation scenario at a price below liquidation preference, the valuations assumed a value that would not allow the preferred stockholders to realize their full liquidation preference resulting in no value to common stockholders.
Under all the exit scenarios considered in the PWERM, the fair value of our common stock was calculated using the estimated future enterprise valuations and a risk-adjusted discount rate based on the inherent risk of a hypothetical investment in our common stock, and a discount for lack of marketability. The risk-adjusted discount rate was based on consideration of the weighted average cost of capital, or WACC, for comparable biotechnology companies adjusted for company-specific risk factors, the venture capital rates of return and an analysis of other quantitative and qualitative factors considered pertinent to estimating the discount rate. We corroborated the discount based on the value of a put option compared to the value of common stock using Black-Scholes. We also considered the rights and privileges of our preferred stock as compared to our common stock, including anti-dilution protection, redemption rights, protective provisions in our certificate of incorporation and rights to participate in future rounds of financing.
We performed these valuations, with the assistance of a third-party valuation specialist, on February 28, 2014, November 30, 2014, September 30, 2015, December 31, 2015, January 31, 2016, March 31, 2016 and April 30, 2016. The resulting estimated fair value of our common stock as of April 30, 2016 was $8.97, March 31, 2016 was $8.15, January 31, 2016 was $7.02, December 31, 2015 was $6.79, September 30, 2015 was $6.40, November 30, 2014 was $9.36 and February 28, 2014 was $8.97 per share. The changes in the assumptions used for the September 2015 valuation as compared to the November 2014 valuation reflected our progress towards proof of scientific concept and resulting technology advancement, the decision to advance towards an IPO, and the offering value of our series E preferred stock financing. This decrease in per share value was primarily due to then-current valuations for biotechnology companies, capital market conditions for biotechnology companies and the terms of our recent series E preferred stock financing. The valuations performed as of January 31, 2016 and December 31, 2015, as compared to September 30, 2015, reflected only the advancement of time between valuations towards the future stockholder exit or liquidity event scenarios. As there were no new significant clinical data, financial events or other changes in the business during that period, management believes the change in valuation is attributable to time progression. The valuations performed for April 30, 2016 and March 31, 2016 included consideration for the continued advancement of time towards an IPO in the second quarter of 2016, the apparent stabilization of the capital markets, the initial results of our Phase 1b clinical trial and analysis of the valuations for other biotechnology companies.
The assumptions underlying these valuations represent management's best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our equity-based compensation could be materially different.
Following the closing of this offering, the fair value of our common stock will be determined based on the quoted market price of our common stock.
98 | | |
Management's discussion and analysis of financial condition and results of operations
Stock option grants
The following table summarizes by grant date the number of shares subject to options granted since January 1, 2014, the per share exercise price of the options, the fair value of common stock underlying the options on date of grant and the per share estimated fair value of the options:
Grant date |
Number of common shares underlying options granted |
Exercise price per common share(1) |
Fair value of common stock per share on grant date(2) |
Per share estimated fair value of options |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
April 8, 2014 |
152,820 | $ | 8.97 | $ | 8.97 | $ | 6.86 | ||||||
April 23, 2014 |
20,512 | $ | 8.97 | $ | 8.97 | $ | 6.37 | ||||||
September 9, 2014 |
6,923 | $ | 8.97 | $ | 8.97 | $ | 6.98 | ||||||
February 6, 2015 |
57,692 | $ | 9.36 | $ | 9.36 | $ | 7.14 | ||||||
February 21, 2015 |
62,820 | $ | 9.36 | $ | 9.36 | $ | 7.14 | ||||||
April 7, 2015 |
5,128 | $ | 9.36 | $ | 9.36 | $ | 7.06 | ||||||
June 12, 2015 |
6,410 | $ | 9.36 | $ | 6.40 | $ | 3.86 | ||||||
September 8, 2015 |
115,384 | $ | 9.36 | $ | 6.40 | $ | 3.78 | ||||||
December 4, 2015 |
315,320 | $ | 6.40 | $ | 6.40 | $ | 4.56 | ||||||
March 9, 2016 |
171,794 | $ | 7.02 | $ | 7.41 | $ | 5.69 | ||||||
April 5, 2016 |
11,282 | $ | 8.15 | $ | 8.15 | $ | 4.67 | ||||||
| | | | | | | | | | | | | |
|
926,085 | ||||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
In the course of preparing for this offering, on January 31, 2016 and March 31, 2016, we performed a fair value assessment and concluded that the fair value of our common stock underlying the stock options we granted between April 8, 2014 and April 5, 2016 was between $6.40 and $9.36 per share for accounting purposes. These reassessed values, which we applied to determine the fair values of the option grants in determining the stock-based compensation expense for accounting purposes, were based in part upon the valuation of our common stock as of January 31, 2016 and March 31, 2016, performed with the assistance of a third-party specialist, taking into account an increased probability of executing a successful IPO during the first half of 2016, the recent IPO valuations for early-stage biotechnology companies and the probability of a successful result in our Phase 1/2 clinical trials of SEL-212. These revised common stock valuations were performed using the PWERM method noted above.
Initial public offering
In consultation with the underwriters for this offering, we determined the estimated price range for this offering, as set forth on the cover page of this prospectus. The midpoint of the price range is $15.00
| | 99 |
Management's discussion and analysis of financial condition and results of operations
per share. In comparison, our estimate of the fair value of our common stock was $8.97 per share as of the April 30, 2016 valuation. We note that, as is typical with IPOs, the estimated price range for this offering was not derived using a formal determination of fair value, but was determined by negotiation between us and the underwriters. Among the factors that were considered in setting this range were the following:
In addition to these factors, we believe that the difference between the fair value of our common stock as of April 30, 2016 and the midpoint of the price range for this offering is primarily the result of our receipt in late May and early June 2016 of positive data from our Phase 1b clinical trial in respect of the safety and tolerability of our lead product candidate, SEL-212. See "BusinessOur antigen-specific tolerance program SEL-212 for the treatment of refractory and chronic tophaceous gout-clinical developmentPhase 1b clinical trail." In addition, the estimated IPO price range necessarily assumes that the IPO has occurred, a public market for our common stock has been created and that our preferred stock converted into common stock in connection with the IPO, and therefore excludes any discount for lack of marketability of our common stock, which was factored into the April 30, 2016 valuation.
WARRANT VALUATION
We granted warrants to purchase shares of our series D preferred stock and series E preferred stock to the lenders under our loan and security agreement dated August 9, 2013, as amended on May 9, 2014, and as amended and restated on December 31, 2015. These warrants are classified as a liability as the warrants are free-standing financial instruments that may require us to transfer assets upon exercise. The warrants were initially recorded at their grant date fair value on and are remeasured to fair value at each subsequent balance sheet date. Changes in fair value of these warrants are recognized as a component of other income (expense) in our consolidated statements of operations and comprehensive loss. We will continue to adjust the liability for changes in fair value of the warrants until the earlier of the exercise or expiration of the warrants.
The fair value of the warrants are estimated using Black-Sholes, which incorporates assumptions and estimates to value these warrants. We assess these assumptions and estimates on a quarterly basis based on information available to us on each valuation date. Such assumptions and estimates include: the fair value per share of the underlying series D preferred stock and series E preferred stock, the remaining contractual term of the warrants, risk-free interest rate applicable to the remaining contractual term, expected dividend yield and expected volatility of the price of the underlying preferred stock. We determine the fair value per share of the underlying preferred stock by taking into consideration the most recent sales of our redeemable convertible preferred stock, results obtained from third-party valuations and additional factors that we deem relevant. We have historically been a private company and lack company-specific historical and implied volatility information of our stock. Therefore, we estimate expected stock volatility based on the historical volatility of publicly traded comparable companies for a term equal to the remaining contractual term of the warrants. The
100 | | |
Management's discussion and analysis of financial condition and results of operations
risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods that approximately equal to the remaining contractual term of the warrants. We assumed no dividend yield based on the fact that we have never paid or declared dividends, and do not expect to pay or declare dividends in the future.
In connection with this offering, the underlying redeemable convertible preferred stock will be converted to common stock. The preferred warrants will therefore become exercisable into common stock instead of preferred stock and the fair value of the warrant liability will be reclassified to additional paid-in capital at that time.
OFF-BALANCE SHEET ARRANGEMENTS
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under Securities and Exchange Commission rules.
NET OPERATING LOSS AND RESEARCH AND DEVELOPMENT TAX CREDIT CARRYFORWARDS
As of December 31, 2015, we had net operating loss carryforwards, or NOLs, for federal and state income tax purposes of $82.4 million and $76.3 million, respectively, which expire at various times through 2035. In 2014, our wholly owned subsidiary, Selecta RUS, was granted a "Skolkovo designated" resident status in Russia. As a result, the subsidiary operates as a corporate tax exempt entity, with lower employee and employment taxes. All foreign net operating loss carryforwards have been eliminated. The state NOLs began expiring in 2015 and will continue to expire through 2035. At December 31, 2015, we had available federal and state research and development income tax credits of approximately $1.6 million and $1.1 million respectively, which may be available to reduce future income taxes, if any, at various times through 2035.
Utilization of the NOLs and credits may be subject to a substantial annual limitation due to ownership change limitations provided by Section 382 of the Code. Specifically, this limitation may arise in the event of a cumulative change in our ownership of more than 50% within any three-year period. The amount of the annual limitation is determined based on our value immediately before the ownership change. Subsequent ownership changes may further affect the limitation in future years. The annual limitation may result in the expiration of our net operating losses and credits before we can use them. We have recorded a valuation allowance on all of our deferred tax assets, including our deferred tax assets related to our NOLs and research and development tax credit carryforwards. We plan to undertake a study to analyze and determine if any historical ownership changes have occurred to determine if there are any permanent limitations on our ability to utilize NOLs and other tax attributes in the future. In addition, we may experience ownership changes after this offering as a result of subsequent shifts in our stock ownership. As a result, we are unable to estimate the effect of these limitations, if any, on our ability to utilize NOLs and other tax attributes in the future.
JOBS ACT ACCOUNTING ELECTION
In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of 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. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
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Management's discussion and analysis of financial condition and results of operations
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2014, FASB issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers, or ASU 2014-09, which amends the guidance for revenue recognition to replace numerous industry-specific requirements. ASU 2014-09 implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. ASU 2014-09 also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in ASU 2014-09 are effective for reporting periods beginning after December 15, 2017. Early adoption is permitted, but not before December 15, 2016. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently in the process of evaluating the effect the adoption of ASU 2014-09 may have on our financial statements.
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, or ASU 2014-15. ASU 2014-15 requires management to assess our ability to continue as a going concern and to provide related disclosures in certain circumstances. The requirements of ASU 2014-15 will be effective for the annual financial statement period beginning after December 15, 2016, with early adoption permitted. We are currently in the process of evaluating the impact of adopting ASU 2014-15.
In February 2016, FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"). ASU 2016-02 requires a lessee to separate the lease components from the non-lease components in a contract and recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. It also aligns lease accounting for lessors with the revenue recognition guidance in ASU 2014-09. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is to be applied at the beginning of the earliest period presented using a modified retrospective approach. We are currently in the process of evaluating the impact of adopting ASU 2016-02.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of December 31, 2015 and March 31, 2016, we had cash equivalents of $32.3 million and $17.1 million, respectively, consisting of non-interest and interest-bearing money market accounts. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term the low risk profile of our money market accounts, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents.
In addition, we are subject to currency risk for balances held in rubles in our foreign subsidiary. We hold portions of our funds in both U.S. dollars and rubles. The exchange rate between the U.S. dollar and ruble fluctuated significantly. As of December 31, 2013, the exchange rate was 32.7 rubles per U.S. dollar as compared to 56.26 rubles per U.S. dollar at December 31, 2014 and 72.89 rubles per U.S. dollar at December 31, 2015. As of March 31, 2016, the exchange rate was 67.61 rubles per U.S. dollar, under which we held $4.2 million of total cash in Russian banks to support our Russian subsidiary, which includes $1.5 million of cash and cash equivalents, $2.0 million of short-term deposits and $0.7 million of restricted cash, of which $1.0 million of cash and cash equivalents and the $2.0 million of short-term deposits were denominated in U.S. dollars. We do not hedge against foreign currency risks. We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein.
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OVERVIEW
We are a clinical-stage biopharmaceutical company using our proprietary synthetic vaccine particle, or SVP, technology to discover and develop targeted therapies that are designed to modulate the immune system to effectively and safely treat rare and serious diseases. Many such diseases are treated with biologic therapies that are foreign to the patient's immune system and therefore, elicit an undesired immune response. Of particular concern are anti-drug antibodies, or ADAs, which are produced by the immune system in response to biologic therapy and can adversely affect the efficacy and safety of treatment. Our proprietary SVP technology encapsulates an immunomodulator in biodegradable nanoparticles to induce antigen-specific immune tolerance to mitigate the formation of ADAs in response to life-sustaining biologic drugs. We believe our SVP technology has the potential for broad applications to both enhance existing biologic drugs and enable novel therapies. Our lead product candidate, SEL-212, is a combination of a therapeutic enzyme and our SVP technology designed to be the first biologic treatment for gout that durably controls uric acid in refractory gout and dissolves and removes the harmful deposits of uric acid in chronic tophaceous gout, each a painful and debilitating disease with unmet medical need. SEL-212 is currently in a comprehensive Phase 1/2 clinical program. The Phase 1/2 clinical program is comprised of two Phase 1 clinical trials and a Phase 2 clinical trial, and is designed to evaluate the ability of SEL-212 to control uric acid levels and mitigate the formation of ADAs. Based on preliminary data from our ongoing Phase 1b clinical trial, we believe that SEL-212 has the potential to control serum uric acid levels for at least 30 days after a single dose by mitigating the formation of ADAs in response to the therapeutic enzyme. We expect to receive final data from both Phase 1 clinical trials and initiate the Phase 2 clinical trial in the second half of 2016. We have submitted to the FDA two investigational new drug, or IND, applications, both of which are active. Each IND lists us as the named sponsor and is indicated for the treatment of chronic gout in adult patients refractory to conventional therapy.
Despite rapid advancement in biologic treatment of rare and serious diseases, many biologic therapies are not broadly effective because they are exogenous proteins that are foreign to the patient's immune system and, therefore, may elicit an immune response, known as immunogenicity. Undesired immunogenicity includes the formation of ADAs that can compromise the drug's efficacy and cause serious allergic reactions. The formation of ADAs is known to occur in established treatments such as enzyme and protein replacement therapies, as well as in novel technologies, such as gene therapy and antibody-drug conjugates. ADAs can start developing in the body with the first dose of a biologic therapy and can render subsequent doses ineffective or unsafe, potentially depriving patients of life-saving therapeutic options and limiting the likelihood of success for many otherwise promising novel biologic drugs and technologies. We believe the co-administration of our SVP technology with biologic treatments has the potential to overcome these limitations without requiring changes in dosing or formulation. We intend to build a platform based on our SVP technology applied to the mitigation of ADAs for a wide range of biologics.
Our lead product candidate, SEL-212, was designed specifically to overcome the challenges faced by Krystexxa, a pegylated uricase. Krystexxa, is the only product approved by the U.S. Food and Drug Administration, or the FDA, for the treatment of chronic refractory gout. In clinical trials, Krystexxa demonstrated the ability to rapidly reduce uric acid levels in serum upon initial dosing. However, despite these results, Krystexxa has not achieved broad commercial adoption. We believe this is largely attributable to undesired immunogenicity. The package insert information for Krystexxa indicates that during Phase 3 clinical trials, 92% of patients developed ADAs. The package insert information also indicates that during the drug's Phase 3 clinical trials, high Krystexxa-specific ADA levels in patients
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were associated with a failure to maintain Krystexxa-induced normalization of uric acid levels. Similarly, in 2011, The Journal of the American Medical Association published the results of clinical trials finding that 58% of Krystexxa patients who received biweekly doses of Krystexxa were non-responders.
SEL-212 consists of SVP-Rapamycin co-administered with pegsiticase, our proprietary pegylated uricase, for the treatment of refractory and chronic tophaceous gout. SVP-Rapamycin uses our SVP technology to encapsulate the approved immunomodulator rapamycin in biodegradable nanoparticles. Our preclinical data indicate that SVP-Rapamycin, when co-administered with pegsiticase, induces antigen-specific immune tolerance to pegsiticase and substantially reduces the formation of associated ADAs. We believe that SEL-212 has the potential to offer a uniquely effective treatment for patients with refractory or chronic tophaceous gout, while also demonstrating the clinical effectiveness of our SVP technology. Approximately 8.3 million patients in the United States suffer from gout, which is caused by elevated levels of serum uric acid. Excessive uric acid levels result in harmful deposits of insoluble uric acid crystals in joints and tissues, causing joint damage and painful inflammation. High concentrations of serum uric acid also increase the risk for other conditions, including cardiovascular, cardiometabolic, joint and kidney disease. No treatment has been approved to remove uric acid deposits from joints and tissues. Approximately 50,000 patients in the United States have been diagnosed with chronic refractory gout, an orphan indication defined as uric acid levels that cannot be controlled by available oral therapies. Approximately 500,000 patients in the United States suffer from chronic tophaceous gout, in which patients develop nodular insoluble masses of uric acid crystals referred to as tophi, which can occur either in joints, such as fingers, toes or elbows, or in the tissues that make up organs, such as the kidney and heart. Tophi are a source of inflammation and pain, and have been associated with diseases of the heart, vascular system, metabolic process, kidney and joints. There is no approved drug for chronic tophaceous gout.
We are also applying our SVP technology to antigen-specific immune tolerance for gene therapy involving gene augmentation, replacement or editing. Gene therapies often use a viral vector, such as an adeno-associated virus, or AAV, vector to place corrective genetic material into cells to treat genetic diseases. One of the key hurdles for the gene therapy field is to overcome immunogenicity against the viral vector, which can manifest itself in three ways. First, pre-existing ADAs that were induced following a natural AAV infection can neutralize the viral vector and block gene transfer. Up to 50% of patients are ineligible for gene therapy due to the presence of pre-existing ADAs. Second, ADAs form in response to the first administration of a gene therapy vector and prevent effective subsequent doses of gene therapy. Subsequent doses are particularly necessary for pediatric indications due to cellular turnover in young patients. The ability to readminister gene therapies is also important for diseases where the goal is to transfect a high number of cells. Moreover, the third way in which immunogenicity can manifest itself against the viral vector is that the cellular immune system can respond to the transduced cells, which can reduce efficacy and pose safety concerns.
We have in-licensed the Anc80 gene therapy vector, or Anc80, from the Massachusetts Eye and Ear Infirmary and The Schepens Eye Research Institute, Inc., collectively referred to as MEE. Developed by the laboratory of Luk H. Vandenberghe, Ph.D., of Massachusetts Eye and Ear Infirmary and Harvard Medical School, Anc80 was designed as a synthetic precursor of AAV1, AAV2, AAV8 and AAV9. In preclinical studies, Anc80 has been observed to be a potent gene therapy vector that has demonstrated the capability of yielding superior gene expression levels in the liver compared to naturally occurring AAVs that are currently evaluated in clinical trials. As a synthetic vector, we believe Anc80 has limited cross-reactivity to naturally-occurring AAVs and therefore has the potential to treat patients with pre-existing AAV-specific ADAs. By combining SVP-Rapamycin and Anc80, we intend to develop highly differentiated gene therapies to address all three of the immunogenicity issues associated with
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the use of viral vectors. We believe that any such potential proprietary gene therapy products utilizing SVP-Rapamycin and Anc80 would have significant advantages, including (i) applicability to patients with pre-existing ADAs to naturally occurring AAV, a current exclusion criteria for many clinical studies, and (ii) the potential development of gene therapies for diseases that require repeat dosing due to a younger patient population or need to reach higher levels of protein expression than can be achieved with a single dose.
In collaboration with the clinical and gene therapy laboratory at the National Institutes of Health, or NIH, and MEE, we plan to develop a product candidate utilizing the Anc80 vector for the treatment of an autosomal recessive metabolic, or ARM, disorder resulting from an inborn error of metabolism. This ARM disorder can cause severe developmental defects and premature death as a result of an accumulation of toxic metabolites. Under our license agreement with MEE, we also have the option to develop gene therapies using Anc80 for several additional diseases including lysosomal storage, muscular and genetic metabolic diseases. We plan to develop another product candidate for the treatment of an X-linked metabolic, or XLM, disorder, which is a metabolic disorder similar to ARM disorder. We are pursuing this second indication through collaborations with third parties with preclinical and clinical experience in this area.
In addition to developing proprietary non-immunogenic therapeutic enzymes and gene therapies, we intend to pursue out-licensing opportunities for select applications of our SVP technology. We believe that our preclinical data may support the potential application of SVP-Rapamycin to both marketed products, such as monoclonal antibodies against human tumor necrosis factor-alpha, or TNF-alpha, which are known to induce undesired immnogenicity, and novel biologic drugs that would otherwise be too immunogenic to develop, such as novel antibody-drug conjugates. We are also applying our SVP technology to the treatment of autoimmune diseases and allergies. Currently, most autoimmune diseases are treated with broadly immunosuppressive therapies that indiscriminately affect the function of the entire immune system. Our SVP technology is designed to re-program the immune system to elicit tolerance to a specific antigen without impacting the rest of the immune system. Since 2012, we have established three collaborations with Sanofi to research novel products for the treatment of a life-threatening food allergy, celiac disease and type 1 diabetes. We intend to continue a strategy of out-licensing our SVP technology for antigen-specific immune tolerance for applications that are outside our areas of focus.
We believe our SVP technology also has the potential to be used for therapies that stimulate the immune system to prevent and treat cancer, infectious diseases and other diseases. We have early-stage research programs for therapeutic vaccines for human papilloma virus, or HPV, associated cancers and for antibody-based vaccine programs for nicotine addiction and malaria. These programs use our SVP technology to encapsulate an immune-stimulatory agent in biodegradable nanoparticles in order to stimulate the immune system in response to a specific antigen. We currently finance these programs primarily through grants.
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The following chart summarizes our current SVP product candidate pipeline:
Program
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Description
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Development status
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Program strategy
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SVP for immune tolerance | ||||||
Refractory and chronic tophaceous gout (SEL-212) |
SVP-Rapamycin co-administered with pegsiticase |
Final data from Phase 1a and Phase 1b trials and initiation of Phase 2 trial expected in the second half of 2016 |
Own development |
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Gene therapy for an ARM disorder |
SVP-Rapamycin co-administered with Anc80 |
Investigational New Drug Application, or IND, filing for first indication expected by the end of 2017 |
Own development |
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Gene therapy for an XLM disorder |
SVP-Rapamycin co-administered with AAV |
IND filing for first indication expected in 2018 |
Own development |
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SVP for immune stimulation |
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Smoking cessation and relapse prevention (SEL-070) |
SVP-adjuvant and SVP-nicotine |
Good laboratory practice, or GLP, toxicology studies ongoing |
Own development, with grant from the National Institute on Drug Abuse, or NIDA |
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HPV-associated cancer (SEL-701) |
SVP-adjuvant and SVP-HPV antigen |
Preclinical |
Own development, with grant from the Russian-based Development Fund of New Technologies Development and Commercialization Center, or the Skolkovo Foundation |
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The following chart summarizes our current discovery pipeline.
Program
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Description
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Development status
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Program strategy
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SVP for immune tolerance | ||||||
Food allergy |
SVP-adjuvant and SVP-food allergen |
Discovery |
Sanofi worldwide exclusive license |
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Celiac disease |
SVP-Rapamycin and SVP-gluten |
Discovery |
Sanofi worldwide exclusive license |
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Type 1 diabetes |
SVP-Rapamycin and SVP-insulin |
Discovery |
Sanofi and Juvenile Diabetes Research Foundation, or JDRF, sponsored research program |
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SVP for immune stimulation |
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Malaria |
SVP-adjuvant and SVP-malaria antigen |
Discovery |
The Bill and Melinda Gates Foundation sponsored research program |
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OUR STRATEGY
Our goal is to become the first biopharmaceutical company to develop and commercialize targeted therapies that are designed to modulate the immune system to effectively and safely treat rare and serious diseases. In addition, we intend to maximize the value of our SVP technology by collaborating
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with biopharmaceutical companies on programs that can benefit from our technology but that are outside our area of focus. The key elements of our strategy include the following.
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OVERVIEW OF THE HUMAN IMMUNE SYSTEM
The human immune system is an integrated system of specialized immune cells, cell products and tissues that protect against infectious disease and cancer. The immune system recognizes antigens, which are substances, such as proteins, enzymes or complex sugars. These antigens can be endogenous, or self-antigens, which are produced by the body, or exogenous antigens derived from foreign sources, such as viruses, fungi or bacteria. The human immune system has evolved to recognize and destroy potentially harmful substances. To function effectively, the immune system must discern between harmful antigens and innocuous antigens. The immune system maintains a delicate balance between effector cells, which mount immune responses to antigens that represent potential threats, and regulatory cells, which mitigate undesired and potentially harmful immune responses through immune tolerance. Depending upon the characteristics of the antigen and the context in which the antigen is encountered, the immune system must determine whether to mount a defensive (effector) or regulatory (tolerogenic) immune response.
Antigens are processed in lymphoid organs, such as lymph nodes and the spleen, where the immune system determines whether to mount a defensive or regulatory response through a process called "antigen presentation." In connection with antigen presentation, dendritic cells process the antigens and present them to T cells. When presented, antigens perceived as harmful induce a stimulatory response that can result in the activation of cytolytic T cells or helper T cells, the latter of which help to induce B cells to produce antibodies. The role of cytolytic T cells is to kill cells that harbor intracellular antigens, such as viruses. The role of antibodies is to neutralize or eliminate extracellular antigens on cell surfaces or in interstitial fluids, such as plasma. Figure 1 below depicts both antigen presentation and the related immune responses.
Figure 1. Antigen Presentation and Related Tolerogenic or Stimulatory Immune Response
There are a number of diseases that occur when the immune system mounts an undesired response to an innocuous foreign antigen or a self-antigen. For example, food allergy occurs when the immune system mounts an immune response to innocuous food particles. Another example of undesired immunogenicity occurs when the immune system is exposed to a biologic treatment, recognizes it as a foreign antigen and instructs the body to mount a defense by forming ADAs to the antigen, which can compromise a therapy's desired beneficial effect. Undesired immunogenicity is common with biologic therapies, such as in enzyme and protein replacement therapies, and in novel technologies, such as gene therapy and antibody-drug conjugates.
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A number of therapies have been developed to modulate an immune response. These therapies fall into two categories:
OUR SVP TECHNOLOGY
Our proprietary SVP technology encapsulates an immunomodulator in biodegradable particles to selectively modulate an immune response in an antigen-specific manner. Our SVP technology is based in part on the pioneering research performed by our co-founders at Harvard University, Massachusetts Institute of Technology, or MIT, and Brigham and Women's Hospital, or Brigham. In connection with our company's founding, we licensed 17 patent families related to certain aspects of our SVP technology as applied to nanoparticles for use in vaccines from our co-founders' institutions pursuant to an agreement with MIT, the party that administers licensing arrangements with respect to patents jointly owned by these institutions. We believe one of the key insights from this research is that nanoparticles are uniquely suited to deliver precise instructions to the immune system as a result of the natural predisposition of the immune system to interrogate nanoparticles, such as viruses. This research led to a portfolio of patents and patent applications covering aspects of our SVP technology, which we have exclusively in-licensed with respect to therapeutic or prophylactic vaccine products or processes. We have aggressively sought to extend and protect the proprietary intellectual property underlying the composition and use of SVP for antigen-specific immunomodulation.
Our SVP technology is a highly flexible nanoparticle platform, capable of incorporating a wide range of antigens and immunomodulators, allowing us to tailor our SVP products for specific applications across multiple indications. We are tailoring our SVP technology for:
SVP are designed to remain intact after injection into the body and accumulate selectively in lymphoid organs, which include lymph nodes and the spleen, where the immune response is coordinated. SVP
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are designed to be processed by specialized immune cells, such as dendritic cells and other antigen-presenting cells that initiate and regulate immune responses, where they deliver the antigen and immunomodulator in a coordinated and targeted manner. Depending on the type of immunomodulator encapsulated in the SVP, our technology is designed to induce either a:
A tolerogenic response is the induction of immune tolerance or non-responsiveness to a specific antigen. Cytolytic T cells are specialized antigen-specific immune cells that target and kill cells that harbor a specific antigen.
Figure 2 below depicts the process by which SVP communicates with the immune system to induce either a tolerogenic or antigen-specific stimulatory response.
Figure 2. How SVP Communicate with the Immune System
OUR ANTIGEN-SPECIFIC TOLERANCE PROGRAM
Our antigen-specific SVP tolerance programs utilize SVP-Rapamycin, our biodegradable nanoparticle encapsulating the immunomodulator rapamycin. Rapamycin is a small molecule approved for the prevention of organ rejection in kidney transplant patients. To induce immune tolerance in the body, we co-administer our SVP-Rapamycin with a free antigen, such as a biologic drug, which is depicted in Figure 3 below.
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Figure 3. Co-Administration of SVP-Rapamycin with a Biologic Drug
SVP-Rapamycin is co-administered at the beginning of therapy with a biologic drug to mitigate the formation of ADAs without altering the drug or its dose regimen. As a result, we believe our SVP-Rapamycin may provide us with significant growth opportunities in the areas of immune tolerance because SVP-Rapamycin can be co-administered at the beginning of therapy with many different biologic drugs. Importantly, each pairing of SVP-Rapamycin with a biologic drug also offers us the opportunity to pursue another proprietary product candidate, which can be separately patented, approved and marketed. SVP-Rapamycin is manufactured under cGMP using well-defined commercial operations, which, we believe, further enhances the scalability of our tolerance programs.
During preclinical studies, we observed that delivering an antigen together with SVP-Rapamycin provided the appropriate signals in vivo to induce regulatory T cells, which, in turn, inhibited effector immune responses, such as the formation of ADAs. In our preclinical studies, we observed that SVP-Rapamycin labeled with a fluorescent dye selectively accumulated in lymphoid organs where it was processed by antigen-presenting cells. Figure 4 below depicts a model of how SVP-Rapamycin would enter a lymph node and be taken up by a dendritic cell. We believe that when delivered in the context of our SVP-Rapamycin, both the biologic drug and SVP-Rapamycin are taken up and processed by dendritic cells in a manner that induces regulatory T cells, which can block the activation of helper T cells, mitigating the formation of ADAs.
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Figure 4. SVP-Rapamycin and Antigen/Biologic Drug Presentation and Related Immune Tolerance Induction
Limitations of existing therapies
All biologics, even those comprised of human protein sequences, have the potential to induce ADAs. Whether a biologic drug elicits an ADA response depends on both product-specific factors, such as propensity to form aggregates, route of administration and mechanism of action, as well as patient-specific factors, such as genetics, underlying disease and medications. Many enzyme and protein replacement therapies used in the treatment of rare and serious diseases have a particularly high rate of immunogenicity because patients are genetically deficient in the target protein and, as a result, the therapeutic protein can be recognized as foreign.
The induction of ADAs can lead to neutralization of efficacy, modification of pharmacokinetics and pharmacodynamics as well as allergic responses. Immunogenicity is a significant hurdle for the development of safe and effective biologic treatments and has become a key concern for regulators, as evidenced by over 100 approved biologics that describe immunogenicity in their labels or clinical literature. We believe that immunogenicity is a leading cause of treatment failure for patients and product development failure for biopharmaceutical companies. As depicted in Figure 5 below:
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Figure 5. ADA Mitigation Platform Opportunities
Undesired immunogenicity represents a significant hurdle that can affect the clinical development of new biologic platforms. For example, in gene therapy, viral vectors are required to transport the genetic material into cells. The viral origin of these vectors explains their immunogenicity, which has led drug developers to limit applications to situations where the required frequency and site of administration are conducive to manageable immune responses.
Treatment and product development failure resulting from undesired immunogenicity has been recognized by regulators and patient advocacy organizations. Recently, the FDA and the National Organization for Rare Disorders, or NORD, co-sponsored a workshop on undesired immune responses to enzyme replacement therapies and called on the biopharmaceutical industry to take a more proactive approach to addressing immunogenicity to biologics.
Currently, we believe there are no comprehensive solutions to the complications of immunogenicity. Drug developers often stop the development of biologics that show an undesired immune response during preclinical or clinical development. In some cases, biopharmaceutical companies may attempt to reduce undesired immune responses by re-engineering the biologic through protein pegylation or
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removal of immunogenic epitopes. However, these approaches are limited in their effectiveness. Physicians may try to address the issue of undesired immune responses by increasing the dose of the biologic, which can be prohibitively expensive, or in life-threatening situations by using general immunosuppressive combination therapies. We believe that our tolerogenic SVP technology could offer an entirely new and effective treatment alternative for undesired immune responses, including with respect to the formation of ADAs, but potentially also for autoimmune diseases and allergies.
Immune tolerance preclinical studies
We have conducted several preclinical studies that we believe demonstrate the efficacy of our SVP technology in inducing immune tolerance.
Transfer of immune tolerance from mice treated with SVP-Rapamycin
In a preclinical study, we observed that in vivo administration of SVP resulted in induction of regulatory T cells, which, in turn inhibited effector immune responses. The objective of this study was to evaluate the ability to transfer tolerance from a tolerized animal to a naïve animal, a hallmark of tolerance induction. As depicted in Figure 6 below, we injected donor mice with two injections of either:
Two weeks after the second injection, cells from the spleens of the mice were harvested and expanded in vitro. These immune cells were then transferred into naïve recipient mice. The next day, all recipient mice were immunized with the PLP peptide in complete Freund's adjuvant, or CFA, a potent immune stimulating adjuvant, to induce experimental autoimmune encephalomyelitis, or EAE, a model of multiple sclerosis. As indicated by the increase in the mean clinical score for multiple sclerosis in Figure 6 below, the untreated control mice that were immunized but received no transferred cells developed EAE approximately ten days after immunization with PLP and CFA, as reflected in black in Figure 6 below. The mice receiving immune cells transferred from donor mice treated with either Empty Nanoparticle or NP-Rapamycin, as indicated in blue and red in Figure 6 below, respectively, also developed EAE approximately ten days after immunization. In contrast, mice that received immune cells transferred from donor mice treated with SVP-Rapamycin.PLP did not develop EAE during the course of the trial, as indicated in green in Figure 6 below. We believe that these results indicate that the SVP-Rapamycin treatment induces a population of antigen-specific regulatory cells that mediate immune tolerance, as evidenced by the ability of transferred cells to confer protection from disease to naïve animals, reflecting a hallmark of immune tolerance.
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Figure 6. Preclinical Study: Transfer of Immune Tolerance from Mice Treated with SVP-Rapamycin to Naive Mice
Immune tolerance induction with SVP-Rapamycin
We conducted a preclinical study to test whether the encapsulation of rapamycin in SVP was necessary for immune tolerance induction by comparing weekly doses of SVP-Rapamycin with daily doses of free unencapsulated rapamycin. Our preclinical data indicated that SVP-Rapamycin, but not free unencapsulated rapamycin, induced antigen-specific tolerance that was resistant to subsequent challenges with the antigen alone. As depicted in Figure 7 below, study mice were separated into three groups during the course of a 21-day treatment period:
Following the treatment period, all of the mice were then challenged with three weekly injections of KLH alone to assess the durability of immune tolerance. As depicted in Figure 7 below, the mice in both the SVP-Rapamycin Group and Daily Free Rapamycin Group showed inhibition of the KLH-specific ADA responses after the treatment phase of the trial. However, only the SVP-Rapamycin Group maintained immune tolerance after the challenge phase. We believe that these results indicate that SVP-Rapamycin induced a population of regulatory T cells that maintained tolerance to challenge with antigen alone, whereas the administration of daily free rapamycin did not. Notably, the Daily
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Free Rapamycin Group was administered free unencapsulated rapamycin at five times the dose of SVP-Rapamycin administered to the SVP-Rapamycin Group during the course of the treatment period, yet we observed that this treatment induced only transient immunosuppression during the treatment phase but not durable immune tolerance during the challenge phase. We believe that the difference between the durable immune tolerance observed in the SVP-Rapamycin Group and the transient immunosuppression observed in the Daily Free Rapamycin Group was attributable to the ability of our SVP technology to specifically deliver the tolerogenic instructions, in the form of the encapsulated rapamycin, directly to the antigen-presenting dendritic cells.
Figure 7. Preclinical Study: Immune Tolerance Induction with SVP-Rapamycin
Inhibition of KLH-Specific ADA response by SVP-Rapamycin in nonhuman primates
In a preclinical study, we also observed that our SVP technology inhibited antibody responses to KLH in nonhuman primates. As depicted in Figure 7 below, during a 56-day treatment period, nonhuman primates were administered five biweekly intravenous doses of KLH combined with either:
After the treatment period, there was a challenge phase in which the nonhuman primates were administered three doses of KLH alone on days 70, 84 and 98. As indicated in Figure 8 below, the animals in the SVP-Rapamycin Group, which were injected with KLH combined with SVP-Rapamycin, mounted no or a much lower immune response as indicated by the lack of KLH-specific ADAs. In comparison, we observed high levels of KLH-specific ADAs in the Empty Nanoparticle Group.
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Figure 8. Preclinical Study: Inhibition of KLH-Specific ADA Response by SVP-Rapamycin in Nonhuman Primates
OUR SVP PROGRAMS TO INDUCE ANTIGEN-SPECIFIC TOLERANCE
We believe our SVP technology to induce antigen-specific tolerance has a broad range of applications. We are currently pursuing targeted product development strategies for four discrete applications in which we believe SVP products could be highly differentiated.
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include lysosomal storage, genetic muscular and genetic metabolic diseases. Our proprietary gene therapy programs are focused on the use of vectors that have documented efficiency in delivery of the transgene in nonhuman primates such as Anc80. We believe we are the first company to systematically pursue the development of gene therapy products in combination with an immunotherapy with the goal of enabling repeat administration of the gene therapy. We have engaged third parties with experience in gene therapy and rare diseases to support the development of our proprietary products.
SEL-212 for the treatment of refractory and chronic tophaceous gout
Overview
SEL-212 is our proprietary product candidate for the treatment of refractory and chronic tophaceous gout. SEL-212 consists of SVP-Rapamycin co-administered with pegsiticase, a pegylated uricase. We believe that our SEL-212 has the potential to offer a uniquely effective treatment for patients with refractory or chronic tophaceous gout, while also demonstrating the clinical effectiveness of our SVP technology. Pegylated uricase, in the form of the approved drug Krystexxa, has demonstrated the ability to significantly reduce uric acid levels and dissolve the harmful uric acid crystals that are the manifestations of gout upon initial treatment in naïve patients. However, Krystexxa has not achieved broad commercial adoption, which we believe is primarily due to an undesired immune response that significant restricts clinical use. Based on our preclinical studies, we believe that by leveraging our SVP technology to induce durable immune tolerance of our pegylated uricase, pegsiticase, SEL-212 may potentially overcome this undesired immune response and optimize pegsiticase's effectiveness in controlling uric acid levels and, as a result, enable the effective dissolution and removal of uric acid crystals.
The market for gout therapy
Gout is a painful and potentially disabling form of arthritis resulting from excess accumulation of uric acid and deposition of uric acid crystals in joints and soft tissues, including those of the kidney and
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heart, causing harmful inflammation. Gout is caused by an overproduction of uric acid, a natural byproduct of purine metabolism that is produced after consumption of food with high levels of purines such as seafood, meat, yeast and certain vegetables, or an inability of the kidneys to excrete adequate amounts of uric acid from the body. High concentrations of serum uric acid lead to formation of insoluble uric acid crystals in joints and tissues, causing pain, inflammation and joint damage, and increase the risk for other conditions, including cardiovascular, cardiometabolic, joint and kidney disease.
There are approximately 8.3 million and 10 million gout sufferers in the United States and the European Union, respectively. The first line of treatments for gout are allopurinol and febuxostat. Both drugs are xanthine oxidase inhibitors, oral drugs that reduce the synthesis of uric acid. Lesinurad and probenecid are oral gout drugs that increase the rate of excretion of uric acid through the kidneys, and are used almost exclusively in combination with these first line treatments. While both of these treatments are designed to prevent the formation of uric acid deposits, neither of these treatments effectively reduces existing uric acid deposits in joints and tissues. Additionally, neither of these first line treatments individually or in combination with lesinurad and probenecid are indicated for refractory or chronic tophaceous gout.
We estimate that approximately 50,000 patients in the United States suffer from chronic refractory gout, an orphan indication defined by uric acid levels that cannot be controlled by available oral therapies. Krystexxa, an injectable pegylated uricase enzyme, is indicated for the treatment of chronic refractory gout. In clinical trials, Krystexxa demonstrated the ability to rapidly reduce uric acid levels upon initial dosing. However, despite these clinical results, Krystexxa has not achieved broad commercial adoption. Because uricase is an enzyme foreign to humans, we believe this is primarily due to an undesired immune response. The package insert information for Krystexxa indicates that 92% of patients develop ADAs, 26% experience infusion site reactions and 6.5% experience anaphylaxis, a life-threatening allergic reaction typically involving itchy rash, throat swelling and low blood pressure. The package insert information also indicates that during the drug's clinical trials, high Krystexxa-specific ADA titer in patients was associated with a failure to maintain normalization of uric acid levels. Similarly, in 2011, The Journal of the American Medical Association published the results of clinical trials finding that 58% of Krystexxa patients who received biweekly doses of Krystexxa were non-responders with loss of efficacy starting as early as two weeks after treatment.
Gout is a spectrum of disease with the traditional diagnosis being the extraction of monosodium urate crystals with joint fluid or uric acid crystals from a visible tophus. Additionally, high concentrations of serum uric acid increase the risk of co-morbidities, including cardiovascular, cardiometabolic, joint and kidney disease. Patients who are unable to reduce their serum uric acids levels below 6 mg/dl with oral drugs are diagnosed with refractory gout. Patients who have uric acid deposits, or tophi, in soft tissues, joints, the urinary tract, the digestive tract or the heart and a persistently elevated uric acid level when left untreated are diagnosed with chronic tophaceous gout. Tophi are a source of inflammation and pain.
Figure 9 below illustrates the association between gout and diseases of the heart, vascular system, metabolic process, kidney and joints.
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Figure 9. Co-Morbidities Associated with Gout
Approximately 500,000 patients in the United States suffer from chronic tophaceous gout. There is no approved drug for this patient group that resolves tophi, although clinical studies have indicated that Krystexxa is effective in clearing uric acid deposits in patients that do not develop inhibitory levels of ADAs. We believe that oral gout drugs cannot effectively remove tophi from joints and tissue due to their limited ability to affect existing uric acid deposits.
Based on our preclinical studies, our Phase 1b clinical data and market research, we believe that SEL-212 may potentially address two key unmet needs in the treatment of gout, the durable control of serum uric acid levels in patients with chronic refractory gout and removal of painful and damaging uric acid deposits for patients with chronic tophaceous gout.
Our product development strategy is designed to address these unmet medical needs while improving the dosing regimen compared to Krystexxa. We plan to initially seek regulatory approval for the treatment of refractory gout by demonstrating reduction of serum uric acid levels below the FDA-approved endpoint and clinical guideline of 6 mg/dl. We plan to conduct a clinical program to support a label extension for the treatment of patients with chronic tophaceous gout. During our market research, physicians expressed their preference for monthly dosing as well as for a subcutaneous route of administration. In response to this preference, we intend to develop SEL-212 as a monthly treatment and offer a subcutaneous formulation following the initial launch of the intravenous dosage form, if approved. We believe that Krystexxa has been developed as a bi-weekly intravenous-only formulation to avoid additional immunogenicity anticipated from a higher dose that would be required by a monthly regimen.
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We believe that SEL-212 is ideally suited for patients diagnosed with chronic tophaceous gout. If approved, our strategy is to position SEL-212 as an induction therapy for gout that would remove harmful uric acid deposits over five monthly doses on average and allow patients to switch to oral gout maintenance therapy with xanthine oxidase inhibitors unless and until such patients experience a subsequent manifestation of uric acid deposits at which time a new course of SEL-212 would be required. We do not believe that oral therapy would completely prevent the build-up over time of uric acid crystals in patients with a history of chronic tophaceous gout. As a result, we anticipate that SEL-212 induction treatment, if approved, would be required intermittently in such patients. We believe that, in contrast to Krystexxa, SEL-212 induction treatment may be effective in removing harmful uric acid deposits in most patients with chronic tophaceous gout over multiple cycles of treatment. Figure 10 below depicts this positioning strategy as a sample diagram illustrating what we believe to be a shift in the treatment paradigm for chronic tophaceous gout.
Figure 10. Sample Treatment Course for Chronic Tophaceous Gout.
We expect our clinical and marketing strategy for SEL-212 to initially focus on the estimated 160,000 patients in the United States diagnosed with refractory or chronic tophaceous gout being treated by rheumatologists, as well as approximately the same estimated number of patients in Europe. We believe that for these patients who are already being treated by rheumatologists and diagnosed with chronic tophaceous gout, the need for a new treatment is the highest. If SEL-212 is approved, we expect our strategy for marketing SEL-212 to rheumatologists will be to promote a switch from oral therapies to SEL-212 for patients with serum uric acid levels chronically above 6 mg/dl and diagnosed with chronic tophaceous gout. We intend to leverage imaging technologies recently recommended by the guideline writing associations for rheumatology, including the American College of Rheumatology and the European League Against Rheumatism. In particular, dual energy computed tomography can visualize uric acid deposits in joints and tissues as depicted in Figure 11 below in green and has the potential to become an important tool to manage chronic tophaceous gout and to visualize the efficacy
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of SEL-212. We believe dual energy computed tomography imaging use could increase the market for SEL-212 by increasing the rate of diagnosis of chronic tophaceous gout.
Figure 11. Tophi / Uric Acid Deposits (shown in green) Visualized Using Dual Energy Computed Tomography Imaging
SEL-212 components
Our SEL-212 consists of SVP-Rapamycin co-administered with pegsiticase. Our SVP-Rapamycin consists of nanoparticles composed of poly(D,L-lactide), or PLA, and poly(D,L-lactide)-block-poly(ethylene-glycol), or PLA-PEG, encapsulating rapamycin. Our pegsiticase consists of a uricase modified with poly(ethylene-glycol), or PEG. The components of SEL-212 are depicted in Figure 12 below.
Figure 12. Components of SEL-212
Our pegsiticase is a pegylated version of the therapeutic enzyme uricase, which we have licensed from Shenyang Sunshine Pharmaceutical Co., Ltd., or 3SBio, exclusively for all markets, except Japan and Greater China, and exclusively for Japan only in combination with our SVP Platform technology. Uricase is an enzyme endogenous to all mammals, except for humans and certain primates, which converts uric acid to the more soluble metabolite, allantoin. There is a natural limit to the amount of uric acid that can be excreted by the kidneys, which decreases with age and can be reduced by some medications. By converting uric acid to allantoin, uricase provides an additional way for the body to reduce uric acid. Unlike other gout drugs, uricase is highly effective in lowering existing high uric acid levels within the first few hours of administration.
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SVP-Rapamycin is our biodegradable nanoparticle that encapsulates the tolerance-inducing immunomodulator rapamycin, also referred to as sirolimus. Rapamycin is the active ingredient of Rapamune, an immunosuppressant which has extensive prior use in humans and is currently FDA-approved for prophylaxis of organ rejection in kidney transplant patients aged 13 or older. PLA is part of the broader poly(lactic-co-glycolic acid), or PLGA, family of biodegradable polymers that have more than 30 years of commercial use and are formulation components in a number of approved products. Polyethylene glycol, or PEG, has been widely studied in clinical trials and is also a formulation component in many approved biologic products. In our preclinical studies, SVP-Rapamycin co-administered at the initiation of treatment with a biologic drug induced antigen-specific immune tolerance to the biologic drug, substantially reducing the formation of associated ADAs.
As depicted in Figure 13 below, SEL-212 is designed as a treatment course consisting of three doses of SVP-Rapamycin co-administered with pegsiticase followed by two doses of pegsiticase alone, with each dose administered every two to four weeks.
Figure 13. SEL-212 Treatment Course
Preclinical development
We have executed a comprehensive preclinical program of SEL-212 in uricase deficient mice and wild type mice, rats and nonhuman primates to evaluate efficacy, dose regimens and safety.
Proof-of-concept study in uricase-deficient mice
We conducted a pharmacology study in mice that were genetically deficient in endogenous uricase. The study evaluated the efficacy of a dose regimen consisting of three immunizations with SEL-212 followed by doses of pegsiticase alone in preventing the formation of ADAs to pegsiticase. The treatment period consisted of the first 14 days of the study. In the study, mice were separated into three treatment groups. As depicted in Figure 14 below, during the treatment period:
The Pegsiticase Group and SVP-Rapamycin + Pegsiticase Group were treated on days zero, seven and 14 of the treatment period. Each group was then treated with pegsiticase alone on days 35 and 42 of the study, or the challenge period. Uricase-specific ADA levels were recorded to determine the formation of ADAs to pegsiticase. Uric acid levels were measured to determine effectiveness of SVP-Rapamycin co-administered with pegsiticase in lowering uric acid levels below 6 mg/dl, which is the treatment target for gout patients.
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Figure 14. Preclinical Study: Proof-of-Concept in Uricase-Deficient Mice
Antibody formation. The Pegsiticase Group developed uricase-specific ADAs when exposed to pegsiticase during the treatment period. The Untreated Group also developed uricase-specific ADAs as soon as they were challenged with pegsiticase. Despite exposure to pegsiticase during both the treatment and challenge periods, the SVP-Rapamycin + Pegsiticase Group did not develop uricase-specific ADAs during either period.
Uric acid levels. After initial exposure to pegsiticase, the Untreated Group maintained high uric acid levels of approximately 10 mg/dl. The Pegsiticase Group recorded uric acid levels below 6 mg/dl after the first dose in the treatment period. However, during subsequent doses in the treatment period and challenge period, uric acid levels returned to levels well in excess of 6 mg/dl. In contrast, the SVP-Rapamycin + Pegsiticase Group maintained uric acid levels that were close to zero throughout the study.
Proof-of-concept study in nonhuman primates
We also conducted a preclinical study to evaluate the ability of SVP-Rapamycin to mitigate the formation of uricase-specific ADAs in nonhuman primates. As depicted in Figure 15 below, during the study we either:
The Empty Nanoparticle Group received three monthly doses of pegsiticase and each of the SVP-Rapamycin 0.1X Group and SVP-Rapamycin 1X Group received three monthly doses of pegsiticase co-administered with SVP-Rapamycin. All groups then received two monthly doses of
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pegsiticase alone. The SVP-Rapamycin 0.1X Group received one-tenth of the dose administered in the SVP-Rapamycin 1X Group.
Figure 15. Preclinical Study: Proof-of-Concept in Nonhuman Primates
Antibody formation. We observed that the Empty Nanoparticle Group produced high levels of uricase-specific ADAs by the end of the study. The SVP-Rapamycin 0.1X Group and SVP-Rapamycin 1X Group were able to reduce the levels of uricase-specific ADAs significantly compared to the Empty Nanoparticle Group and, in the case of the SVP-Rapamycin 1X Group, inhibited the formation of antibodies. Our observations in this study confirmed in non-human primates the mitigation of uricase-specific ADAs we observed in mice.
Uric acid levels. As expected, we could not determine the effect that pegsiticase alone or pegsiticase co-administered with SVP-Rapamycin had on uric acid levels in nonhuman primates due to the activity of naturally occurring uricase in these animals.
Based on these preclinical studies, as well as toxicology studies conducted to conform to regulatory guidelines, referred to as current good laboratory practice, or GLP, we believe that SEL-212 demonstrated sufficient efficacy and safety in the preclinical animal models to justify movement into clinical development, and the FDA indicated that our Phase 1b clinical trial for SEL-212 was safe to proceed.
Clinical development
For chronic refractory gout, we are executing a clinical development program in which we expect to conduct five clinical studies in a total of approximately 400 subjects with gout or elevated levels of uric acid. We initiated our clinical program in the second quarter of 2015 with a Phase 1a trial of pegsiticase in subjects with elevated serum uric acid levels. We completed the patient treatment portion
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of our Phase 1a trial was completed in November 2015, initiated a Phase 1b trial in December 2015 and expect final data from both Phase 1 clinical trials in the second half of 2016. We plan to follow this Phase 1b clinical trial with an open label multi-dose Phase 2 clinical trial of SEL-212 in patients with symptomatic gout and elevated uric acid levels. After an end-of-Phase 2 meeting with the FDA, we expect that we will be required to conduct two Phase 3 clinical trials in patients with refractory gout. We plan to leverage our experience in chronic refractory gout for separate but similar clinical trials for the indication of chronic tophaceous gout.
Phase 1 and Phase 2 clinical trials
SEL-212 is currently being evaluated in a comprehensive Phase 1/2 clinical program that includes a Phase 1a and Phase 1b clinical trial in subjects with high uric acid levels as well as a Phase 2 clinical trial in patients with symptomatic gout and high uric acid levels. Each Phase 1 clinical trial was designed with the primary objective to evaluate the safety and tolerability of SEL-212 and its individual components. Additional objectives of the Phase 1 clinical trials include identifying a pegsiticase dose that is capable of lowering serum uric acid levels, evaluating the immunogenicity of pegsiticase after a single dose and demonstrating that SVP-Rapamycin co-administered with pegsiticase reduces uric acid levels and mitigates the formation of uricase-specific ADAs. The Phase 2 clinical trial will evaluate the effect of multiple doses over an extended period of time on serum uric acid and the formation of uricase-specific ADAs in approximately 36 patients with symptomatic gout and elevated serum uric acid levels. We expect to receive final data from both Phase 1 clinical trials in the second half of 2016. We expect to initiate the Phase 2 clinical trial in the second half of 2016 and receive data in the first half of 2017.
Phase 1a clinical trial
The Phase 1a clinical trial for SEL-212 was an ascending dose trial of pegsiticase alone in 22 subjects with elevated serum uric acid levels greater than 6 mg/dl who were separated into five cohorts. At the outset of the trial, each cohort received a single intravenous infusion of pegsiticase at ascending dose levels of 0.1 mg/kg for Cohort #1, 0.2 mg/kg for Cohort #2, 0.4 mg/kg for Cohort #3, 0.8 mg/kg for Cohort #4 and 1.2 mg/kg for Cohort #5. We monitored the subjects during a 30-day period post-infusion. We commenced enrollment of the clinical trial in the second quarter of 2015 and completed the treatment portion of the trial in November 2015. We observed that pegsiticase demonstrated no serious adverse events and was well tolerated at the five dose levels tested. Additionally, we observed that pegsiticase rapidly reduced and sustained average serum uric acid levels below 6 mg/dl for each cohort for 14 to 30 days, depending on the dose level. Consistent with our preclinical studies in animals, pegsiticase induced uricase-specific ADAs in all subjects with varying levels in this Phase 1a trial.
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Figure 16 below depicts average serum uric acid levels of the Phase 1a clinical trial's five cohorts tested at different measurement intervals during the course of the 30-day period following the single intravenous infusion of pegsiticase at the outset of the trial.
Figure 16. Phase 1a Clinical Trial: Serum Uric Acid Levels Across Five Cohorts
Figure 17 below indicates the serum uric acid and uricase-specific ADA levels for each subject in Cohort #3 of the Phase 1a clinical trial. The serum uric acid levels were measured at baseline and days seven, 14, 21 and 30 and uricase-specific ADA levels at baseline and days seven, 14 and 30 following a single intravenous injection of pegsiticase. We did not measure uricase-specific ADA levels at day 21 in the Phase 1a clinical trial. One subject in this cohort, subject number two, developed a relatively low level uricase-specific ADA titer of 40 and maintained uric acid levels below 0.5 mg/dl through the thirtieth day after dosing. By contrast, the remaining four subjects in the cohort developed levels of uricase-specific ADAs greater than 1,000 titer and uric acid levels above 5 mg/dl by the thirtieth day after dosing. Based on the results from our Phase 1a clinical trial, we observed that pegsiticase at a
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tolerated dose is capable of achieving and maintaining a reduction of serum uric acid below the target of 6 mg/dl for a 30-day period in the absence of inhibitory uricase-specific ADAs.
Figure 17. Phase 1a Clinical Trial: Serum Uric Acid and Uricase-Specific ADA Levels of the Third Cohort
Based on our analysis of the Phase 1a clinical trial data, we selected the pegsiticase dose of 0.4 mg/kg from Cohort #3 of the Phase 1a clinical trial for further study in the Phase 1b clinical trial.
Phase 1b clinical trial
In December 2015, we initiated our Phase 1b clinical trial. We anticipate that this clinical trial will have approximately 53 subjects with serum uric acid levels greater than 6 mg/dl separated into nine cohorts. We plan to co-administer a single intravenous infusion of SVP-Rapamycin at ascending dose levels with a fixed dose of pegsiticase of 0.4 mg/kg for four of the cohorts, which will be Cohort #2, Cohort #4, Cohort #6 and Cohort #8 of the Phase 1b clinical trial, or collectively the SEL-212 Cohorts. In addition to a fixed 0.4 mg/kg dose of pegsiticase, subjects in the SEL-212 Cohorts will receive SVP-Rapamycin in the following dose levels: Cohort #2 (0.03 mg/kg), Cohort #4 (0.1 mg/kg), Cohort #6 (0.3 mg/kg) and Cohort #8 (0.5 mg/kg). We also plan to administer to Cohort #9 a fixed amount of pegsiticase alone at a dose level of 0.4 mg/kg, which we refer to as the Pegsiticase Cohort. Additionally, we intend to administer a single intravenous infusion of SVP-Rapamycin alone at the following ascending dose levels to the remaining cohorts, which will be Cohort #1 (0.03 mg/kg), Cohort #3 (0.1 mg/kg), Cohort #5 (0.3 mg/kg) and Cohort #7 (0.5 mg/kg) of the Phase 1b clinical trial, or collectively the SVP-Rapamycin Cohorts. All subjects will be followed for 30 days after their initial dose. The primary objective of the Phase 1b clinical trial is to evaluate the safety and tolerability of SVP-Rapamycin alone and in combination with a fixed dose of pegsiticase. A secondary clinical objective is to evaluate the ability of SVP-Rapamycin co-administered with pegsiticase to reduce serum uric acid levels and mitigate the formation of uricase-specific ADAs when compared to administration of pegsiticase alone. We expect that complete data from the Phase 1b clinical trial will be available in the second half of 2016.
Although the Phase 1b clinical trial is currently ongoing, as of June 3, 2016, we had completed the dosing of:
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We have received 30-day observation period data for Cohort #1 (SVP-Rapamycin Cohort), Cohort #2 (SEL-212 Cohort), Cohort #3 (SVP-Rapamycin Cohort), Cohort #4 (SEL-212 Cohort), Cohort #5 (SVP-Rapamycin Cohort), Cohort #6 (SEL-212 Cohort) and Cohort #9 (Pegsiticase Cohort) of the Phase 1b clinical trial.
Figure 18 below indicates the serum uric acid levels of Cohort #3 from the Phase 1a clinical trial, in which subjects received a fixed amount of pegsiticase alone (at the same 0.4 mg/kg pegsiticase dose level as Cohort #9, the Pegsiticase Cohort, of the Phase 1b clinical trial). Figure 18 below also indicates the serum uric acid levels of Cohort #9 (Pegsiticase Cohort), Cohort #1 (SVP-Rapamycin Cohort), Cohort #2 (SEL-212 Cohort), Cohort #3 (SVP-Rapamycin Cohort), Cohort #4 (SEL-212 Cohort), Cohort #5 (SVP-Rapamycin Cohort) and Cohort #6 (SEL-212 Cohort) from the Phase 1b clinical trial. In Figure 18 below, observational data is presented for all cohorts in which subjects have reached the end of the 30-day observation period. In these subjects, serum uric acid levels were measured at baseline and days seven, 14, 21 and 30. As expected, SVP-Rapamycin alone had no relevant effect on reducing serum uric acid levels across the SVP-Rapamycin Cohorts, as such levels remained relatively constant during the 30-day period. In Cohort #2 from the Phase 1b clinical trial, which received the lowest dose of SVP-Rapamycin co-administered with pegsiticase, we observed that four out of five subjects tested maintained serum uric acid levels below 6 mg/dl through day 21 of the trial. We also observed that four out of five subjects in Cohort #4 from the Phase 1b clinical trial, which received the second lowest dose of SVP-Rapamycin co-administered with pegsiticase, maintained levels of serum uric acid of less than 0.1 mg/dl through day 30. For Cohort #6 (SEL-212 Cohort), we observed that each of the five subjects maintained levels of serum uric acid of less than 0.1 mg/dl through day 30. By comparison, for Cohort #9 (Pegsiticase Cohort), four of the five subjects returned to baseline serum uric acid levels by day 30.
Figure 18. Phase 1b Clinical Trial: Uric Acid Levels Across Seven Phase 1b Cohorts (and Cohort #3 from the Phase 1a Clinical Trial)
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Figure 19 below shows the serum uric acid levels and uricase-specific ADA levels for each subject in Cohort #3 of the Phase 1a clinical trial and Cohort #9 (Pegsiticase Cohort) of the Phase 1b clinical trial for comparison to the serum uric acid levels and uricase-specific ADA levels for each subject in Cohort # 4 (SEL-212 Cohort) and Cohort #6 (SEL-212 Cohort) in the Phase 1b clinical trial. Cohort #3 from the Phase 1a clinical trial is depicted in Figure 19 along with Cohort #9 from the Phase 1b clinical trial for purposes of comparison against Cohort #4 and Cohort #6 from the Phase 1b clinical trial because the subjects in these cohorts received the same fixed dose of pegsiticase. In addition, Cohort #4 from the Phase 1b clinical trial is depicted below in Figure 19 because the subjects in Cohort #4 from the Phase 1b clinical trial received a higher dose of SVP-Rapamycin than did the subjects in Cohort #2 in the Phase 1b clinical trial. We have also included Cohort #6 from the Phase 1b clinical trial because these subjects received the highest dose of SVP-Rapamycin tested to datehigher than both Cohorts #2 and #4.
As depicted in Figure 19 below, in Cohort #3 from the Phase 1a clinical trial and Cohort #9 from the Phase 1b clinical trial, we observed uricase-specific ADA formation at day 14 resulting in a return to baseline levels of serum uric acid. In comparison, for Cohort #4 from the Phase 1b clinical trial, we observed minimal uricase-specific ADA formation in four of the five subjects tested with corresponding maintenance of control of serum uric acid levels through day 30. In Cohort #6 of the Phase 1b clinical trial, we observed minimal to no uricase-specific ADA formation in each of the five subjects, with corresponding maintenance of control of serum uric acid levels through day 30. In the Phase 1a clinical trial, we did not measure uricase-specific ADA levels at day 21. However, in the course of conducting the Phase 1a clinical trial, we learned that it would be useful to measure uricase-specific ADA levels at day 21 to more fully understand any variations in such levels between day 14 and day 30. As a result, for the Phase 1b clinical trial, we monitor uricase-specific ADA levels at day 21.
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Figure 19. Comparison of Phase 1a Cohort #3, Phase 1b Cohort #9, Phase 1b Cohort #4 and Phase 1b Cohort #6: Uric Acid and Uricase-Specific ADA Levels
Figure 20 below presents a non-head-to-head comparison of the efficacy of SEL-212 in Cohort #6 of the Phase 1b clinical trial with data from two replicate, randomized, double-blind, placebo-controlled clinical trials of Krystexxa as reported in the Journal of the American Medical Association in 2011. These two Krystexxa clinical trials included 85 patients who received biweekly doses of Krystexxa, 84 patients who received monthly doses of Krystexxa and 43 patients who received a placebo. Of the Krystexxa-treated patients that were considered responders, as defined by the maintenance of uric acid levels below 6 mg/dl for 80% of the time at months three and six, the mean uric acid levels in patients on the biweekly dose regimen were more meaningfully and consistently improved than patients on the monthly dose regimen. Krystexxa has been approved for the treatment of refractory gout on a biweekly dose regimen whereas the monthly dose regimen of Krystexxa has not been approved for marketing. The graph on the left in Figure 20 below depicts the data for the four-week period after the first dose of Krystexxa from the cohorts of subjects in the Krystexxa clinical trials who received monthly doses.
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The placebo control subjects, indicated in open circles in Figure 20 below, had uric acid levels above 6 mg/dl for the entire four weeks. The Krystexxa-treated subjects that went on to become responders are indicated in black circles. The Krystexxa-treated subjects that went on to become non-responders, as defined by the inability to maintain uric acid levels below 6 mg/dl for 80% of the time at months three and six, are indicated in black triangles. Only 35% of Krystexxa-treated subjects in the monthly dosing cohorts were classified as responders. Of the patients that received monthly doses, it is notable that, even at four weeks, the mean uric acid levels were above 6 mg/dl in the non-responders, representing 65% of subjects, and were above 4 mg/dl in the responders. While not depicted in Figure 20 below, 89% of all Krystexxa-treated subjects developed ADAs. In comparison, the graph on the right in Figure 20 below depicts data from Cohort #5 of the Phase 1b clinical trial, which received a single dose of SVP-Rapamycin alone, and Cohort #6 of the Phase 1b clinical trial, which received a single dose of SEL-212. All five subjects in Cohort #6 of the Phase 1b clinical trial, treated with SEL-212 and indicated in green in Figure 20 below, maintained levels of serum uric acid of less than 0.1 mg/dl through day 30. Subjects in Cohort #5 of the Phase 1b clinical trial, treated with SVP-Rapamycin alone and indicated in blue, experienced no significant reduction in uric acid levels, as such levels remained relatively constant over the 30-day period.
Figure 20. Comparison of the Efficacy of Krystexxa and SEL-212 After a Single Dose
While we believe the above comparison is useful in evaluating the results of Cohort #6 of the Phase 1b clinical trial, our Phase 1b clinical trial and the Krystexxa clinical trials were separate trials conducted by different investigators at different sites. In addition, there were substantial differences, including, for example, that the Krystexxa clinical trials were double-blind trials involving a substantial number of patients with refractory gout while our Phase 1b clinical trial evaluated SEL-212 in an unblinded manner in a small number of subjects with elevated uric acid levels. Moreover, we could only compare the efficacy of SEL-212 with the four-week period following the first injection of Krystexxa as SEL-212 has not yet been evaluated in a multi-dose clinical trial. In this regard, we have not conducted a head-to-head comparison of SEL-212 and Krystexxa in a clinical trial. Results of a head-to-head comparison may differ significantly from those set forth in Figure 20 above. In addition, because our Phase 1b clinical trial and the Krystexxa clinical trials were separate trials and because Cohort #6 of our Phase 1b clinical trial involved only five subjects, differences between the results of our Phase 1b
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clinical trial and the two Krystexxa clinical trials may not be statistically or clinically meaningful. For these reasons, investors should not place undue weight on the comparative information set forth above, including in Figure 20.
We collected additional serum uric acid and uricase-specific ADA data after day 30 for three of the subjects in Cohort #4 (SEL-212 Cohort) that had no or very low serum uric acid and uricase-specific ADA levels at day 30. We collected data on day 37 for all three of these subjects and again on day 42 or day 44 for two of the three subjects. Each of these three subjects had no or very low uricase-specific ADA levels on day 37, day 42 or day 44, as applicable. Serum uric acid levels remained below baseline on day 37 in all three subjects. With respect to the two subjects for which day 42 or day 44 data was available, serum uric acid levels approached or exceeded baseline by the last time point measured. We anticipated these results as we did not expect a single dose of the enzyme to be capable of clearing all of the uric acid deposits in the body. Based on our observations from the Phase 1b clinical trial data that SEL-212 was capable of controlling uric acid levels for at least 30 days in all of the subjects in Cohort #6, we believe SEL-212 has the potential to maintain low uric acid levels with monthly dosing, which we plan to test in the Phase 2 clinical trial.
As of June 3, 2016, on a combined basis, we had dosed a total of 70 subjects with either SEL-212 (SVP-Rapamycin and pegsiticase), SVP-Rapamycin alone or pegsiticase alone in connection with the Phase 1a and Phase 1b clinical trials. We have generally observed that SEL-212 and its components, SVP-Rapamycin and pegsiticase, have been well tolerated. As of June 3, 2016, there have been a total of two serious adverse events, or SAEs, in both Phase 1 clinical trials. One SAE occurred in a subject from Cohort #9 (Pegsiticase Cohort) of the Phase 1b clinical trial, a 62 year-old male, who received a dose level of pegsiticase alone of 0.4 mg/kg. This subject developed atrial fibrillation 13 days after administration of pegsiticase. The subject has been treated. The medical records from the principal investigator indicate that this subject has recovered. The principal investigator has deemed this SAE to not have been related to the study drug, pegsiticase. The second SAE occurred in a 59 year-old male from Cohort #4 (SEL-212 Cohort) of the Phase 1b clinical trial who developed a pruritic rash on his lower extremities and joint pain approximately 12 days after being dosed with SEL-212, consisting of a dose level of SVP-Rapamycin of 0.1 mg/kg and a dose level of pegsiticase of 0.4 mg/kg. This subject was treated with steroids, analgesics, anti-nausea medications and topical antihistamine cream. As a result of such treatment, the medical records from the principal investigator indicate that the rash and joint pain experienced by the subject have been resolved. This subject was the only subject in Cohort #4 (SEL-212 Cohort) that developed significant uricase-specific ADAs and whose serum uric acid levels returned to baseline by day 30. This adverse event was classified as an SAE because the subject was admitted to the emergency room instead of going directly to the investigational site for treatment. The principal investigator classified this second SAE as having been possibly related to the study drug, SEL-212.
Phase 2 clinical trial
We are planning an open-label Phase 2 clinical trial in approximately 36 subjects with symptomatic gout and elevated serum uric acid levels. We plan to divide patients into three dose groups. Two of these groups will receive SEL-212. The other group will receive pegsiticase alone. The primary endpoints will be the safety and tolerability of multiple doses of SEL-212 and pegsiticase alone in addition to a reduction of uric acid levels from baseline. We expect that secondary endpoints for this trial will include a reduction in levels of uricase-specific ADAs and pegsiticase-specific ADAs. Additional, exploratory endpoints will include number of flares, change in tophi volume as measured by dual energy computed tomography imaging and quality of life measures.
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In addition to the foregoing clinical trials, we also plan to initiate development of SEL-212 for chronic tophaceous gout.
Our SVP-Rapamycin programs for immune tolerance in gene therapy
Overview
We believe gene therapy has the potential to fundamentally change the treatment of genetic diseases in the form of replacing, augmenting or editing a gene. Gene therapy modifies the genetic content of the patient's own cells by placing corrective genetic material, or a transgene, within the nuclei of a patient's cells. The transferred genetic material enables the affected cells to become producers of a protein that is either missing or deficient in the patient. Engineered viruses that are unable to replicate themselves serve as carriers, or vectors, for the delivery of transgenes to various tissues and organs in the body. Adeno-associated viruses, or AAV, are the preferred vectors for in vivo gene therapy because they cannot reproduce on their own, do not cause pathogenic infections and can be produced using manufacturing practices that conform to cGMP.
Although gene therapy has made significant progress over the last several years, it faces certain limitations due to undesired immunogenicity to either the AAV vector or the encoded transgene. This undesired immunogenicity frequently exists prior to the gene therapy or is induced with the first dose. Once an antibody response to the AAV vector exists, it is likely to interfere with the efficacy of subsequent administration of the AAV vector. For naturally occurring types of AAV such as AAV1 to AAV10, patients can have prior exposure to the naturally occurring virus, which leads to the presence of pre-existing antibodies, or pre-existing immunity. The presence of pre-existing immunity is an exclusion criterion for most clinical gene therapy studies conducted with naturally occurring AAV vectors. Up to 50% of potential gene therapy patients can have pre-existing immunity, depending on the treated patient population and the AAV strain. Gene vector-specific ADAs frequently occur after the first dose and have been found to prevent the AAV vector from reaching its target cell. In addition, cellular immune responses have been found to destroy transfected cells. It is unknown exactly how long these neutralizing ADAs prevent redosing of gene therapy. However, it has been observed in studies with animals and humans that high titer AAV-specific ADAs develop and persist for more than 10 years, preventing vector readministration. Because of the induction of lasting antibodies against AAV, we believe gene therapy companies have focused on the single localized dose in diseases of the eye and central nervous system for which immunogenicity is perceived to be less of an issue. We believe that many gene therapy applications may require multiple doses, especially therapies designed to treat diseases by intravenous administration. Some of these rare genetic deficiencies are best treated when patients are infants or small children in order to prevent developmental defects. However, pediatric patients may have a higher need for repeat dosing due to higher cell turnover as the subject grows. Accordingly, we believe that a solution that enables repeat dosing for gene therapies would significantly expand the number of diseases that could be treated with these therapies.
Our solution for gene therapy
We believe SVP-Rapamycin co-administered with gene therapies has the potential to mitigate undesired immune responses and enable desired efficacy in subsequent administration of gene therapy by intravenous administration for diseases and patients where a single dose of gene therapy is unlikely to be sufficient.
In collaboration with Genethon, a not-for-profit company focusing on gene therapies, we conducted a preclinical study in mice in which we observed the ability of SVP-Rapamycin to mitigate the formation of ADAs to AAV-based gene therapy, thereby enabling repeat dosing of the AAV vector in these mice.
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At the outset of the study, all mice received an intravenous injection of AAV8, a commonly used AAV strain to target expression in the liver, encoding the luciferase gene, referred to as AAV8-Luciferase. On day 21 of the study, mice received a second injection of AAV8, this time encoding human coagulation Factor IX, referred to as AAV8-Factor IX. Mutations in the Factor IX gene can cause hemophilia B, a defect in blood clotting. As depicted in Figure 21 below, in addition to an injection of AAV8 encoding either the luciferase gene or Factor IX, the mice also received either:
We assessed AAV8-specific ADA levels to determine the formation of ADAs to the AAV8 vector. We also determined the levels of human Factor IX protein in mouse serum to determine the relative success in conveyance and expression of the Factor IX gene. We observed from our preclinical data that the SVP-Rapamycin treatment mitigated the formation of AAV8-specific ADAs in the SVP-Rapamycin Group, thereby enabling higher levels of Factor IX expression in the SVP-Rapamycin Group following the second injection on day 21 as compared to the Empty Nanoparticle Group. We believe these results indicate that the SVP-Rapamycin treatment may have the potential to mitigate undesired immune responses and enable repeat intravenous administration of gene therapies such as those utilizing the AAV8 vector.
Figure 21. Preclinical Study: SVP-Rapamycin Co-Administered with AAV-Based Gene Therapy in Mice
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In addition to eliciting antibody responses against the viral capsid (a protein shell that encloses the virus's genetic material), gene therapy can also induce cellular immunity mediated by cytolytic T cells, or CD8 T cells. CD8 T cells can reduce the effectiveness of gene therapy by specifically killing those cells that have taken up the AAV capsid and/or express the encoded transgene protein product. In a preclinical study, we assessed the CD8 T cell levels in the liver following the treatment of mice with an AAV8 vector alone and in combination with SVP-Rapamycin on days 0 and 21 of the study. Naïve mice that were not treated with either an AAV8 vector or SVP-Rapamycin were used as a control. On day 53, we then quantified the level of CD8 T cells in the liver by using a process known as reverse transcriptase-polymerase chain reaction, or RT-PCR, to amplify messenger ribonucleic acid, or mRNA, encoding the CD8 gene. As depicted in Figure 22 below, in this study, we observed that livers isolated from mice treated with the AAV8 vector alone showed a substantial increase in CD8 T cells compared to the naïve mice, which received neither an AAV8 vector nor SVP-Rapamycin. Based on our observations, we believe that the co-administration of SVP-Rapamycin with the AAV vector inhibited this increase in CD8 T cells.
Figure 22. Preclinical Study: CD8 T Cell Levels in the Livers of Mice Treated with SVP-Rapamycin Co-Administered with AAV-Based Gene Therapy (as measured by CD8 mRNA using RT-PCR)
We also evaluated the ability of SVP-Rapamycin to mitigate the formation of ADAs to AAV capsids in nonhuman primates in a preclinical study. As depicted in Figure 23b below, nonhuman primates were screened on different dates for the presence of AAV-specific ADAs. On a later date, we drew blood from the nonhuman primates to evaluate the levels of AAV-specific ADAs again. This date is depicted in Figure 23b below as day -12 as it occurred 12 days prior to day zero of the study when the nonhuman primates received an intravenous injection of AAV8. As depicted in Figure 23a below, on day zero of the study, in addition to receiving an injection of AAV8, one nonhuman primate received empty nanoparticles, referred to as the Empty Nanoparticles Subject and indicated in purple, and two nonhuman primates received SVP-Rapamycin, referred to as SVP-Rapamycin Subject No. 1 and SVP-Rapamycin Subject No. 2 and indicated in orange and red, respectively. As depicted in Figure 23b below, on days three, 15 and 45 of the study, we again drew blood from the nonhuman primates and tested it for the presence of AAV8-specific ADAs. As depicted in Figure 23a below, on day 30 of the study, we administered to all nonhuman primates an injection of AAV-Human Factor IX together with an injection of empty nanoparticles for the Empty Nanoparticles Subject or an injection of
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SVP-Rapamycin for SVP-Rapamycin Subject No. 1 and SVP-Rapamycin Subject No. 2. As depicted in Figure 23c below, on day 45 of the study we tested the nonhuman primates' serum for levels of Human-Factor IX.
We assessed AAV8-specific ADA levels to determine the formation of ADAs in nonhuman primates to the AAV8 vector. We also determined the levels of human Factor IX protein in nonhuman primate serum to determine the relative success in conveyance and expression of the Factor IX gene. We observed from our preclinical data that the SVP-Rapamycin treatment mitigated the formation of AAV8-specific ADAs in SVP-Rapamycin Subject No. 1 and SVP-Rapamycin Subject No. 2, thereby enabling higher levels of Factor IX expression in the SVP-Rapamycin Subjects following the second injection on day 30 as compared to the Empty Nanoparticles Subject. We believe these results further indicate that the SVP-Rapamycin treatment may have the potential to mitigate undesired immune responses and enable repeat intravenous administration of gene therapies such as those utilizing the AAV8 vector.
Figure 23. Preclinical Study: SVP-Rapamycin Co-Administered with AAV-Based Gene Therapy in Nonhuman Primates
We believe SVP technology can be applied to induce antigen-specific immune tolerance for gene therapy involving gene augmentation, replacement or editing. Gene therapies often use a viral vector, such as an AAV vector, to place corrective genetic material into cells to treat genetic diseases. One of the key hurdles for the gene therapy field is to overcome immunogenicity against the viral vector, which can manifest itself in three ways. First, pre-existing ADAs that were induced following a natural AAV infection can neutralize the viral vector and block gene transfer. Up to 50% of patients are ineligible for gene therapy due to the presence of pre-existing ADAs. Second, ADAs form in response to a first administration of a gene therapy vector and prevent effective subsequent doses of gene therapy. Subsequent doses are particularly necessary for pediatric indications due to cellular turnover in young patients because they undergo renewal, which is the case in many pediatric indications. The ability to readminister gene therapies is also important for diseases where the goal is to transfer a high number of cells. Moreover, the third way in which immunogenicity can manifest itself against the viral
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vector is that the cellular immune system can respond to the transduced cells, which can reduce efficacy and pose safety concerns.
We have in-licensed the Anc80 vector from MEE. In preclinical studies, Anc80 has been observed to be a potent gene therapy vector that has demonstrated the capability of yielding superior gene expression levels in the liver compared to vectors based on naturally occurring AAV that are currently evaluated in clinical trials. As a synthetic vector, we believe Anc80 has limited cross-reactivity to naturally-occurring AAVs and therefore has the potential to treat patients with pre-existing AAV-specific ADAs. By combining SVP-Rapamycin and Anc80, we intend to develop highly differentiated gene therapies to address all three of the immunogenicity issues associated with the use of viral vectors.
In collaboration with the clinical and gene therapy laboratory at the NIH and MEE, we plan to develop a product candidate utilizing the Anc80 vector for the treatment of an ARM disorder resulting from an inborn error of metabolism. This ARM disorder can cause severe developmental defects and premature death as a result of an accumulation of toxic metabolites. Under our license agreement with MEE, we also have the option to develop gene therapies using Anc80 for several additional diseases including lysosomal storage, muscular and genetic metabolic diseases.
We intend to develop the combination of Anc80 and SVP-Rapamycin to increase the potential applicability of gene therapies. This would include (i) patients with pre-existing ADAs to naturally occurring AAV, a current exclusion criteria for many clinical studies, and (ii) diseases that require repeat dosing due to a young patient population or the need to reach higher levels of protein expression than can be achieved with a single dose.
We plan to develop another product candidate for the treatment of an XLM disorder, which is a metabolic disorder similar to ARM disorder. We are pursuing this second indication through collaborations with third parties with preclinical and clinical experience in this area.
Our SVP-Rapamycin programs for marketed biologics
In preclinical studies, we have observed the ability of SVP-Rapamycin to inhibit the formation of ADAs when co-administered with several marketed biologics, including Humira and Advate. Humira is an anti-inflammatory medication that is used in the treatment of rheumatoid arthritis and other autoimmune diseases. Advate is a recombinant human clotting factor VIII used in the treatment of hemophilia A.
In one such preclinical study, we co-administered SVP-Rapamycin with Humira in genetically modified mice that produce human TNF-alpha, a protein involved in systemic inflammation. Due to the constitutive expression of TNF-alpha, these mice spontaneously developed arthritis. In connection with this study:
We evaluated Humira-specific ADA levels to determine the formation of ADAs to Humira. Levels of Humira in serum, or in the blood, were measured to determine whether the formation of ADAs
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increased the clearance of Humira in serum. In addition, we measured the arthritis score, based on the level of severity of the disease, each week from weeks 10 through 20, for each of the three groups.
As depicted in Figure 24a below, we observed a reduction in the formation of ADAs to Humira in the SVP-Rapamycin Group as compared to the Humira Group at week 20. Consistent with the observation of the formation of ADAs, as depicted in Figure 24b below, we observed a higher level of Humira in serum in the SVP-Rapamycin Group as compared to the Humira Group at week 19. As expected, mice in the Untreated Group did not show any Humira-specific ADAs or the presence of Humira in serum. As depicted in Figure 24c below, we observed a decrease in arthritis in the SVP-Rapamycin Group as compared to both the Humira Group and Untreated Group. Notably, the inhibition of ADAs and protection from arthritis were observed through the termination of the study at 20 weeks, even though the last treatment with SVP-Rapamycin was at 11 weeks.
Figure 24d below depicts an x-ray at week 20 of a severely eroded ankle joint in an arthritic mouse in the Humira Group compared to the normal ankle joint of a mouse in the Humira + SVP-Rapamycin Group.
Based on these observations, we believe the co-administration of SVP-Rapamycin with Humira results in the formation of less anti-Humira ADAs, which, in turn, increases the therapeutic levels of Humira in serum and improves the efficacy of Humira.
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Figures 24a through 24d. Preclinical Study: SVP-Rapamycin Co-Administered with Humira
We also conducted a preclinical study evaluating SVP-Rapamycin co-administered with Advate in mice with hemophilia A, a genetic disorder caused by missing or defective blood coagulation Factor VIII. As depicted in Figures 25a through 25c below, during the first 28 days of the study, or the treatment period:
All groups were then challenged with five injections of Advate on days 57, 81, 125, 143 and 187 of the study, referred to as the challenge period. We also administered an unrelated antigen, bacteriophage PhiX174 on days 81, 95 and 143, into all mice to evaluate whether SVP-Rapamycin caused global immunosuppression. We evaluated Advate-specific ADA levels to determine the formation of ADAs to Advate. We also evaluated PhiX174-specific ADA levels to determine the specificity of the SVP-Rapamycin and Advate treatment.
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As depicted in Figure 25a below, we observed a reduction in the formation of ADAs to Advate in the SVP-Rapamycin Group as compared to the Empty Nanoparticle Group, which lasted over five months following the last treatment of SVP-Rapamycin. We also observed that when both groups were immunized with a different antigen, PhiX174, the SVP-Rapamycin Group and the Empty Nanoparticle Group showed relatively similar levels of PhiX174-specific ADA levels, suggesting that the SVP-Rapamycin treatment does not induce global immunosuppression, as depicted in Figure 25b below.
In a separate study, the ability of mice to control bleeding following repeated administration of Factor VIII was evaluated and expressed as the percentage of normalized hemoglobin levels, as depicted in Figure 25c below. A higher percentage of normalized hemoglobin levels indicate an increased ability of the mice to control bleeding. As depicted in Figure 25c below, we observed that mice in the SVP-Rapamycin Group were able to control bleeding at a higher rate than mice in the Empty Nanoparticle Group.
Based on our observations, we believe the co-administration of SVP-Rapamycin with Advate inhibits the formation of anti-Advate ADAs, which, in turn, increases the efficacy of Advate to treat hemophilia A, but does not trigger global immunosuppression.
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Figures 25a through 25c. Preclinical Study: SVP-Rapamycin Co-Administered with Advate
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Our allergy and autoimmune disease programs
We are applying our SVP technology to the treatment of allergies and autoimmune diseases. Currently, many autoimmune diseases are treated with immunosuppressive therapies that indiscriminately affect the function of the entire immune system. Our SVP technology, however, is designed to reprogram the immune system to induce tolerance to a specific antigen that is causing the autoimmune disease, without impacting the rest of the immune system. We have established three collaborative programs with Sanofi to research novel SVP products for the treatment of a life-threatening food allergy, celiac disease and type 1 diabetes.
OUR IMMUNE STIMULATION PROGRAMS
We believe our SVP technology, by encapsulating antigens and adjuvants, has the potential to be used for therapies that stimulate the immune system to treat cancer, infectious diseases and other diseases. We have early-stage programs for therapeutic treatment of HPV-associated cancers and antibody-based vaccine programs for nicotine addiction and malaria. These programs are primarily funded by grants and are the focus of our Russian operations.
Our SVP immune stimulation programs are designed to encapsulate an antigen and a toll-like receptor, or TLR, agonist as the immunomodulator. Humans possess ten TLRs, each of which recognizes distinct molecular patterns associated with pathogens. Activation of TLRs alert the immune system that a potential pathogen is present and that the immune system should mount a response. In this regard, we refer to TLR agonists as substances that activate specific TLRs. TLR agonists can be used as supplements, or adjuvants, to vaccines to increase the immune response to the vaccine by activating the TLRs in antigen-presenting cells.
Injecting TLR agonists alone can cause off-target, systemic immune stimulation, leading to the production of secreted factors called cytokines, which can effectively limit the dosage of vaccines by causing inflammation and flu-like symptoms. To address this issue, our stimulatory SVP technology is designed to limit the TLR agonists from creating a systemic immune response by encapsulating the TLR agonists within our biodegradable nanoparticle. When the TLR agonist is encapsulated with SVP, referred to as SVP-TLR agonist, it can be selectively delivered, together with the vaccine target antigen, to the antigen-presenting cells to induce antigen-specific immune stimulation.
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Immune stimulation-related preclinical study
We conducted a preclinical study in mice to evaluate the ability of a SVP-TLR agonist containing an antigen to minimize the production of systemic cytokines, which are responsible for an undesired systemic immune-stimulatory response, while increasing the production of local cytokines, which are responsible for a strong and antigen-specific immune-stimulatory response.
In this study, we used a specific agonist of TLR7 and TLR8, referred to as TLR 7/8 agonist, that we either delivered in free form mixed with a nanoparticle containing an antigen or encapsulated with an antigen in a nanoparticle.
As depicted in Figures 26a through 26d below:
We evaluated serum levels of TNF-alpha and interleukin-6, or IL-6, two pro-inflammatory cytokines indicative of an undesired, systemic immune response and associated with flu-like symptoms, to determine the levels of systemic cytokine production, as depicted in Figures 26a and 26b below. We also evaluated the levels of interleukin-12, or IL-12, and interferon-gamma, or IFN, in the draining lymph node to determine the levels of local cytokine production involved in desired T helper cell type 1 immune responses, as depicted in Figures 26c and 26d below.
As depicted in Figures 26a and 26b below, we observed increased levels of systemic cytokine production in the Free TLR 7/8 Agonist Group in comparison to the Encapsulated TLR 7/8 Agonist Group. As depicted in Figures 26c and 26d below, we observed increased levels of local cytokine production in the draining lymph node in the Encapsulated TLR 7/8 Agonist Group as compared to the Free TLR 7/8 Agonist Group.
Based on these results, we believe that by encapsulating a TLR agonist in SVP, we are able to increase the production of local cytokines without triggering an undesired systemic immune response.
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Figures 26a through 26d. Preclinical Study: Minimization of Production of Systemic Cytokines
Cancer immunotherapy
Cancer immunotherapy leverages the immune system to treat cancer. The main function of the immune system is to discriminate between "self" and "non-self" antigens. Cancer cells thrive, in part, because they are derived from the body's own cells, and thus are recognized by the immune system as self. We believe that cancer vaccines could be an important therapeutic modality to treat cancer by training the immune system to recognize cancer-associated antigens that are mutated or not expressed in normal adult tissues.
Tumors also evade the immune system by increasing the expression of certain molecules that suppress the immune response against the tumor. This mechanism may be overcome by administering products called immune checkpoint inhibitors, which are designed to block or overcome the immunosuppressive pathways and stimulate the immune system. We believe the efficacy of this approach depends on the existence of pre-existing tumor-specific cytolytic T cells, or CTL, that can be mobilized by checkpoint inhibitors. In some patients, the immune system either does not recognize the tumor or is too weak to mount a response and as a result cannot generate the CTL necessary to kill the tumor. For these patients, a vaccine therapy that stimulates the immune system and could be given in conjunction with a checkpoint inhibitor, may result in better outcomes. We believe that the combination of checkpoint inhibitors and effective cancer vaccines represents the next advance in cancer immunotherapy.
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HPV-associated cancer
HPV overview
HPV is a sexually transmitted infection, which can lead to the development of cancer. Cervical HPV infection often clears spontaneously. However, when it persists, it can lead to the development of cervical intraepithelial neoplasia, or CIN, and cervical cancer.
According to the World Health Organization, HPV infection results in an estimated 530,000 new cases of cervical cancer worldwide, with 270,000 deaths annually. The Centers for Disease Control and Prevention estimates that in the United States there are more than 26,000 cases of HPV-associated cancer per year. HPV is found in approximately 99% of cases of cervical cancer and 72% of cases of oropharyngeal head and neck cancer. The rising incidence of such cancers is thought to be related to the increasing proportion of cancers caused by HPV. In 2011, a study published in the Journal of Clinical Oncology observed that HPV prevalence in oropharyngeal cancers increased from 16.3% during 1984 to 1989 to 71.7% during 2000 to 2004. There are two HPV strains that are responsible for more than 70% of cervical cancer worldwide.
Gardasil and Cervarix are FDA-approved prophylactic vaccines for HPV-related cancers with aggregate worldwide sales reaching $1.9 billion in 2014. While these vaccines can prevent tumor occurrence, Gardasil and Cervarix have not been approved for treatment of patients with existing HPV-related cancers.
According to the Centers for Disease Control and Prevention, in 2012, only 54% of women between the age of 13 to 17 had received at least one dose of the HPV vaccine and only 33% received a complete series of three, which may serve as a prophylactic if administered prior to exposure. This level of vaccination is well below the 80% rate set as a goal by the U.S. Department of Health and Human Services. As a result, we believe that HPV-associated cancer will be an ongoing medical condition for the foreseeable future.
Overview of our program for HPV-associated cancer
Our first CTL-activating SVP program in development is designed to treat HPV-associated cancers by stimulating the immune response to the E6 and E7 proteins, which are expressed by HPV-associated tumor cells. The HPV E6 and E7 antigens are oncogenic proteins that promote malignant transformation and tumor growth. Our SVP program for HPV-associated cancer consists of a SVP encapsulating the E6 and E7 proteins, or SVP-E6/E7, co-administered with an SVP adjuvant which contains a TLR agonist. We refer to this co-administration as SVP-HPV.
We were awarded a grant from the Skolkovo Foundation to support our program to develop an SVP immunotherapy to treat HPV-associated cancers. We believe the grant will assist us with advancing the program from preclinical to early clinical evaluation.
Preclinical development
We conducted a preclinical study in which we evaluated the ability of SVP-HPV to reverse tumor growth for HPV-associated cancers. In this study, we delivered SVP-HPV to mice using the TC-1 tumor model, which expresses the HPV E6 and E7 antigens. Mice were treated either 13 days or 14 days after the introduction (inoculation) of TC-1 tumor cells, at which time the average tumor size was approximately 200 mm3.
In this study, we administered to:
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As depicted in Figures 27a and 27b below, we recorded the volumes of the tumors in both the Empty Nanoparticle Group and the SVP-HPV Group to determine the efficacy of the treatment.
As depicted in Figures 27a and 27b below, we observed that the administration of SVP-HPV reduced the growth of tumors in the SPV-HPV Group in comparison to the Empty Nanoparticle Group, even when administered to mice with palpable tumors. Notably, the tumors in the mice in the SVP-HPV Group continued to grow to an average size of approximately 1,200 mm3 at day 20, before regressing back to baseline.
In a separate experiment, we re-challenged surviving mice on day 154 with a second inoculation of TC-1 tumor cells to test the durability of the immune response and the ability to prevent tumor recurrence. As depicted in Figure 27c below, we observed that immunization with SVP-HPV increases the survival rate of SVP-HPV immunized mice compared to saline treated mice, referred to as the Saline Control Group. The surviving mice withstood a second inoculation of tumors at day 154, indicating the development of long term immunological memory.
Based on these observations, we believe administration of SVP-HPV can both reduce tumor size and increase survival rate.
Figures 27a through 27c. Preclinical Study: Administration of SVP-HPV in TC-1 Tumor Model
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We conducted a preclinical study to evaluate the synergistic effects that our SVP technology may have with certain checkpoint inhibitors such as anti-PD-L1 antibodies. In this study, mice were separated into four groups and implanted with B16F10 melanoma tumor cells, which express an endogenous tumor antigen called TRP-2.
As depicted in Figure 28 below, the:
We evaluated the presence of tumors over time in the mice to determine the efficacy of treatment. We observed that more mice in the SVP-TRP-2 + Control Antibody Group remained tumor-free and over a longer period of time than that of the Empty Nanoparticle + Control Antibody and the Empty Nanoparticle + Anti-PD-L1 Antibody Groups. The SVP-TRP-2 + Anti-PD-L1 Group showed even better efficacy, with approximately 66% of mice remaining tumor free at day 76, compared to approximately 25% of mice in the SVP-TRP-2 + Control Antibody Group and 0% of mice in each of the Empty Nanoparticle + Control Antibody and the Empty Nanoparticle + Anti-PD-L1 Antibody Groups.
Based on our observations, we believe our SVP technology may have synergistic effects with certain checkpoint inhibitors to treat cancer.
Figure 28. Preclinical Study: Administration of SVP Encapsulating the TRP-2 Peptide Antigen and TLR Agonist in B16F1-Melanoma Tumor Model
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OUR OTHER PROGRAMS
Our other immune stimulation programs are a prophylactic malaria vaccine, funded by a grant from The Bill and Melinda Gates Foundation, and a therapeutic vaccine for smoking cessation and relapse prevention, funded by a grant from the NIDA part of the National Institutes of Health.
The malaria program is designed to be a dual action, immune-stimulating SVP nanoparticle vaccine that we believe may offer the potential to protect against malaria by preventing infection and transmission. This program is in the discovery phase.
The smoking cessation and relapse prevention program aims to stimulate the immune system to produce nicotine-specific antibodies in smokers. We believe such antibodies have the potential to bind to the inhaled nicotine and prevent the inhaled nicotine from reaching the brain thereby reducing levels of nicotine in the brain to support smoking cessation and relapse prevention. The SVP-nicotine program, SEL-070, is in preclinical development. We had a prior SVP-nicotine product candidate that was partly sponsored by a grant from NIDA, which entered clinical development. Results from a Phase 1 clinical trial conducted in smokers and non-smokers with this prior product candidate showed that it was well tolerated and that nicotine-specific antibodies were induced, but at sub-therapeutic levels. On the basis of the data from this Phase 1 trial, we obtained a new grant from NIDA to further optimize our SVP-nicotine product candidate. We are currently conducting GLP toxicology studies for our optimized smoking cessation candidate.
MANUFACTURING
We manufacture SVP using a readily-scalable, self-assembly nanoemulsion process with well-defined, robust commercial pharmaceutical unit operations. This proprietary, highly specialized and precisely controlled manufacturing process enables us to reproducibly manufacture SVP across many production scales, from milligram-scale at the laboratory bench, to tens of grams to support investigational new drug application-enabling toxicology studies and early phase clinical studies, to hundreds of grams to multi-kilogram scale for commercial production. This well-defined process has been produced at multiple scales. We have also developed and executed the required detailed analytic characterization of our products. We have completed and released multiple cGMP batches of nanoparticles at the 50 gram scale for our SVP-Rapamycin program and at the 10 and 20 gram scale for our nicotine program.
For the SEL-212 program, we have scaled-up the SVP-Rapamycin production to a 50 gram scale and have initiated development at the 200 gram scale, which, at the current projected clinical dose, we believe would be suitable for commercial launch. The process is designed such that this same equipment is capable of potentially producing up to a one kilogram batch size scale. As our nanoparticle manufacturing process is compact, and therefore also portable, our strategy is to transfer our custom designed process skids to our contract manufacturing organization, or CMO, and have the CMO produce the nanoparticles, under our direction. This is the strategy we use for production of clinical supplies for clinical trials and would be the expected strategy for commercial production.
The pegsiticase enzyme is produced by fermentation in E. Coli and is sourced from 3SBio in China. 3SBio is a Chinese pharmaceutical company that produces multiple approved products in China and also has product sales in other countries around the world. 3SBio supplies the pegsiticase used in the current clinical trials of SEL-212 in the United States. Through a licensing arrangement, we own exclusive worldwide rights to pegsiticase outside of China, with co-ownership of rights in Japan and with 3SBio owning all rights in China. Under this arrangement, 3SBio has agreed to supply us with pegsiticase. We are in the process of evaluating a back-up supplier for pegsiticase in the United States.
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LICENSES AND COLLABORATIONS
Massachusetts Institute of Technology
In November 2008, we entered into a license agreement with MIT, which we refer to as the MIT License. We amended the MIT License in January 2010, November 2012 and August 2013. Under the MIT License, we acquired an exclusive worldwide license, with the right to grant sublicenses, to develop, make, sell, use and import certain licensed products that are therapeutic or prophylactic vaccines and use certain licensed processes in the exercise of rights to the licensed products, the manufacture, sale and practice of which are covered by patent rights owned or controlled by MIT, including patents jointly owned with Brigham, the President and Fellows of Harvard College, and the Children's Medical Center Corporation and its subsidiary, the Children's Hospital Corporation (formerly, the Immune Disease Institute). Our exclusivity is subject to certain retained rights of these institutions and other third parties.
Pursuant to the MIT License, we are required to use diligent efforts to develop and commercialize one or more licensed products or licensed processes, and to thereafter make such products and processes reasonably available to the public, which include annual minimum spending on research, development and commercialization by us or our sublicensees. Upon our entry into the MIT License, we paid MIT a non-refundable license issue fee, reimbursed certain of MIT's costs and issued shares of our common stock to MIT and the other institutional patent owners which were subject to certain anti-dilution, registration and other protective rights. We are obligated to pay MIT annual maintenance fees, which may be credited against the low-single-digit running royalty on annual net sales that we are also obligated to pay. Additionally, we are required to pay MIT (i) developmental milestones up to an aggregate of $1,450,000, (ii) a mid-single digit percentage of income received in consideration of practice of patent rights or development of the products or processes in collaboration with or on behalf of a non-sublicensee corporate partner, (iii) a specified percentage of income received from sublicensees in the low thirties prior to November 25, 2009 and, after that, between 10% and 20%, and (iv) certain fees and costs. Pursuant to the MIT License, we are required to use diligent efforts to develop and commercialize one or more licensed products or licensed processes, and to thereafter make such products and processes reasonably available to the public, which include annual minimum spending of a specified amount in the low-to-mid-six figures in 2008 and 2009 and, thereafter, in the low seven figures, on research, development and commercialization by or our sublicensees.
We may terminate the MIT License at any time upon six months written notice. MIT has the right to terminate the MIT License immediately upon written notice to us if we cease to carry on our business related to the MIT License, fail to maintain insurance as required under the MIT License, file for bankruptcy, fail to pay amounts due under the MIT License, challenge or assist others in bringing a challenge to MIT's patents or fail to cure material breach within 60 days' written notice thereof. Absent early termination, the MIT License will continue until the expiration or abandonment of the last to expire patent right subject to the MIT License.
Sanofi
In November 2012, we entered into a license and research collaboration agreement with Sanofi, which we refer to as the Sanofi Agreement. Under the terms of the Sanofi Agreement, we granted Sanofi an exclusive, worldwide license to certain intellectual property rights and technologies owned by or licensed exclusively to us, including a sublicense under the MIT License, for the research, development and commercialization of one or more treatments for food allergies. The Sanofi Agreement contains an option to extend the license grant for two additional allergy indications, including celiac disease but excluding house dust mite allergies. In November 2014, Sanofi exercised the option to include celiac
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disease as an additional indication and the Sanofi Agreement was amended to add terms specific to the celiac disease indication and to terminate Sanofi's right to exercise its option for any additional indications in May 2015. Except as authorized by Sanofi or permitted under the Sanofi Agreement, during the term of the Sanofi Agreement, our exclusivity obligations prevent us from researching, developing, or commercializing products in these indications or granting third party licenses under the intellectual property rights and technologies licensed to Sanofi for use in these indications.
Under the terms of the research collaboration portion of the Sanofi Agreement, we are required to use commercially reasonable efforts to perform the activities set out for us in the research and development plans created and overseen by a joint research committee. We are responsible for manufacturing all vaccines required for research, development and commercialization of licensed products.
The research term for the first indication expired on the third anniversary of the Sanofi Agreement (November 27, 2015). We completed our research obligations within the initial three year period and are not obligated to perform any further research on the specific indication under the Sanofi Agreement. A vaccine candidate for development and commercialization was not selected by Sanofi by the end of the research plan. However, we are in discussions with Sanofi to extend the research term for the first indication by one year (until November 27, 2016).
The research term for the second indication (celiac disease) will expire upon the earlier of (a) the nomination of a development candidate for the second indication and (b) May 7, 2019. In the event that we are unable to complete our research obligations by May 7, 2019, our obligation will be limited to exercising commercially reasonable efforts to complete such research up to one year after the end of the research term. Each party is responsible for its own internal costs, as well as any third-party or out-of-pocket costs incurred in the performance of the activities laid out in the research plan. If the parties agree to expand our scope of work, such costs will be reimbursed by Sanofi based on an agreed upon budget. Once a development candidate is nominated, all development activities will be under the direction of Sanofi pursuant to a development plan to be negotiated and agreed to at that time and Sanofi will pay us for expenses incurred within certain approved limits.
Pursuant to the Sanofi Agreement, Sanofi paid us an initial payment of $2,000,000 for the initial indication and an additional $2,000,000 for the second indication (celiac disease). Sanofi is obligated to make additional payments to us during preclinical research totaling up to $3,000,000 for each indication, which has been achieved for the food allergy indication. For each indication, we are also eligible for (i) a $5,000,000 development candidate milestone payable to us at the start of preclinical development, (ii) further development milestones up to an aggregate of $127,000,000, which includes up to an aggregate of $57.0 million following the initiation of Phase I, Phase II and Phase III clinical trials for the indication and filing of the first biologic license application, more than two-thirds of which is attributable to the initiation of the Phase 3 clinical trial and the filing of the first biologic license application, and an aggregate of $70.0 million upon achieving various regulatory approvals in the United States, European Union, Japan and Brazil, Russia, India or China, of which the majority is attributable to regulatory approvals in the United States, (iii) sales milestones of up to an aggregate of $170,000,000, and (iv) tiered royalties on annual net sales of licensed products at percentages ranging from mid-single to low double-digits.
These royalty rates are subject to certain reductions. If no vaccine candidates are nominated for development for any indication by 2019, the Sanofi Agreement will expire in its entirety in 2021 and all rights granted thereunder will terminate. If licensed products have been developed pursuant to this agreement, the term will continue until the expiration of all royalty payment obligations, after which time Sanofi will have a royalty-free, perpetual license. In certain circumstances, following termination of the Sanofi Agreement, we may elect to continue developing product candidates or licensed products
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on our own, and if we choose to do so, we will be required to pay Sanofi low-single digit royalties on net sales and a percentage of licensing revenue ranging from mid-single to low-double digits.
Sanofi may terminate the Sanofi Agreement in the event of our uncured material breach, or may terminate for any reason on 6 months' written notice. In case of our uncured material breach, Sanofi may elect, instead of terminating, to continue the Sanofi Agreement and offset any damages incurred due to the default against Sanofi's payments due to us thereunder. We may terminate the Sanofi Agreement in the event of Sanofi's uncured material breach or Sanofi's challenge or assistance of others in challenging our or MIT's licensed patents.
Shenyang Sunshine Pharmaceutical Co., Ltd.
In May 2014, we entered into a license agreement with 3SBio, which we refer to as the 3SBio License. Pursuant to the 3SBio License, we were granted an exclusive license to certain pegsiticase-related patents and related "know-how" owned or in-licensed by 3SBio for the worldwide (except for Greater China and Japan) development and commercialization of products based thereupon for human therapeutic, diagnostic and prophylactic use. We are also granted a worldwide (except for Greater China) exclusive license to develop, commercialize and manufacture or have manufactured products combining our proprietary SVP technology with pegsiticase or related compounds supplied by 3SBio (or otherwise supplied if our rights to manufacture are in effect) for human therapeutic, diagnostic and prophylactic use. We were also granted a co-exclusive license to manufacture and have manufactured pegsiticase and related compounds for our preclinical and clinical use or, if the 3SBio License is terminated for 3SBio's material breach, for any use under the 3SBio License. Otherwise, we are obligated to obtain all of our supply of such compounds for Phase 3 clinical trials and commercial use from 3SBio under the terms of supply agreements to be negotiated.
Pursuant to the 3SBio License, we are required to use our commercially reasonable efforts to develop and commercialize a product containing pegsiticase or a related compound. If we do not commercialize any such product in a particular country in Asia, Africa or South America within 48 months after approval of any such product in the U.S. or a major European country, then 3SBio will have the right to do so, but only until we commercialize a product combining our SVP technology with any such compound in such country. We have paid to 3SBio an aggregate of $1,000,000 in upfront and milestone-based payments under the 3SBio License. We are required to make future payments to 3SBio contingent upon the occurrence of events related to the achievement of clinical and regulatory approval milestones of up to an aggregate of $21,000,000 for products containing our SVP technology, and up to an aggregate of $41,500,000 for products without our SVP technology. We are also required to pay 3SBio tiered royalties on annual worldwide net sales (on a country-by-country and product-by-product basis) related to the pegsiticase component of products at percentages ranging from the low-to-mid single digits for products containing our SVP technology, and a range of no more than ten percentage points from the mid-single digits to low double-digits for products without our SVP technology. We will pay these royalties to 3SBio, subject to specified reductions, on a country-by-country and product-by-product basis until the later of (i) the date that all of the patent rights for that product have expired in that country, or (ii) a specified number of years from the first commercial sale of such product in such country.
The 3SBio License expires on the date of expiration of all of our royalty payment obligations unless earlier terminated by either party for an uncured material default or for the other party's bankruptcy. Any such termination by 3SBio for our material default may be on a country-by country or product-by-product basis in certain circumstances. We may also terminate the 3SBio License on a country-by-country or product-by-product basis for any reason effective upon 60 days' prior written
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notice to 3SBio or, with respect to a given product, immediately upon written notice to 3SBio if we identify a safety or efficacy concern related to such product.
BIND
In December 2008, we entered into a cross-license agreement with BIND Therapeutics, Inc. (formerly BIND Biosciences, Inc.), or BIND, which we refer to as the BIND Agreement. Pursuant to the BIND Agreement, BIND granted us a perpetual, irrevocable, royalty-free worldwide non-exclusive license under certain of BIND's existing and future patent rights to make, have made, use, sell, offer for sale and import products and services covered by such patents and patent applications in the field of certain prophylactic and therapeutic vaccines. The time period for adding new patent rights, not included in the families of previously licensed patent rights, to our license grant from BIND has expired. Pursuant to the BIND Agreement, we granted BIND a perpetual, irrevocable, royalty-free, worldwide non-exclusive license under certain of our current and future patent rights to make, have made, use, sell, offer for sale and import products and services covered by such patents and patent applications in all other fields, in each case, excluding certain future patent rights of each party related to novel targeting agents. The time period for adding new patent rights, not included in the families of previously licensed patent rights, to BIND's license grant from us has expired.
We have paid BIND an upfront license issuance fee and reimbursed certain of BIND's fees in connection with the entry into the BIND Agreement. No royalties or other payments are due to or by either party. The BIND Agreement expires upon expiration of the last patent right covered by the BIND Agreement. Neither party may unilaterally terminate the BIND Agreement for any reason. If either party materially breaches the BIND Agreement, fails to expend a specified amount in research and development activities related to the BIND Agreement, undergoes bankruptcy or insolvency, or undergoes a change of control, the future patent rights to be included in the license grant to the party breaching, failing to expend such amounts or undergoing such event under the BIND Agreement will no longer be granted to the breaching party.
Massachusetts Eye and Ear Infirmary
In May 2016, we entered into a license agreement with the Massachusetts Eye and Ear Infirmary and The Schepens Eye Research Institute, Inc., or, collectively, MEE, which we refer to as the MEE License. Under the MEE License, we were granted an exclusive commercial worldwide license, with the right to grant sublicenses through multiple tiers, to make, have made, use, offer to sell, sell and import certain products and to practice certain processes, the sale, use or practice of which are covered by patents and proprietary know-how owned or controlled by MEE, for use of Anc80 gene therapy vectors for gene augmentation therapies expressing certain target sequences.
MEE also granted us exclusive options to exclusively license certain of their intellectual property rights relating to several additional target sequences and variations thereof each linked to a specified disease. During a defined option period, we may exercise this right for up to a designated number of target sequences. If we exercise our options, under certain circumstances, we may substitute alternative target sequences for previously selected target sequences.
We agreed to use commercially reasonable efforts to develop and commercialize licensed products pursuant to a development plan, and to market and sell at least one product for each target sequence for which we exercised our option as soon as reasonably practicable. Subject to certain exceptions, following commercial launch we must use commercially reasonable efforts to market, sell, and maintain public availability of licensed products in a certain number of specified major markets.
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Pursuant to the MEE Agreement, we agreed to pay MEE a license fee in the low six figures, annual license maintenance fees ranging from the mid-twenty thousands to mid-seventy thousands and an option maintenance fee in the low five figures for each exercisable option. We also agreed to reimburse MEE for a specified percentage of the past patent expenses for the patents licensed to us. We also agreed to pay development milestones on a licensed product-by-licensed product basis, totaling up to an aggregate of between $4,175,000 to $37,025,000 and sales milestones on a licensed product-by-licensed product basis, totaling up to an aggregate of between $50,000,000 to $70,000,000; tiered royalties on a licensed product-by-licensed product and country-by-country basis equal to a percentage of net sales ranging from mid-single digits to mid-teens, subject to the prevalence of the targeted disease and certain reductions; and a percentage, in a range expected to be in the mid-teens depending on timing, of any sublicense income we receive from sublicensing our rights granted thereunder, subject to certain reductions and exclusions. Upon exercise of each option, we agreed to pay MEE an option exercise fee ranging from low-six figures to mid-six figures, depending on the prevalence of the targeted disease.
The MEE License will continue until the expiration of the last to expire of the patent rights licensed thereunder. We may terminate the MEE License in whole or in part upon prior written notice. MEE may terminate the MEE License on a target sequence-by-target sequence basis if we fail to make any scheduled payments in respect of such target sequence or if we materially breach a diligence obligation in respect of such target sequence, in each case if we fail to cure within a specified time period. MEE may terminate the MEE License in its entirety if we materially breach certain of our obligations related to diligence, representations and warranties, and maintenance of insurance; if we challenge the validity or enforceability of any patents licensed thereunder; if any of our executive officers are convicted of a felony relating to manufacture, use, sale or importation of licensed products; or upon our insolvency or bankruptcy.
INTELLECTUAL PROPERTY
We endeavor to protect our SVP based immunotherapy program technology, which we consider fundamental to our business, by seeking, maintaining and defending patent rights, whether developed internally or licensed from third parties, relating to our program, product candidates, their methods of use and the processes for their manufacture. Our practice is to strive to protect our intellectual property by, among other methods, pursuing and obtaining patent protection in the United States and in jurisdictions outside of the United States related to our proprietary technology, inventions, improvements, programs and product candidates that are commercially important to the operation and growth of our business. We also rely on trade secrets and know-how relating to our proprietary technology, programs and product candidates, continuing innovation and in-licensing opportunities to maintain, advance and fortify our proprietary position in our SVP-based immunotherapy program and product candidates. Our commercial success will depend in part on our ability to obtain and maintain patent and other proprietary protection for our program technology, inventions and improvements; to preserve the confidentiality of our trade secrets; to maintain our licenses to use intellectual property owned or controlled by third parties; to defend and enforce our proprietary rights, including our patents; and to operate without infringing the patents and proprietary rights of third parties.
We have developed and in-licensed numerous patents and patent applications and possess substantial know-how and trade secrets relating to our SVP-based immunotherapy technology, program and product candidates. Our patent portfolio contains nine issued patents in the United States and seven foreign issued patents, in all cases, owned solely by us. We also have 50 pending patent applications in
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the United States as well as 307 foreign pending patent applications, in all cases, owned solely by us. These patents and patent applications include claims directed to:
Set forth below is a table indicating the expiration dates for our owned patent families, or expected expiration dates in the case of our owned patent application families, corresponding to each of our programs.
Program
|
Description
|
Patent Family(1) |
Expiration(2)
|
||||
---|---|---|---|---|---|---|---|
| | | | | | | |
Refractory and chronic tophaceous gout (SEL-212) | SVP-Rapamycin co-administered with pegsiticase | 19 | 2032-2035 | ||||
Gene therapy |
SVP-Rapamycin co-administered with AAV vector |
19 |
2032-2035 |
||||
Food allergy |
SVP-adjuvant and SVP-food allergen |
13 |
2032-2035 |
||||
Celiac disease |
SVP-Rapamycin and SVP-gluten |
13 |
2032-2035 |
||||
Type 1 diabetes |
SVP-Rapamycin and SVP-insulin |
15 |
2032-2035 |
||||
Smoking cessation and relapse prevention (SEL-070) |
SVP-adjuvant and SVP-nicotine |
6 |
2030-2032 |
||||
HPV-associated cancer (SEL-701) |
SVP-adjuvant and SVP-HPV antigen |
6 |
2030-2032 |
||||
Malaria |
SVP-adjuvant and SVP-malaria antigen |
6 |
2030-2032 |
In addition, we have exclusively or non-exclusively licensed intellectual property, including the following patent portfolio: 18 U.S. issued patents; 16 foreign issued patents; 9 U.S. pending patent applications; and 56 foreign pending applications. The licensed patents and patent applications cover
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various aspects of the technology being developed by us, including claims directed to compositions of matter and methods of use, and have been filed in various countries worldwide including in North America, Europe and Asia, with material expiration dates varying from 2021 to, if claims are issued, 2028.
As we continue to develop the SVP-based immunotherapy program technology, we intend to pursue, when possible, patent protection for product candidates, methods of use and processes for manufacture. We continually evaluate and enhance our intellectual property strategy as we develop new program technologies and product candidates. To that end, we are prepared to file additional patent applications if our intellectual property strategy requires such filings, or where we seek to adapt to competition or seize business opportunities. In addition to filing and prosecuting patent applications in the United States, we often file analogous patent applications in the European Union and in additional foreign countries where we believe such filing is likely to be beneficial, including but not limited to Australia, Brazil, China, Eurasia, including the Russian Federation, Europe, South Korea, Mexico, India, Israel and Japan.
Each patent's term depends upon the laws of the countries in which they are obtained. The patent term in most countries in which we file is 20 years from the earliest date of filing of a non-provisional patent application. Notably, the term of U.S. patents may be extended due to delays incurred due to compliance with FDA or by delays encountered during prosecution that are caused by the USPTO. For example, the Hatch-Waxman Act permits a patent term extension for FDA-approved drugs of up to five years beyond the expiration of the patent, depending upon the length of time the drug is under regulatory review. There is a limit to the amount of time a patent may be extended in the United States; no patent extension can extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar patent term extensions are available in Europe and other jurisdictions for patents that cover regulatory-approved drugs. We intend to apply for patent term extensions on patents covering our product candidates if and when they receive FDA approval. We expect 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 FDA in the United States, will agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions. Currently, we own or license patents with material expiration dates ranging from 2021 to 2032. If patents are issued on pending patent applications that we own or license, the resulting patents are expected to have material expiration dates ranging from 2027 to 2035. However, the actual patent protection period 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.
Generally, the patent positions of companies similar to ours are uncertain and encompass complex legal and factual questions. There has been no consistent policy regarding the scope of claims allowable in patents in the field of immunotherapy in the United States The foreign patent situation 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 lessen our ability to protect our intellectual property and enforce our proprietary rights, and more generally could affect the value of our intellectual property. Specifically, our ability to stop third parties from making, using, selling, offering to sell, or importing any of our patented inventions, either directly or indirectly, will depend in part on our success in obtaining and enforcing patent claims that cover our program technology, inventions and improvements. With respect to both company-owned and in-licensed intellectual property, we cannot be certain that patents will be granted with respect to any of our pending patent
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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 beneficial in protecting our programs and product candidates and the methods used to manufacture those programs and product candidates. Moreover, even our issued patents do not guarantee us the right to practice our technology in relation to the commercialization of our programs or product candidates. The field 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 patented immunotherapy technology, programs and product candidates and practicing our proprietary technology. Our issued patents and those that may issue in the future may be challenged, invalidated, or circumvented, which could inhibit our ability to stop competitors from marketing related programs or product candidates or limit the length of the term of patent protection that we may have for our immunotherapy technology, programs and product candidates. Additionally, 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. Consequently, we may have competition for our immunotherapy technology, programs 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 particular product candidate can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any economic advantage of the patent. For this and more comprehensive risks related to our proprietary technology, inventions, improvements, programs and product candidates, please see the section entitled "Risk factorsRisks related to our intellectual property."
We currently have three trademark registrations, one in the United States, one in Europe and one in Russia. We intend to file applications for trademark registrations in connection with our product candidates in various jurisdictions, including the United States.
We may also rely on trade secrets to protect our confidential and proprietary information. However, trade secrets are difficult to protect. Although we seek to protect our program technology and product candidates as trade secrets, in part, by entering into confidentiality agreements with those who have access to our confidential information, including our employees, contractors, consultants, collaborators and advisors, third parties may independently discover substantially equivalent trade secrets or otherwise gain access to our trade secrets or disclose our technology. It is our policy to require our employees, contractors, consultants, collaborators and advisors to execute confidentiality agreements upon 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 course of the individual's 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 the work or services they render under such agreements or grant us an option to negotiate a license to use such inventions. To the extent that our employees, contractors, consultants, collaborators, and advisors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
We also seek to protect 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.
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COMPETITION
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our SVP technology, our expertise in triggering antigen-specific immune responses, integrated research, clinical and manufacturing capabilities, development experience, scientific knowledge and portfolio strategy provide us with competitive advantages, we face potential competition from many different sources, including pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Product candidates that we successfully develop and commercialize may compete with existing therapies and new therapies that may become available in the future.
Our competitors may have significantly greater financial resources, established presence in the market, expertise in research and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and reimbursement and marketing approved products than we do. These competitors also compete with us in recruiting and retaining qualified scientific, sales, marketing and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in 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.
The key competitive factors affecting the success of SEL-212, and any other tolerance or immune stimulation product candidates that we develop, if approved, are likely to be their efficacy, safety, convenience, price, the level of generic competition and the availability of reimbursement from government and other third-party payors.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours. 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 generic or biosimilar products. SEL-212 may compete with others in the gout market, including Krystexxa, which contains a pegylated uricase similar to the Pegsiticase component of SEL-212 and is indicated for the treatment of refractory gout. Horizon Pharma plc, whose affiliates recently acquired Krystexxa, may find other approaches to eliminate undesired immunogenicity to Krystexxa. Long-term treatment with global immunosuppressive products may increase the susceptibility to contract infections, tumors and may lead to organ failure. Large companies with active research to prevent the formation of ADAs and treat allergies or autoimmune diseases include Sanofi, Pfizer Inc., or Pfizer, and Merck & Co., Inc., or Merck. Small, early-stage biopharmaceutical companies active in the research for new technologies to induce antigen-specific tolerance include Anokion SA, Cour Pharmaceutical Development Company, Inc., Apitope International NV, Evotec AG and Dendright International, Inc. We believe that desensitization strategies are restricted to allergies, take more time to achieve a therapeutic effect than therapies that use an immuno-modulator and are more restricted in breadth of efficacy and applications than SVP products.
Our immunostimulatory therapies are also subject to intense competition. In cancer therapy, the most common methods of treating patients are surgery, radiation and drug therapy, including chemotherapy and immunotherapy. Large pharmaceutical companies, including AstraZeneca PLC, or AstraZeneca, Roche Holding AG, Pfizer, Merck, Bristol-Myers Squibb Company, and Amgen Inc., as well as smaller biopharmaceutical companies including Immune Design Corp. are active in the research and
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development of cancer vaccines. There are a variety of vaccine approaches to treat HPV-associated cancer including the use of DNA vaccines, novel adjuvants, novel antigens and novel delivery vectors for the antigen. Clinical-stage companies with these approaches include, among others, Inovio Pharmaceuticals, Inc., in Phase 2 clinical development with VGX3100, ISA Pharmaceuticals, B.V., in Phase 2 clinical development with ISA-101, Genticel, in Phase 2 clinical development with GTL001, and AstraZeneca, in Phase 1 clinical development with INO-3112, which it licensed from Inovio Pharmaceuticals, Inc. We believe that our approach shares the safety of approved vaccine technologies that use antigens and adjuvants and could be synergistic with the use of checkpoint inhibitors such as PD-1 and PD-L1 inhibitors.
We are also competing in the development of new prophylactic vaccines with large pharmaceutical companies such as Sanofi, Pfizer, Merck, GlaxoSmithKline Pharmaceuticals Ltd, Johnson & Johnson, and AstraZeneca and smaller biopharmaceutical companies such as Genocea Biosciences, Inc. and Novavax Inc.
GOVERNMENT REGULATION
Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacturing, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are developing. Our most advanced product candidate, SEL-212, is subject to regulation in the United States as a combination product. If marketed individually, each component 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 a Center that will have primary jurisdiction over its regulation based on a determination of the combination product's primary mode of action, which is the single mode of action that provides the most important therapeutic action. In the case of our SEL-212, we believe that the primary mode of action is attributable to the biologic component of the product. In the case of SEL-212, which we believe will be regulated as a therapeutic biologic, the FDA's Center for Drug Evaluation and Research, or CDER, will have primary jurisdiction over premarket development. The CDER currently has regulatory responsibility, including premarket review and continuing oversight, over certain therapeutic biologic products that were previously regulated by the Center for Biologics Evaluation and Research, or CBER. We expect to seek approval of SEL-212 through a single Biologics License Application, or BLA, reviewed by CDER, and we do not expect that the FDA will require a separate marketing authorization for each constituent of SEL-212.
Biological products are subject to regulation under the Federal Food, Drug, and Cosmetic Act, or FD&C Act, and the Public Health Service Act, or PHS Act, and other federal, state, local and foreign statutes and regulations. SEL-212 and any other product candidates that we develop must be approved by the FDA before they may be legally marketed in the United States and by the appropriate foreign regulatory agency before they may be legally marketed in foreign countries.
U.S. biological products development process
The process required by the FDA before a biologic, including a gene therapy, may be marketed in the United States generally involves the following:
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Before testing any biological product candidate in humans, the product candidate enters the preclinical testing stage. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the product candidate. The conduct of the preclinical tests must comply with federal regulations and requirements including GLPs.
The clinical study sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical study on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical study can begin. The FDA may also impose clinical holds on a biological product candidate at any time before or during clinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the FDA.
Clinical trials involve the administration of the biological product candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the study sponsor's control. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical study, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety, including stopping rules that assure a clinical study will be stopped if certain adverse events should occur. Each protocol and any amendments to the protocol must be submitted to the FDA as part of the IND. Clinical trials must be conducted and monitored in accordance with the FDA's regulations comprising the GCP requirements, including the requirement that all research subjects provide informed consent. Further, each clinical study must be reviewed and approved by an independent institutional review board, or IRB, at or servicing each institution at which the clinical study will be conducted. An IRB is charged with protecting the welfare and rights of study participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to expected benefits. The IRB also approves the form and content of the informed consent that must be signed by each clinical study subject or his or her legal representative and must monitor the clinical study until completed.
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Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
Post-approval clinical trials, sometimes referred to as Phase IV clinical trials, may be conducted after initial marketing approval. These clinical trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up.
During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and clinical study investigators. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA and the investigators for serious and unexpected adverse events, any findings from other trials, tests in laboratory animals or in vitro testing that suggest a significant risk for human subjects, or any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days after the sponsor's initial receipt of the information. The FDA or the sponsor or its data safety monitoring board may suspend a clinical study 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 study at its institution if the clinical study is not being conducted in accordance with the IRB's requirements or if the biological product candidate has been associated with unexpected serious harm to patients.
There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Sponsors of clinical trials of FDA-regulated products, including biologics, are required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved.
Concurrent with clinical trials, companies usually complete additional animal trials and must also develop additional information about the physical characteristics of the biological product candidate as well as finalize a process for manufacturing the product in commercial quantities in accordance with GMP requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHS Act emphasizes the importance of manufacturing control for products
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whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the sponsor must develop methods for testing the identity, strength, quality, potency and purity of the final biological product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the biological product candidate does not undergo unacceptable deterioration over its shelf life.
U.S. review and approval processes
After the completion of clinical trials of a biological product candidate, FDA approval of a BLA must be obtained before commercial marketing of the biological product. The BLA must include results of product development, laboratory and animal trials, human trials, information on the manufacture and composition of the product, proposed labeling and other relevant information. In addition, under the Pediatric Research Equity Act, or PREA, a BLA or supplement to a BLA must contain data to assess the safety and effectiveness of the biological product candidate for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The Food and Drug Administration Safety and Innovation Act, or FDASIA, requires that a sponsor who is planning to submit a marketing application for a drug or biological product that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initial Pediatric Study Plan, or PSP, within sixty days after an end-of-Phase 2 meeting or as may be agreed between the sponsor and FDA. Unless otherwise required by regulation, PREA does not apply to any biological product for an indication for which orphan designation has been granted.
Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a user fee. The FDA adjusts the PDUFA user fees on an annual basis. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on BLAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.
Within 60 days following submission of the application, the FDA reviews a BLA submitted to determine if it is substantially complete before the agency accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The FDA reviews the BLA to determine, among other things, whether the proposed product is safe and potent, or effective, for its intended use, and has an acceptable purity profile, and whether the product is being manufactured in accordance with cGMP requirements to assure and preserve the product's identity, safety, strength, quality, potency and purity. The FDA may refer applications for novel biological products or biological products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. During the biological product approval process, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy, or REMS, is necessary to assure the safe use of the biological product candidate. If the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS; the FDA will not approve the BLA without a REMS, if required.
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Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with GMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND study requirements and GCP requirements.
Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than the applicant interprets the same data. If the FDA decides not to approve the BLA in its present form, the FDA will issue a complete response letter that usually describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application.
If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post marketing clinical trials, sometimes referred to as Phase IV clinical trials, designed to further assess a biological product's safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized.
One of the performance goals agreed to by the FDA under the PDUFA is to review 90% of standard BLAs in 10 months from the filing date and 90% of priority BLAs in six months from the filing date, whereupon a review decision is to be made. The FDA does not always meet its PDUFA goal dates for standard and priority BLAs and its review goals are subject to change from time to time. The review process and the PDUFA goal date may be extended by three months if the FDA requests or the BLA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date.
Orphan designation
The FDA may grant orphan designation to drugs or biologics intended to treat a rare 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 marketing the product for this type of disease or condition will be recovered from sales in the United States. Orphan designation must be requested before submitting a BLA. After the FDA grants orphan designation, 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.
In the United States, orphan designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan exclusivity, which means the FDA may not approve any other application
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to market the same product for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer with orphan exclusivity is unable to assure sufficient quantities of the approved orphan designated product. Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan product exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval of the same biological product as defined by the FDA or if our product candidate is determined to be contained within the competitor's product for the same indication or disease. If a drug or biological product designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity.
We have not requested orphan designation for our product candidates, but depending on the proposed indication for which we intend to develop our future products, we may in the future request such designation.
Expedited development and review programs
The FDA has a Fast Track program that is intended to expedite or facilitate the process for reviewing new biological products that meet certain criteria. Specifically, new biological products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new biologic may request that the FDA designate the biologic as a Fast Track product at any time during the clinical development of the product. Unique to a Fast Track product, the FDA may consider for review sections of the marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the application.
Any product submitted to the FDA for marketing, including under a Fast Track program, may be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new biological product designated for priority review in an effort to facilitate the review. Additionally, a product may be eligible for accelerated approval. Biological products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may be eligible for accelerated approval, which means that they may be approved on the basis of adequate and well-controlled clinical studies establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or 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 biological product subject to accelerated approval perform adequate and well-controlled post-marketing clinical studies. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the
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commercial launch of the product. Fast Track designation, priority review and accelerated approval do not change the standards for approval but may expedite the development or approval process.
In addition, under the provisions of FDASIA, the FDA established a Breakthrough Therapy Designation which is intended to expedite the development and review of products that treat serious or life-threatening diseases or conditions. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the features of Fast Track designation, as well as more intensive FDA interaction and guidance. The Breakthrough Therapy Designation is a distinct status from both accelerated approval and priority review, but these can also be granted to the same product candidate if the relevant criteria are met. The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application for approval of a breakthrough therapy. Requests for breakthrough therapy designation will be reviewed within 60 days of receipt, and FDA will either grant or deny the request.
Fast Track designation, priority review, accelerated approval and breakthrough therapy designation do not change the standards for approval but may expedite the development or approval process. Even if we receive one of these designations for our product candidates, the FDA may later decide that our product candidates no longer meet the conditions for qualification. In addition, these designations may not provide us with a material commercial advantage.
Gene therapy products
With respect to any gene therapy products we may develop, the FDA works closely with the NIH and its Recombinant DNA Advisory Committee, or RAC, a federal advisory committee that discusses protocols that raise novel or particularly important scientific, safety or ethical considerations at one of its quarterly public meetings. Where a gene therapy study is conducted at, or sponsored by, institutions receiving NIH funding for recombinant DNA research, prior to the submission of an IND to the FDA, a protocol and related documentation is submitted to and the study is registered with the NIH Office of Biotechnology Activities, or OBA, pursuant to the NIH Guidelines for Research Involving Recombinant DNA Molecules, or NIH Guidelines. Compliance with the NIH Guidelines is mandatory for investigators at institutions receiving NIH funds for research involving recombinant DNA, however many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. The FDA also has published guidance documents related to, among other things, gene therapy products in general, their preclinical assessment, observing subjects involved in gene therapy clinical trials for delayed adverse events, potency testing, and chemistry, manufacturing and control information in gene therapy INDs.
The OBA will notify the FDA of the RAC's decision regarding the necessity for full public review of a gene therapy protocol. RAC proceedings and reports are posted to the OBA web site and may be accessed by the public. With gene therapy protocols, if the FDA allows the IND to proceed, but the RAC decides that full public review of the protocol is warranted, the FDA will request at the completion of its IND review that sponsors delay initiation of the protocol until after completion of the RAC review process.
In addition, there is a publicly accessible database, the Genetic Modification Clinical Research Information System, which includes information on gene transfer trials and serves as an electronic tool to facilitate the reporting and analysis of adverse events in these trials.
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Post-approval requirements
Maintaining substantial compliance with applicable federal, state and local statutes and regulations requires the expenditure of substantial time and financial resources. Rigorous and extensive FDA regulation of biological products continues after approval, particularly with respect to cGMP requirements. We will rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of any products that we may commercialize. Manufacturers of our products are required to comply with applicable requirements in the cGMP regulations, including quality control and quality assurance and maintenance of records and documentation. Other post-approval requirements applicable to biological products include record-keeping requirements, reporting of adverse effects and reporting updated safety and efficacy information.
We also must comply with the FDA's advertising and promotion requirements, such as those related to direct-to-consumer advertising, the prohibition on promoting products for uses or in patient populations that are not described in the product's approved labelling (known as "off-label use"), industry-sponsored scientific and educational activities and promotional activities involving the internet. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant or manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, clinical hold, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or communications with doctors, debarment, restitution, disgorgement of profits, or civil or criminal penalties.
Biological product manufacturers and other entities involved in the manufacture and distribution of approved biological products 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 requirements and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain GMP compliance. In addition, changes to the manufacturing process or facility generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.
Biosimilars and exclusivity
The Patient Protection and Affordable Care Act, or Affordable Care Act, signed into law on March 23, 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. To date, only one biosimilar has been licensed under the BPCIA, although numerous biosimilars have been approved in Europe. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars.
Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity and potency, can be shown through analytical studies, animal studies and a clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be
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expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. However, complexities associated with the larger, and often more complex, structures of biological products, as well as the processes by which such products are manufactured, pose significant hurdles to implementation of the abbreviated approval pathway that are still being worked out by the FDA.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor's own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The BPCIA also created certain exclusivity periods for certain biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed "interchangeable" by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.
A biological product can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued "Written Request" for such a study.
The BPCIA is complex and only beginning to be interpreted and implemented by the FDA. In addition, recent government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate impact, implementation and meaning of the BPCIA is subject to significant uncertainty.
Government regulation outside of the United States
In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical studies and any commercial sales and distribution of our products. Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries.
Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical studies or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical study application much like the IND prior to the commencement of human clinical studies. In the European Union, for example, a clinical trial authorization, or CTA, must be submitted to each country's national health authority and an independent ethics committee, much like the FDA and the IRB, respectively. Once the CTA is approved in accordance with a country's requirements, clinical study development may proceed.
The requirements and process governing the conduct of clinical studies, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical studies are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
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In the European Economic Area, or EEA, which is composed of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA.
There are two types of MAs.
To obtain regulatory approval of an investigational biological product under European Union regulatory systems, we must submit a marketing authorization application, which is similar to the U.S. BLA. The European Union also provides opportunities for market exclusivity. For example, in the European Union, upon receiving marketing authorization, new chemical entities generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents regulatory authorities in the European Union from referencing the innovator's data to assess a generic application. During the additional two-year period of market exclusivity, a generic marketing authorization can be submitted, and the innovator's data may be referenced, but no generic product can be marketed until the expiration of the market exclusivity. However, there is no guarantee that a product will be considered by the European Union's regulatory authorities to be a new chemical entity, and products may not qualify for data exclusivity. Products receiving orphan designation in the European Union can receive ten years of market exclusivity, during which time no similar medicinal product for the same indication may be placed on the market. An orphan product can also obtain an additional two years of market exclusivity in the European Union for pediatric studies. No extension to any supplementary protection certificate can be granted on the basis of pediatric studies for orphan indications.
The criteria for designating an "orphan medicinal product" in the European Union are similar in principle to those in the United States. Under Article 3 of Regulation (EC) 141/2000, a medicinal product may be designated as orphan if (1) it is intended for the diagnosis, prevention or treatment of
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a life-threatening or chronically debilitating condition; (2) either (a) such condition affects no more than five in 10,000 persons in the European Union when the application is made, or (b) the product, without the benefits derived from orphan status, would not generate sufficient return in the European Union to justify investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the European Union, or if such a method exists, the product will be of significant benefit to those affected by the condition, as defined in Regulation (EC) 847/2000. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and are, upon grant of a marketing authorization, entitled to ten years of market exclusivity for the approved therapeutic indication. The application for orphan drug designation must be submitted before the application for marketing authorization. The applicant will receive a fee reduction for the marketing authorization application if the orphan drug designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
The 10-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Additionally, marketing authorization may be granted to a similar product for the same indication at any time if the:
For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical studies, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical studies are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Other healthcare laws
In addition to FDA restrictions on marketing of pharmaceutical and biological products, other U.S. federal and state healthcare regulatory laws restrict business practices in the biopharmaceutical industry, which include, but are not limited to, state and federal anti-kickback, false claims, data privacy and security, and physician payment transparency laws.
The federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, 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, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term "remuneration" has been broadly interpreted to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exceptions
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and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not meet the requirements of a statutory or regulatory exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute's intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated.
Additionally, the intent standard under the Anti-Kickback Statute was amended by the ACA to a stricter standard such that a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the ACA codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. The majority of states also have anti-kickback laws, which establish similar prohibitions and in some cases may apply to items or services reimbursed by any third-party payor, including commercial insurers.
The federal false claims and civil monetary penalties laws, including the civil False Claims Act, prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes "any request or demand" for money or property presented to the U.S. government. Actions under the civil False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the civil False Claims Act can result in very significant monetary penalties and treble damages. Several pharmaceutical and other healthcare companies have been prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies' marketing of products for unapproved (e.g., off-label) uses. In addition, the civil monetary penalties statute imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. Many states also have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Given the significant size of actual and potential settlements, it is expected that the government authorities will continue to devote substantial resources to investigating healthcare providers' and manufacturers' compliance with applicable fraud and abuse laws.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, 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, the ACA broadened the reach of certain criminal healthcare fraud statutes created under HIPAA by amending the intent requirement such that
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a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and certain other healthcare providers. The ACA imposed, among other things, new annual reporting requirements through the Physician Payments Sunshine Act for covered manufacturers for certain payments and "transfers of value" provided to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit timely, accurately and completely the required information for all payments, transfers of value and ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 per year and up to an aggregate of $1 million per year for "knowing failures." Covered manufacturers must submit reports by the 90th day of each calendar year. In addition, certain states require implementation of compliance programs and compliance with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, impose restrictions on marketing practices, and/or tracking and reporting of gifts, compensation and other remuneration or items of value provided to physicians and other healthcare professionals and entities.
We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, including the Final HIPAA Omnibus Rule published on January 25, 2013, impose specified requirements relating to the privacy, security and transmission of individually identifiable health information held by covered entities and their business associates. Among other things, HITECH made HIPAA's security standards directly applicable to, as well as imposed certain other privacy obligations on, "business associates," defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney's fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same requirements, thus complicating compliance efforts.
If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, administrative, civil and criminal penalties, damages, fines, disgorgement, contractual damages, reputational harm, diminished profits and future earnings, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare programs and individual imprisonment, any of which could adversely affect our ability to operate our business and our financial results.
To the extent that any of our product candidates, once approved, are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or other transfers of value to healthcare professionals.
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Coverage and reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical or biological products for which we obtain regulatory approval. In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. Sales of any products for which we receive regulatory approval for commercial sale will therefore depend, in part, on the availability of coverage and adequate reimbursement from third-party payors. Third-party payors include government authorities, managed care providers, private health insurers and other organizations.
The process for determining whether a third-party payor will provide coverage for a pharmaceutical or biological product typically is separate from the process for setting the price of such product or for establishing the reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication. A decision by a third-party payor not to cover our product candidates could reduce physician utilization of our products once approved and have a material adverse effect on our sales, results of operations and financial condition. Moreover, a third-party payor's decision to provide coverage for a pharmaceutical or biological product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Additionally, coverage and reimbursement for products can differ significantly from payor to payor. One third-party payor's decision to cover a particular medical product or service does not ensure that other payors will also provide coverage for the medical product or service, or will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process will require us to provide scientific and clinical support for the use of our products to each payor separately and will be a time-consuming process.
The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of pharmaceutical or biological products have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost-effectiveness of pharmaceutical or biological products, medical devices and medical services, in addition to questioning safety and efficacy. If these third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after FDA approval or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit.
Healthcare reform
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products. For example, in March 2010, the ACA was enacted, which, among other things, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program; introduced 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; extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans; imposed mandatory discounts for certain Medicare Part D beneficiaries as a condition for manufacturers' outpatient drugs
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coverage under Medicare Part D; subjected drug manufacturers to new annual fees based on pharmaceutical companies' share of sales to federal healthcare programs; created 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 imposed an annual excise tax of 2.3% on any entity that manufactures or imports medical devices, which was suspended from January 1, 2016, to December 31, 2017, by the Consolidated Appropriations Act of 2016, but will be reinstated starting January 1, 2018, absent further action.
We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement and additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded 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 drugs.
Additionally, on August 2, 2011, the Budget Control Act of 2011 created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the fiscal years 2012 through 2021, was unable to reach required goals, thereby triggering the legislation's automatic reduction to several government programs. This included aggregate reductions of Medicare payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013 and, due to the Bipartisan Budget Act of 2015, will stay in effect through 2025 unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act was signed into law, which, among other things, further reduced Medicare payments to several providers, including hospitals and imaging centers.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products once approved or additional pricing pressures.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
FACILITIES
Our headquarters are located in Watertown, Massachusetts, where we occupy 27,833 square feet of office and laboratory space. The term of the lease expires on March 31, 2017. We also lease approximately 2,500 square feet of office and laboratory space in Moscow, Russia on a month to month basis.
EMPLOYEES
As of March 31, 2016, we had 54 full-time employees, 44 of whom were primarily engaged in research and development activities. A total of 25 employees have an M.D. or Ph.D. degree. None of our employees is represented by a labor union and we consider our employee relations to be good.
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EXECUTIVE OFFICERS, KEY EMPLOYEE, DIRECTORS AND DIRECTOR NOMINEE
The following table sets forth the name, age and position of each of our executive officers, key employee, directors and director nominee as of June 8, 2016.
Name
|
Age
|
Position
|
|||
---|---|---|---|---|---|
| | | | | |
Executive Officers |
|||||
Werner Cautreels, Ph.D. |
63 | President and Chief Executive Officer and Director | |||
Lloyd Johnston, Ph.D. |
48 | Chief Operating Officer and Senior Vice President, Research and Development | |||
Takashi Kei Kishimoto, Ph.D. |
56 | Chief Scientific Officer | |||
Peter Keller, M.Sci. |
45 | Chief Business Officer | |||
David Abraham, J.D. |
50 | Chief Compliance Officer, General Counsel and Corporate Secretary | |||
Earl Sands, M.D. |
58 | Chief Medical Officer | |||
David Siewers, CPA |
62 | Chief Financial Officer | |||
Other Key Employee |
|
||||
Dmitry Ovchinnikov, Ph.D. |
38 | General Director, Selecta RUS | |||
Directors and Director Nominee |
|
||||
Omid Farokhzad, M.D.(3) |
47 | Director | |||
Carl Gordon, Ph.D.(1) |
51 | Director | |||
Peter Barton Hutt, LL.B., LL.M.(2) |
81 | Director | |||
Edwin M. Kania(1)(2) |
58 | Director | |||
Robert Langer, Sc.D.(4) |
67 | Director | |||
Amir Nashat, Sc.D.(1)(3) |
43 | Director | |||
Aymeric Sallin, M.S.(2) |
42 | Director | |||
Leysan Shaydullina, M.D.(4) |
37 | Director | |||
George Siber, M.D.(4) |
71 | Director | |||
Timothy A. Springer, Ph.D.(3)(5) |
68 | Director Nominee |
EXECUTIVE OFFICERS AND KEY EMPLOYEES
Werner Cautreels, Ph.D. has served as our President, Chief Executive Officer and member of our board of directors since July 2010. Prior to joining Selecta, Dr. Cautreels was Chief Executive Officer of Solvay Pharmaceuticals, the pharmaceuticals division of the Solvay Group, in Brussels, Belgium, from 2005 until Solvay Pharmaceuticals was acquired by Abbott Laboratories in February 2010.
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Before becoming the CEO of Solvay Pharmaceuticals, Dr. Cautreels was their Global Head of R&D from 1998. Prior to joining Solvay, he was employed by Sanofi, Sterling-Winthrop from 1979 to 1994, and Nycomed-Amersham from 1994 to 1998 in a variety of R&D management positions in Europe and in the United States. Dr. Cautreels was a director of Innogenetics NV in Gent, Belgium and ArQule Inc., in Woburn, Massachusetts from 1999 to 2006. He currently serves as a director of Seres Therapeutics, Inc. and Galapagos NV, in Mechelen, Belgium. He was the President of the Belgian-Luxemburg Chamber of Commerce for Russia and Belarus until June 2010. Dr. Cautreels received his Ph.D. in Chemistry, specializing in Mass Spectrometry, from the University of Antwerp (Antwerp, Belgium), and his financial and business training from the Advanced Management Program at Harvard Business School.
Lloyd Johnston, Ph.D. has served as our Chief Operating Officer and Senior Vice President, Research and Development since January 2014. Dr. Johnston served as Selecta's Senior Vice President of Pharmaceutical Research, Development and Operations from 2011 to 2013 and Vice President of Pharmaceutical Research from July 2008 to 2011. Prior to joining Selecta, Dr. Johnston was Vice President of Operations for Alkermes, Inc. from 2004 to 2008, and served in several roles, including Director of Manufacturing, from 1999 to 2004, with responsibility for process development, scale-up, and clinical manufacturing for pulmonary and sustained release injectable products, as well as leadership of Alkermes' manufacturing facility in Chelsea, MA. At Alkermes, Dr. Johnston was also a project leader and member of Steering Committees for numerous products through various stages of development from Phase 1 through registration. Dr. Johnston was an original member of Advanced Inhalation Research Inc., or AIR, a private company formed in 1998 and acquired by Alkermes in 1999. Prior to joining AIR, Dr. Johnston was a lecturer in the Department of Chemical Engineering at the University of New South Wales in Sydney, Australia. He received his B.Sc. in Chemical Engineering from Queen's University in Ontario, Canada, and his M.S. and Ph.D. in Chemical Engineering from MIT.
Takashi Kei Kishimoto, Ph.D. has served as our Chief Scientific Officer since June 2011. Prior to joining Selecta, Dr. Kishimoto was Vice President of Discovery Research at Momenta Pharmaceuticals, Inc., where he served in several leadership positions from March 2006 to June 2011 and led a multidisciplinary team in advancing both novel and complex generic products for inflammation, oncology, and cardiovascular disease. He served as Senior Director of Inflammation Research at Millennium Pharmaceuticals, Inc. from 1999 to 2006, where he provided the scientific leadership for four programs in clinical development, and as an Associate Director of Research at Boehringer Ingelheim Pharmaceuticals. Dr. Kishimoto has published over 50 peer-reviewed articles in scientific journals, including Nature, Science, Cell and the New England Journal of Medicine. Dr. Kishimoto received his B.A. from New College of the University of South Florida and his Ph.D. in Immunology from Harvard University.
Peter Keller, M.Sci. has served as our Chief Business Officer since he joined Selecta from Abbott Laboratories in February 2011. After the acquisition of Solvay Pharmaceuticals in February 2010 by Abbott Laboratories, he led the integration process for five R&D and manufacturing facilities in Europe. Before the acquisition, Mr. Keller was Vice President, Head of Mergers & Acquisitions and Alliance Management at Solvay Pharmaceuticals from March 2007 to February 2010, where he negotiated license and acquisition agreements in various therapeutic areas such as vaccines, neurology, and cardiology. He was the lead negotiator for the $1.5 billion fenofibrate alliance between Solvay Pharmaceuticals and Abbott Laboratories and instrumental in the $6.2 billion acquisition of Solvay Pharmaceuticals by Abbott Laboratories. Mr. Keller previously worked in management consulting at McKinsey & Company from October 2000 to February 2007 and Simon Kucher & Partners from July
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1998 to September 2000. Mr. Keller received his M.Sci. in Industrial Engineering and Management from the Technical University of Karlsruhe in Karlsruhe, Germany.
David Abraham, J.D. has served as our General Counsel and Corporate Secretary since he joined Selecta in May 2011. From January 2009 to April 2011, Mr. Abraham was a member of Innovation Legal Group, a boutique intellectual property law firm. From August 2006 to December 2008, Mr. Abraham was Executive Director for Patents at Durect Corporation, a small-cap specialty pharmaceutical company. From February 2004 to August 2006, he was Senior Patent Counsel for ALZA Corporation, or ALZA, a Johnson & Johnson company. Prior to working at Durect and ALZA, Mr. Abraham was employed by the law firms of Wilson Sonsini Goodrich and Rosati, and Finnegan Henderson Farabow Garrett and Dunner. Mr. Abraham also was a Patent Examiner at the USPTO. Mr. Abraham received his B.S. in Chemical Engineering from the University of Rochester and his J.D. from the George Washington School of Law.
Earl Sands, M.D. has served as our Chief Medical Officer since July 2015. From July 2014 to May 2015, Dr. Sands served as the Chief Medical Officer of Targacept, Inc., now part of Catalyst Biosciences, a biopharmaceutical company focused on protease therapeutic agents, where he was responsible for providing strategic and scientific input on intellectual property matters and in-licensing opportunities. From 2013 to 2014, Dr. Sands was the Chief Medical Officer of Plasma Surgical, Inc., a developer of surgical and therapeutic applications, where he was responsible for strategic integrated clinical development plans and execution. From 2011 to 2013, Dr. Sands served as President of Alpha Med Solutions, LLC, a consulting firm. From 2003 to 2011, Dr. Sands served in various capacities at Solvay Pharmaceuticals, both prior to and following the acquisition by Abbott Laboratories, including Executive Vice President, Market Access, from 2008 to 2011, Senior Vice President of R&D and acting Chief Medical Officer from 2006 to 2008, and Director of Women's Health from 2003 to 2006. Previously, Dr. Sands served as Senior Regional Medical Director, Professional and Scientific Relations, at Procter & Gamble Pharmaceuticals, was a founding partner and medical director at Innovation in Medical Education and Training, was a Managing Partner of Women's Health Care, PC and was Chairman of the OB/GYN department at Pottstown Memorial Medical Center in Pottstown, Pennsylvania. Dr. Sands received his B.A. in Premedical Sciences from Lehigh University and his M.D. from Hahnemann University School of Medicine.
David Siewers has served as our Chief Financial Officer since September 2009. Mr. Siewers has 30 years of experience in financial management, financial systems design and implementation, equity and debt financing and mergers and acquisitions. Prior to joining Selecta, Mr. Siewers was an independent consultant from 2002 to 2009, providing strategic guidance and tactical implementation of accounting systems, management and regulatory reporting, internal controls, profitability and cost analysis to an array of clients ranging from startups to mid-level companies. Previously, Mr. Siewers held various positions in the financial services industry, including Senior Vice President and Divisional Chief Financial Officer roles within Fleet Financial Group and Senior Vice President of Putnam Investments. Mr. Siewers received his B.S. in Accounting from Marietta College and received his CPA in 1978 while working at KPMG.
OTHER KEY EMPLOYEES
Dmitry Ovchinnikov, Ph.D. has served as the General Director of our Russian operations since August 2013, and served as General Deputy Director from May 2012 to August 2013. Prior to joining Selecta, Dr. Ovchinnikov was a medical director for ZAO Sandoz (Russia), a Novartis company, from December 2010 to May 2012, and was responsible for medical support and compliance, clinical trials and pharmacovigilance. Dr. Ovchinnikov was also a member of the Russia executive committee at Sandoz and took part in the elaboration of development strategy for the Russian branch. From
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November 2006 to December 2010, Dr. Ovchinnikov worked at Janssen-Cilag, a Johnson & Johnson company, as a medical manager for Russia and the Commonwealth of Independent States, and from December 2004 to November 2006 he served as a clinical research associate for PAREXEL RUS LLC, a life sciences consulting firm and a division of PAREXEL International. Dr. Ovchinnikov received his M.S. and Ph.D. in Biochemistry/Oncology/Virology from Lomonosov Moscow State University in Moscow, Russia.
DIRECTORS
Omid Farokhzad, M.D. is one of our co-founders and has served as a member of our board of directors since 2007. Dr. Farokhzad is an Associate Professor at Harvard Medical School, or HMS and a physician-scientist in the Department of Anesthesiology at Brigham and Women's Hospital, or BWH, positions he has held since 2004. Dr. Farokhzad directs the Laboratory of Nanomedicine and Biomaterials at BWH. Prior to joining the HMS faculty, Dr. Farokhzad completed his postgraduate clinical and postdoctoral research trainings, respectively, at BWH/HMS and MIT in the laboratory of Dr. Langer. He is the recipient of the 2013 RUSNANOPRIZE. Dr. Farokhzad has been directly involved in the launch and development of four biotechnology companies and, on occasion, has assumed additional roles in support of management. From 2006 to 2014, Dr. Farokhzad served on the Board of Directors of BIND Therapeutics, Inc. He received his M.D. and M.A. from Boston University School of Medicine, and his M.B.A. from MIT. Dr. Farokhzad's extensive knowledge of our business and the nanomedicine field and his medical training contributed to our board of directors' conclusion that he should serve as a director of our company.
Carl Gordon, Ph.D. has served as a member of our board of directors since 2010. Dr. Gordon serves as General Partner and Co-Head of Private Equity of OrbiMed Advisors LLC, which he co-founded in 1998. From 1995 to 1997 he was a senior biotechnology analyst at Mehta and Isaly, and from 1993 to 1995 he was a Fellow at The Rockefeller University. Dr. Gordon currently serves on the board of directors of numerous private companies. Previously, Dr. Gordon had served on the board of directors of Acceleron Pharma Inc., Amarin Corporation plc and Pacira Pharmaceuticals, Inc. Dr. Gordon received his B.S. in Chemistry from Harvard College and his Ph.D. in Molecular Biology from MIT. Dr. Gordon's venture capital experience, expertise in the scientific field of molecular biology and financial credentials contributed to our board of directors' conclusion that he should serve as a director of our company.
Peter Barton Hutt, LL.B., LL.M. has served as a member of our board of directors since 2010. Mr. Hutt is a senior counsel in the Washington, D.C. law firm of Covington & Burling specializing in food and drug law. Mr. Hutt began his law practice with the firm in 1960 and, except for his four years in the government, has continued at the firm ever since. Mr. Hutt served as Chief Counsel for the FDA during 1971 to 1975. Since 1994 he has taught a course on Food and Drug Law at Harvard Law School. Mr. Hutt serves on the board of directors of Seres Therapeutics, Inc., Xoma Corp., BIND Therapeutics, Inc., Concert Pharmaceuticals, Inc., Flex Pharma, Inc. and Q Therapeutics, Inc. From 2009 to 2015, Mr. Hutt served on the board of directors of DBV Technologies, from 2001 to 2014 he served on the board of Momenta Pharmaceuticals, Inc., from 2008 to 2011, he served on the board of Celera Corp and from 2002 to 2012 he served on the board of ISTA Pharmaceuticals, Inc. Mr. Hutt received his B.A. from Yale University, his LL.B. from Harvard Law School and his LL.M. from New York University. Mr. Hutt's extensive knowledge of and experience with food and drug law and his service on numerous boards of directors in the biotechnology and pharmaceutical industries contributed to our board of directors' conclusion that he should serve as a director of our company.
Edwin M. Kania has served as a member of our board of directors since 2013. Mr. Kania is Co-Founder of Flagship Ventures, a Boston-based venture capital firm, and serves as a Managing
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Partner for several of its funds. He served as Chairman of Flagship Ventures between 2001 and 2014. Prior to co-founding Flagship Ventures in 2000, Mr. Kania was a General Partner at OneLiberty Ventures and its predecessor firm, Morgan Holland Ventures. His direct investment experience covers over 100 companies. Since 2004, he has served on the board of directors of Acceleron Pharma Inc., a clinical stage biopharmaceutical company that focuses on regulating cellular growth. Mr. Kania has also served on the boards of Aspect Medical, EXACT Sciences and other public and private companies. Mr. Kania received his B.S. in Physics from Dartmouth College and his M.B.A. from Harvard Business School. Mr. Kania's extensive investment experience in the biotechnology sector contributed to our board of directors' conclusion that he should serve as a director of our company.
Robert Langer, Sc.D. is one of our co-founders and has served as a member of our board of directors since 2007. Dr. Langer also serves as Chairman of our scientific advisory board. Dr. Langer has been an Institute Professor at MIT since 2005, and prior to that was an Assistant Professor, Associate Professor and then Professor at MIT starting in 1977. Dr. Langer has received the National Medal of Science, National Medal of Technology and Innovation, Wolf Prize in Chemistry, Charles Stark Draper Prize, Albany Medical Center Prize in Medicine and Biomedical Research and the Lemelson-MIT Prize for Invention and Innovation. Dr. Langer is one of the very few individuals ever elected to the American Institute of Medical and Biological Engineering, the National Academy of Engineering and the National Academy of Sciences. He currently serves on the board of directors of Ocata Therapeutics, BIND Therapeutics, Inc. and PureTech Health PLC, and previously served as a director of Momenta Pharmaceuticals from 2001 to 2009, Wyeth from 2004 to 2009, Fibrocell Science, Inc. from 2010 to 2012 and Millipore Corp from 2009 to 2010. Dr. Langer received his B.S. from Cornell University and his Sc.D. from MIT, both in Chemical Engineering. Dr. Langer's pioneering academic work in nanotechnology and drug delivery contributed to our board of directors' conclusion that he should serve as a director of our company. Dr. Langer will resign from our board of directors contingent upon, and effective immediately prior to, the effectiveness of the registration statement of which this prospectus forms a part.
Amir Nashat, Sc.D. has served as a member of our board of directors since 2008. Dr. Nashat has been a Managing General Partner at Polaris Venture Partners, a venture capital firm, since 2009 and focuses on investments in the life sciences. He currently serves on the board of directors of Fate Therapeutics, Inc., BIND Therapeutics, Inc., aTyr Pharma, Inc. and several private companies. Dr. Nashat has also served as a director of Receptos, Inc., Adnexus Therapeutics, Inc. (acquired by Bristol-Myers Squibb Company) and other private companies. Dr. Nashat completed his Sc.D. as a Hertz Fellow in Chemical Engineering at MIT with a minor in biology under the guidance of Dr. Langer. Dr. Nashat earned both his M.S. and B.S. in materials science and mechanical engineering at the University of California, Berkeley. Dr. Nashat's extensive experience as a venture capitalist and board member to numerous companies in the biotechnology industry contributed to our board of directors' conclusion that he should serve as a director of our company.
Aymeric Sallin, M.S. has served as a member of our board of directors since 2008. Mr. Sallin has served as the Chief Executive Officer of NanoDimension, a venture capital firm, since 2002 and is the founder of that firm. Since 2014, Mr. Sallin has served as a strategic advisory board member of the École Polytechnique Fédérale de Lausanne, or EPFL. Since 2002, Mr. Sallin has worked to promote nanotechnology around the world, and has received the NSTI Fellow Award and 2012 EPFL Alumni award for his contribution to the field of nanotechnology. Mr. Sallin has worked to generate and close investments of hundreds of millions of dollars into several of NanoDimension's portfolio companies. He currently serves as a board member of View, Inc., CROCUS Technology and Tarveda Therapeutics. Mr. Sallin is also a member of the Swiss Academy of Technical Sciences. Mr. Sallin received his Masters in Physical Engineering from EPFL in Lausanne, Switzerland. Mr. Sallin's extensive knowledge
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of our business and the nanomedicine field contributed to our board of directors' conclusion that he should serve as a director of our company.
Leysan Shaydullina, M.D. has served as a member of our board of directors since April 2015. Since October 2014, Dr. Shaydullina has served as Managing Director of management company RUSNANO LLC. From April 2009 to October 2014, she served as Investment Director of JSC RUSNANO Management Company and then of RUSNANO management company. She also served as an associate at JSC RUSNANO from 2008 to 2009. In 2008, Dr. Shaydullina served as a senior consultant with Regionatistica LLC, a Russian-based consulting company. From 2004 to 2008, she was head of the investment department and manager of innovative projects at Innovative Technopark IDEA, or Technopark, a Russian-based business incubator. Prior to Technopark, in 2004, Dr. Shaydullina served as a senior health insurance expert at ROSNO, now part of Allianz Insurance, a Russian insurance provider, and served as a surgeon for the Children's Republican Clinical Hospital of the Ministry of Health in Russia from 2001 to 2003. Dr. Shaydullina received her M.B.A. from the Academy of National Economy under the Government of the Russian Federation, and her M.D. from Kazan State Medical University in Kazan, Russia. Dr. Shaydullina's experience in business strategy, managing investments and the life sciences industry contributed to our board of directors' conclusion that she should serve as a director of our company. Dr. Shaydullina will resign from our board of directors contingent upon, and effective immediately prior to, the closing of this offering.
George Siber, M.D. has served as a member of our board of directors since 2009. Since 2008, Dr. Siber has served as an Adjunct Professor at John Hopkins University in the School of Public Health. From 1996 to 2006, Dr. Siber served in various capacities at Wyeth Lederle Vaccines and Wyeth Vaccines Research, including Executive Vice President and Chief Scientific Officer. While at Wyeth, Dr. Siber oversaw the development and approval of multiple widely-used childhood vaccines, including Prevnar, a pneumococcal vaccine which has achieved multibillion dollar revenues, Acel-Imune, an acellular pertussis vaccine, and Meningitec, a meningococcal meningitis vaccine. Prior to Wyeth, Dr. Siber was Director of the Massachusetts Public Health Biologic Laboratories and a Harvard Medical School Associate Professor of Medicine at Dana Farber Cancer Institute. During this time, Dr. Siber led the research and manufacturing of multiple vaccines and immune globulins including Respigam, a human immune globulin against respiratory syncytial virus. Dr. Siber has served as executive director and scientific advisory board chairman of Genocea Biosciences, Inc. since 2013, and served as executive chairman from 2007 to 2013. Dr. Siber received his B.Sc. from Bishop's University in Quebec, Canada, and received his M.D.C.M. from McGill University in Quebec, Canada. He completed his post-doctoral training in internal medicine at Rush-Presbyterian-St. Luke's Medical Center in Chicago and Beth Israel Deaconess Medical Center in Boston, and his post-doctoral training in infectious disease and vaccinology at Children's Hospital and Beth Israel, in affiliation with Harvard Medical School in Boston. We believe that Dr. Siber's experience in life sciences and vaccine industries and his experience overseeing the development of multiple vaccines qualified him to serve as a member of our board of directors. Dr. Siber will resign from our board of directors contingent upon, and effective immediately prior to, the effectiveness of the registration statement of which this prospectus forms a part.
Timothy A. Springer, Ph.D. will serve as a member of our board of directors contingent upon, and effective upon, the effectiveness of the registration statement of which this prospectus forms a part. Dr. Springer has served as a scientific advisor to us since December 2008. Since 1989, Dr. Springer has served as the Latham Family Professor at Harvard Medical School. He has also served as Senior Investigator in the Program in Cellular and Molecular Medicine at Boston Children's Hospital since 2012, and as Professor of Biological Chemistry and Molecular Pharmacology at Harvard Medical School and Professor of Medicine at Boston Children's Hospital since 2011. Dr. Springer was the
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Founder of LeukoSite, a biotechnology company acquired by Millennium Pharmaceuticals in 1999. Dr. Springer received a B.A. from the University of California, Berkeley, and a Ph.D. from Harvard University. Dr. Springer's extensive knowledge of our business and the nanomedicine field 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 ten members. However, Drs. Langer and Siber will resign from our board of directors contingent upon, and effective immediately prior to, the effectiveness of the registration statement of which this prospectus forms a part. Dr. Shaydullina will resign from our board of directors contingent upon, and effective immediately prior to, the closing of this offering. In addition, Dr. Springer will be elected to our board of directors contingent upon, and effective upon, the effectiveness of the registration statement of which this prospectus forms a part. Accordingly, upon the completion of this offering, our board of directors will consist of eight members. Our board of directors has determined that, of these eight directors, Carl Gordon, Peter Barton Hutt, Edwin Kania, Amir Nashat, Aymeric Sallin and Timothy Springer do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is "independent" as that term is defined under the rules of The NASDAQ Stock Market LLC, or NASDAQ. There are no family relationships among any of our directors or executive officers.
Classified board of directors
In accordance with our restated certificate of incorporation that will go into effect upon the closing of this offering, our board of directors will be divided into three classes with staggered, three-year terms. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Effective upon the closing of this offering, our directors will be divided among the three classes as follows:
Our restated certificate of incorporation, which will become effective upon the closing of this offering, will provide that the authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control of our company. Our directors may be removed only for cause by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock entitled to vote in the election of directors.
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Management
BOARD LEADERSHIP STRUCTURE
Our board of directors is currently chaired by our President and Chief Executive Officer, Werner Cautreels. Our corporate governance guidelines provide that, if the chairman of the board is a member of management or does not otherwise qualify as independent, the independent directors of the board may or may not elect a lead director. Amir Nashat currently serves as our lead director. The lead director's responsibilities include, but are not limited to: presiding over all meetings of the board of directors at which the chairman is not present, including any executive sessions of the independent directors; approving board meeting schedules and agendas; and acting as the liaison between the independent directors and the chief executive officer and chairman of the board. Our corporate governance guidelines further provide the flexibility for our board of directors to modify our leadership structure in the future as it deems appropriate.
ROLE OF THE BOARD IN RISK OVERSIGHT
One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through our board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our audit committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. Our audit committee also monitors compliance with legal and regulatory requirements. Our nominating and corporate governance committee monitors the effectiveness of our corporate governance practices, including whether they are successful in preventing illegal or improper liability-creating conduct. Our compensation committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, our entire board of directors is regularly informed through committee reports about such risks.
BOARD COMMITTEES
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. Upon the closing of this offering, each committee's charter will be available under the Corporate Governance section of our website at www.selectabio.com. 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.
Audit committee
The audit committee's responsibilities include:
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Effective immediately prior to the effectiveness of the registration statement of which this prospectus forms a part, the members of our audit committee will be Carl Gordon, Edwin Kania and Amir Nashat. Edwin Kania will serve as chairperson of the committee. All members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and The NASDAQ Global Market. Our board of directors has determined that Carl Gordon, Edwin Kania and Amir Nashat meet the independence requirements of Rule 10A-3 under the Exchange Act and the applicable listing standards of NASDAQ. Our board of directors has determined that Edwin Kania is an "audit committee financial expert" as defined by applicable SEC rules and has the requisite financial sophistication as defined under the applicable NASDAQ rules and regulations.
Compensation committee
The compensation committee's responsibilities include:
Effective immediately prior to the effectiveness of the registration statement of which this prospectus forms a part, the members of our compensation committee will be Peter Barton Hutt, Edwin Kania and Aymeric Sallin. Peter Barton Hutt will serve as chairperson of the committee. Our board of directors has determined that each of Peter Barton Hutt, Edwin Kania and Aymeric Sallin is independent under the applicable NASDAQ rules and regulations, is a "non-employee director" as defined in Rule 16b-3 promulgated under the Exchange Act and is an "outside director" as that term is defined in Section 162(m) of the Code.
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Nominating and corporate governance committee
The nominating and corporate governance committee's responsibilities include:
Effective upon the effectiveness of the registration statement of which this prospectus forms a part, the members of our nominating and corporate governance committee will be Omid Farokhzad, Amir Nashat and Timothy Springer. Amir Nashat will serve as the chairperson of the committee. Our board of directors has determined that Amir Nashat and Timothy Springer are independent under the applicable NASDAQ rules and regulations. Under the applicable NASDAQ rules, we are permitted to phase-in our compliance with the independent nominating and corporate governance committee requirements of NASDAQ as follows: (1) one independent member at the time of listing, (2) a majority of independent members within 90 days of listing and (3) all independent members within one year of listing. Within one year of our listing on The NASDAQ Global Market, we expect that Dr. Farokhzad will have resigned from our nominating and corporate governance committee and that any new director added to the nominating and corporate governance committee will be independent under the applicable NASDAQ rules.
Compensation committee interlocks and insider participation
No member of our compensation committee is or has been our current or former officer or employee. None of our executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as a director or member of our compensation committee during the fiscal year ended December 31, 2015.
Code of ethics and code of conduct
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Upon 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.selectabio.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 COMPENSATION
This section discusses the material components of the executive compensation program offered to our named executive officers identified below. For 2015, our named executive officers were:
We are an "emerging growth company," within the meaning of the JOBS Act, and have elected to comply with the reduced compensation disclosure requirements available to emerging growth companies under the JOBS Act.
2015 SUMMARY COMPENSATION TABLE
Name and principal position |
Year
|
Salary ($)
|
Option awards ($)(1)
|
Non-equity incentive plan compensation ($)(2) |
All other compensation ($)(3) |
Total
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | |
Werner Cautreels, Ph.D. |
2015 | 400,000 | 568,798 | 130,000 | | 1,098,798 | |||||||||||||
President and Chief Executive |
2014 | 447,545 | 374,504 | 140,000 | 38,130 | 1,000,179 | |||||||||||||
Officer |
|||||||||||||||||||
Earl Sands, M.D |
2015 |
143,231 |
(4) |
388,147 |
40,000 |
(4) |
22,847 |
594,225 |
|||||||||||
Chief Medical Officer |
|||||||||||||||||||
Takashi Kishimoto, Ph.D. |
2015 |
290,000 |
92,266 |
85,000 |
3,400 |
470,666 |
|||||||||||||
Chief Scientific Officer |
2014 | 275,000 | 90,101 | 80,000 | 3,400 | 448,501 |
NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE
The primary elements of compensation for our named executive officers are base salary, annual performance bonuses and equity-based compensation awards. The named executive officers also participate in employee benefit plans and programs that we offer to our other full-time employees on the same basis.
Base salaries
We pay our named executive officers a base salary to compensate them for the satisfactory performance of services rendered to our company. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive's skill set, experience, role and responsibilities. Base salaries for our named executive officers have generally been
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set at levels deemed necessary to attract and retain individuals with superior talent and were originally established in each named executive officer's employment agreement.
In early 2015, the compensation committee of our board of directors, or the Compensation Committee, approved an increase in Dr. Kishimoto's annual base salary from $275,000 to $290,000, effective January 1, 2015. Dr. Sands commenced employment with us in July 2015 and, pursuant to the terms of his employment agreement, was entitled to an initial annual base salary of $280,000. Dr. Cautreels did not receive a base salary increase in 2015.
Our named executive officers' base salaries for 2015 were $400,000 for Dr. Cautreels, $280,000 for Dr. Sands and $290,000 for Dr. Kishimoto.
In early 2016, our board of directors approved increases in the annual base salaries of our named executive officers. Following this increase, Dr. Cautreel's annual base salary is $425,000, Dr. Sands' annual base salary is $300,000 and Dr. Kishimoto's annual base salary is $315,000.
Performance bonuses
We offer our named executive officers the opportunity to earn annual cash bonuses to compensate them for attaining short-term company and individual performance goals. Each named executive officer has an annual target bonus that that is expressed as a percentage of his annual base salary. The 2015 target bonus percentage for our named executive officers was 25% of their respective base salaries. Dr. Sands' 2015 cash bonus was pro-rated for his partial year of employment with our company.
Our Compensation Committee, based upon the recommendation of our chief executive officer, establishes company performance goals each year and, at the completion of the year, determines actual bonus payouts after assessing company performance against these goals and each named executive officer's individual performance and contributions to the company's achievements. The 2015 company performance goals were based on attaining financing and business development milestones and the expansion of our business portfolio.
The actual cash bonuses earned by our named executive officers for 2015 are reported under the "Non-equity incentive award" column of the 2015 and 2014 Summary Compensation Table above.
Equity compensation
We grant stock options to our named executive officers as the long-term incentive component of their compensation. We have historically granted stock options to named executive officers when they commenced employment with us and have from time to time thereafter made additional grants as, and when, our board of directors determined appropriate to reward, retain or encourage particular named executive officers.
Our stock options have an exercise price at least equal to the fair market value of our common stock on the date of grant, as determined by our board of directors, and vest as to 25% of the underlying shares on the first anniversary of the date of grant and in equal monthly installments over the following 36 months, subject to the holder's continued employment with us and potential accelerated vesting in certain circumstances, including as described below for our named executive officers in the section titled "Potential payments upon a change in control." From time to time, our board of directors may also construct alternate vesting schedules as it determines are appropriate to motivate particular employees. Our stock options may be intended to qualify as incentive stock options under the Code and generally permit "early exercise" of any unvested portion in exchange for shares of restricted stock subject to the same vesting schedule as the stock option.
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We granted stock options in the following amounts to our named executive officers during 2015:
Named executive officer
|
2015 options granted (#) |
|||
---|---|---|---|---|
| | | | |
Werner Cautreels, Ph.D. |
123,076 | |||
Earl Sands, M.D. |
102,564 | |||
Takashi Kishimoto, Ph.D. |
12,820 |
These options were granted under our 2008 Equity Incentive Plan, or the 2008 Plan, with exercise prices equal to the fair market value on the date of grant, as determined by our board of directors, and are subject to our standard vesting schedule described above.
In connection with this offering, we adopted a 2016 Incentive Award Plan, or the 2016 Plan, to facilitate the grant of cash and equity incentives to our directors, employees (including our named executive officers) and consultants and to enable our company to obtain and retain the services of these individuals, which we believe is essential to our long-term success. Following the effective date of our 2016 Plan, we will not make any further grants under our 2008 Plan. However, the 2008 Plan will continue to govern the terms and conditions of the outstanding awards granted under it. For additional information about the 2016 Plan, please see the section titled "2016 Incentive Award Plan" below.
Retirement, health, welfare and additional benefits
Our named executive officers are eligible to participate in our employee benefit plans and programs, including medical and dental benefits, flexible spending accounts, long-term care benefits, and short- and long-term disability and life insurance, to the same extent as our other full-time employees, subject to the terms and eligibility requirements of those plans. Dr. Sands is entitled to be reimbursed up to $6,100 per month for expenses incurred for lodging and travel between his home in Georgia and our offices in Massachusetts while performing duties for us.
We sponsor a 401(k) defined contribution plan in which our named executive officers may participate, subject to limits imposed by the Code, to the same extent as our other full-time employees. Currently, we match 50% of contributions made by participants in the 401(k) plan up to a maximum company match of $3,400 per year. All matching contributions are subject to vesting at the rate of 25% per year of service.
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OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR-END
|
Option awards | Stock awards | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Vesting commencement date |
Number of securities underlying unexercised options (#) exercisable(1) |
Number of securities underlying unexercised options (#) unexercisable |
Option exercise price ($) |
Option expiration date |
Number of securities that have not vested (#) |
Market value of securities that have not vested ($) |
|||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Werner Cautreels, Ph.D. |
12/4/2015 | 123,076 | (2) | | 6.40 | 12/4/2025 | | | ||||||||||||||
|
1/1/2014 | 57,692 | (2) | | 8.97 | 4/7/2024 | | | ||||||||||||||
|
1/1/2013 | 16,613 | (2) | | 2.77 | 6/13/2023 | | | ||||||||||||||
|
1/1/2013 | | | | | 5,895 | (4) | 40,010 | ||||||||||||||
|
1/1/2012 | 41,025 | (3) | | 3.44 | 3/29/2022 | | | ||||||||||||||
Earl Sands, M.D. |
9/8/2015 |
102,563 |
(2) |
|
9.36 |
9/8/2025 |
|
|
||||||||||||||
Takashi Kishimoto, Ph.D. |
1/1/2015 |
12,819 |
(2) |
|
9.36 |
2/21/2025 |
|
|
||||||||||||||
|
1/1/2014 | 12,820 | (2) | | 8.97 | 4/7/2024 | | | ||||||||||||||
|
1/1/2013 | 6,410 | (2) | | 2.77 | 6/13/2023 | | | ||||||||||||||
|
7/11/2011 | 89,743 | (3) | | 2.77 | 9/7/2021 | | |
EMPLOYMENT ARRANGEMENTS
We have entered into employment agreements with each of our named executive officers. Certain key terms of these agreements and letters are described below.
Dr. Cautreels, Dr. Kishimoto and Dr. Sands
We entered into an employment agreement with Dr. Cautreels in July 2010, with Dr. Kishimoto in June 2011 and with Dr. Sands in July 2015. The employment agreements are for unspecified terms and entitle Dr. Cautreels, Dr. Kishimoto and Dr. Sands to annual target bonus opportunities of 25% of their respective annual base salaries. Their current base salaries are discussed in more detail above in the section titled "Base salaries."
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In the event either of Dr. Cautreels, Dr. Kishimoto or Dr. Sands is terminated by us without "cause" or he resigns for "good reason," subject to his timely executing a release of claims in our favor, he is entitled to receive base salary continuation for a period of 9 months for Dr. Cautreels or 6 months for Dr. Kishimoto and Dr. Sands, payment of all bonuses earned but unpaid as of the date of termination and continued health coverage for a period of 9 months for Dr. Cautreels or 6 months for Dr. Kishimoto and Dr. Sands. If, however, any of Dr. Cautreels, Dr. Kishimoto or Dr. Sands begins a subsequent consulting or employment arrangement during the period in which he is otherwise entitled to receive these payments and benefits, then any cash compensation paid to him in connection with the subsequent arrangement will be credited towards any severance amounts owed by us and we will not be required to provide or pay for any benefits that are provided to him through the subsequent arrangement.
The employment agreements contain restrictive covenants pursuant to which each of Dr. Cautreels, Dr. Kishimoto and Dr. Sands has agreed to refrain from competing with us or soliciting our employees or consultants following his termination of employment for a period of one year. However, the restricted period will be extended to two years in the event the named executive officer is terminated by the company for "cause."
For purposes of the employment agreements, "cause" generally means Dr. Cautreels', Dr. Kishimoto's or Dr. Sands' commission of, or indictment or conviction of, any felony or any crime involving dishonesty, participation in any fraud against the company, intentional damage to any company property, misconduct which materially and adversely reflects upon the business, operations or reputation of the company, which misconduct has not been cured (or cannot be cured) within 10 days after the company gives written notice regarding such misconduct, or breach of any material provision of the employment agreement or any agreement between him and the company, which breach has not been cured (or cannot be cured) within 10 days after the company gives written notice regarding such breach.
For purposes of the employment agreements, "good reason" generally means, subject to certain cure rights, Dr. Cautreels', Dr. Kishimoto's or Dr. Sands' termination of his employment due to the company's breach of any one or more of the material provisions of the employment agreement, a material reduction by the company of his responsibilities or base salary, or, with respect to Dr. Cautreels and Dr. Kishimoto only, a relocation by the company of his place of employment by more than 40 miles.
POTENTIAL PAYMENTS UPON A CHANGE IN CONTROL
The agreements governing the named executive officers' unvested stock options provide for full accelerated vesting if the named executive officers' employment is terminated by us without cause or if they resign for good reason, in either case, within 12 months following a change in control.
RECENT DEVELOPMENTS REGARDING EXECUTIVE COMPENSATION
In May 2016, in anticipation of and subject to the consummation of this offering, our board of directors approved certain changes to our named executive officers' compensation arrangements. These included adjusting our named executive officers' target bonus opportunities, granting equity incentive awards and entering into new employment agreements, each as described in more detail below.
Target bonuses
Our board of directors approved increases to the target bonus amounts for our named executive officers to 45% of his base salary for Dr. Cautreels and 35% of his base salary for each of Drs. Sands and Kishimoto. The target bonus increases will become effective upon the closing of this offering.
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Equity incentive awards
Effective on the effectiveness of the registration statement of which this prospectus forms a part, our board of directors approved stock option grants under the 2016 Plan to our named executive officers in the following amounts: Dr. Cautreels: 115,384 shares, Dr. Sands: 53,999 shares and Dr. Kishimoto: 24,512 shares. The shares will have a per share exercise price equal to the initial public offering price of our common stock and will vest as to 25% of the total number of shares on the first anniversary of the grant date and in 36 substantially equal monthly installments thereafter.
Employment agreements
We have entered into new employment agreements with each of our named executive officers, effective on the closing of this offering.
The agreements entitle our named executives officers to continue to receive their current annual base salaries set forth above and to receive the new target bonus opportunities described above under the heading "Target Bonuses."
If we terminate Dr. Cautreels, Dr. Sands or Dr. Kishimoto without "cause" or he resigns for "good reason," subject to his timely executing a release of claims in our favor and continued compliance with a separate restrictive covenant agreement, he is entitled to receive (i) base salary continuation for a period of 12 months, (ii) a prorated portion of the annual bonus he would otherwise have earned for the year of termination, based on actual performance for the full year (or based on his target bonus if such termination occurs during the first quarter of the calendar year), and (iii) direct payment of or reimbursement for continued medical, dental or vision coverage pursuant to COBRA for up to 12 months. If such termination occurs within the 12 months following or the 60 days preceding a change in control, each named executive officer would be entitled to receive, in addition to the foregoing payments and benefits, accelerated vesting of such named executive officer's outstanding unvested company equity awards that vest solely based on the passage of time. The company must provide a named executive officer 30 days' notice, or pay in lieu of notice, in the event we terminate such named executive officer for any reason other than "cause".
For purposes of the new employment agreements, "cause" generally means, subject to applicable cure rights, the named executive officer's (i) commission of, or indictment or conviction of, any felony or any crime involving dishonesty; (ii) participation in any fraud against the company; (iii) intentional damage to any company property; (iv) misconduct which materially and adversely reflects upon the business, operations, or reputation of the company; or (v) breach of any material provision of the employment agreement or any other written agreement with the company. "Good reason" generally means, subject to the company's cure rights, the occurrence of any of the following, without the named executive officer's written consent (i) a material reduction in his base salary or target bonus opportunity; (ii) a material diminution in his authority, title, duties or areas of responsibility; (iii) the requirement that he report to someone other than the board of directors with respect to Dr. Cautreels or the chief executive officer with respect to Drs. Sands and Kishimoto; (iv) the relocation of his primary office to a location more than 40 miles from the Boston metropolitan area; or (v) a material breach by the company of the employment agreement or any other written agreement with the named executive officer.
We also expect to enter into non-disclosure, non-competition and assignment of intellectual property agreements with the named executive officers pursuant to which each of Drs. Cautreels, Sands and Kishimoto will agree to refrain from engaging in direct competition with us or soliciting our employees, in each case, while employed and following his termination of employment for any reason for a period of 12 months.
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INCENTIVE PLANS
The following summarizes the material terms of the incentive plans in which our employees, including the named executive officers, participate.
2016 Incentive Award Plan
Effective the day prior to the first public trading date of our common stock, we adopted and our stockholders approved the 2016 Incentive Award Plan, or the 2016 Plan, under which we may grant cash and equity-based incentive awards to eligible service providers in order to attract, retain and motivate the persons who make important contributions to our company. The material terms of the 2016 Plan are summarized below.
Eligibility and administration. Our employees, consultants and directors, and employees and consultants of our subsidiaries, will be eligible to receive awards under the 2016 Plan. The 2016 Plan will be administered by our board of directors, which may delegate its duties and responsibilities to one or more committees of our directors and/or officers (referred to collectively as the plan administrator below), subject to the limitations imposed under the 2016 Plan, Section 16 of the Exchange Act, stock exchange rules and other applicable laws. The plan administrator will have the authority to take all actions and make all determinations under the 2016 Plan, to interpret the 2016 Plan and award agreements and to adopt, amend and repeal rules for the administration of the 2016 Plan as it deems advisable. The plan administrator will also have the authority to determine which eligible service providers receive awards, grant awards and set the terms and conditions of all awards under the 2016 Plan, including any vesting and vesting acceleration provisions, subject to the conditions and limitations in the 2016 Plan.
Shares available for awards. An aggregate of 1,210,256 shares of our common stock will initially be available for issuance under the 2016 Plan. The number of shares initially available for issuance will be increased by an annual increase on January 1 of each calendar year beginning in 2017 and ending in and including 2026, equal to the least of (A) 4% of the shares of common stock outstanding on the final day of the immediately preceding calendar year and (B) a smaller number of shares determined by our board of directors. No more than 8,133,333 shares of common stock may be issued under the 2016 Plan upon the exercise of incentive stock options. Shares issued under the 2016 Plan may be authorized but unissued shares, shares purchased on the open market or treasury shares.
If an award under the 2016 Plan or the 2008 Plan expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, any unused shares subject to the award will, as applicable, become or again be available for new grants under the 2016 Plan. Awards granted under the 2016 Plan in substitution for any options or other stock or stock-based awards granted by an entity before the entity's merger or consolidation with us or our acquisition of the entity's property or stock will not reduce the shares available for grant under the 2016 Plan, but will count against the maximum number of shares that may be issued upon the exercise of incentive stock options.
Awards. The 2016 Plan provides for the grant of stock options, including incentive stock options, or ISOs, and nonqualified stock options, or NSOs, stock appreciation rights, or SARs, restricted stock, dividend equivalents, restricted stock units, or RSUs, and other stock or cash based awards. Certain awards under the 2016 Plan may constitute or provide for payment of "nonqualified deferred compensation" under Section 409A of the Code. All awards under the 2016 Plan will be set forth in award agreements, which will detail the terms and conditions of awards, including any applicable vesting and payment terms and post-termination exercise limitations. A brief description of each award type follows.
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Performance criteria. The plan administrator may select performance criteria for an award to establish performance goals for a performance period. Performance criteria under the 2016 Plan may include, but are not limited to, the following: 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
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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 the company's performance or the performance of a subsidiary, division, business segment or business unit of the company or a subsidiary, 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. When determining performance goals, the plan administrator may provide for exclusion of the impact of an event or occurrence which the plan administrator determines should appropriately be excluded, including, without limitation, non-recurring charges or events, acquisitions or divestitures, changes in the corporate or capital structure, events unrelated to the business or outside of the control of management, foreign exchange considerations, and legal, regulatory, tax or accounting changes.
Certain transactions. In connection with certain corporate 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 2016 Plan to prevent the dilution or enlargement of intended benefits, facilitate the transaction or event or give effect to the change in applicable laws or accounting principles. This includes canceling awards for cash or property, accelerating the vesting of awards, providing for the assumption or substitution of awards by a successor entity, adjusting the number and type of shares subject to outstanding awards and/or with respect to which awards may be granted under the 2016 Plan and replacing or terminating awards under the 2016 Plan. In addition, in the event of certain non-reciprocal transactions with our stockholders, the plan administrator will make equitable adjustments to the 2016 Plan and outstanding awards as it deems appropriate to reflect the transaction.
Provisions of the 2016 Plan Relating to Director Compensation. The 2016 Plan provides that the plan administrator may establish compensation for non-employee directors from time to time subject to the 2016 Plan's limitations. Prior to commencing this offering, our stockholders approved 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 of any equity awards granted under the 2016 Plan as compensation for services as a non-employee director during any fiscal year may not exceed $1,000,000 in the fiscal year of a non-employee director's initial service as a non-employee director or $750,000 in any subsequent fiscal year. 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, subject to the limitations in the 2016 Plan.
Plan amendment and termination. Our board of directors may amend or terminate the 2016 Plan at any time; however, no amendment, other than an amendment that increases the number of shares available under the 2016 Plan, may materially and adversely affect an award outstanding under the 2016 Plan without the consent of the affected participant and stockholder approval will be obtained for any amendment to the extent necessary to comply with applicable laws. Further, the plan administrator can, without the approval of our stockholders, amend any outstanding stock option or SAR to reduce its price per share. The 2016 Plan will remain in effect until the tenth anniversary of its
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effective date, unless earlier terminated by our board of directors. No awards may be granted under the 2016 Plan after its termination.
Foreign participants, claw-back provisions, transferability and participant payments. The plan administrator may modify awards granted to participants who are foreign nationals or employed outside the United States or establish subplans or procedures to address differences in laws, rules, regulations or customs of such foreign jurisdictions. All awards will be subject to any company claw-back policy as set forth in such claw-back policy or the applicable award agreement. Except as the plan administrator may determine or provide in an award agreement, awards under the 2016 Plan are generally non-transferrable, except by will or the laws of descent and distribution, or, subject to the plan administrator's consent, pursuant to a domestic relations order, and are generally exercisable only by the participant. With regard to tax withholding obligations arising in connection with awards under the 2016 Plan, and exercise price obligations arising in connection with the exercise of stock options under the 2016 Plan, the plan administrator may, in its discretion, accept cash, wire transfer or check, shares of our common stock that meet specified conditions, a promissory note, a "market sell order," such other consideration as the plan administrator deems suitable or any combination of the foregoing.
2016 Employee Stock Purchase Plan
Effective the day prior to the first public trading date of our common stock, we adopted and our stockholders approved the 2016 Employee Stock Purchase Plan, or the 2016 ESPP. The material terms of the 2016 ESPP are summarized below.
Shares available for awards; administration. A total of 173,076 shares of our common stock will initially be reserved for issuance under the 2016 ESPP. In addition, the number of shares available for issuance under the 2016 ESPP will be annually increased on January 1 of each calendar year beginning in 2017 and ending in and including 2026, by an amount equal to the least 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, provided that no more than 1,903,846 shares of our common stock may be issued under the 2016 ESPP. The foregoing numbers are subject to adjustment in certain events, as described below.
Our board of directors or a committee of our board of directors will have authority to interpret the terms of the 2016 ESPP and determine eligibility of participants. We expect that the compensation committee will be the initial administrator of the 2016 ESPP.
Eligibility. Our employees are eligible to participate in the 2016 ESPP if they are customarily employed by us or a participating subsidiary for more than 20 hours per week and more than five months in any calendar year. However, an employee may not be granted rights to purchase stock under our 2016 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 2016 ESPP is intended to qualify under Section 423 of the Code and stock will be offered under the 2016 ESPP during offering periods. The length of the offering periods under the 2016 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 purchase dates for each offering period will be the final trading day in the offering period. Offering periods under the 2016 ESPP will commence when determined by the plan administrator. The plan administrator may, in its discretion, modify the terms of future offering periods.
| | 193 |
Executive and director compensation
The 2016 ESPP permits participants to purchase common stock through payroll deductions of up to 25% of their eligible compensation, which includes a participant's 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 6,410 shares. In addition, no employee will be permitted to accrue the right to purchase stock under the 2016 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 expire at the end of the applicable offering period, and will be exercised at that time to the extent of the payroll deductions accumulated during the offering period. The purchase price of the shares, in the absence of a contrary designation, 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 purchase date, which will be the final trading day of the offering period. Participants may voluntarily end their participation in the 2016 ESPP at any time at least one week prior to the end of the applicable offering period, and will be paid their accrued payroll deductions that have not yet been used to purchase shares of common stock. Participation ends automatically upon a participant's termination of employment.
A participant may not transfer rights granted under the 2016 ESPP other than by will or the laws of descent and distribution.
Certain transactions. In the event of certain non-reciprocal transactions or events affecting our common stock known as "equity restructurings," the plan administrator will make equitable adjustments to the 2016 ESPP and outstanding rights. In the event of certain unusual or non-recurring events or 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.
Plan amendment. The plan administrator may amend, suspend or terminate the 2016 ESPP at any time. However, stockholder approval of any amendment to the 2016 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 2016 ESPP, changes the corporations or classes of corporations whose employees are eligible to participate in the 2016 ESPP or changes the 2016 ESPP in any manner that would cause the 2016 ESPP to no longer be an employee stock purchase plan within the meaning of Section 423(b) of the Code.
2008 Plan
Our board of directors and stockholders have approved the 2008 Plan, under which we may grant stock options and restricted stock awards to employees, directors and consultants or advisors of our company or its affiliates. We had reserved a total of 2,200,592 shares of our common stock for issuance under the 2008 Plan as of June 8, 2016.
194 | | |
Executive and director compensation
Following the effectiveness of the 2016 Plan, we will not make any further grants under the 2008 Plan. However, the 2008 Plan will continue to govern the terms and conditions of the outstanding awards granted under it. Shares of our common stock subject to awards granted under the 2008 Plan that are forfeited, lapse unexercised or are settled in cash and which following the effective date of the 2016 Plan are not issued under the 2008 Plan will be available for issuance under the 2016 Plan.
Administration. Our board of directors administers the 2008 Plan and has the authority to issue awards under the 2008 Plan, to interpret the 2008 Plan and awards outstanding thereunder, to prescribe, amend and rescind rules and regulations relating to the 2008 Plan, to determine the terms and provisions of award agreements under the 2008 Plan, to correct any defect, omission or inconsistency in the 2008 Plan or in any award agreement, and to make all other determinations in the judgment of the board of directors that are necessary and desirable for the administration of the 2008 Plan. The board of directors may delegate its authority under the 2008 Plan to a committee of the board. Following the effectiveness of this offering, we expect that the board of directors will delegate its general administrative authority under the 2008 Plan to its Compensation Committee.
Types of awards. The 2008 Plan provides for the grant of non-qualified and incentive stock options and restricted stock awards to employees, directors and consultants or advisors of the company or its affiliates, except that stock options intended to qualify as incentive stock options under the Code may only be granted to employees. As of the date of this prospectus, awards of stock options and restricted stock are outstanding under the 2008 Plan.
Certain transactions. If certain changes are made in, or events occur with respect to, our common stock, the 2008 Plan and outstanding awards will be appropriately adjusted in the class, number and, as applicable, exercise price of securities as determined by the board of directors. In the event of certain corporate transactions, including a consolidation, merger, sale of all or substantially all of our assets or a liquidation, our board or the board of directors of any corporation assuming the obligations under the 2008 Plan, may, in its discretion, take any one or more of the following actions, as to some or all options outstanding under the 2008 Plan (and need not take the same action as to each such option): (i) provide for the assumption or substitution of the option; (ii) upon written notice to the optionee, provide for the termination of all unexercised options unless exercised within a specified period; (iii) in the event of a merger in which stockholders receive cash payment for shares surrendered, make or provide for a cash payment to optionees based on the difference between (A) the merger consideration times the number of shares subject to outstanding options and (B) the aggregate exercise price of the outstanding options, in exchange for termination of such options; and (iv) provide that all outstanding options shall become exercisable in part or in full immediately prior to such event. With respect to shares of restricted stock, any securities, cash or other property received in exchange for such shares shall continue to be governed by the provisions of any restricted stock agreement pursuant to which they were issued.
Amendment and termination. The board of directors may terminate, modify or amend the 2008 Plan from time to time, provided that any amendment or modification may not adversely affect the rights of a holder of an outstanding award without such holder's consent. The board of directors may amend or modify the 2008 Plan and any outstanding incentive stock options to the extent necessary to qualify any or all such options for favorable federal income tax treatment.
DIRECTOR COMPENSATION
While certain of our non-employee directors receive consulting fees under the terms of consulting agreements with our company, we have not historically paid cash fees to our non-employee directors for their service on our board but have, from time to time, granted stock options to non-employee directors and founders to compensate them for their board service. Dr. Cautreels, our President and
| | 195 |
Executive and director compensation
Chief Executive Officer, also serves on our board of directors but receives no additional compensation for this service.
Other than as set forth in the table below with respect to amounts earned under consulting agreements with certain directors, our non-employee directors did not receive any compensation for their service on our board of directors during 2015.
2015 DIRECTOR COMPENSATION TABLE
Name |
Fees earned or paid in cash ($) |
Option awards ($) |
All other compensation ($)(1) |
Total ($)
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | |
Omid Farokhzad, M.D. |
| | 147,000 | 147,000 | |||||||||
Carl Gordon, Ph.D. |
| | | | |||||||||
Peter Barton Hutt J.D., L.L.B., L.L.M |
| | | | |||||||||
Edwin M. Kania |
| | | | |||||||||
Robert Langer, Sc.D.(2) |
| | 75,000 | 75,000 | |||||||||
Amir Nashat, Sc.D. |
| | | | |||||||||
Aymeric Sallin, M.S. |
| | | | |||||||||
Leysan Shaydullina, M.D.(2)(4) |
| | | | |||||||||
George Siber, M.D.(2) |
| | 36,000 | 36,000 | |||||||||
Yurii Udaltsov, Cand. Sc.(3) |
| | | |
The table below shows the aggregate number of option awards (exercisable and unexercisable) held by each non-employee director as of December 31, 2015. None of our non-employee directors held stock awards in our company as of that date.
Name
|
Options outstanding at fiscal year end |
|||
---|---|---|---|---|
| | | | |
Omid Farokhzad, M.D. |
61,913 | |||
Carl Gordon, Ph.D. |
| |||
Peter Barton Hutt J.D., L.L.B., L.L.M |
44,871 | |||
Edwin M. Kania |
| |||
Robert Langer, Sc.D.(1) |
73,451 | |||
Amir Nashat, Sc.D. |
| |||
Aymeric Sallin, M.S. |
| |||
Leysan Shaydullina, M.D.(1) |
| |||
George Siber, M.D.(1) |
31,574 | |||
Yurii Udaltsov, Cand. Sc. |
|
196 | | |
Executive and director compensation
Effective upon the effectiveness of the registration statement of which this prospectus forms a part, we adopted and our stockholders approved a compensation program for our non-employee directors under which each non-employee director will receive the following amounts for their services on our board of directors:
Stock options granted to our non-employee directors under the program will have an exercise price equal to the fair market value of our common stock on the date of grant and will expire not later than ten years after the date of grant. The stock options granted upon a director's initial election or appointment will vest in substantially equal monthly installments over three years following the date of grant. The stock options granted annually to directors will vest in a single installment on the earlier of the day before the next annual meeting or the first anniversary of the date of grant. In addition, all unvested stock options will vest in full upon the occurrence of a change in control.
Director fees under the program will be payable in arrears in four equal quarterly installments not later than the fifteenth day following the final day of each calendar quarter, provided that the amount of each payment will be prorated for any portion of a quarter that a director is not serving on our board and no fee will be payable in respect of any period prior to the effective date of the registration statement of which this prospectus is a part.
Each member of our board of directors is entitled to be reimbursed for reasonable travel and other expenses incurred in connection with attending meetings of the board of directors and any committee of the board of directors on which he or she serves.
| | 197 |
Certain relationships and related person transactions
The following includes a summary of transactions since January 1, 2013 to which we have been a party in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under "Executive and director compensation." We also describe below certain other transactions with our directors, executive officers and stockholders.
PREFERRED STOCK FINANCINGS AND CONVERTIBLE NOTES FINANCING
Series D Preferred Stock Financing. Between April 7, 2014 and August 14, 2014, we sold to investors in private placements an aggregate of 3,211,105 shares of series D preferred stock at a purchase price of $4.50 per share, for net aggregate consideration of approximately $14.3 million.
Convertible Notes Financing. On April 10, 2015 and June 23, 2015, we sold to investors in private placements an aggregate of $7.1 million of convertible promissory notes, or the 2015 notes. The 2015 notes accrued at an interest rate of 8%, compounding monthly. In connection with the series E preferred stock financing described below, the principal amount of the 2015 notes and accrued interest thereon was automatically converted into an aggregate of 1,619,550 shares of our series E preferred stock in August 2015.
Series E Preferred Stock Financing. On August 27, 2015, September 3, 2015 and September 17, 2015, we issued and sold to investors in private placements an aggregate 8,888,888 shares of our series E preferred stock at a purchase price of $4.50 per share, for aggregate consideration of approximately $40 million, including approximately $7.3 million in principal and accrued interest under the 2015 notes that converted into shares of series E preferred stock.
The following table sets forth the aggregate number of shares of our capital stock acquired by beneficial owners of more than 5% of our capital stock in the financing transactions described above. Each share of our series D preferred stock identified in the following table will convert into 0.2683 shares of common stock upon the closing of this offering. Upon the closing of this offering, (i) our series E preferred stock will automatically convert into a number of shares of common stock and (ii) outstanding warrants to purchase shares of our series E preferred stock will become warrants to purchase a number of shares of our common stock, in each case, determined, in part, by the initial public offering price for this offering, which we have assumed to be $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus. See "Prospectus summaryThe offering" for a related offering price per share sensitivity analysis.
Participants
|
Series D preferred stock |
Series E preferred stock |
|||||
---|---|---|---|---|---|---|---|
| | | | | | | |
5% or Greater Stockholders(1) |
|||||||
Entities affiliated with Polaris Venture Partners(2) |
472,276 | 638,420 | (4) | ||||
Flagship Ventures Fund 2007, L.P. |
461,922 | 487,532 | (5) | ||||
RUSNANO |
314,353 | 781,322 | (6) | ||||
Entities affiliated with OrbiMed Advisors LLC(3) |
149,894 | 1,798,762 | (7) | ||||
NanoDimension L.P. |
159,752 | 363,006 | (8) | ||||
TAS Partners LLC and Leukon Partners, LP, as affiliated entities |
219,580 | 637,952 | (9) |
198 | | |
Certain relationships and related person transactions
Some of our directors and our director nominee are associated with our principal stockholders as indicated in the table below:
Director or director nominee
|
Principal stockholder
|
|
---|---|---|
| | |
Amir Nashat, Sc.D. | Entities affiliated with Polaris Venture Partners | |
Edwin M. Kania | Flagship Ventures Fund 2007, L.P. | |
Leysan Shaydullina, M.D.(1) | RUSNANO | |
Carl Gordon, Ph.D. | Entities affiliated with OrbiMed Advisors LLC | |
Aymeric Sallin, M.S. | NanoDimension L.P. | |
Timothy A. Springer, Ph.D.(2) | TAS Partners LLC and Leukon Partners, LP, as affiliated entities |
INVESTORS' RIGHTS AGREEMENT
We entered into an amended and restated investors' rights agreement in April 2014, which was further amended in July 2014, August 2015 and June 2016 with our directors Omid Farokhzad and Robert S. Langer, the holders of our preferred stock, including entities in which certain other of our directors are related, Ulrich von Andrian, a prior beneficial owner of 5% of our capital stock, and certain other stockholders. The agreement provides for certain rights relating to the registration of such holders' common stock, including shares issuable upon conversion of preferred stock, and a right of first refusal to purchase future securities sold by us. See "Description of capital stockRegistration rights" for additional information.
VOTING AGREEMENT
We entered into an amended and restated voting agreement in August 2015, by and among us and certain of our stockholders, pursuant to which the following directors were elected to serve as members on our board of directors and, as of the date of this prospectus, continue to so serve: Amir Nashat Sc.D; Edwin M. Kania Jr.; Aymeric Sallin; Carl L. Gordon, Ph.D.; Leysan Shaydullina; Robert S. Langer, Jr., Sc.D.; Omid Farokhzad, M.D.; Werner Cautreels, Ph.D.; Peter Barton Hutt; and George Siber, M.D. Pursuant to the voting agreement, Drs. Farokhzad, and Langer were initially
| | 199 |
Certain relationships and related person transactions
selected to serve on our board of directors as representatives of holders of our common stock, as designated by a majority of our founders. Dr. Cautreels was initially selected to serve on our board of directors in his capacity as our Chief Executive Officer. Drs. Nashat and Gordon, Messrs. Kania and Sallin, and Dr. Shaydullina were initially selected to serve on our board of directors as representatives of holders of our preferred stock, as designated by Polaris Venture Partners IV, L.P., OrbiMed Private Investments III, LP, Flagship Ventures, NanoDimension L.P. and RUSNANO, respectively. Mr. Hutt and Dr. Siber were initially selected to serve on our board of directors as independent directors, as designated by a majority of the other directors.
In addition, pursuant to the voting agreement, we, as the sole equity holder of our Russian subsidiary, Selecta RUS, elected the following directors of Selecta RUS who, as of the date of this prospectus, continue to so serve: Leysan Shaydullina, M.D., Alexander Korchevskiy, Werner Cautreels, Ph.D., Lloyd Johnston, Ph.D. and Dmitry Ovchinnokov, Ph.D. Pursuant to the voting agreement, Drs. Werner Cautreels, Lloyd Johnston and Dmitry Ovchinnokov were selected to serve on the Selecta RUS board of directors, as designated by our board of directors. Mr. Korchevskiy was selected to serve on the Selecta RUS board of directors, as designated by VTB Capital I2BF Netherlands B.V., a Dutch limited company, and Selecta RKFN Ltd., a Russian limited liability company, or collectively I2BF. Dr. Shaydullina was selected to serve on the Selecta RUS board of directors, as designated by RUSNANO.
The voting agreement will terminate in its entirety in connection with this offering. The composition of our board of directors after this offering is described in more detail under "ManagementBoard composition and election of directors."
EMPLOYMENT AGREEMENTS
We have entered into employment agreements or offer letters with our named executive officers. For more information regarding the agreements with our named executive officers, see "Executive and director compensationExecutive compensation arrangements."
CONSULTING AGREEMENTS
We entered into consulting agreements with directors Omid Farokhzad, Robert Langer and George Siber, and Ulrich von Andrian. Each of Drs. Langer and Siber will resign from our board of directors contingent upon, and effective immediately prior to, the effectiveness of the registration statement of which this prospectus forms a part.
The consulting agreements provide for annual payments of $75,000 for each of Drs. Farokhzad, Langer and von Andrian and $36,000 for Dr. Siber. Dr. Siber also received stock options to purchase up to 123,140 shares of common stock at an exercise price equal to fair market value on the date of grant. We also pay Dr. Farokhzad $72,000 per year in addition to the annual $75,000 payment under his consulting agreement, but have agreed with Dr. Farokhzad to discontinue this additional $72,000 per year payment upon the closing of this offering.
The consulting agreements for each of Drs. Farokhzad, Langer and von Andrian provide that we may terminate the agreements at any time, but must deposit with an escrow agent the consulting fees for the prior 90 days which would then be payable to the consulting party post-termination. The agreements may also be terminated without penalty by both parties upon mutual consent or by the consulting party with 30 days' prior written notice. The consulting agreement for Dr. Siber provides that the agreement may be terminated by mutual consent of the parties or by either party upon 30 days' prior written notice. Each agreement contains provisions regarding intellectual property assignment, confidentiality, noncompetition and nonsolicitation. Our existing consulting agreement with Dr. Siber will terminate upon the closing of this offering. We expect to enter into a consulting
200 | | |
Certain relationships and related person transactions
agreement with Dr. Siber after this offering regarding his continued service on our scientific advisory board.
For more information regarding compensation that we have paid to each of Drs. Farokhzad, Langer and Siber, see "Executive and director compensationDirector compensation."
INDEMNIFICATION AGREEMENTS
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 person's services as a director or executive officer.
STOCK OPTION GRANTS TO EXECUTIVE OFFICERS AND DIRECTORS
We have granted stock options to our executive officers and certain of our directors as more fully described in the section entitled "Executive and director compensation."
PARTICIPATION IN THIS OFFERING
Certain of our existing stockholders, including entities affiliated with certain of our directors and director nominee, have indicated an interest in purchasing an aggregate of approximately $40.0 million in shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these stockholders, or any of these stockholders may determine to purchase more, less or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchased by these stockholders as they will on any other shares sold to the public in this offering.
POLICIES AND PROCEDURES FOR RELATED PERSON TRANSACTIONS
Our board of directors has adopted a written related person transaction policy, to be effective immediately prior to the effectiveness of the registration statement of which this prospectus forms a part, 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 of 1933, as amended, or the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant, where the amount involved exceeds $120,000 in any fiscal year and a related person had, has or will have a direct or indirect material interest, including without limitation, purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, guarantees of indebtedness and employment by us of a related person. In reviewing and approving any such transactions, our audit committee is tasked to consider all relevant facts and circumstances, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in an arm's length transaction and the extent of the related person's interest in the transaction. All of the transactions described in this section occurred prior to the adoption of this policy.
| | 201 |
Principal stockholders
The following table sets forth information with respect to the beneficial ownership of our common stock, as of May 31, 2016, and as adjusted to reflect the sale of shares of common stock in this offering, by:
The number of shares beneficially owned by each stockholder is determined under rules issued by the Securities and Exchange Commission. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power. Applicable percentage ownership information is based on 12,664,048 shares of common stock outstanding as of May 31, 2016, which assumes the conversion of the 8,888,888 outstanding shares of our series E preferred stock as of May 31, 2016 into an aggregate of 3,297,480 shares of our common stock, which will automatically occur upon completion of this offering. Upon the closing of this offering, (i) our series E preferred stock will automatically convert into a number of shares of common stock and (ii) outstanding warrants to purchase shares of our series E preferred stock will become warrants to purchase a number of shares of our common stock, in each case, determined, in part, by the initial public offering price for this offering, which we have assumed to be $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus. Accordingly, the number of shares of our common stock issuable upon conversion of all of our preferred stock and exercise of our warrants outstanding would correspondingly increase or decrease, as applicable, in the event of any change in the initial public offering price per share. See "Prospectus summaryThe offering."
In computing the number of shares beneficially owned by an individual or entity and the percentage ownership of that person, shares of common stock subject to options, warrants or other rights held by such person that are currently exercisable or will become exercisable within 60 days of May 31, 2016 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person. Unless noted otherwise, the address of all listed stockholders is 480 Arsenal Street, Building One, Watertown, Massachusetts 02472. Each of the stockholders listed 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.
Certain of our existing stockholders, including entities affiliated with certain of our directors and director nominee, have indicated an interest in purchasing an aggregate of approximately $40.0 million in shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these stockholders, or any of these stockholders may determine to purchase more, less or no shares in this offering. The underwriters will receive the same underwriting discount on any shares purchased by these stockholders as they will on
202 | | |
Principal stockholders
any other shares sold to the public in this offering. The information set forth in the table below does not reflect any potential purchase of any shares in this offering by such parties.
|
Shares beneficially owned prior to offering |
Shares beneficially owned after offering |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name of beneficial owner
|
Number
|
Percentage
|
Number
|
Percentage
|
|||||||||
| | | | | | | | | | | | | |
5% or Greater Stockholders |
|||||||||||||
Entities affiliated with Polaris Venture Partners(1) |
1,757,234 | 13.9 | % | 1,757,234 | 10.4 | % | |||||||
Flagship Ventures Fund 2007, L.P.(2) |
1,659,205 | 13.1 | % | 1,659,205 | 9.8 | % | |||||||
RUSNANO(3) |
1,361,434 | 10.7 | % | 1,361,434 | 8.0 | % | |||||||
Entities affiliated with OrbiMed Advisors LLC(4) |
1,251,707 | 9.9 | % | 1,251,707 | 7.4 | % | |||||||
TAS Partners LLC and Leukon Partners, LP, as affiliated entities(5) |
965,330 | 7.6 | % | 965,330 | 5.7 | % | |||||||
NanoDimension L.P.(6) |
658,345 | 5.2 | % | 658,345 | 3.9 | % | |||||||
Named Executive Officers, Directors and Director Nominee |
|||||||||||||
Werner Cautreels, Ph.D.(7) |
412,097 | 3.2 | % | 412,097 | 2.4 | % | |||||||
Takashi Kei Kishimoto, Ph.D.(8) |
108,172 | * | 108,172 | * | |||||||||
Earl Sands, M.D. |
25,640 | * | 25,640 | * | |||||||||
Omid Farokhzad, M.D.(9) |
419,861 | 3.3 | % | 419,861 | 2.5 | % | |||||||
Carl Gordon, Ph.D.(4) |
1,251,707 | 9.9 | % | 1,251,707 | 7.4 | % | |||||||
Peter Barton Hutt(10) |
36,324 | * | 36,324 | * | |||||||||
Edwin M. Kania, Jr.(2) |
1,659,205 | 13.1 | % | 1,659,205 | 9.8 | % | |||||||
Robert Langer, Jr., Sc. D.(11) |
534,793 | 4.2 | % | 534,793 | 3.1 | % | |||||||
Amir Nashat, Sc.D.(1) |
1,757,234 | 13.9 | % | 1,757,234 | 10.4 | % | |||||||
Aymeric Sallin, M.S.(6) |
| | | | |||||||||
Leysan Shaydullina(3) |
| | | | |||||||||
George Siber, M.D.(12) |
31,574 | * | 31,574 | * | |||||||||
Timothy A. Springer, Ph.D.(5) |
965,330 | 7.6 | % | 965,330 | 5.7 | % | |||||||
All executive officers, directors and director nominee as a group (17 persons)(13) |
7,596,270 | 60.0 | % | 7,596,270 | 44.9 | % |
| | 203 |
Principal stockholders
general partner of Flagship Ventures 2007 and Noubar B. Afeyan Ph.D. and Edwin M. Kania, Jr. are the managers of Flagship 2007 LLC. Flagship 2007 LLC, Dr. Afeyan and Mr. Kania may be deemed to share voting and investment power with respect to all shares held by Flagship Ventures 2007. Flagship 2007 LLC, Dr. Afeyan and Mr. Kania expressly disclaim beneficial ownership of the securities listed above except to the extent of any pecuniary interest therein. The address for Flagship Ventures 2007 is One Memorial Drive, 7th Floor, Cambridge, MA 02142.
204 | | |
Description of capital stock
GENERAL
The following description summarizes some of the terms of our restated certificate of incorporation and restated bylaws that will become effective upon the closing of this offering, our outstanding warrants, the investors' rights agreement and of the General Corporation Law of the State of Delaware. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description, you should refer to our restated certificate of incorporation, restated bylaws, warrants and investors' rights agreement, copies of which have been or will be filed as exhibits to the registration statement of which this prospectus is a part, as well as the relevant provisions of the General Corporation Law of the State of Delaware. The description of our common stock and preferred stock reflects changes to our capital structure that will occur upon the closing of this offering.
Following the closing of this offering, our authorized capital stock will consist of 200,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share.
On May 31, 2016, there were 2,773,468 shares of common stock outstanding, including 4,415 shares of unvested restricted common stock subject to repurchase by us, held of record by 80 stockholders. This amount does not include shares of common stock to be issued upon the conversion of outstanding shares of preferred stock that will convert automatically upon the closing of this offering.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by our stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. 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 restated certificate of incorporation 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 restated certificate of incorporation. See below under "Anti-takeover effects of Delaware law and our certificate of incorporation and bylaws" and "Amendment of charter provisions." Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of any series of preferred stock that we may designate and issue in the future.
In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately our net assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. Our outstanding shares of common stock are, and the shares offered by us in this offering will be, when issued and paid for, 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
Under the terms of our restated certificate of incorporation that will become effective upon the closing of this offering, our board of directors is authorized to direct us to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock. Upon the closing of this offering, there will be no shares of preferred stock outstanding, and we have no present plans to issue any shares of preferred stock.
OPTIONS
As of May 31, 2016, options to purchase 1,723,742 shares of our common stock were outstanding under our 2008 plan, of which 677,324 had not vested and 1,046,418 had vested as of that date, excluding 390,796 shares of common stock issuable upon the exercise of options to be granted in connection with this offering under our 2016 Plan, which will become effective in connection with this offering, to some of our executive officers and employees, at an exercise price per share equal to the initial public offering price in this offering.
WARRANTS
In connection with our credit facility, on August 9, 2013 and July 25 2014, we issued warrants to Oxford and Pacific Western Bank exercisable for an aggregate of 66,668 shares of our series D preferred stock. Upon conversion of the series D preferred stock into common stock in connection with this offering, the warrants will become exercisable for 17,888 shares of common stock at a weighted average exercise price of $16.77. If unexercised, the warrants will expire on August 9, 2023 and July 25, 2024.
On July 24, 2015, we issued warrants to investors in a previous convertible note financing exercisable for an aggregate of 80,813 shares of common stock at an exercise price of $17.55 per share. If unexercised, the warrants will expire on July 24, 2018.
On August 27, 2015, September 3, 2015 and September 17, 2015, we issued series E common warrants to the investors in our series E preferred stock financing exercisable for an aggregate of 569,791 shares of common stock at an exercise price of $0.04 per share. Upon the filing of the registration statement of which this prospectus forms a part, the warrants were automatically exercised on a cashless basis for an aggregate of 567,306 shares of common stock.
In connection with our credit facility, on December 31, 2015, we issued warrants to Oxford and Pacific Western Bank exercisable for an aggregate of 37,978 shares of our series E preferred stock. Upon conversion of the series E preferred stock into common stock in connection with this offering, the warrants will become exercisable for 14,088 shares of common stock at a weighted average exercise price of $17.55 per share of common stock based on an assumed initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover of this prospectus (see "Prospectus summaryThe offering"). If unexercised, the warrants will expire on December 31, 2025.
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REGISTRATION RIGHTS
As of May 31, 2016, upon the closing of this offering, holders of approximately 12,016,162 shares of our common stock, including shares issuable upon the exercise of warrants, or their transferees will be entitled to the following rights with respect to the registration of such shares for public resale under the Securities Act, pursuant to an amended and restated investors' rights agreement by and among us and certain of our stockholders, until such shares can otherwise be sold without restriction under Rule 144, or until the rights otherwise terminate pursuant to the terms of the investors' rights agreement. The registration of shares of common stock as a result of the following rights being exercised would enable holders to trade these shares without restriction under the Securities Act when the applicable registration statement is declared effective.
Demand registration rights
If at any time beginning 180 days after the closing date of this offering the holders of at least 50% of the registrable securities request in writing that we effect a registration with respect to all or part of such registrable securities then outstanding, we may be required to register their shares. We are obligated to effect at most two registrations in response to these demand registration rights. If the holders requesting registration intend to distribute their shares by means of an underwriting, the managing underwriter of such offering will have the right to limit the numbers of shares to be underwritten for reasons related to the marketing of the shares.
Piggyback registration rights
If at any time after this offering we propose to register any shares of our common stock under the Securities Act, subject to certain exceptions, the holders of registrable securities will be entitled to notice of the registration and to include their shares of registrable securities in the registration. If our proposed registration involves an underwriting, the managing underwriter of such offering will have the right to limit the number of shares to be underwritten for reasons related to the marketing of the shares.
Form S-3 registration rights
If, at any time after we become entitled under the Securities Act to register our shares on a registration statement on Form S-3, the holders of the registrable securities request in writing that we effect a registration with respect to registrable securities at an aggregate price to the public in the offering of at least $2,000,000, we will be required to effect such registration; provided, however, that we will not be required to effect such a registration if, within a given calendar year, we have already effected two registrations on Form S-3 for the holders of registrable securities.
Expenses
Ordinarily, other than underwriting discounts and commissions, we will be required to pay all expenses incurred by us related to any registration effected pursuant to the exercise of these registration rights. These expenses may include all registration and filing fees, printing expenses, fees and disbursements of our counsel, reasonable fees and disbursements of a counsel for the selling securityholders and blue sky fees and expenses.
Termination of registration rights
The registration rights terminate upon the earlier of five years after the effective date of the registration statement of which this prospectus is a part, or, with respect to the registration rights of an individual holder, when the holder can sell all of such holder's registrable securities in a 90-day period without restriction under Rule 144 under the Securities Act.
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ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Some provisions of Delaware law, our restated certificate of incorporation and our restated bylaws could make the following transactions more difficult: an acquisition of us by means of a tender offer; an acquisition of us by means of a proxy contest or otherwise; or the removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions which provide for payment of a premium over the market price for our shares.
These provisions, summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of the increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.
Undesignated preferred stock
The ability of our board of directors, without action by the stockholders, to issue shares of undesignated preferred stock under our restated certificate of incorporation 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 restated bylaws provide that a special meeting of stockholders may be called only by our chairman of the board, chief executive officer or president (in the absence of a chief executive officer), or by a resolution adopted by a majority of our board of directors.
Requirements for advance notification of stockholder nominations and proposals
Our 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 restated certificate of incorporation eliminates the right of stockholders to act by written consent without a meeting.
Staggered board
Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders. For more information on the classified board, see "ManagementBoard composition and election of directors." This system of electing and removing directors may tend to discourage a third-party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.
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Removal of directors
Our restated certificate of incorporation provides that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of the holders of at least two-thirds in voting power of the outstanding shares of stock entitled to vote in the election of directors.
Stockholders not entitled to cumulative voting
Our restated certificate of incorporation does not permit stockholders to cumulate their votes in the election of directors. Accordingly, the holders of a majority of the outstanding shares of our common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they choose, other than any directors that holders of our preferred stock may be entitled to elect.
Delaware anti-takeover statute
We are subject to Section 203 of the General Corporation Law of the State of Delaware, 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 corporation's 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 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: (1) any derivative action or proceeding brought on our behalf; (2) 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; (3) any action asserting a claim against us arising pursuant to any provision of the General Corporation Law of the State of Delaware or our certificate of incorporation or bylaws; (4) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws; or (5) any action asserting a claim governed by the internal affairs doctrine. Our 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. It is possible that a court of law could rule that the choice of forum provision contained in our restated certificate of incorporation is inapplicable or unenforceable if it is challenged in a proceeding or otherwise.
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 and the provision prohibiting cumulative voting, would require approval by holders of at least two-thirds in voting power of the outstanding shares of stock entitled to vote thereon.
The provisions of Delaware law, our restated certificate of incorporation and our 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
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from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the composition of our board and management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC.
STOCK EXCHANGE LISTING
We have applied to have our common stock listed on The NASDAQ Global Market under the symbol "SELB."
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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.
Upon the closing of this offering, we will have outstanding an aggregate of 16,914,048 shares of common stock, assuming the issuance of 4,250,000 shares of common stock offered by us in this offering, after giving effect to the assumptions described under "Prospectus summaryThe offering," and assuming no exercise of options or warrants after May 31, 2016. 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, whose sales would be subject to the Rule 144 resale restrictions described below, other than the holding period requirement.
The remaining 12,664,048 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 Rules 144 or 701 under the Securities Act, which are 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. Additionally, any shares purchased in this offering by participants in our directed share program who purchase more than $1,000,000 of shares will be subject to a 25-day lock-up period and any shares purchased in this offering by our existing stockholders that are required to file reports pursuant to Section 16 of the Exchange Act will be subject to a 180-day lock-up period, in each case, unless the lock-up period is waived by UBS Securities LLC and Stifel, Nicolaus & Company, Incorporated on behalf of the underwriters. Upon expiration of the lock-up period, we estimate that approximately 12,664,048 shares will be available for sale in the public market, subject in some cases to applicable volume limitations under Rule 144.
In addition, of the 1,723,704 shares of our common stock that were subject to stock options outstanding as of May 31, 2016, options to purchase 1,046,418 shares of common stock were vested as of May 31, 2016 and, upon exercise, these shares will be eligible for sale subject to the lock-up agreements described below and Rules 144 and 701 under the Securities Act.
LOCK-UP AGREEMENTS
We and each of our directors and executive officers and holders of substantially all of our outstanding capital stock, have agreed that, without the prior written consent of UBS Securities LLC and Stifel, Nicolaus & Company, Incorporated on behalf of the underwriters, we and they will not, subject to certain exceptions, during the period ending 180 days after the date of this prospectus:
whether any transaction described above is to be settled by delivery of our common stock or such other securities, in cash or otherwise.
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Shares eligible for future sale
Upon the expiration of the applicable lock-up periods, substantially all of the shares subject to such lock-up restrictions will become eligible for sale, subject to the limitations discussed above. For a further description of these lock-up agreements, please see "Underwriting."
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 "broker's 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:
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 The NASDAQ Global Market concurrently with either the placing of a sale order with the broker or the execution 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 issuer's 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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The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options, including exercises after an issuer becomes subject to the reporting requirements of the Exchange Act.
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 stock plans. We expect to file the registration statement covering shares offered pursuant to our stock plans shortly after the date of this prospectus, permitting the resale of such shares by nonaffiliates 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
Holders of shares of our common stock, including shares issuable upon the exercise of warrants, or their transferees will be entitled to registration rights with respect to such shares for public resale under the Securities Act. 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 U.S. federal income tax consequences to non-U.S. holders
The following discussion is a summary of certain 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 consequences. The consequences 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 United States Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the United States Internal Revenue Service, or the IRS, in effect as of the date of this offering. 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 do not intend to 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 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 that may be relevant to a non-U.S. holder in light of such non-U.S. holder's particular circumstances, including the impact of the Medicare contribution tax on net investment income. In addition, it does not address consequences relevant to non-U.S. holders subject to particular rules, including, without limitation:
If a partnership (or other 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
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partner, the activities of the partnership, and certain determinations made at the partner level. 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 of the purchase, ownership, and disposition of our common stock.
THIS DISCUSSION IS FOR INFORMATION PURPOSES ONLY AND IS NOT INTENDED AS, LEGAL OR TAX ADVICE. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION 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 OTHER U.S. FEDERAL 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 not a "U.S. person," a partnership, or an entity disregarded as separate from its owner, each 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:
DISTRIBUTIONS
As described in the section entitled "Dividend policy," we do not expect to declare or pay 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. holder's 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. 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.
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If dividends paid to a non-U.S. holder are effectively connected with the non-U.S. holder's 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 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. holder's conduct of a trade or business within the United States.
Any such effectively connected dividends will be subject to U.S. federal income tax on a net basis at regular graduated rates. A non-U.S. holder that is a corporation also may be subject to a branch profits taxed 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:
Gain described in the first bullet point above will generally be subject to U.S. federal income tax on a net income basis at regular graduated U.S. federal income tax rates. A non-U.S. holder that is taxed as a corporation for U.S. federal income tax purposes 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.
A non-U.S. holder 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) on any gain derived from the disposition, which may be offset by certain U.S. source capital losses of the non-U.S. holder (even though the individual 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 are not currently and do not expect to become a USRPHC. Because the determination of whether we are a USRPHC depends on the fair market value of our USRPIs relative to the fair market value of our other business assets and our non-U.S. real property interests, however, there can be no assurance we 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 (i) such class of stock is "regularly traded," as defined by applicable Treasury Regulations, on an established securities market, and (ii) such non-U.S. holder owned, actually or constructively, 5% or less of such class of our stock throughout the shorter of the five-year period ending on the date of the sale or other disposition or the non-U.S. holder's holding period for such stock. If the foregoing exception does not apply, and if we are or were to become a USRPHC, a
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purchaser may be required to withhold 15% of the proceeds payable to a non-U.S. holder from a sale of our common stock and such non-U.S. holder generally will be taxed on its net gain derived from the disposition at the graduated U.S. federal income tax rates applicable to United States persons (as defined in the Code).
Non-U.S. holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Payments of dividends on our common stock will not generally be subject to backup withholding provided the applicable withholding agent does not have actual knowledge or reason to know such holder is a U.S. person and the holder either certifies its non-U.S. status, such as by providing 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 U.S. 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 these information returns that are filed with the IRS may also be made available under the provisions of a specific 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. holder's 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 the Foreign Account Tax Compliance Act, or 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 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 (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) 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 (3) 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 (1) above, it must enter into an agreement with the IRS 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, and will apply to payments of gross proceeds from the sale or other disposition of such stock on or after January 1, 2019. Prospective investors should consult their tax advisors regarding the potential application of these withholding provisions.
| | 217 |
Underwriting
We are offering the shares of our common stock described in this prospectus through the underwriters named below. UBS Securities LLC and Stifel, Nicolaus & Company, Incorporated are acting as joint book-running managers of this offering and as representatives of the underwriters. We have entered into an underwriting agreement with the representatives. Subject to the terms and conditions of the underwriting agreement, each of the underwriters has severally agreed to purchase, and we have agreed to sell to the underwriters, the number of shares of common stock listed next to its name in the following table.
Underwriters
|
Number of shares |
|||
---|---|---|---|---|
| | | | |
UBS Securities LLC |
||||
Stifel, Nicolaus & Company, Incorporated |
||||
Canaccord Genuity Inc. |
||||
Needham & Company, LLC |
||||
| | | | |
Total |
4,250,000 | |||
| | | | |
| | | | |
| | | | |
The underwriting agreement provides that the underwriters must buy all of the shares of common stock if they buy any of them. However, the underwriters are not required to pay for the shares covered by the underwriters' option to purchase additional shares as described below.
Our common stock is offered subject to a number of conditions, including:
We have been advised by the representatives that the underwriters intend to make a market in our common stock but that they are not obligated to do so and may discontinue making a market at any time without notice.
In connection with this offering, certain of the underwriters or securities dealers may distribute prospectuses electronically.
OPTION TO PURCHASE ADDITIONAL SHARES
We have granted the underwriters an option to buy up to an aggregate of 637,500 additional shares of our common stock. The underwriters have 30 days from the date of this prospectus to exercise this option. If the underwriters exercise this option, they will each purchase additional shares of common stock approximately in proportion to the amounts specified in the table above.
UNDERWRITING DISCOUNT
Shares sold by the underwriters to the public will initially be offered at the initial offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Sales of shares made outside of the United States may be made by affiliates of the underwriters. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms. Upon execution of the underwriting agreement, the underwriters will be obligated to purchase the shares at the prices and upon the terms stated therein.
218 | | |
Underwriting
The following table shows the per share and total underwriting discount we will pay to the underwriters assuming both no exercise and full exercise of the underwriters' option to purchase up to 637,500 additional shares.
|
No exercise
|
Full exercise
|
|||||
---|---|---|---|---|---|---|---|
| | | | | | | |
Per share |
$ | $ | |||||
Total |
$ | $ | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
We estimate that the total expenses of the offering payable by us, not including the underwriting discount, will be approximately $3.9 million. We have agreed with the underwriters to pay certain fees and expenses related to the review and qualification of this offering by the Financial Industry Regulatory Authority, Inc. and "blue sky" expenses in an amount not to exceed $35,000.
NO SALES OF SIMILAR SECURITIES
We, our executive officers and directors, and holders of substantially all of our common stock have entered into lock-up agreements with the underwriters. Under the lock-up agreements, subject to certain exceptions, we and each of these persons may not, without the prior written approval of UBS Securities LLC and Stifel, Nicolaus & Company, Incorporated, offer, sell, contract to sell, pledge, or otherwise dispose of, directly or indirectly, or hedge our common stock or securities convertible into or exchangeable or exercisable for our common stock. These restrictions will be in effect for a period ending on and including the date that is 180 days after the date of this prospectus.
UBS Securities LLC and Stifel, Nicolaus & Company, Incorporated may, at any time and in their sole discretion, release some or all the securities from these lock-up agreements. If the restrictions under the lock-up agreements are waived, shares of our common stock may become available for resale into the market, subject to applicable law, which could reduce the market price of our common stock.
INDEMNIFICATION
We have agreed to indemnify the several underwriters against certain liabilities, including certain liabilities under the Securities Act. If we are unable to provide this indemnification, we have agreed to contribute to payments the underwriters may be required to make in respect of those liabilities.
NASDAQ LISTING
We have applied to have our common stock approved for listing on the The NASDAQ Global Market under the symbol "SELB."
PRICE STABILIZATION, SHORT POSITIONS
In connection with this offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common stock during and after this offering, including:
| | 219 |
Underwriting
Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of our common stock while this offering is in progress. Stabilization transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. These transactions may also include making short sales of our common stock, which involve the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering and purchasing shares of common stock on the open market to cover short positions created by short sales. Short sales may be "covered short sales," which are short positions in an amount not greater than the underwriters' option to purchase additional shares referred to above, or may be "naked short sales," which are short positions in excess of that amount.
The underwriters may close out any covered short position by either exercising their option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option.
Naked short sales are short sales made in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchased in this offering.
The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of that underwriter in stabilizing or short covering transactions.
These stabilizing transactions, short sales, purchases to cover positions created by short sales, the imposition of penalty bids and syndicate covering transactions 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 of these activities, the price of our common stock may be higher than the price that otherwise might exist in the open market. The underwriters may carry out these transactions on NASDAQ, in the over-the-counter market or otherwise. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the shares. Neither we, nor any of the underwriters make any representation that the underwriters will engage in these stabilization transactions or that any transaction, once commenced, will not be discontinued without notice.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there was no public market for our common stock. The initial public offering price will be determined by negotiation among us and the representatives of the underwriters. The principal factors to be considered in determining the initial public offering price include:
220 | | |
Underwriting
The estimated public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors. Neither we nor the underwriters can assure investors that an active trading market will develop for our common stock or that the common stock will trade in the public market at or above the initial public offering price.
DIRECTED SHARE PROGRAM
At our request, the underwriters have reserved up to 5% of the common stock being offered by this prospectus for sale at the initial public offering price to our directors, officers, employees and other individuals associated with us and members of their families. The sales will be made by UBS Financial Services Inc., a selected dealer affiliated with UBS Securities LLC, an underwriter of this offering, through a directed share program. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of common stock. Participants in the directed share program who purchase more than $1,000,000 of shares shall be subject to a 25-day lock-up with respect to any shares sold to them pursuant to that program. This lock-up will have similar restrictions to the lock-up agreements described in "Shares eligible for future saleLock-up agreements." Any shares sold in the directed share program to our directors or executive officers shall be subject to the lock-up agreements described above.
AFFILIATIONS
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters and their affiliates may from time to time in the future engage with us and perform services for us or in the ordinary course of their business for which they will receive customary fees and expenses. In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities or instruments of us. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of these securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in these securities and instruments.
ELECTRONIC DISTRIBUTION
A prospectus in electronic format may be made available on the internet or through other online services maintained by one or more of the underwriters participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations. Other than the prospectus in electronic format, the information on any underwriter's
| | 221 |
Underwriting
website and any information contained in any other website maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter and should not be relied upon by investors.
NOTICE TO PROSPECTIVE INVESTORS
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a "Relevant Member State") an offer to the public of any shares of common stock which are the subject of the offering contemplated by this prospectus (the "Shares") may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
For the purposes of this provision, the expression an "offer to the public" in relation to any Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Shares to be offered so as to enable an investor to decide to purchase any Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State. The expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression "2010 PD Amending Directive" means Directive 2010/73/EU.
The EEA selling restriction is in addition to any other selling restrictions set out in this prospectus.
United Kingdom
This prospectus is only being distributed to and is only directed at: (1) persons who are outside the United Kingdom; (2) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"); or (3) high net worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons falling within (1)-(3) together being referred to as "relevant persons"). The shares are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such shares will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this prospectus or any of its contents.
222 | | |
Underwriting
Australia
This prospectus is not a formal disclosure document and has not been, nor will be, lodged with the Australian Securities and Investments Commission. It does not purport to contain all information that an investor or their professional advisers would expect to find in a prospectus or other disclosure document (as defined in the Corporations Act 2001 (Australia)) for the purposes of Part 6D.2 of the Corporations Act 2001 (Australia) or in a product disclosure statement for the purposes of Part 7.9 of the Corporations Act 2001 (Australia), in either case, in relation to the securities.
The securities are not being offered in Australia to "retail clients" as defined in sections 761G and 761GA of the Corporations Act 2001 (Australia). This offering is being made in Australia solely to "wholesale clients" for the purposes of section 761G of the Corporations Act 2001 (Australia) and, as such, no prospectus, product disclosure statement or other disclosure document in relation to the securities has been, or will be, prepared.
This prospectus does not constitute an offer in Australia other than to persons who do not require disclosure under Part 6D.2 of the Corporations Act 2001 (Australia) and who are wholesale clients for the purposes of section 761G of the Corporations Act 2001 (Australia). By submitting an application for our securities, you represent and warrant to us that you are a person who does not require disclosure under Part 6D.2 and who is a wholesale client for the purposes of section 761G of the Corporations Act 2001 (Australia). If any recipient of this prospectus is not a wholesale client, no offer of, or invitation to apply for, our securities shall be deemed to be made to such recipient and no applications for our securities will be accepted from such recipient. Any offer to a recipient in Australia, and any agreement arising from acceptance of such offer, is personal and may only be accepted by the recipient. In addition, by applying for our securities you undertake to us that, for a period of 12 months from the date of issue of the securities, you will not transfer any interest in the securities to any person in Australia other than to a person who does not require disclosure under Part 6D.2 and who is a wholesale client.
Hong Kong
The contents of this prospectus have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this prospectus, you should obtain independent professional advice. Please note that (i) our securities may not be offered or sold in Hong Kong, by means of this prospectus or any document other than to "professional investors" within the meaning of Part I of Schedule 1 of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) (SFO) and any rules made thereunder, or in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong) (CO) or which do not constitute an offer or invitation to the public for the purpose of the CO or the SFO, and (ii) no advertisement, invitation or document relating to our securities may be issued or may be in the possession of any person for the purpose of issue (in each case 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 in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the securities which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the SFO and any rules made thereunder.
Japan
Our securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and our securities will not be offered or
| | 223 |
Underwriting
sold, directly or indirectly, in Japan, or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan, or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of our securities may not be circulated or distributed, nor may our securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (SFA), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where our securities are subscribed or purchased under Section 275 by a relevant person which is:
Switzerland
This Prospectus does not constitute an issue prospectus pursuant to Article 652a or Article 1156 of the Swiss Code of Obligations (CO) and the shares will not be listed on the SIX Swiss Exchange. Therefore, the Prospectus may not comply with the disclosure standards of the CO and/or the listing rules (including any prospectus schemes) of the SIX Swiss Exchange. Accordingly, the shares may not be offered to the public in or from Switzerland, but only to a selected and limited circle of investors, which do not subscribe to the shares with a view to distribution.
224 | | |
Underwriting
Greece
The securities have not been approved by the Hellenic Capital Markets Commission for distribution and marketing in Greece. This document and the information contained therein do not and shall not be deemed to constitute an invitation to the public in Greece to purchase the securities. The securities may not be advertised, distributed, offered or in any way sold in Greece except as permitted by Greek law.
Dubai International Finance Centre
This prospectus relates to an Exempt Offer in accordance with the Markets Rules of the Dubai Financial Services Authority. This prospectus is intended for distribution only to Professional Clients who are not natural persons. It must not be delivered to, or relied on by, any other person. The Dubai Financial Services Authority has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The Dubai Financial Services Authority has not approved this document nor taken steps to verify the information set out in it, and has no responsibility for it. The securities to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this document you should consult an authorized financial adviser.
| | 225 |
Legal matters
The validity of the shares of common stock offered hereby will be passed upon for us by Latham & Watkins LLP. Certain legal matters will be passed upon for the underwriters by Cooley LLP.
Our consolidated financial statements as of December 31, 2014 and December 31, 2015, and for the years then ended, appearing in this prospectus and the related registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon (which contains an explanatory paragraph describing conditions that raise substantial doubt about our ability to continue as a going concern as described in Note 1 to the consolidated financial statements) appearing elsewhere herein, and are included in reliance on such report given on the authority of such firm as experts in accounting and auditing.
Where you can find more information
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information about us and the common stock offered hereby, we refer you to the registration statement and the exhibits and schedules filed thereto. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. Upon completion of this offering, we will be required to file periodic reports, proxy statements, and other information with the SEC pursuant to the Exchange Act. You may read and copy this information at the Public Reference Room of the SEC, 100 F Street, N.E., Room 1580, Washington, District of Columbia 20549. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website 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.
226 | | |
Selecta Biosciences, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | F-1 |
Report of independent registered public accounting firm
To
the Board of Directors and Stockholders
Selecta Biosciences, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Selecta Biosciences, Inc. and subsidiaries ("the Company") as of December 31, 2015 and 2014, and the related consolidated statements of comprehensive loss, redeemable convertible preferred stock and stockholders' deficit, and cash flows for each of the two years in the period ended December 31, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Selecta Biosciences, Inc. and subsidiaries at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has recurring losses from operations and negative cash flows from operations and will require additional capital to fund planned operations. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
|
/s/ Ernst & Young LLP |
Boston, Massachusetts
March 30, 2016, except for Note 17(b), as to which the date is June 8, 2016
F-2 | | |
Selecta Biosciences, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
|
December 31, | March 31, |
Pro forma March 31, |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2016
|
2016
|
|||||||||
|
|
|
(unaudited)
|
(unaudited)
|
|||||||||
|
(in thousands, except share and per share data)
|
||||||||||||
Assets |
|||||||||||||
Current assets: |
|||||||||||||
Cash and cash equivalents |
$ | 16,592 | $ | 32,337 | $ | 17,051 | $ | 17,051 | |||||
Short term investments |
| 4,125 | 8,928 | 8,928 | |||||||||
Restricted cash |
1,244 | 133 | 682 | 682 | |||||||||
Accounts receivable |
674 | 824 | 1,627 | 1,627 | |||||||||
Prepaid expenses and other current assets |
602 | 1,494 | 1,598 | 1,598 | |||||||||
| | | | | | | | | | | | | |
Total current assets |
19,112 | 38,913 | 29,886 | 29,886 | |||||||||
Property and equipment, net |
1,983 |
2,029 |
2,040 |
2,040 |
|||||||||
Restricted cash and other deposits |
1,106 | 316 | 316 | 316 | |||||||||
Other assets |
27 | 1,566 | 2,481 | 2,481 | |||||||||
| | | | | | | | | | | | | |
Total assets |
$ | 22,228 | $ | 42,824 | $ | 34,723 | $ | 34,723 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Liabilities, redeemable convertible preferred stock, and stockholders' deficit |
|||||||||||||
Current liabilities: |
|||||||||||||
Accounts payable |
$ | 351 | $ | 2,179 | $ | 788 | $ | 788 | |||||
Accrued expenses |
1,853 | 3,378 | 3,185 | 3,185 | |||||||||
Loans payable, current portion |
2,578 | | 673 | 673 | |||||||||
Deferred revenue, current portion |
3,018 | 1,313 | 1,219 | 1,219 | |||||||||
Contingently repayable grant funding |
1,431 | 420 | 452 | 452 | |||||||||
| | | | | | | | | | | | | |
Total current liabilities |
9,231 | 7,290 | 6,317 | 6,317 | |||||||||
Non-current liabilities: |
|||||||||||||
Deferred rent and lease incentive |
274 | 105 | | | |||||||||
Contingently repayable grant funding long-term |
| | | | |||||||||
Loans payable, net of current portion |
4,824 | 11,855 | 11,169 | 11,169 | |||||||||
Deferred revenue, net of current portion |
1,364 | 2,295 | 2,895 | 2,895 | |||||||||
Other long-term liabilities |
257 | 290 | 310 | | |||||||||
| | | | | | | | | | | | | |
Total liabilities |
15,950 | 21,835 | 20,691 | 20,381 | |||||||||
| | | | | | | | | | | | | |
Commitments and contingencies (Notes 7 and 12) |
|||||||||||||
Redeemable convertible preferred stock: |
|||||||||||||
Series A redeemable convertible preferred stock, $0.0001 par value; 2,589,868 shares authorized, issued, and outstanding (liquidation preference of $3,500,151 at December 31, 2014, $3,650,104 at December 31, 2015 and $3,687,592 at March 31, 2016 (unaudited); none issued and outstanding pro forma) |
3,493 | 3,644 | 3,682 | | |||||||||
Series B redeemable convertible preferred stock, $0.0001 par value; 7,437,325 shares authorized, issued, and outstanding (liquidation preference of $20,568,097 at December 31, 2014, $21,473,963 at December 31, 2015 and $21,700,429 at March 31, 2016 (unaudited); none issued and outstanding pro forma) |
20,533 | 21,448 | 21,676 | | |||||||||
Series C redeemable convertible preferred stock, $0.0001 par value; 5,000,002 shares authorized, issued, and outstanding (liquidation preference of $19,300,282 at December 31, 2014, $20,200,282 at December 31, 2015 and $20,425,282 at March 31, 2016 (unaudited); none issued and outstanding pro forma) |
19,270 | 20,178 | 20,404 | | |||||||||
Series D redeemable convertible preferred stock, $0.0001 par value; 8,166,662 shares authorized at December 31, 2014 and 2015 and March 31, 2016 (unaudited); 8,099,994 shares issued and outstanding at December 31, 2014 and 2015 and March 31, 2016 (unaudited) (liquidation preference of $41,125,871 at December 31, 2014, $43,312,869 at December 31, 2015 and $43,859,619 at March 31, 2016 (unaudited); none issued and outstanding pro forma) |
40,570 | 42,902 | 43,477 | | |||||||||
Series SRN redeemable convertible preferred stock, $0.0001 par value; 5,611,112 shares authorized at December 31, 2014 and 2015 and March 31, 2016 (unaudited); 2,111,109 shares issued and outstanding at December 31, 2014 and 2015 and March 31, 2016 (unaudited) (liquidation preference of $9,499,991 at December 31, 2014, $9,499,991 at December 31, 2015 and $9,499,991 at March 31, 2016 (unaudited); none issued and outstanding pro forma) |
10,167 | 12,082 | 12,541 | | |||||||||
Series E redeemable convertible preferred stock, $0.0001 par value; 9,030,654 shares authorized at December 31, 2015 and March 31, 2016 (unaudited); 8,888,888 shares issued and outstanding at December 31, 2015 and at March 31, 2016 (unaudited) (liquidation preference of $40,802,658 at December 31, 2015 and $41,402,659 at March 31, 2016 (unaudited); none issued and outstanding pro forma) |
| 37,228 | 38,057 | | |||||||||
| | | | | | | | | | | | | |
Total redeemable convertible preferred stock |
94,033 | 137,482 | 139,837 | | |||||||||
| | | | | | | | | | | | | |
Stockholders' equity (deficit): |
|||||||||||||
Common stock, $0.0001 par value; 46,000,000, 62,164,377 and 62,164,377 shares authorized at December 31, 2014 and 2015 and March 31, 2016 (unaudited) respectively; 2,139,262, 2,180,976 and 2,183,541 shares issued, 2,123,997, 2,173,399, 2,177,858 shares outstanding as of December 31, 2014 and 2015 and March 31, 2016 (unaudited), respectively. 12,641,402 issued and 12,635,719 outstanding pro forma (unaudited) |
| | | 1 | |||||||||
Additional paid in capital |
1 | 1 | 1 | 140,147 | |||||||||
Accumulated deficit |
(83,880 | ) | (111,508 | ) | (121,051 | ) | (121,051 | ) | |||||
Accumulated other comprehensive loss |
(3,876 | ) | (4,986 | ) | (4,755 | ) | (4,755 | ) | |||||
| | | | | | | | | | | | | |
Total stockholders' equity (deficit) |
(87,755 | ) | (116,493 | ) | (125,805 | ) | 14,342 | ||||||
| | | | | | | | | | | | | |
Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) |
$ | 22,228 | $ | 42,824 | $ | 34,723 | $ | 34,723 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
See accompanying notes.
| | F-3 |
Selecta Biosciences, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
Year ended December 31, | Three months ended March 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2015
|
2016
|
|||||||||
|
|
|
(unaudited)
|
(unaudited)
|
|||||||||
|
(in thousands, except share and per share data)
|
||||||||||||
Grant and collaboration revenue |
$ | 3,040 | $ | 6,011 | $ | 1,034 | $ | 2,088 | |||||
Operating expenses: |
|||||||||||||
Research and development |
10,486 | 22,980 | 4,972 | 6,648 | |||||||||
General and administrative |
7,953 | 8,335 | 1,872 | 2,381 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
18,439 | 31,315 | 6,844 | 9,029 | |||||||||
| | | | | | | | | | | | | |
Loss from operations |
(15,399 | ) | (25,304 | ) | (5,810 | ) | (6,941 | ) | |||||
Investment income |
111 |
171 |
62 |
13 |
|||||||||
Foreign currency transaction gain (loss), net |
3,004 | 933 | 194 | (220 | ) | ||||||||
Interest expense |
(552 | ) | (948 | ) | (179 | ) | (310 | ) | |||||
Other expense, net |
(44 | ) | (26 | ) | | (18 | ) | ||||||
| | | | | | | | | | | | | |
Net loss |
(12,880 | ) | (25,174 | ) | (5,733 | ) | (7,476 | ) | |||||
| | | | | | | | | | | | | |
Other comprehensive loss: |
|||||||||||||
Foreign currency translation adjustment |
(3,281 | ) | (1,110 | ) | (208 | ) | 231 | ||||||
| | | | | | | | | | | | | |
Comprehensive loss |
$ | (16,161 | ) | $ | (26,284 | ) | $ | (5,941 | ) | $ | (7,245 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net loss |
(12,880 | ) | (25,174 | ) | (5,733 | ) | (7,476 | ) | |||||
Accretion of redeemable convertible preferred stock |
(4,951 | ) | (7,335 | ) | (1,561 | ) | (2,356 | ) | |||||
Net effect of extinguishment of Series SRN redeemable convertible preferred stock |
1,459 | | | | |||||||||
| | | | | | | | | | | | | |
Net loss attributable to common stockholders |
$ | (16,372 | ) | $ | (32,509 | ) | $ | (7,294 | ) | $ | (9,832 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net loss per share attributable to common stockholders |
|||||||||||||
Basic and diluted |
$ | (7.84 | ) | $ | (15.13 | ) | $ | (3.43 | ) | $ | (4.52 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted average common shares outstanding |
|||||||||||||
Basic and diluted |
2,090,677 | 2,150,422 | 2,126,878 | 2,175,037 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Pro forma net loss per share attributable to common stockholders (unaudited) |
|||||||||||||
Basic and diluted |
$ | (2.53 | ) | $ | (0.59 | ) | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Pro forma weighted average common shares of common stock outstanding (unaudited) |
|||||||||||||
Basic and diluted |
9,980,469 | 12,632,923 | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
See accompanying notes.
F-4 | | |
Selecta Biosciences, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
|
Series A redeemable convertible preferred stock |
Series B redeemable convertible preferred stock |
Series C redeemable convertible preferred stock |
Series D redeemable convertible preferred stock |
Series SRN redeemable convertible preferred stock |
Series E redeemable convertible preferred stock |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||
|
Common stock |
Additional paid-In Capital |
|
Accumulated comprehensive loss |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Accumulated deficit |
Stockholders' deficit |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands, except share data) |
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares
|
Amount
|
||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
(in thousands, except share data) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2013 |
2,589,868 | 3,350 | 7,437,325 | 19,662 | 5,000,002 | 18,381 | 4,888,889 | 24,366 | 777,777 | 4,643 | | | 2,027,254 | | 1 | (68,869 | ) | (595 | ) | (69,463 | ) | ||||||||||||||||||||||||||||||||||||
Issuance of Series D redeemable convertible preferred stock, net of issuance costs of $100,734 |
| | | | | | 3,211,105 | 14,349 | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Net effect of extinguishment of Series SRN redeemable preferred stock (see Note 8) |
| | | | | | | | | (1,459 | ) | | | | | 1,459 | | | 1,459 | ||||||||||||||||||||||||||||||||||||||
Issuance of Series SRN redeemable convertible preferred stock, net of issuance costs of $209,587 |
| | | | | | | | 1,333,332 | 5,790 | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Vesting of restricted common stock |
| | | | | | | | | | | | 58,104 | | 69 | | | 69 | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of options |
| | | | | | | | | | | | 38,639 | | 68 | | | 68 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | | | | | | | | | 1,224 | | | 1,224 | |||||||||||||||||||||||||||||||||||||||
Accretion of preferred stock to redemption value |
| 143 | | 871 | | 889 | | 1,855 | | 1,193 | | | | | (2,820 | ) | (2,131 | ) | | (4,951 | ) | ||||||||||||||||||||||||||||||||||||
Currency translation adjustment |
| | | | | | | | | | | | | | | | (3,281 | ) | (3,281 | ) | |||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | | | | | (12,880 | ) | | (12,880 | ) | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2014 |
2,589,868 | $ | 3,493 | 7,437,325 | $ | 20,533 | 5,000,002 | $ | 19,270 | 8,099,994 | $ | 40,570 | 2,111,109 | $ | 10,167 | | $ | | 2,123,997 | $ | 0 | $ | 1 | $ | (83,880 | ) | $ | (3,876 | ) | $ | (87,755 | ) | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of Series E redeemable convertible preferred stock, net of issuance costs of $213,469 |
| | | | | | | | | | 8,888,888 | 36,114 | | | | | | | |||||||||||||||||||||||||||||||||||||||
Allocation of Issuance Cost to Common Warrants |
| | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock warrants |
| | | | | | | | | | | | | | 3,647 | | | 3,647 | |||||||||||||||||||||||||||||||||||||||
Vesting of restricted common stock |
| | | | | | | | | | | | 7,688 | | 23 | | | 23 | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of options |
| | | | | | | | | | | | 41,714 | | 86 | | | 86 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | | | | | | | | | 1,125 | | | 1,125 | |||||||||||||||||||||||||||||||||||||||
Accretion of preferred stock to redemption value |
| 151 | | 915 | | 908 | | 2,332 | | 1,915 | | 1,114 | | | (4,881 | ) | (2,454 | ) | | (7,335 | ) | ||||||||||||||||||||||||||||||||||||
Currency translation adjustment |
| | | | | | | | | | | | | | | | (1,110 | ) | (1,110 | ) | |||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | | | | | (25,174 | ) | | (25,174 | ) | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2015 |
2,589,868 | $ | 3,644 | 7,437,325 | $ | 21,448 | 5,000,002 | $ | 20,178 | 8,099,994 | $ | 42,902 | 2,111,109 | $ | 12,082 | 8,888,888 | $ | 37,228 | 2,173,399 | $ | 0 | $ | 1 | $ | (111,508 | ) | $ | (4,986 | ) | $ | (116,493 | ) | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Vesting of restricted common stock |
| | | | | | | | | | | | 1,895 | | 5 | | | 5 | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of options |
| | | | | | | | | | | | 2,564 | | 2 | | | 2 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | | | | | | | | | | | 282 | | | 282 | |||||||||||||||||||||||||||||||||||||||
Accretion of preferred stock to redemption value |
| 38 | | 228 | | 226 | | 575 | | 459 | | 829 | | | (289 | ) | (2,067 | ) | | (2,356 | ) | ||||||||||||||||||||||||||||||||||||
Currency translation adjustment |
| | | | | | | | | | | | | | | | 231 | 231 | |||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | | | | | (7,476 | ) | | (7,476 | ) | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2016 (unaudited) |
2,589,868 | $ | 3,682 | 7,437,325 | $ | 21,676 | 5,000,002 | $ | 20,404 | 8,099,994 | $ | 43,477 | 2,111,109 | $ | 12,541 | 8,888,888 | $ | 38,057 | 2,177,858 | $ | 0 | $ | 1 | $ | (121,051 | ) | $ | (4,755 | ) | $ | (125,805 | ) | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes.
| | F-5 |
Selecta Biosciences, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Year ended December 31, |
Three months ended March 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2015
|
2016
|
|||||||||
|
|||||||||||||
|
|
|
(unaudited)
|
(unaudited)
|
|||||||||
|
(in thousands)
|
||||||||||||
Operating activities |
|||||||||||||
Net loss |
$ | (12,880 | ) | $ | (25,174 | ) | $ | (5,733 | ) | $ | (7,476 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: |
|||||||||||||
Depreciation |
864 | 1,044 | 193 | 178 | |||||||||
Stock-based compensation expense |
1,224 | 1,125 | 302 | 282 | |||||||||
Non-cash interest expense |
155 | 198 | 27 | 41 | |||||||||
Change in fair value of redeemable convertible preferred stock warrant |
38 | (83 | ) | | 20 | ||||||||
Changes in operating assets and liabilities: |
|||||||||||||
Accounts receivable |
(514 | ) | (153 | ) | 180 | (805 | ) | ||||||
Prepaid expenses and other assets |
(404 | ) | (1,011 | ) | (379 | ) | (35 | ) | |||||
Restricted cash and other deposits |
(1,779 | ) | 977 | 282 | (1,752 | ) | |||||||
Accounts payable |
(90 | ) | 667 | 975 | (424 | ) | |||||||
Deferred revenue |
(20 | ) | (507 | ) | (537 | ) | 386 | ||||||
Contingently repayable grant funding |
305 | (805 | ) | (426 | ) | | |||||||
Accrued expenses and other liabilities |
415 | 1,259 | 218 | (581 | ) | ||||||||
| | | | | | | | | | | | | |
Net cash used in operating activities |
(12,686 | ) | (22,463 | ) | (4,898 | ) | (10,166 | ) | |||||
Investing activities |
|||||||||||||
Purchase of short term government obligations |
| (3,516 | ) | | (3,412 | ) | |||||||
Purchases of property and equipment |
(227 | ) | (1,163 | ) | (123 | ) | (143 | ) | |||||
| | | | | | | | | | | | | |
Net cash provided by (used in) investing activities |
(227 | ) | (4,679 | ) | (123 | ) | (3,555 | ) | |||||
Financing activities |
|||||||||||||
Net proceeds from issuance of preferred stock and warrants |
20,140 | 32,669 | | | |||||||||
Proceeds from issuance convertible note, net of issuance costs |
| 7,092 | | | |||||||||
Principle payments on loan payable |
| (2,336 | ) | (227 | ) | | |||||||
Deferred IPO costs |
| (302 | ) | | (1,684 | ) | |||||||
Proceeds from loans payable, net of issuance costs |
4,494 | 6,674 | | | |||||||||
Issuance of common stock |
137 | 109 | 20 | 7 | |||||||||
| | | | | | | | | | | | | |
Net cash provided by financing activities |
24,771 | 43,906 | (207 | ) | (1,677 | ) | |||||||
| | | | | | | | | | | | | |
Effect of exchange rate changes on cash |
(3,323 | ) | (1,019 | ) | (230 | ) | 112 | ||||||
| | | | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents |
8,535 | 15,745 | (5,458 | ) | (15,286 | ) | |||||||
Cash and cash equivalents at beginning of period |
8,057 | 16,592 | 16,592 | 32,337 | |||||||||
| | | | | | | | | | | | | |
Cash and cash equivalents at end of period |
$ | 16,592 | $ | 32,337 | $ | 11,134 | $ | 17,051 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Cash paid during the year for: |
|||||||||||||
Interest |
$ | 366 | $ | 531 | $ | 150 | $ | 243 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Supplemental Noncash Financing Activities: |
|||||||||||||
Venture debt termination fee liability |
$ | 270 | $ | 270 | $ | | $ | | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Issuance of preferred warrants in connection with venture loans |
$ | 121 | $ | 137 | $ | | $ | | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Accrued dividends and accretion of preferred stock to redemption value |
$ | 4,951 | $ | 7,335 | 1,561 | 2,356 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Conversion of bridge loans into Series E preferred |
$ | | $ | 7,288 | $ | | $ | | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
See accompanying notes.
F-6 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
1. Nature of business and basis of presentation
Selecta Biosciences, Inc. (the "Company") was incorporated in Delaware on December 10, 2007, and is based in Watertown, Massachusetts. The Company is a biopharmaceutical company dedicated to developing nanoparticle immunomodulatory drugs for the treatment and prevention of human diseases. Since inception, the Company has devoted its efforts principally to research and development of its technology and product candidates, recruiting management and technical staff, acquiring operating assets, and raising capital.
The Company is subject to a number of risks similar to other early life science companies including, but not limited to, raising additional capital, development by its competitors of new technological innovations, protection of proprietary technology, and market acceptance of its products.
Unless otherwise indicated, all amounts are in millions except share and per share amounts.
Basis of presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The consolidated financial statements and accompanying notes are stated in U.S. dollars. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification ("ASC") and Accounting Standards Updates ("ASU") of the Financial Accounting Standards Board ("FASB").
The accompanying unaudited consolidated financial statements and the related notes as of March 31, 2016 and for the three months ended March 31, 2015 and 2016 are condensed and are prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements and should be read in conjunction with the Company's audited financial statements for the years ended December 31, 2014 and 2015. In the opinion of management, the Company has prepared the accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2015 and 2016 on the same basis as its audited financial statements, and these condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2016 or any future years or periods.
Liquidity
The Company has incurred losses since inception and negative cash flows from operating activities. As of December 31, 2015 and March 31, 2016, the Company had an accumulated deficit of $111.5 million and $121.1 million, respectively. The Company has financed its operations to date through issuances of redeemable convertible preferred stock (collectively, "Preferred Stock"), debt, research grants and a research collaboration. During the year ended December 31, 2015, the Company raised an additional $39.8 million, net of issuance costs, through the issuance of convertible notes (Note 8) and Series E redeemable convertible preferred stock ("Series E Preferred") (Note 9) and $6.8 million through the issuance of additional venture debt ("Debt") (Note 8). The Company's cash and cash equivalents as of December 31, 2015 and March 31, 2016 included $3.0 million and
| | F-7 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
$1.5 million, respectively, of unrestricted cash held by its Russian subsidiary. The future success of the Company is dependent upon its ability to obtain additional capital through issuances of equity and debt securities and from collaboration and grant agreements in order to further the development of its technology and product candidates, and ultimately upon its ability to attain profitable operations. There can be no assurance that the Company will be able to obtain the necessary financing to successfully develop and market its product candidates or attain profitability.
These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company intends to pursue a private offering of equity securities or a public offering of its common stock to fund future operations. However, if the Company is unable to complete a sufficient private or public offering in a timely manner, it would need to pursue other financing alternatives. There can be no assurances that the current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all.
Unaudited pro forma financial information
The unaudited pro forma consolidated balance sheet information at March 31, 2016 has been prepared to reflect the automatic conversion of all shares of Preferred Stock outstanding at March 31, 2016 into 9,890,580 shares of common stock and cashless exercise of warrants for the purchase of 567,306 shares of common stock as if a proposed initial public offering had occurred on March 31, 2016. For purposes of pro forma basic and diluted net loss per share attributable to common stockholders, all shares of Preferred Stock and those warrants which will automatically be converted or exercised upon the filing of a registration statement on Form S-1 or closing of an initial public offering, and the preferred stock warrants which will convert into common stock warrants upon the closing of an initial public offering, have been treated as if they have been converted or exercised at the beginning of the period or on the issuance date, if later. Accordingly, the pro forma basic and diluted loss per share attributable to common stockholders do not include the effects of the accretion of Preferred Stock to redemption value and accrued dividends, or the change in fair value of redeemable convertible preferred stock warrants.
2. Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Selecta (RUS), LLC ("Selecta RUS"), a Russian limited liability corporation, and Selecta Biosciences Security Corporation, a Massachusetts Security Corporation. All significant intercompany accounts and transactions have been eliminated.
Foreign currency
The functional currency of Selecta RUS is the ruble. Assets and liabilities of Select RUS are translated at period-end exchange rates, while revenues and expenses are translated at average exchange rates for the period. Translation gains and losses are reflected in accumulated other comprehensive loss within stockholders' deficit. Foreign currency transaction gains or losses are reflected in the consolidated statements of operations and comprehensive loss.
F-8 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company's management considers many factors in selecting appropriate financial accounting policies and controls, and bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. In preparing these consolidated financial statements, management used significant estimates in the following areas, among others: revenue recognition, the fair value of common stock and other equity instruments, accounting for stock-based compensation, income taxes, collectability of accounts receivable, useful lives of long-lived assets, accrued expenses, and accounting for project development. The Company assesses the above estimates on an ongoing basis; however, actual results could materially differ from those estimates.
The Company's management makes significant estimates and assumptions in determining the fair value of its common stock. The Company utilizes various valuation methodologies in accordance with the framework of the 2004 American Institute of Certified Public Accountants' Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. Each valuation methodology includes estimates and assumptions that require the Company's judgment. These estimates and assumptions include a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector, the prices at which the Company sold shares of preferred stock, the superior rights and preferences of securities senior to the Company's common stock at the time and the likelihood of achieving a liquidity event, such as an initial public offering or sale. Significant changes to the key assumptions used in the valuations could result in different fair values of common stock at each valuation date.
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, the Company's Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment, the research and development of nanoparticle immunomodulatory drugs for the treatment and prevention of human diseases.
Cash equivalents and short term investments
Cash equivalents include all highly liquid investments maturing within 90 days from the date of purchase. Investments consist of securities with remaining maturities greater than 90 days when purchased. The Company classifies these investments as available-for-sale and records them at fair value in the accompanying consolidated balance sheets. Unrealized gains or losses are included in accumulated other comprehensive income (loss). Premiums or discounts from par value are amortized to investment income over the life of the underlying investment.
| | F-9 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
Although available to be sold to meet operating needs or otherwise, securities are generally held through maturity. The cost of securities sold is determined based on the specific identification method for purposes of recording realized gains and losses. During 2015, there were no realized gains or losses on sales of investments, and no investments were adjusted for other than temporary declines in fair value.
Concentrations of credit risk and off-balance sheet risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash, cash equivalents, and accounts receivable. Cash and cash equivalents are deposited with federally insured financial institutions in the U.S. and may, at times, exceed federally insured limits. Management believes that the financial institutions that hold the Company's deposits are financially credit worthy and, accordingly, minimal risk exists with respect to those balances. Generally, these deposits may be redeemed upon demand and therefore bear minimal interest rate risk. As an integral part of operating our Russia subsidiary, we also maintain cash in Russian bank accounts in denominations of both rubles and U.S. dollars. As of March 31, 2016, we maintained approximately $4.2 million in Russian bank accounts, of which $3.0 million was held in U.S. dollars.
The Company has minimal credit risk as the majority of accounts receivable relates to amounts due under a government sponsored grant, collaboration with large pharmaceutical companies or grants from well-known and supported non-profit organizations. The Company did not have any off balance sheet arrangements as of December 31, 2014 and 2015 and March 31, 2016.
Fair value of financial instruments
The Company's financial instruments consist mainly of cash equivalents, short-term investments, restricted cash, accounts receivable, accounts payable, loans payable, common stock warrants, and redeemable convertible preferred stock warrants. The carrying amounts of cash equivalents, short term investments, restricted cash, accounts receivable, and accounts payable approximate their estimated fair value due to their short term maturities. The carrying amount of loans payable approximates their estimated fair value due to the consistency between the prevailing market rates in effect and the effective interest rate of 12.4% for the debt arrangement.
Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy is used to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements), and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.
F-10 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
Level 3Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity for the asset or liability at the measurement date.
To the extent that a valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. As of December 31, 2014 and 2015, and at March 31, 2016, the Company's Preferred Stock Warrants were the only financial instruments classified as Level 3.
Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company's own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may change for many instruments. This condition could cause an instrument to be reclassified within levels in the fair value hierarchy. There were no transfers within the fair value hierarchy during the years ended December 31, 2014 and 2015, and the three months ended March 31, 2016.
Property and equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets, generally seven years for furniture, five years for equipment and three years for computer and office equipment. Leasehold improvements are amortized over their useful life or the life of the lease, whichever is shorter. Major additions and betterments are capitalized. Maintenance and repairs, which do not improve or extend the life of the respective assets, are charged to operations as incurred. Costs incurred for construction in progress are recorded as assets and are not amortized until the construction is substantially complete and the assets are ready for their intended use.
Impairment of long-lived assets
The Company periodically evaluates its long-lived assets for potential impairment. Impairment is assessed when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. Recoverability of these assets is assessed based on undiscounted expected future cash flows from the assets, considering a number of factors, including past operating results, budgets and economic projections, market trends, and product development cycles. Impairment in the carrying value of each asset is assessed when the undiscounted expected future cash flows derived from the asset are less than their carrying value. The Company did not recognize any impairment charges through March 31, 2016.
| | F-11 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
Debt issuance costs
Debt issuance costs and fees paid to lenders are recorded as a direct deduction from the face amount of the related debt. Debt issuance costs are accounted for as additional debt discount and are amortized over the term of the related debt using the interest method and recorded as interest expense. Costs and fees paid to third parties are expensed as incurred.
Revenue recognition
The Company's revenue is primarily generated from research grants in both the United States and Russia, and a license and research collaboration agreement with Sanofi. The Company recognizes revenue in accordance with ASC Topic 605, Revenue Recognition. Accordingly, revenue is recognized when all of the following criteria are met:
Amounts received prior to satisfying the revenue recognition criteria are recognized as deferred revenue in the Company's consolidated balance sheets. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, current portion. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
Collaboration revenue
When evaluating multiple element arrangements such as the agreement with Sanofi discussed in Note 12, the Company considers whether the deliverables under the arrangement represent separate units of accounting. This evaluation requires subjective determinations and requires management to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. In determining the units of accounting, management evaluates certain criteria, including whether the deliverables have standalone value, based on the consideration of the relevant facts and circumstances for each arrangement. The consideration received is allocated among the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria are applied to each of the separate units.
The Company determines the estimated selling price for deliverables within each agreement using vendor-specific objective evidence ("VSOE") of selling price, if available, third-party evidence ("TPE") of selling price if VSOE is not available, or best estimate of selling price if neither VSOE nor TPE is available. Determining the best estimate of selling price for a deliverable requires significant judgment. The Company has used its best estimate of selling price to estimate the selling price for licenses to the Company's proprietary technology, since the Company does not have VSOE or TPE of selling price for these deliverables. In those circumstances, the Company considers market conditions as well as entity-specific factors, including those factors contemplated in negotiating the agreements, estimated
F-12 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
development costs, probability of success and the time needed to commercialize a product candidate pursuant to the license. In validating the Company's best estimate of selling price, the Company evaluates whether changes in the key assumptions used to determine the best estimate of selling price will have a significant effect on the allocation of arrangement consideration between multiple deliverables.
The Company may receive upfront payments when licensing its intellectual property in conjunction with a research and development agreement. When management believes the license to its intellectual property does not have stand-alone value from the other deliverables to be provided in the arrangement, the Company generally recognizes revenue attributed to the license over the Company's contractual or estimated performance period. When management believes the license to its intellectual property has stand-alone value, the Company generally recognizes revenue attributed to the license upon delivery. The periods over which revenue should be recognized are subject to estimates by management and may change over the course of the research and development agreement. Such a change could have a material impact on the amount of revenue the Company records in future periods. Payments or reimbursements resulting from the Company's research and development efforts are recognized as the services are performed.
At the inception of each agreement that includes milestone payments, the Company evaluates whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone, specifically reviewing factors such as the scientific and other risks that must be overcome to achieve the milestone, as well as the level of effort and investment required. Revenues from milestones, if they are nonrefundable and deemed substantive, are recognized upon successful accomplishment of the milestones. Milestones that are not considered substantive are accounted for as license payments and recognized over the remaining period of performance.
Grant agreements
Grant revenue is generally recognized as the related research and development work is performed. Grant arrangements frequently include payment milestones which the Company has judged to be non-substantive milestones as they are typically entitled to receive payment regardless of the outcome of the research work. Revenue under such arrangements is recognized using a proportional performance method, but not in excess of cash actually received.
Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated balance sheets.
Research and development costs
Costs incurred in the research and development of the Company's products are expensed as incurred. Research and development expenses include costs incurred in performing research and development activities, including salaries and benefits, facilities cost, overhead costs, contract services, supplies and other outside costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
| | F-13 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
Clinical trial costs
Clinical trial costs are a component of research and development expenses. The Company accrues and expenses clinical trial activities performed by third parties based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activation, and other information provided to the Company by its vendors.
Income taxes
The Company provides deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the Company's financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax assets to the amount that will more-likely-than-not be realized.
The Company determines whether it is more likely than not that a tax position will be sustained upon examination. If it is not more likely than not that a position will be sustained, none of the benefit attributable to the position is recognized. The tax benefit to be recognized for any tax position that meets the more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income taxes. To date, the Company has not incurred interest and penalties related to uncertain tax positions. Should such costs be incurred, they would be classified as a component of income tax expense.
Preferred stock
The Company classifies Preferred Stock as temporary equity and initially records it at the original issuance price, net of issuance costs and discounts. The carrying value is accreted up to the redemption value over the earliest redemption period. The carrying value is also adjusted for dividends expected to be paid upon redemption or liquidation according to the preferred stock terms on each balance sheet date.
Warrants
The Company issues common stock warrants and redeemable convertible preferred stock warrants to investors and lenders. Common stock warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from other debt and equity instruments, are contingently exercisable, do not embody an obligation for the Company to repurchase its own shares, and permit the holders to receive a fixed number of common shares upon exercise. In addition, such warrants require physical settlement and do not provide any guarantee of value or return. Common stock warrants are initially recorded at their issuance date fair value and are not subsequently re-measured. These warrants are valued using the Black-Scholes option pricing model ("Black-Scholes").
Redeemable convertible preferred stock warrants are classified as a liability and are initially recorded at their fair value and re-measured on each subsequent balance sheet date while the warrants are
F-14 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
outstanding. Changes in fair value are recorded in interest expense, net in the accompanying consolidated statements of operations and comprehensive loss. The redeemable convertible warrants are valued using Black-Scholes.
Stock-based compensation
The Company accounts for all stock-based compensation granted to employees and non-employees using a fair value method. Stock-based compensation awarded to employees is measured at the grant date fair value of stock option grants and is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of estimated forfeitures. Stock-based compensation awarded to non-employees are subject to revaluation over their vesting terms. The Company reduces recorded stock-based compensation for estimated forfeitures. To the extent that actual forfeitures differ from the Company's estimates, the differences are recorded as a cumulative adjustment in the period the estimates were adjusted. Stock-based compensation expense recognized in the financial statements is based on awards that are ultimately expected to vest.
Comprehensive loss
Comprehensive loss is defined as the change in the equity of a business entity during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive loss consists of both: (i) all components of net loss and (ii) all components of comprehensive loss other than net loss, referred to as other comprehensive loss. For all periods presented, other comprehensive loss is comprised solely of foreign currency translation adjustments.
Net loss per share
Because the outstanding preferred stock is considered a participating security, the Company utilizes the "two-class" method of computing earnings per share. Under the "two-class" method, in periods in which the Company would report income from continuing operations, such income would be reduced by any dividends directly attributable to the preferred stock and the remainder would then be allocated between the preferred stock and the common stock based on their proportionate as converted interest. Net losses are not allocated to preferred stockholders as they do not have an obligation to share in the Company's net losses.
| | F-15 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
The Company has reported losses since inception and has computed basic net loss per share attributable to common stockholders by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. The Company has computed diluted net loss per common share after giving consideration to all potentially dilutive common shares, including stock options, convertible preferred stock, and warrants outstanding during the period except where the effect of including such securities would be antidilutive. Because the Company has reported net losses since inception, these potential common shares have been anti-dilutive and basic and diluted loss per share have been the same.
Deferred rent
Rent expense and lease incentives from operating leases are recognized on a straight-line basis over the lease term. The difference between rent expense recognized and rental payments is recorded as deferred rent in the accompanying consolidated balance sheets.
Contingent liabilities
The Company accounts for its contingent liabilities in accordance with ASC No. 450, Contingencies. A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. As of December 31, 2014 and 2015, and at March 31, 2016, the Company was not a party to any ligation that could have a material adverse effect on the Company's business, financial position, results of operations or cash flows.
Deferred issuance costs
Direct and incremental legal and accounting costs associated with the Company's proposed initial public offering totaled approximately $2.5 million through March 31, 2016. Such costs are recorded as Other assets on the Consolidated Balance Sheet and will be used as an offset against the proceeds received in the offering. If the proposed initial public offering were no longer probable of occurring, the deferred costs would be expensed at that time.
Guarantees and indemnifications
As permitted under Delaware law, the Company indemnifies its officers, directors, consultants and employees for certain events or occurrences that happen by reason of the relationship with, or position held at, the Company. Through March 31, 2016, the Company had not experienced any losses related to these indemnification obligations, and no claims were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.
Recent accounting pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which amends the guidance for revenue recognition to replace numerous industry-
F-16 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
specific requirements. ASU 2014-09 implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. ASU 2014-09 also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in ASU 2014-09 are effective for reporting periods beginning after December 15, 2017. Early adoption is permitted, but not before December 15, 2016. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is currently in the process of evaluating the effect the adoption of ASU 2014-09 may have on its financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern ("ASU 2014-15"). ASU 2014-15 requires management to assess an entity's ability to continue as a going concern and to provide related disclosures in certain circumstances. The requirement of ASU 2014-15 will be effective for the annual financial statement period beginning after December 15, 2016, with early adoption permitted. The Company is currently in the process of evaluating the impact of adopting ASU 2014-15.
In February 2016, FASB issued ASU No.2016-02, Leases ("ASU 2016-02"). ASU 2016-02 requires a lessee to separate the lease components from the non-lease components in a contract and recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. It also aligns lease accounting for lessors with the revenue recognition guidance in ASU 2014-09. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is to be applied at the beginning of the earliest period presented using a modified retrospective approach.
3. Net loss per share
Because the Company has reported a net loss attributable to common stockholders for all periods presented, basic and diluted net loss per share attributable to common stockholders are the same for those periods. All Preferred Stock, common stock warrants, Preferred Stock warrants, and stock options have been excluded from the computation of diluted weighted average shares outstanding because such securities would have an antidilutive impact.
| | F-17 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
The following table sets forth the computation of basic and diluted net loss per share and has been retrospectively adjusted to reflect the effect of a reverse common stock split effected in June 2016 (in thousands, except share and per-share data):
|
Year ended December 31, |
Three months ended March 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2015
|
2016
|
|||||||||
|
|
|
(unaudited) |
||||||||||
Numerator: |
|||||||||||||
Net (loss) |
$ | (12,880 | ) | $ | (25,174 | ) | $ | (5,733 | ) | $ | (7,476 | ) | |
Less: accretion on preferred stock |
(4,951 | ) | (7,335 | ) | (1,561 | ) | (2,356 | ) | |||||
Net effect of extinguishment of preferred stock |
1,459 | | | | |||||||||
| | | | | | | | | | | | | |
Net loss attributable to common stockholders |
$ | (16,372 | ) | $ | (32,509 | ) | $ | (7,294 | ) | $ | (9,832 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Denominator: |
|||||||||||||
Weighted-average common shares outstandingbasic and diluted |
2,090,677 | 2,150,422 | 2,126,878 | 2,175,037 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net loss per share attributable to common stockholdersbasic and diluted |
$ | (7.84 | ) | $ | (15.13 | ) | $ | (3.43 | ) | $ | (4.52 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Potential common shares issuable upon conversion of Preferred Stock, warrants to purchase common or Preferred Stock, and stock options that are excluded from the computation of diluted weighted average shares outstanding are as follows:
|
Year ended December 31, |
Three months ended March 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2015
|
2016
|
|||||||||
|
|
|
(unaudited) |
||||||||||
Redeemable convertible preferred stock |
6,471,358 | 9,890,580 | 6,471,358 | 9,890,580 | |||||||||
Stock options to purchase common stock |
1,143,237 | 1,569,379 | 1,247,562 | 1,736,682 | |||||||||
Stock warrants to purchase common stock |
| 650,618 | | 650,618 | |||||||||
Redeemable convertible preferred stock warrants |
17,094 | 26,832 | 17,094 | 26,832 | |||||||||
| | | | | | | | | | | | | |
Total |
7,631,689 | 12,137,409 | 7,736,014 | 12,304,712 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The unaudited pro forma basic and diluted net loss per share attributable to common stockholders for the year ended December 31, 2015, and the three months ended March 31, 2016, has been computed using the weighted average common shares outstanding after giving pro forma effect to the automatic conversion of all shares of Preferred Stock into shares of common stock, the automatic conversion of all Preferred Stock warrants into common stock warrants, and the automatic net exercise of warrants to purchase common stock upon the filing of a registration statement on Form S-1 as if such conversions or exercises had occurred at the beginning of 2015 or the date of original issuance, if later.
F-18 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
The following table sets forth the computation of the pro forma net loss per share (in thousands, except share and per share data):
|
Year ended December 31, |
Three months ended March 31, |
|||||
---|---|---|---|---|---|---|---|
|
2015
|
2016
|
|||||
|
(unaudited) |
(unaudited) |
|||||
Numerator: |
|||||||
Net loss attributable to common stockholders |
$ | (32,509 | ) | $ | (9,832 | ) | |
Less: accrued dividends and accretion on preferred stock |
7,335 | 2,356 | |||||
Change in fair value of preferred stock warrants |
(83 | ) | 20 | ||||
| | | | | | | |
Net loss attributable to common stockholders |
$ | (25,257 | ) | $ | (7,456 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Denominator: |
|||||||
Weighted-average common shares outstandingbasic and diluted |
2,150,472 | 2,175,037 | |||||
Adjustment for assumed conversion of preferred stock |
7,637,239 | 9,890,580 | |||||
Adjustment for assumed effect of cashless conversion of common stock warrants issued with Series E preferred stock |
192,809 | 567,306 | |||||
| | | | | | | |
|
9,980,469 | 12,632,923 | |||||
| | | | | | | |
Net loss per share attributable to common stockholdersbasic and diluted |
$ | (2.53 | ) | $ | (0.59 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
4. Fair Value Measurements
The tables below present information about the Company's financial assets and liabilities that are measured and carried at fair value as of December 31, 2014 and 2015 (in thousands) and indicate the level within the fair value hierarchy where each measurement is classified.
|
December 31, 2014 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(level 1)
|
(level 2)
|
(level 3)
|
Total
|
|||||||||
Warrants to purchase redeemable convertible preferred stock, included in other long term liabilities |
$ | | $ | | $ | 236 | $ | 236 | |||||
| | | | | | | | | | | | | |
|
December 31, 2015 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(level 1)
|
(level 2)
|
(level 3)
|
Total
|
|||||||||
US Treasury obligations, included in cash equivalents |
$ | 14,486 | $ | | $ | | $ | 14,486 | |||||
US Treasury obligations, included in investments |
$ | 3,516 | $ | | $ | | $ | 3,516 | |||||
Warrants to purchase redeemable convertible preferred stock, included in other long term liabilities |
$ | | $ | | $ | 290 | $ | 290 | |||||
| | | | | | | | | | | | | |
| | F-19 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
|
Three months ended March 31, 2016 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(level 1)
|
(level 2)
|
(level 3)
|
Total
|
|||||||||
|
(unaudited) |
||||||||||||
US Treasury obligations, included in cash equivalents |
$ | 8 | $ | | $ | | $ | 8 | |||||
US Treasury obligations, included in investments |
$ | 6,928 | $ | | $ | | $ | 6,928 | |||||
Warrants to purchase redeemable convertible preferred stock, included in other long term liabilities |
$ | | $ | | $ | 310 | $ | 310 | |||||
| | | | | | | | | | | | | |
The maturity date for US Treasury obligations, included in cash equivalents at December 31, 2015 was 34 days and for those included within investments at December 31, 2015 and for the three months ended March 31, 2016 was 106 days and between 15 and 45 days, respectively. Fair value of US Treasury obligations approximates amortized value.
In July 2015, the Company issued warrants for the purchase of 80,813 shares of common stock at an exercise price of $17.55 in connection with the issuance of convertible notes. These warrants expire three years from date of issuance. In August 2015, the Company issued warrants for the purchase of 569,791 shares of common stock at an exercise price of $0.04 in connection with the issuance of the Series E Preferred. Common stock warrants are classified as permanent equity which are initially recorded at issuance date fair value and are not subsequently re-measured. The warrants to purchase common stock issued at the same time as the Series E Preferred will automatically exercise on a cashless basis upon the filing of a registration statement on Form S-1. These warrants expire four years from date of issuance.
In August 2013 and July 2014, in conjunction with the execution of a loan and security agreement (Note 8), the Company issued warrants to the lenders for the purchase of up to 66,668 shares of the Company's Series D redeemable convertible preferred stock ("Series D Preferred") at an exercise price of $4.50 per share. These warrants are classified as liabilities in the accompanying consolidated balance sheets. These warrants expire four years from the date of issuance.
In December 2015, in conjunction with the execution of a loan and security agreement (Note 8), the Company issued warrants to the lenders for the purchase of up to 37,978 shares of the Company's Series E Preferred at an exercise price of $4.50 per share. These warrants are classified as liabilities in the accompanying consolidated balance sheets. These warrants expire four years from the date of issuance.
F-20 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
The following table sets forth a summary of the activities of the Company's Series D and Series E Preferred stock warrant liability which represents a recurring measurement that is classified within Level 3 of the fair value hierarchy wherein fair value is estimated using significant unobservable inputs:
|
Year ended December 31, 2014 |
Year ended December 31, 2015 |
Three months ended March 31, 2016 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
|
|
(unaudited) |
|||||||
Balance at beginning of period |
$ | 77 | $ | 236 | $ | 290 | ||||
Fair value of additional warrants issued |
121 | 137 | | |||||||
Change in fair value |
38 | (83 | ) | 20 | ||||||
| | | | | | | | | | |
Balance at end of period |
$ | 236 | $ | 290 | $ | 310 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The fair value of the warrants to purchase shares of the Company's Series D Preferred at an exercise price of $4.50 per share was estimated using Black-Scholes with the following assumptions as of December 31, 2014 and 2015 and at March 31, 2016:
|
December 31, 2014 |
December 31, 2015 |
March 31, 2016 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
|
|
|
(unaudited) |
|||||||
Risk free interest rate |
2.10 | % | 2.15 | % | 1.61 | % | ||||
Expected dividend yield |
| | | |||||||
Expected term (in years) |
9.20 | 8.18 | 7.93 | |||||||
Expected volatility |
92.53 | % | 85.83 | % | 85.26 | % | ||||
Fair value of underlying instrument |
$ | 4.18 | $ | 3.05 | $ | 3.29 |
The fair value of the warrants to purchase shares of the Company's Series E Preferred at an exercise price of $4.50 per share was estimated using Black-Scholes with the following assumptions as of December 31, 2015 and at March 31, 2016:
|
December 31, 2015 |
March 31, 2016 |
|||||
---|---|---|---|---|---|---|---|
|
|
(unaudited) |
|||||
Risk free interest rate |
2.26 | % | 1.75 | % | |||
Expected dividend yield |
| | |||||
Expected term (in years) |
10.00 | 9.75 | |||||
Expected volatility |
82.22 | % | 82.66 | % | |||
Fair value of underlying instrument |
$ | 4.37 | $ | 4.67 |
The risk-free interest rate used is the rate for a U.S. Treasury zero coupon issue with a term consistent with the remaining contractual term of the associated award on the date of measurement. The Company has not paid, and does not expect to pay, any cash dividends in the foreseeable future. The Company based the expected term assumption on the actual remaining contractual term of the respective warrants as of the date of measurement. Expected volatilities are based on historical
| | F-21 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
volatilities from guideline companies, since there is no active market for the Company's common stock. The fair value on the date of measurement of the Series D Preferred and the Series E Preferred, the underlying instruments, was estimated by management with the assistance of a third party valuation specialist.
5. Property and equipment
Property and equipment consists of the following (in thousands):
|
December 31, | March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2016
|
|||||||
|
|
|
(unaudited) |
|||||||
Laboratory equipment |
$ | 3,314 | $ | 4,028 | $ | 4,337 | ||||
Computer equipment and software |
365 | 409 | 421 | |||||||
Leasehold improvements |
911 | 91 | 120 | |||||||
Furniture and fixtures |
115 | 222 | 222 | |||||||
Office equipment |
56 | 62 | 62 | |||||||
P,P&EConstruction in process |
| 144 | 7 | |||||||
| | | | | | | | | | |
Total property and equipment |
4,761 | 4,956 | 5,169 | |||||||
Less accumulated depreciation |
(2,778 | ) | (2,927 | ) | (3,129 | ) | ||||
| | | | | | | | | | |
Property and equipment, net |
$ | 1,983 | $ | 2,029 | $ | 2,040 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Depreciation expense for the years ended December 31, 2014 and 2015 was $0.9 million and $1.0 million, respectively, and $0.2 million for the three months ended March 31, 2015 and 2016.
6. Accrued expenses
Accrued expenses consist of the following (in thousands):
|
December 31, | March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2016
|
|||||||
|
|
|
(unaudited) |
|||||||
Payroll |
$ | 189 | $ | | $ | 98 | ||||
Legal |
| 213 | 119 | |||||||
Bonus |
515 | 669 | 150 | |||||||
Current portion of deferred rent and lease incentive |
219 | 405 | 416 | |||||||
Accrued patent fees |
155 | 219 | 285 | |||||||
Accrued R&D costs |
394 | 1,649 | 1,090 | |||||||
Other |
381 | 223 | 1,027 | |||||||
| | | | | | | | | | |
Accrued liabilities |
$ | 1,853 | $ | 3,378 | $ | 3,185 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-22 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
7. Commitments and contingencies
Operating leases
The Company has a non-cancellable operating lease for its laboratory and office space that expires in March 2017. The lease agreement includes a rent escalation clause, and accordingly, rent expense is being recognized on a straight-line basis over the lease term. In addition, as part of the lease agreement, the landlord provided the Company a tenant improvement allowance of up to $0.7 million, which the Company fully utilized during 2012. The tenant improvement allowance is accounted for as a lease incentive obligation and is being amortized as a reduction to rent expense over the lease term. The leasehold improvements are capitalized as a component of property and equipment.
In connection with the lease, the Company secured a letter of credit for $0.3 million which renews automatically each year and is classified in restricted cash and other deposits in the accompanying consolidated balance sheets.
In April 2015, the Company amended the lease agreement to exchange 13,711 square feet of space for another 15,174 square feet of space within the same building. Rental payments on the prior space ceased as of March 31, 2015 and rental payments on the new space began on October 1, 2015. The combined lease term remains unchanged and will expire in March 2017. Rent expense is recorded over the lease term on a straight-line basis.
Deferred rent and lease incentive liability totaled $0.5 million and $0.5 million as of December 31, 2014 and 2015, respectively, and $0.4 million at March 31, 2016. Included in that amount, the current portion of deferred rent and lease incentive liability is classified as accrued expenses and was $0.2 million and $0.4 million at December 31, 2014 and 2015, respectively, and $0.4 million at March 31, 2016.
The Company subleased a portion of its facility to a tenant with a term that expires in March 2017. In March 2015, the tenant terminated the sublease and vacated the space. The sublease amount from the tenant was recorded as a reduction of lease expense and totaled $0.7 million and $0.2 million for the years ended December 31, 2014 and 2015, respectively, and $0.2 million for the three months ended March 31, 2016.
The Company has a month-to-month facility agreement for its Moscow, Russia facility. Rent expense is recognized as incurred.
Rent expense, net of sublease payments, for the years ended December 31, 2014 and 2015 was $0.6 million and $1.1 million, respectively, and for the three months ended March 31, 2015 and 2016 was $0.2 million and $0.4 million, respectively. As of December 31, 2015, future minimum lease payments for non-cancellable leases were $1.2 million in 2016, and $0.3 million in 2017.
Other
As permitted under Delaware law, the Company indemnifies its directors for certain events or occurrences while the director is, or was, serving at the Company's request in such capacity. The term of the indemnification is for the director's lifetime. The maximum potential amount of future payments the Company could be required to make is unlimited; however, the Company has directors' insurance
| | F-23 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
coverage that limits its exposure and enables it to recover a portion of any future amounts paid. The Company also has indemnification arrangements under certain of its facility leases that require it to indemnify the landlord against certain costs, expenses, fines, suits, claims, demands, liabilities, and actions directly resulting from certain breaches, violations, or non-performance of any covenant or condition of the Company's lease. The term of the indemnification is for the term of the related lease agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. To date, the Company had not experienced any material losses related to any of its indemnification obligations, and no material claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and, accordingly, has concluded that the fair value of these obligations is negligible, and no related reserves have been established.
The Company is a party in various other contractual disputes and potential claims arising in the ordinary course of business. The Company does not believe that the resolution of these matters will have a material adverse effect on its financial position or results of operations.
8. Debt
Term loans
On August 9, 2013, the Company entered into a loan and security agreement with two lenders to borrow up to $7.5 million. The Company initially borrowed $3.0 million in August 2013 and subsequently borrowed an additional $4.5 million in July 2014. The amounts borrowed are collectively referred to as "Term Loans." In December 2015, the Company refinanced its existing debt facility that was originally entered into on August 9, 2013, as amended with Oxford Finance LLC ("Oxford") and Square 1 Bank ("Square 1"), to increase the amount of the borrowing to $12.0 million and to extend the repayment term. The lenders for the refinanced debt facility are Oxford and Pacific Western Bank ("Pacific Western.") Pacific Western had acquired Square 1 since the time of the original loan. Such a change in lender does not constitute third party financing and, on its own, would not require extinguishment accounting. As a result of the refinancing, the stated interest rate was also adjusted to reflect the current market borrowing rate. As of December 31, 2015 and March 31, 2016, the outstanding principal balance under the Term Loans was $12.0 million.
According to ASC 470-50-40, the refinancing and modification of the prior debt in a non-troubled debt situation must be treated as either an extinguishment or a modification based on whether the present value of the cash flows under the terms of the new debt instrument is different by greater than, or less than, 10% from the present value of the remaining cash flows under the terms of the original instrument. For cash flow changes greater than 10%, the debt modification is accounted for as a debt extinguishment, whereby the original debt is derecognized and the new debt is initially recorded at fair value, with the difference recognized as an extinguishment gain or loss. For cash flow changes of less than 10%, the new loan is considered a modification and no gain or loss is recognized. In considering all cash flow changes, the Company concluded that the refinancing of the debt as of December 31, 2015 is a modification of the debt and not a debt extinguishment, and as a result the debt is initially recorded at its amortizable value net of discounts and deferred costs.
F-24 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
The Term Loans are collateralized by the assets of the Company and bear interest at 8.1% per annum. The monthly payments for the Term Loans are initially interest only through January 2017. Principal repayments for the Term Loans are due over 30 monthly installments beginning on February 1, 2017. The Term Loans may be prepaid at the Company's option at any time prior to maturity subject to a prepayment fee of 3% if prepaid prior to the first anniversary of the borrowing date, 2% if prepaid after the first anniversary but before the second anniversaries, and 1% if prepaid after the second anniversary.
The Term Loans do not include any financial covenants. The Term Loans require a final payment fee of 6.0% on the aggregate principal amounts borrowed upon repayment at maturity, on a prepayment date, or upon default. The final payment fee totaling $0.7 million is recorded as a loan discount. In addition, the Term Loans contain a subjective acceleration clause whereby in an event of default, an immediate acceleration of repayment occurs if there is a material impairment of the lenders' lien or the value of the collateral, a material adverse change in the business condition or operations, or a material uncertainty exists that any portion of the loan may not be repaid. To date, there have been no such events and the lender has not exercised its right under this clause. As a result, the Company concluded that a material adverse change has not occurred and is unlikely to occur, therefore, no liability has been recorded in connection with the clause.
In connection with the Term Loans, the Company granted the lenders warrants in August 2013 to purchase up to 26,668 shares of the Company's Series D Preferred and additional warrants in July 2014 to purchase up to 40,000 shares of the Company's Series D Preferred. Additionally, with the refinancing of the Term Loans at December 31, 2015, the Company granted the lenders 37,978 shares of the Company's Series E Preferred. The initial grant date fair value of the warrants of $0.1 million, $0.1 million and $0.1 million respectively, was recorded as a loan discount.
Term Loan discounts are amortized as additional interest expense over the term of the loans. Interest expense for the years ended December 31, 2014 and 2015 totaled $0.6 million and $0.6 million, respectively, and $0.2 million and $0.3 million for the three months ended March 31, 2015 and 2016, respectively.
| | F-25 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
Future minimum payments on the Term Loans as of December 31, 2015 are as follows (in thousands):
Year ended December 31: |
||||
2016 |
$ | 972 | ||
2017 |
5,319 | |||
2018 |
5,318 | |||
2019 |
3,379 | |||
| | | | |
Total debt payments |
14,988 | |||
Less: Amount representing interest |
(2,268 | ) | ||
Less: Debt discount and deferred charges |
(919 | ) | ||
Less: Current portion of issuance costs |
54 | |||
| | | | |
Loans payable, net of current portion |
$ | 11,855 | ||
| | | | |
| | | | |
| | | | |
Convertible notes
In April 2015, the Company issued convertible notes as a bridge loan to be automatically converted into the Company's capital stock upon the consummation of a private placement of the Company's Preferred Stock. The convertible notes bore interest at 8% per annum, compounding monthly. In the event the Company was unable to consummate the private placement by July 15, 2015, the Company would be required to issue warrants to purchase shares of the Company's common stock equal to 20% of the convertible note principal divided by $17.55. On July 24, 2015, the Company issued warrants to the convertible note holders to purchase up to 80,813 shares of the Company's common stock at an exercise price of $17.55 per share for a term of three years. The carrying value and accrued interest of the outstanding convertible notes were automatically converted into 1,619,550 shares of Series E Preferred. As part of the Series E Preferred issuance, the convertible note holders also received warrants to purchase up to 103,817 shares of the Company's common stock (Note 9). The difference between the carrying value and accrued interest of the convertible notes that were converted and the combined fair value of the Series E Preferred shares and common stock warrants issued were negligible. Interest expense incurred on the convertible notes totaled $0.3 million for the year ending December 31, 2015 and zero during the three months ended March 31, 2016.
9. Preferred stock
The Company issued Preferred Stock with a $0.0001 par value to investors for cash or as settlement for outstanding debt under convertible notes. As of December 31, 2014 and 2015, the Company had 28,804,969 and 37,835,623 authorized shares of Preferred Stock, respectively, and at March 31, 2016 had 37,835,623 authorized shares of Preferred Stock.
As of December 31, 2015 and at March 31, 2016, the Company had issued and outstanding Preferred Stock of (i) 2,589,868 shares of Series A redeemable convertible preferred stock ("Series A Preferred"), (ii) 7,437,325 shares of Series B redeemable convertible preferred stock ("Series B Preferred"), (iii) 5,000,002 shares of Series C redeemable convertible preferred stock ("Series C Preferred"), (iv) 8,099,994 shares of Series D Preferred, (v) 2,111,109 shares of Series SRN Redeemable Convertible Preferred Stock ("Series SRN Preferred") and (vi) 8,888,888 shares of Series E Preferred.
F-26 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
In April 2014 and August 2014, the Company issued an additional 3,211,105 shares of Series D Preferred at $4.50 per share for total net proceeds of $14,349,239. In July 2014, the Company issued an additional 1,333,332 shares of Series SRN Preferred at $4.50 per share for total net proceeds of $5.8 million. In connection with the issuance of the additional shares of Series SRN Preferred, the Series SRN Preferred terms were amended. Significant terms that were amended included a change of the Series SRN Preferred optional and mandatory conversion price (other than a special conversion event, as defined in the certificate of incorporation) to $16.77 per share, the elimination of a time-based tranche investment requirement, and the removal of a call option for the Company to repurchase the Series SRN Preferred shares. Based upon the qualitative characteristics of the amendments, the Company determined that the changes significantly modified the terms of Series SRN Preferred resulting in an extinguishment of the then outstanding SRN Preferred shares. As a result, the carrying value of Series SRN Preferred of $5.0 million at the date of the amendment was derecognized, and the amended Series SRN Preferred shares were recorded at their fair value of $4.50 per share. The difference of $1.5 million was recorded as additional paid in capital.
In August 2015 and September 2015, the Company issued an aggregate of 7,269,338 shares of Series E Preferred at $4.50 per share for total gross proceeds of $32.7 million with issuance costs totaling $0.2 million. In addition, the Company issued 1,619,550 shares of Series E Preferred in connection with the conversion of convertible notes (Note 8). In connection with the Series E Preferred issuances, each Series E Preferred stockholder also received warrants to purchase a number of shares of the Company's common stock that equal to 25% of the number of Series E Preferred shares issued. The fair value of the issued common stock warrants is accounted for as an issuance discount on the Series E Preferred. The common stock warrants are classified as permanent equity and were recorded as additional paid-in capital.
Series A Preferred, Series B Preferred, Series C Preferred, and Series D Preferred are hereinafter collectively referred to as "Tier II Preferred." Tier II Preferred and Series E Preferred are hereinafter collectively referred to as "Senior Preferred."
The rights, preferences, and privileges of the Preferred Stock are summarized below:
Voting
Series SRN Preferred are nonvoting. Except for matters that require a vote by a separate class or by separate series, Senior Preferred stockholders have full voting rights and powers similar to the rights and powers of the holders of common stock on an as-converted basis (disregarding the special conversion ratio applicable to Series E Preferred). Certain significant actions, including the amendment of the certificate of incorporation and any changes or transactions that may affect the preferences and priority of Senior Preferred such as dividends, dilution, sale and disposal of assets, mergers and acquisitions, voluntary dissolution or liquidation, merger, consolidation, recapitalization, and number of directors, must be approved by a majority vote of Senior Preferred stockholders voting as a single class on an as-converted basis.
| | F-27 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
Dividends
Holders of all series of Preferred Stock are entitled to receive dividends when and if declared by the Company's board of directors. In the event of liquidation, dissolution, or winding up of business, Senior Preferred stockholders are entitled to receive unpaid accrued dividends, whether or not declared by the board of directors. Senior Preferred dividends are to be calculated daily and accrued on a cumulative basis (adjusted for stock split, stock dividends, or other recapitalizations) at the rate of: $0.0579 per share for Series A Preferred, $0.1218 per share for Series B Preferred, $0.18 per share for Series C Preferred, $0.27 per share for Series D Preferred, and $0.27 per share for Series E Preferred. Dividends accumulated on Preferred Stock totaled $3.8 million, $4.9 million, $1.0 million and $1.6 million during the years ended December 31, 2014 and 2015, and the three months ended March 31, 2015 and 2016, respectively. Series SRN Preferred stockholders are not entitled to receive accrued dividends.
After accrued dividends due to Senior Preferred stockholders are satisfied in full, holders of all series of Preferred Stock are entitled to participate in other dividends payable to holders of common stock on an as-converted basis, when and if declared by the board of directors. Holders of Preferred Stock are not entitled to participate in stock dividends.
Optional conversion
Series A Preferred, Series B Preferred, and Series C Preferred are convertible into common stock at the stockholders' option at any time at the original issuance price of $0.9653 per share for Series A Preferred, $2.0303 per share for Series B Preferred, and $3.00 per share for Series C Preferred, respectively, divided by the then effective conversion prices which are currently the original issuance price multiplied by 3.9 (3.9:1 conversion ratio), plus any declared but unpaid dividends (excluding accrued dividends).
Series D Preferred are convertible into common stock at the stockholders' option at any time at the original issuance price of $4.50 per share divided by the then effective conversion price which is currently $4.30 per share multiplied by 3.9 (1:0.2683 conversion ratio), plus any declared but unpaid dividends (excluding accrued dividends).
Series SRN Preferred are convertible into common stock at the stockholders' option only upon a deemed liquidation event or an initial public offering ("IPO") (whether or not a firm commitment underwritten IPO for an aggregate offering price of at least $30.0 million, referred to as a qualified IPO), at the original issuance price of $4.50 per share divided by $16.77 per share (1:0.2683 conversion ratio), plus any declared but unpaid dividends. Upon the occurrence of a special conversion event (as defined in the certificate of incorporation), Series SRN Preferred are convertible at a special conversion price of $14.04 per share (1:0.3205 conversion ratio), plus any declared but unpaid dividends.
Upon liquidation, dissolution, or winding up of business, including deemed liquidation events, Series E Preferred stockholders can elect to (1) convert their shares of Series E Preferred into common stock at the original Series E Preferred issuance price of $4.50 per share divided by the then effective conversion price (currently the original issuance price of $4.50 multiplied by 3.9) multiplied by 1.15
F-28 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
(1:0.2949 conversion ratio), or (2) receive a liquidation preference at 1.15 times the per-share original issuance price, or $5.175, plus any declared but unpaid dividends (excluding accrued dividends). When not associated with a liquidation, dissolution, winding up of business, or deemed liquidation event, Series E Preferred are convertible into common stock at the stockholders' option at any time at the original issuance price of $4.50 per share divided by the then effective conversion price which is currently the original issuance price of $4.50 per share multiplied by 3.9 (1:0.2564 conversion ratio), plus any declared but unpaid dividends (excluding accrued dividends).
Mandatory conversion
All series of Preferred Stock are automatically converted at the then effective conversion price upon the completion of a qualified IPO. Currently, the effective conversion price is $3.7647 per share for Series A Preferred, $7.9182 per share for Series B Preferred, $11.70 per share for Series C Preferred, $16.77 per share for Series D Preferred, and $16.77 per share of Series SRN Preferred. The Series E Preferred effective conversion price upon a qualified IPO is determined based on the number of common stock shares issuable calculated as the highest of: (a) $5.175 (Series E Preferred liquidation price) divided by the IPO price per share paid by the underwriters; (b) each shares of Series E Preferred converting into 0.2949 shares of common stock, or (c) $4.50 divided by the then effective Series E Preferred conversion price (currently $17.55 per share).
Tier II Preferred are also automatically convertible as a single class upon, the vote of at least two-thirds of the voting power of all Tier II Preferred at the then effective conversion price (3.9:1 conversion ratio, except Series D Preferred which is 1:0.2683). Series E Preferred are automatically convertible as a single class upon a majority vote of Series E Preferred stockholders at the then effective conversion price (currently $17.55 per share) times 1.15 (1:0.2949 conversion ratio). Series SRN Preferred are automatically convertible as a single class upon (a) the sale of a majority of the Company's outstanding capital stock, (b) an IPO (whether or not a qualified IPO), or (c) an agreement among the majority of Series SRN Preferred stockholders, at the then effective conversion price (currently $16.77 per share).
Liquidation preference
Upon liquidation, dissolution, or winding up of business, including deemed liquidation events, Series E Preferred stockholders can elect to (1) convert into common stock at the original Series E Preferred issuance price of $4.50 per share divided by the then effective conversion price (currently the original issuance price of $4.50 multiplied by 3.9) multiplied by 1.15 (1:0.2949 conversion ratio), or (2) receive liquidation preference at 1.15 times the per-share original issuance price, or $5.175, plus any unpaid accrued dividends (whether or not declared), and any additional declared but unpaid dividends. Series E Preferred shares have preferences in priority to Tier II Preferred, Series SRN Preferred, and common stock. If assets available for distribution are insufficient to satisfy the Series E Preferred liquidation payment amounts in full, assets available for distribution will be allocated among Series E Preferred shares ratably and in proportion to the full preferential amount of shareholding.
After Series E Preferred stockholders are satisfied, any remaining assets available will be distributed to the Tier II Preferred stockholders at an amount equal to their original issuance price plus any unpaid
| | F-29 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
accrued dividends (whether or not declared), and any additional declared but unpaid dividends. If assets available for distribution are insufficient to satisfy the Tier II Preferred liquidation payment amounts in full, assets available for distribution will be allocated among shares of Tier II Preferred shares ratably and in proportion to the full preferential amount of shareholding.
After the Senior Preferred stockholders are satisfied, any remaining assets available will be distributed to the Series SRN Preferred stockholders at an amount equal to their original issuance price plus any declared but unpaid dividends. Series SRN Preferred are not entitled to accrued dividends. If assets available for distribution are insufficient to satisfy the Series SRN Preferred liquidation payment amounts in full, assets available for distribution will be allocated among Series SRN Preferred shares ratably and in proportion to the full preferential amount of shareholding.
In the event any series of Preferred Stock would have received a greater amount of distribution than the amounts summarized above if those series of Preferred Stock had been converted into common stock, then all shares of such series of Preferred Stock would receive the higher distribution amount as if they had been converted into common stock. This option does not apply to any holders of Preferred Stock who converted their shareholdings prior to or independent of the liquidation or deemed liquidation event.
After all series Preferred Stock are satisfied in full, any excess assets available for distribution will be allocated ratably among common stock based on the ratable common stock shares held by each stockholder.
Redemption rights
Senior Preferred are redeemable at the option of the stockholders at any time on or after November 7, 2019 upon a written notice by at least 2/3 of the Senior Preferred stockholders then outstanding voting as a single class, at a price that equals their respective original issuance price per share, plus all accrued but unpaid dividends and all other declared and unpaid dividends, to be paid in four equal annual installments. Any unpaid redemption amounts will be accelerated prior to the effective date of Series SRN Preferred redemption, if elected.
As long as the Company has outstanding loans or similar commitments, Series SRN Preferred shares are not redeemable. In the absence of outstanding loans or similar commitments, Series SRN Preferred are redeemable at the option of each stockholder at any time on or after November 7, 2019, at a price per share that equals the original issuance price per share plus a 16.5% internal rate of return. In the event the Company's cash funds are insufficient to redeem all Series SRN Preferred shares including the 16.5% internal rate of return, the Company will issue a promissory note for the unredeemed shares with a term up to two years and accrues interest at 16.5%. Series SRN Preferred shares are not entitled to receive additional dividends once the redemption option is elected.
F-30 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
10. Common stock
The voting, dividend and liquidation rights of the common stockholders are subject to and qualified by the rights, powers and preferences of the Preferred Stock. The common stock has the following characteristics:
Voting
The common stockholders are entitled to one vote for each share of common stock held with respect to all matters voted on by the stockholders of the Company. Common stock voting rights on certain matters are subject to the powers, preferences, and rights of the Senior Preferred.
Dividends
The common stockholders are entitled to receive dividends, if and when declared by the Board of Directors. The Company may not declare or pay any cash dividends to the common stockholders unless dividends are first declared and paid to the holders of Preferred Stock in accordance with their respective terms. Through March 31, 2016, no dividends have been declared or paid on common stock.
Liquidation
After holders of Preferred Stock are satisfied of their liquidation preferences upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the common stockholders are then entitled to receive that portion of the remaining funds to be distributed to all holders of the Company's stock on an as-converted basis.
Reserved shares
The Company has authorized shares of common stock for future issuance as follows:
|
Periods ending | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
December 31, 2014
|
December 31, 2015
|
March 31, 2016
|
|||||||
|
|
|
(unaudited)
|
|||||||
Conversion of Series A Preferred |
664,068 | 664,068 | 664,068 | |||||||
Conversion of Series B Preferred |
1,907,006 | 1,907,006 | 1,907,006 | |||||||
Conversion of Series C Preferred |
1,282,051 | 1,282,051 | 1,282,051 | |||||||
Conversion of Series D Preferred |
2,094,015 | 2,191,412 | 2,191,412 | |||||||
Conversion of Series SRN Preferred |
1,438,746 | 1,798,433 | 1,798,433 | |||||||
Conversion of Series E Preferred with warrants |
| 2,662,885 | 2,662,885 | |||||||
Exercise of common warrants |
| 650,618 | 650,618 | |||||||
Shares available for future stock incentive awards |
1,544 | 100,034 | 7,091 | |||||||
Exercise of outstanding common stock options |
1,143,237 | 1,569,379 | 1,736,681 | |||||||
| | | | | | | | | | |
Total |
8,530,667 | 12,825,886 | 12,900,245 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | F-31 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
11. Stock incentive plans
The Company maintains the 2008 Equity Incentive Plan (the "Plan") for employees, consultants, advisors, and directors. The Plan provides for the granting of incentive and non-qualified stock option and restricted stock awards as determined by the Board. As of March 31, 2016, a total of 2,200,592 shares of common stock are authorized for grants under the Plan with 7,091 shares available for future grant. All stock options granted under the 2008 Plan may be exercised into restricted stock subject to forfeiture provisions upon termination.
The Plan provides that the exercise price of incentive stock options cannot be less than 100% of the fair market value of the common stock on the grant date for participants who own less than 10% of the total combined voting power of the Company, and not less than 110% for participants who own more than 10% of the Company's voting power. Options and restricted stock granted under the Plan vest over periods as determined by the Board, which are generally four years and with terms that generally expire ten years from the grant date. The fair value of each option award is estimated on the grant date using Black-Scholes. Expected volatilities are based on historical volatilities from guideline companies, since there is no active market for the Company's common stock. The Company uses the "simplified" method to estimate the expected life of options granted and are expected to be outstanding. The risk-free interest rate used is the rate for a U.S. Treasury zero coupon issue with a remaining life consistent with the options expected life on the grant date. The Company has not paid, and does not expect to pay, any cash dividends in the foreseeable future. Forfeitures are estimated at the time of grant and are adjusted, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has estimated a forfeitures rate of 10% based on historical attrition trends. The Company records stock-based compensation expense only on the awards that are expected to vest.
The weighted average assumptions used for employee stock option grants issued in 2014 and 2015 and for the three months ended March 31, 2016 are as follows:
|
Year ended December 31, |
March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2016
|
|||||||
|
|
|
(unaudited) |
|||||||
Risk-free interest rate |
1.93 | % | 1.79 | % | 1.54 | % | ||||
Expected dividend yield |
| | | |||||||
Expected life |
5.94 | 6.02 | 6.03 | |||||||
Expected volatility |
100.81 | % | 79.80 | % | 75.26 | % | ||||
Weighted-average fair value of common stock |
$ | 8.97 | $ | 7.35 | $ | 7.02 |
The resulting weighted average grant date fair value of stock options granted to employees during the years ended December 31, 2014 and 2015 was $6.86 and $5.03, respectively, and $7.14 and $4.64 for the three months ended March 31, 2015 and 2016, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 2014 and 2015 was $0.3 million and $0.3 million, respectively, and less than $0.1 million for the three months ended March 31, 2015 and 2016.
As of December 31, 2014 and December 31, 2015, and at March 31, 2016, total unrecognized compensation expense related to unvested employee stock options was $0.9 million, $2.3 million and
F-32 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
$2.4 million, respectively, which is expected to be recognized over a weighted average period of 2.3 years, 3.1 years and 3.0 years, respectively.
The weighted average assumptions used for unvested non-employee stock options are as follows:
|
Year ended December 31, |
Three months ended March 31, |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2016
|
|||||||
|
|
|
(unaudited) |
|||||||
Risk-free interest rate |
1.22 | % | 1.57 | % | 1.89 | % | ||||
Expected dividend yield |
| | | |||||||
Expected life (in years) |
5.87 | 6.46 | 9.94 | |||||||
Expected volatility |
98.25 | % | 98.18 | % | 82.48 | % |
The unvested options held by non-employees are revalued using the Company's estimate of fair value on each vesting and reporting date through the remaining vesting period. Non-employee stock-based compensation expense of $0.5 million and $0.4 million was recorded for the years ended December 31, 2014 and 2015, respectively, and of $0.1 million and less than $0.1 million for the three months ended March 31, 2015 and March 31, 2016, respectively.
As of December 31, 2014 and 2015 and March 31, 2016, total unrecognized compensation expense related to unvested non-employee stock options was $0.4 million, $0.1 million and $0.5 million, respectively, which is expected to be recognized over a weighted average period of 0.8 years, 2.2 years and 3.5 years, respectively.
| | F-33 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
The following table summarizes the activity under the Plan for the year ended December 31, 2015 and the quarter ended March 31, 2016:
|
Number of options |
Weighted-average exercise price |
Weighted-average remaining contractual term (in years) |
Aggregate intrinsic value (in thousands) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Employee |
|||||||||||||
Outstanding at December 31, 2014 |
800,165 | $ | 3.24 | 6.99 | $ | 4,895 | |||||||
Granted |
485,833 | $ | 7.91 | ||||||||||
Exercised |
(20,861 | ) | $ | 1.21 | |||||||||
Forfeited |
(17,977 | ) | $ | 6.32 | |||||||||
| | | | | | | | | | | | | |
Outstanding at December 31, 2015 |
1,247,160 | $ | 5.05 | 7.41 | $ | 3,130 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested at December 31, 2015 |
668,465 | $ | 2.61 | 5.71 | $ | 2,946 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested and expected to vest at December 31, 2015 |
1,171,380 | $ | 4.84 | 7.26 | $ | 3,138 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Outstanding at December 31, 2015 |
1,247,160 | $ | 5.05 | 7.41 | $ | 3,130 | |||||||
(unaudited) |
|||||||||||||
Granted |
94,871 | $ | 7.02 | $ | |||||||||
Exercised |
(2,564 | ) | $ | 0.62 | $ | ||||||||
Forfeited |
(1,928 | ) | $ | 7.47 | $ | ||||||||
| | | | | | | | | | | | | |
Outstanding at March 31, 2016 |
1,337,539 | $ | 5.19 | 7.36 | $ | 4,376 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested at March 31, 2016 |
726,702 | $ | 3.09 | 5.73 | $ | 3,790 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested and expected to vest at March 31, 2016 |
1,254,639 | $ | 5.01 | 7.21 | $ | 4,318 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Non-Employee |
|||||||||||||
Outstanding at December 31, 2014 |
343,072 | $ | 2.93 | 6.5 | $ | 2,207 | |||||||
Granted |
| $ | | ||||||||||
Exercised |
(20,852 | ) | $ | 2.91 | |||||||||
Forfeited |
| $ | | ||||||||||
| | | | | | | | | | | | | |
Outstanding at December 31, 2015 |
322,200 | $ | 2.93 | 5.50 | $ | 1,288 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested at December 31, 2015 |
310,680 | $ | 2.70 | 5.40 | $ | 1,288 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested and expected to vest at December 31, 2015 |
322,219 | $ | 2.93 | 5.50 | $ | 1,288 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Outstanding at December 31, 2015 |
322,220 | $ | 2.91 | 5.50 | $ | 1,288 | |||||||
(unaudited) |
|||||||||||||
Granted |
76,923 | $ | 7.02 | $ | |||||||||
Exercised |
| $ | | $ | |||||||||
Forfeited |
| $ | | $ | |||||||||
| | | | | | | | | | | | | |
Outstanding at March 31, 2016 |
399,143 | $ | 3.72 | 6.16 | $ | 1,787 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested at March 31, 2016 |
316,770 | $ | 2.79 | 5.23 | $ | 1,705 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested and expected to vest at March 31, 2016 |
399,143 | $ | 3.72 | 6.16 | $ | 1,787 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Restricted stock
During the year ended December 31, 2013, the Company issued 30,317 shares of restricted common stock to employees upon the early exercise of stock options. During the year ended December 31, 2014, the Company issued 2,564 shares of restricted common stock to employees. Under the terms of each agreement, the Company has a repurchase provision whereby the Company has the right to
F-34 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
repurchase any unvested shares when/if the shareholders terminate their business relationship with the Company, at a price equal to the original exercise price. Accordingly, the Company recorded the cumulative payments received of $0.1 million for the purchase of the restricted shares as a liability. The Company records payment received from the granting of restricted stock as a liability which is amortized over the vesting period. As of December 31, 2014 and 2015 and at March 31, 2016, the remaining liability was less than $0.1 million.
Total fair value of restricted shares that vested during the years ended December 31, 2014 and 2015, was $0.1 million and less than $0.1 million, respectively, and for the three months ended March 31, 2016 was less than $0.1 million.
The following table summarizes the restricted stock award activity of the Plan during the year ended December 31, 2014 and 2015 and for the three months ended March 31, 2016:
|
December 31, 2014 | December 31, 2015 |
Three months ended March 31, 2016 |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares
|
Weighted- average exercise price |
Shares
|
Weighted- average exercise price |
Shares
|
Weighted- average exercise price |
|||||||||||||
|
|
|
|
|
(unaudited)
|
||||||||||||||
Unvested at beginning of period |
70,804 | $ | 1.56 | 15,264 | $ | 2.77 | 7,574 | $ | 2.77 | ||||||||||
Issued |
2,564 | 0.62 | | | | | |||||||||||||
Vested |
(58,104 | ) | 1.44 | (7,690 | ) | 2.72 | (1,895 | ) | 2.77 | ||||||||||
| | | | | | | | | | | | | | | | | | | |
Unvested at end of period |
15,264 | $ | 2.77 | 7,574 | $ | 2.77 | 5,679 | 2.77 | |||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
As of December 31, 2014 and 2015 and for the three months ended March 31, 2016, total unrecognized compensation expense related to restricted stock awards was less than $0.1 million, which the Company expects to recognize over a weighted average period of approximately 2.0 years, 1.0 year and 0.8 years, respectively.
During the years ended December 31, 2014 and 2015 and for the three months ended March 31, 2015 and 2016, the Company recorded stock-based compensation expense as follows (in thousands):
|
Year ended December 31, |
Three months ended March 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2014
|
2015
|
2015
|
2016
|
|||||||||
|
|
|
(unaudited)
|
||||||||||
Research and development |
$ | 384 | $ | 495 | $ | 132 | $ | 167 | |||||
General and administrative |
840 | 630 | 170 | 115 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 1,224 | $ | 1,125 | $ | 302 | $ | 282 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | F-35 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
12. Revenue arrangements
Sanofi collaboration agreement
On November 27, 2012, the Company and Sanofi entered into a license and research collaboration agreement focused on the identification and development of vaccines against food allergies. Under the arrangement, the Company will perform research to identify an initial vaccine candidate for development and commercialization by Sanofi under an exclusive license.
In November 2014, Sanofi exercised the option to include celiac disease as an additional indication and the Sanofi Agreement was amended to add terms specific to the celiac disease indication and to terminate Sanofi's right to exercise its option for any additional indications in May 2015.
Each party will carry out its obligations under the collaboration in accordance with a research plan approved by a Joint Research Committee ("JRC"). The Company will perform the majority of the research work to identify the potential candidate, and once identified, Sanofi will primarily be responsible for the clinical development of the candidate.
At any time during the term of the development plan, but before the fifth anniversary of the start of the research term for the applicable indication, Sanofi and the Company may agree to replace the previously nominated development candidate with a new development candidate. The Company would be entitled to additional consideration for any research services performed at such time.
The research term for the first indication continues until the earlier of (a) the nomination of a development candidate for the initial indication or (b) the third anniversary of the agreement. The research term for the second indication (celiac disease) will expire upon the earlier of (a) the nomination of a development candidate for the second indication and (b) May 7, 2019. In the event that the Company is unable to complete its research obligations by the expiration of the applicable research term, its obligation will be limited to exercising commercially reasonable efforts to complete such research up to one year after the end of the research term. Each party is responsible for its own internal costs, as well as any third-party or out-of-pocket costs incurred in the performance of the activities laid out in the research plan. If the parties agree to expand the Company's scope of work, such costs will be reimbursed by Sanofi based on an agreed upon budget. Once a development candidate is nominated, all development activities will be under the direction of Sanofi pursuant to a development plan to be negotiated and agreed to at that time and Sanofi will pay the Company for expenses incurred within certain approved limits.
Under the terms of the research collaboration portion of the Sanofi Agreement, the Company is required to use commercially reasonable efforts to perform the activities set out for the Company in the research and development plans created and overseen by a joint research committee. The Company is responsible for manufacturing all vaccines required for research, development and commercialization of licensed products. Pursuant to the Sanofi Agreement, Sanofi has paid the Company an initial payment of $2.0 million for the initial indication and an additional $2.0 million for the second indication of celiac disease. Sanofi is obligated to make additional payments to the Company during preclinical research totaling up to $3.0 million for each indication, which has been received for the food allergy indication. For each indication, the Company is also eligible for (i) a $5.0 million development candidate milestone payable to the Company at the start of preclinical development,
F-36 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
(ii) further development milestones up to an aggregate of $127.0 million, which includes up to an aggregate of $57.0 million following the initiation of Phase I, Phase II and Phase III clinical trials for the indication and filing of the first biologic license application, more than two-thirds of which is attributable to the initiation of the Phase 3 clinical trail and the filing of the first biologic license application, and an aggregate of $70.0 million upon achieving various regulatory approvals in the United States, European Union, Japan and Brazil, Russia, India or China, of which the majority is attributable to regulatory approvals in the United States, (iii) sales milestones of up to an aggregate of $170.0 million, and (iv) tiered royalties on annual net sales of licensed products at percentages ranging from mid-single to low double digits.
As per the agreement, the research term expired for the first indication on the third anniversary (November 27, 2015) of the agreement. The Company completed its research obligations within the initial three year period and is not obligated to perform any further research on the specific indication under the agreement. A vaccine candidate for development and commercialization was not selected by Sanofi by the end of the research plan, and therefore no further milestone payments have been received. However, the Company is in discussions with Sanofi to extend the research term for the first indication by one year (until November 27, 2016).
The Company identified the deliverables under the arrangement as the license, the research necessary to identify the development candidate, and participation on the JRC. The Company determined that the exclusive license granted to Sanofi did not have standalone value from the research to be performed to identify the vaccine development candidate. As a result, each upfront and milestone consideration was allocated to the combined unit of account comprising the license and research services, and is being recognized over the estimated development period using a proportional performance method. The consideration allocated to participation on the JRC was not material. The Company recognized $2.1 million of revenue during each of the years ended December 31, 2014 and 2015, and $0.5 million and $0.1 million during the three months ended March 31, 2015 and 2016, respectively.
Other research and collaboration agreements
The Company has entered into other research and collaboration agreements in 2014 and 2015 for which the Company did not recognize any revenue for the period ended December 31, 2014 and recognized revenue in the amount of $0.3 million for the period ended December 31, 2015, and less than $0.1 million for the three months ended March 31, 2015 and 2016.
Grant agreements
The Company receives funding in the form of grants from the National Institutes of Health ("NIH"), the Juvenile Diabetes Research Foundation ("JDRF"), the Bill and Melinda Gates Foundation, the Russian Ministry of Industry and Trade ("Minpromtorg"), and the Russia based Development Fund of New Technologies Development and Commercialization Center ("Skolkovo").
| | F-37 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
NIH
The Company has two grants through the Department of Health and Human Services, National Institutes of Health ("NIH"). The first grant, for an aggregate amount of $8.1 million, was awarded in May 2014 to support research in the development of a next generation vaccine for smoking cessation and relapse prevention. The Company recognized $0.6 million and $2.4 million of revenue for the periods ending December 31, 2014 and 2015, respectively, and $0.4 million and $1.8 million for the three months ended March 31, 2015 and 2016, respectively, under the arrangement.
The second grant is for an aggregate amount of $0.2 million, which was awarded in September 2015 for the development of nanoparticles for immune tolerance to factor VIII. The company recognized revenue in the amount of $0.1 million for the year ended December 31, 2015 and less than $0.1 million for the three months ended March 31, 2016.
JDRF
The Company had two contracts in effect with JDRF during 2014, and only one of those contracts was in effect during 2015. The first contract was a continuation and completion of the 2011 grant for $0.8 million. The Company recognized the remaining $0.2 million of revenue during the year ended December 31, 2014 under this contract. The second JDRF grant is a joint grant with Sanofi entered into in September 2014 for $0.4 million to conduct Type 1 Diabetes research. The Company recognized less than $0.1 million and $0.2 million of revenue related to this contract during the years ended December 31, 2014 and 2015, respectively, and less than $0.1 million and $0.1 million for the three months ended March 31, 2015 and 2016, respectively.
Bill and Melinda Gates Foundation
The Company received a grant in 2013 from the Bill and Melinda Gates Foundation for $1.2 million to fund the Company's immunology research on malaria antigens. During 2014, the grant amount was increased to a total of $1.6 million and the term was extended to a three-year research term. Revenue recognized for the years ending December 31, 2014 and 2015 was $0.2 million and $0.6 million, respectively, and was less than $0.1 million and $0.1 million for the three months ended March 31, 2015 and 2016, respectively. Revenue is recognized on a proportional performance basis as it relates to employee time expended on the research, along reimbursement for external costs directly related to, and approved, by the grant terms.
Minpromtorg
The Company had a contract awarded from Minpromtorg for approximately $4.6 million to fund the Company's nicotine cessation vaccine clinical trial to be conducted in Russia. The grant covered a term from July 9, 2013 through December 31, 2015, and provided for reimbursement of expenses incurred by the Company from the clinical trial. Under the agreement term, the Company was subject to a penalty in the event that clinical trial was delayed or terminated prior to completion. As a result of the penalty provision, the Company concluded the amounts received under the agreement were not fixed or determinable. Therefore, no revenue has been recognized to date. Through December 31, 2014, the Company received payments totaling approximately $1.4 million, which has been recorded as a
F-38 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
contingently repayable grant funding liability in the accompanying consolidated balance sheets. The agreement also required the Company to maintain a deposit in a restricted bank account equal to approximately one year of expected contract payments, which approximates $1.0 million, to cover the potential penalty. The amount is classified as restricted cash in the consolidated balance sheets for the years ended December 31, 2014 and 2015. In January 2016, the deposit was released from the restricted deposit requirement. In 2014, the Company terminated its plan to conduct the clinical trial in Russia subjecting the Company to the penalty obligation.
In February 2015, the Company received an executed final settlement agreement from Minpromtorg that included the repayment of funds previously received by the Company totaling $0.2 million, and a penalty fee that equaled to 10% of the contract value, or $0.2 million. The Company paid the settlement payment in March 2015 and all mutual claims under the contract were terminated. According to the terms of the agreement, Minpromtorg has the right to audit the expenditure incurred under the agreement for a period up to three years from each research milestone date. All grant funding received in excess of the penalty settlement will remain as a liability on the balance sheet until such time the audit period has expired and at which time, the amount will be recognized as revenue. The first audit period expired on December 31, 2015, and as a result $0.4 million of revenue was recognized for the year ending December 31, 2015. The remaining amount of unrecognized revenue is classified contingent repayable grant funding in the consolidated balance sheets.
Skolkovo
On November 28, 2014, the Company executed a grant awarded by Skolkovo for the development of a therapeutic vaccine using nanoparticles to treat chronic infection caused by HPV and diseases associated with this infection. The grant covers a period from August 1, 2014 through July 21, 2017. The grant provides for up to $2.7 million that covers 48.5% of the estimated total cost of the research plan with the remaining 51.5% of estimated costs to be contributed by the Company. The Company received from Skolkovo $1.0 million in 2014, no additional funds were received for the year ending December 31, 2015 and $0.7 million was received for the three months ended March 31, 2016.
At any time during the term of the grant agreement, but not more than once per quarter, Skolkovo has the right to request information related to the project and to conduct an audit of the expenses incurred by the Company. In the event the project or the expenses do not meet predefined requirements, the Company may be required to reimburse the funds received up to three years after the completion of the project. As a result, the Company has determined that the grant funding is not fixed or determinable and all amounts received to date are recorded as deferred revenue in the consolidated balance sheet until the completion of Skolkovo's audit or the expiration of the audit term.
13. Related-party transactions
As part of the Series B Preferred and Series D Preferred financings (as described in Note 9), the Company's landlord (the "Landlord") purchased 49,254 shares of Series B Preferred at $2.0303 per share for total proceeds of $0.1 million and 488,888 shares of Series D Preferred at $4.50 per share for total proceeds of $2.2 million. Additionally, in April 2015, the Landlord participated in the Company's bridge loan in the amount of $0.2 million, which converted into Series E Preferred (see
| | F-39 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
note 9). The Landlord paid the same price as the price paid by other investors in each of these Preferred Stock purchases.
The Company incurred expenses for consulting services provided by its founders totaling $0.3 million during each of the years ended December 31, 2014 and 2015, and $0.1 million for each of the three months ended March 31, 2015 and 2016.
14. Technology license agreements
On November 25, 2008, the Company entered into an Exclusive Patent License agreement with the Massachusetts Institute of Technology ("MIT"). The Company received an exclusive royalty-bearing license to utilize patents held by MIT in exchange for upfront consideration and annual license maintenance fees. Such fees are expensed as incurred and have not been material to any period presented. In the event the Company sublicenses the MIT patents to a third party, it will be required to remit to MIT a percentage (ranging from 10% to 30%) of sublicense income. In addition, the Company is obligated to pay MIT a certain amount upon the achievement of defined clinical milestones, up to a total of $1.5 million. On December 18, 2008, the Company entered into a patent-cross-license agreement with BIND Therapeutics, Inc. whereby each party receives a license for the use of the other patents in their respective fields of use. In exchange for this license, the Company paid a one-time expense in 2008.
In May 2014, the Company entered into a license agreement with Shenyang Sunshine Pharmaceutical Co., Ltd., or 3SBio, which is referred to as the 3SBio License. Pursuant to the 3SBio License, the Company was granted an exclusive license to certain pegsiticase-related patents and related "know-how" owned or in-licensed by 3SBio for the worldwide (except for Greater China and Japan) development and commercialization of products based thereupon for human therapeutic, diagnostic and prophylactic use. The Company was also granted a worldwide (except for Greater China) exclusive license to develop, commercialize and manufacture or have manufactured products combining the Company's proprietary SVP technology with pegsiticase or related compounds supplied by 3SBio (or otherwise supplied if the Company's rights to manufacture are in effect) for human therapeutic, diagnostic and prophylactic use. The Company was also granted a co-exclusive license to manufacture and have manufactured pegsiticase and related compounds for preclinical and clinical use or, if the 3SBio License is terminated for 3SBio's material breach, for any use under the 3SBio License. Otherwise, the Company is obligated to obtain all of its supply of such compounds for Phase 3 clinical trials and commercial use from 3SBio under the terms of supply agreements to be negotiated.
Pursuant to the 3SBio License, the Company is required to use commercially reasonable efforts to develop and commercialize a product containing pegsiticase or a related compound. If the Company does not commercialize any such product in a particular country in Asia, Africa or South America within 48 months after approval of any such product in the U.S. or a major European country, then 3SBio will have the right to do so, but only until the Company commercializes a product combining the Company's SVP technology with any such compound in such country. The Company has paid to 3SBio an aggregate of $1.0 million in upfront and milestone-based payments under the 3SBio License. The Company is required to make future payments to 3SBio contingent upon the occurrence of events related to the achievement of clinical and regulatory approval milestones of up to an aggregate of
F-40 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
$21.0 million for products containing the Company's SVP technology, and up to an aggregate of $41.5 million for products without the Company's SVP technology. The Company is also required to pay 3SBio tiered royalties on annual worldwide net sales (on a country-by-country and product-by-product basis) related to the pegsiticase component of products at percentages ranging from the low-to-mid single digits for products containing the Company's SVP technology, and a range of no more than ten percentage points from the mid-single digits to low double-digits for products without the Company's SVP technology. The Company will pay these royalties to 3SBio, subject to specified reductions, on a country-by-country and product-by-product basis until the later of (i) the date that all of the patent rights for that product have expired in that country, or (ii) a specified number of years from the first commercial sale of such product in such country.
The 3SBio License expires on the date of expiration of all of the Company's royalty payment obligations unless earlier terminated by either party for an uncured material default or for the other party's bankruptcy. Any such termination by 3SBio for material default may be on a country-by-country or product-by-product basis in certain circumstances. The Company may also terminate the 3SBio License on a country-by-country or product-by-product basis for any reason effective upon 60 days' prior written notice to 3SBio or, with respect to a given product, immediately upon written notice to 3SBio if the Company identifies a safety or efficacy concern related to such product.
15. Income taxes
The Company provides deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the Company's financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse.
For the years ended December 31, 2014 and 2015, the Company did not record a current or deferred income tax expense or benefit. A reconciliation of the Company's effective tax rate to the statutory federal rate is as follows:
|
2014
|
2015
|
|||||
---|---|---|---|---|---|---|---|
Statutory U.S. federal rate |
34.0 | % | 34.0 | % | |||
State income taxesnet of federal benefit |
5.9 | 5.7 | |||||
Permanent items |
(0.7 | ) | (0.7 | ) | |||
Research tax credits/others |
1.6 | 1.0 | |||||
Valuation allowance, net |
(33.0 | ) | (40.0 | ) | |||
Other |
(7.8 | ) | | ||||
| | | | | | | |
Net deferred tax assets |
| % | | % |
| | F-41 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
The tax effects of temporary differences that give rise to the Company's net deferred tax assets as of December 31 are as follows (in thousands):
|
2014
|
2015
|
|||||
---|---|---|---|---|---|---|---|
|
(in thousands)
|
||||||
Deferred Tax Assets |
|||||||
Net operating loss carryforwards |
$ | 22,444 | $ | 31,958 | |||
Research and development credits |
1,835 | 2,305 | |||||
Stock-based compensation expense |
355 | 570 | |||||
Deferred rent and other expenses |
284 | 493 | |||||
Deferred revenue |
2,283 | 1,582 | |||||
Patent costs/amortization |
2,796 | 3,500 | |||||
Tenant improvement allowance |
131 | | |||||
Warrant liability |
93 | 114 | |||||
| | | | | | | |
Gross deferred tax assets |
30,221 | 40,522 | |||||
Deferred Tax Liabilities |
|||||||
Depreciation |
$ | (388 | ) | $ | (197 | ) | |
Debt discount |
(59 | ) | (97 | ) | |||
Unrealized foreign exchange gain |
(1,352 | ) | (1,728 | ) | |||
| | | | | | | |
Gross deferred tax liabilities |
(1,799 | ) | (2,022 | ) | |||
Net deferred tax assets |
28,422 | 38,500 | |||||
Valuation allowance |
(28,422 | ) | (38,500 | ) | |||
| | | | | | | |
Net deferred tax assets |
$ | | $ | | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company has provided a full valuation allowance against its net deferred tax assets, as the Company believes that it is more likely than not that the deferred tax assets will not be realized. Realization of future tax benefits is dependent on many factors, including the Company's ability to generate taxable income within the net operating loss carryforward period. The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and concluded that it is more likely than not that the Company will not realize the benefit of its deferred tax assets. The valuation allowance increased by $4.3 million and $10.1 million for the years ended December 31, 2014 and 2015, respectively, primarily as a result of an increase in net operating loss. In 2014, the Company's Russian subsidiary was granted a 10 year tax holiday in Russia. As a result, previously reported deferred tax assets were adjusted for the change in tax rate. There has been no change to the tax holiday status for the subsidiary as of December 31, 2015.
At December 31, 2015, the Company had federal and state net operating loss carryforwards of $82.4 million and $76.3 million, which will expire at various times through 2035. Included in the net operating loss above is approximately $0.2 million related to excess stock option deductions. The Company also has federal and state research and development tax credit carryforwards of $1.6 million and $1.1 million available to reduce future tax liabilities, which will expire at various times through 2035.
F-42 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
Utilization of the net operating loss and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously, or that could occur in the future. These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.
The Company applies ASC 740, Income Taxes to uncertain tax positions. As of the adoption date on January 1, 2009 and through December 31, 2015, the Company had no unrecognized tax benefits or related interest and penalties accrued.
The Company has not, as of yet, conducted a study of its research and development credit carryforwards. This study may result in an adjustment to the Company's research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company's research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. As a result, there would be no impact to the consolidated balance sheets, statements of operations and comprehensive loss, or cash flows if an adjustment was required.
Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense in the accompanying statement of operations and comprehensive loss. As of December 31, 2015, the Company had no accrued interest related to uncertain tax positions.
The statute of limitations for assessment by the Internal Revenue Service and Massachusetts tax authorities is open for tax years since inception. The Company files income tax returns in the United States and Massachusetts. There are currently no federal, state or foreign audits in progress.
16. 401(k) Savings Plan
The Company maintains a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pretax basis. The 401 (k) Plan provides for matching contributions on a portion of participant contributions pursuant to the 401(k) Plan's matching formula. All matching contributions vest ratably over 4 years and participant contributions vest immediately.
Contributions by the Company totaling $0.1 million and $0.1 million for the years ended December 31, 2014 and 2015, respectively, and $0.1 million for each of the three months ended March 31, 2015 and 2016, have been recorded in the consolidated statements of operations and comprehensive loss.
17. Subsequent Events
a) License Agreement (unaudited)
In May 2016, the Company entered into a license agreement with the Massachusetts Eye and Ear Infirmary and The Schepens Eye Research Institute, Inc., or, collectively, MEE, referred to as the MEE
| | F-43 |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
License. Under the MEE License, the Company was granted an exclusive commercial worldwide license, with the right to grant sublicenses through multiple tiers, to make, have made, use, offer to sell, sell and import certain products and to practice certain processes, the sale, use or practice of which are covered by patents and proprietary know-how owned or controlled by MEE, for use of Anc80 gene therapy vectors for gene augmentation therapies expressing certain target sequences.
MEE also granted the Company exclusive options to exclusively license certain of their intellectual property rights relating to several additional target sequences and variations thereof each linked to a specified disease. During a defined option period, the Company may exercise this right for up to a designated number of target sequences. If the Company exercises its options, under certain circumstances, the Company may substitute alternative target sequences for previously selected target sequences.
The Company agreed to use commercially reasonable efforts to develop and commercialize licensed products pursuant to a development plan, and to market and sell at least one product for each target sequence for which the Company exercised its option as soon as reasonably practicable. Subject to certain exceptions, following commercial launch, the Company must use commercially reasonable efforts to market, sell, and maintain public availability of licensed products in a certain number of specified major markets.
Pursuant to the MEE Agreement, the Company agreed to pay MEE a license fee in the low six figures, annual license maintenance fees ranging from the mid-twenty thousands to mid-seventy thousands and an option maintenance fee in the low five figures for each exercisable option. The Company also agreed to reimburse MEE for a specified percentage of the past patent expenses for the patents licensed to the Company. The Company also agreed to pay development milestones on a licensed product-by-licensed product basis, totaling up to an aggregate of between $4,175,000 to $37,025,000 and sales milestones on a licensed product-by-licensed product basis, totaling up to an aggregate of between $50,000,000 to $70,000,000; tiered royalties on a licensed product-by-licensed product and country-by-country basis equal to a percentage of net sales ranging from mid-single digits to mid-teens, subject to the prevalence of the targeted disease and certain reductions; and a percentage, in a range expected to be in the mid-teens depending on timing, of any sublicense income the Company receives from sublicensing its rights granted thereunder, subject to certain reductions and exclusions. Upon exercise of each option, the Company agreed to pay MEE an option exercise fee ranging from low-six figures to mid-six figures, depending on the prevalence of the targeted disease.
The MEE License will continue until the expiration of the last to expire of the patent rights licensed thereunder. The Company may terminate the MEE License in whole or in part upon prior written notice. MEE may terminate the MEE License on a target sequence-by-target sequence basis if the Company fails to make any scheduled payments in respect of such target sequence or if the Company materially breaches a diligence obligation in respect of such target sequence, in each case if the Company fails to cure within a specified time period. MEE may terminate the MEE License in its entirety if the Company materially breaches certain of its obligations related to diligence, representations and warranties, and maintenance of insurance; if the Company challenges the validity or enforceability of any patents licensed thereunder; if any of the Company's executive officers are
F-44 | | |
Selecta Biosciences, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Years Ended December 31, 2014 and 2015 and Unaudited Three Months Ended March 31, 2015 and 2016
convicted of a felony relating to manufacture, use, sale or importation of licensed products; or upon the Company's insolvency or bankruptcy.
b) Reverse Stock Split
The Company's Board of Directors and stockholders approved a 1-for-3.9 reverse stock split of the Company's common stock. The reverse stock split became effective on June 7, 2016. All common stock share and per share amounts in the consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverse stock split. The shares of common stock retained a par value of $0.0001 per share. Accordingly, the stockholder's deficit reflects the reverse stock split by reclassifying from common stock to additional paid in capital an amount equal to the par value of the decreased shares resulting from the effect of the reverse stock split.
c) Equity Plan (unaudited)
The Company's Board of Directors adopted and the Company's stockholders approved the Selecta Bioscience, Inc. 2016 incentive plan ("2016 Plan"), which will become effective on the date that is immediately prior to the date of effectiveness of the registration statement on Form S-1 for the Company's initial public offering. The 2016 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock-based awards. The Company's employees, officers, directors and consultants and advisors are eligible to receive awards under the 2016 Plan.
| | F-45 |
Until , 2016 (the 25th day after the date of this prospectus), all dealers that buy, sell, or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table indicates the expenses to be incurred in connection with the offering described in this registration statement, other than underwriting discounts and commissions, all of which will be paid by us. All amounts are estimated except the Securities and Exchange Commission registration fee, the Financial Industry Regulatory Authority, Inc., or FINRA, filing fee and the NASDAQ listing fee.
|
Amount | |||
---|---|---|---|---|
Securities and Exchange Commission registration fee |
$ | 7,875 | ||
FINRA filing fee |
12,230 | |||
NASDAQ initial listing fee |
125,000 | |||
Accountants' fees and expenses |
1,050,000 | |||
Legal fees and expenses |
2,461,866 | |||
Printing and engraving expenses |
120,000 | |||
Miscellaneous |
123,030 | |||
| | | | |
Total expenses |
$ | 3,900,000 | ||
| | | | |
| | | | |
| | | | |
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 restated 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
| | II-1 |
Part II
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.
Our restated certificate of incorporation provides that we will indemnify each person who was or is a party or threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of us) by reason of the fact that he or she is or was, or has agreed to become, a director or officer, or is or was serving, or has agreed to serve, at our request as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (all such persons being referred to as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding and any appeal therefrom, if such Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, and, with respect to any criminal action or proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful. Our 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 favour by reason of the fact that the Indemnitee is or was, or has agreed to become, a director or officer, or is or was serving, or has agreed to serve, at our request as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, and any appeal therefrom, if the Indemnitee acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interests, except that no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to us, unless a court determines that, despite such adjudication but in view of all of the circumstances, he or she is entitled to indemnification of such expenses. Notwithstanding the foregoing, to the extent that any Indemnitee has been successful, on the merits or otherwise, he or she will be indemnified by us against all expenses (including attorneys' fees) actually and reasonably incurred in connection therewith. Expenses must be advanced to an Indemnitee under certain circumstances.
We have entered into indemnification agreements with each of our directors and officers. These indemnification agreements may require us, among other things, to indemnify our directors and officers for some expenses, including attorneys' fees, judgments, fines and settlement amounts incurred by a director or officer in any action or proceeding arising out of his or her service as one of our directors or officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request.
We maintain a general liability insurance policy that covers certain liabilities of directors and officers of our corporation arising out of claims based on acts or omissions in their capacities as directors or officers.
In any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our officers and persons who control us within the meaning of the Securities Act of 1933, as amended, or the Securities Act, against certain liabilities.
Item 15. Recent Sales of Unregistered Securities.
Set forth below is information regarding securities issued by us within the past three years. Also included is the consideration received by us for such shares and information relating to the section of
II-2 | | |
Part II
the Securities Act, or rule of the Securities and Exchange Commission, under which exemption from registration was claimed.
(a) Issuance of Capital Stock.
From April 7, 2014 to August 14, 2014, the registrant issued an aggregate of 3,211,105 shares of Series D Preferred Stock for aggregate consideration of $14.4 million to accredited investors pursuant to Section 4(a)(2) of the Securities Act and Rule 506 as a transaction not involving a public offering.
On July 15, 2014, the registrant also issued an aggregate of 1,333,332 shares of Series SRN Preferred Stock for aggregate consideration of $6.0 million to accredited investors pursuant to Section 4(a)(2) of the Securities Act and Rule 506 as a transaction not involving a public offering.
On August 27, 2015, September 3, 2015 and September 17, 2015, the registrant issued an aggregate of 7,269,338 shares of Series E Preferred Stock for aggregate consideration of $32.7 million to accredited investors and 1,619,550 shares of Series E Preferred upon the cancellation of debt totaling $7.3 million pursuant to Section 4(a)(2) of the Securities Act and Rule 506 as a transaction not involving a public offering.
(b) Equity Grants.
Since December 31, 2012, the registrant granted stock options to purchase an aggregate of 1,056,748 shares of its common stock with exercise prices ranging between $2.77 and $9.36 per share, including stock options that were exercised prior to vesting in exchange for 30,318 shares of restricted stock, and 2,564 shares of restricted common stock to employees, non-employees, and directors in connection with services provided to the registrant by such parties.
In May 2016, the registrant granted stock options to purchase an aggregate of 390,805 shares of common stock, which will become effective in connection with this offering, to some of our executive officers and employees, at an exercise price per share equal to the initial public offering price in this offering in connection with services provided to the registrant.
The issuances of such stock options, the shares of common stock issuable upon the exercise of such options and such restricted shares of common stock were issued pursuant to written compensatory plans or arrangements with our employees, directors and consultants, in reliance on the exemption provided by Rule 701 promulgated under the Securities Act, or pursuant to Section 4(a)(2) under the Securities Act, relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required.
(c) Warrants.
On August 9, 2013 and July 25, 2014, the registrant issued warrants to purchase an aggregate of 66,668 shares of Series D preferred stock to Oxford Finance LLC, or Oxford, and Square 1 Bank pursuant to Section 4(a)(2) of the Securities Act as a transaction not involving a public offering
On July 24, 2015, the registrant issued warrants to purchase up to 80,820 shares of common stock to accredited investors pursuant to Section 4(a)(2) of the Securities Act and Rule 506 as a transaction not involving a public offering.
On August 27, 2015, September 3, 2015 and September 17, 2015, the registrant issued warrants to purchase up to an aggregate of 569,791 shares of common stock to accredited investors pursuant to Section 4(a)(2) of the Securities Act and Rule 506 as a transaction not involving a public offering.
On December 31, 2015, the registrant issued warrants to purchase up to an aggregate of 37,978 shares of Series E Preferred Stock to Oxford and Pacific Western Bank pursuant to Section 4(a)(2) of the Securities Act as a transaction not involving a public offering.
| | II-3 |
Part II
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
Exhibit number |
Description of exhibit
|
||
---|---|---|---|
| | | |
1.1 | Form of Underwriting Agreement | ||
3.1 |
Certificate of Incorporation of the Registrant, as amended (currently in effect) |
||
3.2 |
** |
Bylaws of the Registrant (currently in effect) |
|
3.3 |
** |
Form of Restated Certificate of Incorporation of the Registrant (to be effective upon the closing of this offering) |
|
3.4 |
** |
Form of Restated Bylaws of the Registrant (to be effective upon the closing of this offering) |
|
4.1 |
Fifth Amended and Restated Investors' Rights Agreement, dated as of August 26, 2015, by and between the Registrant and each of the stockholders party thereto, as amended by Amendment No. 1 to Fifth Amended and Restated Investors' Rights Agreement, dated as of June 7, 2016 |
||
4.2 |
** |
Specimen Stock Certificate evidencing the shares of common stock |
|
4.3 |
** |
Form of Warrant to Purchase Common Stock, dated July 24, 2015, issued by the Registrant to Investors in the Registrant's April 2015 Convertible Notes Financing, together with a schedule of warrantholders |
|
4.4 |
** |
Form of Warrant to Purchase Common Stock, dated August 27, 2015, September 3, 2015 or September 17, 2015, issued by the Registrant to Investors in the Registrant's Series E Preferred Stock Financing, together with a schedule of warrantholders |
|
4.5 |
** |
Form of Warrant to Purchase Shares of Series D Preferred Stock, dated August 9, 2013 or July 25, 2014, issued by the Registrant to Oxford Finance LLC and Square One Bank, together with a schedule of warrantholders |
|
4.6 |
** |
Form of Warrant to Purchase Shares of Series E Preferred Stock, dated December 31, 2015, issued by the Registrant to Oxford Finance LLC and Square One Bank, together with a schedule of warrantholders |
|
5.1 |
Opinion of Latham & Watkins LLP |
||
10.1 |
** |
2008 Stock Incentive Plan, as amended, and form of option agreements thereunder |
|
10.2 |
2016 Incentive Award Plan and form of award agreements thereunder |
||
10.3 |
2016 Employee Stock Purchase Plan |
||
10.4 |
Non-Employee Director Compensation Program |
||
10.5 |
** |
Form of Indemnification Agreement for Directors and Officers |
|
10.6 |
** |
Amended and Restated Loan and Security Agreement, dated as of December 31, 2015, by and between the Registrant, Oxford Finance LLC and Pacific Western Bank |
|
10.7(a) |
** |
Exclusive Patent License Agreement, dated as of November 25, 2008, by and between the Registrant and the Massachusetts Institute of Technology |
|
10.7(b) |
** |
First Amendment to Exclusive Patent License Agreement, dated as of January 12, 2010, by and between the Registrant and the Massachusetts Institute of Technology |
II-4 | | |
Part II
Exhibit number |
Description of exhibit
|
||
---|---|---|---|
| | | |
10.7(c) | ** | Letter Agreement, dated as of November 27, 2012, by and among the Registrant, Massachusetts Institute of Technology and Sanofi | |
10.7(d) |
** |
Letter Amendment, dated as of November 27, 2012, by and between the Registrant and the Massachusetts Institute of Technology |
|
10.7(e) |
** |
Second Amendment to Exclusive Patent License Agreement, dated as of August 29, 2013, by and between the Registrant and the Massachusetts Institute of Technology |
|
10.8(a) |
** |
License and Research Collaboration Agreement, dated as of November 27, 2012, by and between the Registrant and Sanofi |
|
10.8(b) |
** |
Supplemental Agreement No. 1 to License and Research Collaboration Agreement, dated as of May 7, 2015, by and between the Registrant and Sanofi |
|
10.9 |
** |
License Agreement, dated as of May 12, 2014, by and between the Registrant and Shenyang Sunshine Pharmaceutical Co., Ltd. |
|
10.10 |
** |
Manufacturing Services Agreement, dated as of August 1, 2014, by and between the Registrant and Shenyang Sunshine Pharmaceutical Co., Ltd. |
|
10.11 |
** |
Patent Cross-License Agreement, dated as of December 18, 2008, by and between the Registrant and BIND Therapeutics, Inc. (formerly BIND Biosciences, Inc.) |
|
10.12 |
** |
Exclusive License Agreement, dated as of May 17, 2016, by and among the Registrant, the Massachusetts Eye and Ear Infirmary and The Schepens Eye Research Institute, Inc. |
|
10.13 |
** |
Lease, dated as of September 30, 2008, as amended by the First Amendment, dated as of July 12, 2011, the Second Amendment, dated as of October 11, 2011 and the Third Amendment, dated as of April 6, 2015, by and between the Registrant and ARE-480 Arsenal Street, LLC |
|
10.14 |
** |
Consulting Agreement, dated as of March 10, 2008, as amended by the First Amendment to Consulting Agreement, dated as of January 1, 2012, by and between the Registrant and Robert S. Langer |
|
10.15 |
** |
Consulting Agreement, dated as of March 10, 2008, as amended by the First Amendment to Consulting Agreement, dated as of January 1, 2012, by and between the Registrant and Omid Farokhzad |
|
10.16 |
Summary of Oral Agreement, by and between the Registrant and Omid Farokhzad |
||
10.17 |
Employment Agreement, dated as of June 6, 2016, by and between the Registrant and Werner Cautreels |
||
10.18 |
Employment Agreement, dated as of June 6, 2016, by and between the Registrant and Takashi Kei Kishimoto |
||
10.19 |
Employment Agreement, dated as of June 6, 2016, by and between the Registrant and Peter Keller |
||
10.20 |
Employment Agreement, dated as of June 6, 2016, by and between the Registrant and Earl E. Sands |
||
10.21 |
Employment Agreement, dated as of June 6, 2016, by and between the Registrant and Lloyd P. M. Johnston, Ph.D. |
||
10.22 |
Employment Agreement, dated as of June 6, 2016, by and between the Registrant and David Abraham |
| | II-5 |
Part II
Exhibit number |
Description of exhibit
|
||
---|---|---|---|
| | | |
10.23 | Employment Agreement, dated as of June 6, 2016, by and between the Registrant and David Siewers | ||
10.24 |
Independent Director Consulting Agreement, dated as of May 5, 2009, as amended by the First Amendment to Independent Director Consulting Agreement, dated as of July 22, 2009, by and between the Registrant and George R. Siber, M.D., as terminated by a letter, dated as of June 1, 2016 |
||
10.25 |
** |
Employment Agreement, dated as of July 19, 2010, by and between the Registrant and Werner Cautreels |
|
10.26 |
** |
Employment Agreement, dated as of June 22, 2011, by and between the Registrant and Takashi Kei Kishimoto |
|
10.27 |
** |
Employment Agreement, dated as of January 7, 2011, by and between the Registrant and Peter Keller |
|
10.28 |
** |
Employment Agreement, dated as of July 1, 2015, by and between the Registrant and Earl E. Sands |
|
10.29 |
** |
Offer Letter, dated as of June 30, 2015, by and between the Registrant and Earl E. Sands, M.D. |
|
10.30 |
** |
Offer Letter, dated as of June 2, 2008, by and between the Registrant and Lloyd P. M. Johnston, Ph.D. |
|
10.31 |
** |
Offer Letter, dated as of April 4, 2011, by and between the Registrant and David Abraham |
|
10.32 |
** |
Offer Letter, dated as of September 4, 2009, by and between the Registrant and David Siewers |
|
21.1 |
** |
Subsidiaries of the Registrant |
|
23.1 |
Consent of Ernst & Young LLP |
||
23.2 |
Consent of Latham & Watkins LLP (included in Exhibit 5.1) |
||
24.1 |
** |
Power of Attorney (included on signature page) |
|
99.1 |
** |
Consent of Director Nominee |
(b) Financial Statement Schedules. Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or notes thereto.
II-6 | | |
Part II
The undersigned registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned hereby undertakes that:
| | II-7 |
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 Watertown, Commonwealth of Massachusetts, on this 8th day of June, 2016.
SELECTA BIOSCIENCES, INC. |
||||
By: |
/s/ WERNER CAUTREELS, PH.D. |
|||
Werner Cautreels, Ph.D. President and Chief Executive Officer |
II-8 | | |
Signatures and power of attorney
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
|
||||
---|---|---|---|---|---|---|
| | | | | | |
/s/ WERNER CAUTREELS, PH.D. Werner Cautreels, Ph.D. |
President, Chief Executive Officer and Director (principal executive officer) | June 8, 2016 | ||||
/s/ DAVID SIEWERS David Siewers |
Chief Financial Officer (principal financial officer and principal accounting officer) |
June 8, 2016 |
||||
* Omid Farokhzad, M.D. |
Director |
June 8, 2016 |
||||
* Carl Gordon, Ph.D. |
Director |
June 8, 2016 |
||||
* Peter Barton Hutt |
Director |
June 8, 2016 |
||||
* Edwin M. Kania, Jr. |
Director |
June 8, 2016 |
||||
* Robert S. Langer, Sc.D. |
Director |
June 8, 2016 |
||||
* Amir Nashat, Sc.D. |
Director |
June 8, 2016 |
||||
* Aymeric Sallin, M.S. |
Director |
June 8, 2016 |
||||
* Leysan Shaydullina, M.D. |
Director |
June 8, 2016 |
||||
* George Siber, M.D. |
Director |
June 8, 2016 |
||||
*By: |
/s/ WERNER CAUTREELS, PH.D. Werner Cautreels, Ph.D. Attorney-in-fact |
| | II-9 |
Exhibit index
Exhibit number |
Description of exhibit
|
||
---|---|---|---|
| | | |
1.1 | Form of Underwriting Agreement | ||
3.1 |
Certificate of Incorporation of the Registrant, as amended (currently in effect) |
||
3.2 |
** |
Bylaws of the Registrant (currently in effect) |
|
3.3 |
** |
Form of Restated Certificate of Incorporation of the Registrant (to be effective upon the closing of this offering) |
|
3.4 |
** |
Form of Restated Bylaws of the Registrant (to be effective upon the closing of this offering) |
|
4.1 |
Fifth Amended and Restated Investors' Rights Agreement, dated as of August 26, 2015, by and between the Registrant and each of the stockholders party thereto, as amended by Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement, dated as of June 7, 2016 |
||
4.2 |
** |
Specimen Stock Certificate evidencing the shares of common stock |
|
4.3 |
** |
Form of Warrant to Purchase Common Stock, dated July 24, 2015, issued by the Registrant to Investors in the Registrant's April 2015 Convertible Notes Financing, together with a schedule of warrantholders |
|
4.4 |
** |
Form of Warrant to Purchase Common Stock, dated August 27, 2015, September 3, 2015 or September 17, 2015, issued by the Registrant to Investors in the Registrant's Series E Preferred Stock Financing, together with a schedule of warrantholders |
|
4.5 |
** |
Form of Warrant to Purchase Shares of Series D Preferred Stock, dated August 9, 2013 or July 25, 2014, issued by the Registrant to Oxford Finance LLC and Square One Bank, together with a schedule of warrantholders |
|
4.6 |
** |
Form of Warrant to Purchase Shares of Series E Preferred Stock, dated December 31, 2015, issued by the Registrant to Oxford Finance LLC and Pacific Western Bank, together with a schedule of warrantholders |
|
5.1 |
Opinion of Latham & Watkins LLP |
||
10.1 |
** |
2008 Stock Incentive Plan, as amended, and form of option agreements thereunder |
|
10.2 |
2016 Incentive Award Plan and form of award agreements thereunder |
||
10.3 |
2016 Employee Stock Purchase Plan |
||
10.4 |
Non-Employee Director Compensation Program |
||
10.5 |
** |
Form of Indemnification Agreement for Directors and Officers |
|
10.6 |
** |
Amended and Restated Loan and Security Agreement, dated as of December 31, 2015, by and between the Registrant, Oxford Finance LLC and Pacific Western Bank |
|
10.7(a) |
** |
Exclusive Patent License Agreement, dated as of November 25, 2008, by and between the Registrant and the Massachusetts Institute of Technology |
|
10.7(b) |
** |
First Amendment to Exclusive Patent License Agreement, dated as of January 12, 2010, by and between the Registrant and the Massachusetts Institute of Technology |
Exhibit index
Exhibit number |
Description of exhibit
|
||
---|---|---|---|
| | | |
10.7(c) | ** | Letter Agreement, dated as of November 27, 2012, by and among the Registrant, Massachusetts Institute of Technology and Sanofi | |
10.7(d) |
** |
Letter Amendment, dated as of November 27, 2012, by and between the Registrant and the Massachusetts Institute of Technology |
|
10.7(e) |
** |
Second Amendment to Exclusive Patent License Agreement, dated as of August 29, 2013, by and between the Registrant and the Massachusetts Institute of Technology |
|
10.8(a) |
** |
License and Research Collaboration Agreement, dated as of November 27, 2012, by and between the Registrant and Sanofi |
|
10.8(b) |
** |
Supplemental Agreement No. 1 to License and Research Collaboration Agreement, dated as of May 7, 2015, by and between the Registrant and Sanofi |
|
10.9 |
** |
License Agreement, dated as of May 12, 2014, by and between the Registrant and Shenyang Sunshine Pharmaceutical Co., Ltd. |
|
10.10 |
** |
Manufacturing Services Agreement, dated as of August 1, 2014, by and between the Registrant and Shenyang Sunshine Pharmaceutical Co., Ltd. |
|
10.11 |
** |
Patent Cross-License Agreement, dated as of December 18, 2008, by and between the Registrant and BIND Therapeutics, Inc. (formerly BIND Biosciences, Inc.) |
|
10.12 |
** |
Exclusive License Agreement, dated as of May 17, 2016, by and among the Registrant, the Massachusetts Eye and Ear Infirmary and The Schepens Eye Research Institute, Inc. |
|
10.13 |
** |
Lease, dated as of September 30, 2008, as amended by the First Amendment, dated as of July 12, 2011, the Second Amendment, dated as of October 11, 2011 and the Third Amendment, dated as of April 6, 2015, by and between the Registrant and ARE-480 Arsenal Street, LLC |
|
10.14 |
** |
Consulting Agreement, dated as of March 10, 2008, as amended by the First Amendment to Consulting Agreement, dated as of January 1, 2012, by and between the Registrant and Robert S. Langer |
|
10.15 |
** |
Consulting Agreement, dated as of March 10, 2008, as amended by the First Amendment to Consulting Agreement, dated as of January 1, 2012, by and between the Registrant and Omid Farokhzad |
|
10.16 |
Summary of Oral Agreement, by and between the Registrant and Omid Farokhzad |
||
10.17 |
Employment Agreement, dated as of June 6, 2016, by and between the Registrant and Werner Cautreels |
||
10.18 |
Employment Agreement, dated as of June 6, 2016, by and between the Registrant and Takashi Kei Kishimoto |
||
10.19 |
Employment Agreement, dated as of June 6, 2016, by and between the Registrant and Peter Keller |
||
10.20 |
Employment Agreement, dated as of June 6, 2016, by and between the Registrant and Earl E. Sands |
||
10.21 |
Employment Agreement, dated as of June 6, 2016, by and between the Registrant and Lloyd P. M. Johnston, Ph.D. |
Exhibit index
Exhibit number |
Description of exhibit
|
||
---|---|---|---|
| | | |
10.22 | Employment Agreement, dated as of June 6, 2016, by and between the Registrant and David Abraham | ||
10.23 |
Employment Agreement, dated as of June 6, 2016, by and between the Registrant and David Siewers |
||
10.24 |
Independent Director Consulting Agreement, dated as of May 5, 2009, as amended by the First Amendment to Independent Director Consulting Agreement, dated as of July 22, 2009, by and between the Registrant and George R. Siber, M.D., as terminated by a letter, dated as of June 1, 2016 |
||
10.25 |
** |
Employment Agreement, dated as of July 19, 2010, by and between the Registrant and Werner Cautreels |
|
10.26 |
** |
Employment Agreement, dated as of June 22, 2011, by and between the Registrant and Takashi Kei Kishimoto |
|
10.27 |
** |
Employment Agreement, dated as of January 7, 2011, by and between the Registrant and Peter Keller |
|
10.28 |
** |
Employment Agreement, dated as of July 1, 2015, by and between the Registrant and Earl E. Sands |
|
10.29 |
** |
Offer Letter, dated as of June 30, 2015, by and between the Registrant and Earl E. Sands, M.D. |
|
10.30 |
** |
Offer Letter, dated as of June 2, 2008, by and between the Registrant and Lloyd P. M. Johnston, Ph.D. |
|
10.31 |
** |
Offer Letter, dated as of April 4, 2011, by and between the Registrant and David Abraham |
|
10.32 |
** |
Offer Letter, dated as of September 4, 2009, by and between the Registrant and David Siewers |
|
21.1 |
** |
Subsidiaries of the Registrant |
|
23.1 |
Consent of Ernst & Young LLP |
||
23.2 |
Consent of Latham & Watkins LLP (included in Exhibit 5.1) |
||
24.1 |
** |
Power of Attorney (included on signature page) |
|
99.1 |
** |
Consent of Director Nominee |
Exhibit 1.1
SELECTA BIOSCIENCES, INC.
Shares
Common Stock
($0.0001 par value per Share)
UNDERWRITING AGREEMENT
UNDERWRITING AGREEMENT
, 2016
UBS Securities LLC
1285 Avenue of the Americas
New York, New York 10019
Stifel, Nicolaus & Company, Incorporated
787 7th Avenue, 11th Floor
New York, New York 10019
as Managing Underwriters
Ladies and Gentlemen:
Selecta Biosciences, Inc., a Delaware corporation (the Company), proposes to issue and sell to the underwriters named in Schedule A annexed hereto (the Underwriters), for whom you are acting as representatives, an aggregate of [] shares (the Firm Shares) of common stock, $0.0001 par value per share (the Common Stock), of the Company. In addition, solely for the purpose of covering over-allotments, the Company proposes to grant to the Underwriters the option to purchase from the Company up to an additional [·] shares of Common Stock (the Additional Shares). The Firm Shares and the Additional Shares are hereinafter collectively sometimes referred to as the Shares. The Shares are described in the Prospectus which is referred to below.
The Company hereby acknowledges that, in connection with the proposed offering of the Shares, it has requested UBS Financial Services Inc. (UBS-FinSvc) to administer a directed share program (the Directed Share Program) under which up to [·] of the Firm Shares, or 5% of the Firm Shares to be purchased by the Underwriters (the Reserved Shares), shall be reserved for sale by UBS-FinSvc at the initial public offering price to the Companys officers, directors, employees and consultants and other persons having a relationship with the Company as designated by the Company (the Directed Share Participants) as part of the distribution of the Shares by the Underwriters, subject to the terms of this Agreement, the applicable rules, regulations and interpretations of the Financial Industry Regulatory Authority, Inc. (FINRA) and all other applicable laws, rules and regulations. The number of Shares available for sale to the general public will be reduced to the extent that Directed Share Participants purchase Reserved Shares. The Underwriters may offer any Reserved Shares not purchased by Directed Share Participants to the general public on the same basis as the other Shares being issued and sold hereunder. The Company has supplied UBS-FinSvc with the names, addresses and telephone numbers of the individuals or other entities which the Company has designated to be participants in the Directed Share Program. It is understood that any number of those so designated to participate in the Directed Share Program may decline to do so.
The Company has prepared and filed, in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively, the Act), with the Securities and Exchange Commission (the Commission) a registration
statement on Form S-1 (File No. 333-211555) under the Act, including a prospectus, relating to the Shares.
Except where the context otherwise requires, Registration Statement, as used herein, means the registration statement, as amended, at the time of such registration statements effectiveness for purposes of Section 11 of the Act, as such section applies to the respective Underwriters (the Effective Time), including (i) all documents filed as a part thereof, (ii) any information contained in a prospectus filed with the Commission pursuant to Rule 424(b) under the Act, to the extent such information is deemed, pursuant to Rule 430A or Rule 430C under the Act, to be part of the registration statement at the Effective Time, and (iii) any registration statement filed to register the offer and sale of Shares pursuant to Rule 462(b) under the Act.
Except where the context otherwise requires, Prospectus, as used herein, means the prospectus, relating to the Shares, filed by the Company with the Commission pursuant to Rule 424(b) under the Act on or before the second business day after the date hereof (or such earlier time as may be required under the Act), or, if no such filing is required, the final prospectus included in the Registration Statement at the time it became effective under the Act, in each case in the form furnished by the Company to you for use by the Underwriters and by dealers in connection with the offering of the Shares.
Preliminary Prospectus, as used herein, means, as of any time, the prospectus relating to the Shares that is included in the Registration Statement immediately prior to that time.
Permitted Free Writing Prospectuses, as used herein, means the documents listed on Schedule B attached hereto under the heading Permitted Free Writing Prospectuses and each road show (as defined in Rule 433 under the Act), if any, related to the offering of the Shares contemplated hereby that is a written communication (as defined in Rule 405 under the Act) (each such road show, an Electronic Road Show). The Underwriters have not offered or sold and will not offer or sell, without the Companys consent, any Shares by means of any free writing prospectus (as defined in Rule 405 under the Act) that is required to be filed by the Underwriters with the Commission pursuant to Rule 433 under the Act, other than a Permitted Free Writing Prospectus.
Covered Free Writing Prospectuses, as used herein, means (i) each issuer free writing prospectus (as defined in Rule 433(h)(1) under the Act), if any, relating to the Shares, which is not a Permitted Free Writing Prospectus and (ii) each Permitted Free Writing Prospectus.
Exempt Written Communication, as used herein, means each written communication, if any, by the Company or any person authorized to act on behalf of the Company made to one or more qualified institutional buyers (QIBs) as such term is defined in Rule 144A under the Act or one or more institutions that are accredited investors (IAIs), as defined in Rule 501(a) under the Act to determine whether such investors might have an interest in a contemplated securities offering.
Exempt Oral Communication, as used herein, means each oral communication made prior to the filing of the Registration Statement by the Company or any person authorized to act on behalf of the Company made to one or more QIBs and/or one or more IAIs to determine whether such investors might have an interest in a contemplated securities offering.
Permitted Exempt Written Communication, as used herein, means the documents listed on Schedule B attached hereto under the heading Permitted Exempt Written Communications.
Covered Exempt Written Communication, as used herein, means (i) each Exempt Written Communication that is not a Permitted Exempt Written Communication and (ii) each Permitted Exempt Written Communication.
Disclosure Package, as used herein, means, collectively, the pricing information set forth on Schedule B attached hereto under the heading Pricing Information Provided Orally by Underwriters, the Preliminary Prospectus and all Permitted Free Writing Prospectuses, if any, considered together.
Applicable Time, as used herein, means [·] [A.M. / P.M.], New York City time, on [·].
As used in this Agreement, business day shall mean a day on which The NASDAQ Stock Market is open for trading. The terms herein, hereof, hereto, hereinafter and similar terms, as used in this Agreement, shall in each case refer to this Agreement as a whole and not to any particular section, paragraph, sentence or other subdivision of this Agreement. The term or, as used herein, is not exclusive.
The Company has prepared and filed, in accordance with Section 12 of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (collectively, the Exchange Act), a registration statement (as amended, the Exchange Act Registration Statement) on Form 8-A (File No. [·]) under the Exchange Act to register, under Section 12(b) of the Exchange Act, the class of securities consisting of the Common Stock.
The Company and the Underwriters agree as follows:
1. Sale and Purchase. Upon the basis of the representations and warranties and subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the respective Underwriters and each of the Underwriters, severally and not jointly, agrees to purchase from the Company the number of Firm Shares set forth opposite the name of such Underwriter in Schedule A attached hereto, subject to adjustment in accordance with Section 8 hereof, in each case at a purchase price of $[·] per Share. The Company is advised by you that the Underwriters intend (i) to make a public offering of their respective portions of the Firm Shares as soon after the effective date of the Registration Statement as in your judgment is advisable and (ii) initially to offer the Firm Shares upon the terms set forth in the Prospectus. You may from time to time increase or decrease the public offering price after the initial public offering to such extent as you may determine.
In addition, the Company hereby grants to the several Underwriters the option (the Over-Allotment Option) to purchase, and upon the basis of the representations and warranties and subject to the terms and conditions herein set forth, the Underwriters shall have the right to purchase, severally and not jointly, from the Company, ratably in accordance with the number of Firm Shares to be purchased by each of them, all or a portion of the Additional Shares as may be necessary to cover over-allotments made in connection with the offering of the Firm Shares, at the same purchase price per share to be paid by the Underwriters to the Company for the Firm Shares less an amount per share equal to any dividend or distribution declared by the Company and payable on the Firm Shares but not payable on the Additional Shares. The Over-Allotment Option may be exercised by UBS Securities LLC (UBS) and Stifel, Nicolaus & Company, Incorporated (Stifel and, together with UBS, the Representatives) on behalf of the several Underwriters at any time and from time to time on or before the thirtieth day following the date of the Prospectus, by written notice to the Company. Such notice shall set forth the aggregate number of Additional Shares as to which the Over-Allotment Option is being exercised and the date and time when the Additional Shares are to be delivered (any such date and time being herein referred to as an additional time of purchase); provided, however, that no additional time of purchase shall be earlier than the time of purchase (as defined below) nor earlier than the second business day after the date on which the Over-Allotment Option shall have been exercised nor later than the tenth business day after the date on which the Over-Allotment Option shall have been exercised. The number of Additional Shares to be sold to each Underwriter shall be the number which bears the same proportion to the aggregate number of Additional Shares being purchased as the number of Firm Shares set forth opposite the name of such Underwriter on Schedule A hereto bears to the total number of Firm Shares (subject, in each case, to such adjustment as UBS may determine to eliminate fractional shares), subject to adjustment in accordance with Section 8 hereof.
2. Payment and Delivery. Payment of the purchase price for the Firm Shares shall be made to the Company by federal funds wire transfer against delivery of such Firm Shares to you through the facilities of The Depository Trust Company (DTC) for the respective accounts of the Underwriters. Such payment and delivery shall be made at 10:00 A.M., New York City time, on the date of the closing (unless another time shall be agreed to by you and the Company or unless postponed in accordance with the provisions of Section 8 hereof). The time at which such payment and delivery are to be made is hereinafter sometimes called the time of purchase. Electronic transfer of the Firm Shares shall be made to you at the time of purchase in such names and in such denominations as you shall specify.
Payment of the purchase price for the Additional Shares shall be made at the additional time of purchase in the same manner and at the same office and time of day as the payment for the Firm Shares. Electronic transfer of the Additional Shares shall be made to you at the additional time of purchase in such names and in such denominations as you shall specify.
Deliveries of the documents described in Section 6 hereof with respect to the purchase of the Shares shall be made at the offices of Cooley LLP at 1114 Avenue of the Americas, New York, New York 10036, at 9:00 A.M., New York City time, on the date of the closing of the purchase of the Firm Shares or the Additional Shares, as the case may be.
3. Representations and Warranties of the Company. The Company represents and warrants to and agrees with each of the Underwriters that:
(a) the Registration Statement has heretofore become effective under the Act or, with respect to any registration statement to be filed to register the offer and sale of Shares pursuant to Rule 462(b) under the Act, will be filed with the Commission and become effective under the Act no later than 10:00 P.M., New York City time, on the date of determination of the public offering price for the Shares; no stop order of the Commission preventing or suspending the use of any Preliminary Prospectus or Permitted Free Writing Prospectus, or the effectiveness of the Registration Statement, has been issued, and no proceedings for such purpose have been instituted or, to the Companys knowledge, are contemplated by the Commission; the Exchange Act Registration Statement has become effective as provided in Section 12 of the Exchange Act.
(b) as of the Effective Time, the Registration Statement complied in all material respects with the requirements of the Act and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; as of the Applicable Time, the Preliminary Prospectus complied in all material respects with the requirements of the Act (including, without limitation, Section 10(a) of the Act) and the Disclosure Package did not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; the Prospectus will comply, as of its date, the time of purchase and each additional time of purchase, if any, in all material respects, with the requirements of the Act (including, without limitation, Section 10(a) of the Act) and, as of the date the Prospectus is filed with the Commission, the time of purchase and any additional time of purchase, if any, the Prospectus will not, as then amended or supplemented, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representation or warranty in this Section 3(b) with respect to any statement contained in the Registration Statement, the Disclosure Package or the Prospectus made in reliance upon and in conformity with information concerning an Underwriter and furnished in writing by or on behalf of such Underwriter through you to the Company expressly for use in the Registration Statement, the Disclosure Package or the Prospectus.
(c) prior to the execution of this Agreement, the Company has not, directly or indirectly, offered or sold any Shares by means of any prospectus (within the meaning of the Act) or used any prospectus (within the meaning of the Act) in connection with the offer or sale of the Shares, in each case other than the Preliminary Prospectus, the Permitted Free Writing Prospectuses, if any and, the Permitted Exempt Written Communications, if any; the Company has not, directly or indirectly, prepared, used or referred to any Permitted Free Writing Prospectus except in compliance with Rules 164 and 433 under the Act; assuming that such Permitted Free Writing Prospectus is
accompanied or preceded by the most recent Preliminary Prospectus that contains a price range or the Prospectus, as the case may be, and that such Permitted Free Writing Prospectus is so sent or given after the Registration Statement was filed with the Commission (and after such Permitted Free Writing Prospectus was, if required pursuant to Rule 433(d) under the Act, filed with the Commission), the sending or giving, by any Underwriter, of any Permitted Free Writing Prospectus will satisfy the provisions of Rule 164 and Rule 433 (without reliance on subsections (b), (c) and (d) of Rule 164); the Preliminary Prospectus dated [·] is a prospectus that, other than by reason of Rule 433 or Rule 431 under the Act, satisfies the requirements of Section 10 of the Act, including a price range where required by rule; neither the Company nor the Underwriters are disqualified, by reason of subsection (f) or (g) of Rule 164 under the Act, from using, in connection with the offer and sale of the Shares, free writing prospectuses (as defined in Rule 405 under the Act) pursuant to Rules 164 and 433 under the Act; the Company is not an ineligible issuer (as defined in Rule 405 under the Act) as of the eligibility determination date for purposes of Rules 164 and 433 under the Act with respect to the offering of the Shares contemplated by the Registration Statement, without taking into account any determination by the Commission pursuant to Rule 405 under the Act that it is not necessary under the circumstances that the Company be considered an ineligible issuer; the parties hereto agree and understand that the content of any and all road shows (as defined in Rule 433 under the Act), Exempt Oral Communications and Covered Exempt Written Communications related to the offering of the Shares contemplated hereby are solely the property of the Company; the Company has caused there to be made available at least one version of a bona fide electronic road show (as defined in Rule 433 under the Act) in a manner that, pursuant to Rule 433(d)(8)(ii) under the Act, causes the Company not to be required, pursuant to Rule 433(d) under the Act, to file, with the Commission, any Electronic Road Show;
(d) as of the date of initial confidential submission of the Registration Statement and as of the date of this Agreement, the Company qualifies or qualified as an emerging growth company (EGC), as defined in Section 2(a)(19) of the Act;
(e) each Permitted Exempt Written Communication, if any, did not as of its date include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(f) the Company has, prior to the date of the Preliminary Prospectus, furnished to you a list containing the names of the recipients of all Covered Exempt Written Communications and all Exempt Oral Communications;
(g) the Company has filed publicly on the Commissions EDGAR database at least 15 calendar days prior to any road show, (as defined in Rule 433 under the Act) any confidentially submitted registration statements and registration amendments relating to the offer and sale of the Shares;
(h) each Covered Exempt Written Communication, if any, does not as of the
date hereof conflict with the information contained in the Registration Statement, the Disclosure Package and the Prospectus;
(i) as of the date of this Agreement, the Company has an authorized and outstanding capitalization or will have an authorized and outstanding capitalization upon the purchase of the Shares, in each case as set forth in the sections of the Registration Statement, the Disclosure Package and the Prospectus entitled Capitalization and Description of Capital Stock, and, as of the time of purchase and any additional time of purchase, as the case may be, the Company shall have an authorized and outstanding capitalization or will have an authorized and outstanding capitalization upon the time of such purchase, in each case, as set forth in the sections of the Registration Statement, the Disclosure Package and the Prospectus entitled Capitalization and Description of Capital Stock (subject, in each case, to the issuance of shares of Common Stock upon exercise of stock options and warrants disclosed as outstanding in the Registration Statement, the Disclosure Package and the Prospectus and the grant of options under existing stock option plans described in the Registration Statement, the Disclosure Package and the Prospectus); all of the issued and outstanding shares of capital stock, including the Common Stock, of the Company have been duly authorized and validly issued and are fully paid and non-assessable, have been issued in compliance with all applicable securities laws and were not issued in violation of any preemptive right, resale right, right of first refusal or similar right; on or prior to the closing, all outstanding shares of preferred stock of the Company shall convert into shares of Common Stock in the manner described in the Registration Statement, the Disclosure Package and the Prospectus; prior to the date hereof, the Company has duly effected and completed a one-for-[·] reverse stock split of the Common Stock in the manner described in the Registration Statement, the Disclosure Package and the Prospectus; and the Certificate of Incorporation (the Charter) and Bylaws (the Bylaws) of the Company, each as amended and in the form filed as an exhibit to the Registration Statement, have been heretofore duly authorized and approved in accordance with the Delaware General Corporation Law and shall become effective and in full force and effect at or before the closing; the Shares are duly listed, and admitted and authorized for trading, subject to official notice of issuance and evidence of satisfactory distribution on The NASDAQ Global Market (NASDAQ);
(j) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement, the Disclosure Package and the Prospectus, and to execute and deliver this Agreement and to issue, sell and deliver the Shares as contemplated herein;
(k) the Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified and in good standing would not, individually or in the aggregate, either (i) have a material adverse effect on the business, properties, financial condition, results of
operations or prospects related thereto of the Company and the Subsidiaries (as defined below) taken as a whole, (ii) prevent or materially interfere with consummation of the transactions contemplated hereby or (iii) prevent the shares of Common Stock from being accepted for listing on, or result in the delisting of shares of Common Stock from NASDAQ (the occurrence of any such effect or any such prevention or interference or any such result described in the foregoing clauses (i), (ii) and (iii) being herein referred to as a Material Adverse Effect);
(l) the Company has no subsidiaries (as defined under the Act) other than Selecta (RUS) Limited Liability Company and Selecta Biosciences Security Corporation (collectively, the Subsidiaries); the Company owns all of the issued and outstanding membership interests or capital stock of each of the Subsidiaries; other than the membership interests or capital stock of the Subsidiaries, the Company does not own, directly or indirectly, any shares of stock or any other equity interests or long-term debt securities of any corporation, firm, partnership, joint venture, association or other entity; complete and correct copies of the charters and the bylaws of the Company and each Subsidiary and all amendments thereto have been delivered to you, and, except as set forth in the exhibits to the Registration Statement, no changes therein will be made on or after the date hereof through and including the time of purchase or, if later, any additional time of purchase; each Subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with full limited liability company or corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the Disclosure Package and the Prospectus; each Subsidiary is duly qualified to do business as a foreign limited liability company or corporation and is in good standing in each jurisdiction where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified and in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; all of the outstanding membership interests or shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable, have been issued in compliance with all applicable securities laws, were not issued in violation of any preemptive right, resale right, right of first refusal or similar right and are owned by the Company subject to no security interest, other encumbrance or adverse claims; no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligation into shares of capital stock or ownership interests in the Subsidiaries are outstanding; each significant subsidiary of the Company, as that term is defined in Rule 1-02(w) of Regulation S-X under the Act, is listed in Exhibit 21.1 of the Registration Statement;
(m) the Shares have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued, fully paid and non-assessable and free of statutory and contractual preemptive rights, resale rights, rights of first refusal and similar rights, except for any such rights that have been waived; the Shares, when issued and delivered against payment therefor as provided herein, will be free of any restriction upon the voting or transfer thereof pursuant to the Delaware General Corporation Law and the Companys Charter or Bylaws and any
agreement or other instrument to which the Company is a party, except for any such rights that have been waived;
(n) the capital stock of the Company, including the Shares, conforms in all material respects to each description thereof, if any, contained in the Registration Statement, the Disclosure Package and the Prospectus; and the certificates for the Shares are in due and proper form;
(o) this Agreement has been duly authorized, executed and delivered by the Company;
(p) neither the Company nor any of the Subsidiaries is in breach or violation of or in default under (nor has any event occurred which, with notice, lapse of time or both, would reasonably be expected to result in any breach or violation of, constitute a default under or give the holder of any indebtedness (or a person acting on such holders behalf) the right to require the repurchase, redemption or repayment of all or a part of such indebtedness under) (A) its charter or bylaws or similar governing documents, or (B) any indenture, mortgage, deed of trust, bank loan or credit agreement or other evidence of indebtedness, or any material license, lease, contract or other agreement or instrument to which it is a party or by which it or any of its properties may be bound or effected, or (C) any U.S. or Russian federal, state, local or foreign law, regulation or rule, or (D) any rule or regulation of any self-regulatory organization or other non-governmental regulatory authority having jurisdiction over the Company or the Subsidiaries (including, without limitation, the rules and regulations of NASDAQ), or (E) any decree, judgment or order applicable to it or any of its properties, except in the case of the foregoing clauses (B), (C), (D) and (E), for any such breaches, violations, defaults or events that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;
(q) the execution, delivery and performance of this Agreement, the issuance and sale of the Shares and the consummation of the transactions contemplated hereby will not conflict with, result in any breach or violation of or constitute a default under (nor constitute any event which, with notice, lapse of time or both, would reasonably be expected to result in any breach or violation of, constitute a default under or give the holder of any indebtedness (or a person acting on such holders behalf) the right to require the repurchase, redemption or repayment of all or a part of such indebtedness under) (or result in the creation or imposition of a lien, charge or encumbrance on any property or assets of the Company or any Subsidiary pursuant to) (A) the Charter or Bylaws of the Company or similar organizational documents of any of the Subsidiaries, or (B) any indenture, mortgage, deed of trust, bank loan or credit agreement or other evidence of indebtedness, or any license, lease, contract or other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties is subject, or (C) any U.S. or Russian federal, state, local or foreign law, regulation or rule, or (D) any rule or regulation of any self-regulatory organization or other non-governmental regulatory authority having jurisdiction over the Company or the Shares (including, without limitation, the rules and
regulations of NASDAQ), or (E) any decree, judgment or order applicable to the Company or any of the Subsidiaries or any of their respective properties, except in the case of the foregoing clauses (B), (C), (D) and (E), for any such breaches, violations, defaults, repurchases, redemptions, repayments or events that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;
(r) no approval, authorization, consent or order of or filing with any federal, state, local or foreign governmental or regulatory commission, board, body, authority or agency, or of or with any self-regulatory organization or other non-governmental regulatory authority (including, without limitation, NASDAQ), or approval of the stockholders of the Company is required in connection with the issuance and sale of the Shares or the consummation by the Company of the transactions contemplated hereby, other than (i) registration of the Shares under the Act, which has been effected (or, with respect to any registration statement to be filed hereunder pursuant to Rule 462(b) under the Act, will be effected in accordance herewith), (ii) any necessary qualification under the securities or blue sky laws of the various jurisdictions in which the Shares are being offered by the Underwriters, (iii) under the Conduct Rules of FINRA; (iv) any listing applications and related consents or any notices required by NASDAQ in the ordinary course of the offering of the Shares, or (v) filings with the Commission pursuant to Rule 424(b) under the Act, except as have already been made, obtained or waived or where the failure to obtain any such approval, authorization, consent, order or filing would not impair the ability of the Company to issue and sell the Shares or to consummate the transactions contemplated by this Agreement;
(s) except as described in the Registration Statement, the Disclosure Package and the Prospectus or as otherwise have been waived (i) no person has the right, contractual or otherwise, to cause the Company to issue or sell to it any shares of Common Stock or shares of any other capital stock or other equity interests of the Company, (ii) no person has any preemptive rights, resale rights, rights of first refusal or other rights to purchase any shares of Common Stock or shares of any other capital stock of or other equity interests in the Company and (iii) no person has the right to act as an underwriter or as a financial advisor to the Company in connection with the offer and sale of the Shares; no person has the right, contractual or otherwise, to cause the Company to register under the Act any shares of Common Stock or shares of any other capital stock of or other equity interests in the Company or to include any such shares or interests in the Registration Statement or the offering contemplated thereby other than those that have been otherwise waived;
(t) except for licenses, authorizations, consents and approvals required to be obtained from the Food and Drug Administration of the U.S. Department of Health and Human Services, each of the Company and the Subsidiaries has obtained all necessary licenses, authorizations, consents and approvals from all applicable authorities, in each case, as required to conduct their respective businesses as currently conducted, except where the failure to obtain such license, authorization, consent or approval or make such filing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; neither the Company nor any of the Subsidiaries is in violation
of, or in default under, or has received written notice of any proceedings from any applicable governmental or regulatory authority relating to the revocation or adverse modification of, any such license, authorization, consent or approval, except as described in the Registration Statement, the Disclosure Package and the Prospectus or where such violation, default, revocation or adverse modification would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;
(u) except as described in the Registration Statement, the Disclosure Package and the Prospectus, there is no legal, governmental, administrative or regulatory investigation, action, suit, claim or proceeding pending or, to the Companys knowledge, threatened to which the Company or any of its Subsidiaries or any of their respective officers or directors is a party (in their respective capacities as such), or to which any property of the Company or the Subsidiaries is or would reasonably be expected to be subject, before any court, board, body, regulatory or non-regulatory administrative agency or competent authority, which if determined adversely to the Company or any of the Subsidiaries would, individually or in the aggregate, have a Material Adverse Effect;
(v) Ernst & Young LLP, whose report on the consolidated financial statements of the Company and the Subsidiaries is included in the Registration Statement, the Disclosure Package and the Prospectus, are independent registered public accountants as required by the Act and by the rules of the Public Company Accounting Oversight Board;
(w) the financial statements included in the Registration Statement, the Disclosure Package and the Prospectus, together with the related notes and schedules present fairly, in all material respects, the consolidated financial position of the Company and the Subsidiaries as of the dates indicated and the consolidated results of operations, cash flows and changes in stockholders equity of the Company and the Subsidiaries for the periods specified, and have been prepared in material compliance with the requirements of the Act and the Exchange Act and in conformity with United States generally accepted accounting principles (GAAP) applied on a consistent basis during the periods involved, and all adjustments necessary for a fair presentation of results for such periods have been made; all pro forma financial information included in the Registration Statement, the Disclosure Package and the Prospectus presents fairly in all material respects the information shown therein, has been prepared in accordance with the provisions of the Act and the Rules and Regulations with respect to pro forma financial information, has been properly compiled on the pro forma bases described therein in accordance with the provisions of the Act and the Rules and Regulations, and the assumptions used in the preparation thereof are reasonable and the adjustments therein are appropriate to give effect to the transactions or circumstances referred to therein; the summary and selected combined financial and operating data included in the Registration Statement, the Disclosure Package and the Prospectus present fairly in all material respects the information shown therein and such data have been compiled on a basis consistent with the financial statements presented therein and the books and records of the Company; there are no financial statements (historical or pro forma) that are required to be included in the Registration Statement, the Disclosure Package or the
Prospectus that are not included as required; the Company and the Subsidiaries do not have any material liabilities or obligations, direct or contingent (including any off-balance sheet obligations), that are not described in the Registration Statement, the Disclosure Package and the Prospectus; and any disclosures contained in the Registration Statement, the Disclosure Package and the Prospectus that constitute non-GAAP financial measures (as such term is defined by the rules and regulations of the Commission) comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K under the Act, to the extent applicable;
(x) except as disclosed in the Registration Statement, the Disclosure Package and the Prospectus, each stock option granted under any stock option plan of the Company or any Subsidiary (each, a Stock Plan) was granted with a per share exercise price no less than the fair market value per share of Common Stock, or, with respect to incentive stock options granted to an employee who on the date of grant was the owner of stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (after taking into account the attribution of stock ownership rules of Section 424(d) of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code or the Code), no less than 110% of the fair market value per share of Common Stock, on the grant date of such option, as determined by the Companys board of directors, and no such grant involved any back-dating, forward-dating or similar practice with respect to the effective date of such grant; except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, each such option (i) was granted in compliance with applicable law and with the applicable Stock Plan(s), (ii) was duly approved by the board of directors (or a duly authorized committee thereof or an officer of the Company duly authorized by the board of directors or authorized committee thereof to make such grants) of the Company or such Subsidiary, as applicable, and (iii) has been properly accounted for in the Companys financial statements in accordance with GAAP;
(y) except as otherwise set forth or contemplated in the Registration Statement, the Disclosure Package or the Prospectus, subsequent to the respective dates as of which information is given in the Registration Statement, the Disclosure Package and the Prospectus, in each case, excluding any amendments or supplements to the foregoing made after the execution of this Agreement, there has not been (i) any material adverse change, or any development involving a prospective material adverse change, in the business, properties, management, financial condition or results of operations of the Company and the Subsidiaries taken as a whole, (ii) any transaction which is material to the Company and the Subsidiaries taken as a whole, (iii) any obligation or liability, direct or contingent (including any off-balance sheet obligations), incurred by the Company or any Subsidiary, which is material to the Company and the Subsidiaries taken as a whole, (iv) any change in the capital stock or outstanding indebtedness of the Company or any Subsidiaries (other than borrowings in the ordinary course of business under the Companys Loan and Security Agreement, as amended on December 31, 2015, and as described in the Registration Statement, the Disclosure Package and the Prospectus, the issuance of shares of Common Stock upon exercise of stock options and warrants described as outstanding in the Registration Statement, the Disclosure Package and the
Prospectus, the grant in the ordinary course of business of awards under equity incentive plans described in the Registration Statement, the Disclosure Package and the Prospectus and the repurchase by the Company or forfeiture of shares of common stock by the holder thereof pursuant to the terms of equity awards described as outstanding in the Registration Statement, the Disclosure Package and the Prospectus) or (v) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any Subsidiary;
(z) the Company has obtained, for the benefit of the Underwriters, executed copies of lock-up agreements, to the effect set forth as Exhibit A hereto (a Lock-Up Agreement), from each officer and director of the Company, each of the persons listed on Schedule C hereto and each Directed Share Participant that purchases at least an aggregate of $1,000,000 in Shares under the Directed Share Program (which, for Directed Share Participants other than the Companys officers and directors, will have a lock-up period of 25 days);
(aa) neither the Company nor any Subsidiary is and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof, neither of them will be, an investment company or an entity controlled by an investment company, as such terms are defined in the Investment Company Act of 1940, as amended (the Investment Company Act), or a passive foreign investment company or a controlled foreign corporation, as such terms are defined in the Internal Revenue Code;
(bb) neither the Company nor the Subsidiaries own any real property; the Company and each of the Subsidiaries have good and marketable title to all tangible personal property described in the Registration Statement, the Disclosure Package and the Prospectus as being owned by any of them, free and clear of all liens, claims, security interests or other encumbrances, except those that do not materially interfere with the use or proposed use of such property by the Company or the Subsidiary, respectively, or as would not materially or adversely affect the value of such property; all the property described in the Registration Statement, the Disclosure Package and the Prospectus as being held under lease by the Company or a Subsidiary is held thereby under valid, subsisting and enforceable leases, except where such failure to hold such property would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent conveyance or other similar laws relating to creditors rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought;
(cc) except as disclosed in the Registration Statement, the Disclosure Package and the Prospectus, the Company and the Subsidiaries own, or have obtained valid and enforceable licenses for, or other rights to use, the patent applications, patents, trademarks, trademark registrations, tradenames, service marks, copyrights, trade secrets and other unpatented and/or unpatentable proprietary information necessary for, or used in the conduct, or the proposed conduct, of the business of the Company and its Subsidiaries taken as a whole in the manner described in the Registration Statement, the
Disclosure Package and the Prospectus (collectively, Intellectual Property), except as such failure to own or obtain rights would not result in a Material Adverse Effect; except as disclosed in the Registration Statement, the Disclosure Package and the Prospectus (i) to the knowledge of the Company, there are no third parties who have any ownership rights in or to any Intellectual Property that is owned by the Company, and, to the knowledge of the Company, no third party has any ownership right in or to any Intellectual Property in any field of use that is exclusively licensed to the Company, other than the licensor to the Company of such Intellectual Property; (ii) the Company has not received written notice of any material infringement by third parties of any Intellectual Property; (iii) there is no pending or, to the Companys knowledge, threatened action, suit, proceeding or claim by others alleging that the Company is infringing, misappropriating, diluting or otherwise violating any rights of others with respect to any Intellectual Property; (iv) there is no pending or, to the Companys knowledge, threatened action, suit, proceeding or claim by others challenging the validity, enforceability or scope of any of the patent or patent applications owned or exclusively licensed by the Company included in the Intellectual Property; (v) the Company has not received written notice of any claim of material infringement with any asserted rights of others with respect to any of the Companys products, proposed products, processes or Intellectual Property; (vi) except as would not reasonably be expected to result in a Material Adverse Effect, the development, sale and any currently proposed use of any of the products, proposed products or processes of the Company referred to in the Registration Statement, the Disclosure Package and the Prospectus, in the current or proposed conduct of the businesses of the Company in the manner and to the extent described in the Registration Statement, the Disclosure Package and the Prospectus, do not currently, and will not upon commercialization, infringe any right or valid patent claim of any third party; (vii) to the knowledge of the Company, the parties prosecuting the patents and patent applications owned or licensed to the Company or under which the Company has rights included in the Intellectual Property have complied with their duty of candor and disclosure to the U.S. Patent and Trademark Office (the USPTO) in connection with such applications and the Company is not aware of any facts required to be disclosed to the USPTO that were not disclosed to the USPTO and which would preclude the grant of a patent in connection with any such application, or in the view of the Company could form a reasonable basis of a finding of invalidity with respect to any patents that have issued with respect to such applications; (viii) there is no prior art that may render any patent application within the Intellectual Property unpatentable that has not been disclosed to the U.S. Patent and Trademark Office or of which the Company is otherwise aware; (ix) the product candidates described in the Registration Statement, the Disclosure Package and the Prospectus as under development by the Company or any Subsidiary fall within the scope of the claims of one or more patents owned by, or exclusively licensed to, the Company or any Subsidiary; and (x) to the Companys knowledge, there is no patent or published patent application in the U.S. or other jurisdiction which contains claims that dominate or may dominate the Intellectual Property or that interferes with the issued or pending claims of any such Intellectual Property;
(dd) except for matters which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, there is (A) no unfair labor practice complaint pending or, to the Companys knowledge, threatened against the Company or any of the Subsidiaries before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under collective bargaining agreements is pending, or to the Companys knowledge, threatened and (B) no strike, labor dispute, slowdown or stoppage pending or, to the Companys knowledge, threatened against the Company or any of the Subsidiaries or against any of the principal suppliers, contractors or customers of the Company or any of its Subsidiaries;
(ee) the Company and the Subsidiaries are in compliance with, and hold all permits, authorizations and approvals required under, Environmental Laws (as defined below), except to the extent that failure to so comply or to hold such permits, authorizations or approvals would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; the Company and the Subsidiaries are not aware of any non-compliance with Environmental Laws, any past or present events, conditions, activities, practices, actions, omissions or plans that could reasonably be expected to result in non-compliance with Environmental Laws or any current liabilities under Environmental Laws, that could individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; the Company and the Subsidiaries (i) are not the subject of any investigation known to the Company, (ii) have not received any notice or claim, (iii) are not a party to any pending or, to the Companys knowledge, threatened action, suit or proceeding, (iv) are not bound by any judgment, decree or order or (v) have not entered into any agreement, in each case relating to any alleged violation of any Environmental Law or any actual or alleged release or threatened release or cleanup at any location of any Hazardous Materials (as defined below) (as used herein, Environmental Law means any federal, state, local or foreign law, statute, ordinance, rule, regulation, order, decree, judgment, injunction, permit, license, authorization or other legal requirement relating to health, safety or the protection, cleanup or restoration of the environment or natural resources, including those relating to the distribution, processing, generation, treatment, storage, disposal, transportation, other handling or release or threatened release of Hazardous Materials, and Hazardous Materials means any material (including, without limitation, pollutants, contaminants, hazardous or toxic substances or wastes) that is regulated by or may give rise to liability under any Environmental Law);
(ff) except as described in the Registration Statement, the Disclosure Package or the Prospectus, all material tax returns required to be filed by the Company or any of the Subsidiaries have been filed (subject to permitted extensions), and all material taxes and other assessments of a similar nature (whether imposed directly or through withholding) including any material interest, additions to tax or penalties applicable thereto due or claimed to be due from such entities have been paid, other than those being contested in good faith and for which adequate reserves have been provided;
(gg) the Company and each of the Subsidiaries maintain insurance covering their respective properties, operations, personnel and businesses as the Company reasonably deems adequate; such insurance insures against such losses and risks in
accordance with customary industry practice to protect the Company and the Subsidiaries and their respective businesses and which is commercially reasonably for the current conduct of its business; to the Companys knowledge, all such insurance is fully in force on the date hereof and is expected to be fully in force at the time of purchase and each additional time of purchase, if any; neither the Company nor any Subsidiary has reason to believe that it will not be able to (i) renew any such insurance as and when such insurance expires or (ii) obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted at a cost that would not, individually or in the aggregate, reasonably be expected to result in any Material Adverse Effect;
(hh) except as referred to or described in the Registration Statement, the Disclosure Package or the Prospectus, neither the Company nor any Subsidiary has sent or received any communication regarding termination of, or intent not to renew, any of the contracts or agreements referred to or described in the Registration Statement, the Disclosure Package or the Prospectus, and no such termination or non-renewal has been threatened by the Company or any Subsidiary or, to the Companys knowledge, any counterparty to any such contract or agreement;
(ii) the Company and the Subsidiaries maintain a system of internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that has been designed by, or under the supervision of, the Companys principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with managements general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with managements general or specific authorization and any unauthorized access that could have a material effect on the Companys financial statements is timely detected; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Disclosure Package and the Prospectus, there are no material weaknesses in the Companys internal controls. The auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which have adversely affected or are reasonably likely to adversely affect the Companys ability to record, process, summarize and report financial information; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal controls over financial reporting;
(jj) the Company and its Subsidiaries have established and, as of the Effective Time, maintain and evaluate disclosure controls and procedures (as such term is defined in Rule 13a-15 under the Exchange Act); such disclosure controls and procedures
have been designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Companys Chief Executive Officer and its Chief Financial Officer by others within those entities, and such disclosure controls and procedures are effective to perform the functions for which they were established; no significant deficiencies or material weaknesses (as such terms are defined in Rule 1-02(a)(4) of Regulation S-X under the Act) of the Company were identified in connection with the audit by the Companys independent registered public accountants of the Companys financial statements for the fiscal year ended December 31, 2015; since the date of the most recent evaluation of such disclosure controls and procedures and internal controls, there have been no significant changes in internal controls or in other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses and the Company has taken all necessary actions to ensure that, upon and at all times after the filing of the Registration Statement, the Disclosure Package or the Prospectus, the Company and the Subsidiaries and their respective officers and directors, in their capacities as such, have been in compliance in all material respects with the applicable provisions of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) and the rules and regulations promulgated thereunder;
(kk) the Company has taken all actions reasonably necessary to ensure that, upon and at all times at and after the filing of the Registration Statement, the Company and the Subsidiaries and their respective officers and directors, in their capacities as such, will be in compliance in all material respects with the applicable provisions of the Sarbanes-Oxley Act and the rules and regulations promulgated in connection therewith;
(ll) each forward-looking statement (within the meaning of Section 27A of the Act or Section 21E of the Exchange Act) contained in the Registration Statement, the Disclosure Package and the Prospectus has been made or reaffirmed with a reasonable basis and in good faith;
(mm) all statistical or market-related data included in the Registration Statement, the Disclosure Package and the Prospectus are based on or derived from sources that the Company reasonably believes to be reliable and accurate;
(nn) none of the Company, any of the Subsidiaries or any of their respective officers or directors or, to the knowledge of the Company, any agent, employee or controlled affiliate of the Company or any of the Subsidiaries is aware of or has taken any action, directly or indirectly, that would result in a violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the Foreign Corrupt Practices Act), or the OECD Convention on Bribery of Foreign Public Officials in International Business Transactions (the OECD Convention); the Company, the Subsidiaries and, to the knowledge of the Company, its controlled affiliates have instituted and maintain policies and procedures designed to ensure continued compliance therewith;
(oo) the operations of the Company and the Subsidiaries are and have been
conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the USA Patriot Act, the Bank Secrecy Act of 1970, as amended, the anti-money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency having jurisdiction over the Company (collectively, the Money Laundering Laws); and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator or non-governmental authority involving the Company or any of the Subsidiaries with respect to the Money Laundering Laws is pending or, to the Companys knowledge, threatened;
(pp) none of the Company, any of the Subsidiaries or any of their respective officers or directors or, to the knowledge of the Company, any agent, employee or controlled affiliate of the Company or any of the Subsidiaries is currently subject to or has been subject in the last three (3) years to any sanctions administered or enforced by the Office of Foreign Assets Control of the U.S. Treasury Department, the United Nations Security Council, the European Union, Her Majestys Treasury or any other relevant sanctions authority; and the Company will not directly or indirectly use the proceeds of the offering of the Shares contemplated hereby, or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other person or entity for the purpose of financing the activities of any person currently subject to any sanctions administered or enforced by such authorities;
(qq) the Company acknowledges that, in accordance with the requirements of the USA Patriot Act, the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company, which information may include the name and address of their respective clients, as well as other information that will allow the Underwriters to properly identify their respective clients
(rr) no Subsidiary is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiarys capital stock, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiarys property or assets to the Company or any other Subsidiary of the Company, except as described in the Registration Statement, the Disclosure Package and the Prospectus;
(ss) the preclinical and clinical studies conducted by or, to the Companys knowledge, on behalf of the Company that are described in, or the results of which are referred to in, the Registration Statement, the Disclosure Package and the Prospectus were and, if still pending, are being conducted in all material respects in accordance with applicable local, state and federal laws, rules and regulations, including, but not limited to, the Federal Food, Drug and Cosmetic Act and its applicable implementing regulations; each description of the results of such studies contained in the Registration Statement, the Disclosure Package and the Prospectus is accurate in all material respects and fairly presents the data derived from such studies, and the Company is not aware of any other studies the results of which the Company believes reasonably call into question the study results described or referred to in the Registration Statement, the Disclosure
Package and the Prospectus; and except as disclosed in the Registration Statement, the Disclosure Package and the Prospectus, neither the Company nor any Subsidiary has received any written notices or other written correspondence from the Food and Drug Administration of the U.S. Department of Health and Human Services or any committee thereof or from any other U.S. or foreign government or drug or medical device regulatory agency having jurisdiction over the Company or any of its properties (collectively, the Regulatory Agencies) requiring the termination, suspension or material adverse modification of any clinical trials that are described or referred to in the Registration Statement, the Disclosure Package and the Prospectus; and the Company and the Subsidiaries have each operated and currently are in compliance with all applicable rules and regulations of the Regulatory Agencies except where the failure to be in compliance would not be expected reasonably to have a Material Adverse Effect;
(tt) the Company and the Subsidiaries are, and since January 1, 2013 have been, in compliance with all applicable Health Care Laws except where failure to be in compliance would not be expected reasonably to have a Material Adverse Effect. For purposes of this Agreement, Health Care Laws means: (i) the Federal Food, Drug, and Cosmetic Act (21 U.S.C. §§ 301 et seq.), and the regulations promulgated thereunder; (ii) all applicable federal, state, local and foreign health care related fraud and abuse laws, including, without limitation, the U.S. Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)), the U.S. Civil False Claims Act (31 U.S.C. §§ 3729 et seq.), the Federal False Statements Law (42 U.S.C. § 1320a-7b(a)), all criminal laws relating to health care fraud and abuse, including but not limited to 18 U.S.C. §§ 286 and 287, and the health care fraud criminal provisions under the U.S. Health Insurance Portability and Accountability Act of 1996 (HIPAA) (42 U.S.C. §§ 1320d et seq.), the Civil Monetary Penalties Law (42 U.S.C. § 1320a-7a), the exclusion laws (42 U.S.C. § 1320a-7), the Medicare statute (Title XVIII of the Social Security Act), and the Medicaid statute (Title XIX of the Social Security Act) and the regulations promulgated pursuant to such statutes; (iii) HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (42 U.S.C. Section 17921 et seq.), and the regulations promulgated thereunder; (iv) the U.S. Physician Payments Sunshine Act (42 U.S.C. § 1320a-7h), and the regulations promulgated thereunder; and (v) any and all other applicable health care laws and regulation applicable to the ownership, testing, development, manufacture, packaging, processing, use, distribution, marketing, advertising, labeling, promotion, sale, offer for sale, storage, import, export or disposal of any product under development by the Company. Neither the Company nor the Subsidiaries has received written notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any court or arbitrator or governmental or regulatory authority alleging that any product operation or activity is in material violation of any Health Care Laws, and, to the Companys knowledge, no such claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action is threatened. Neither the Company nor the Subsidiaries is a party to any corporate integrity agreements, monitoring agreements, consent decrees, settlement orders, or similar agreements with or imposed by any governmental or regulatory authority. Additionally, none of the Company or its Subsidiaries or any of their respective officers or directors or, to the Companys knowledge, any of their respective employees has been excluded, suspended or debarred
from participation in any U.S. federal health care program or human clinical research or, to the knowledge of the Company, is subject to a governmental inquiry, investigation, proceeding, or other similar action that could reasonably be expected to result in debarment, suspension, or exclusion. The Company and the Subsidiaries have filed, obtained, maintained or submitted all reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments as required by the Health Care Laws, and all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were complete and accurate on the date filed in all material respects (or were corrected or supplemented by a subsequent submission), except in each case, as would not reasonably be expected to have a Material Adverse Effect;
(uu) the issuance and sale of the Shares as contemplated hereby will not cause any holder of any shares of capital stock, securities convertible into or exchangeable or exercisable for capital stock or options, warrants or other rights to purchase capital stock or any other securities of the Company to have any right to acquire any shares of preferred stock of the Company, except as have been otherwise waived;
(vv) except pursuant to this Agreement, neither the Company nor any of the Subsidiaries has incurred any liability for any finders or brokers fee or agents commission in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby or by the Registration Statement;
(ww) none of the Company, any of the Subsidiaries or any of their respective directors, officers or affiliates has taken, directly or indirectly, any action designed, or which has constituted or might reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares in violation of Regulation M under the Exchange Act;
(xx) to the Companys knowledge, there are no affiliations or associations between (i) any member of FINRA and (ii) the Company or any of the Companys officers, directors or 5% or greater security holders or any beneficial owner of the Companys unregistered equity securities that were acquired at any time on or after the 180th day immediately preceding the date the Registration Statement was initially filed with the Commission, except as disclosed in the Registration Statement, the Disclosure Package and the Prospectus;
(yy) except for matters which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, each employee benefit plan (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder (ERISA)) for which the Company or any member of its Controlled Group (defined as any organization that is a member of a controlled group of corporations within the meaning of Section 414 of the Internal Revenue Code, including its subsidiaries, would have liability (each a Plan) is in compliance in all material respects with all presently applicable statutes, rules and regulations, including ERISA and the Code; (ii) with respect
to each Plan subject to Title IV of ERISA (a) no reportable event (as defined in Section 4043 of ERISA) has occurred for which the Company or any member of its Controlled Group would have any liability; and (b) neither the Company nor any member of its Controlled Group has incurred or expects to incur liability under Title IV of ERISA (other than for contributions to the Plan or premiums payable to the Pension Benefit Guaranty Corporation, in each case in the ordinary course and without default); (iii) no Plan which is subject to Section 412 of the Code or Section 302 of ERISA has failed to satisfy the minimum funding standard within the meaning of such sections of the Code or ERISA; and (iv) each Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or by failure to act, which would reasonably be expected to cause the loss of such qualification;
(zz) the Registration Statement, each Preliminary Prospectus, the Prospectus and each Permitted Free Writing Prospectus comply, and any further amendments or supplements thereto will comply, with any applicable laws or regulations of any foreign jurisdiction in which any Preliminary Prospectus, the Prospectus or any Permitted Free Writing Prospectus is distributed in connection with the Directed Share Program; and no approval, authorization, consent or order of or filing with any governmental or regulatory commission, board, body, authority or agency, other than those heretofore obtained, is required in connection with the offering of the Reserved Shares in any jurisdiction where the Reserved Shares are being offered; and
(aaa) the Company has not offered, or caused the Underwriters to offer, Shares to any person pursuant to the Directed Share Program with the intent to influence unlawfully (i) a customer or supplier of the Company or any of the Subsidiaries to alter the customers or suppliers level or type of business with the Company or any of the Subsidiaries, or (ii) a trade journalist or publication to write or publish favorable information about the Company or any of the Subsidiaries or any of their respective products or services.
In addition, any certificate signed by any officer of the Company and delivered to any Underwriter or counsel for the Underwriters in connection with the offering of the Shares shall be deemed to be a representation and warranty by the Company, as to matters covered thereby, to each Underwriter.
4. Certain Covenants. The Company hereby agrees:
(a) to furnish such information as may be required and otherwise to cooperate in qualifying the Shares for offering and sale under the securities or blue sky laws of such states or other jurisdictions as you may designate and to maintain such qualifications in effect so long as you may reasonably request for the distribution of the Shares; provided, however, that the Company shall not be required to qualify as a foreign corporation or to consent to the service of process under the laws of any such jurisdiction (except service of process with respect to the offering and sale of the Shares); and to promptly advise you of the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for offer or sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
(b) to make available to the Underwriters in New York City, as soon as practicable after this Agreement becomes effective, and thereafter from time to time, prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares, to furnish to the Underwriters, as many copies of the Prospectus (or of the Prospectus as amended or supplemented if the Company shall have made any amendments or supplements thereto after the effective date of the Registration Statement) as the Underwriters may reasonably request for the purposes contemplated by the Act; in case any Underwriter is required to deliver (whether physically or through compliance with Rule 172 under the Act or any similar rule), in connection with the sale of the Shares, a prospectus after the nine-month period referred to in Section 10(a)(3) of the Act, the Company will prepare, at its expense, promptly upon request such amendment or amendments to the Registration Statement and the Prospectus as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the Act;
(c) if, at the time this Agreement is executed and delivered, it is necessary or appropriate for a post-effective amendment to the Registration Statement, or a Registration Statement under Rule 462(b) under the Act, to be filed with the Commission and become effective before the Shares may be sold, the Company will use its best efforts to cause such post-effective amendment or such Registration Statement to be promptly filed and become effective, and will pay any applicable fees in accordance with the Act; and the Company will advise you promptly and, if requested by you, will confirm such advice in writing, (i) when such post-effective amendment or such Registration Statement has become effective, and (ii) if Rule 430A under the Act is used, when the Prospectus is filed with the Commission pursuant to Rule 424(b) under the Act (which the Company agrees to file in a timely manner in accordance with such Rules);
(d) for so long as a prospectus is required by the Act to be delivered (whether physically or through compliance with Rule 172 under the Act or any similar rule) to notify you immediately upon an event that causes the Company to no longer qualify as an EGC;
(e) to advise you promptly, confirming such advice in writing, of any request by the Commission for amendments or supplements to the Registration Statement or the Exchange Act Registration Statement, any Preliminary Prospectus, the Prospectus or any Permitted Free Writing Prospectus or for additional information with respect thereto, or of notice of institution of proceedings for, or the entry of a stop order, suspending the effectiveness of the Registration Statement and, if the Commission should enter a stop order suspending the effectiveness of the Registration Statement, to use its best efforts to obtain the lifting or removal of such order as soon as possible; to advise you promptly of any proposal to amend or supplement the Registration Statement or the Exchange Act Registration Statement, any Preliminary Prospectus or the Prospectus, and to provide you and Underwriters counsel copies of any such documents for review and comment a reasonable amount of time prior to any proposed filing and to file no such amendment or
supplement to which the Representatives reasonably object, in writing, on a timely basis (unless, in the opinion of the Companys outside counsel, such action is necessary to comply with applicable law);
(f) subject to Section 4(e) hereof, to file promptly all reports and documents required to be filed by the Company with the Commission in order to comply with the Exchange Act for so long as a prospectus is required by the Act to be delivered (whether physically or through compliance with Rule 172 under the Act or any similar rule) in connection with any sale of Shares;
(g) to advise the Underwriters promptly of the happening of any event within the period during which a prospectus is required by the Act to be delivered (whether physically or through compliance with Rule 172 under the Act or any similar rule) in connection with any sale of Shares, which event could require the making of any change in the Prospectus then being used so that the Prospectus would not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading, and to advise the Underwriters promptly if, during such period, it shall become necessary to amend or supplement the Prospectus to cause the Prospectus to comply with the requirements of the Act, and, in each case, during such time, subject to Section 4(e) hereof, to prepare and furnish, at the Companys expense, to the Underwriters promptly such amendments or supplements to such Prospectus as may be necessary to reflect any such change or to effect such compliance;
(h) to make generally available (within the meaning of Rule 158 under the Act) to its security holders, and, if not available on the Commissions Electronic Data Gathering, Analysis and Retrieval System (EDGAR), to deliver to you, an earnings statement of the Company (which will satisfy the provisions of Section 11(a) of the Act) covering a period of twelve months beginning after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act) as soon as is reasonably practicable after the termination of such twelve-month period but in any case not later than the date determined in accordance with the provisions of the last paragraph of Section 11(a) of the Act and Rule 158(c) thereunder;
(i) if requested by you, to furnish to you three copies of the Registration Statement, as initially filed with the Commission, and of all amendments thereto (including all exhibits thereto) and sufficient copies of the foregoing (other than exhibits) for distribution of a copy to each of the other Underwriters;
(j) if requested by you, to furnish to you as early as practicable prior to the time of purchase and any additional time of purchase, as the case may be, but not later than two business days prior thereto, a copy of the latest available unaudited interim and monthly consolidated financial statements, if any, of the Company and the Subsidiaries which have been read by the Companys independent registered public accountants, as stated in their letter to be furnished pursuant to Section 6(d) hereof, provided, however, that the Company shall not be required to furnish any materials pursuant to this clause if
such materials are available via EDGAR;
(k) to apply the net proceeds from the sale of the Shares in the manner set forth under the caption Use of proceeds in the Prospectus and to file such reports with the Commission with respect to the sale of the Shares and the application of the proceeds therefrom as may be required by Rule 463 under the Act;
(l) to pay all costs, expenses, fees and taxes in connection with (i) the preparation and filing of the Registration Statement, each Preliminary Prospectus, the Prospectus, each Permitted Free Writing Prospectus and any amendments or supplements thereto, and the printing and furnishing of copies of each thereof to the Underwriters and to dealers (including costs of mailing and shipment), (ii) the registration, issue, sale and delivery of the Shares including any stock or transfer taxes and stamp or similar duties payable upon the sale, issuance or delivery of the Shares to the Underwriters, (iii) the producing, word processing and printing of this Agreement, any dealer agreements and any closing documents (including compilations thereof) and the reproduction and printing and furnishing of copies of each thereof to the Underwriters and (except closing documents) to dealers (including costs of mailing and shipment), (iv) the qualification of the Shares for offering and sale under state or foreign laws and the determination of their eligibility for investment under state or foreign law (including the legal fees and filing fees and other disbursements of counsel for the Underwriters) and the printing and furnishing of copies of any blue sky surveys or legal investment surveys to the Underwriters and to dealers, (v) any listing of the Shares on any securities exchange and any registration thereof under the Exchange Act, (vi) any filing for review of the public offering of the Shares by FINRA, including the legal fees and filing fees and other disbursements of counsel to the Underwriters relating to FINRA matters, (vii) the fees and disbursements of any transfer agent or registrar for the Shares, (viii) the costs and expenses of the Company relating to presentations or meetings undertaken in connection with the marketing of the offering and sale of the Shares to prospective investors and the Underwriters sales forces, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations, travel, lodging and other expenses incurred by the officers of the Company and any such consultants, and one-half of the cost of any aircraft chartered in connection with the road show (the remaining half of the cost to be paid by the Underwriters), the costs of all Exempt Oral Communications and Covered Exempt Written Communications, (ix) the costs and expenses of qualifying the Shares for inclusion in the book-entry settlement system of the DTC, (x) the preparation and filing of the Exchange Act Registration Statement, including any amendments thereto, (xi) the offer and sale of the Reserved Shares, including all costs and expenses of UBS-FinSvc and the Underwriters, including the fees and disbursement of counsel for the Underwriters, and (xii) the performance of the Companys other obligations hereunder, provided further, that the legal fees and filing fees and other disbursements of counsel payable by the Company pursuant to clauses (iv) and (vi) above shall not exceed $35,000;
(m) to comply with Rule 433(d) under the Act (without reliance on Rule
164(b) under the Act) and with Rule 433(g) under the Act;
(n) beginning on the date hereof and ending on, and including, the date that is 180 days after the date of the Prospectus (the Lock-Up Period), without the prior written consent of the Representatives, not to (i) sell, offer to sell, announce the intention to sell, contract or agree to sell, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act and the rules and regulations of the Commission promulgated thereunder, with respect to, any Common Stock or any other securities of the Company that are substantially similar to Common Stock, or any securities convertible into or exchangeable or exercisable for, or any warrants or other rights to purchase, the foregoing (collectively, the Lock-Up Securities), (ii) file or cause to become effective a registration statement under the Act relating to the offer and sale of any Lock-Up Securities, (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Lock-Up Securities, whether any such transaction is to be settled by delivery of Common Stock or such other securities, in cash or otherwise or (iv) publicly announce an intention to effect any transaction specified in clause (i), (ii) or (iii), in each case, except for (A) the registration of the offer and sale of the Shares as contemplated by this Agreement, (B) issuances of Common Stock upon the conversion of convertible securities, including preferred stock, the exercise of options or warrants and the vesting of restricted stock outstanding on the date hereof, in each case, as included or described in the Registration Statement, the Disclosure Package or the Prospectus, (C) the issuance of shares of Common Stock or stock options pursuant to employee benefit or equity incentive plans described in the Registration Statement, the Disclosure Package or the Prospectus, (D) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act; provided that such plan does not provide for the transfer of shares of Common Stock during the Lock-Up Period and the establishment of such plan does not require or otherwise result in any public filing or other public announcement of such plan during the Lock-Up Period, (E) the issuance of up to 5% of the outstanding Common Stock (measured as of the date hereof, after giving effect to the automatic conversion of the Companys preferred stock in connection with the offering of the Shares as described in the Prospectus) in connection with (1) the acquisition or license of the securities, business, property, technologies or other assets of another person or entity, including pursuant to an employee benefit plan assumed by the Company or its subsidiaries in connection with such acquisition or (2) joint ventures, commercial relationships or other strategic transactions, and in the case of each of clauses (1) and (2), the filing of a registration statement with respect thereto, provided that, in the case of clause (E), any recipient of such Common Stock shall execute and deliver to the Representatives a lock-up letter substantially in the form of Exhibit A hereto, and (F) the filing of any registration statement on Form S-8 relating to any benefit plans or arrangements disclosed in the Registration Statement, the Disclosure Package or the Prospectus and the issuance of securities registered pursuant thereto;
(o) except as required by applicable law, prior to the time of purchase or any
additional time of purchase, as the case may be, to provide you with reasonable advance notice of and an opportunity to comment on any press release and provide you with reasonable advance notice of any press conferences with respect the financial condition, results of operations, business, properties, assets, or liabilities of the Company or any Subsidiary, or the offering of the Shares, and to issue no such press release and to hold no such press conference without your prior written consent, which consent shall not be unreasonably withheld or delayed;
(p) not, at any time at or after the execution of this Agreement during the period when a prospectus relating to the Shares is required by the Act to be delivered (whether physically or through compliance with Rule 172 under the Act or any similar rule) in connection with sales of the Shares, to, directly or indirectly, offer or sell any Shares by means of any prospectus (within the meaning of the Act), or use any prospectus (within the meaning of the Act) in connection with the offer or sale of the Shares, in each case other than the Prospectus;
(q) not to, and to cause the Subsidiaries not to, take, directly or indirectly, any action designed, or which will constitute, or has constituted, or might reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares;
(r) to use its best efforts to cause the Common Stock, including the Shares, to be listed on NASDAQ and to maintain the listing of the Common Stock, including the Shares, on NASDAQ;
(s) to maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Common Stock;
(t) to cause each Directed Share Participant that satisfies the requirements of Section 3(aa) to execute a DSP Lock-Up Agreement and otherwise to cause the Reserved Shares to be restricted from sale, transfer, assignment, pledge or hypothecation to such extent as may be required by FINRA and its rules, and to direct the transfer agent to place stop transfer restrictions upon such Reserved Shares during the lock-up period referred to in the DSP Lock-Up Agreement or any such longer period of time as may be required by FINRA and its rules; and to comply with all applicable securities and other laws, rules and regulations in each jurisdiction in which the Reserved Shares are offered in connection with the Directed Share Program; and
(u) to announce the Underwriters intention to release any director or officer (within the meaning of Rule 16a-1(f) under the Exchange Act) of the Company from any of the restrictions imposed by any Lock-Up Agreement, by issuing, through a major news service, a press release, the form of which is attached as Exhibit B hereto, that is reasonably satisfactory to the Representatives, promptly following the Companys receipt of any notification from the Representatives in which the Underwriters indicate such intention, but in any case not later than the close of the second business day prior to the date on which such release or waiver is to become effective; provided, however, that
nothing shall prevent the Representatives, on behalf of the Underwriters, from announcing the same through a major news service, irrespective of whether the Company has made the required announcement; and further provided that no such announcement shall be made of any release or waiver granted solely to permit a transfer of securities that is not for consideration and where the transferee has agreed in writing to be bound by the terms of a Lock-Up Agreement in the form set forth as Exhibit A hereto.
Each Underwriter represents and agrees that any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Act were with entities that are qualified institutional buyers as defined in Rule 144A under the Act or institutions that are accredited investors as defined in Rule 501(a) under the Act.
5. Reimbursement of the Underwriters Expenses. If, after the execution and delivery of this Agreement, the Shares are not delivered for any reason other than the default by one or more of the Underwriters in its or their respective obligations hereunder, including pursuant to the fifth paragraph of Section 8 hereof, the Company shall, in addition to paying the amounts described in Section 4(l) hereof, reimburse the Underwriters for all of their out-of-pocket expenses, including the fees and disbursements of their counsel.
6. Conditions of the Underwriters Obligations. The several obligations of the Underwriters hereunder are subject to the accuracy of the representations and warranties on the part of the Company on the date hereof, and on the date of the closing of the purchase of the Firm Shares or the Additional Shares, as the case may be (each, a Closing Date), the performance by the Company of its obligations hereunder and to the following additional conditions precedent:
(a) The Company shall furnish to you on each Closing Date opinions of Latham & Watkins LLP, counsel for the Company, addressed to the Underwriters, and dated the time of purchase or the additional time of purchase, as the case may be, in forms reasonably acceptable to the Representatives.
(b) The Company shall furnish to you on each Closing Date an opinion of The Pepeliaev Group, special local counsel for Selecta (RUS) Limited Liability Company, addressed to the Underwriters, and dated the time of purchase or the additional time of purchase, as the case may be, in a form reasonably acceptable to the Representatives Exhibit D.
(c) The Company shall furnish to you on each Closing Date an opinion of Wolf, Greenfield & Sacks, P.C., special counsel for the Company with respect to certain patents and proprietary rights, addressed to the Underwriters, and dated the time of purchase or the additional time of purchase, as the case may be, in a form reasonably acceptable to the Representatives.
(d) The Company shall furnish to you on each Closing Date an opinion of the general counsel of the Company with respect to certain patents and proprietary rights, addressed to the Underwriters, and dated the time of purchase or the additional time of purchase, as the case may be, in a form reasonably acceptable to the Representatives.
(e) You shall have received from Ernst & Young LLP letters dated, respectively, the date of this Agreement and each Closing Date, and addressed to the Underwriters in the forms satisfactory to the Representatives, which letters shall cover, without limitation, the various financial disclosures contained in the Registration Statement, the Disclosure Package and the Prospectus.
(f) You shall have received on each Closing Date the favorable opinion of Cooley LLP, counsel for the Underwriters, dated the time of purchase or the additional time of purchase, as the case may be, in form and substance reasonably satisfactory to the Representatives.
(g) No Prospectus or amendment or supplement to the Registration Statement or the Prospectus shall have been filed to which you shall have reasonably objected (as soon as practicable) in writing.
(h) The Registration Statement, the Exchange Act Registration Statement and any registration statement required to be filed, prior to the sale of the Shares, under the Act pursuant to Rule 462(b) shall have been filed and shall have become effective under the Act or the Exchange Act, as the case may be. If Rule 430A under the Act is used, the Prospectus shall have been filed with the Commission pursuant to Rule 424(b) under the Act at or before 5:30 P.M., New York City time, on the second full business day after the date of this Agreement (or such earlier time as may be required under the Act).
(i) At each Closing Date, (i) no stop order with respect to the effectiveness of the Registration Statement shall have been issued under the Act or proceedings initiated under Section 8(d) or 8(e) of the Act; (ii) the Registration Statement (as of the Applicable Time), when taken together with any amendments thereto, shall not contain an untrue statement of a material fact or omit to state a material fact which is required to be stated therein or necessary to make the statements therein not misleading; or (iii) the Disclosure Package, the Preliminary Prospectus or the Prospectus, taken together with any amendment or supplement thereto, or any Permitted Free Writing Prospectus or Permitted Exempt Written Communications (in each case, when taken together with the Disclosure Package), if any, shall not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.
(j) The Company will, on each Closing Date, deliver to you a certificate of its Chief Executive Officer and its Chief Financial Officer, dated such Closing Date, as the case may be, to the effect that:
(A) He has reviewed the Registration Statement, the Disclosure Package and the Prospectus.
(B) The representations and warranties of the Company in this Agreement are true and correct as if made at and as of such Closing Date, and the
Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date; and
(C) No stop order or other order suspending the effectiveness of the Registration Statement or any part thereof or any amendment thereof or the qualification of the Securities for offering or sale, nor suspending or preventing the use of the Disclosure Package, the Prospectus or any issuer free writing prospectus, has been issued, and no proceeding for that purpose has been instituted or, to the best of their knowledge, is contemplated by the Commission or any state or regulatory body.
(k) The Company will, on the date hereof and on each Closing Date, deliver to you a certificate of its Chief Financial Officer, with respect to certain financial data in the Registration Statement, dated the time of purchase or the additional time of purchase, as the case may be, in the form and substance reasonably satisfactory to the Representatives.
(l) You shall have received each of the signed Lock-Up Agreements referred to in Section 3(z) hereof, and each such Lock-Up Agreement shall be in full force and effect.
(m) On or prior to such Closing Date, the Company shall have furnished to you such other documents and certificates as you may reasonably request.
(n) The Shares shall have been approved for listing on NASDAQ, subject only to notice of issuance and evidence of satisfactory distribution at or prior to such Closing Date.
(o) FINRA shall not have raised any objection with respect to the fairness or reasonableness of the underwriting, or other arrangements of the transactions, contemplated hereby.
7. Effective Date of Agreement; Termination. This Agreement shall become effective when the parties hereto have executed and delivered this Agreement.
The obligations of the several Underwriters hereunder shall be subject to termination in the sole discretion of the Representatives, if (1) subsequent to the respective dates as of which information is given in the Disclosure Package and the Prospectus, there has been any change or any development involving a prospective change in the business, properties, management, financial condition or results of operations of the Company and the Subsidiaries taken as a whole, the effect of which change or development is, in the reasonable judgment of the Representatives, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares on the terms and in the manner contemplated in the Registration Statement, the Disclosure Package and the Prospectus or (2) since the time of execution of this Agreement, there shall have occurred: (A) the suspension or material limitation in trading in securities generally on the NYSE or NASDAQ; (B) a suspension
or material limitation in trading in the Companys securities on NASDAQ; (C) a general moratorium on commercial banking activities declared by either federal or New York State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States or Russia; (D) an outbreak or escalation of hostilities or significant acts of terrorism involving the United States or Russia or a declaration by the United States or Russia of a national emergency or war; or (E) any other calamity or crisis or any change in financial, political or economic conditions in the United States, Russia or elsewhere, if the effect of any such event specified in clause (D) or (E), in your judgment, makes it impracticable or inadvisable to proceed with the sale of and payment for the Shares, or (3) since the time of execution of this Agreement, there shall have occurred any downgrading, or any notice or announcement shall have been given or made of: (A) any intended or potential downgrading or (B) any publicly announced watch, surveillance or review in the rating accorded any debt securities of or guaranteed by the Company or any Subsidiary by any nationally recognized statistical rating organization, as that term is defined in Rule 436(g)(2) under the Act.
If the Representatives elect to terminate this Agreement as provided in this Section 7, the Company and each other Underwriter shall be notified promptly in writing.
If the sale to the Underwriters of the Shares, as contemplated by this Agreement, is not carried out by the Underwriters for any reason permitted under this Agreement, or if such sale is not carried out because the Company shall be unable to comply with any of the terms of this Agreement, the Company shall not be under any obligation or liability under this Agreement (except to the extent provided in Sections 4(l), 5 and 9 hereof), and the Underwriters shall be under no obligation or liability to the Company under this Agreement (except to the extent provided in Section 9 hereof) or to one another hereunder.
8. Increase in Underwriters Commitments. Subject to Sections 6 and 7 hereof, if any Underwriter shall default in its obligation to take up and pay for the Firm Shares to be purchased by it hereunder (otherwise than for a failure of a condition set forth in Section 6 hereof or a reason sufficient to justify the termination of this Agreement under the provisions of Section 7 hereof) and if the number of Firm Shares which all Underwriters so defaulting shall have agreed but failed to take up and pay for does not exceed 10% of the total number of Firm Shares, the non-defaulting Underwriters (including the Underwriters, if any, substituted in the manner set forth below) shall take up and pay for (in addition to the aggregate number of Firm Shares they are obligated to purchase pursuant to Section 1 hereof) the number of Firm Shares agreed to be purchased by all such defaulting Underwriters, as hereinafter provided. Such Shares shall be taken up and paid for by such non-defaulting Underwriters in such amount or amounts as you may designate with the consent of each Underwriter so designated or, in the event no such designation is made, such Shares shall be taken up and paid for by all non-defaulting Underwriters pro rata in proportion to the aggregate number of Firm Shares set forth opposite the names of such non-defaulting Underwriters in Schedule A.
Without relieving any defaulting Underwriter from its obligations hereunder, the Company agrees with the non-defaulting Underwriters that it will not sell any Firm Shares hereunder unless all of the Firm Shares are purchased by the Underwriters (or by substituted Underwriters selected by you with the approval of the Company or selected by the Company
with your approval).
If a new Underwriter or Underwriters are substituted by the Underwriters or by the Company for a defaulting Underwriter or Underwriters in accordance with the foregoing provision, the Company or you shall have the right to postpone the time of purchase for a period not exceeding five business days in order that any necessary changes in the Registration Statement and the Prospectus and other documents may be effected.
The term Underwriter as used in this Agreement shall refer to and include any Underwriter substituted under this Section 8 with like effect as if such substituted Underwriter had originally been named in Schedule A hereto.
If the aggregate number of Firm Shares which the defaulting Underwriter or Underwriters agreed to purchase exceeds 5% of the total number of Firm Shares which all Underwriters agreed to purchase hereunder, and if neither the non-defaulting Underwriters nor the Company shall make arrangements within the five business day period stated above for the purchase of all the Firm Shares which the defaulting Underwriter or Underwriters agreed to purchase hereunder, this Agreement shall terminate without further act or deed and without any liability on the part of the Company to any Underwriter and without any liability on the part of any non-defaulting Underwriter to the Company. Nothing in this paragraph, and no action taken hereunder, shall relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.
9. Indemnity and Contribution.
(a) The Company agrees to indemnify, defend and hold harmless each Underwriter, its partners, directors, officers and members, any person who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and any affiliate (within the meaning of Rule 405 under the Act) of such Underwriter, and the successors and assigns of all of the foregoing persons, from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which, jointly or severally, any such Underwriter or any such person may incur under the Act, the Exchange Act, common law or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Company) or arises out of or is based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as any such loss, damage, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in, and in conformity with information concerning such Underwriter furnished in writing by or on behalf of such Underwriter through you to the Company expressly for use in, the Registration Statement or arises out of or is based upon any omission or alleged omission to state a material fact in the Registration Statement in connection with such information, which material fact was not contained in such information and which material fact was required to be stated in such Registration Statement or was necessary to
make such information not misleading, (ii) any untrue statement or alleged untrue statement of a material fact included in any Prospectus (the term Prospectus for the purpose of this Section 9 being deemed to include any Preliminary Prospectus, the Prospectus and any amendments or supplements to the foregoing), in any Covered Free Writing Prospectus, in any Covered Exempt Written Communication, in any issuer information (as defined in Rule 433 under the Act) of the Company or in any Prospectus together with any combination of one or more of the Covered Free Writing Prospectuses, if any, and one or more Covered Exempt Written Communications, if any, or arises out of or is based upon any omission or alleged omission to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except, with respect to such Prospectus, Permitted Free Writing Prospectus, Permitted Exempt Written Communication or one or more of the foregoing in combination, insofar as any such loss, damage, expense, liability or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in, and in conformity with information concerning such Underwriter furnished in writing by or on behalf of such Underwriter through you to the Company expressly for use in, such Prospectus, Permitted Free Writing Prospectus, Permitted Exempt Written Communication or one or more of the foregoing in combination or arises out of or is based upon any omission or alleged omission to state a material fact in such Prospectus, Permitted Free Writing Prospectus, Permitted Exempt Written Communication or one or more of the foregoing in combination in connection with such information, which material fact was not contained in such information and which material fact was necessary in order to make the statements in such information, in the light of the circumstances under which they were made, not misleading, or (iii) the Directed Share Program, except, with respect to this clause (iii), insofar as such loss, damage, expense, liability or claim is finally judicially determined to have resulted from the gross negligence or willful misconduct of the Underwriters in conducting the Directed Share Program, and will reimburse each indemnified party (defined below) for any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending against any loss, damage, expense, liability, claim, action, litigation, investigation or proceeding whatsoever (whether or not such indemnified party is a party thereto), whether threatened or commenced, and in connection with the enforcement of this provision with respect to the above as such fees and expenses are incurred.
Without limitation of and in addition to its obligations under the other paragraphs of this Section 9, the Company agrees to indemnify, defend and hold harmless UBS-FinSvc and its partners, directors, officers and members, and any person who controls UBS-FinSvc within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and the successors and assigns of all of the foregoing persons, from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which, jointly or severally, UBS-FinSvc or any such person may incur under the Act, the Exchange Act, the common law or otherwise, insofar as such loss, damage, expense, liability or claim (1) arises out of or is based upon (a) any of the matters referred to in clauses (i) through (iii) of the first paragraph of this Section 9(a), or (b) any untrue statement or alleged untrue statement of a material fact contained in any prospectus
wrapper prepared by or on behalf or with the consent of the Company for distribution to Directed Share Participants in connection with the Directed Share Program or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (2) is or was caused by the failure of any Directed Share Participant to pay for and accept delivery of Reserved Shares that the Directed Share Participant has agreed to purchase; or (3) otherwise arises out of or is based upon the Directed Share Program, provided, however, that the Company shall not be responsible under this clause (3) for any loss, damage, expense, liability or claim that is finally judicially determined to have resulted from the gross negligence or willful misconduct of UBS-FinSvc in conducting the Directed Share Program. Section 9(c) shall apply equally to any Proceeding (as defined below) brought against UBS-FinSvc or any such person in respect of which indemnity may be sought against the Company pursuant to the immediately preceding sentence, except that the Company shall be liable for the expenses of one separate counsel (in addition to any local counsel) for UBS-FinSvc and any such person, separate and in addition to counsel for the persons who may seek indemnification pursuant to the first paragraph of this Section 9(a), in any such Proceeding.
(b) Each Underwriter severally agrees to indemnify, defend and hold harmless the Company, its directors and officers, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and the successors and assigns of all of the foregoing persons, from and against any loss, damage, expense, liability or claim (including the reasonable cost of investigation) which, jointly or severally, the Company or any such person may incur under the Act, the Exchange Act, the common law or otherwise, insofar as such loss, damage, expense, liability or claim arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in, and in conformity with information concerning such Underwriter furnished in writing by or on behalf of such Underwriter through you to the Company expressly for use in, the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Company), or arises out of or is based upon any omission or alleged omission to state a material fact in such Registration Statement in connection with such information, which material fact was not contained in such information and which material fact was required to be stated in such Registration Statement or was necessary to make such information not misleading or (ii) any untrue statement or alleged untrue statement of a material fact contained in, and in conformity with information concerning such Underwriter furnished in writing by or on behalf of such Underwriter through you to the Company expressly for use in, a Prospectus, Permitted Free Writing Prospectus, Permitted Exempt Written Communication or one or more of the foregoing in combination, or arises out of or is based upon any omission or alleged omission to state a material fact in such Prospectus, Permitted Free Writing Prospectus, Permitted Exempt Written Communication or one or more of the foregoing in combination in connection with such information, which material fact was not contained in such information and which material fact was necessary in order to make the statements in such information, in the light of the circumstances under which they were made, not misleading.
(c) If any action, suit or proceeding (each, a Proceeding) is brought against a person (an indemnified party) in respect of which indemnity may be sought against the Company or an Underwriter (as applicable, the indemnifying party) pursuant to subsection (a) or (b), respectively, of this Section 9, such indemnified party shall promptly notify such indemnifying party in writing of the institution of such Proceeding and such indemnifying party shall assume the defense of such Proceeding, including the retention of counsel reasonably satisfactory to such indemnified party, and pay all reasonable legal or other fees and expenses related to such Proceeding or incurred in connection with such indemnified partys enforcement of subsection (a) or (b) of this Section 9; provided, however, that the omission to so notify such indemnifying party shall not relieve such indemnifying party from any liability that such indemnifying party may have to any indemnified party or otherwise except to the extent of any prejudice caused to the indemnifying party by any omission or delay to notify. The indemnified party or parties shall have the right to retain its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the retention of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such Proceeding, (ii) the indemnifying party shall not have, within a reasonable period of time in light of the circumstances, retained counsel to defend such Proceeding or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them that are different from, additional to or in conflict with those available to such indemnifying party (in which case such indemnifying party shall not have the right to direct the defense of such Proceeding on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by such indemnifying party and paid as incurred (it being understood, however, that, except as provided in the second paragraph of Section 9(a), such indemnifying party shall not be liable for the fees or expenses of more than one separate counsel (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction representing the indemnified parties who are parties to such Proceeding). The indemnifying party shall not be liable for any settlement of any Proceeding effected without its written consent but, if settled with its written consent, such indemnifying party agrees to indemnify and hold harmless the indemnified party or parties from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second sentence of this Section 9(c), then the indemnifying party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if (i) such settlement is entered into more than 60 business days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall not have fully reimbursed the indemnified party in accordance with such request prior to the date of such settlement and (iii) such indemnified party shall have given the indemnifying party at least 45 days prior notice of its intention to settle. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened Proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such Proceeding and does not include an admission of fault or culpability or a failure to act by or on behalf of such indemnified party.
(d) If the indemnification provided for in this Section 9 is unavailable to an indemnified party under subsections (a) and (b) of this Section 9 or insufficient to hold an indemnified party harmless in respect of any losses, damages, expenses, liabilities or claims referred to therein, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, damages, expenses, liabilities or claims (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such losses, damages, expenses, liabilities or claims, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same respective proportions as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company, and the total underwriting discounts and commissions received by the Underwriters, bear to the aggregate public offering price of the Shares. The relative fault of the Company on the one hand and of the Underwriters on the other shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by the Company or by the Underwriters and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, damages, expenses, liabilities and claims referred to in this subsection shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating, preparing to defend or defending any Proceeding.
(e) The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in subsection (d) above. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by such Underwriter and distributed to the public were offered to the public exceeds the amount of any damage which such Underwriter has otherwise been required to pay by reason of such untrue statement or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters obligations to contribute pursuant to this Section 9 are several in proportion to their respective underwriting commitments and not joint.
(f) The indemnity and contribution agreements contained in this Section 9 and the covenants, warranties and representations of the Company contained in this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of any Underwriter, or any of their respective partners, directors, officers or members or any person (including each partner, officer, director or member of such person) who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, or by or on behalf of the Company, its directors or officers or any person who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and shall survive any termination of this Agreement or the issuance and delivery of the Shares pursuant hereto. The Company and each Underwriter agree promptly to notify each other of the commencement of any Proceeding against it and, in the case of the Company, against any of the Companys officers or directors in connection with the issuance and sale of the Shares, or in connection with the Registration Statement, any Preliminary Prospectus, the Prospectus or any Permitted Free Writing Prospectus.
10. Information Furnished by the Underwriters. The statements set forth in the last paragraph on the cover page of the Prospectus, the statements set forth in the second, third and fourth sentences under the caption UnderwritingUnderwriting Discount in the Prospectus and the first five paragraphs under the caption UnderwritingPrice Stabilization, Short Positions in the Prospectus, only insofar as such statements relate to the amount of selling concession and reallowance or to over-allotment and stabilization activities that may be undertaken by the Underwriters, constitute the only information furnished by or on behalf of the Underwriters, as such information is referred to in Sections 3 and 9 hereof.
11. Notices. Except as otherwise herein provided, all statements, requests, notices and agreements shall be in writing or by telegram or facsimile and, if to the Underwriters, shall be sufficient in all respects if delivered or sent to UBS Securities LLC, 1285 Avenue of the Americas, New York, New York 10019, Attention: Syndicate (fax: (212) 713-3371); and Stifel, Nicolaus & Company, Incorporated, 787 7th Avenue, 11th Floor, New York, New York 10019, Attention: Syndicate (fax: (212) 271-3678), with a copy, which shall not constitute notice, to Cooley LLP, 1114 Avenue of the Americas, New York, New York 10036, Attention: Div Gupta, Marc Recht and Josh Kaufman; and if to the Company, shall be sufficient in all respects if delivered or sent to the Company at the offices of the Company at 480 Arsenal Street, Building One, Watertown, Massachusetts, Attention: Werner Cautreels, President and Chief Executive Officer, with a copy, which shall not constitute notice, to Latham & Watkins LLP, John Hancock Tower, 200 Clarendon Street, Boston, Massachusetts 02116, Attention: Peter Handrinos.
12. Governing Law; Construction. This Agreement and any claim, counterclaim or dispute of any kind or nature whatsoever arising out of or in any way relating to this Agreement (Claim), directly or indirectly, shall be governed by, and construed in accordance with, the laws of the State of New York without regard to the conflicts of law principles thereof. The section headings in this Agreement have been inserted as a matter of convenience of reference and are not a part of this Agreement.
13. Submission to Jurisdiction. Except as set forth below, no Claim may be commenced, prosecuted or continued in any court other than the courts of the State of New York located in the City and County of New York or in the United States District Court for the Southern District of New York, which courts shall have jurisdiction over the adjudication of such matters, and the Company consents to the jurisdiction of such courts and personal service with respect thereto. The Company hereby consents to personal jurisdiction, service and venue in any court in which any Claim arising out of or in any way relating to this Agreement is brought by any third party against any Underwriter or any indemnified party. Each Underwriter and the Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) waive all right to trial by jury in any action, proceeding or counterclaim (whether based upon contract, tort or otherwise) in any way arising out of or relating to this Agreement. The Company agrees that a final judgment in any such action, proceeding or counterclaim brought in any such court shall be conclusive and binding upon the Company and may be enforced in any other courts to the jurisdiction of which the Company is or may be subject, by suit upon such judgment.
14. Parties at Interest. The Agreement herein set forth has been and is made solely for the benefit of the Underwriters and the Company and to the extent provided in Section 9 hereof the controlling persons, partners, directors, officers, members and affiliates referred to in such Section, and their respective successors, assigns, heirs, personal representatives and executors and administrators. No other person, partnership, association or corporation (including a purchaser, as such purchaser, from any of the Underwriters) shall acquire or have any right under or by virtue of this Agreement.
15. No Fiduciary Relationship. The Company hereby acknowledges that the Underwriters are acting solely as underwriters in connection with the purchase and sale of the Companys securities. The Company further acknowledges that the Underwriters are acting pursuant to a contractual relationship created solely by this Agreement entered into on an arms length basis, and in no event do the parties intend that the Underwriters act or be responsible as a fiduciary to the Company, its management, stockholders or creditors or any other person in connection with any activity that the Underwriters may undertake or have undertaken in furtherance of the purchase and sale of the Companys securities, either before or after the date hereof. The Underwriters hereby expressly disclaim any fiduciary or similar obligations to the Company, either in connection with the transactions contemplated by this Agreement or any matters leading up to such transactions, and the Company hereby confirms its understanding and agreement to that effect. The Company and the Underwriters agree that they are each responsible for making their own independent judgments with respect to any such transactions and that any opinions or views expressed by the Underwriters to the Company regarding such transactions, including, but not limited to, any opinions or views with respect to the price or market for the Companys securities, do not constitute advice or recommendations to the Company. The Company and the Underwriters agree that the Underwriters are acting as principal and not the agent or fiduciary of the Company and no Underwriter has assumed, and none of them will assume, any advisory responsibility in favor of the Company with respect to the transactions contemplated hereby or the process leading thereto (irrespective of whether any Underwriter has advised or is currently advising the Company on other matters). The Company hereby waives and releases, to the fullest extent permitted by law, any claims that the Company
may have against the Underwriters with respect to any breach or alleged breach of any fiduciary, advisory or similar duty to the Company in connection with the transactions contemplated by this Agreement or any matters leading up to such transactions.
16. Counterparts. This Agreement may be signed by the parties in one or more counterparts which together shall constitute one and the same agreement among the parties.
17. Successors and Assigns. This Agreement shall be binding upon the Underwriters and the Company and their successors and assigns and any successor or assign of any substantial portion of the Companys and any of the Underwriters respective businesses and/or assets.
18. Miscellaneous. UBS, an indirect, wholly owned subsidiary of UBS AG, is not a bank and is separate from any affiliated bank, including any U.S. branch or agency of UBS AG. Because UBS is a separately incorporated entity, it is solely responsible for its own contractual obligations and commitments, including obligations with respect to sales and purchases of securities. Securities sold, offered or recommended by UBS are not deposits, are not insured by the Federal Deposit Insurance Corporation, are not guaranteed by a branch or agency, and are not otherwise an obligation or responsibility of a branch or agency.
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If the foregoing correctly sets forth the understanding between the Company and the several Underwriters, please so indicate in the space provided below for that purpose, whereupon this Agreement and your acceptance shall constitute a binding agreement between the Company and the Underwriters, severally.
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SCHEDULE A
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UBS SECURITIES LLC |
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[·] |
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STIFEL, NICOLAUS & COMPANY, INCORPORATED |
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[·] |
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CANNACORD GENUITY INC. |
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[·] |
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NEEDHAM & COMPANY, LLC |
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[·] |
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Total |
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[·] |
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SCHEDULE B
Permitted Free Writing Prospectuses:
Permitted Exempt Written Communications:
Price per share to the public: $
Number of Shares Offered:
SCHEDULE C
Persons Signing Lock-Up Agreemts
EXHIBIT A
Form of Lock-Up Agreement
UBS Securities LLC
1285 Avenue of the Americas
New York, New York 10019
Stifel, Nicolaus & Company, Incorporated
787 7th Avenue, 11th Floor
New York, New York 10019
Together with the other Underwriters
named in Schedule A to the Underwriting Agreement
referred to herein
Ladies and Gentlemen:
This Lock-Up Agreement is being delivered to you in connection with the underwriting agreement (the Underwriting Agreement) to be entered into by Selecta Biosciences, Inc., a Delaware corporation (the Company), and you and the other underwriters named in Schedule A to the Underwriting Agreement (the Underwriters), with respect to the proposed public offering (the Offering) of common stock, par value $0.0001 per share, of the Company (the Common Stock).
In order to induce you to enter into the Underwriting Agreement, the undersigned agrees that, for a period (the Lock-Up Period) beginning on the date hereof and ending on, and including, the date that is 180 days after the date of the final prospectus relating to the Offering (the Prospectus), the undersigned will not, without the prior written consent of UBS Securities LLC and Stifel, Nicolaus & Company, Incorporated (collectively, the Representatives), (i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the U.S. Securities and Exchange Commission (the Commission) promulgated thereunder (the Exchange Act) with respect to, any Common Stock or any other securities of the Company that are substantially similar to Common Stock, or any securities convertible into or exchangeable or exercisable for, or any warrants or other rights to purchase, the foregoing (collectively, Locked-Up Securities), (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Common Stock or any other
securities of the Company that are substantially similar to Common Stock, or any securities convertible into or exchangeable or exercisable for, or any warrants or other rights to purchase, the foregoing, whether any such transaction is to be settled by delivery of Common Stock or such other securities, in cash or otherwise or (iii) publicly announce an intention to effect any transaction specified in clause (i) or (ii).
Notwithstanding the foregoing, the foregoing restrictions shall not apply to the undersigneds transfer of Locked-Up Securities:
(a) acquired in the Offering (other than any issuer directed shares of Common Stock purchased in the Offering by an officer or director of the Company) or in open market transactions after the completion of the Offering, provided that no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made in connection with subsequent sales of Locked-Up Securities acquired in the Offering or such open market transactions,
(b) as a bona fide gift or gifts or for bona fide estate planning purposes, provided that the transferee agrees to be bound in writing by the restrictions set forth herein,
(c) to any member of the immediate family of the undersigned or any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, in a transaction not involving a disposition for value, provided that the transferee agrees to be bound in writing by the restrictions set forth herein,
(d) if the undersigned is an entity, (1) to another corporation, member, partner, trust or other business entity that is a direct or indirect affiliate (as defined under Rule 12b-2 of the Exchange Act) or (2) as part of a distribution, transfer or distribution by the undersigned to its stockholders, members, partners, beneficiaries (or the estates thereof) or other equity holders, provided that, in the case of (1) or (2) above, that the transferee agrees to be bound in writing by the restrictions set forth herein,
(e) by will, other testamentary document or intestate succession to the legal representative, heir, beneficiary or a member of the immediate family of the undersigned upon the death of the undersigned, provided that the transferee agrees to be bound in writing by the restrictions set forth herein,
(f) to the Company, or the withholding of shares of Common Stock by the Company, upon the vesting or exercise of an option or other award granted under an equity incentive plan or stock purchase plan of the Company described in the Prospectus or the conversion or exercise of a convertible security or warrant of the Company described in the Prospectus (in each case, by way of net exercise in accordance with their terms, and/or to cover withholding tax obligations in connection with such exercise), provided that any such Common Stock received upon such vesting, exercise or conversion shall be subject to the terms of this agreement and if the undersigned is required to make a filing under the Exchange Act reporting a reduction in beneficial ownership of shares of Common Stock during the Lock-Up Period, the undersigned shall include a statement in such report to the effect that the
purpose of such transfer was in connection with a net exercise or to cover tax obligations of the undersigned, as applicable, in connection with such transfer,
(g) to the Company pursuant to any contractual arrangement in effect on the date of the Prospectus that provides for the repurchase of the undersigneds Common Stock or such other securities by the Company or in connection with the termination of the undersigneds employment with the Company, provided that no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made during the Lock-Up Period in connection with any such transfers or dispositions (other than any Form 4 or Form 5 required to be filed under the Exchange Act if the undersigned is subject to Section 16 reporting with respect to the Company under the Exchange Act, and indicating by footnote disclosure or otherwise the nature of the transfer or disposition),
(h) in connection with the conversion of any convertible security into, or the exercise of any option or warrant for, shares of Common Stock in a manner consistent with the description of such securities contained in the Prospectus, provided that any such shares of Common Stock received shall be subject to the terms of this agreement,
(i) to a charitable organization or educational institution, provided that the transferee agrees to be bound in writing by the restrictions set forth herein, such transfer shall not involve a disposition for value and no filing under Section 16(a) of the Exchange Act reporting a reduction in beneficial ownership of shares of Common Stock shall be required or shall be voluntarily made during the Lock-Up Period (other than a Form 5 within the 45-day period following the end of the Companys fiscal year),
(j) to a nominee or custodian of a person or entity to whom a disposition or transfer would be permissible under clauses (a) through (i) above,
(k) by operation of law, including pursuant to orders of a court or regulatory agency, a domestic order or negotiated divorce settlement, or
(l) pursuant to a bona fide third-party tender offer for all outstanding shares of the Company, merger, consolidation or other similar transaction made to all holders of the Companys securities involving a change of control of the Company (including, without limitation, the entering into of any lock-up, voting or similar agreement pursuant to which the undersigned may agree to transfer, sell, tender or otherwise dispose of shares of Common Stock or other such securities in connection with such transaction, or vote any shares of Common Stock or other securities in favor of any such transaction), provided that in the event that such tender offer, merger, consolidation or other such transaction is not completed, such securities held by the undersigned shall remain subject to the provisions of this agreement.
For purposes of this agreement, immediate family shall mean any relationship by blood, marriage, domestic partnership or adoption, not more remote than first cousin.
Furthermore, nothing in this agreement shall be deemed to prevent the undersigned from
establishing any contract, instruction or plan (a Plan) pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of Common Stock, provided that (i) such plan does not provide for the transfer of Common Stock during the Lock-Up Period and (ii) no public disclosure of any such action shall be required or shall be voluntarily made by any person until expiration of the Lock-Up Period.
In addition, the undersigned hereby waives any rights the undersigned may have to require registration of Common Stock in connection with the filing of a registration statement relating to the Offering. The undersigned further agrees that, for the Lock-Up Period, the undersigned will not, without the prior written consent of the Representatives, make any demand for, or exercise any right with respect to, the registration of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or warrants or other rights to purchase Common Stock or any such securities. In addition, the undersigned hereby waives any and all preemptive rights, participation rights, resale rights, rights of first refusal and similar rights that the undersigned may have in connection with the Offering or with any issuance or sale by the Company of any equity or other securities before the Offering, except for any such rights as have been heretofore duly exercised.
If the undersigned is an officer or director of the Company, (i) each of the Representatives agree that, at least three business days prior to the release or waiver of any of the foregoing restrictions with respect to the Lock-Up Securities of the undersigned, including, for the avoidance of doubt, any security of the Company acquired by the undersigned from the Company in the Offering, the Representatives will notify the Company of the impending release or waiver and (ii) the Company has agreed in the Underwriting Agreement to announce such impending release or waiver through a major news service at least two business days before the publication date of such press release; provided that no such notification or announcement shall be required, given or made where the release or waiver is effected solely to permit a transfer of securities that is not for consideration and where the transferee has agreed in writing to be bound by the same terms described in this Lock-Up Agreement. Any such release or waiver granted herein shall only be effective three business days after such announcement is made by the Company or the Representatives.
The undersigned hereby authorizes the Company and its transfer agent, during the Lock-Up Period, to decline the transfer of or to impose stop transfer restrictions on the stock register and other records relating to shares of Common Stock or other securities subject to this Lock-Up Agreement if which the undersigned is the record holder, and, with respect to shares of Common Stock or other securities subject to this Lock-Up Agreement of which the undersigned is the beneficial owner but not the record holder, the undersigned hereby agrees to cause such record holder to authorize the Company and its transfer agent, during the Lock-Up Period, to decline the transfer of or to note stop transfer restrictions on the stock register and other records relating to such shares or other securities, except in the case of a transfer incompliance with this Lock-Up Agreement.
* * *
If (i) either the Representatives, on the one hand, or the Company, on the other hand, informs the other in writing, prior to the execution of the Underwriting Agreement, that it has determined not to proceed with the Offering, (ii) for any reason the Underwriting Agreement shall be terminated prior to the time of purchase (as defined in the Underwriting Agreement), (iii) the Company files an application to withdraw the registration statement related to the Offering or (iv) the Underwriting Agreement is not executed on or before August 12, 2016, then, in each case, this Lock-Up Agreement shall automatically, and without any action on the part of any other party, terminate and be of no further force and effect, and the undersigned shall be automatically released from all obligations hereunder.
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Yours very truly, |
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Name: |
Exhibit 3.1
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SELECTA BIOSCIENCES, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Selecta 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 Selecta Biosciences, Inc., and that this corporation was originally incorporated pursuant to the General Corporation Law on December 10, 2007.
2. That the board of directors of the Corporation duly adopted resolutions proposing to amend and restate the Third Amended and Restated Certificate of Incorporation of this corporation, as amended, 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 Third Amended and Restated Certificate of Incorporation of this corporation, as amended, be amended and restated in its entirety to read as follows:
FIRST: The name of this corporation is Selecta Biosciences, Inc. (the Corporation).
SECOND: The registered office of the Corporation is to be located at 1209 Orange Street in the City of Wilmington, 19801, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.
FOURTH: The number of authorized shares of each class or series of stock of the Corporation, and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, shall be as follows:
Section 1. CAPITAL STOCK
The total number of shares of all classes of stock which the Corporation shall have authority to issue is 100,000,000, consisting of 62,164,377 shares of common stock, $0.0001 par value per share (the Common Stock), and 37,835,623 shares of preferred stock, $0.0001 par value per share (the Preferred Stock).
Section 2. COMMON STOCK
2.1 Voting Rights. The holders of shares of Common Stock shall be entitled to one vote for each share so held with respect to all matters voted on by the stockholders of the Corporation, subject in all cases to Sections 3.6 and 3.8 of this Article Fourth. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.
2.2 Liquidation Right. Subject to the prior and superior rights of the Senior Preferred Stock (as defined below) and the Series SRN Preferred as described in Sections 3.2(a), (b), (c) and (d) of this Article Fourth, upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of Common Stock shall be entitled to receive that portion of the remaining funds to be distributed to holders of capital stock ratably in proportion to the number of shares of Common Stock they then hold.
2.3 Dividends. Dividends may be paid on the Common Stock as and when declared by the board of directors of the Corporation (the Board of Directors); provided, however, that no cash dividends may be declared or paid on the Common Stock unless dividends shall first have been declared and paid with respect to the Senior Preferred Stock, as provided in Section 3.7 of this Article Fourth.
Section 3. PREFERRED STOCK
3.1 Designation. Two Million Five Hundred Eighty-Nine Thousand Eight Hundred Sixty-Eight (2,589,868) shares of Preferred Stock which the Corporation has the authority to issue are hereby designated and shall be known as the Series A Convertible Preferred Stock (the Series A Preferred), Seven Million Four Hundred Thirty-Seven Thousand Three Hundred Twenty-Five (7,437,325) shares of Preferred Stock which the Corporation has the authority to issue are hereby designated and shall be known as the Series B Convertible Preferred Stock (the Series B Preferred), Five Million Two (5,000,002) shares of Preferred Stock which the Corporation has the authority to issue are hereby designated and shall be known as the Series C Convertible Preferred Stock (the Series C Preferred), Eight Million One Hundred Sixty-Six Thousand Six Hundred Sixty-Two (8,166,662) shares of Preferred Stock which the Corporation has the authority to issue are hereby designated and shall be known as the Series D Convertible Preferred Stock (the Series D Preferred), Nine Million Thirty Thousand Six Hundred Fifty-Four (9,030,654) shares of Preferred Stock which the Corporation has the authority to issue are hereby designated and shall be known as the Series E Convertible Preferred Stock (the Series E Preferred), and Five Million Six Hundred Eleven Thousand One Hundred Twelve (5,611,112) shares of Preferred Stock which the Corporation has the authority to issue are hereby designated and shall be known as the Series SRN Convertible Preferred Stock (the Series SRN Preferred).
3.2 Liquidation Rights.
(a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, each holder of a share of Series E Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series SRN Preferred or Common Stock by reason of their ownership thereof, an amount per share equal to (i) 1.15 times the Original Issue Price (as defined in Section 3.2(e)) for the Series E Preferred, plus (ii) all Accruing Dividends (as defined in Section 3.7(a)) on such share, to and including the date full payment shall be tendered to the holders of such series of Series E Preferred with respect to such liquidation, dissolution or winding up (the amount payable pursuant to this sentence is hereinafter referred to as the Series E Liquidation Amount). If the assets or surplus funds to be distributed to the holders of the Series E Preferred are insufficient to permit the payment to such holders of their full preferential amount under this Section 3.2(a), then such assets and surplus funds legally available for distribution shall be distributed ratably among the holders of the Series E Preferred on a pari passu basis, in proportion to the full preferential amount each such holder is otherwise entitled to receive under this Section 3.2(a).
(b) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, each holder of a share of Series A Preferred, Series B Preferred, Series C Preferred or Series D Preferred (collectively, the Tier II Preferred Stock) shall be entitled to receive, after payment of the Series E Liquidation Amount in full to all holders of Series E Preferred but prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Series SRN Preferred or Common Stock by reason of their ownership thereof, an amount per share equal to the Original Issue Price for such series of Tier II Preferred Stock, plus, all Accruing Dividends on such share, to and including the date full payment shall be tendered to the holders of such series of Tier II Preferred Stock with respect to such liquidation, dissolution or winding up. If the assets or surplus funds to be distributed to the holders of the Tier II Preferred Stock are insufficient to permit the payment to such holders of their full preferential amount under this Section 3.2(b), then such assets and surplus funds legally available for distribution shall be distributed ratably among the holders of the Tier II Preferred Stock on a pari passu basis, in proportion to the full preferential amount each such holder is otherwise entitled to receive under this Section 3.2(b).
(c) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, after the payments set forth in subsections (a) and (b) of this Section 3.2 shall have been made in full to the holders of the Series E Preferred and the Tier II Preferred Stock (collectively, the Senior Preferred Stock), then each holder of a share of Series SRN Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the Original Issue Price for such Series SRN Preferred Stock, plus any dividends declared but unpaid thereon. If the assets or surplus funds to be distributed to the holders of the Series SRN Preferred are insufficient to permit the payment to such holders of their full preferential amount under this Section 3.2(c), then such assets and surplus funds legally available for distribution shall be distributed ratably among the holders of the Series SRN Preferred Stock on a pari passu basis, in
proportion to the full preferential amount each such holder is otherwise entitled to receive under this Section 3.2(c).
(d) Notwithstanding any other provision of this Section 3, for purposes of determining the amount to be distributed in respect of shares of any given series of Preferred Stock in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event (as defined in Section 3.2(g)), all shares of such series of Preferred Stock shall be deemed to have been converted (regardless of whether the holder(s) thereof actually elects to convert such shares) into shares of Common Stock in accordance with Section 3.3(a) immediately prior to such event (Retroactive Deemed Conversion) if the amount that would have been distributable in respect of such shares of Common Stock had such conversion actually occurred (and assuming the like conversion of all shares of each other series of Preferred Stock deemed converted pursuant to this Subsection 3.2(d)) is greater than the amount that would have been distributable pursuant to this Section 3.2 in such event in respect of the shares of such series of Preferred Stock had such conversion not been deemed to have occurred pursuant to this Subsection 3.2(d).
(e) For purposes of this Article FOURTH, Original Issue Price shall mean, as applicable, (i) $0.9653 per share for each share of Series A Preferred, (ii) $2.0303 per share for each share of Series B Preferred, (iii) $3.00 per share for each share of Series C Preferred, (iv) $4.50 per share for each share of Series D Preferred, (v) $4.50 per share for each share of Series E Preferred, and (vi) $4.50 per share for each share of Series SRN Preferred (in each case as adjusted for any stock splits, stock dividends, combinations, subdivision, recapitalizations or the like with respect to the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred, the Series E Preferred or the Series SRN Preferred, as the case may be, occurring after the filing date of this Fourth Amended and Restated Certificate of Incorporation (as the same may be amended from time to time, the Certificate).
(f) Upon payment or the setting apart of the distributions required by subsections (a), (b) and (c) of this Section 3.2, all remaining proceeds and assets available for distribution to stockholders shall be distributed to the holders of the Common Stock ratably in proportion to the number of shares of Common Stock each of them then holds.
(g) For purposes of this Section 3.2, a liquidation, dissolution or winding up of the Corporation shall include: (i) the closing of a sale (in a single transaction or a series of related transactions) of, or the grant of an exclusive, perpetual, global, fully paid, royalty free, irrevocable, transferable and sublicensable license granting complete control rights over, all or substantially all of the assets of the Corporation, or (ii) the consummation of a consolidation or merger of the Corporation with or into another entity, but only if the holders of the outstanding stock of the Corporation immediately prior to the closing of such merger or consolidation hold, immediately after such closing, less than a majority of the voting power of the capital stock of the surviving or acquiring entity; provided, however, that the treatment of any particular transaction or series of related transactions as a liquidation, dissolution or winding up of the Corporation may be waived by the vote or written consent of (A) the holders of shares of Series E Preferred representing a majority of the votes represented by all outstanding shares of Series E Preferred and (B) the holders of shares of Tier II Preferred Stock representing at least sixty-six and two-thirds percent (66 2/3%) of the votes represented by all outstanding shares of Tier II
Preferred Stock voting together as a single class, by notice to the Corporation no later than fifteen (15) days before the effective date of such event. Any transaction described in clauses (i) and (ii) of the preceding sentence, subject to the waiver by the holders of shares of Senior Preferred Stock as set forth in the proviso thereto, shall be referred to herein as a Deemed Liquidation Event. The proceeds of any Deemed Liquidation Event shall be distributed pursuant to Sections 3.2(a)-(d) and (f), above.
(h) The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such Deemed Liquidation Event shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the surviving or acquiring person, firm or other entity. If the consideration received is other than cash, its value will be deemed to be its fair market value as reasonably determined in good faith by the Board of Directors.
(i) Notwithstanding the other provisions of this Certificate, any notice period in this Certificate (other than any notice period set forth in Section 3.3(c) below) may be shortened or waived, either before or after the action for which notice is required, with the written consent of the Company and the holders of a majority of the voting power of the outstanding shares of Senior Preferred Stock that are entitled to such notice rights (voting together as a single class).
3.3 Conversion. The holders of Preferred Stock shall have conversion rights as follows (the Conversion Rights):
(a) Optional Conversion of the Preferred Stock.
(i) Series E Preferred Stock.
(1) In the event that (i) a holder of shares of Series E Preferred elects to convert such shares into Common Stock on or after the date that is 30 days prior to a Deemed Liquidation Event or (ii) shares of Series E Preferred are converted into Common Stock pursuant to Section 3.3(b)(v) (or are deemed to convert into Common Stock pursuant to Section 3.2(d)), then the number of shares of Common Stock issuable upon conversion of each such share of Series E Preferred shall be equal to (A) the Original Issue Price of the Series E Preferred, divided by the applicable Conversion Price (as defined in Section 3.3(a)(v)) in effect at the time of conversion, determined as provided in Section 3.3(d) below, multiplied by (B) 1.15. For the avoidance of doubt, in the event that a holder of shares of Series E Preferred elects to convert such shares in accordance with clause (i) of this Subsection 3.3(a)(i)(1), such holder shall not be entitled to receive any portion of the Series E Liquidation Amount in any subsequent voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, including any Deemed Liquidation Event.
(2) Each share of Series E Preferred shall be convertible at the option of the holder thereof at any time and from time to time after the date of issuance of such share and without the payment of any additional consideration therefor, into, except as set forth in Subsection 3.3(a)(i)(1) above, that number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Issue Price of the Series E Preferred, by the
applicable Conversion Price in effect at the time of conversion, determined as provided in Section 3.3(d) below.
(ii) Tier II Preferred Stock. Each share of any series of Tier II Preferred Stock shall be convertible at the option of the holder thereof at any time and from time to time after the date of issuance of such share and without the payment of any additional consideration therefor, into that number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Issue Price for such series of Tier II Preferred Stock, by the applicable Conversion Price for such series of Tier II Preferred Stock in effect at the time of conversion, determined as provided in Section 3.3(d) below.
(iii) Series SRN Preferred. Other than as provided in Section 3.3(a)(iv) below, upon the occurrence of an SRN Optional Conversion Event (as defined below), each share of Series SRN Preferred shall be convertible at the option of the holder thereof and without the payment of any additional consideration therefor, into that number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Issue Price for the Series SRN Preferred by the Conversion Price for the Series SRN Preferred in effect at the time of conversion, determined as provided in Section 3.3(d) below, provided that any election to convert shall be delivered to the Corporation no later than ten (10) days prior to such event (provided that the notice from the Corporation to the holders of record of the Series SRN Preferred Stock pursuant to Section 3.3(c)(i) below was timely delivered). If any holder of Series SRN Preferred does not exercise such option to convert shares of Series SRN Preferred within the period set forth in the immediately preceding sentence, Sections 3.2(c) and 3.2(d) shall govern distributions to such holder on account of such shares in connection with the distribution of proceeds from such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation (including without limitation any Deemed Liquidation Event). For the avoidance of doubt, other than pursuant to this Section 3.3(a)(iii), Section 3.3(a)(iv) below or Section 3.3(b)(iv)(E), the Series SRN Preferred shall not otherwise be convertible at the election of any holder thereof. For the purposes of this Certificate, SRN Optional Conversion Event shall mean (A) any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation which, for purposes of this Section 3.3(a) shall include without limitation a Deemed Liquidation Event or (B) the filing by the Corporation of a registration statement on Form S-1 (or equivalent document or a prospectus in any other jurisdiction) with the U.S. Securities and Exchange Commission (or with the relevant regulatory authority in such other jurisdiction) in respect of a public offering of shares of the Corporations capital stock, provided that, for the avoidance of doubt, any Qualified Public Offering (as defined below), shall cause the automatic conversion of the Series SRN Preferred pursuant to and in accordance with Section 3.3(b).
(iv) Series SRN Preferred Special Optional Conversion. Upon the occurrence of an SRN Special Optional Conversion Event (as defined below), and for a period of sixty (60) days after the notice of such SRN Special Optional Conversion Event from the Corporation to the holders of record of the Series SRN Preferred Stock pursuant to Section 3.3(c)(i) below), each share of Series SRN Preferred shall be convertible at the option of the holder thereof and without the payment of any additional consideration therefor, into that number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Issue Price for the Series SRN Preferred by the Conversion Price for the Series SRN
Preferred in effect at the time of conversion, determined as provided in Section 3.3(d) below. For the avoidance of doubt, other than pursuant to Section 3.3(a)(ii) and this Section 3.3(a)(iii), the Series SRN Preferred shall not otherwise be convertible at the election of any holder thereof. For the purposes of this Certificate, SRN Special Optional Conversion Event shall mean the occurrence of any of the following: (A) a court of competent jurisdiction ordering the institution of supervision (nablyudenie) or the appointment of a temporary manager (vremennyi upravlayushiy) in respect to SELECTA (RUS) LLC, a subsidiary of the Corporation or (B) a KPI Failure (as defined in that certain Amended and Restated Series D Preferred Stock Investment Agreement and Series SRN Preferred Stock Investment Agreement, by and among the Corporation and the parties named therein, dated July 15, 2014 (as the same may be amended from time to time, the Initial SRN Purchase Agreement)).
(v) Conversion Price. The price at which a share of Preferred Stock is convertible into Common Stock pursuant to Section 3.3(a)(i)-(iv) shall be referred to as the Conversion Price. The initial Conversion Price of (i) the Series A Preferred shall be $0.9653, (ii) the Series B Preferred shall be $2.0303, (iii) the Series C Preferred shall be $3.00, (iv) the Series D Preferred shall be $4.30, (v) the Series E Preferred shall be $4.50, (vi) the Series SRN Preferred in connection with an SRN Special Optional Conversion Event shall be $3.60 and in all other cases shall be $4.30; (in each case as adjusted as provided in Section 3.3(d) below). Each person converting shares of Preferred Stock pursuant to this Section 3.3(a) shall be entitled to all declared but unpaid dividends (other than the Accruing Dividends) up to the time of the conversion. Such dividends shall be paid to each such person within thirty (30) days of the date of conversion.
(b) Automatic Conversion of the Preferred Stock.
(i) Upon a Qualified Public Offering.
(1) Subject to the terms and conditions of Subsection 3.3(b)(i)(2) below, each share of Preferred Stock shall automatically be converted into that number of fully paid and nonassessable shares of Common Stock at the then effective Conversion Price in effect at the time of conversion, determined as provided in Section 3.3(d) below, upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of shares of the Corporations Common Stock to the public, for the account of the Corporation, and having an aggregate offering price to the public of not less than $30,000,000 (a Qualified Public Offering).
(2) Notwithstanding any other provision of this Certificate, in the event of a Qualified Public Offering, each share of Series E Preferred shall automatically be converted into a number of fully paid and nonassessable shares of Common Stock equal to the greatest of (A) $5.175 (as appropriately adjusted for any stock combinations, stock dividends, stock splits and the like) divided by the price per share of Common Stock paid by the underwriters in such Qualified Public Offering, (B) 1.15 (as appropriately adjusted for any stock combinations, stock dividends, stock splits and the like) or (C) $4.50 (as appropriately adjusted for any stock combinations, stock dividends, stock splits and the like) divided by the then
effective Conversion Price applicable to each share of Series E Preferred in effect at the time of conversion, determined as provided in Section 3.3(d) below.
(ii) Series E Preferred. Each share of Series E Preferred shall automatically be converted into that number of fully paid and nonassessable shares of Common Stock at the then effective Conversion Price applicable to such share in effect at the time of conversion, determined as provided in Section 3.3(d) below upon the written consent or agreement of the holders of shares of Series E Preferred representing a majority of the votes represented by all outstanding shares of Series E Preferred voting together as a separate class. Notwithstanding the foregoing, in the event of automatic conversion pursuant to this Subsection 3.3(b)(ii) in connection with (A) the offer and sale of the Corporations Common Stock to the public pursuant to an effective registration statement under the Securities Act of 1933, as amended, other than in connection with a Qualified IPO or (B) a reverse merger of the Corporation into a public shell company, then the conversion rate with respect to the Series E Preferred shall be determined as if such conversion were taking place in accordance with Subsection 3.3(a)(i)(1).
(iii) Tier II Preferred Stock. Each share of Tier II Preferred Stock shall automatically be converted into that number of fully paid and nonassessable shares of Common Stock at the then effective Conversion Price applicable to such share in effect at the time of conversion, determined as provided in Section 3.3(d) below upon the written consent or agreement of the holders of shares of Tier II Preferred Stock representing at least sixty-six and two-thirds percent (66 2/3%) of the votes represented by all outstanding shares of Tier II Preferred Stock voting together as a single class.
(iv) Series SRN Preferred Stock. Each share of Series SRN Preferred Stock shall automatically be converted into that number of fully paid and nonassessable shares of Common Stock at the then effective Conversion Price applicable to such share in effect at the time of conversion, determined as provided in Section 3.3(d) below upon any of the following: (A) the cumulative acquisition from the Corporations stockholders of more than fifty percent (50%) of the outstanding capital stock of the Corporation; (B) any acquisition by any person (or group of affiliated or associated persons) of beneficial ownership of a majority of the shares of outstanding capital stock of the Corporation (whether or not such shares are newly-issued) in a single transaction or a series of related transactions; (C) the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Act covering the offer and sale of the Corporations Common Stock to the public; (D) with respect to the events described in Section 3.3(b)(iv)(A)-(D), the receipt by the Corporation or its stockholders (as applicable) from a third party of a binding offer to consummate any of the foregoing; or (E) the written consent or agreement of the SRN Majority Holders (as such term is defined in that certain Fifth Amended and Restated Investor Rights Agreement, by among the Corporation and the parties named therein, dated as of August 27, 2015, as the same may be amended and/or amended and restated from time to time (the Investor Rights Agreement), if any (voting together as a single class).
(v) Immediately after the holders of a series of Preferred Stock receive any proceeds from a Deemed Liquidation Event as a result of Retroactive Deemed Conversion, all shares of such series of Preferred Stock shall be converted, without any further
action on the part of the holders thereof, into shares of Common Stock at the conversion rate that was applicable to such series of Preferred Stock immediately prior to such Deemed Liquidation Event. For the avoidance of doubt, the conversion rate with respect to shares of the Series E Preferred shall be determined as if such conversion were taking place in accordance with Subsection 3.3(a)(i)(1).
(vi) The person(s) entitled to receive Common Stock issuable upon a conversion of Preferred Stock pursuant to this Section 3.3(b) shall not be deemed to have converted the Preferred Stock until immediately prior to the closing of such Qualified Public Offering, or the date specified by such written consents or agreements delivered to the Corporation pursuant to Section 3.3(b)(ii) or 3.3(b)(iii) above, or the date specified in Section 3.3(b)(v) above. Each person who holds of record Preferred Stock immediately prior to an automatic conversion shall be entitled to all declared but unpaid dividends (other than the Accruing Dividends thereon, if any) up to the time of the automatic conversion. Such dividends shall be paid to all such holders within thirty (30) days of the automatic conversion.
(c) Mechanics of Conversion.
(i) Notice. The Corporation shall use commercially reasonable efforts to give each holder of record of Senior Preferred Stock and Series SRN Preferred written notice of any SRN Optional Conversion Event not later than thirty (30) days prior to the effectiveness of such SRN Optional Conversion Event and shall also notify such holders in writing of the final approval of such SRN Optional Conversion Event no later than seven (7) business days after the occurrence of such event. The Corporation shall further use commercially reasonable efforts to give each holder of record of Senior Preferred Stock and Series SRN Preferred written notice of any SRN Special Optional Conversion Event not later than ten (10) days after the occurrence of such SRN Special Optional Conversion Event. For the avoidance of doubt, failure to give notice as set forth in this Section 3.3(c)(i) shall not alter the effectiveness of the consummation of an SRN Optional Conversion Event or the occurrence of a SRN Special Optional Conversion Event. Notwithstanding the other provisions of this Certificate, the notice period in this Section 3.3(c)(i) may be shortened or waived, either before or after the action for which notice is required, with the written consent of the SRN Majority Holders, if any.
(ii) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which a holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price, if applicable. Before any holder of Preferred Stock shall be entitled to receive the full shares of Common Stock into which such Preferred Stock shares have been converted, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give timely written notice to the Corporation at such office that such holder elects to convert the same and shall state therein his name or the name or names of his nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued, together with the applicable federal taxpayer identification number. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, or to his nominee or nominees, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled, together with cash in lieu of any fraction of a share. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.
(d) Adjustments to Conversion Prices for Diluting Issues.
(i) Special Definitions. For purposes of Section 3.3(d) and Section 3.4, the following definitions shall apply:
(1) Option shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities.
(2) Original Issue Date shall mean the date on which the first share of Series E Preferred was issued.
(3) Convertible Securities shall mean any evidences of indebtedness, shares (other than Common Stock or other stock issued on conversion of the Preferred Stock) or other securities directly or indirectly convertible into or exchangeable for Common Stock.
(4) Additional Shares of Common Stock shall mean all shares of Common Stock issued (or, pursuant to Section 3.3(d)(iii), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable:
(A) Pursuant to that certain Series E Preferred Stock Purchase Agreement, by and among the Corporation and the parties named therein, dated August 27, 2015 (as the same may be amended from time to time, the Series E Purchase Agreement), including without limitation (x) those certain warrants to purchase Common Stock issued thereunder and upon any exercise of such warrants and (y) any shares of Common Stock that may be issued or become issuable upon conversion of the Series E Preferred as a result of adjustments to the conversion rate of the Series E Preferred, including for the avoidance of doubt, pursuant to Subsection 3.3(a)(i)(1) or Subsection 3.3(b)(i)(2);
(B) pursuant to the Initial SRN Purchase Agreement, including without limitation upon conversion of shares of Series SRN Preferred pursuant to the Initial SRN Purchase Agreement, or pursuant to that certain Series SRN Preferred Stock Purchase Agreement, by and among the Corporation and the parties named therein, dated as of July 15, 2014 (as may be amended from time to time, the SRN Purchase Agreement), including without limitation upon conversion of shares of Series SRN Preferred Stock issued pursuant to the SRN Purchase Agreement, provided, however, that the shares of Series SRN Preferred Stock issued or issuable pursuant the Initial SRN Purchase Agreement and the SRN Purchase Agreement shall not exceed in the aggregate 5,611,112 shares and the purchase price for each such share of Series SRN Preferred Stock shall not be less than $4.50 (subject to adjustment as provided in the Initial SRN Purchase Agreement or the SRN Purchase Agreement, as applicable);
(C) upon conversion of Preferred Stock or the conversion or exercise of other Convertible Securities outstanding as of the Original Issue Date;
(D) pursuant to a transaction described in Section 3.3(d)(iii)(2) below, or by way of dividend or distribution on shares of Preferred Stock;
(E) to officers, directors or employees of, or consultants to, the Corporation pursuant to action by the Board of Directors, or the compensation committee thereof, pursuant to any stock purchase or option plan or other employee or director stock incentive or compensation program (collectively, the Plans) as in effect on the filing date of this Certificate or as amended or approved by a majority of the members of the Board of Directors, including a majority of the Preferred Directors (as defined below);
(F) to a financing institution in connection with a commercial credit arrangement, equipment financing or similar financing arrangement approved by a majority of the members of the Board of Directors, including a majority of the Preferred Directors;
(G) in connection with the bona fide acquisition of a business, product or technology by the Corporation approved by a majority of the members of the Board of Directors, including a majority of the Preferred Directors;
(H) in connection with any bona fide sponsored research, collaboration, joint venture, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by a majority of the members of the Board of Directors, including a majority of the Preferred Directors;
(I) pursuant to a Qualified Public Offering;
(J) as a result of a decrease in the Conversion Price of any series of Preferred Stock resulting from the operation of this Section 3.3(d);
(K) in connection with a financing of the Project Company; and
(L) with the unanimous approval of the Board of Directors.
(ii) No Adjustment of Conversion Price. No adjustment in the number of shares of Common Stock into which a series of Preferred Stock is convertible shall be made by adjustment of the Conversion Price of such series of Preferred Stock with respect to the issuance or deemed issuance of Additional Shares of Common Stock or otherwise, (A) with respect to the Senior Preferred Stock, if the holders of shares of Senior Preferred Stock representing at least sixty-six and two-thirds percent (66 2/3%) of the votes represented by all outstanding shares of Senior Preferred Stock voting together as a single class, waive such adjustment, (B) with respect to the Series SRN Preferred Stock, if the SRN Majority Holders, if any, waive such adjustment, or (C) unless the consideration per share for such Additional Shares of Common Stock issued or deemed to be issued by the Corporation is less than the Conversion
Price of such series of Preferred Stock in effect on the date of, and immediately prior to, the issuance or deemed issuance of such Additional Shares of Common Stock.
(iii) Deemed Issue of Additional Shares of Common Stock.
(1) Options and Convertible Securities. In the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible 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 (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock 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, provided that Additional Shares of Common Stock shall not be deemed to have been issued if (i) such shares of Common Stock are excluded from the definition of Additional Shares of Common Stock set forth in Section 3.3(d)(i)(4) or (ii) the consideration per share (determined pursuant to Section 3.3(d)(v)) of such Additional Shares of Common Stock is not less than the Conversion Price of any series of Senior Preferred Stock in effect on the date of and immediately prior to such issue, or such record date, as the case may be; and provided, however, that in any such case in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price of any series of Preferred Stock shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price of any series of Preferred Stock computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities;
(C) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price of any series of Preferred Stock computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon shall, upon such expiration, be recomputed as if:
(i) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor
was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation (determined pursuant to Section 3.3(d)(v)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Conversion Price of any series of Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price of such series of Preferred Stock on the original adjustment date, or (ii) the Conversion Price of such series of Preferred Stock that would have resulted from any other issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date;
(E) in the case of any Options which expire by their terms not more than thirty (30) days after the date of issue thereof, no adjustment of the Conversion Price of any series of Preferred Stock shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (C) above; and
(F) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price of any series of Preferred Stock which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Conversion Price of such series of Preferred Stock shall be adjusted pursuant to this Section 3.3(d)(iii) as of the actual date of their issuance.
(2) Stock Dividends, Stock Distributions and Subdivisions. In the event the Corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock, or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall not be deemed to have been issued, but the Conversion Price of any series of Preferred Stock shall be adjusted in accordance with Section 3.3(d)(vi).
(iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall issue Additional Shares of Common Stock (including without limitation Additional Shares of Common Stock deemed to be
issued pursuant to Section 3.3(d)(iii)) without consideration or for a consideration per share less than the applicable Conversion Price of any series of Preferred Stock in effect on the date of and immediately prior to such issue, then and in such event, such Conversion Price shall be reduced, concurrently with such issue in order to increase the number of shares of Common Stock into which such series of Preferred Stock is convertible, to a price (calculated to the nearest cent) determined by dividing (A) (i) the Conversion Price of such series of Preferred Stock multiplied by the number of shares of Common Stock outstanding immediately prior to such issue (including without limitation shares of Common Stock issuable upon conversion of any outstanding Options, Convertible Securities and shares of Preferred Stock), plus (ii) the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued, by (B) (i) the number of shares of Common Stock outstanding immediately prior to such issue (including without limitation shares of Common Stock issuable upon conversion of any outstanding Options, Convertible Securities and shares of Preferred Stock), plus (ii) the total number of such Additional Shares of Common Stock so issued, provided that the Conversion Price shall not be so reduced at such time if the amount of such reduction would be an amount less than $0.01, but any such amount shall be carried forward and any reduction with respect thereto shall be made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or more. For the avoidance of doubt, the Conversion Price for the Series SRN Preferred in connection with an SRN Special Optional Conversion Event shall not be adjusted pursuant to this Section 3.3(d)(iv) or otherwise in connection with the actual or deemed issuance by the Corporation of Additional Shares of Common Stock.
(v) Determination of Consideration. For purposes of this Section 3.3(d), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) 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 or accrued dividends;
(B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and
(C) 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, by the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The aggregate consideration received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 3.3(d)(iii)(1), relating to Options and Convertible Securities, shall be determined by computing the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the
minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration until such subsequent adjustment occurs) 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. The total number of Additional Shares of Common Stock so issued shall be determined by calculating 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 until such subsequent adjustment occurs) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.
(vi) Adjustment for Dividends, Distributions, Subdivisions Combinations or Consolidation of Common Stock.
(1) Stock Dividends, Distributions or Subdivisions. In the event the Corporation at any time, or from time to time, shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock, or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), the Conversion Price of each series of Preferred Stock, in each case in effect immediately prior to such stock dividend, stock distribution or subdivision shall, concurrently with the effectiveness of such stock dividend, stock distribution or subdivision, be proportionately decreased.
(2) Combinations or Consolidations. In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price of each series of Preferred Stock (including, for the avoidance of doubt, in connection with an SRN Special Optional Conversion Event), in each case in effect immediately prior to such combination or contribution shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased.
(vii) Adjustment for Merger or Reorganization. Unless otherwise determined by a vote or written consent of the holders of shares of Senior Preferred Stock and Series SRN Preferred representing at least sixty-six and two-thirds percent (66 2/3%) of the votes represented by all outstanding shares of Senior Preferred Stock and Series SRN Preferred voting together as a single class, in case of any consolidation or merger of the Corporation with or into another corporation or the conveyance of all or substantially all of the assets of the Corporation to another corporation in which the holders of Common Stock will be entitled to receive shares of stock, other securities or property, each share of the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred and the Series E Preferred shall thereafter be convertible into the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such share of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred would have been entitled upon such consolidation, merger or conveyance, and appropriate adjustment (as determined in good faith by the Board of Directors) shall be made to the conversion provisions of the Series SRN Preferred. In any such case, appropriate adjustment
(as determined in good faith by the Board of Directors) shall be made in the application of these provisions set forth with respect to the rights and interest thereafter of the holders of Preferred Stock, to the end that these provisions (including without limitation provisions with respect to changes in and other adjustments of the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Preferred Stock.
(e) No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of any Conversion Price of any series of Preferred Stock pursuant to this Section 3.3, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with these terms and furnish to each holder of Preferred Stock a certificate setting forth such adjustment, readjustment or conversion and showing in detail the facts upon which such adjustment, readjustment or conversion is based, provided that the failure to promptly provide such notice shall not affect the effectiveness of such adjustment, or readjustment or conversion. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price of any series of Preferred Stock at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of any series of Preferred Stock.
(g) Notices of Record Date. In the event of (i) any taking by the Corporation of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, or (ii) any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation, and any transfer of all or substantially all of the assets of the Corporation to any other corporation, or any other entity or person, or any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of Preferred Stock at least twenty (20) days prior to such record date, a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (C) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up. For the avoidance of doubt, failure to give notice as set
forth in this Section 3.3(g) shall not alter the effectiveness of the consummation of any transaction or event pertaining to such notice.
(h) Common Stock Reserved. The Corporation shall reserve and keep available out of its authorized but unissued Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect conversion of the Preferred Stock.
3.4 Senior Preferred Stock Redemption.
(a) Shares of Senior Preferred Stock shall be redeemed by the Corporation out of funds lawfully available therefor at a price equal to the applicable Original Issue Price per share, plus all Accruing Dividends, whether or not declared, and any other declared but unpaid dividends thereon (the Redemption Price), in four (4) annual installments commencing not more than ninety (90) days after receipt by the Corporation at any time (i) on or after November 7, 2019 and (ii) at which time there has not occurred a Deemed Liquidation Event, from the holders of shares of Senior Preferred Stock representing at least sixty-six and two-thirds percent (66 2/3%) of the votes represented by all outstanding shares of Senior Preferred Stock voting together as a single class, of written notice requesting redemption of some or all of such holders shares of Senior Preferred Stock (such notice, a Senior Preferred Stock Redemption Request); provided that, immediately prior to the SRN Redemption Request Date (as defined below), any and all installments due in respect to a Senior Preferred Stock Redemption Request which are unpaid shall immediately accelerate. For the avoidance of doubt, the requisite holders of shares of Senior Preferred Stock may elect to deliver a Senior Preferred Stock Redemption Request following the Corporations receipt of a SRN Redemption Request and prior to the SRN Redemption Request Date, in which case, as provided above, the full Redemption Price for all shares of Senior Preferred Stock subject to such Senior Preferred Stock Redemption Request shall accelerate and be paid immediately prior to the SRN Redemption Request Date. The date of each such installment shall be referred to as a Redemption Date. The maximum number of shares of Senior Preferred Stock that the Corporation shall be required to redeem on any one Redemption Date shall be equal to the amount determined by dividing (i) the aggregate number of shares of Senior Preferred Stock outstanding immediately prior to such Redemption Date by (ii) the number of remaining Redemption Dates (including the Redemption Date to which such calculation applies). Any redemption of Senior Preferred Stock effected pursuant to this Section 3.4(a) shall not be mandatory on all holders of Senior Preferred Stock but all holders of Senior Preferred Stock shall have the option to participate in such redemption in accordance with Section 3.4(b), and any such redemption shall be made on a pro rata basis among the holders of Senior Preferred Stock participating in the redemption in proportion to the aggregate Redemption Price each such holder of Senior Preferred Stock would otherwise be entitled to receive on the applicable Redemption Date. Notwithstanding the foregoing, a holder of Senior Preferred Stock may at any time convert some or all of such holders Senior Preferred Stock prior to a Redemption Date in accordance with the provisions of Section 3.3.
(b) Written notice shall be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of Senior Preferred Stock, at the address last shown on the records of the Corporation for such holder, notifying such holder of the redemption to be effected on the applicable Redemption Date (the Redemption Notice). If the Corporation receives, on or prior to the twentieth day
after the date of delivery of the Redemption Notice to a holder of Senior Preferred Stock, written notice from such holder that such holder elects to be included in the redemption, then some or all of such holders shares of Senior Preferred Stock as requested in the holders notice to the Corporation, shall thereafter be included in the redemption provided in this Section 3.4. To the extent shares of Senior Preferred Stock are excluded from the redemption provided in Section 3.4(a), such shares shall not be redeemed and shall cease to be redeemable pursuant to this Section 3.4 whether on a Redemption Date or thereafter.
(c) If the Corporation for any reason fails to redeem any of the shares of the Senior Preferred Stock in accordance with Section 3.4(a) on or prior to the Redemption Dates determined in accordance with this Section 3.4, then the Corporation shall become obligated to pay to the holder of unredeemed shares, in addition to the Redemption Price for such unredeemed shares specified in Section 3.4(a), interest on the unpaid balance of such Redemption Price, which shall accrue beginning on such Redemption Date, at a rate of one percent (1%) per month until such price is paid in full.
(d) If the funds of the Corporation legally available for redemption of the Senior Preferred Stock on any Redemption Date are insufficient to redeem the number of shares of the Senior Preferred Stock required under this Section 3.4 to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of Senior Preferred Stock, and on a pari passu basis as between the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred and the Series E Preferred, in proportion to the full amount each such holder is otherwise entitled to receive under Section 3.4(a) on the basis of the number of shares of such series which would be redeemed on such date if the funds of the Corporation legally available therefor had been sufficient to redeem all the shares of such series required to be redeemed on such date. At any time thereafter when additional funds of the Corporation become legally available for the redemption of Senior Preferred Stock, such funds will be used, at the end of the next succeeding fiscal quarter, to redeem the balance of the shares which the Corporation was theretofore obligated to redeem, ratably on the basis set forth in the preceding sentence.
(e) Unless there shall have been a default in payment of the applicable Redemption Price, no share of Senior Preferred Stock elected to be included in the redemption shall be entitled to any Accruing Dividends accruing after or any other dividends declared after its applicable Redemption Date, and on such Redemption Date all rights of the holder of such share as a stockholder of the Corporation by reason of the ownership of such share will cease, except the right to receive the applicable Redemption Price for such share, upon presentation and surrender of the certificate representing such share and such share will not from and after such Redemption Date be deemed to be outstanding.
(f) Notwithstanding the foregoing, for so long as the Corporation is bound by or subject to a loan agreement or similar financing arrangement that has been approved by a majority of the members of the Board of Directors, including a majority of the Preferred Directors (as defined below), and that restricts the ability of the Corporation to redeem shares of Senior Preferred Stock in accordance with this Section 3.4, the rights of the holders of Senior Preferred Stock under this Section 3.4 shall be suspended and the Corporation shall not be required to redeem any shares of Senior Preferred Stock.
3.5 SRN Preferred Redemption.
(a) With respect to each holder of shares of Series SRN Preferred, the shares of Series SRN Preferred held by such holder shall be redeemed by the Corporation out of funds lawfully available therefor, only if and to the extent that the Corporation has sufficient cash from earnings immediately available to fund such redemption, at a price equal to the applicable SRN Redemption Price (as defined below), in one (1) payment to be paid not more than thirty (30) days after receipt by the Corporation after November 7, 2019, from such holder of written notice requesting redemption of all shares of Series SRN Preferred held by such holder (such notice, a SRN Redemption Request). The date which is thirty (30) days after receipt of any such request shall be referred to as the SRN Redemption Request Date, and the date of such payment shall be referred to as the SRN Redemption Date. The SRN Redemption Price shall equal an amount per share such that, when paid in full, the holder thereof shall have achieved on the SRN Redemption Date (as defined below) a sixteen and one half percent (16.5%) internal rate of return on the Original Issue Price of the Series SRN Preferred since the date of original issuance of such share of Series SRN Preferred. For purposes hereof, internal rate of return means the discount rate at which the net present value of the Original Issue Price of the Series SRN Preferred is equal to the net present value of the SRN Redemption Price and all dividends paid with respect to a share of Series SRN Preferred from the original date of issuance. Internal rate of return shall be calculated using the XIRR function in the most recent version of Microsoft Excel (or if such program is no longer available, such other software program for calculating IRR reasonably proposed by the Corporation).
(b) Prior to the close of business on the next business day following the day on which the Corporation receives any SRN Redemption Request, the Corporation shall mail, first class postage prepaid, written notice to each holder of record of Senior Preferred Stock, at the address last shown on the records of the Corporation for such holder, notifying such holder of the redemption of such Series SRN Preferred shares to be effected on the applicable SRN Redemption Date.
(c) If the funds of the Corporation lawfully available or immediately available from earnings for redemption of the Series SRN Preferred on the respective SRN Redemption Request Date are insufficient to redeem the total number of shares of Series SRN Preferred required under this Section 3.5 to be redeemed on such date, the Corporation shall, as payment of the SRN Redemption Price for all such unredeemed shares, issue a promissory note (an SRN Redemption Note) in favor of each holder of such shares for an amount equal to the SRN Redemption Price of all such shares held by such holder, the term of which SRN Redemption Note shall not exceed a period of two (2) years, and which will contemplate a payment schedule to be agreed upon among the Corporation and such holders, which will reflect that such SRN Redemption Note shall accrue interest such that the holder thereof shall achieve, on the date of payment in full, a sixteen and one half percent (16.5%) internal rate of return on the Original Issue Price of such shares of Series SRN Preferred since the date of original issuance of such shares of Series SRN Preferred as provided in Section 3.5(a) above.
(d) Unless there is a default in the payment of the applicable Series SRN Redemption Price on the respective SRN Redemption Request Date, no share of Series SRN Preferred to be redeemed pursuant to this Section 3.5 on such date shall be entitled to any
dividends declared after such SRN Redemption Request Date, and on such SRN Redemption Request Date all rights of the holder of such share as a stockholder of the Corporation by reason of the ownership of such share will cease, except the right to receive the applicable SRN Redemption Price for such share, upon presentation and surrender of the certificate representing such share and such share will not from and after such SRN Redemption Date be deemed to be outstanding.
(e) If at any time while the SRN Redemption Notes are outstanding the Corporation is required to pay, but has not yet paid the Redemption Price pursuant to Section 3.4, then any payment made by the Corporation to the holders of Senior Preferred Stock on account of the Redemption Price, or to the holders of an SRN Redemption Note on account thereof, shall be paid ratably among the holders of the Senior Preferred Stock and holders of the SRN Redemption Notes on a pari passu basis, in proportion to the amounts such holders are entitled to receive pursuant to Section 3.4 and the amounts of the SRN Redemption Notes issued pursuant to Section 3.5, respectively
(f) Notwithstanding the foregoing, for so long as the Corporation is bound by or subject to a loan agreement or similar financing arrangement that has been approved by a majority of the members of the Board of Directors, including a majority of the Preferred Directors, and that restricts the ability of the Corporation to redeem shares of SRN Preferred Stock in accordance with this Section 3.5, the rights of the holders of SRN Preferred Stock under this Section 3.5 shall be suspended and the Corporation shall not be required to redeem any shares of SRN Preferred Stock.
3.6 Voting Rights.
(a) The holders of shares of Senior Preferred Stock shall be entitled to notice of any stockholders meeting and to vote upon any matter submitted to a stockholder for a vote, as though the Common Stock and Senior Preferred Stock constituted a single class of stock, except with respect to those matters on which the General Corporation Law requires that a vote must be by a separate class or classes or by separate series, as to which each such class or series shall have the right to vote in accordance with such law, and except as otherwise provided in this Certificate, including without limitation Sections 3.6(b), (c) and (d) below. Holders of Senior Preferred Stock shall have that number of votes per share as is equal to the number of shares of Common Stock into which each such share of Senior Preferred Stock held by such holder is then convertible (based on the Conversion Price in effect at such time and, in the case of the Series E Preferred, disregarding the special conversion ratios set forth in Subsections 3.3(a)(i)(1) and 3.3(b)(i)(2)). Except as otherwise required by law or as provided in Section 3.3(d)(vii), the holders of Series SRN Preferred shall not be entitled to vote on any matter submitted to a stockholder for a vote.
(b) Any provision of the Bylaws of the Corporation to the contrary notwithstanding, the number of directors constituting the entire Board of Directors of the Corporation shall be fixed at eleven (11) and may not be increased without the prior consent of the holders of shares of Senior Preferred Stock representing at least sixty-six and two-thirds percent (66 2/3%) of the votes represented by all outstanding shares of Senior Preferred Stock voting together as a single class.
(c) At all times during which shares of Senior Preferred Stock remain outstanding, the holders of the outstanding shares of Senior Preferred Stock shall have the exclusive right, separately from the Common Stock, to elect five (5) directors of the Corporation (collectively, the Preferred Directors). Each Preferred Director shall be elected by the vote or written consent of the holders of shares of Senior Preferred Stock representing at least sixty-six and two-thirds percent (66 2/3%) of the votes represented by all outstanding shares of Senior Preferred Stock voting together as a single class. If any Preferred Director shall cease to serve as a director for any reason, another director elected by the holders of the Senior Preferred Stock shall replace such director. Any Preferred Director may be removed, with or without cause, and a replacement Preferred Director may be elected in his or her stead, at any time by the affirmative vote at a meeting of stockholders called for such purpose, or by written consent, of the holders of shares of Senior Preferred Stock representing at least sixty-six and two-thirds percent (66 2/3%) of the votes represented by all outstanding shares of Senior Preferred Stock voting together as a single class.
(d) The holders of Senior Preferred Stock and the holders of Common Stock shall be entitled to vote upon the election of directors in accordance with the Fifth Amended and Restated Voting Agreement dated as of August 27, 2015, as it may be amended and/or restated from time to time.
3.7 Dividend Right.
(a) The holders of outstanding Senior Preferred Stock shall be entitled to receive cumulative dividends (the Accruing Dividends) at an annual rate of (i) $0.0579 per share of Series A Preferred (as appropriately adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like with respect to the Series A Preferred), (ii) $0.1218 per share of Series B Preferred (as appropriately adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like with respect to the Series B Preferred), (iii) $0.18 per share of Series C Preferred (as appropriately adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like with respect to the Series C Preferred), (iv) $0.27 per share of Series D Preferred (as appropriately adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like with respect to the Series D Preferred), and (v) $0.27 per share of Series E Preferred (as appropriately adjusted for any recapitalizations, stock combinations, stock dividends, stock splits and the like with respect to the Series E Preferred), which dividends shall accrue daily in arrears, whether or not such dividends are declared by the Board of Directors or paid. The Accruing Dividends shall be payable when, as and if declared by the Board of Directors, out of any funds legally available therefor and prior and in preference to dividends to any other holder of capital stock of the Corporation. The Accruing Dividends owed to the holders of one series of Senior Preferred Stock shall not be paid unless the Accruing Dividends owed to the holders of the other series of Senior Preferred Stock are paid simultaneously therewith in proportion to the full amount of Accruing Dividends then owed. For the avoidance of doubt, Accruing Dividends shall cease to accrue upon the consummation of a Deemed Liquidation Event.
(b) The holders of outstanding Preferred Stock shall be entitled to receive a dividend (determined on the basis of the number of shares of Common Stock into which such share of Preferred Stock is then convertible, disregarding, with respect to the Series E Preferred,
the special conversion ratios set forth in Subsections 3.3(a)(i)(1) and 3.3(b)(i)(2)) equal to any dividend paid on Common Stock, other than dividends comprised solely of shares of Common Stock. Any Accruing Dividends, whether or not declared, and any other declared but unpaid dividend shall be payable on liquidation and redemption in accordance with Sections 3.2, and 3.4. Any declared but unpaid dividend, other than the Accruing Dividends (which for the avoidance of doubt shall be cancelled without payment on conversion), shall be payable on conversion in accordance with Section 3.3.
3.8 Covenants. In addition to Section 3.6 and any vote which any series of Senior Preferred Stock may have under Delaware law, so long as any shares of Senior Preferred Stock shall be outstanding, the Corporation shall not (by merger, reclassification or otherwise):
(a) without first obtaining the affirmative vote or written consent of the holders of shares of Senior Preferred Stock representing at least sixty-six and two-thirds percent (66 2/3%) of the votes represented by all outstanding shares of Senior Preferred Stock voting together as a single class:
(i) authorize any sale, merger or consolidation of the Corporation or any subsidiary of the Corporation to, with or into any other corporation or entity (including, without limitation, a subsidiary of the Corporation);
(ii) effect any reincorporation or recapitalization of the Corporation or any subsidiary of the Corporation;
(iii) effect any acquisition of all of the capital stock, or all or substantially all of the assets, of another entity where such acquisition results in the consolidation, for financial reporting purposes, of that entity into the results of operations of the Corporation;
(iv) authorize the sale or transfer of all or substantially all or any substantial part of the assets of the Corporation or any subsidiary of the Corporation other than in the course of ordinary business;
(v) effect any liquidation, dissolution or winding up of the affairs of the Corporation or any subsidiary of the Corporation;
(vi) pay or declare any dividend or distribution on any shares of the Corporations capital stock (except Accruing Dividends or dividends payable solely in shares of Common Stock), or apply any of the Corporations assets to the redemption or repurchase of the Corporations capital stock (except for redemption of Preferred Stock as provided in Sections 3.4 and 3.5 or the repurchase of securities from employees or consultants of the Corporation pursuant to restricted stock arrangements with individuals who have terminated their relationship with the Corporation);
(vii) increase or decrease the authorized number of directors constituting the Board of Directors;
(viii) increase or decrease the authorized number of shares of Preferred Stock or Common Stock;
(ix) authorize, create or issue shares of any class or series of stock on parity or having preference over any series of the Senior Preferred Stock; or
(x) amend or repeal any provision of, or add any provision to, the Corporations Certificate of Incorporation or Bylaws.
(b) without first obtaining the affirmative vote or written consent of the holders of shares of Series A Preferred representing at least sixty-six and two-thirds percent (66 2/3%) of the votes represented by all outstanding shares of Series A Preferred (so long as any shares of Series A Preferred are outstanding) amend or repeal any provision of, or add any provision to, the Corporations Certificate of Incorporation or Bylaws or the certificate of incorporation or bylaws of any subsidiary of the Corporation if such action would change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series A Preferred in a manner that adversely affects the Series A Preferred in a manner different from any other series of Tier II Preferred Stock;
(c) without first obtaining the affirmative vote or written consent of the holders of shares of the Series B Preferred representing at least eighty percent (80%) of the votes represented by all outstanding shares of Series B Preferred (so long as any shares of Series B Preferred are outstanding) amend or repeal any provision of, or add any provision to, the Corporations Certificate of Incorporation or Bylaws or the certificate of incorporation or bylaws of any subsidiary of the Corporation if such action would change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series B Preferred in a manner that adversely affects the Series B Preferred in a manner different from any other series of Tier II Preferred Stock;
(d) without first obtaining the affirmative vote or written consent of the holders shares of Series C Preferred representing at least seventy-five percent (75%) of the votes represented by all outstanding shares of Series C Preferred (so long as any shares of Series C Preferred are outstanding) amend or repeal any provision of, or add any provision to, the Corporations Certificate of Incorporation or Bylaws or the certificate of incorporation or bylaws of any subsidiary of the Corporation if such action would change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series C Preferred in a manner that adversely affects the Series C Preferred in a manner different from any other series of Tier II Preferred Stock;
(e) without first obtaining the affirmative vote or written consent of the holders of shares of Series D Preferred representing at least sixty-six and two-thirds percent (66 2/3%) of the votes represented by all outstanding shares of Series D Preferred (so long as any shares of Series D Preferred are outstanding, amend or repeal any provision of, or add any provision to, the Corporations Certificate of Incorporation or Bylaws if such action would change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series D Preferred in a manner that adversely affects the Series D Preferred in a manner different from any other series of Tier II Preferred Stock; or
(f) without first obtaining the affirmative vote or written consent of the holders of shares of Series E Preferred representing a majority of the votes represented by all outstanding shares of Series E Preferred (so long as any shares of Series E Preferred are outstanding, amend or repeal any provision of, or add any provision to, the Corporations Certificate of Incorporation or Bylaws if such action would change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series E Preferred in a manner that adversely affects the Series E Preferred in a manner different from the Tier II Preferred Stock.
(g) For the avoidance of doubt, it is agreed that the neither authorization or issuance of a new series of Preferred Stock by the Corporation nor the amendment of the Corporations Certificate of Incorporation to include such new series of Preferred Stock in any definition relating to the Corporations Preferred Stock (including, without limitation, the definitions of Tier II Preferred Stock and/or Senior Preferred Stock) shall, on its own, be deemed to be a change in the preferences, rights, privileges, or powers of, or the restrictions provided for the benefit of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred, or to otherwise require a separate vote of any such series of Preferred Stock under Sections 3.8(b), (c), (d), (e) or (f).
3.9 Converted, Redeemed or Otherwise Acquired Shares. Any share of Preferred Stock that is converted under Section 3.3, redeemed under Section 3.4 or Section 3.5 or otherwise acquired by the Corporation will be canceled and shall not be reissued, sold or transferred.
3.10 Residual Rights. All rights accruing to the outstanding shares of the Corporation not expressly provided for to the contrary shall be vested in the Common Stock.
3.11 Notices to Holders of Series SRN Preferred. Notwithstanding anything to the contrary herein, each notice to holders of Series SRN Preferred to be provided hereunder shall be deemed effectively provided at the time any member of the Board of Directors designated by such holder shall receive such notice.
FIFTH: Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of §291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of §279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths (3/4) in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.
SIXTH: A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for the breach of any fiduciary duty as a director, except in the case of (a) any breach of the directors duty of loyalty to the Corporation or its stockholders, (b) acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (c) under section 174 of the General Corporation Law or (d) for any transaction from which the director derives an improper personal benefit. Any repeal or modification of this Article 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 such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.
SEVENTH: The Corporation shall, to the fullest extent permitted by Section 145 of the General Corporation Law, as amended from time to time, indemnify each 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 he or she is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, general director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, limited liability company, partnership, joint venture, trust or other enterprise (including without limitation any employee benefit plan) (all such persons being referred to hereafter as an Indemnitee), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including without limitation attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of an Indemnitee in connection with such action, suit or proceeding and any appeal therefrom.
The rights provided in this Article (i) shall not be deemed exclusive of any other rights to which an Indemnitee may be entitled under any law, agreement or vote of stockholders or disinterested directors or otherwise, and (ii) shall inure to the benefit of the heirs, executors and administrators of the Indemnitees. The Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article.
Any repeal or modification of the foregoing provisions of this Article shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. The rights provided hereunder shall inure to the benefit of any Indemnitee and such persons heirs, executors and administrators.
EIGHTH: Unless, and except to the extent that, the Bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot.
NINTH: Subject to any additional vote required by the Corporations Certificate of Incorporation or Bylaws, in furtherance and not in limitation of the powers conferred by statute, the Corporation hereby confers the power to adopt, amend or repeal the Bylaws of the Corporation upon the directors.
TENTH: Meetings of the stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide.
ELEVENTH: The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated in the Bylaws of the Corporation or from time to time by its directors.
TWELFTH: In accordance with the provisions of Section 122(17) of the General Corporation Law, the Corporation renounces 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 any director or officer of the Corporation who is not an employee of the Corporation or any of its subsidiaries (collectively, Covered Persons), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Persons capacity as a director or officer of the Corporation.
THIRTEENTH: The Corporation reserves the right to amend or repeal any provision contained in this Fourth Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon a stockholder herein are granted subject to this reservation.
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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 Fourth 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 Fourth Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 27th day of August, 2015.
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/s/ Werner Cautreels |
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Werner Cautreels |
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President and CEO |
-Signature Page to Fourth Amended and Restated Certificate of Incorporation-
CERTIFICATE OF AMENDMENT
TO
FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SELECTA BIOSCIENCES, INC.
Selecta Biosciences, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the Corporation), DOES HEREBY CERTIFY:
FIRST: That, in lieu of a meeting, the Board of Directors of the Corporation duly adopted resolutions by written consent recommending and declaring advisable that the Fourth Amended and Restated Certificate of Incorporation of the Corporation be amended and that such amendments be submitted to the stockholders of the Corporation for their consideration, as follows:
RESOLVED, that Section 1 of Article FOURTH of the Fourth Amended and Restated Certificate of Incorporation of the Corporation, as amended and/or restated to date, be amended and restated in its entirety to read as follows:
Effective on the filing of this Certificate of Amendment to Fourth Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (the Effective Time), a one-for-3.9 reverse stock split of the Corporations Common Stock shall become effective, pursuant to which each 3.9 shares of Common Stock outstanding and held of record by each stockholder of the Corporation (including treasury shares) immediately prior to the Effective Time shall be reclassified and combined into one validly issued, fully paid and nonassessable share of Common Stock automatically and without any action by the holder thereof upon the Effective Time and shall represent one share of Common Stock from and after the Effective Time (such reclassification and combination of shares, the Reverse Stock Split). The par value of the Common Stock and the Preferred Stock following the Reverse Stock Split shall remain at $0.0001 per share. No fractional shares of Common Stock shall be issued as a result of the Reverse Stock Split and, in lieu thereof, upon surrender after the Effective Time of a certificate which formerly represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time, any person who would otherwise be entitled to a fractional share of Common Stock as a result of the Reverse Stock Split, following the Effective Time, shall be entitled to receive a cash payment equal to the fraction of which such holder would otherwise be entitled multiplied by the fair value per share as determined by the Board of Directors.
Each stock certificate that, immediately prior to the Effective Time, represented shares of Common Stock that were issued and outstanding
immediately prior to the Effective Time shall, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent that number of whole shares of Common Stock after the Effective Time into which the shares formerly represented by such certificate have been reclassified (as well as the right to receive cash in lieu of fractional shares of Common Stock after the Effective Time); provided, however, that each person of record holding a certificate that represented shares of Common Stock that were issued and outstanding immediately prior to the Effective Time shall receive, upon surrender of such certificate, a new certificate evidencing and representing the number of whole shares of Common Stock after the Effective Time into which the shares of Common Stock formerly represented by such certificate shall have been reclassified; and provided further, however, that whether or not fractional shares would be issuable as a result of the Reverse Stock Split shall be determined on the basis of (i) the total number of shares of Common Stock that were issued and outstanding immediately prior to the Effective Time formerly represented by certificates that the holder is at the time surrendering for a new certificate evidencing and representing the number of whole shares of Common Stock after the Effective Time and (ii) the aggregate number of shares of Common Stock after the Effective Time into which the shares of Common Stock formerly represented by such certificates shall have been reclassified.
The total number of shares of all classes of stock which the Corporation shall have authority to issue is 137,835,623, consisting of 100,000,000 shares of common stock, $0.0001 par value per share (the Common Stock), and 37,835,623 shares of preferred stock, $0.0001 par value per share (the Preferred Stock).
SECOND: That in lieu of a meeting and vote of stockholders, the stockholders have given written consent to said amendments in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendments were duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by Werner Cautreels, Ph.D., the President and Chief Executive Officer of the Corporation, this 7th day of June, 2016.
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SELECTA BIOSCIENCES, INC. | |
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By: |
/s/ Werner Cautreels, Ph.D. |
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Werner Cautreels, Ph.D. |
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President and Chief Executive Officer |
Exhibit 4.1
FIFTH AMENDED AND RESTATED
INVESTORS RIGHTS AGREEMENT
This Fifth Amended and Restated Investors Rights Agreement dated as of August 26, 2015 (this Agreement), is made by and among: (i) Selecta Biosciences, Inc., a Delaware corporation (the Company); (ii) the holders of the Companys Series A Convertible Preferred Stock, par value $0.0001 per share (the Series A Preferred Stock), the Companys Series B Convertible Preferred Stock, par value $0.0001 per share (the Series B Preferred Stock), the Companys Series C Convertible Preferred Stock, par value $0.0001 per share, (the Series C Preferred Stock), the Companys Series D Convertible Preferred Stock, par value $0.0001 per share (the Series D Preferred Stock), the Companys Series E Convertible Preferred Stock, par value $0.0001 per share, (the Series E Preferred Stock and, collectively with the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock and the Series D Preferred Stock, the Senior Preferred Stock), and the Companys Series SRN Convertible Preferred Stock, par value $0.0001 per share (the Series SRN Preferred Stock) listed on the Schedule A attached hereto (collectively, the Purchasers); (iii) Omid Farokhzad, Ulrich von Andrian and Robert S. Langer, Jr. (each individually, a Founder, and collectively the Founders); and (iv) the persons and entities listed on Schedule B (each a Licensor Shareholder and collectively, the Licensor Shareholders, and collectively with the Founders, the Initial Stockholders).
WHEREAS, the Company, the holders of the Companys Series A Preferred Stock, the holders of the Companys Series B Preferred Stock, the holders of the Companys Series C Preferred Stock, the holders of the Companys Series D Preferred Stock, the holders of the Companys Series SRN Preferred Stock, the Founders, the Licensor Shareholders and certain other parties named therein are parties to a Fourth Amended and Restated Investors Rights Agreement dated as of July 15, 2014 (the Former Investors Rights Agreement);
WHEREAS, the Company is a party to a Series E Preferred Stock Purchase Agreement dated as of the date hereof (the Purchase Agreement) pursuant to which the Company agreed to issue shares of Series E Preferred Stock to certain Purchasers (collectively, the Series E Investors); and
WHEREAS, the Series E Investors have made it a condition precedent to their purchase of shares of Series E Preferred Stock pursuant to the Purchase Agreement that the parties enter into this Agreement, which amends and restates the Former Investors Rights Agreement.
NOW, THEREFORE, in consideration of these mutual promises and covenants set forth herein, the parties hereto agree to the terms and conditions set forth below:
1. Covenants of the Company. The Company covenants and agrees that so long as (i) at least 1,500,000 shares of Senior Preferred Stock (subject to equitable adjustment for stock splits, stock dividends and similar events) are outstanding or (ii) the Purchasers hold of record and beneficially not less than four percent (4%) of the Companys common stock, $0.0001 par value per share (the Common Stock) (treating each share of Senior Preferred Stock on an as-converted to Common Stock basis), it will perform and observe the following covenants and provisions:
1.1. Financial Statements. The Company will maintain true and accurate books of account in accordance with generally accepted accounting principles applied on a consistent basis (except that the Company will not be required to record the annual valuation and adjustments for its share-based compensation expense under Statement of Financial Accounting Standards No. 123R, recording gains/losses on exchange rates, revenue and deferred revenue and other such valuation analysis tied to year-end until the time it delivers audited financial statements pursuant to Section 1.1(a) below), keep full and complete financial records, and furnish the following reports to (i) each Purchaser who holds at least 600,000 shares of Common Stock (including shares of Common Stock issued or issuable upon conversion of Senior Preferred Stock and subject to equitable adjustment for stock splits, stock dividends and similar events) (each a Major Stockholder) and (ii) The Brigham and Womens Hospital (Brigham) for so long as it holds at least 10,000 shares of Common Stock (subject to equitable adjustment for stock splits, stock dividends and similar events):
(a) as soon as practicable, but in any event within one hundred ninety (190) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholders equity as of the end of such year, and a schedule as to the sources and applications of funds for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles (GAAP) applied on a consistent basis, and audited and certified by such independent public accountants of nationally recognized standing selected by the Company and approved by the holders of shares representing a majority of the voting power of the Senior Preferred Stock held by the Purchasers;
(b) as soon as practicable, but in any event within thirty (30) days after the end of each month other than the last month of any quarter, an unaudited profit and loss statement and a cash flow statement and the balance sheet as of the end of such month;
(c) as soon as practicable, but in any event within forty-five (45) days after the end of each fiscal quarter, an unaudited profit and loss statement and a cash flow statement and the balance sheet as of the end of such fiscal quarter; and
(d) such other financial information of the Company as any Major Stockholder or Brigham may reasonably request, including certificates of the principal financial officer of the Company concerning compliance with the covenants of the Company prescribed under this Section 1.
1.2. Operating Plan; Other Reporting. The Company will prepare and deliver to each Major Stockholder, on or before the first day of each fiscal year, an annual operating plan (that will include a budget) prepared on a monthly basis and, promptly after preparation, any revisions to such operating plan. In addition, the Company will promptly provide to each Major Stockholder other customary information and materials, including reports of adverse developments, management letters, communications with stockholders or directors, press releases, and registration statements.
1.3. Inspection. The Company shall, upon reasonable prior notice to the Company, permit authorized representatives of the Major Stockholders to visit and inspect any of the
properties of the Company including its books of account (and to make copies thereof and take extracts therefrom), and to discuss the affairs, prospects, finances, and accounts of the Company with its officers, administrative employees, and independent accountants, all at the expense of the Major Stockholders and at such reasonable times and as often as may be reasonably requested. The Company shall, upon reasonable prior notice to the Company, permit authorized representatives of the Major Stockholders to visit and inspect any of the properties of SELECTA (RUS) LLC, a Russian limited liability company and subsidiary of the Company (the Project Company) including its books of account and any document or agreement to which the Project Company is a party (but not to make copies thereof), provided that the Project Company is permitted to disclose such document or agreement to such representatives during such visit, and to discuss the affairs, prospects, finances, and accounts of the Project Company with its general director, all at the expense of the Major Stockholders and at such reasonable times as may be reasonably requested; provided that such visits and inspections will be limited to (i) two (2) times per calendar year for a duration of no more than two (2) consecutive business days each and (ii) two (2) times per calendar year for a duration of no more than one-half (1/2) business day each. For the avoidance of doubt, the rights afforded to RUSNANO, an open joint stock company organized and existing under the laws of the Russian Federation (RUSNANO), under this Section 1.3 shall be in addition to, and not lieu of, any audit rights RUSNANO may have pursuant to Section 5.3.
1.4. Employee Agreements. The Company shall require all its employees and consultants to enter into the Companys standard confidentiality and assignment agreement containing provisions governing, among other things, the protection of confidential information, assignment of intellectual property, competition with the Company and solicitation of the Companys employees.
1.5. Reservation of Shares. The Company will at all times reserve and keep available, solely for issuance and delivery upon (a) the conversion of the Senior Preferred Stock and Series SRN Preferred Stock and (b) the exercise of those certain warrants to purchase Common Stock issued pursuant to (A) the Purchase Agreement and (B) that certain Securities Purchase Agreement by and among the Company and the other parties thereto, dated as of April 10, 2015, all Common Stock issuable from time to time upon such conversion or exercise, as applicable.
1.6. Board Meetings. The Company agrees to hold a meeting of its board of directors (Board of Directors) at least once every eight weeks, or such other schedule for board meetings as is agreed by the Board of Directors.
1.7. Approval. The Company shall not without the approval of at least a majority of disinterested members of the Board of Directors (if any) authorize or enter into any transactions with any director or officer, or any member of such directors or officers immediate family, other than standard employment or consulting arrangements.
1.8. Committees of the Board. In the event that the Board of Directors constitutes any committee of the Board of Directors, or any subcommittee thereof, directors designated by the holders of Senior Preferred Stock (each, a Preferred Director) shall comprise a majority of the members of such committee or subcommittee thereof. The Board of Directors shall designate the Preferred Directors to be appointed to any such committee or subcommittee.
1.9. Directors Liability and Indemnification. The Companys Fourth Amended and Restated Certificate of Incorporation (as the same may be amended or amended and restated from time to time, the Company Charter), and the Companys Bylaws, as in effect from time to time, shall provide (a) for elimination of the liability of directors to the maximum extent permitted by law and (b) for indemnification of directors for acts on behalf of the Company and its subsidiaries to the maximum extent permitted by law. In addition, the Company shall enter into and maintain usual and customary indemnification agreements with each of its directors to indemnify such directors to the maximum extent permissible under applicable law. The Company shall maintain in effect a usual and customary directors and officers insurance policy with coverage limits in amounts to be determined from time to time by the Board of Directors.
1.10. US Tax Filings. Within seventy-five (75) days of the establishment of the Project Company, if required by applicable law, the Company shall file a US IRS tax form 8832 on behalf of the Project Company.
1.11. Termination of Information Rights. The provisions of this Section 1 shall terminate at the earlier to occur of such time as the Company shall become subject to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.
1.12. Project Company Reporting Requirements. The Company shall provide informational reports regarding the Project Company to RUSNANO, as set forth on Exhibit A hereto.
1.13. Notice of SRN Optional Conversion Event. The Company shall provide the SRN Majority Holders (as defined below), if any, with (i) written notice of an SRN Optional Conversion Event (as defined in the Company Charter) no later than thirty (30) days prior to the effectiveness of such SRN Optional Conversion Event and (ii) written notice of final approval of such SRN Optional Conversion Event no later than seven (7) business days after the occurrence of such event. The Company shall use commercially reasonable efforts to provide the SRN Majority Holders, if any, with written notice of any SRN Special Optional Conversion Event (as defined in the Company Charter) no later than ten (10) business days after the occurrence of such SRN Special Optional Conversion Event. The Company shall use commercially reasonable efforts to provide the SRN Majority Holders, if any, with notice of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation (including without limitation any Deemed Liquidation Event, as defined in the Company Charter) no later than sixty (60) days prior to the occurrence of such event (or, if neither the Board of Directors nor the Companys Chief Executive Officer have knowledge of such event at that time, promptly at any time thereafter when the Board of Directors or the Companys Chief Executive Officer has knowledge of such event); provided that under no circumstances shall the Company have any liability whatsoever for any failure to use such efforts or provide such notice. Notwithstanding anything to the contrary herein, each notice to the SRN Majority Holders to be provided hereunder shall be deemed effectively provided at the time each member of the Board of Directors designated by the SRN Majority Holders shall receive such notice.
1.14. Confidentiality. Each Purchaser agrees that such Purchaser will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor such Purchasers investment in the Company) any confidential information obtained from the Company or the
Project Company or any other affiliate of the Company or any representative of the Company, the Project Company or any affiliate of the Company (including 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 Section 1.14 by such Purchaser), (b) is or has been independently developed or conceived by such Purchaser without use of the confidential information of the Company, the Project Company or any affiliate of the Company, or (c) is or has been made known or disclosed to such Purchaser by a third party without a breach of any obligation of confidentiality such third party may have to the Company, the Project Company or any affiliate of the Company; provided, however, that a Purchaser 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 such Purchasers investment in the Company; (ii) to any prospective transferee of such Purchaser permitted under Section 4.1, if such prospective transferee agrees to be bound by the provisions of this Section 1.14; (iii) to any Affiliate (as defined in Section 4.1) in the ordinary course of business, provided that such Purchaser informs such Affiliate that such information is confidential and directs such Affiliate to maintain the confidentiality of such information; or (iv) as may otherwise be required by law, provided that the Purchaser promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.
2. Participation Rights.
2.1. Definitions. As used in this Section 2, the following terms shall have the following meanings:
(a) New Securities means (i) any capital stock of the Company whether or not currently authorized, (ii) all rights, options, or warrants to purchase capital stock, and (iii) all securities of any type whatsoever that are, or may become, convertible into capital stock; provided, however, that the term New Securities shall not include (1) the Series E Preferred Stock issued or to be issued pursuant to the Purchase Agreement or the shares of Common Stock issuable upon the conversion of the Senior Preferred Stock or Series SRN Preferred Stock; (2) those certain warrants to purchase Common Stock issued pursuant to (A) the Purchase Agreement or (B) that certain Securities Purchase Agreement by and among the Company and the other parties thereto, dated as of April 10, 2015, if any, or shares of Common Stock issued pursuant to the exercise of any such warrants; (3) shares of Common Stock, or options to purchase such shares, that are issued or granted to directors, employees or consultants of the Company pursuant to a stock incentive plan approved by the Board of Directors, including a majority of the Preferred Directors; (4) securities issued as a result of any stock split, stock dividend, or reclassification by the Company, distributable on a pro rata basis to all holders of such class of securities; (5) securities reissued to employees or consultants of the Company following the Companys acquisition of such securities pursuant to restricted stock arrangements with individuals who have terminated their relationship with the Company or shares subject to options which have been cancelled; (6) securities issued to the Massachusetts Institute of Technology or persons designated by the Massachusetts Institute of Technology pursuant to the MIT License Agreement (as defined in the Purchase Agreement); (7) securities issued to a financing institution in connection with a commercial credit arrangement, equipment financing or similar financing arrangement approved by a majority of the Board of Directors, including a
majority of the Preferred Directors; (8) securities issued in connection with the bona fide acquisition of a business, product or technology by the Corporation approved by a majority of the Board of Directors, including a majority of the Preferred Directors; and (9) securities issued in connection with any bona fide sponsored research, collaboration, joint venture, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by a majority of the Board of Directors, including a majority of the Preferred Directors.
(b) Purchaser shall include, for the purposes of this Section 2 only, each Licensor Shareholder.
2.2. Participation Right. Each Purchaser shall be entitled to purchase, on a pro rata basis, all or any part of New Securities which the Company may, from time to time, propose to sell and issue, subject to the terms and conditions set forth below. Each Purchasers pro rata share shall equal a fraction of the New Securities being issued, the numerator of which is the number of shares of Common Stock held or Common Stock issuable upon conversion of the Senior Preferred Stock or other convertible securities (other than the Series SRN Preferred Stock and disregarding the special conversion ratios set forth in Section 3.3(a)(i)(1) or Section 3.3(b)(i)(2) of the Company Charter in effect on the date hereof) then held by such Purchaser, and the denominator of which is the total number of shares of Common Stock then outstanding plus the number of shares of Common Stock issuable upon conversion of then outstanding Senior Preferred Stock or other convertible securities then outstanding (other than the Series SRN Preferred Stock and disregarding the special conversion ratios set forth in Section 3.3(a)(i)(1) or Section 3.3(b)(i)(2) of the Company Charter in effect on the date hereof). For the purposes of this Section 2, a Purchaser may apportion its pro rata share among itself and any of its general partners, officers, and other affiliates in such proportions as it deems appropriate.
2.3. Exercise of Right. In the event the Company intends to issue New Securities, it shall give each Purchaser written notice of such intention, describing the type of New Securities to be issued, the price thereof, and the general terms upon which the Company proposes to effect such issuance (the Sale Notice). Each Purchaser shall have twenty (20) days from the date of the delivery of any Sale Notice to agree to purchase all or part of its pro rata share of such New Securities for the price and upon the general terms and conditions specified in the Sale Notice by giving written notice to the Company stating the quantity of New Securities to be so purchased (Exercise Notice); provided, however, that in the event that the transaction described in a Sale Notice involves in whole or in part the payment of non-cash consideration, or the payment of consideration over time, the Purchasers shall have the right to elect, upon exercise of their rights set forth in this Section 2, to pay to the Company in full consideration for the New Securities the present cash value of the consideration described in the Sale Notice as determined by the Board of Directors of the Company in good faith.
2.4. Overallotment. In the event any Purchaser fails to exercise its right to purchase its pro rata share of New Securities, each Purchaser who delivered an Exercise Notice for such Purchasers total pro rata share of New Securities (an Overallotment Purchaser) shall have a right to purchase such Overallotment Purchasers pro rata share of the New Securities with respect to which Purchasers have failed to exercise their rights hereunder (Remaining New Securities). In such case, within twenty five (25) days after the delivery of the Sale Notice, the Company shall provide written notice (Overallotment Notice) to each Overallotment
Purchaser, which shall state the total amount of Remaining New Securities, and the pro rata portion of such Remaining New Securities which each Overallotment Purchaser is entitled to purchase. Each Overallotment Purchaser wishing to purchase any Remaining New Securities shall amend such Overallotment Purchasers Exercise Notice in writing within five (5) days from the date of delivery of the Overallotment Notice. For the purpose of this Section 2.4, an Overallotment Purchasers pro rata share of the Remaining New Securities shall be calculated as provided in Section 2.2, except that the denominator of the fraction shall be the total number of shares of Common Stock issued or issuable upon conversion of shares of Senior Preferred Stock held by all of the Overallotment Purchasers.
2.5. Closing. The closing of the purchase of New Securities by the Purchasers exercising their rights hereunder (Participating Purchasers) shall take place at such location, date and time as the parties purchasing such New Securities shall agree. At the closing, the Company shall deliver to the Participating Purchasers certificates representing all of the New Securities purchased and such other agreements executed by the Company which grant any rights or privileges to the Participating Purchasers as are being granted to the other purchasers in such issuance, and in any event, at the request of the Participating Purchasers, a duly executed certificate reasonably satisfactory to the Participating Purchasers containing a representation and warranty that, upon issuance or transfer of such securities to the Participating Purchasers, the Participating Purchasers will be the legal and beneficial owners of such securities with good title thereto, free and clear of all mortgages, liens, charges, security interests, adverse claims, pledges, encumbrances and demands whatsoever, and that the Company has the absolute right to issue or transfer such securities to the Participating Purchasers without the consent or approval of any other person. At the closing, the Participating Purchasers shall deliver to the Company payment for the New Securities and such agreements executed by the other purchasers in such issuance which include representations by such purchasers to the Company or restrict such purchasers rights with respect to the New Securities, and, at the request of the Company, a duly executed certificate reasonably satisfactory to the Company containing such representations and warranties of the Participating Purchasers with respect to federal and state securities laws. The certificates representing the equity securities may contain a legend stating that they are issued subject to the registration requirements of the Securities Act of 1933, as amended, and applicable state securities laws.
2.6. Failure to Exercise Right. In the event the Purchasers fail to fully exercise the foregoing participation right with respect to any New Securities within the periods specified by Sections 2.3 and 2.4 above, the Company may within one hundred twenty (120) days after the delivery of the Sale Notice sell any or all of such New Securities not agreed to be purchased by the Purchasers, at a price and upon general terms no more favorable to the purchasers thereof than specified in the Sale Notice. In the event the Company has not closed the sale of such New Securities within such 120-day period, the Company shall not thereafter issue or sell any New Securities without first offering such New Securities to the Purchasers in the manner provided in Section 2.3.
2.7. Waiver and Termination of Participation Rights. The participation rights established in this Section 2 may be waived with and only with the written consent of the Company and the Purchasers holding at least sixty-six and two-thirds percent (66 2/3 %) of the Registrable Securities (as defined below) held by all Purchasers (which waiver shall apply to all
Purchasers holding Registrable Securities, it being agreed that a waiver of the provisions of this Section 2 with respect to a particular transaction shall be deemed to apply to all Purchasers if such waiver does so by its terms, notwithstanding the fact that certain Purchasers may nonetheless, by agreement with the Company, purchase securities in such transaction). The provisions of this Section 2 shall not apply to, and shall terminate immediately prior to the execution of, (i) a firm commitment underwritten public offering pursuant to an effective registration statement under the Act (as defined below) covering the offer and sale of the Companys Common Stock to the public, for the account of the Company, and having an aggregate offering price to the public of not less than $30,000,000 (a Qualified Public Offering) and (ii) a transaction that qualifies as a liquidation, dissolution or winding up of the affairs of the Company under the Company Charter, as it may be amended from time to time.
3. Registration Rights. The Company covenants and agrees as follows:
3.1. Definitions. As used in Section 2 and this Section 3, the following terms shall have the following meanings:
(a) 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
(b) Act means the Securities Act of 1933, as amended.
(c) Form S-1 means such form under the Act as in effect on the date hereof, or any registration form under the Act subsequently adopted by the SEC which permits the registration of securities under the Act for which no other form is authorized or prescribed.
(d) Form S-3 means such form under the Act as in effect on the date hereof or any registration form under the 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.
(e) Preferred Stock Holder means (i) a Purchaser and any persons or entities to whom the rights granted under this Section 3 are transferred by the Purchaser and (ii) their successors or assigns as permitted under Section 4 below.
(f) Holders means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 4 below.
(g) Permitted Transferee means, with respect to the Founders (i) any member or members of such Founders immediate family to whom Registrable Securities are transferred; and (ii) any trust to which Registrable Securities are transferred (1) in respect of which such Founder serves as trustee, provided that the trust instrument governing such trust shall provide that such Founder, as trustee, shall retain sole and exclusive control over the voting and disposition of such Registrable Securities until the termination of this Agreement or (2) for the benefit solely of any member or members of such Founders immediate family; provided, that no person or entity shall be a Permitted Transferee unless such transferee delivers a written notice to the Company at the time of such transfer stating the name and address of the transferee and identifying the Registrable Securities with respect to which such rights are being assigned.
(h) The terms register, registered, and registration refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document.
(i) Registrable Securities means (i) the Common Stock held by the Founders and their Permitted Transferees, (ii) the Common Stock issuable or issued upon conversion of the Senior Preferred Stock, (iii) the Common Stock issuable or issued upon conversion of the Series SRN Preferred Stock, and (iv) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right, or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in (i) through (iii) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which the rights under this Section 3 are not properly assigned.
(j) Outstanding Registrable Securities means the number of shares of Common Stock outstanding that are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities.
(k) SEC means the U.S. Securities and Exchange Commission.
3.2. Demand Registration.
(a) If the Company shall receive at any time after the earlier to occur of (1) the date one hundred eighty (180) days after the initial registration of any series or class of the Companys securities, and (2) the fourth anniversary of the date hereof, a written notice from Holders holding at least fifty percent (50%) of the Outstanding Registrable Securities then held by all Preferred Stock Holders, voting together as a single class on an as converted to Common Stock basis (determined, in the case of the Series E Preferred Stock, without regard to the special conversion ratios set forth in Section 3.3(a)(i)(1) or Section 3.3(b)(i)(2) of the Company Charter in effect on the date hereof), requesting that the Company effect a registration statement under the Act with respect to all or a part of the Registrable Securities held by such Preferred Stock Holders, then the Company shall:
(i) within ten (10) days of the receipt thereof, give written notice of such request to all Preferred Stock Holders; and
(ii) effect as soon as practicable, and in any event within ninety (90) days of the receipt of such request, the registration under the Act of all Registrable Securities which the Preferred Stock Holders request to be registered, by notice to the Company within thirty (30) days of the mailing of the notice sent by the Company in accordance with Section 3.2(a)(i), subject to the limitations of Section 3.2(b).
(b) If the Preferred Stock Holders initiating the registration request hereunder (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 Section 3.2(a) and the Company shall include such information in the written notice referred to in Section 3.2(a)(i). The underwriter will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Preferred Stock Holder to include Registrable Securities in such registration shall be conditioned upon such Preferred Stock Holders participation in such underwriting and the inclusion of such Preferred Stock Holders Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Preferred Stock Holder) to the extent provided herein. All Preferred Stock Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 3.5(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 3.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Preferred Stock Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Preferred Stock Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Preferred Stock Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to Preferred Stock Holders requesting registration pursuant to this Section 3.2 a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company it would be seriously detrimental to the Company and its stockholders for a registration statement to be filed and it is therefore essential to defer the filing of such registration statement, then the Company shall have the right to defer taking action with respect to such filing for a period of not more than one hundred twenty (120) days, in the aggregate (after taking into account the period of any prior delays pursuant to this Section 3.2(c) during any twelve (12) month period), after receipt of the request of the Initiating Holders.
(d) In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 3.2 after the Company has effected two (2) registrations on Form S-1 pursuant to this Section 3.2 and such registration statements have been declared or ordered effective and the sales of Registrable Securities under such registration statements have closed.
(e) No incidental right under this Section 3.2 shall be construed to limit any registration required under Section 3.3 or Section 3.4 herein.
3.3. Piggy-Back Registration.
(a) If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash, other than (i) the initial registration of any series or class of the Companys securities, (ii) a registration relating solely to the sale of securities to participants in a
stock plan, (iii) a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or (iv) a registration on Form S-4 (or any successor form) relating solely to a transaction pursuant to the SECs Rule 145, the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request by a Holder given to the Company within twenty (20) days after such notice by the Company provided in accordance with Section 6.4, the Company shall, subject to the provisions of Section 3.3(b), cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered.
(b) In connection with any offering involving an underwriting of shares of the Companys capital stock, the Company shall not be required under this Section 3.3 to include any of the Holders securities in such underwriting unless such Holders accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities to be sold (other than by the Company) that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering; provided, however, there shall first be excluded from such registration statement all shares of Common Stock sought to be included therein by (i) any director, consultant, officer, or employee of the Company or any subsidiary other than the Founders and their Permitted Transferees and (ii) stockholders exercising any contractual or incidental registration rights subordinate and junior to the rights of the Preferred Stock Holders. If after such shares are excluded, the underwriters shall determine in their sole discretion that the number of securities which remain to be included in the offering exceeds the amount of securities to be sold that the underwriters determine is compatible with the success of the offering, then the Registrable Securities to be included, if any, shall be apportioned pro rata among the Holders providing notice of their desire to participate in the offering according to the total amount of securities entitled to be included therein owned by each selling Holder or in such other proportions as shall mutually be agreed to by such Holders. For purposes of the preceding sentence concerning apportionment, for any selling Holder which is a partnership or corporation, the partners, retired partners, and stockholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single selling Holder, and any pro-rata reduction with respect to such selling Holder shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such selling Holder, as defined in this sentence.
(c) No incidental right under this Section 3.3 shall be construed to limit any registration required under Section 3.2 or Section 3.4 herein.
3.4. Form S-3 Registration. In case the Company shall receive from Preferred Stock Holders a written request that the Company effect a registration on Form S-3, subject to the limitations and qualifications set forth in Section 3.4(b), and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by such Preferred Stock Holder or Preferred Stock Holders, the Company agrees:
(a) to promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable after receiving such a request, to 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 Preferred Stock Holders Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other 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 3.4 if (i) Form S-3 is not available for such offering by the Holders; (ii) 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 $2,000,000; (iii) the Company furnishes to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors 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 sixty (60) days after receipt of the request of the Preferred Stock Holders under this Section 3.4, provided, however, that the Company shall not utilize this right more than once in any eighteen (18) month period; or (iv) the Company has effected two (2) registrations on Form S-3 (or its then equivalent) pursuant to this Section 3.4 during such calendar year and such registrations have been declared or ordered effective and the sales of Registrable Securities under such registration statement have closed.
(c) Registrations effected pursuant to this Section 3.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 3.2 or 3.3.
3.5. Obligations of the Company. Whenever required under this Section 3 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible (but subject to providing counsel to the Holders with a reasonable opportunity to review and comment on all documents):
(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best 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 a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the Registration Statement has been completed; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended,
if necessary, to keep the registration statement effective until all such Registrable Securities are sold; provided, that SEC Rule 415, or any successor rule under the Act, permits an offering on a continuous or delayed basis; and provided further that applicable rules under the Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (i) includes any prospectus required by Section 10(a)(3) of the Act or (ii) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (i) and (ii) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the registration statement.
(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 Act with respect to the disposition of all securities covered by such registration statement in accordance with each Holders intended method of disposition.
(c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by the Holders.
(d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders and any managing underwriter; 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, unless the Company is already subject to service in such jurisdiction and except as may be required by the Act.
(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 of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.
(f) Promptly 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 Act as a result 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.
(g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.
(i) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 3, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 3, if such securities are being sold through underwriters, copies of (i) the opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration given to the underwriters in such underwritten public offering, which opinion shall be in such form as is reasonably satisfactory to counsel to the underwriters, and (ii) the letter dated as of such date, from the independent certified public accountants of the Company, to the underwriters in such underwritten public offering, addressed to the underwriters, which letter shall be in such form as is reasonably satisfactory to counsel to the underwriters.
3.6. Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 3 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holders Registrable Securities.
3.7. Expenses of Demand and S-3 Registrations. The Company shall pay all expenses other than underwriting discounts and commissions incurred in connection with registrations, filings, or qualifications pursuant to Sections 3.2 and 3.4, including (a) all registration, filing, and qualification fees (including filing fees with the SEC, fees due to the Financial Industry Regulatory Authority (FINRA) and fees due for listing on any stock exchange, including Nasdaq); (b) printers and accounting fees; (c) fees and disbursements of counsel for the Company; and (d) the reasonable fees and disbursements of one counsel for the selling Holders; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 3.2 or 3.4 if the registration request is subsequently withdrawn at the request of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities then held by Preferred Stock Holders to be registered (in which case all Preferred Stock Holders participating in the aborted registration shall bear such expenses), unless the holders of at least sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities then held by Preferred Stock Holders agree to forfeit their rights to a registration under Section 3.2; provided further, however, that if at the time of such withdrawal, the Preferred Stock Holders have either (i) learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Preferred Stock Holders at the time of their request or (ii) been informed by the underwriters of such registration that more than twenty percent (20%) of the Registrable Securities requested for registration shall not be includable therein due to market factors, and in either such case the Preferred Stock Holders have withdrawn the request with reasonable promptness following such disclosure, then the Preferred Stock Holders shall not be required to pay such expenses and shall retain their rights pursuant to Sections 3.2 and 3.4.
3.8. Expenses of Piggy-Back Registration. The Company shall pay all expenses incurred in connection with any registration, filing, or qualification of Registrable Securities with
respect to the registrations pursuant to Section 3.3 for each Holder, including all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto, and the fees and disbursements of one counsel for the selling Holders selected by them, but excluding stock transfer taxes, underwriting discounts and commissions relating to the Registrable Securities.
3.9. Delay of Registration. 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 3.
3.10. Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 3:
(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder, and each person (if any) who controls such Holder (a Controlling Person) or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities joint or several) to which they may become subject under the Act, the 1934 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) (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (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 Act, the 1934 Act, any state securities law, or any rule or regulation promulgated under the Act, the 1934 Act, or any state securities law; and the Company will pay to each such Holder, underwriter, or Controlling Person, as incurred, 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 3.10(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 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 any such Holder, underwriter, or Controlling Person.
(b) To the extent permitted by law, each selling Holder severally and not jointly will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person (if any) who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement, and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject under the Act, the 1934 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 (i) any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for
use in connection with such registration or (ii) any violation or alleged violation by such Holder of the Act, the 1934 Act, any state securities law, or any rule or regulation promulgated under the Act, the 1934 Act, or any state securities law; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Section 3.10(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 3.10(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 such indemnifying Holder, which consent shall not be unreasonably withheld; and further provided that in no event shall any indemnity under this Section 3.10(b) exceed the net proceeds from the offering received by such indemnifying Holder.
(c) Promptly after receipt by an indemnified party under this Section 3.10 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 3.10, 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 (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel and participate in the defense, with the fees and expenses to be paid by the indemnifying party if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 3.10, but the omission so to deliver written notice to the indemnifying party will not relieve the indemnifying party of any liability that it may have to any indemnified party otherwise than under this Section 3.10.
(d) If the indemnification provided for in this Section 3.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and of the indemnified party, on the other, in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
(f) The obligations of the Company and Holders under this Section 3.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 3, and otherwise.
3.11. Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to use its best efforts:
(a) to make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times from and after the ninetieth (90th) day following the effective date of the first registration statement filed by the Company for the offering of its securities to the general public;
(b) to take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective;
(c) to file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and
(d) to furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time on or after the ninetieth (90th) day following the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form.
3.12. Market Stand-Off Agreement. Each Holder hereby agrees that, during the period of duration (not to exceed one hundred eighty (180) days, which period may be extended upon the request of the managing underwriter, to the extent required by any FINRA rules, for an additional period of up to fifteen (15) days if the Company issues or proposes to issue an earnings or other public release within fifteen (15) days of the expiration of the 180-day lockup period) specified by the Company and an underwriter of Common Stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Act, such Holder shall not, to the extent requested by the Company and such underwriter,
directly or indirectly sell, offer to sell, contract to sell (including any short sale), grant any option to purchase, or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that all officers and directors of the Company enter into similar agreements. The Company agrees that it shall not release any Holder (or any officer or director referred to hereinabove) from the obligations imposed pursuant to this Section 3.12 unless all Holders are so released on a proportionate basis relative to their ownership of Registrable Securities.
In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of a Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this Section 3.12 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to a SEC Rule 145 transaction on Form S-4 or similar forms which may be promulgated in the future.
3.13. Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Section 3 after the earlier of (i) five (5) years following the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public, or (ii) when the Registrable Securities held by such Holder (together with any Affiliate of such Holder with whom such Holder must aggregate its sales under SEC Rule 144) could be sold without restriction under SEC Rule 144(b)(1) within a ninety (90) day period.
4. Transfers of Certain Rights.
4.1. Permitted Transferees.
(a) The rights granted to the Purchasers under this Agreement may be transferred to (i) any other Purchaser or any general or limited partner, affiliated fund or member thereof, officer or other affiliate of any Purchaser or any entity or person that controls, or is controlled by, or is under common control with such Purchaser (Affiliates) or (ii) any other person or entity that acquires at least 600,000 shares of Senior Preferred Stock or Common Stock; provided, however, that the Company is given written notice by the transferee at the time of such transfer stating the name and address of the transferee and identifying the securities with respect to which such rights are being assigned.
(b) All, but not less than all, of the rights granted to RUSNANO under this Agreement may be transferred to an Affiliate of RUSNANO in connection with the transfer all of the shares of capital stock of the Company held by RUSNANO to such transferee; provided, however, that the Company is given written notice by the transferee at the time of such transfer stating the name and address of the transferee and identifying the securities with respect to which such rights are being assigned.
(c) Brigham shall be permitted to apportion its rights under this Agreement among itself and its Affiliates; provided, however, that such Affiliates agree in writing to become parties to this Agreement.
4.2. Subsequent Transfers. A transferee to whom rights are transferred pursuant to this Section 4 may not again transfer such rights to any other person or entity, other than as provided in Section 4.1(a) above.
4.3. Legends. Each certificate representing the shares of Senior Preferred Stock or Series SRN Preferred Stock shall bear a legend indicating that any holder of such stock shall be subject to this Agreement.
4.4. Aggregation of Stock. All shares held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.
5. Negative Covenants of the Company.
5.1. Without limiting any other covenants and provisions hereof, the Company covenants and agrees that, until the closing of a Qualified Public Offering, it will not, without the vote or written consent of the Board of Directors, including, in all cases, the affirmative vote or consent of a majority of the Preferred Directors, and with respect to Section 5.1 (ii) below, the affirmative vote or consent of the director appointed by RUSNANO:
(i) incur any indebtedness for borrowed money, in a single or related series of transactions, in an amount in excess of $250,000;
(ii) create or authorize the creation of any debt security or incur any indebtedness for borrowed money with a final maturity date after the November 7, 2019, other than equipment leases or other trade credit incurred in the ordinary course of business;
(iii) create or authorize the creation of any debt security or incur any aggregate indebtedness in excess of $5,000,000 that is not already included in a budget approved by the Board of Directors, other than equipment leases, lines of credit, debt financing approved by the Board of Directors, or other trade credit incurred in the ordinary course of business;
(iv) incur or make, in any fiscal year, any capital expenditures in excess of $250,000 above the amount contained in the annual operating plan (referenced in Section 1.2) for such fiscal year; or
(v) enter into any transactions with directors, officers, employees, consultants or five percent (5%) stockholders of the Company or their affiliates other than employment and consulting agreements in the ordinary course of business.
5.2. Negative Covenants of the Company Regarding the Project Company.
(a) Without limiting any other covenants and provisions hereof, the Company covenants and agrees that, until the closing of a Qualified Public Offering, it will not, directly or indirectly, without the vote or written consent of the SRN Majority Holders, if any:
(i) amend or restate the charter or other applicable organizational document of the Project Company in effect from time to time (the Project Company Charter), or increase or decrease the amount of charter capital of the Project Company;
(ii) subject to Section 1.3 of that certain Fifth Amended and Restated Voting Agreement, dated as of the date hereof, by and among the Company and the other parties named therein (as may be amended from time to time), (x) terminate the powers of any member of the board of directors of the Project Company designated by RUSNANO or I2BF (as defined below) prior to the expiration of such members term or (y) make or authorize any changes in the scope of authority and decision-making and related procedures of the board of directors of the Project Company (including any increase or decrease in the size of the board of directors of the Project Company);
(iii) effect a restructuring, reorganization or similar change in the equity, debt or assets of the Project Company;
(iv) effect the reorganization, liquidation or bankruptcy of the Project Company (including (1) transactions aimed at prevention of bankruptcy after notification by the sole executive body of the Project Company to the Company pursuant to applicable law and (2) financial rehabilitation), except when bankruptcy is mandatorily required by Russian law to be initiated by the sole executive body of the Project Company;
(v) appoint a liquidating commission for the Project Company, or approve the liquidation balance sheets of the Project Company;
(vi) approve or enter into major transactions proposed by the Project Company concerning the purchase, disposal or possible disposal by the Project Company, directly or indirectly, of its assets with the value exceeding twenty-five percent (25%) of the total value of the assets of the Project Company determined based on its accounting statements prepared in accordance with Russian accounting principles and practices, as required under Russian law or regulation, as in effect from time to time and applied consistently throughout the periods involved for the last reporting period (month) preceding the date of the decision on approval of such transactions;
(vii) approve or enter into any transaction relating to directly or indirectly disposing or encumbering intellectual property assets of the Project Company, subject to Section 3.4 of that certain Intellectual Property License Agreement, dated as of November 7, 2011, by and between the Company and the Project Company (the License Agreement);
(viii) cause or permit the Project Company to approve or enter into the termination or assignment of, or amendment to, the License Agreement; or
(ix) approve the cash valuation of any assets contributed as payment for participatory interests in the charter capital of the Project Company.
(b) Notwithstanding the foregoing, Section 5.2(a) shall not apply to any transactions regarding the assignment or licensing of intellectual property by and between the Company and the Project Company, subject to Sections 3.4 and 4.1 of the License Agreement.
(c) The SRN Majority Holders shall mean each of (i) RUSNANO, and (ii) collectively, (A) VTB Capital I2BF Netherlands B.V., a private limited liability company, organized and existing under the laws of the Netherlands, and (B) Selecta RKFN Ltd., a limited liability company organized and existing under the laws of the Russian Federation (the entities named in (A) and (B) together, I2BF); provided however that if either such SRN Majority Holder ceases to hold, either directly or through one or more of its Affiliates, all of the shares of Series SRN Preferred Stock held by such SRN Majority Holder as of the date hereof, whether as a result of any transfer, sale, conversion, redemption or otherwise (other than a transfer to an Affiliate that is a permitted transferee pursuant to Section 4.1(b), such SRN Majority Holder shall no longer be deemed to be an SRN Majority Holder for any purpose.
(d) Notwithstanding anything to the contrary herein, Section 5.2(a) shall terminate and be of no further force and effect on the earliest date on which each of RUSNANO and I2BF (or one or more of their respective Affiliates that are a permitted transferee pursuant to Section 4.1(b),) no longer holds and has sole beneficial ownership of all of the shares of Series SRN Preferred Stock respectively held by it as of the date hereof, whether as a result of any transfer, sale, conversion, redemption, or otherwise.
5.3. Affirmative Covenants of the Company Regarding the Project Company.
(a) Each of the Company and the SRN Majority Holders covenant and agree until the closing of a Qualified Public Offering:
(i) Each of the SRN Majority Holders shall have the right to require one (1) independent audit of the financial statements of the Project Company per year (in addition to the annually scheduled audit of the Project Company), provided that such audit is conducted at such SRN Majority Holders sole expense and provided further that no more than a total of one (1) such independent audit shall be required in any twelve (12) month period.
(ii) In the event there is a Deadlock (as defined below) with respect to any resolution or decision to be made by the board of directors of the Project Company in accordance with the Project Company Charter which cannot be resolved within fifteen (15) business days of occurrence of any Deadlock Event (as defined below), the SRN Majority Holders or the Company may serve notice (a First Level Notice) in writing on the other party requiring the Deadlock to be referred to a representative of the SRN Majority Holders and the Company. Each of the SRN Majority Holders and the Company shall cause its respective representative to meet with the other representative within fifteen (15) business days of service of the First Level Notice for the purpose of resolving the Deadlock. If such representative s have not met or are unable to resolve the Deadlock within fifteen (15) business days of service of the First Level Notice, either party may serve notice in writing on the other party (a Second Level Notice) requiring that the Deadlock be referred to a panel of third party independent experts (the Independent Expert Panel). Each of the SRN Majority Holders and the Company agree that the Independent Expert Panel shall consist of one (1) nominee appointed by each party.
Each of the SRN Majority Holders and the Company shall use its best efforts to appoint a suitable nominee (being an experienced global pharmaceutical executive with qualifications consistent with those of other directors of the Company) and procure that the Independent Expert Panel considers the Deadlock and delivers its determination (the Expert Solution) of how to resolve the Deadlock within twenty (20) business days of service of the Second Level Notice. The SRN Majority Holders and the Company shall, acting in good faith, within ten (10) business days of receipt of the Expert Solution, consult with each other and use reasonable efforts to agree to a resolution to the Deadlock based in all material respects on the Expert Solution. In the event that the Company and the SRN Majority Holders agree on such a resolution, they shall use reasonable efforts to procure that such resolution is implemented as soon as reasonably practicable. For the purpose of this Section 5.3(a)(ii), a Deadlock shall be deemed to have occurred when (A) a resolution is proposed by the Company, in its capacity as a participant in the Project Company, in accordance with the Project Company Charter and in respect of any of the matters indicated in Section 5.2 or 5.3 hereof, and such resolution is not approved by the SRN Majority Holders, as a holder of Series SRN Preferred Stock during at least two (2) successive duly called meetings of the board of directors of the Project Company; (B) a resolution of the Board of Directors of the Project Company is proposed by a director nominated by the Company and is not adopted by a unanimous vote in accordance with the Project Company Charter with respect to the decisions requiring a unanimous vote pursuant to Section 22 of the Project Company Charter during at least two (2) successive duly called meetings of the board of directors of the Project Company; or (C) a quorum is not present at two (2) successive duly called board meetings of the Project Company for the purpose of considering any resolution referred to in subsection (B) hereof due to the absence of a nominated director from the relevant board meeting (each of the events set forth in (A) through (C) of this subsection 5.3(a)(ii), a Deadlock Event).
(b) Notwithstanding anything to the contrary herein, Section 5.3(a) shall terminate and be of no further force and effect on the earliest date on which each of RUSNANO and I2BF (or one or more of their respective Affiliates that are a permitted transferee pursuant to Section 4.1(b),) no longer holds and has sole beneficial ownership of all of the shares of Series SRN Preferred Stock respectively held by it as of the date hereof, whether as a result of any transfer, sale, conversion, redemption, or otherwise.
5.4. Multi-Country Clinical Trials. The Company agrees and covenants that in any instance when any of the Company or the Project Company products reaches clinical trials in at least two (2) countries, the Company shall, or shall cause the Project Company to, as the case may be, include the Republic of Kazakhstan in such clinical trials of such products if permitted under the laws and regulations of the Republic of Kazakhstan.
6. General.
6.1. Severability. The provisions of this Agreement are severable, so that the invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other term or provision of this Agreement, which shall remain in full force and effect.
6.2. Specific Performance. In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, each Holder shall be entitled to specific performance of the agreements and obligations of any other Holder hereunder and to such other injunctive or other equitable relief as may be granted by a court of competent jurisdiction.
6.3. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with the internal laws of the State of New York without regard to conflict of law principles that would result in the application of any law other than the law of the State of New York.
6.4. Notices. All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be deemed delivered (a) for notices sent by the Company to addressees within the United States, two (2) business days after being sent by registered or certified mail, return receipt requested, postage prepaid, (b) three (3) business days after being sent via a reputable international courier service with expedited delivery, in each case to the intended recipient as set forth below, or (c) immediately upon being sent by facsimile, provided that the sender receives electronic confirmation of delivery, or electronic mail:
(i) If to the Company:
Selecta Biosciences, Inc.
480 Arsenal Street, Building One
Watertown, Massachusetts 02472
Attn: President
Fax: 617-924-3454
E-mail: wcautreels@selectabio.com
with a copy to:
Jeffrey L. Quillen, Esquire
Foley Hoag LLP
Seaport World Trade Center West
155 Seaport Boulevard
Boston, Massachusetts 02210
Fax: 617-832-7000
E-mail: jlq@foleyhoag.com
(ii) If to a Purchaser, at its address set forth in Schedule A hereto, or at such other address as may have been furnished to the other parties hereto in writing by such Purchaser;
(iii) If to a Licensor Shareholder, at its address set forth in Schedule B hereto, or at such other address as may have been furnished to the other parties hereto in writing by such Licensor Shareholder; and
(iv) If to a Founder, at the Company or at such other address or addresses as may have been furnished to the other parties hereto in writing by such Founder.
Any party may give any notice, request, consent or other communication under this Agreement using any other means (including, without limitation, personal delivery, messenger service, first class mail or electronic mail), but no such notice, request, consent or other communication shall be deemed to have been duly given unless and until it is actually received by the party for whom it is intended. Any party may change the address to which notices, requests, consents or other communications hereunder are to be delivered by giving the other parties notice in the manner set forth in this Section 6.4.
6.5. Complete Agreement; Amendments. This Agreement constitutes the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings relating to such subject matter. No amendment, modification or termination of, or waiver under, any provision of this Agreement shall be valid unless in writing and signed by (i) the Company, (ii) the Founders holding a majority of the voting power of the shares of the Companys capital stock then held by all of the Founders and (iii) the Purchasers holding at least 66 2/3% of the Registrable Securities then held by all of the Purchasers, and any such amendment, modification, termination or waiver shall be binding on all parties hereto; provided that any such waiver or amendment which materially adversely affects the rights, privileges, duties or obligations of a Purchaser in a manner materially different than those of all other Purchasers shall not be effective without the written consent of the affected Purchaser. Notwithstanding anything to the contrary herein, neither Section 5.2 nor Section 5.3 may be amended without the prior written consent of the SRN Majority Holders, if any. Notwithstanding anything to the contrary herein, this Agreement may be amended by the Company without the consent of any of the other parties hereto to add as a party hereto and include information regarding and otherwise accommodate an additional purchaser of shares of Series E Preferred Stock pursuant to the Purchase Agreement, as may be amended from time to time; provided that any such amendment does not materially and adversely affect the rights of any Purchaser under this Agreement (it being agreed that the issuance of additional shares of capital stock in accordance with the Purchase Agreement, as may be amended or modified from time to time in accordance with its terms, and the other Financing Agreements (as such term is defined in the Purchase Agreement), each as may be modified from time to time in accordance with its respective terms, shall not be deemed to affect the Purchasers under this Agreement).
6.6. Construction. A reference to a Section or Schedule shall mean a Section in or Schedule to this Agreement unless otherwise expressly stated. The titles and headings herein are for reference purposes only and shall not in any manner limit the construction of this Agreement which shall be considered as a whole. The words include, includes and including when used herein shall be deemed in each case to be followed by the words without limitation. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of names and pronouns shall include the plural and vice-versa.
6.7. Counterparts; Facsimile Signatures. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) 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.
6.8. Amended and Restated Agreement. The Former Investors Rights Agreement is hereby amended in its entirety and restated herein. Such amendment and restatement is effective upon the execution of this Agreement by (i) the Company; (ii) the Founders holding a majority of the voting power of the shares held by all of the Founders; and (iii) the Purchasers (as such term is defined in the Former Investors Rights Agreement) holding at least 66 2/3% of the voting power of the Registrable Securities (as such term is defined in the Former Investors Rights Agreement) held by all such Purchasers as of the date of this Agreement. Upon such execution, all provisions of, rights granted and covenants made in the Former Investors Rights Agreement are hereby waived, released and superseded in their entirety and shall have no further force or effect, including, without limitation, all participation rights and any notice period associated therewith otherwise applicable to the transactions contemplated by the Purchase Agreement. Each of such Founders and Purchasers acknowledge and agree that the execution and delivery by the Company of this Agreement, the Purchase Agreement and the additional Financing Agreements and the performance by the Company of its obligations thereunder do not constitute a default under the provisions of the Former Investors Rights Agreement.
6.9. Dispute Resolution. Any dispute, controversy or claim arising out of or relating to this Agreement, including its existence, validity, interpretation, performance, non-performance, breach or termination (collectively, the Dispute) shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce (the ICC Rules), except as they may be modified herein or by mutual agreement of the parties. The Dispute shall be resolved by three (3) arbitrators appointed in the following manner: each party shall nominate an arbitrator for confirmation as provided in the ICC Rules and following their confirmation, the third arbitrator shall be appointed by the International Court of Arbitration of the International Chamber of Commerce; provided, however, that at least one (1) of such arbitrators shall have substantive expertise in the pharmaceutical industry. The place of arbitration shall be New York, New York. The language of the arbitration shall be English. The tribunal shall determine the proportion of the costs of the arbitration which each party shall bear. The award shall be final, conclusive and binding upon the parties hereto. Judgment upon the award may be entered by any court having jurisdiction thereof or having jurisdiction over the relevant party or its assets.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have executed this Fifth Amended and Restated Investors Rights Agreement as an instrument under seal as of the date first above written.
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SELECTA BIOSCIENCES, INC. | |
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By: |
/s/ Werner Cautreels |
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Name: |
Werner Cautreels |
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Title: |
President and CEO |
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FOUNDERS: | |
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/s/ Omid Farokhzad | |
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Omid Farokhzad | |
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/s/ Ulrich von Andrian | |
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Ulrich von Andrian | |
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/s/ Robert S. Langer, Jr. | |
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Robert S. Langer, Jr. |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
PURCHASERS: |
POLARIS VENTURE PARTNERS V, L.P. | ||
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By: |
POLARIS VENTURE MANAGEMENT | |
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CO. V, L.L.C. | |
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its General Partner | |
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By: |
/s/ William E. Bilodeau |
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William E. Bilodeau |
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Attorney-in-Fact |
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POLARIS VENTURE PARTNERS | ||
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ENTREPRENEURS FUND V, L.P. | ||
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By: |
POLARIS VENTURE MANAGEMENT | |
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CO. V, L.L.C. | |
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its General Partner | |
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By: |
/s/ William E. Bilodeau |
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William E. Bilodeau |
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Attorney-in-fact |
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POLARIS VENTURE PARTNERS | ||
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FOUNDERS FUND V, L.P. | ||
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By: |
POLARIS VENTURE MANAGEMENT | |
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CO. V, L.L.C. | |
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its General Partner | |
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By: |
/s/ William E. Bilodeau |
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William E. Bilodeau |
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Attorney-in-fact |
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POLARIS VENTURE PARTNERS | ||
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SPECIAL FOUNDERS FUND V, L.P. | ||
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By: |
POLARIS VENTURE MANAGEMENT | |
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CO. V, L.L.C. | |
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its General Partner | |
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By: |
/s/ William E. Bilodeau |
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William E. Bilodeau |
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Attorney-in-fact |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
PURCHASER: |
FLAGSHIP VENTURES FUND 2007, L.P. | ||
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By: |
Flagship Ventures 2007 General Partner LLC, | |
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its General Partner | |
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By: |
/s/ Edwin M. Kania, Jr. | |
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Edwin M. Kania, Jr. | |
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Manager | |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
PURCHASER: |
NANODIMENSION, L.P. | ||
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By: |
NanoDimension Management Limited, its | |
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General Partner | |
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By: |
/s/ Jonathan Nicholson | |
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Jonathan Nicholson | |
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Director | |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
PURCHASERS: |
ORBIMED ASSOCIATES III, LP | |
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By: |
OrbiMed Advisors LLC, |
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its General Partner |
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By: |
/s/ Carl Gordon |
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Carl Gordon |
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Member |
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ORBIMED PRIVATE INVESTMENTS III, LP | |
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By: |
OrbiMed Capital GP III LLC, |
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its General Partner |
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By: |
OrbiMed Advisors LLC, |
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its Managing Member |
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By: |
/s/ Carl Gordon |
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Carl Gordon |
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Member |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
PURCHASER: |
EMINENT II VENTURE CAPTIAL CORPORATION | |
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By: |
/s/ Ching-Chen Huang |
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Name: |
Ching-Chen Huang |
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Title: |
President |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
PURCHASERS: |
LEUKON INVESTMENTS, LP | |
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By: |
LKST, Inc., its General Partner |
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By: |
/s/ Timothy A. Springer |
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Timothy A. Springer |
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President |
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TAS PARTNERS, LLC | |
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By: |
/s/ Timothy A. Springer |
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Timothy A. Springer |
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Manager |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
PURCHASER: |
RUSNANO | |
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By: |
/s/ Yuri Udaltsov |
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Name: |
Yuri Udaltsov |
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Title: |
Deputy Chairman of the Management Board of Management Company RUSNANO LLC acting on the basis of a power of attorney |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
PURCHASER: |
ALEXANDRIA EQUITIES, LLC | |
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A Delaware limited liability company | |
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By: ALEXANDRIA REAL ESTATE EQUITIES, | |
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By: |
/s/ Eric S. Johnson |
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Name: |
Eric S. Johnson |
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Title: |
Senior Vice President |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
PURCHASERS: |
BIODYNAMICS CORE, L.P. | |
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By: BioDynamics, LLC, its General Partner | |
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By: |
/s/ Omid Farokhzad, M.D. |
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Name: |
Omid Farokhzad, M.D. |
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Title: |
Member |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
PURCHASERS: |
OSAGE UNIVERSITY PARTNERS II, L.P. | |
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By: OSAGE UNIVERSITY GP II, LP, its General Partner | |
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By: OSAGE PARTNERS, LLC, its General Partner | |
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By: |
/s/ Marc Singer |
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Name: |
Marc Singer |
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Title: |
Member |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
PURCHASERS: |
AVENTISUB LLC | |
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By: |
/s/ Joseph M. Palladino |
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Name: |
Joe M. Palladino |
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Title: |
President |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
PURCHASERS: |
SPHERA GLOBAL HEALTHCARE MASTER FUND | |
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By: |
/s/ Doron Breen |
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Name: |
Doron Breen |
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Title: |
Director |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
PURCHASERS: |
RIDGEBACK CAPITAL INVESTMENTS LP | |
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By: |
/s/ Christian Sheldon |
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Name: |
Christian Sheldon |
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Title: |
C.T.O |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
PURCHASERS: |
AJU LIFE SCIENCE OVERSEAS EXPANSION | |
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PLATFORM FUND C/O AJU IB INVESTMENT | |
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By: |
/s/ Ji-Won Kim |
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Name: |
Ji-Won Kim |
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Title: |
CEO |
-Signature Page to Fifth Amended and Restated Investors Rights Agreement-
SCHEDULE A
Purchasers
VTB Capital I2BF Netherlands B.V.
Herikerbergweg 238, 1101 CM Amsterdam Zuidoost
Netherlands
Selecta RKFN Ltd.
123290, Russia, Moscow, 1-y
Magistralnyy tupik, 5A
RUSNANO
10A prospect 60-letiya Oktyabrya
Moscow, Russia 117036
Eminent II Venture Capital Corporation
Room A, 28th Floor, No. 7, Sec. 5
Xinyi Rd., Xinyi District
Taipei City 110, Taiwan
Flagship Ventures Fund 2007, L.P.
One Memorial Drive, 7th Floor
Cambridge, MA 02142
Polaris Venture Partners V, L.P.
1000 Winter Street, Suite 3350
Waltham, MA 02451
Attn: Amir H. Nashat
Polaris Venture Partners Entrepreneurs Fund V, L.P.
1000 Winter Street, Suite 3350
Waltham, MA 02451
Attn: Amir H. Nashat
Polaris Venture Partners Founders Fund V, L.P.
1000 Winter Street, Suite 3350
Waltham, MA 02451
Attn: Amir H. Nashat
Polaris Venture Partners Special Founders Fund V, L.P.
1000 Winter Street, Suite 3350
Waltham, MA 02451
Attn: Amir H. Nashat
NanoDimension L.P.
c/o NanoDimension Management Limited
Attention Jonathan Nicholson
Centennial Towers, Suite 306B
2454 West Bay Road
Grand Cayman, Cayman Islands
Leukon Investments, LP
36 Woodman Rd.
Newton, Massachusetts 02467
Attention: Dr. Timothy A. Springer
TAS Partners, LLC
36 Woodman Rd.
Newton, Massachusetts 02467
Attention: Dr. Timothy A. Springer
OrbiMed Private Investments III LP
767 Third Avenue, 30th Floor
New York NY 10017
Attn: Carl Gordon
OrbiMed Associates III, LP
767 Third Avenue, 30th Floor
New York NY 10017
Attn: Carl Gordon
Alexandria Equities, LLC
385 E. Colorado Blvd., Suite 299, Pasadena, CA 91101
Attn: Joel S. Marcus, CEO
Blakeley Ventures, LLC
60 State Street, Suite 3400
Boston, MA 02109
Jeffrey B. Larson
6 Arlington Street, Unit 5
Boston, MA 02116
Samiei & Morse Partnership
59 Farnham Street
Belmont, MA 02478
Megan Kelleher
444 Far Reach Road
Westwood, MA 02090
Dimitris Bertsimas
43 Lantern Rd.
Belmont, MA 02478
Peter W. Doelger
144 Beacon Street, Apt. 3
Boston, MA 02116
SILVER ROCK FINANCIAL LLC
1250 Fourth Street, Fifth Floor
Santa Monica, CA 90401
WELLWATER LLC
1250 Fourth Street, Fifth Floor
Santa Monica, CA 90401
BAYSIDE PARTNERS LLC
1250 Fourth Street, Fifth Floor
Santa Monica, CA 90401
NP1 LLC
1250 Fourth Street, Fifth Floor
Santa Monica, CA 90401
GENUNO LLC
1250 Fourth Street, Fifth Floor
Santa Monica, CA 90401
DNSMORE LLC
1250 Fourth Street, Fifth Floor
Santa Monica, CA 90401
GENTRACE LLC
1250 Fourth Street, Fifth Floor
Santa Monica, CA 90401
GENDOS LLC
1250 Fourth Street, Fifth Floor
Santa Monica, CA 90401
Mark Afrasiabi
711 El Medio Ave
Pacific Palisades CA 90272
Scott Cohen
405 Palisades Ave
Santa Monica CA 90402
Aventisub LLC
c/o Sanofi
54 rue La Boetie
75008 Paris :
Facsimile : +33 1 53 77 44 53
Attn : Vice President, Legal Operations
Sphera Fund
c/o Sphera Funds Management
21 HaArbaah Street
Platinum House
Tel Aviv 64739
Osage University Partners II, L.P.
50 Monument Road
Suite 201
Bala Cynwyd, PA 19004
Biodynamics Core LP
c/o Biodynamics LLC
15 Laura Rd.
Waban, MA 02468
AJU Life Science Overseas Expansion Platform Fund
c/o AJU IB Investment Co. Ltd.
201 Teheran-ro, 5th floor
Gangnam-gu
Seoul, Korea 135-978
Attention: Mr. Ji-won Kim, CEO
Ridgeback Capital Investments LP
500 South Pointe, Suite 220
Miami Beach, FL 33139
WV Investment Trust B
Attn. Alan Rottenberg, Trustee
Goulston & Storrs
400 Atlantic Avenue
Boston, MA 02110
* * * * *
SCHEDULE B
Licensor Shareholders
Massachusetts Institute of Technology
Treasurers Office
238 Main Street
Cambridge, MA 02142
Attention: Philip Rotner
Fax: 617.258.6676
President and Fellows of Harvard College
Harvard University Office of Technology Development
Attn: Michal Preminger, Senior Director of Business Development
1350 Massachusetts Ave, Suite 727
Cambridge, Massachusetts
Tel: 617-432-3896
Fax: 617-432-2788
Email: michal_preminger@harvard.edu
The Brigham and Womens Hospital, Inc.
Research and Licensing
101 Huntington Ave, 4th Floor
Boston, MA 02199
Attn: Arlene Parquette, Licensing Associate
phone: 617-954-9381
fax: 617-954-9361
Childrens Medical Center Corporation
Intellectual Property Office
Childrens Hospital Boston
300 Longwood Avenue
Boston, MA 02115
Attn: Nurjana Bachman, PhD
Ph: (617) 919-3028
Fax: (617) 919-3031
Nurjana.Bachman@Childrens.Harvard.edu
Immune Disease Institute, Inc.
Office of Technology Development
800 Huntington Avenue
Boston, MA 02115
Attn: Ryan M. Dietz, Director
Tel: 617.278.3463
Fax: 617.278.3395
email: dietz@idi.harvard.edu
EXHIBIT A
Project Company Reporting Requirements
Document |
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Deadline for submitting |
Balance Sheet (Form № 1, approved by the Order of the Ministry of Finance of the Russian Federation № 67n «On the forms of accounting of organizations» (onward - «Order № 67n»)) |
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Quarterly, no later than 30 (thirty) days after the end of the reporting quarter |
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Income statement (Form № 2 approved by Order № 67n) |
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Quarterly, no later than 30 (thirty) days after the end of the reporting quarter |
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Statement of changes in the equity (form № 3, approved by Order № 67n) |
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Annually, no later than 90 (ninety) days after the end of the reporting year |
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Statement of cash flows (Form № 4, approved by Order № 67n) |
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Annually, no later than 90 (ninety) days after the end of the reporting year |
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Annex to the balance sheet (Form № 5, approved by Order № 67n) |
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Annually, no later than 90 (ninety) days after the end of the reporting year |
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Audit report |
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Annually, no later than 20 (twenty) business days from the date of approval at the annual shareholders meeting of the Russian Entity. |
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Tax returns for income tax, VAT and property tax |
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Annually, no later than 90 (ninety) days after the end of the reporting year |
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Statistical reports (forms of The State Committee of Statistics) |
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Annually, no later than 90 (ninety) days after the end of the reporting year |
| ||
- Information about the presence and movement of fixed assets (funds) and other non-financial assets 7/10/2009 № 132 | ||
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- The main data of the activity of the organization 7/28/2009 № 153 |
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- Information about the shipment of goods, works and services related to nanotechnologies 2/8/2010 № 83 |
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- Data on production output by (Russian) National Classification of Products by Economic Activities (NCPEA) 1/28/2010 № 76 |
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- Information about creation and use of advanced manufacturing technologies 10/30/2009 № 237 |
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- Information about the innovation activity of the organization 10/30/2009 № 237 |
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- Information about commercial technology exchange with foreign countries (partners) 8/20/2008 № 199 |
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- Information about investments in non-financial assets 7/10/2009 № 132 |
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- Information about investment activity 8/14/2008 № 189 |
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- Information on the number and wages of workers 8/26/2009 № 184 |
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- Information about the financial status of the organization 7/16/2009 № 139 |
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- Information on financial investments 7/16/2009 № 139 |
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Appendix №4 to form number P-1 approved by the Order of the (Russian) Federal State Statistics Service 2/8/2010 №83 |
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Quarterly, no later than the 20th (twentieth) day of the month following the reporting period |
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Statement of cash flows (using form mutually agreeable to the Project Company and Rusnano) |
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Monthly, no later than 5th (fifth) business day of the month following the reporting month |
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Income statement (using form mutually agreeable to the Project Company and Rusnano) |
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Quarterly, within 5 (five) business days after the date of submission of the Russian Entitys financial statements for the corresponding period |
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Balance sheet (using form mutually agreeable to the Project Company and Rusnano) |
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Quarterly, within 5 (five) business days after the date of submission of the Russian Entitys financial statements for the corresponding period |
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Certificate of Incorporation (original / certified copy) on the last working day of the reporting period |
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Annually no later than 5 (five) business days after the end of the reporting year and after applying the changes |
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Protocols of meetings of Russian Entitys Board of Directors and participant(s) with all exhibits |
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Within 5 (five) business days after conducting the meeting |
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Statement of claim, court/arbitrage ruling determining the action with respect to the Russian Entity bankruptcy proceedings and/or the initiation of bankruptcy proceedings |
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Within 5 (five) business days after receipt of the statement of claim or ruling by the Russian Entity |
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Statement of claim, charges against the Russian Entity, settlement of which may materially affect the financial condition or business activities of Russian Entity (a substantial impact is a claim on more than 10% of Russian Entitys current book value) |
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Within 5 (five) working days after receipt of the statement of claim by the Russian Entity |
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Information on enterprises (organizations) engaged in production activities in the field of nanoindustry |
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Within a month after the beginning of the development of products, related to nanotechnologies. |
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List of the affiliated persons of the Russian Entity, which shall include, as relevant: (1) any member of its board of |
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Annually, no later than 5 (five) business days after the end of the |
directors, advisory board or other similar board or body; (2) any member of its executive body; (3) any person having executive authority, acting singly, on behalf of the Russian Entity; (4) persons in the same group of companies with the Russian Entity; (5) person(s) having control over 20% of the participation interests in the charter capital of the Russian Entity; and (6) person(s) in which the Russian Entity controls over 20% of its voting stock, other ownership interests or participation interests in its charter capital. |
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reporting year, and after the application of changes |
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Annual report on the progress of the Project (including performance against the Business Plan and R&D Plan) in the form mutually agreeable to the Project Company and Rusnano |
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Annually, no later than 20 (twenty) business days after the end of the reporting year |
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Accounting policies of the Russian Entity for the purposes of accounting and taxation |
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Annually, no later than 90 (ninety) days after the end of the reporting year |
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Is Quarterly report on the progress of the Project (including performance against the Business Plan and R&D Plan) in the form mutually agreeable to the Project Company and Rusnano |
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Quarterly no later than 30 (thirty) days after the end of the reporting quarter |
SELECTA BIOSCIENCES, INC.
JOINDER AGREEMENT TO FIFTH AMENDED AND RESTATED
INVESTORS RIGHTS AGREEMENT
The undersigned is executing and delivering this Joinder Agreement pursuant to the Fifth Amended and Restated Investors Rights Agreement, dated as of August 17, 2015 (as the same may hereafter be amended, the Agreement), by and among Selecta Biosciences, Inc., a Delaware corporation (the Company) and the other parties named therein.
By executing and delivering to the Company this Joinder Agreement, the undersigned hereby (a) agrees that it is a Purchaser, as defined in the Agreement; (b) agrees that it is a party to the Agreement for all purposes; and (c) adopts the Agreement with the same force and effect as if the undersigned were originally a party thereto. Any notice required or permitted by the Agreement shall be given to the undersigned at the address listed below its signature hereto.
Accordingly, the undersigned has executed and delivered this Joinder Agreement as of the 16 day of September, 2015.
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WV INVESTMENT TRUST B | |
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By: |
/s/ Alan W. Rottenberg |
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Alan W. Rottenberg, as trustee and | |
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not individually | |
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Address: | |
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Attn. Alan W. Rottenberg, Trustee | |
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Goulston & Storrs | |
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400 Atlantic Avenue | |
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Boston, MA 02110 |
Accepted and agreed:
SELECTA BIOSCIENCES, INC. |
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| |
By: |
/s/ Werner Cautreels |
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Name: Werner Cautreels |
| |
Title: President and CEO |
| |
AMENDMENT NO. 1
TO
FIFTH AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO FIFTH AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT (this Amendment) is made and entered into as of June 7, 2016, by and among Selecta Biosciences, Inc., a Delaware corporation (the Company), and the undersigned parties to that certain Fifth Amended and Restated Investors Rights Agreement, dated as of August 26, 2015 (as amended, the Agreement);
WHEREAS, pursuant to Section 6.5 of the Agreement, the Agreement may be amended by written agreement of (i) the Company, (ii) the Founders holding a majority of the shares of capital stock then held by all of the Founders and (iii) Purchasers holding at least 66 2/3% of the Registrable Securities then held by all of the Purchasers (collectively, the Requisite Parties);
WHEREAS, the Company and the undersigned parties to the Agreement constitute the Requisite Parties; and
WHEREAS, the parties hereto desire to amend the Agreement as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby covenant and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings assigned to them in the Agreement.
Section 2. Amendments.
(a) Notwithstanding the terms of Section 1.11, Section 1.14 shall continue in full force and effect after the Company shall become subject to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.
(b) Section 3.1(i) of the Agreement is hereby amended and restated in its entirety to read as follows:
(i) Registrable Securities means (i) the Common Stock held by the Founders and their Permitted Transferees as of the effectiveness of the Companys Registration Statement on Form S-1 (Reg. No. 333-211555) filed by the Company under the Act, (ii) the Common Stock issuable or issued upon conversion of the Senior Preferred Stock, (iii) the Common Stock issuable or issued upon conversion of the Series SRN Preferred Stock, and (iv) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right, or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in (i) through (iii) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which the rights under this Section 3 are not properly assigned, and excluding any shares for which registration rights have terminated pursuant to Section 3.13 of this Agreement.
(c) Section 5.4 of the Agreement shall terminate upon the Closing of a Qualified Public Offering.
(d) The second sentence of Section 6.5 of the Agreement is hereby amended and restated in its entirety to read as follows:
No amendment, modification or termination of, or waiver under, any provision of this Agreement shall be valid unless in writing and signed by (i) the Company and (ii) the Purchasers and/or the Founders, voting together as a single class, holding a majority of the Outstanding Registrable Securities then held by a Purchaser or Founder (other than a Purchaser or Founder who could sell all Registrable Securities held by such Purchaser or Founder, together with any Affiliate thereof with whom such Purchaser or Founder must aggregate its sales under SEC Rule 144, without restriction under SEC Rule 144(b)(1) within a ninety (90) day period), and any such amendment, modification, termination or waiver shall be binding on all parties hereto; provided that any such waiver or amendment which materially adversely affects the rights, privileges, duties or obligations of a Purchaser in a manner materially different than those of all other Purchasers shall not be effective without the written consent of the affected Purchaser.
Section 3. No Other Amendments; Conflicts. No term or provision of the Agreement shall be affected by this Amendment, unless specifically set forth herein and any term or provision not affected by this Amendment shall remain in full force and effect following the date hereof. In the event of a conflict between the terms of the Agreement and the terms of this Amendment, the terms of this Amendment shall control.
Section 4. Governing Law. This Amendment shall be governed by, and construed and enforced in accordance with, the internal laws of the State of New York, without regard to conflict of law principles that would result in the application of any law other than the law of the State of New York.
Section 5. Captions; Pronouns. All articles and section headings or captions contained in this Amendment are inserted only as a matter of convenience and for reference and in no way define, limit, extend or describe the scope of this Amendment or the intent of any provision thereof. References in the Agreement to the Agreement shall mean the Agreement, as amended by this Amendment.
Section 6. Severability. If any provision of this Amendment or application to any party or circumstance shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Amendment or the application of such provision to any other party or circumstances shall not be affected thereby, and each provision shall be valid and shall be enforced to the fullest extent permitted by law.
Section 7. Counterparts. This Amendment may be executed in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. The exchange of copies of this Amendment and of signature pages by facsimile transmission or other electronic means shall constitute effective execution and delivery of this Amendment as to the parties and may be used in lieu of the original Amendment for all purposes.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above.
SELECTA BIOSCIENCES, INC.
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/s/ Werner Cautreels, Ph.D. |
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Name: Werner Cautreels, Ph.D. |
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Title: President and Chief Executive Officer |
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Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
FOUNDERS: |
/s/ Omid Farokhzad |
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Omid Farokhzad |
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/s/ Robert S. Langer, Jr. |
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Robert S. Langer, Jr. |
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/s/ Ulrich von Andrian |
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Ulrich von Andrian |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASERS: |
POLARIS VENTURE PARTNERS V, L.P. | ||
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Polaris Venture Management Co. V, L.L.C., its General Partner | |
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/s/ Mary Blair |
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Name: Mary Blair | |
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Title: Attorney-In-Fact | |
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POLARIS VENTURE PARTNERS ENTREPRENEURS FUND V, L.P. | ||
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Polaris Venture Management Co. V, L.L.C., its General Partner | |
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/s/ Mary Blair |
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Name: Mary Blair | |
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Title: Attorney-In-Fact | |
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POLARIS VENTURE PARTNERS FOUNDERS FUND V, L.P. | ||
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Polaris Venture Management Co. V, L.L.C., its General Partner | |
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/s/ Mary Blair |
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Name: Mary Blair | |
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Title: Attorney-In-Fact | |
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POLARIS VENTURE PARTNERS SPECIAL FOUNDERS FUND V, L.P. | ||
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Polaris Venture Management Co. V, L.L.C., its General Partner | |
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/s/ Mary Blair |
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Name: Mary Blair | |
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Title: Attorney-In-Fact |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
FLAGSHIP VENTURES FUND 2007, L.P. | ||
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Flagship Ventures 2007 General Partner LLC, its General Partner | |
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/s/ Edwin M. Kania, Jr. |
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Name: Edwin M. Kania, Jr. | |
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Title: Managing Member |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
NANODIMENSION, L.P. | ||
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NanoDimension Management Limited, its General Partner | |
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/s/ Jonathan Nicholson |
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Jonathan Nicholson |
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Director |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASERS: |
ORBIMED ASSOCIATES III, LP | ||
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OrbiMed Advisors LLC, its General Partner | |
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/s/ Carl Gordon |
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Carl Gordon |
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Member |
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ORBIMED PRIVATE INVESTMENTS III, LP | ||
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OrbiMed Capital GP III LLC, its General Partner | |
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OrbiMed Advisors LLC, its Managing Member | |
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/s/ Carl Gordon |
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Carl Gordon |
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Member |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASERS: |
LEUKON INVESTMENTS, LP | ||
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LKST, Inc., its General Partner | |
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/s/ Timothy Springer |
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Timothy Springer |
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President |
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TAS PARTNERS, LLC | ||
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/s/ Timothy Springer | |
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Timothy Springer | |
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Manager |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
EMINENT II VENTURE CAPITAL CORPORATION | |
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Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
RUSNANO | |
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/s/ Yuri Udaltsov |
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Yuri Udaltsov |
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Deputy Chairman of the Management Board of Management Company RUSNANO LLC acting on the basis of a power of attorney |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASERS: |
VTB CAPITAL I2BF NETHERLANDS B.V. | |
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SELECTA RKFN LTD. | |
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Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
ALEXANDRIA EQUITIES, LLC | ||
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A Delaware limited libability company | ||
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ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation, managing member | |
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/s/ Gary Dean |
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Gary Dean |
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Senior Vice President |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
BIODYNAMICS CORE, L.P. | ||
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BioDynamics, LLC, its General Partner | |
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/s/ Omid Farokhzad |
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Omid Farokhzad |
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Member |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
OSAGE UNIVERSITY PARTNERS II, L.P. | ||
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OSAGE UNIVERSITY GP II, LP, its General Partner | |
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OSAGE PARTNERS, LLC, its General Partner | |
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/s/ William Harrington |
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William Harrington |
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Member |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
AVENTISUB, LLC | |
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Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
RIDGEBACK CAPITAL INVESTMENTS, LP | |
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Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
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BLAKELEY VENTURES, LLC | |
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Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
SAMIEI & MORSE PARTNERSHIP | |
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Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
AJU LIFE SCIENCE OVERSEAS EXPANSION PLATFORM FUND C/O AJU IB INVESTMENT | |
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/s/ Ji-Won Kim |
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Name: Ji-Won Kim | |
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Title: Chief Executive Officer |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
SPHERA GLOBAL HEALTHCARE MASTER FUND | |
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Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
WV INVESTMENT TRUST B | |
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Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
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GENTRACE LLC | |
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GENDOS LLC | |
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Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
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BAYSIDE PARTNERS LLC | |
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Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
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SILVER ROCK FINANCIAL LLC | |
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WELLWATER LLC | |
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NP1 LLC | |
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GENUNO LLC | |
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DNSMORE LLC | |
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Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
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Mark Afrasiabi |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
/s/ Scott Cohen |
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Scott Cohen |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
/s/ Jeffrey B. Larson |
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Jeffrey B. Larson |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER: |
/s/ Megan Kelleher |
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Megan Kelleher |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER:
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Dimitris Bertsimas |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
PURCHASER:
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Peter Doelger |
Signature Page to Amendment No. 1 to Fifth Amended and Restated Investors Rights Agreement
Exhibit 5.1
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John Hancock Tower, 27th Floor 200 Clarendon Street Boston, Massachusetts 02116 Tel: +1.617.948.6000 Fax: +1.617.948.6001 www.lw.com | |
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June 8, 2016 |
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File No. 049821-0008 |
Selecta Biosciences, Inc.
480 Arsenal Street, Building One
Watertown, MA 02472
Re: Registration Statement No. 333-211555;
4,887,500 shares of Common Stock, $0.0001 par value per share
Ladies and Gentlemen:
We have acted as special counsel to Selecta Biosciences, Inc., a Delaware corporation (the Company), in connection with the proposed issuance of up to 4,887,500 shares (including shares subject to the underwriters option to purchase additional shares) of common stock, $0.0001 par value per share (the Shares). The Shares are included in a registration statement on Form S1 under the Securities Act of 1933, as amended (the Act), filed with the Securities and Exchange Commission (the Commission) on May 24, 2016 (Registration No. 333-211555) (as amended, the Registration Statement). The term Shares shall include any additional shares of common stock registered by the Company pursuant to Rule 462(b) under the Act in connection with the offering contemplated by the Registration Statement. This opinion is being furnished in connection with the requirements of Item 601(b)(5) of Regulation S-K under the Act, and no opinion is expressed herein as to any matter pertaining to the contents of the Registration Statement or related Prospectus, other than as expressly stated herein with respect to the issue of the Shares.
As such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of this letter. With your consent, we have relied upon certificates and other assurances of officers of the Company and others as to factual matters without having independently verified such factual matters. We are opining herein as to the General Corporation Law of the State of Delaware and we express no opinion with respect to any other laws.
Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof, when the Shares shall have been duly registered on the books of the transfer agent and registrar therefor in the name or on behalf of the purchasers, and have been issued by the Company against payment therefor in total numbers that do not exceed the total number of shares available under the Companys certificate of incorporation and in the circumstances contemplated by the form of underwriting agreement most recently filed as an exhibit to the Registration Statement, the issue and sale of the Shares will have been duly authorized by all necessary corporate action of the Company, and the Shares will be validly issued, fully paid and nonassessable. In rendering the foregoing opinion, we have assumed that the Company will comply with all applicable notice requirements regarding uncertificated shares provided in the General Corporation Law of the State of Delaware.
This opinion is for your benefit in connection with the Registration Statement and may be relied upon by you and by persons entitled to rely upon it pursuant to the applicable provisions of the Act. We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm in the Prospectus under the heading Legal Matters. We further consent to the incorporation by reference of this letter and consent into any registration statement filed pursuant to Rule 462(b) with respect to the Shares. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder.
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Very truly yours, |
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/s/ Latham & Watkins LLP |
Exhibit 10.2
SELECTA BIOSCIENCES, INC.
2016 INCENTIVE AWARD PLAN
ARTICLE I.
PURPOSE
The Plans purpose is to enhance the Companys ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing these individuals with equity ownership opportunities. Capitalized terms used in the Plan are defined in Article XI.
ARTICLE II.
ELIGIBILITY
Service Providers are eligible to be granted Awards under the Plan, subject to the limitations described herein.
ARTICLE III.
ADMINISTRATION AND DELEGATION
3.1 Administration. The Plan is administered by the Administrator. The Administrator has authority to determine which Service Providers receive Awards, grant Awards and set Award terms and conditions, subject to the conditions and limitations in the Plan. The Administrator also has the authority to take all actions and make all determinations under the Plan, to interpret the Plan and Award Agreements and to adopt, amend and repeal Plan administrative rules, guidelines and practices as it deems advisable. The Administrator may correct defects and ambiguities, supply omissions and reconcile inconsistencies in the Plan or any Award as it deems necessary or appropriate to administer the Plan and any Awards. The Administrators determinations under the Plan are in its sole discretion and will be final and binding on all persons having or claiming any interest in the Plan or any Award.
3.2 Appointment of Committees. To the extent Applicable Laws permit, the Board may delegate any or all of its powers under the Plan to one or more Committees or officers of the Company or any of its Subsidiaries. The Board may abolish any Committee or re-vest in itself any previously delegated authority at any time.
ARTICLE IV.
STOCK AVAILABLE FOR AWARDS
4.1 Number of Shares. Subject to adjustment under Article VIII and the terms of this Article IV, Awards may be made under the Plan covering up to the Overall Share Limit. As of the Plans effective date under Section 10.3, the Company will cease granting awards under the Prior Plans; however, Prior Plan Awards will remain subject to the terms of the applicable Prior Plan. Shares issued under the Plan may consist of authorized but unissued Shares, Shares purchased on the open market or treasury Shares.
4.2 Share Recycling. If all or any part of an Award or Prior Plan Award expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, in any case, in a manner that results in the Company acquiring Shares covered by the Award or Prior Plan Award at a price not greater than the price (as adjusted to reflect any Equity Restructuring)
paid by the Participant for such Shares or not issuing any Shares covered by the Award or Prior Plan Award, the unused Shares covered by the Award or Prior Plan Award will, as applicable, become or again be available for Award grants under the Plan. Further, Shares delivered (either by actual delivery or attestation) to the Company by a Participant to satisfy the applicable exercise or purchase price of an Award or Prior Plan Award and/or to satisfy any applicable tax withholding obligation (including Shares retained by the Company from the Award or Prior Plan Award being exercised or purchased and/or creating the tax obligation) will, as applicable, become or again be available for Award grants under the Plan. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards or Prior Plan Awards shall not count against the Overall Share Limit.
4.3 Incentive Stock Option Limitations. Notwithstanding anything to the contrary herein, no more than 8,133,333 Shares may be issued pursuant to the exercise of Incentive Stock Options.
4.4 Substitute Awards. In connection with an entitys merger or consolidation with the Company or the Companys acquisition of an entitys property or stock, the Administrator may grant Awards in substitution for any options or other stock or stock-based awards granted before such merger or consolidation by such entity or its affiliate. Substitute Awards may be granted on such terms as the Administrator deems appropriate, notwithstanding limitations on Awards in the Plan. Substitute Awards will not count against the Overall Share Limit (nor shall Shares subject to a Substitute Award be added to the Shares available for Awards under the Plan as provided above), except that Shares acquired by exercise of substitute Incentive Stock Options will count against the maximum number of Shares that may be issued pursuant to the exercise of Incentive Stock Options under the Plan. Additionally, in the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan (and Shares subject to such Awards shall not be added to the Shares available for Awards under the Plan as provided above); provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees or Directors prior to such acquisition or combination.
4.5 Non-Employee Director Compensation. Notwithstanding any provision to the contrary in the Plan, the Administrator may establish compensation for non-employee Directors from time to time, subject to the limitations in the Plan. The Administrator will from time to time determine the terms, conditions and amounts of all such non-employee Director compensation in its discretion and pursuant to 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 value (determined as of the grant date in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) of Awards granted to a non-employee Director as compensation for services as a non-employee Director during any fiscal year of the Company may not exceed $1,000,000 in the fiscal year of a non-employee Directors initial service as a non-employee Director or $750,000 in any subsequent fiscal year. The Administrator may make exceptions to this limit for individual non-employee Directors in extraordinary circumstances, as the 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.
ARTICLE V.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
5.1 General. The Administrator may grant Options or Stock Appreciation Rights to Service Providers subject to the limitations in the Plan, including any limitations in the Plan that apply to Incentive Stock Options. The Administrator will determine the number of Shares covered by each Option and Stock Appreciation Right, the exercise price of each Option and Stock Appreciation Right and the conditions and limitations applicable to the exercise of each Option and Stock Appreciation Right. A Stock Appreciation Right will entitle the Participant (or other person entitled to exercise the Stock Appreciation Right) to receive from the Company upon exercise of the exercisable portion of the Stock Appreciation Right an amount determined by multiplying the excess, if any, of the Fair Market Value of one Share on the date of exercise over the exercise price per Share of the Stock Appreciation Right by the number of Shares with respect to which the Stock Appreciation Right is exercised, subject to any limitations of the Plan or that the Administrator may impose and payable in cash, Shares valued at Fair Market Value or a combination of the two as the Administrator may determine or provide in the Award Agreement.
5.2 Exercise Price. The Administrator will establish each Options and Stock Appreciation Rights exercise price and specify the exercise price in the Award Agreement. The exercise price will not be less than 100% of the Fair Market Value on the grant date of the Option or Stock Appreciation Right.
5.3 Duration. Each Option or Stock Appreciation Right will be exercisable at such times and as specified in the Award Agreement, provided that the term of an Option or Stock Appreciation Right will not exceed ten years. Notwithstanding the foregoing and unless determined otherwise by the Company, in the event that on the last business day of the term of an Option or Stock Appreciation Right (other than an Incentive Stock Option) (i) the exercise of the Option or Stock Appreciation Right is prohibited by Applicable Law, as determined by the Company, or (ii) Shares may not be purchased or sold by the applicable Participant due to any Company insider trading policy (including blackout periods) or a lock-up agreement undertaken in connection with an issuance of securities by the Company, the term of the Option or Stock Appreciation Right shall be extended until the date that is thirty (30) days after the end of the legal prohibition, black-out period or lock-up agreement, as determined by the Company; provided, however, in no event shall the extension last beyond the ten year term of the applicable Option or Stock Appreciation Right. Notwithstanding the foregoing, if the Participant, prior to the end of the term of an Option or Stock Appreciation Right, violates the non-competition, non-solicitation, confidentiality or other similar restrictive covenant provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company or any of its Subsidiaries, the right of the Participant and the Participants transferees to exercise any Option or Stock Appreciation Right issued to the Participant shall terminate immediately upon such violation, unless the Company otherwise determines. In addition, if, prior to the end of the term of an Option or Stock Appreciation Right, the Participant is given notice by the Company or any of its Subsidiaries of the Participants Termination of Service by the Company or any of its Subsidiaries for Cause, and the effective date of such Termination of Service is subsequent to the date of the delivery of such notice, the right of the Participant and the Participants transferees to exercise any Option or Stock Appreciation Right issued to the Participant shall be suspended from the time of the delivery of such notice until the earlier of (i) such time as it is determined or otherwise agreed that the Participants service as a Service Provider will not be terminated for Cause as provided in such notice or (ii) the effective date of the Participants Termination of Service by the Company or any of its Subsidiaries for Cause (in which case the right of the Participant and the Participants transferees to exercise any Option or Stock Appreciation Right issued to the Participant will terminate immediately upon the effective date of such Termination of Service).
5.4 Exercise. Options and Stock Appreciation Rights may be exercised by delivering to the Company a written notice of exercise, in a form the Administrator approves (which may be electronic), signed by the person authorized to exercise the Option or Stock Appreciation Right, together with, as applicable, payment in full (i) as specified in Section 5.5 for the number of Shares for which the Award is exercised and (ii) as specified in Section 9.5 for any applicable taxes. Unless the Administrator otherwise determines, an Option or Stock Appreciation Right may not be exercised for a fraction of a Share.
5.5 Payment Upon Exercise. Subject to Section 10.8, any Company insider trading policy (including blackout periods) and Applicable Laws, the exercise price of an Option must be paid by:
(a) cash, wire transfer of immediately available funds or by check payable to the order of the Company, provided that the Company may limit the use of one of the foregoing payment forms if one or more of the payment forms below is permitted;
(b) if there is a public market for Shares at the time of exercise, unless the Company otherwise determines, (A) delivery (including telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to pay the exercise price, or (B) the Participants delivery to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to pay the exercise price; provided that such amount is paid to the Company at such time as may be required by the Administrator;
(c) to the extent permitted by the Administrator, delivery (either by actual delivery or attestation) of Shares owned by the Participant valued at their Fair Market Value;
(d) to the extent permitted by the Administrator, surrendering Shares then issuable upon the Options exercise valued at their Fair Market Value on the exercise date;
(e) to the extent permitted by the Administrator, delivery of a promissory note or any other property that the Administrator determines is good and valuable consideration; or
(f) to the extent permitted by the Company, any combination of the above payment forms approved by the Administrator.
ARTICLE VI.
RESTRICTED STOCK; RESTRICTED STOCK UNITS
6.1 General. The Administrator may grant Restricted Stock, or the right to purchase Restricted Stock, to any Service Provider, subject to the Companys right to repurchase all or part of such shares at their issue price or other stated or formula price from the Participant (or to require forfeiture of such shares) if conditions the Administrator specifies in the Award Agreement are not satisfied before the end of the applicable restriction period or periods that the Administrator establishes for such Award. In addition, the Administrator may grant to Service Providers Restricted Stock Units, which may be subject to vesting and forfeiture conditions during the applicable restriction period or periods, as set forth in an Award Agreement. The Administrator will determine and set forth in the Award Agreement the terms and conditions for each Restricted Stock and Restricted Stock Unit Award, subject to the conditions and limitations contained in the Plan.
6.2 Restricted Stock.
(a) Dividends. Participants holding shares of Restricted Stock will be entitled to all ordinary cash dividends paid with respect to such Shares, unless the Administrator provides otherwise in the Award Agreement. In addition, unless the Administrator provides otherwise, if any dividends or distributions are paid in Shares, or consist of a dividend or distribution to holders of Common Stock of property other than an ordinary cash dividend, the Shares or other property will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid.
(b) Stock Certificates. The Company may require that the Participant deposit in escrow with the Company (or its designee) any stock certificates issued in respect of shares of Restricted Stock, together with a stock power endorsed in blank.
6.3 Restricted Stock Units.
(a) Settlement. The Administrator may provide that settlement of Restricted Stock Units will occur upon or as soon as reasonably practicable after the Restricted Stock Units vest or will instead be deferred, on a mandatory basis or at the Participants election, in a manner intended to comply with Section 409A.
(b) Stockholder Rights. A Participant will have no rights of a stockholder with respect to Shares subject to any Restricted Stock Unit unless and until the Shares are delivered in settlement of the Restricted Stock Unit.
(c) Dividend Equivalents. If the Administrator provides, a grant of Restricted Stock Units may provide a Participant with the right to receive Dividend Equivalents. Dividend Equivalents may be paid currently or credited to an account for the Participant, settled in cash or Shares and subject to the same restrictions on transferability and forfeitability as the Restricted Stock Units with respect to which the Dividend Equivalents are granted and subject to other terms and conditions as set forth in the Award Agreement.
ARTICLE VII.
OTHER STOCK OR CASH BASED AWARDS
Other Stock or Cash Based Awards may be granted to Participants, including Awards entitling Participants to receive Shares to be delivered in the future and including annual or other periodic or long-term cash bonus awards (whether based on specified Performance Criteria or otherwise), in each case subject to any conditions and limitations in the Plan. Such Other Stock or Cash Based Awards will also be available as a payment form in the settlement of other Awards, as standalone payments and as payment in lieu of compensation to which a Participant is otherwise entitled. Other Stock or Cash Based Awards may be paid in Shares, cash or other property, as the Administrator determines. Subject to the provisions of the Plan, the Administrator will determine the terms and conditions of each Other Stock or Cash Based Award, including any purchase price, performance goal (which may be based on the Performance Criteria), transfer restrictions, and vesting conditions, which will be set forth in the applicable Award Agreement.
ARTICLE VIII.
ADJUSTMENTS FOR CHANGES IN COMMON STOCK
AND CERTAIN OTHER EVENTS
8.1 Equity Restructuring(a) . In connection with any Equity Restructuring, notwithstanding anything to the contrary in this Article VIII, the Administrator will equitably adjust each outstanding Award as it deems appropriate to reflect the Equity Restructuring, which may include adjusting the number and type of securities subject to each outstanding Award and/or the Awards exercise price or grant price (if applicable), granting new Awards to Participants, and making a cash payment to Participants. The adjustments provided under this Section 8.1 will be nondiscretionary and final and binding on the affected Participant and the Company; provided that the Administrator will determine whether an adjustment is equitable.
8.2 Corporate Transactions. In the event of any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), reorganization, merger, consolidation, combination, amalgamation, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the Company, Change in Control, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, other similar corporate transaction or event, other unusual or nonrecurring transaction or event affecting the Company or its financial statements or any change in any Applicable Laws or accounting principles, the Administrator, on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event (except that action to give effect to a change in Applicable Law or accounting principles may be made within a reasonable period of time after such change) and either automatically or upon the Participants request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to (x) prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any Award granted or issued under the Plan, (y) to facilitate such transaction or event or (z) give effect to such changes in Applicable Laws or accounting principles:
(a) To provide for the cancellation of any such Award in exchange for either an amount of cash or other property with a value equal to the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participants rights under the vested portion of such Award, as applicable; provided that, if the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participants rights, in any case, is equal to or less than zero, then the Award may be terminated without payment;
(b) To provide that such Award shall vest and, to the extent applicable, be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the provisions of such Award;
(c) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and/or applicable exercise or purchase price, in all cases, as determined by the Administrator;
(d) To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Awards and/or with respect to which Awards may be granted under the Plan (including, but not limited to, adjustments of the limitations in Article IV
hereof on the maximum number and kind of shares which may be issued) and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards;
(e) To replace such Award with other rights or property selected by the Administrator; and/or
(f) To provide that the Award will terminate and cannot vest, be exercised or become payable after the applicable event.
8.3 Non-Assumption. Notwithstanding any other provision of the Plan to the contrary, if a Change in Control occurs and an outstanding Award that is not subject to performance-based vesting conditions is not continued, converted, assumed, or replaced with a substantially similar award by (i) the Company, or (ii) a successor entity or its parent or subsidiary (an Assumption), then, immediately prior to the Change in Control, such Award will become fully vested and exercisable and all forfeiture restrictions on such Award shall lapse. The Administrator shall determine whether an Assumption of an Award has occurred in connection with a Change in Control.
8.4 Administrative Stand Still. In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other extraordinary transaction or change affecting the Shares or the share price of Common Stock, including any Equity Restructuring or any securities offering or other similar transaction, for administrative convenience, the Administrator may refuse to permit the exercise of any Award for up to sixty days before or after such transaction.
8.5 General. Except as expressly provided in the Plan or the Administrators action under the Plan, no Participant will have any rights due to any subdivision or consolidation of Shares of any class, dividend payment, increase or decrease in the number of Shares of any class or dissolution, liquidation, merger, or consolidation of the Company or other corporation. Except as expressly provided with respect to an Equity Restructuring under Section 8.1 above or the Administrators action under the Plan, no issuance by the Company of Shares of any class, or securities convertible into Shares of any class, will affect, and no adjustment will be made regarding, the number of Shares subject to an Award or the Awards grant or exercise price. The existence of the Plan, any Award Agreements and the Awards granted hereunder will not affect or restrict in any way the Companys right or power to make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Companys capital structure or its business, (ii) any merger, consolidation dissolution or liquidation of the Company or sale of Company assets or (iii) any sale or issuance of securities, including securities with rights superior to those of the Shares or securities convertible into or exchangeable for Shares. The Administrator may treat Participants and Awards (or portions thereof) differently under this Article VIII.
ARTICLE IX.
GENERAL PROVISIONS APPLICABLE TO AWARDS
9.1 Transferability. Except as the Administrator may determine or provide in an Award Agreement or otherwise for Awards other than Incentive Stock Options, Awards may not be sold, assigned, transferred, pledged or otherwise encumbered, either voluntarily or by operation of law, except by will or the laws of descent and distribution, or, subject to the Administrators consent, pursuant to a domestic relations order, and, during the life of the Participant, will be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, will include references to a Participants authorized transferee that the Administrator specifically approves.
9.2 Documentation. Each Award will be evidenced in an Award Agreement, which may be written or electronic, as the Administrator determines. Each Award may contain terms and conditions in addition to those set forth in the Plan.
9.3 Discretion. Except as the Plan otherwise provides, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award to a Participant need not be identical, and the Administrator need not treat Participants or Awards (or portions thereof) uniformly.
9.4 Termination of Status. The Administrator will determine how the disability, death, retirement, authorized leave of absence or any other change or purported change in a Participants Service Provider status affects an Award and the extent to which, and the period during which, the Participant, the Participants legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award, if applicable.
9.5 Withholding. Each Participant must pay the Company, or make provision satisfactory to the Administrator for payment of, any taxes required by law to be withheld in connection with such Participants Awards by the date of the event creating the tax liability. The Company may deduct an amount sufficient to satisfy such tax obligations based on the minimum statutory withholding rates (or such other rate as may be determined by the Company after considering any accounting consequences or costs) from any payment of any kind otherwise due to a Participant. Subject to Section 10.8 and any Company insider trading policy (including blackout periods), Participants may satisfy such tax obligations (i) in cash, by wire transfer of immediately available funds, by check made payable to the order of the Company, provided that the Company may limit the use of the foregoing payment forms if one or more of the payment forms below is permitted, (ii) to the extent permitted by the Administrator, in whole or in part by delivery of Shares, including Shares retained from the Award creating the tax obligation, valued at their Fair Market Value, (iii) if there is a public market for Shares at the time the tax obligations are satisfied, unless the Company otherwise determines, (A) delivery (including telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to satisfy the tax obligations, or (B) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to satisfy the tax withholding, provided that such amount is paid to the Company at such time as may be required by the Administrator, or (iv) to the extent permitted by the Company, any combination of the foregoing payment forms approved by the Administrator. If any tax withholding obligation will be satisfied under clause (ii) of the immediately preceding sentence by the Companys retention of Shares from the Award creating the tax obligation and there is a public market for Shares at the time the tax obligation is satisfied, the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on the applicable Participants behalf some or all of the Shares retained and to remit the proceeds of the sale to the Company or its designee, and each Participants acceptance of an Award under the Plan will constitute the Participants authorization to the Company and instruction and authorization to such brokerage firm to complete the transactions described in this sentence.
9.6 Amendment of Award; Repricing. The Administrator may amend, modify or terminate any outstanding Award, including by substituting another Award of the same or a different type, changing the exercise or settlement date, and converting an Incentive Stock Option to a Non-Qualified Stock Option. The Participants consent to such action will be required unless (i) the action, taking into account any related action, does not materially and adversely affect the Participants rights under the Award, or (ii) the change is permitted under Article VIII or pursuant to Section 10.6. Notwithstanding the foregoing or anything in the Plan to the contrary, the Administrator may not, except pursuant to Article VIII,
without the approval of the stockholders of the Company, reduce the exercise price per share of outstanding Options or Stock Appreciation Rights or cancel outstanding Options or Stock Appreciation Rights in exchange for cash, other Awards or Options or Stock Appreciation Rights with an exercise price per share that is less than the exercise price per share of the original Options or Stock Appreciation Rights.
9.7 Conditions on Delivery of Stock. The Company will not be obligated to deliver any Shares under the Plan or remove restrictions from Shares previously delivered under the Plan until (i) all Award conditions have been met or removed to the Companys satisfaction, (ii) as determined by the Company, all other legal matters regarding the issuance and delivery of such Shares have been satisfied, including any applicable securities laws and stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Administrator deems necessary or appropriate to satisfy any Applicable Laws. The Companys inability to obtain authority from any regulatory body having jurisdiction, which the Administrator determines is necessary to the lawful issuance and sale of any securities, will relieve the Company of any liability for failing to issue or sell such Shares as to which such requisite authority has not been obtained.
9.8 Acceleration. The Administrator may at any time provide that any Award will become immediately vested and fully or partially exercisable, free of some or all restrictions or conditions, or otherwise fully or partially realizable.
9.9 Additional Terms of Incentive Stock Options. The Administrator may grant Incentive Stock Options only to employees of the Company, any of its present or future parent or subsidiary corporations, as defined in Sections 424(e) or (f) of the Code, respectively, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code. If an Incentive Stock Option is granted to a Greater Than 10% Stockholder, the exercise price will not be less than 110% of the Fair Market Value on the Options grant date, and the term of the Option will not exceed five years. All Incentive Stock Options will be subject to and construed consistently with Section 422 of the Code. By accepting an Incentive Stock Option, the Participant agrees to give prompt notice to the Company of dispositions or other transfers (other than in connection with a Change in Control) of Shares acquired under the Option made within (i) two years from the grant date of the Option or (ii) one year after the transfer of such Shares to the Participant, specifying the date of the disposition or other transfer and the amount the Participant realized, in cash, other property, assumption of indebtedness or other consideration, in such disposition or other transfer. Neither the Company nor the Administrator will be liable to a Participant, or any other party, if an Incentive Stock Option fails or ceases to qualify as an incentive stock option under Section 422 of the Code. Any Incentive Stock Option or portion thereof that fails to qualify as an incentive stock option under Section 422 of the Code for any reason, including becoming exercisable with respect to Shares having a fair market value exceeding the $100,000 limitation under Treasury Regulation Section 1.422-4, will be a Non-Qualified Stock Option.
ARTICLE X.
MISCELLANEOUS
10.1 No Right to Employment or Other Status. No person will have any claim or right to be granted an Award, and the grant of an Award will not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan or any Award, except as expressly provided in an Award Agreement.
10.2 No Rights as Stockholder; Certificates. Subject to the Award Agreement, no Participant or Designated Beneficiary will have any rights as a stockholder with respect to any Shares to be
distributed under an Award until becoming the record holder of such Shares. Notwithstanding any other provision of the Plan, unless the Administrator otherwise determines or Applicable Laws require, the Company will not be required to deliver to any Participant certificates evidencing Shares issued in connection with any Award and instead such Shares may be recorded in the books of the Company (or, as applicable, its transfer agent or stock plan administrator). The Company may place legends on stock certificates issued under the Plan that the Administrator deems necessary or appropriate to comply with Applicable Laws.
10.3 Effective Date and Term of Plan. Unless earlier terminated by the Board, the Plan will become effective on the day prior to the Public Trading Date and will remain in effect until the tenth anniversary of the earlier of (i) the date the Board adopted the Plan or (ii) the date the Companys stockholders approved the Plan, but Awards previously granted may extend beyond that date in accordance with the Plan. If the Plan is not approved by the Companys stockholders, the Plan will not become effective, no Awards will be granted under the Plan and the Prior Plans will continue in full force and effect in accordance with their terms.
10.4 Amendment of Plan. The Administrator may amend, suspend or terminate the Plan at any time; provided that no amendment, other than an increase to the Overall Share Limit, may materially and adversely affect any Award outstanding at the time of such amendment without the affected Participants consent. No Awards may be granted under the Plan during any suspension period or after Plan termination. Awards outstanding at the time of any Plan suspension or termination will continue to be governed by the Plan and the Award Agreement, as in effect before such suspension or termination. The Board will obtain stockholder approval of any Plan amendment to the extent necessary to comply with Applicable Laws.
10.5 Provisions for Foreign Participants. The Administrator may modify Awards granted to Participants who are foreign nationals or employed outside the United States or establish subplans or procedures under the Plan to address differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.
10.6 Section 409A.
(a) General. The Company intends that all Awards be structured to comply with, or be exempt from, Section 409A, such that no adverse tax consequences, interest, or penalties under Section 409A apply. Notwithstanding anything in the Plan or any Award Agreement to the contrary, the Administrator may, without a Participants consent, amend this Plan or Awards, adopt policies and procedures, or take any other actions (including amendments, policies, procedures and retroactive actions) as are necessary or appropriate to preserve the intended tax treatment of Awards, including any such actions intended to (A) exempt this Plan or any Award from Section 409A, or (B) comply with Section 409A, including regulations, guidance, compliance programs and other interpretative authority that may be issued after an Awards grant date. The Company makes no representations or warranties as to an Awards tax treatment under Section 409A or otherwise. The Company will have no obligation under this Section 10.6 or otherwise to avoid the taxes, penalties or interest under Section 409A with respect to any Award and will have no liability to any Participant or any other person if any Award, compensation or other benefits under the Plan are determined to constitute noncompliant nonqualified deferred compensation subject to taxes, penalties or interest under Section 409A.
(b) Separation from Service. If an Award constitutes nonqualified deferred compensation under Section 409A, any payment or settlement of such Award upon a termination of a Participants Service Provider relationship will, to the extent necessary to avoid taxes under
Section 409A, be made only upon the Participants separation from service (within the meaning of Section 409A), whether such separation from service occurs upon or after the termination of the Participants Service Provider relationship. For purposes of this Plan or any Award Agreement relating to any such payments or benefits, references to a termination, termination of employment or like terms means a separation from service.
(c) Payments to Specified Employees. Notwithstanding any contrary provision in the Plan or any Award Agreement, any payment(s) of nonqualified deferred compensation required to be made under an Award to a specified employee (as defined under Section 409A and as the Administrator determines) due to his or her separation from service will, to the extent necessary to avoid taxes under Section 409A(a)(2)(B)(i) of the Code, be delayed for the six-month period immediately following such separation from service (or, if earlier, until the specified employees death) and will instead be paid (as set forth in the Award Agreement) on the day immediately following such six-month period or as soon as administratively practicable thereafter (without interest). Any payments of nonqualified deferred compensation under such Award payable more than six months following the Participants separation from service will be paid at the time or times the payments are otherwise scheduled to be made.
10.7 Limitations on Liability. Notwithstanding any other provisions of the Plan, no individual acting as a director, officer, other employee or agent of the Company or any Subsidiary will be liable to any Participant, former Participant, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan or any Award, and such individual will not be personally liable with respect to the Plan because of any contract or other instrument executed in his or her capacity as an Administrator, director, officer, other employee or agent of the Company or any Subsidiary. The Company will indemnify and hold harmless each director, officer, other employee and agent of the Company or any Subsidiary that has been or will be granted or delegated any duty or power relating to the Plans administration or interpretation, against any cost or expense (including attorneys fees) or liability (including any sum paid in settlement of a claim with the Administrators approval) arising from any act or omission concerning this Plan unless arising from such persons own fraud or bad faith.
10.8 Lock-Up Period. The Company may, at the request of any underwriter representative or otherwise, in connection with registering the offering of any Company securities under the Securities Act, prohibit Participants from, directly or indirectly, selling or otherwise transferring any Shares or other Company securities during a period of up to one hundred eighty days following the effective date of a Company registration statement filed under the Securities Act, or such longer period as determined by the underwriter.
10.9 Data Privacy. As a condition for receiving any Award, each Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this section by and among the Company and its Subsidiaries and affiliates exclusively for implementing, administering and managing the Participants participation in the Plan. The Company and its Subsidiaries and affiliates may hold certain personal information about a Participant, including the Participants name, address and telephone number; birthdate; social security, insurance number or other identification number; salary; nationality; job title(s); any Shares held in the Company or its Subsidiaries and affiliates; and Award details, to implement, manage and administer the Plan and Awards (the Data). The Company and its Subsidiaries and affiliates may transfer the Data amongst themselves as necessary to implement, administer and manage a Participants participation in the Plan, and the Company and its Subsidiaries and affiliates may transfer the Data to third parties assisting the Company with Plan implementation, administration and management. These recipients may be located in the Participants country, or elsewhere, and the Participants country may have different data privacy laws and protections than the recipients country. By accepting an Award, each Participant authorizes such
recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, to implement, administer and manage the Participants participation in the Plan, including any required Data transfer to a broker or other third party with whom the Company or the Participant may elect to deposit any Shares. The Data related to a Participant will be held only as long as necessary to implement, administer, and manage the Participants participation in the Plan. A Participant may, at any time, view the Data that the Company holds regarding such Participant, request additional information about the storage and processing of the Data regarding such Participant, recommend any necessary corrections to the Data regarding the Participant or refuse or withdraw the consents in this Section 10.9 in writing, without cost, by contacting the local human resources representative. The Company may cancel Participants ability to participate in the Plan and, in the Administrators discretion, the Participant may forfeit any outstanding Awards if the Participant refuses or withdraws the consents in this Section 10.9. For more information on the consequences of refusing or withdrawing consent, Participants may contact their local human resources representative.
10.10 Severability. If any portion of the Plan or any action taken under it is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and enforced as if the illegal or invalid provisions had been excluded, and the illegal or invalid action will be null and void.
10.11 Governing Documents. If any contradiction occurs between the Plan and any Award Agreement or other written agreement between a Participant and the Company (or any Subsidiary) that the Administrator has approved, the Plan will govern, unless it is expressly specified in such Award Agreement or other written document that a specific provision of the Plan will not apply.
10.12 Governing Law. The Plan and all Awards will be governed by and interpreted in accordance with the laws of the State of Delaware, disregarding any states choice-of-law principles requiring the application of a jurisdictions laws other than the State of Delaware.
10.13 Claw-back Provisions. All Awards (including any proceeds, gains or other economic benefit the Participant actually or constructively receives upon receipt or exercise of any Award or the receipt or resale of any Shares underlying the Award) will be subject to any Company claw-back policy, including any claw-back policy adopted to comply with Applicable Laws (including the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder) as set forth in such claw-back policy or the Award Agreement.
10.14 Titles and Headings. The titles and headings in the Plan are for convenience of reference only and, if any conflict, the Plans text, rather than such titles or headings, will control.
10.15 Conformity to Securities Laws. Participant acknowledges that the Plan is intended to conform to the extent necessary with Applicable Laws. Notwithstanding anything herein to the contrary, the Plan and all Awards will be administered only in conformance with Applicable Laws. To the extent Applicable Laws permit, the Plan and all Award Agreements will be deemed amended as necessary to conform to Applicable Laws.
10.16 Relationship to Other Benefits. No payment under the Plan will be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except as expressly provided in writing in such other plan or an agreement thereunder.
10.17 Broker-Assisted Sales. In the event of a broker-assisted sale of Shares in connection with the payment of amounts owed by a Participant under or with respect to the Plan or Awards, including
amounts to be paid under the final sentence of Section 9.5: (a) any Shares to be sold through the broker-assisted sale will be sold on the day the payment first becomes due, or as soon thereafter as practicable; (b) such Shares may be sold as part of a block trade with other Participants in the Plan in which all participants receive an average price; (c) the applicable Participant will be responsible for all brokers fees and other costs of sale, and by accepting an Award, each Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale; (d) to the extent the Company or its designee receives proceeds of such sale that exceed the amount owed, the Company will pay such excess in cash to the applicable Participant as soon as reasonably practicable; (e) the Company and its designees are under no obligation to arrange for such sale at any particular price; and (f) in the event the proceeds of such sale are insufficient to satisfy the Participants applicable obligation, the Participant may be required to pay immediately upon demand to the Company or its designee an amount in cash sufficient to satisfy any remaining portion of the Participants obligation.
ARTICLE XI.
DEFINITIONS
As used in the Plan, the following words and phrases will have the following meanings:
11.1 Administrator means the Board or a Committee to the extent that the Boards powers or authority under the Plan have been delegated to such Committee.
11.2 Applicable Laws means the requirements relating to the administration of equity incentive plans under U.S. federal and state securities, tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where Awards are granted.
11.3 Award means, individually or collectively, a grant under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units or Other Stock or Cash Based Awards.
11.4 Award Agreement means a written agreement evidencing an Award, which may be electronic, that contains such terms and conditions as the Administrator determines, consistent with and subject to the terms and conditions of the Plan.
11.5 Board means the Board of Directors of the Company.
11.6 Cause means (i) if a Participant is a party to a written employment or consulting agreement with the Company or any of its Subsidiaries or an Award Agreement in which the term cause is defined (a Relevant Agreement), Cause as defined in the Relevant Agreement, and (ii) if no Relevant Agreement exists, (A) the Administrators determination that the Participant failed to substantially perform the Participants duties (other than a failure resulting from the Participants Disability); (B) the Administrators determination that the Participant failed to carry out, or comply with any lawful and reasonable directive of the Board or the Participants immediate supervisor; (C) the occurrence of any act or omission by the Participant that could reasonably be expected to result in (or has resulted in) the Participants conviction, plea of no contest, plea of nolo contendere, or imposition of unadjudicated probation for any felony or indictable offense or crime involving moral turpitude; (D) the Participants unlawful use (including being under the influence) or possession of illegal drugs on the premises of the Company or any of its Subsidiaries or while performing the Participants duties and responsibilities for the Company or any of its Subsidiaries; or (E) the Participants commission of an act
of fraud, embezzlement, misappropriation, misconduct, or breach of fiduciary duty against the Company or any of its Subsidiaries.
11.7 Change in Control means and includes each of the following:
(a) A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any person or related group of persons (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained by the Company or any of its Subsidiaries or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Companys securities outstanding immediately after such acquisition; or
(b) During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c)) whose election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least two-thirds of the Directors then still in office who either were Directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(c) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Companys assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(i) which results in the Companys voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Companys assets or otherwise succeeds to the business of the Company (the Company or such person, the Successor Entity)) directly or indirectly, at least a majority of the combined voting power of the Successor Entitys outstanding voting securities immediately after the transaction, and
(ii) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.
Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or portion of any Award) that provides for the deferral of compensation that is subject to Section 409A, to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection (a), (b) or (c) with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a change in control event, as defined in Treasury Regulation Section 1.409A-3(i)(5).
The Administrator shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a change in control event as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.
11.8 Code means the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.
11.9 Committee means one or more committees or subcommittees of the Board, which may include one or more Company directors or executive officers, to the extent Applicable Laws permit. To the extent required to comply with the provisions of Rule 16b-3, it is intended that each member of the Committee will be, at the time the Committee takes any action with respect to an Award that is subject to Rule 16b-3, a non-employee director within the meaning of Rule 16b-3; however, a Committee members failure to qualify as a non-employee director within the meaning of Rule 16b-3 will not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.
11.10 Common Stock means the common stock of the Company.
11.11 Company means Selecta Biosciences, Inc., a Delaware corporation, or any successor.
11.12 Consultant means any person, including any adviser, engaged by the Company or its parent or Subsidiary to render services to such entity if the consultant or adviser: (i) renders bona fide services to the Company; (ii) renders services not in connection with the offer or sale of securities in a capital-raising transaction and does not directly or indirectly promote or maintain a market for the Companys securities; and (iii) is a natural person.
11.13 Designated Beneficiary means the beneficiary or beneficiaries the Participant designates, in a manner the Administrator determines, to receive amounts due or exercise the Participants rights if the Participant dies or becomes incapacitated. Without a Participants effective designation, Designated Beneficiary will mean the Participants estate.
11.14 Director means a Board member.
11.15 Disability means a permanent and total disability under Section 22(e)(3) of the Code, as amended.
11.16 Dividend Equivalents means a right granted to a Participant under the Plan to receive the equivalent value (in cash or Shares) of dividends paid on Shares.
11.17 Employee means any employee of the Company or its Subsidiaries.
11.18 Equity Restructuring means a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or other Company securities) or the share price of Common Stock (or other Company securities) and causes a change in the per share value of the Common Stock underlying outstanding Awards.
11.19 Exchange Act means the Securities Exchange Act of 1934, as amended.
11.20 Fair Market Value means, as of any date, the value of Common Stock determined as follows: (i) if the Common Stock is listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Common Stock as quoted on such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; (ii) if the Common Stock is not traded on a stock exchange but is quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; or (iii) without an established market for the Common Stock, the Administrator will determine the Fair Market Value in its discretion. Notwithstanding the foregoing, with respect to any Award granted on the pricing date of the Companys initial public offering, the Fair Market Value shall mean the initial public offering price of a Share as set forth in the Companys final prospectus relating to its initial public offering filed with the Securities and Exchange Commission.
11.21 Greater Than 10% Stockholder means an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporation, as defined in Section 424(e) and (f) of the Code, respectively.
11.22 Incentive Stock Option means an Option intended to qualify as an incentive stock option as defined in Section 422 of the Code.
11.23 Non-Qualified Stock Option means an Option not intended or not qualifying as an Incentive Stock Option.
11.24 Option means an option to purchase Shares.
11.25 Other Stock or Cash Based Awards means cash awards, awards of Shares, and other awards valued wholly or partially by referring to, or are otherwise based on, Shares or other property.
11.26 Overall Share Limit means the sum of (i) 1,210,256 Shares; (ii) any shares of Common Stock which are subject to Prior Plan Awards which become available for issuance under the Plan pursuant to Article IV and (iii) an annual increase on the first day of each calendar year beginning January 1, 2017 and ending on and including January 1, 2026, equal to the lesser of (A) 4% of the aggregate number of shares of Common Stock outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of Shares as is determined by the Board.
11.27 Participant means a Service Provider who has been granted an Award.
11.28 Performance Criteria mean the criteria (and adjustments) that the Administrator may select for an Award to establish performance goals for a performance period, which may include the following: 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 the Companys performance or the performance of a Subsidiary, division, business segment or business unit of the Company or a Subsidiary, 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. The Committee may provide for exclusion of the impact of an event or occurrence which the Committee determines should appropriately be excluded, including (a) restructurings, discontinued operations, extraordinary items, and other unusual, infrequently occurring or non-recurring charges or events, (b) asset write-downs, (c) litigation or claim judgments or settlements, (d) acquisitions or divestitures, (e) reorganization or change in the corporate structure or capital structure of the Company, (f) an event either not directly related to the operations of the Company, Subsidiary, division, business segment or business unit or not within the reasonable control of management, (g) foreign exchange gains and losses, (h) a change in the fiscal year of the Company, (i) the refinancing or repurchase of bank loans or debt securities, (j) unbudgeted capital expenditures, (k) the issuance or repurchase of equity securities and other changes in the number of outstanding shares, (l) conversion of some or all of convertible securities to Common Stock, (m) any business interruption event (n) the cumulative effects of tax or accounting changes in accordance with U.S. generally accepted accounting principles, or (o) the effect of changes in other laws or regulatory rules affecting reported results.
11.29 Plan means this 2016 Incentive Award Plan.
11.30 Prior Plans means, collectively, the Selecta Biosciences, Inc. 2008 Equity Incentive Plan and any prior equity incentive plans of the Company or its predecessor.
11.31 Prior Plan Award means an award outstanding under the Prior Plans as of the Plans effective date in Section 10.3.
11.32 Public Trading Date means the first date upon which the Common Stock is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system, or, if earlier, the date on which the Company becomes a publicly held corporation for purposes of Treasury Regulation Section 1.162-27(c)(1).
11.33 Restricted Stock means Shares awarded to a Participant under Article VI subject to certain vesting conditions and other restrictions.
11.34 Restricted Stock Unit means an unfunded, unsecured right to receive, on the applicable settlement date, one Share or an amount in cash or other consideration determined by the Administrator to be of equal value as of such settlement date, subject to certain vesting conditions and other restrictions.
11.35 Rule 16b-3 means Rule 16b-3 promulgated under the Exchange Act.
11.36 Section 409A means Section 409A of the Code and all regulations, guidance, compliance programs and other interpretative authority thereunder.
11.37 Securities Act means the Securities Act of 1933, as amended.
11.38 Service Provider means an Employee, Consultant or Director.
11.39 Shares means shares of Common Stock.
11.40 Stock Appreciation Right means a stock appreciation right granted under Article V.
11.41 Subsidiary means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.
11.42 Substitute Awards shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines.
11.43 Termination of Service means the date the Participant ceases to be a Service Provider.
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SELECTA BIOSCIENCES, INC.
2016 INCENTIVE AWARD PLAN
STOCK OPTION GRANT NOTICE
Capitalized terms not specifically defined in this Stock Option Grant Notice (the Grant Notice) have the meanings given to them in the 2016 Incentive Award Plan (as amended from time to time, the Plan) of Selecta Biosciences, Inc. (the Company).
The Company has granted to the participant listed below (Participant) the stock option described in this Grant Notice (the Option), subject to the terms and conditions of the Plan and the Stock Option Agreement attached as Exhibit A (the Agreement), both of which are incorporated into this Grant Notice by reference.
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Exercise Price per Share: |
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Shares Subject to the Option: |
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Final Expiration Date: |
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Vesting Commencement Date: |
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Vesting Schedule: |
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Type of Option |
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By Participants signature below, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement. Participant has reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, this Grant Notice or the Agreement.
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PARTICIPANT | |
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Exhibit A
STOCK OPTION AGREEMENT
Capitalized terms not specifically defined in this Agreement have the meanings specified in the Grant Notice or, if not defined in the Grant Notice, in the Plan.
ARTICLE I.
GENERAL
1.1 Grant of Option. The Company has granted to Participant the Option effective as of the grant date set forth in the Grant Notice (the Grant Date).
1.2 Incorporation of Terms of Plan. The Option is subject to the terms and conditions set forth in this Agreement and the Plan, which is incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan will control.
ARTICLE II.
PERIOD OF EXERCISABILITY
2.1 Commencement of Exercisability. The Option will vest and become exercisable according to the vesting schedule in the Grant Notice (the Vesting Schedule) except that any fraction of a Share as to which the Option would be vested or exercisable will be accumulated and will vest and become exercisable only when a whole Share has accumulated. Notwithstanding anything in the Grant Notice, the Plan or this Agreement to the contrary, unless the Administrator otherwise determines, the Option will immediately expire and be forfeited as to any portion that is not vested and exercisable as of Participants Termination of Service for any reason.
2.2 Duration of Exercisability. The Vesting Schedule is cumulative. Any portion of the Option which vests and becomes exercisable will remain vested and exercisable until the Option expires. The Option will be forfeited immediately upon its expiration.
2.3 Expiration of Option. The Option may not be exercised to any extent by anyone after, and will expire on, the first of the following to occur:
(a) The final expiration date in the Grant Notice;
(b) Except as the Administrator may otherwise approve, the expiration of three (3) months from the date of Participants Termination of Service, unless Participants Termination of Service is for Cause or by reason of Participants death or Disability;
(c) Except as the Administrator may otherwise approve, the expiration of one (1) year from the date of Participants Termination of Service by reason of Participants death or Disability; and
(d) Except as the Administrator may otherwise approve, Participants Termination of Service for Cause.
ARTICLE III.
EXERCISE OF OPTION
3.1 Person Eligible to Exercise. During Participants lifetime, only Participant may exercise the Option. After Participants death, any exercisable portion of the Option may, prior to the time the Option expires, be exercised by Participants Designated Beneficiary as provided in the Plan.
3.2 Partial Exercise. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised, in whole or in part, according to the procedures in the Plan at any time prior to the time the Option or portion thereof expires, except that the Option may only be exercised for whole Shares.
3.3 Tax Withholding.
(a) The Company has the right and option, but not the obligation, to treat Participants failure to provide timely payment in accordance with the Plan of any withholding tax arising in connection with the Option as Participants election to satisfy all or any portion of the withholding tax by requesting the Company retain Shares otherwise issuable under the Option.
(b) Participant acknowledges that Participant is ultimately liable and responsible for all taxes owed in connection with the Option, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the Option. Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or exercise of the Option or the subsequent sale of Shares. The Company and the Subsidiaries do not commit and are under no obligation to structure the Option to reduce or eliminate Participants tax liability.
ARTICLE IV.
OTHER PROVISIONS
4.1 Adjustments. Participant acknowledges that the Option is subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan.
4.2 Notices. Any notice to be given under the terms of this Agreement to the Company must be in writing and addressed to the Company in care of the Companys Secretary at the Companys principal office or the Secretarys then-current email address or facsimile number. Any notice to be given under the terms of this Agreement to Participant must be in writing and addressed to Participant (or, if Participant is then deceased, to the person entitled to exercise the Option) at Participants last known mailing address, email address or facsimile number in the Companys personnel files. By a notice given pursuant to this Section, either party may designate a different address for notices to be given to that party. Any notice will be deemed duly given when actually received, when sent by email, when sent by certified mail (return receipt requested) and deposited with postage prepaid in a post office or branch post office regularly maintained by the United States Postal Service, when delivered by a nationally recognized express shipping company or upon receipt of a facsimile transmission confirmation.
4.3 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
4.4 Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all Applicable Laws and, to the extent Applicable Laws permit, will be deemed amended as necessary to conform to Applicable Laws.
4.5 Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement will inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in the Plan, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
4.6 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Grant Notice, this Agreement and the Option will be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3) that are requirements for the application of such exemptive rule. To the extent Applicable Laws permit, this Agreement will be deemed amended as necessary to conform to such applicable exemptive rule.
4.7 Entire Agreement. The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.
4.8 Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held illegal or invalid, the provision will be severable from, and the illegality or invalidity of the provision will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.
4.9 Limitation on Participants Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and may not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant will have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the Option, and rights no greater than the right to receive the Shares as a general unsecured creditor with respect to the Option, as and when exercised pursuant to the terms hereof.
4.10 Not a Contract of Employment. Nothing in the Plan, the Grant Notice or this Agreement confers upon Participant any right to continue in the employ or service of the Company or any Subsidiary or interferes with or restricts in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without Cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.
4.11 Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which will be deemed an original and all of which together will constitute one instrument.
4.12 Incentive Stock Options. If the Option is designated as an Incentive Stock Option:
(a) Participant acknowledges that to the extent the aggregate fair market value of shares (determined as of the time the option with respect to the shares is granted) with respect to which stock options intended to qualify as incentive stock options under Section 422 of the Code, including the Option, are exercisable for the first time by Participant during any calendar year exceeds $100,000 or if for any other reason such stock options do not qualify or cease to qualify for treatment as incentive stock options under Section 422 of the Code, such stock options (including the Option) will be treated as non-qualified stock options. Participant further acknowledges that the rule set forth in the preceding
sentence will be applied by taking the Option and other stock options into account in the order in which they were granted, as determined under Section 422(d) of the Code. Participant also acknowledges that if the Option is exercised more than three (3) months after Participants Termination of Service, other than by reason of death or disability, the Option will be taxed as a Non-Qualified Stock Option.
(b) Participant will give prompt written notice to the Company of any disposition or other transfer of any Shares acquired under this Agreement if such disposition or other transfer is made (a) within two (2) years from the Grant Date or (b) within one (1) year after the transfer of such Shares to Participant. Such notice will specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by Participant in such disposition or other transfer.
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SELECTA BIOSCIENCES, INC.
2016 INCENTIVE AWARD PLAN
RESTRICTED STOCK UNIT GRANT NOTICE
Capitalized terms not specifically defined in this Restricted Stock Unit Grant Notice (the Grant Notice) have the meanings given to them in the 2016 Incentive Award Plan (as amended from time to time, the Plan) of Selecta Biosciences, Inc. (the Company).
The Company has granted to the participant listed below (Participant) the Restricted Stock Units described in this Grant Notice (the RSUs), subject to the terms and conditions of the Plan and the Restricted Stock Unit Agreement attached as Exhibit A (the Agreement), both of which are incorporated into this Grant Notice by reference.
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Grant Date: |
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Number of RSUs: |
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Vesting Commencement Date: |
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Vesting Schedule: |
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By Participants signature below, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement. Participant has reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, this Grant Notice or the Agreement.
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Exhibit A
RESTRICTED STOCK UNIT AGREEMENT
Capitalized terms not specifically defined in this Agreement have the meanings specified in the Grant Notice or, if not defined in the Grant Notice, in the Plan.
ARTICLE I.
GENERAL
1.1 Award of RSUs and Dividend Equivalents.
(a) The Company has granted the RSUs to Participant effective as of the grant date set forth in the Grant Notice (the Grant Date). Each RSU represents the right to receive one Share or, at the option of the Company, an amount of cash, in either case, as set forth in this Agreement. Participant will have no right to the distribution of any Shares or payment of any cash until the time (if ever) the RSUs have vested.
(b) The Company hereby grants to Participant, with respect to each RSU, a Dividend Equivalent for ordinary cash dividends paid to substantially all holders of outstanding Shares with a record date after the Grant Date and prior to the date the applicable RSU is settled, forfeited or otherwise expires. Each Dividend Equivalent entitles Participant to receive the equivalent value of any such ordinary cash dividends paid on a single Share. The Company will establish a separate Dividend Equivalent bookkeeping account (a Dividend Equivalent Account) for each Dividend Equivalent and credit the Dividend Equivalent Account (without interest) on the applicable dividend payment date with the amount of any such cash paid.
1.2 Incorporation of Terms of Plan. The RSUs are subject to the terms and conditions set forth in this Agreement and the Plan, which is incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan will control.
1.3 Unsecured Promise. The RSUs and Dividend Equivalents will at all times prior to settlement represent an unsecured Company obligation payable only from the Companys general assets.
ARTICLE II.
VESTING; FORFEITURE AND SETTLEMENT
2.1 Vesting; Forfeiture. The RSUs will vest according to the vesting schedule in the Grant Notice except that any fraction of an RSU that would otherwise be vested will be accumulated and will vest only when a whole RSU has accumulated. In the event of Participants Termination of Service for any reason, all unvested RSUs will immediately and automatically be cancelled and forfeited, except as otherwise determined by the Administrator or provided in a binding written agreement between Participant and the Company. Dividend Equivalents (including any Dividend Equivalent Account balance) will vest or be forfeited, as applicable, upon the vesting or forfeiture of the RSU with respect to which the Dividend Equivalent (including the Dividend Equivalent Account) relates.
2.2 Settlement.
(a) RSUs and Dividend Equivalents (including any Dividend Equivalent Account balance) will be paid in Shares or cash at the Companys option as soon as administratively practicable after the vesting of the applicable RSU, but in no event more than sixty (60) days after the RSUs vesting date. Notwithstanding the foregoing, the Company may delay any payment under this Agreement that the Company reasonably determines would violate Applicable Law until the earliest date the Company
reasonably determines the making of the payment will not cause such a violation (in accordance with Treasury Regulation Section 1.409A-2(b)(7)(ii)), provided the Company reasonably believes the delay will not result in the imposition of excise taxes under Section 409A.
(b) If an RSU is paid in cash, the amount of cash paid with respect to the RSU will equal the Fair Market Value of a Share on the day immediately preceding the payment date. If a Dividend Equivalent is paid in Shares, the number of Shares paid with respect to the Dividend Equivalent will equal the quotient, rounded down to the nearest whole Share, of the Dividend Equivalent Account balance divided by the Fair Market Value of a Share on the day immediately preceding the payment date.
ARTICLE III.
TAXATION AND TAX WITHHOLDING
3.1 Representation. Participant represents to the Company that Participant has reviewed with Participants own tax advisors the tax consequences of this Award and the transactions contemplated by the Grant Notice and this Agreement. Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents.
3.2 Tax Withholding.
(a) The Company has the right and option, but not the obligation, to treat Participants failure to provide timely payment in accordance with the Plan of any withholding tax arising in connection with the RSUs or Dividend Equivalents as Participants election to satisfy all or any portion of the withholding tax by requesting the Company retain Shares otherwise issuable under the Award.
(b) Participant acknowledges that Participant is ultimately liable and responsible for all taxes owed in connection with the RSUs and the Dividend Equivalents, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the RSUs or Dividend Equivalents. Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or payment of the RSUs or the Dividend Equivalents or the subsequent sale of Shares. The Company and the Subsidiaries do not commit and are under no obligation to structure the RSUs or Dividend Equivalents to reduce or eliminate Participants tax liability.
ARTICLE IV.
OTHER PROVISIONS
4.1 Adjustments. Participant acknowledges that the RSUs, the Shares subject to the RSUs and the Dividend Equivalents are subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan.
4.2 Notices. Any notice to be given under the terms of this Agreement to the Company must be in writing and addressed to the Company in care of the Companys Secretary at the Companys principal office or the Secretarys then-current email address or facsimile number. Any notice to be given under the terms of this Agreement to Participant must be in writing and addressed to Participant at Participants last known mailing address, email address or facsimile number in the Companys personnel files. By a notice given pursuant to this Section, either party may designate a different address for notices to be given to that party. Any notice will be deemed duly given when actually received, when sent by email, when sent by certified mail (return receipt requested) and deposited with postage prepaid in a post office or branch post office regularly maintained by the United States Postal Service, when delivered by a nationally recognized express shipping company or upon receipt of a facsimile transmission confirmation.
4.3 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
4.4 Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all Applicable Laws and, to the extent Applicable Laws permit, will be deemed amended as necessary to conform to Applicable Laws.
4.5 Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement will inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in the Plan, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
4.6 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Grant Notice, this Agreement, the RSUs and the Dividend Equivalents will be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3) that are requirements for the application of such exemptive rule. To the extent Applicable Laws permit, this Agreement will be deemed amended as necessary to conform to such applicable exemptive rule.
4.7 Entire Agreement. The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.
4.8 Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held illegal or invalid, the provision will be severable from, and the illegality or invalidity of the provision will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.
4.9 Limitation on Participants Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and may not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant will have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the RSUs and Dividend Equivalents, and rights no greater than the right to receive cash or the Shares as a general unsecured creditor with respect to the RSUs and Dividend Equivalents, as and when settled pursuant to the terms of this Agreement.
4.10 Not a Contract of Employment. Nothing in the Plan, the Grant Notice or this Agreement confers upon Participant any right to continue in the employ or service of the Company or any Subsidiary or interferes with or restricts in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without Cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.
4.11 Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which will be deemed an original and all of which together will constitute one instrument.
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SELECTA BIOSCIENCES, INC.
2016 INCENTIVE AWARD PLAN
RESTRICTED STOCK GRANT NOTICE
Capitalized terms not specifically defined in this Restricted Stock Grant Notice (the Grant Notice) have the meanings given to them in the 2016 Incentive Award Plan (as amended from time to time, the Plan) of Selecta Biosciences, Inc. (the Company).
The Company has granted to the participant listed below (Participant) the shares of Restricted Stock described in this Grant Notice (the Restricted Shares), subject to the terms and conditions of the Plan and the Restricted Stock Agreement attached as Exhibit A (the Agreement), both of which are incorporated into this Grant Notice by reference.
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By Participants signature below, Participant agrees to be bound by the terms of this Grant Notice, the Plan and the Agreement. Participant has reviewed the Plan, this Grant Notice and the Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, this Grant Notice and the Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, this Grant Notice or the Agreement.
SELECTA BIOSCIENCES, INC. |
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Exhibit A
RESTRICTED STOCK AGREEMENT
Capitalized terms not specifically defined in this Agreement have the meanings specified in the Grant Notice or, if not defined in the Grant Notice, in the Plan.
ARTICLE I.
GENERAL
1.1 Issuance of Restricted Shares. The Company will issue the Restricted Shares to the Participant effective as of the grant date set forth in the Grant Notice and will cause (a) a stock certificate or certificates representing the Restricted Shares to be registered in Participants name or (b) the Restricted Shares to be held in book-entry form. If a stock certificate is issued, the certificate will be delivered to, and held in accordance with this Agreement by, the Company or its authorized representatives and will bear the restrictive legends required by this Agreement. If the Restricted Shares are held in book-entry form, then the book-entry will indicate that the Restricted Shares are subject to the restrictions of this Agreement.
1.2 Incorporation of Terms of Plan. The Restricted Shares are subject to the terms and conditions set forth in this Agreement and the Plan, which is incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan will control.
ARTICLE II.
VESTING, FORFEITURE AND ESCROW
2.1 Vesting. The Restricted Shares will become vested Shares (the Vested Shares) according to the vesting schedule in the Grant Notice except that any fraction of a Share that would otherwise become a Vested Share will be accumulated and will become a Vested Share only when a whole Vested Share has accumulated.
2.2 Forfeiture. In the event of Participants Termination of Service for any reason, Participant will immediately and automatically forfeit to the Company any Shares that are not Vested Shares (the Unvested Shares) at the time of Participants Termination of Service, except as otherwise determined by the Administrator or provided in a binding written agreement between Participant and the Company. Upon forfeiture of Unvested Shares, the Company will become the legal and beneficial owner of the Unvested Shares and all related interests and Participant will have no further rights with respect to the Unvested Shares.
2.3 Escrow.
(a) Unvested Shares will be held by the Company or its authorized representatives until (i) they are forfeited, (ii) they become Vested Shares or (iii) this Agreement is no longer in effect. By accepting this Award, Participant appoints the Company and its authorized representatives as Participants attorney(s)-in-fact to take all actions necessary to effect any transfer of forfeited Unvested Shares (and Retained Distributions (as defined below), if any, paid on such forfeited Unvested Shares) to the Company as may be required pursuant to the Plan or this Agreement and to execute such representations or other documents or assurances as the Company or such representatives deem necessary or advisable in connection with any such transfer. The Company, or its authorized representative, will not be liable for any good faith act or omission with respect to the holding in escrow or transfer of the Restricted Shares.
(b) All cash dividends and other distributions made or declared with respect to
Unvested Shares (Retained Distributions) will be held by the Company until the time (if ever) when the Unvested Shares to which such Retained Distributions relate become Vested Shares. The Company will establish a separate Retained Distribution bookkeeping account (Retained Distribution Account) for each Unvested Share with respect to which Retained Distributions have been made or declared in cash and credit the Retained Distribution Account (without interest) on the date of payment with the amount of such cash made or declared with respect to the Unvested Share. Retained Distributions (including any Retained Distribution Account balance) will immediately and automatically be forfeited upon forfeiture of the Unvested Share with respect to which the Retained Distributions were paid or declared.
(c) As soon as reasonably practicable following the date on which an Unvested Share becomes a Vested Share, the Company will (i) cause the certificate (or a new certificate without the legend required by this Agreement, if Participant so requests) representing the Share to be delivered to Participant or, if the Share is held in book-entry form, cause the notations indicating the Share is subject to the restrictions of this Agreement to be removed and (ii) pay to Participant the Retained Distributions relating to the Share.
2.4 Rights as Stockholder. Except as otherwise provided in this Agreement or the Plan, upon issuance of the Restricted Shares by the Company, Participant will have all the rights of a stockholder with respect to the Restricted Shares, including the right to vote the Restricted Shares and to receive dividends or other distributions paid or made with respect to the Restricted Shares.
ARTICLE III.
TAXATION AND TAX WITHHOLDING
3.1 Representation. Participant represents to the Company that Participant has reviewed with Participants own tax advisors the tax consequences of the Restricted Shares and the transactions contemplated by the Grant Notice and this Agreement. Participant is relying solely on such advisors and not on any statements or representations of the Company or any of its agents.
3.2 Section 83(b) Election. If Participant makes an election under Section 83(b) of the Code with respect to the Restricted Shares, Participant will deliver a copy of the election to the Company promptly after filing the election with the Internal Revenue Service.
3.3 Tax Withholding.
(a) The Company has the right and option, but not the obligation, to treat Participants failure to provide timely payment in accordance with the Plan of any withholding tax arising in connection with the Restricted Shares as Participants election to satisfy all or any portion of the withholding tax by requesting the Company retain Shares otherwise deliverable under the Award.
(b) Participant acknowledges that Participant is ultimately liable and responsible for all taxes owed in connection with the Restricted Shares, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the Restricted Shares. Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding, vesting or payment of the Restricted Shares or the subsequent sale of the Restricted Shares. The Company and the Subsidiaries do not commit and are under no obligation to structure this Award to reduce or eliminate Participants tax liability.
ARTICLE IV.
RESTRICTIVE LEGENDS AND TRANSFERABILITY
4.1 Legends. Any certificate representing a Restricted Share will bear the following legend until the Restricted Share becomes a Vested Share:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE IN FAVOR OF THE COMPANY AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A RESTRICTED STOCK AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
4.2 Transferability. The Restricted Shares and any Retained Distributions are subject to the restrictions on transfer in the Plan and may not be sold, assigned or transferred in any manner unless and until they become Vested Shares. Any attempted transfer or disposition of Unvested Shares or related Retained Distributions prior to the time the Unvested Shares become Vested Shares will be null and void. The Company will not be required to (a) transfer on its books any Restricted Share that has been sold or otherwise transferred in violation of this Agreement or (b) treat as owner of such Restricted Share or accord the right to vote or pay dividends to any purchaser or other transferee to whom such Restricted Share has been so transferred. The Company may issue appropriate stop transfer instructions to its transfer agent, if any, or make appropriate notations to the same effect in its records.
ARTICLE V.
OTHER PROVISIONS
5.1 Adjustments. Participant acknowledges that the Restricted Shares are subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan.
5.2 Notices. Any notice to be given under the terms of this Agreement to the Company must be in writing and addressed to the Company in care of the Companys Secretary at the Companys principal office or the Secretarys then-current email address or facsimile number. Any notice to be given under the terms of this Agreement to Participant must be in writing and addressed to Participant at Participants last known mailing address, email address or facsimile number in the Companys personnel files. By a notice given pursuant to this Section, either party may designate a different address for notices to be given to that party. Any notice will be deemed duly given when actually received, when sent by email, when sent by certified mail (return receipt requested) and deposited with postage prepaid in a post office or branch post office regularly maintained by the United States Postal Service, when delivered by a nationally recognized express shipping company or upon receipt of a facsimile transmission confirmation.
5.3 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
5.4 Conformity to Securities Laws. Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all Applicable Laws and, to the extent Applicable Laws permit, will be deemed amended as necessary to conform to Applicable Laws.
5.5 Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement will inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in this Agreement or the
Plan, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
5.6 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Grant Notice, this Agreement and the Restricted Shares will be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3) that are requirements for the application of such exemptive rule. To the extent Applicable Laws permit, this Agreement will be deemed amended as necessary to conform to such applicable exemptive rule.
5.7 Entire Agreement. The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.
5.8 Agreement Severable. In the event that any provision of the Grant Notice or this Agreement is held illegal or invalid, the provision will be severable from, and the illegality or invalidity of the provision will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.
5.9 Limitation on Participants Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and may not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant will have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the Award.
5.10 Not a Contract of Employment. Nothing in the Plan, the Grant Notice or this Agreement confers upon Participant any right to continue in the employ or service of the Company or any Subsidiary or interferes with or restricts in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.
5.11 Counterparts. The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which will be deemed an original and all of which together will constitute one instrument.
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Exhibit 10.3
SELECTA BIOSCIENCES, INC.
2016 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I.
PURPOSE
The purposes of this Selecta Biosciences, Inc. 2016 Employee Stock Purchase Plan (as it may be amended or restated from time to time, the Plan) are to assist Eligible Employees of Selecta Biosciences, Inc., a Delaware corporation (the Company), and its Designated Subsidiaries in acquiring a stock ownership interest in the Company pursuant to a plan which is intended to qualify as an employee stock purchase plan within the meaning of Section 423(b) of the Code, and to help Eligible Employees provide for their future security and to encourage them to remain in the employment of the Company and its Designated Subsidiaries.
ARTICLE II.
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates. Masculine, feminine and neuter pronouns are used interchangeably and each comprehends the others.
2.1 Administrator shall mean the entity that conducts the general administration of the Plan as provided in Article XI. The term Administrator shall refer to the Committee unless the Board has assumed the authority for administration of the Plan as provided in Article XI.
2.2 Applicable Law shall mean the requirements relating to the administration of equity incentive plans under U.S. federal and state securities, tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where rights under this Plan are granted.
2.3 Board shall mean the Board of Directors of the Company.
2.4 Change in Control shall mean and include each of the following:
(a) A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any person or related group of persons (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained by the Company or any of its Subsidiaries or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Companys securities outstanding immediately after such acquisition; or
(b) During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in
subsections (a) or (c)) whose election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(c) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Companys assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(i) which results in the Companys voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Companys assets or otherwise succeeds to the business of the Company (the Company or such person, the Successor Entity)) directly or indirectly, at least a majority of the combined voting power of the Successor Entitys outstanding voting securities immediately after the transaction, and
(ii) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.
The Administrator shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto.
2.5 Code shall mean the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.
2.6 Common Stock shall mean the common stock of the Company.
2.7 Company shall mean Selecta Biosciences, Inc., a Delaware corporation, or any successor.
2.8 Compensation of an Eligible Employee shall mean the gross base compensation received by such Eligible Employee as compensation for services to the Company or any Designated Subsidiary, including overtime payments and excluding sales commissions, incentive compensation, bonuses, expense reimbursements, fringe benefits and other special payments.
2.9 Designated Subsidiary shall mean any Subsidiary designated by the Administrator in accordance with Section 11.3(b).
2.10 Effective Date shall mean the day prior to the Public Trading Date.
2.11 Eligible Employee shall mean an Employee: (a) who does not, immediately after any rights under this Plan are granted, own (directly or through attribution) stock possessing 5% or more of the total combined voting power or value of all classes of Common Stock and other stock of the
Company, a Parent or a Subsidiary (as determined under Section 423(b)(3) of the Code); (b) whose customary employment is for more than twenty hours per week; and (c) whose customary employment is for more than five months in any calendar year. For purposes of the foregoing, the rules of Section 424(d) of the Code with regard to the attribution of stock ownership shall apply in determining the stock ownership of an individual, and stock that an Employee may purchase under outstanding options shall be treated as stock owned by the Employee; provided, however, that the Administrator may provide in an Offering Document that an Employee shall not be eligible to participate in an Offering Period if: (i) such Employee is a highly compensated employee within the meaning of Section 423(b)(4)(D) of the Code; and/or (ii) such Employee has not met a service requirement designated by the Administrator pursuant to Section 423(b)(4)(A) of the Code (which service requirement may not exceed two years), and/or (iii) such Employee is a citizen or resident of a foreign jurisdiction and the grant of a right to purchase Common Stock under the Plan to such Employee would be prohibited under the laws of such foreign jurisdiction or the grant of a right to purchase Common Stock under the Plan to such Employee in compliance with the laws of such foreign jurisdiction would cause the Plan to violate the requirements of Section 423 of the Code, as determined by the Administrator in its sole discretion; provided, further, that any exclusion in clauses (i), (ii) or (iii) shall be applied in an identical manner under each Offering Period to all Employees, in accordance with Treasury Regulation Section 1.423-2(e).
2.12 Employee shall mean any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Designated Subsidiary. Employee shall not include any director of the Company or a Designated Subsidiary who does not render services to the Company or a Designated Subsidiary as an employee within the meaning of Section 3401(c) of the Code. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company or Designated Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-1(h)(2). Where the period of leave exceeds three (3) months and the individuals right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the first day immediately following such three (3)-month period.
2.13 Enrollment Date shall mean the first Trading Day of each Offering Period.
2.14 Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
2.15 Fair Market Value means, as of any date, the value of Common Stock determined as follows: (i) if the Common Stock is listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Common Stock as quoted on such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; (ii) if the Common Stock is not traded on a stock exchange but is quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; or (iii) without an established market for the Common Stock, the Administrator will determine the Fair Market Value in its discretion.
2.16 Offering Document shall have the meaning given to such term in Section 4.1.
2.17 Offering Period shall have the meaning given to such term in Section 4.1.
2.18 Parent shall mean any corporation, other than the Company, in an unbroken chain of corporations ending with the Company if, at the time of the determination, each of the corporations other
than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
2.19 Participant shall mean any Eligible Employee who has executed a subscription agreement and been granted rights to purchase Common Stock pursuant to the Plan.
2.20 Plan shall mean this 2016 Employee Stock Purchase Plan.
2.21 Public Trading Date shall mean the first date upon which the Common Stock is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system, or, if earlier, the date on which the Company becomes a publicly held corporation for purposes of Treasury Regulation Section 1.162-27(c)(1).
2.22 Purchase Date shall mean the last Trading Day of each Offering Period.
2.23 Purchase Price shall mean the purchase price designated by the Administrator in the applicable Offering Document (which purchase price shall not be less than 85% of the Fair Market Value of a Share on the Enrollment Date or on the Purchase Date, whichever is lower); provided, however, that, in the event no purchase price is designated by the Administrator in the applicable Offering Document, the purchase price for the Offering Periods covered by such Offering Document shall be 85% of the Fair Market Value of a Share on the Enrollment Date or on the Purchase Date, whichever is lower; provided, further, that the Purchase Price may be adjusted by the Administrator pursuant to Article VIII and shall not be less than the par value of a Share.
2.24 Securities Act shall mean the Securities Act of 1933, as amended.
2.25 Share shall mean a share of Common Stock.
2.26 Subsidiary shall mean any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company if, at the time of the determination, each of the corporations other than the last corporation in an unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain; provided, however, that a limited liability company or partnership may be treated as a Subsidiary to the extent either (a) such entity is treated as a disregarded entity under Treasury Regulation Section 301.7701-3(a) by reason of the Company or any other Subsidiary that is a corporation being the sole owner of such entity, or (b) such entity elects to be classified as a corporation under Treasury Regulation Section 301.7701-3(a) and such entity would otherwise qualify as a Subsidiary.
2.25 Trading Day shall mean a day on which national stock exchanges in the United States are open for trading.
ARTICLE III.
SHARES SUBJECT TO THE PLAN
3.1 Number of Shares. Subject to Article VIII, the aggregate number of Shares that may be issued pursuant to rights granted under the Plan shall be 173,076 Shares. In addition to the foregoing, subject to Article VIII, on the first day of each calendar year beginning on January 1, 2017 and ending on and including January 1, 2026, the number of Shares available for issuance under the Plan shall be increased by that number of Shares 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 determined by
the Board. If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for issuance under the Plan. Notwithstanding anything in this Section 3.1 to the contrary, the number of Shares that may be issued or transferred pursuant to the rights granted under the Plan shall not exceed an aggregate of 1,903,846 Shares, subject to Article VIII.
3.2 Stock Distributed. Any Common Stock distributed pursuant to the Plan may consist, in whole or in part, of authorized and unissued Common Stock, treasury stock or Common Stock purchased on the open market.
ARTICLE IV.
OFFERING PERIODS; OFFERING DOCUMENTS; PURCHASE DATES
4.1 Offering Periods. The Administrator may from time to time grant or provide for the grant of rights to purchase Common Stock under the Plan to Eligible Employees during one or more periods (each, an Offering Period) selected by the Administrator. The terms and conditions applicable to each Offering Period shall be set forth in an Offering Document adopted by the Administrator, which Offering Document shall be in such form and shall contain such terms and conditions as the Administrator shall deem appropriate and shall be incorporated by reference into and made part of the Plan and shall be attached hereto as part of the Plan. The provisions of separate Offering Periods under the Plan need not be identical.
4.2 Offering Documents. Each Offering Document with respect to an Offering Period shall specify (through incorporation of the provisions of this Plan by reference or otherwise):
(a) the length of the Offering Period, which period shall not exceed twenty-seven months;
(b) the maximum number of Shares that may be purchased by any Eligible Employee during such Offering Period, which, in the absence of a contrary designation by the Administrator, shall be 6,410 Shares; and
(c) such other provisions as the Administrator determines are appropriate, subject to the Plan.
ARTICLE V.
ELIGIBILITY AND PARTICIPATION
5.1 Eligibility. Any Eligible Employee who shall be employed by the Company or a Designated Subsidiary on a given Enrollment Date for an Offering Period shall be eligible to participate in the Plan during such Offering Period, subject to the requirements of this Article V and the limitations imposed by Section 423(b) of the Code.
5.2 Enrollment in Plan.
(a) Except as otherwise set forth in an Offering Document or determined by the Administrator, an Eligible Employee may become a Participant in the Plan for an Offering Period by delivering a subscription agreement to the Company by such time prior to the Enrollment Date for such Offering Period (or such other date specified in the Offering Document) designated by the Administrator and in such form as the Company provides.
(b) Each subscription agreement shall designate a whole percentage of such Eligible Employees Compensation to be withheld by the Company or the Designated Subsidiary employing such Eligible Employee on each payday during the Offering Period as payroll deductions under the Plan. The percentage of Compensation designated by an Eligible Employee may not be less than 1% and may not be more than the maximum percentage specified by the Administrator in the applicable Offering Document (which percentage shall be 25% in the absence of any such designation) as payroll deductions. The payroll deductions made for each Participant shall be credited to an account for such Participant under the Plan and shall be deposited with the general funds of the Company.
(c) A Participant may increase or decrease the percentage of Compensation designated in his or her subscription agreement, subject to the limits of this Section 5.2, or may suspend his or her payroll deductions, at any time during an Offering Period; provided, however, that the Administrator may limit the number of changes a Participant may make to his or her payroll deduction elections during each Offering Period in the applicable Offering Document (and in the absence of any specific designation by the Administrator, a Participant shall be allowed one change to his or her payroll deduction elections during each Offering Period). Any such change or suspension of payroll deductions shall be effective with the first full payroll period following five business days after the Companys receipt of the new subscription agreement (or such shorter or longer period as may be specified by the Administrator in the applicable Offering Document). In the event a Participant suspends his or her payroll deductions, such Participants cumulative payroll deductions prior to the suspension shall remain in his or her account and shall be applied to the purchase of Shares on the next occurring Purchase Date and shall not be paid to such Participant unless he or she withdraws from participation in the Plan pursuant to Article VII.
(d) Except as otherwise set forth in an Offering Document or determined by the Administrator, a Participant may participate in the Plan only by means of payroll deduction and may not make contributions by lump sum payment for any Offering Period.
5.3 Payroll Deductions. Except as otherwise provided in the applicable Offering Document, payroll deductions for a Participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which the Participants authorization is applicable, unless sooner terminated by the Participant as provided in Article VII or suspended by the Participant or the Administrator as provided in Section 5.2 and Section 5.6, respectively.
5.4 Effect of Enrollment. A Participants completion of a subscription agreement will enroll such Participant in the Plan for each subsequent Offering Period on the terms contained therein until the Participant either submits a new subscription agreement, withdraws from participation under the Plan as provided in Article VII or otherwise becomes ineligible to participate in the Plan.
5.5 Limitation on Purchase of Common Stock. An Eligible Employee may be granted rights under the Plan only if such rights, together with any other rights granted to such Eligible Employee under employee stock purchase plans of the Company, any Parent or any Subsidiary, as specified by Section 423(b)(8) of the Code, do not permit such employees rights to purchase stock of the Company or any Parent or Subsidiary to accrue at a rate that exceeds $25,000 of the fair market value of such stock (determined as of the first day of the Offering Period during which such rights are granted) for each calendar year in which such rights are outstanding at any time. This limitation shall be applied in accordance with Section 423(b)(8) of the Code.
5.6 Decrease or Suspension of Payroll Deductions. Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 5.5 or the other limitations set forth in this Plan, a Participants payroll deductions may be suspended by the Administrator at any
time during an Offering Period. The balance of the amount credited to the account of each Participant that has not been applied to the purchase of Shares by reason of Section 423(b)(8) of the Code, Section 5.5 or the other limitations set forth in this Plan shall be paid to such Participant in one lump sum in cash as soon as reasonably practicable after the Purchase Date.
5.7 Foreign Employees. In order to facilitate participation in the Plan, the Administrator may provide for such special terms applicable to Participants who are citizens or residents of a foreign jurisdiction, or who are employed by a Designated Subsidiary outside of the United States, as the Administrator may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Such special terms may not be more favorable than the terms of rights granted under the Plan to Eligible Employees who are residents of the United States. Moreover, the Administrator may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of this Plan as in effect for any other purpose. No such special terms, supplements, amendments or restatements shall include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been amended to eliminate such inconsistency without further approval by the stockholders of the Company.
5.8 Leave of Absence. During leaves of absence approved by the Company meeting the requirements of Treasury Regulation Section 1.421-1(h)(2) under the Code, a Participant may continue participation in the Plan by making cash payments to the Company on his or her normal payday equal to his or her authorized payroll deduction.
ARTICLE VI.
GRANT AND EXERCISE OF RIGHTS
6.1 Grant of Rights. On the Enrollment Date of each Offering Period, each Eligible Employee participating in such Offering Period shall be granted a right to purchase the maximum number of Shares specified under Section 4.2, subject to the limits in Section 5.5, and shall have the right to buy, on each Purchase Date during such Offering Period (at the applicable Purchase Price), such number of whole Shares as is determined by dividing (a) such Participants payroll deductions accumulated prior to such Purchase Date and retained in the Participants account as of the Purchase Date, by (b) the applicable Purchase Price (rounded down to the nearest Share). The right shall expire on the last day of the Offering Period.
6.2 Exercise of Rights. On each Purchase Date, each Participants accumulated payroll deductions and any other additional payments specifically provided for in the applicable Offering Document will be applied to the purchase of whole Shares, up to the maximum number of Shares permitted pursuant to the terms of the Plan and the applicable Offering Document, at the Purchase Price. No fractional Shares shall be issued upon the exercise of rights granted under the Plan, unless the Offering Document specifically provides otherwise. Any cash in lieu of fractional Shares remaining after the purchase of whole Shares upon exercise of a purchase right will be credited to a Participants account and carried forward and applied toward the purchase of whole Shares for the next following Offering Period. Shares issued pursuant to the Plan may be evidenced in such manner as the Administrator may determine and may be issued in certificated form or issued pursuant to book-entry procedures.
6.3 Pro Rata Allocation of Shares. If the Administrator determines that, on a given Purchase Date, the number of Shares with respect to which rights are to be exercised may exceed (a) the number of Shares that were available for issuance under the Plan on the Enrollment Date of the applicable Offering Period, or (b) the number of Shares available for issuance under the Plan on such Purchase Date, the Administrator may in its sole discretion provide that the Company shall make a pro rata
allocation of the Shares available for purchase on such Enrollment Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all Participants for whom rights to purchase Common Stock are to be exercised pursuant to this Article VI on such Purchase Date, and shall either (i) continue all Offering Periods then in effect, or (ii) terminate any or all Offering Periods then in effect pursuant to Article IX. The Company may make pro rata allocation of the Shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for issuance under the Plan by the Companys stockholders subsequent to such Enrollment Date. The balance of the amount credited to the account of each Participant that has not been applied to the purchase of Shares shall be paid to such Participant in one lump sum in cash as soon as reasonably practicable after the Purchase Date.
6.4 Withholding. At the time a Participants rights under the Plan are exercised, in whole or in part, or at the time some or all of the Common Stock issued under the Plan is disposed of, the Participant must make adequate provision for the Companys federal, state, or other tax withholding obligations, if any, that arise upon the exercise of the right or the disposition of the Common Stock. At any time, the Company may, but shall not be obligated to, withhold from the Participants compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Participant.
6.5 Conditions to Issuance of Common Stock. The Company shall not be required to issue or deliver any certificate or certificates for, or make any book entries evidencing, Shares purchased upon the exercise of rights under the Plan prior to fulfillment of all of the following conditions:
(a) The admission of such Shares to listing on all stock exchanges, if any, on which the Common Stock is then listed;
(b) The completion of any registration or other qualification of such Shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, that the Administrator shall, in its absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any state or federal governmental agency that the Administrator shall, in its absolute discretion, determine to be necessary or advisable;
(d) The payment to the Company of all amounts that it is required to withhold under federal, state or local law upon exercise of the rights, if any; and
(e) The lapse of such reasonable period of time following the exercise of the rights as the Administrator may from time to time establish for reasons of administrative convenience.
ARTICLE VII.
WITHDRAWAL; CESSATION OF ELIGIBILITY
7.1 Withdrawal. A Participant may withdraw all but not less than all of the payroll deductions credited to his or her account and not yet used to exercise his or her rights under the Plan at any time by giving written notice to the Company in a form acceptable to the Company no later than one week prior to the end of the Offering Period. All of the Participants payroll deductions credited to his or her account during an Offering Period shall be paid to such Participant as soon as reasonably practicable
after receipt of notice of withdrawal and such Participants rights for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of Shares shall be made for such Offering Period. If a Participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the next Offering Period unless the Participant timely delivers to the Company a new subscription agreement.
7.2 Future Participation. A Participants withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan that may hereafter be adopted by the Company or a Designated Subsidiary or in subsequent Offering Periods that commence after the termination of the Offering Period from which the Participant withdraws.
7.3 Cessation of Eligibility. Upon a Participants ceasing to be an Eligible Employee for any reason, he or she shall be deemed to have elected to withdraw from the Plan pursuant to this Article VII and the payroll deductions credited to such Participants account during the Offering Period shall be paid to such Participant or, in the case of his or her death, to the person or persons entitled thereto under Section 12.4, as soon as reasonably practicable, and such Participants rights for the Offering Period shall be automatically terminated.
ARTICLE VIII.
ADJUSTMENTS UPON CHANGES IN STOCK
8.1 Changes in Capitalization. Subject to Section 8.3, in the event that the Administrator determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), Change in Control, reorganization, merger, amalgamation, consolidation, combination, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, as determined by the Administrator, affects the Common Stock such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any outstanding purchase rights under the Plan, the Administrator shall make equitable adjustments, if any, to reflect such change with respect to (a) the aggregate number and type of Shares (or other securities or property) that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1 and the limitations established in each Offering Document pursuant to Section 4.2 on the maximum number of Shares that may be purchased); (b) the class(es) and number of Shares and price per Share subject to outstanding rights; and (c) the Purchase Price with respect to any outstanding rights.
8.2 Other Adjustments. Subject to Section 8.3, in the event of any transaction or event described in Section 8.1 or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate (including without limitation any Change in Control), or of changes in Applicable Law or accounting principles, the Administrator, in its discretion, and on such terms and conditions as it deems appropriate, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent the dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any right under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:
(a) To provide for either (i) termination of any outstanding right in exchange for an amount of cash, if any, equal to the amount that would have been obtained upon the exercise of such right
had such right been currently exercisable or (ii) the replacement of such outstanding right with other rights or property selected by the Administrator in its sole discretion;
(b) To provide that the outstanding rights under the Plan shall be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar rights covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;
(c) To make adjustments in the number and type of Shares (or other securities or property) subject to outstanding rights under the Plan and/or in the terms and conditions of outstanding rights and rights that may be granted in the future;
(d) To provide that Participants accumulated payroll deductions may be used to purchase Common Stock prior to the next occurring Purchase Date on such date as the Administrator determines in its sole discretion and the Participants rights under the ongoing Offering Period(s) shall be terminated; and
(e) To provide that all outstanding rights shall terminate without being exercised.
8.3 No Adjustment Under Certain Circumstances. No adjustment or action described in this Article VIII or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to fail to satisfy the requirements of Section 423 of the Code.
8.4 No Other Rights. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Administrator under the Plan, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to outstanding rights under the Plan or the Purchase Price with respect to any outstanding rights.
ARTICLE IX.
AMENDMENT, MODIFICATION AND TERMINATION
9.1 Amendment, Modification and Termination. The Administrator may amend, suspend or terminate the Plan at any time and from time to time; provided, however, that approval of the Companys stockholders shall be required to amend the Plan to: (a) increase the aggregate number, or change the type, of shares that may be sold pursuant to rights under the Plan under Section 3.1 (other than an adjustment as provided by Article VIII); (b) change the corporations or classes of corporations whose employees may be granted rights under the Plan; or (c) change the Plan in any manner that would cause the Plan to no longer be an employee stock purchase plan within the meaning of Section 423(b) of the Code.
9.2 Certain Changes to Plan. Without stockholder consent and without regard to whether any Participant rights may be considered to have been adversely affected, to the extent permitted by Section 423 of the Code, the Administrator shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld from Compensation during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Companys processing of withholding elections, establish reasonable waiting and
adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participants Compensation, and establish such other limitations or procedures as the Administrator determines in its sole discretion to be advisable that are consistent with the Plan.
9.3 Actions In the Event of Unfavorable Financial Accounting Consequences. In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:
(a) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price;
(b) shortening any Offering Period so that the Offering Period ends on a new Purchase Date, including an Offering Period underway at the time of the Administrator action; and
(c) allocating Shares.
Such modifications or amendments shall not require stockholder approval or the consent of any Participant.
9.4 Payments Upon Termination of Plan. Upon termination of the Plan, the balance in each Participants Plan account shall be refunded as soon as practicable after such termination, without any interest thereon.
ARTICLE X.
TERM OF PLAN
The Plan shall be effective on the Effective Date. The effectiveness of the Plan shall be subject to approval of the Plan by the stockholders of the Company within twelve months following the date the Plan is first approved by the Board. No right may be granted under the Plan prior to such stockholder approval. No rights may be granted under the Plan during any period of suspension of the Plan or after termination of the Plan.
ARTICLE XI.
ADMINISTRATION
11.1 Administrator. Unless otherwise determined by the Board, the Administrator of the Plan shall be the Compensation Committee of the Board (or another committee or a subcommittee of the Board to which the Board delegates administration of the Plan) (such committee, the Committee). The Board may at any time vest in the Board any authority or duties for administration of the Plan.
11.2 Action by the Administrator. Unless otherwise established by the Board or in any charter of the Administrator, a majority of the Administrator shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present and, subject to Applicable Law and the Bylaws of the Company, acts approved in writing by a majority of the Administrator in lieu of a meeting, shall be deemed the acts of the Administrator. Each member of the Administrator is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Designated Subsidiary, the Companys independent certified
public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.
11.3 Authority of Administrator. The Administrator shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(a) To determine when and how rights to purchase Common Stock shall be granted and the provisions of each offering of such rights (which need not be identical).
(b) To designate from time to time which Subsidiaries of the Company shall be Designated Subsidiaries, which designation may be made without the approval of the stockholders of the Company.
(c) To construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Administrator, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.
(d) To amend, suspend or terminate the Plan as provided in Article IX.
(e) Generally, to exercise such powers and to perform such acts as the Administrator deems necessary or expedient to promote the best interests of the Company and its Subsidiaries and to carry out the intent that the Plan be treated as an employee stock purchase plan within the meaning of Section 423 of the Code.
11.4 Decisions Binding. The Administrators interpretation of the Plan, any rights granted pursuant to the Plan, any subscription agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding, and conclusive on all parties.
ARTICLE XII.
MISCELLANEOUS
12.1 Restriction upon Assignment. A right granted under the Plan shall not be transferable other than by will or the applicable laws of descent and distribution, and is exercisable during the Participants lifetime only by the Participant. Except as provided in Section 12.4 hereof, a right under the Plan may not be exercised to any extent except by the Participant. The Company shall not recognize and shall be under no duty to recognize any assignment or alienation of the Participants interest in the Plan, the Participants rights under the Plan or any rights thereunder.
12.2 Rights as a Stockholder. With respect to Shares subject to a right granted under the Plan, a Participant shall not be deemed to be a stockholder of the Company, and the Participant shall not have any of the rights or privileges of a stockholder, until such Shares have been issued to the Participant or his or her nominee following exercise of the Participants rights under the Plan. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash securities, or other property) or distribution or other rights for which the record date occurs prior to the date of such issuance, except as otherwise expressly provided herein or as determined by the Administrator.
12.3 Interest. No interest shall accrue on the payroll deductions or contributions of a Participant under the Plan.
12.4 Designation of Beneficiary.
(a) A Participant may, in the manner determined by the Administrator, file a written designation of a beneficiary who is to receive any Shares and/or cash, if any, from the Participants account under the Plan in the event of such Participants death subsequent to a Purchase Date on which the Participants rights are exercised but prior to delivery to such Participant of such Shares and cash. In addition, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participants account under the Plan in the event of such Participants death prior to exercise of the Participants rights under the Plan. If the Participant is married and resides in a community property state, a designation of a person other than the Participants spouse as his or her beneficiary shall not be effective without the prior written consent of the Participants spouse.
(b) Such designation of beneficiary may be changed by the Participant at any time by written notice to the Company. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participants death, the Company shall deliver such Shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
12.5 Notices. All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
12.6 Equal Rights and Privileges. Subject to Section 5.7, all Eligible Employees will have equal rights and privileges under this Plan so that this Plan qualifies as an employee stock purchase plan within the meaning of Section 423 of the Code. Subject to Section 5.7, any provision of this Plan that is inconsistent with Section 423 of the Code will, without further act or amendment by the Company, the Board or the Administrator, be reformed to comply with the equal rights and privileges requirement of Section 423 of the Code.
12.7 Use of Funds. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.
12.8 Reports. Statements of account shall be given to Participants at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of Shares purchased and the remaining cash balance, if any.
12.9 No Employment Rights. Nothing in the Plan shall be construed to give any person (including any Eligible Employee or Participant) the right to remain in the employ of the Company or any Parent or Subsidiary or affect the right of the Company or any Parent or Subsidiary to terminate the employment of any person (including any Eligible Employee or Participant) at any time, with or without cause.
12.10 Notice of Disposition of Shares. Each Participant shall give prompt notice to the Company of any disposition or other transfer of any Shares purchased upon exercise of a right under the Plan if such disposition or transfer is made: (a) within two years from the Enrollment Date of the Offering Period in which the Shares were purchased or (b) within one year after the Purchase Date on which such Shares were purchased. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by the Participant in such disposition or other transfer.
12.11 Governing Law. The Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof or of any other jurisdiction.
12.12 Electronic Forms. To the extent permitted by Applicable Law and in the discretion of the Administrator, an Eligible Employee may submit any form or notice as set forth herein by means of an electronic form approved by the Administrator. Before the commencement of an Offering Period, the Administrator shall prescribe the time limits within which any such electronic form shall be submitted to the Administrator with respect to such Offering Period in order to be a valid election.
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EXHIBIT 10.4
SELECTA BIOSCIENCES, INC.
NON-EMPLOYEE DIRECTOR COMPENSATION PROGRAM
Non-employee members of the board of directors (the Board) of Selecta Biosciences, Inc. (the Company) shall receive cash and equity compensation as set forth in this Non-Employee Director Compensation Program (this Program). The cash and equity compensation described in this Program shall be paid or be made, as applicable, automatically and without further action of the Board, to each member of the Board who is not an employee of the Company or any parent or subsidiary of the Company (each, a Non-Employee Director) who is entitled to receive such cash or equity compensation, unless such Non-Employee Director declines the receipt of such cash or equity compensation by written notice to the Company. This Program shall remain in effect until it is revised or rescinded by further action of the Board. This Program may be amended, modified or terminated by the Board at any time in its sole discretion. The terms and conditions of this Program shall supersede any prior cash and/or equity compensation arrangements for service as a member of the Board between the Company and any of its Non-Employee Directors. No Non-Employee Director shall have any rights hereunder, except with respect to stock options granted pursuant to the Program. This Program shall become effective on the date of the effectiveness of the Companys Registration Statement on Form S-1 relating to the initial public offering of common stock (the Effective Date).
I. CASH COMPENSATION
A. Annual Retainers. Each Non-Employee Director shall receive an annual retainer of $35,000 for service on the Board.
B. Additional Annual Retainers. In addition, each Non-Employee Director shall receive the following annual retainers:
1. Chairman of the Board or Lead Independent Director. A Non-Employee Director serving as Chairman of the Board or Lead Independent Director shall receive an additional annual retainer of $15,000 for such service.
2. Audit Committee. A Non-Employee Director serving as Chairperson of the Audit Committee shall receive an additional annual retainer of $15,000 for such service. A Non-Employee Director serving as a member other than the Chairperson of the Audit Committee shall receive an additional annual retainer of $7,500 for such service.
3. Compensation Committee. A Non-Employee Director serving as Chairperson of the Compensation Committee shall receive an additional annual retainer of $10,000 for such service. A Non-Employee Director serving as a member other than the Chairperson of the Compensation Committee shall receive an additional annual retainer of $5,000 for such service.
4. Nominating and Corporate Governance Committee. A Non-Employee Director serving as Chairperson of the Nominating and Corporate Governance Committee shall receive an additional annual retainer of $7,500 for such service. A Non-
Employee Director serving as a member other than the Chairperson of the Nominating and Corporate Governance Committee shall receive an additional annual retainer of $3,500 for such service.
C. Payment of Retainers. The annual retainers described in Sections I(A) and I(B) shall be earned on a quarterly basis based on a calendar quarter and shall be paid in cash by the Company in arrears not later than the fifteenth day following the end of each calendar quarter. In the event a Non-Employee Director does not serve as a Non-Employee Director, or in the applicable positions described in Section I(B), for an entire calendar quarter, the retainer paid to such Non-Employee Director shall be prorated for the portion of such calendar quarter actually served as a Non-Employee Director, or in such position, as applicable.
II. EQUITY COMPENSATION
Non-Employee Directors shall be granted the equity awards described below. The awards described below shall be granted under and shall be subject to the terms and provisions of the Companys 2016 Incentive Award Plan or any other applicable Company equity incentive plan then-maintained by the Company (the Equity Plan) and shall be granted subject to award agreements, including attached exhibits, in substantially the form previously approved by the Board. All applicable terms of the Equity Plan apply to this Program as if fully set forth herein, and all grants of stock options hereby are subject in all respects to the terms of the Equity Plan and the applicable award agreement. For the avoidance of doubt, the share numbers in Sections II(A) and II(B) shall be subject to adjustment as provided in the Equity Plan, including without limitation with respect to any stock dividend, stock split, reverse stock split or other similar event affecting the Companys common stock that is effected prior to the Effective Date.
A. Initial Awards. Each Non-Employee Director who is initially elected or appointed to the Board after the Effective Date shall receive an option to purchase 12,820 shares of the Companys common stock on the date of such initial election or appointment. The awards described in this Section II(A) shall be referred to as Initial Awards. No Non-Employee Director shall be granted more than one Initial Award.
B. Subsequent Awards. A Non-Employee Director who (i) has been serving as a Non-Employee Director on the Board for at least six months as of the date of any annual meeting of the Companys stockholders after the Effective Date and (ii) will continue to serve as a Non-Employee Director immediately following such meeting, shall be automatically granted an option to purchase 6,410 shares of the Companys common stock on the date of such annual meeting. The awards described in this Section II(B) shall be referred to as Subsequent Awards. For the avoidance of doubt, a Non-Employee Director elected for the first time to the Board at an annual meeting of the Companys stockholders shall only receive an Initial Award in connection with such election, and shall not receive any Subsequent Award on the date of such meeting as well.
C. Termination of Employment of Employee Directors. Members of the Board who are employees of the Company or any parent or subsidiary of the Company who subsequently terminate their employment with the Company and any parent or subsidiary of the Company and remain on the Board will not receive an Initial Award pursuant to Section II(A)
above, but to the extent that they are otherwise entitled, will receive, after termination from employment with the Company and any parent or subsidiary of the Company, Subsequent Awards as described in Section II(B) above.
D. Terms of Awards Granted to Non-Employee Directors
1. Exercise Price. The per share exercise price of each option granted to a Non-Employee Director shall equal the Fair Market Value (as defined in the Equity Plan) of a share of common stock on the date the option is granted.
2. Vesting. Each Initial Award shall vest and become exercisable in thirty-six (36) substantially equal monthly installments following the date of grant, such that the Initial Award shall be fully vested on the third anniversary of the date of grant, subject to the Non-Employee Director continuing in service as a Non-Employee Director through each such vesting date. Each Subsequent Award shall vest and become exercisable on the earlier of the first anniversary of the date of grant or the day immediately prior to the date of the next annual meeting of the Companys stockholders occurring after the date of grant, in either case subject to the Non-Employee Director continuing in service on the Board as a Non-Employee Director through each such vesting date. Unless the Board otherwise determines, any portion of an Initial Award or Subsequent Award which is unvested or unexercisable at the time of a Non-Employee Directors termination of service on the Board as a Non-Employee Director shall be immediately forfeited upon such termination of service and shall not thereafter become vested and exercisable. All of a Non-Employee Directors Initial Awards and Subsequent Awards shall vest in full immediately prior to the occurrence of a Change in Control (as defined in the Equity Plan), to the extent outstanding at such time.
3. Term. The maximum term of each stock option granted to a Non-Employee Director hereunder shall be ten (10) years from the date the option is granted.
III. COMPENSATION LIMITS
Notwithstanding anything to the contrary in this Program, all compensation payable under this Program will be subject to any limits on the maximum amount of Non-Employee Director compensation set forth in the Equity Plan, as in effect from time to time.
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Exhibit 10.16
Summary of Oral Agreement
between
Dr. Omid Farokhzad and Selecta Biosciences, Inc.
During 2012, Selecta Biosciences, Inc. (the Company) agreed to pay Dr. Farokhzad $72,000 per year for consulting services (the Oral Agreement). The Oral Agreement was in addition to payments the Company agreed to make under that certain Consulting Agreement, dated as of March 10, 2008, by and between the Company and Dr. Farokhzad, as amended by the First Amendment to Consulting Agreement, dated as of January 1, 2012 (the Consulting Agreement). The Company and Dr. Farokhzad have agreed to terminate the Oral Agreement effective upon the closing of the initial public offering of the Companys common stock pursuant to the registration statement on Form S-1 (Reg. No. 333-211555). From and after the termination of the Oral Agreement, the Consulting Agreement will constitute the entire agreement between the Company and Dr. Farokhzad with respect to consulting services and supersede all other agreements and understandings prior to the date of thereof, both written and oral, between Dr. Farokhzad and the Company with respect to such subject matter.
Exhibit 10.17
Employment Agreement
This Employment Agreement (this Agreement), dated as of June 6, 2016, is made by and between Selecta Biosciences, Inc., a Delaware corporation (together with any successor thereto, the Company), and Werner Cautreels, Ph.D. (Executive) (collectively referred to as the Parties or individually referred to as a Party).
RECITALS
A. It is the desire of the Company to assure itself of the services of Executive following the Effective Date (as defined below) and thereafter by entering into this Agreement.
B. Executive and the Company mutually desire that Executive provide services to the Company on the terms herein provided.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the Parties hereto agree as follows:
1. Employment.
(a) General. Effective on the closing of the Companys initial public offering of stock pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the Effective Date), the Company shall employ Executive and Executive shall remain in the employ of the Company, for the period and in the positions set forth in this Section 1, and subject to the other terms and conditions herein provided.
(b) At-Will Employment. The Company and Executive acknowledge that Executives employment is and shall continue to be at-will, as defined under applicable law, and that Executives employment with the Company may be terminated by either Party at any time for any or no reason (subject to the notice requirements of Section 3(b)). This at-will nature of Executives employment shall remain unchanged during Executives tenure as an employee and may not be changed, except in an express writing signed by Executive and a duly authorized officer of the Company. If Executives employment terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement or otherwise agreed to in writing by the Company or as provided by applicable law. The term of this Agreement (the Term) shall commence on the Effective Date and end on the date this Agreement is terminated under Section 3.
(c) Positions and Duties. Executive shall serve as President and Chief Executive Officer of the Company with such responsibilities, duties and authority normally associated with such positions and as may from time to time be reasonably assigned to Executive by the Board of Directors of the Company or an authorized committee of the Board (in either case, the Board). Executive shall devote substantially all of Executives working time and efforts to the business and affairs of the Company (which shall include service to its affiliates, if applicable), provided that Executive may engage in outside business activities (including serving on outside boards or committees) to the extent such activities do not materially interfere with the performance of Executives duties and responsibilities under this Agreement or violate the terms of the Employee Nondisclosure, Noncompetition and Assignment of Intellectual Property Agreement attached as Exhibit B (the Restrictive Covenant Agreement). Executive agrees to observe and comply with the rules and policies of the Company as adopted by the Company from time to
time, in each case as amended from time to time, as set forth in writing, and as delivered or made available to Executive (each, a Policy).
2. Compensation and Related Matters.
(a) Annual Base Salary. During the Term, Executive shall receive a base salary at a rate of $425,000 per annum, which shall be paid in accordance with the customary payroll practices of the Company and shall be pro-rated for partial years of employment. Such annual base salary shall be reviewed (and may be increased) from time to time by the Board (such annual base salary, as it may be increased from time to time, the Annual Base Salary).
(b) Bonus. During the Term, Executive will be eligible to participate in an annual incentive program established by the Board. Executives annual incentive compensation under such incentive program (the Annual Bonus) shall be targeted at 45% of Executives Annual Base Salary (the Target Bonus). The Annual Bonus payable under the incentive program shall be based on the achievement of performance goals to be determined by the Board. The payment of any Annual Bonus pursuant to the incentive program will be made on or before March 15 of the year following the year in which such Annual Bonus is earned.
(c) Benefits. During the Term, Executive shall be eligible to participate in employee benefit plans, programs and arrangements of the Company (including medical, dental and 401(k) plans), consistent with the terms thereof and as such plans, programs and arrangements may be amended from time to time. In no event shall Executive be eligible to participate in any severance plan or program of the Company, except as set forth in Section 4 of this Agreement.
(d) Vacation. During the Term, Executive shall be entitled to four weeks of paid personal leave, or paid personal leave per calendar year in accordance with the Companys Policies, whichever is greater. Vacation days accrued, but not used by the end of any calendar year may be used in the subsequent calendar year; provided that no more than five accrued vacation days may be carried over from one year to the next. Any vacation shall be taken at the reasonable and mutual convenience of the Company and Executive.
(e) Business Expenses. During the Term, the Company shall reimburse Executive for all reasonable travel and other business expenses incurred by Executive in the performance of Executives duties to the Company in accordance with the Companys expense reimbursement Policy.
(f) Key Person Insurance. At any time during the Term, the Company shall have the right to insure the life of Executive for the Companys sole benefit. The Company shall have the right to determine the amount of insurance and the type of policy. Executive shall reasonably cooperate with the Company in obtaining such insurance by submitting to physical examinations, by supplying all information reasonably required by any insurance carrier, and by executing all necessary documents reasonably required by any insurance carrier, provided that any information provided to an insurance company or broker shall not be provided to the Company without the prior written authorization of Executive. Executive shall incur no financial obligation by executing any required document, and shall have no interest in any such policy.
3. Termination.
Executives employment hereunder may be terminated by the Company or Executive, as applicable, without any breach of this Agreement under the following circumstances:
(a) Circumstances.
(i) Death. Executives employment hereunder shall terminate upon Executives death.
(ii) Disability. If Executive has incurred a Disability, as defined below, the Company may terminate Executives employment.
(iii) Termination for Cause. The Company may terminate Executives employment for Cause, as defined below.
(iv) Termination without Cause. The Company may terminate Executives employment without Cause.
(v) Resignation from the Company with Good Reason. Executive may resign Executives employment with the Company with Good Reason, as defined below.
(vi) Resignation from the Company Without Good Reason. Executive may resign Executives employment with the Company for any reason other than Good Reason or for no reason.
(b) Notice of Termination. Any termination of Executives employment by the Company or by Executive under this Section 3 (other than termination pursuant to Section 3(a)(i)) shall be communicated by a written notice to the other Party hereto (i) indicating the specific termination provision in this Agreement relied upon, (ii) setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executives employment under the provision so indicated, if applicable, and (iii) specifying a Date of Termination which, except in the case of a termination pursuant to Section 3(a)(iii), shall be at least thirty (30) days following the date of such notice, but no more than forty (40) days following the date of such notice (a Notice of Termination); provided, however, that the Company may deliver a Notice of Termination to Executive that specifies any Date of Termination that occurs on or after the date of the Notice of Termination (but no more than forty (40) days following the date of such notice) and, in the event that Executive delivers a Notice of Termination to the Company, the Company may, in its sole discretion, change the Date of Termination to any date that occurs on or following the date of the Notice of Termination and is prior to the Date of Termination specified in the Notice of Termination, provided, in either case, that if the Company selects a Date of Termination that is less than thirty (30) days after the date of the Notice of Termination, the Company will pay Executive the base salary Executive would have earned during the period commencing on the Date of Termination selected by the Company and ending thirty (30) days after the date of the Notice of Termination. The failure by either party to set forth in the Notice of Termination any fact or circumstance shall not waive any right of the party hereunder or preclude the party from asserting such fact or circumstance in enforcing the partys rights hereunder. Any decision to terminate Executives employment for Cause shall be made by a majority vote of the Board after Executive has received written notice from the Board setting forth in reasonable detail the facts and circumstances claimed to provide the basis for the Cause and the Board has provided the Executive reasonable opportunity to be heard by the Board with counsel present if he chooses.
(c) Company Obligations upon Termination. Upon termination of Executives employment pursuant to any of the circumstances listed in this Section 3, Executive (or Executives estate) shall be entitled to receive the sum of: (i) the portion of Executives Annual Base Salary earned through the Date of Termination, but not yet paid to Executive; (ii) any unpaid Annual Bonus earned by Executive for the year prior to the year in which the Date of Termination occurs, as determined by the Board in its good
faith discretion based upon actual performance achieved, which Annual Bonus, if any, shall be paid to Executive when bonuses for such year are paid to actively employed senior executives of the Company but in no event later than March 15 of the year in which the Date of Termination occurs; (iii) any expenses owed to Executive pursuant to Section 2(e); and (iv) any amount accrued and arising from Executives participation in, or benefits accrued under any employee benefit plans, programs or arrangements, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (collectively, the Company Arrangements). Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided in a benefit plan or herein, all of Executives rights to salary, severance, benefits, bonuses and other compensatory amounts hereunder (if any) shall cease upon the termination of Executives employment hereunder.
(d) Deemed Resignation. Upon termination of Executives employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its subsidiaries.
4. Severance Payments.
(a) Termination for Cause, or Termination Upon Death, Disability or Resignation from the Company Without Good Reason. If Executives employment shall terminate as a result of Executives death pursuant to Section 3(a)(i) or Disability pursuant to Section 3(a)(ii), pursuant to Section 3(a)(iii) for Cause, or pursuant to Section 3(a)(vi) for Executives resignation from the Company without Good Reason, then Executive shall not be entitled to any severance payments or benefits, except as provided in Section 3(c).
(b) Termination without Cause, or Resignation from the Company with Good Reason. If Executives employment terminates without Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to Executives resignation with Good Reason, then, subject to Executive signing on or before the 60th day following Executives Separation from Service (as defined below), and not revoking, a release of claims (which Executive will receive no later than ten (10) business days following Executives Separation from Service) substantially in the form attached as Exhibit A to this Agreement (the Release), and Executives continued compliance with Section 5, Executive shall receive, in addition to payments and benefits set forth in Section 3(c), the following:
(i) an amount in cash equal to the Annual Base Salary, payable in the form of salary continuation in regular installments over the 12-month period following the date of Executives Separation from Service (the Severance Period) in accordance with the Companys normal payroll practices;
(ii) a pro-rata portion of the Annual Bonus, payable in the form of a lump sum payment, in an amount equal to the product of (A)(i) the Target Bonus, if the Date of Termination occurs during the first quarter of the calendar year or (ii) the Annual Bonus amount based on actual performance as determined by the Board or an authorized committee thereof, if the Date of Termination occurs after the first quarter of the calendar year, multiplied by (B) a fraction, using the number of full months of the year elapsed prior to the Date of Termination as the numerator and 12 as the denominator; and
(iii) if Executive elects to receive continued medical, dental and/or vision coverage under one or more of the Companys group healthcare plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA), the Company shall directly pay, or reimburse Executive for, the COBRA premiums for Executive and Executives covered dependents under such plans during the period commencing on Executives Separation
from Service and ending upon the earliest of (X) the last day of the Severance Period, (Y) the date that Executive and/or Executives covered dependents become no longer eligible for COBRA or (Z) the date Executive becomes eligible to receive medical, dental or vision coverage, as applicable, from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility). Notwithstanding the foregoing, if the Company determines in its sole discretion that it cannot provide the foregoing benefit without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act) or incurring an excise tax, the Company may alter the manner in which medical, dental or vision coverage is provided to Executive after the Date of Termination so long as such alteration does not increase the after-tax cost to Executive of such benefits.
(c) Change in Control. Notwithstanding anything to the contrary in any applicable Company equity plan or equity agreement, in the event Executives employment terminates without Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to Executives resignation with Good Reason, in either case, within 60 days prior to or on or within 12 months following the date of a Change in Control, subject to Executive signing on or before the 60th day following Executives Separation from Service, and not revoking, the Release (which Executive will receive no later than ten (10) business days following Executives Separation from Service), and Executives continued compliance with Section 5, Executive shall receive, in addition to the payments and benefits set forth in Section 3(c) and Section 4(b), immediate vesting of all unvested equity or equity-based awards held by Executive under any Company equity compensation plans that vest solely based on the passage of time (for the avoidance of doubt, with any such awards that vest in whole or in part based on the attainment of performance-vesting conditions being governed by the terms of the applicable award agreement).
(d) Survival. Notwithstanding anything to the contrary in this Agreement, the provisions of Sections 5 through 9 will survive the termination of Executives employment and the termination of the Term.
5. Restrictive Covenants. As a condition to the effectiveness of this Agreement, Executive will execute and deliver to the Company contemporaneously herewith the Restrictive Covenant Agreement. Executive agrees to abide by the terms of the Restrictive Covenant Agreement, which are hereby incorporated by reference into this Agreement. Executive acknowledges that the provisions of the Restrictive Covenant Agreement will survive the termination of Executives employment and the termination of the Term for the periods set forth in the Restrictive Covenant Agreement.
6. Assignment and Successors.
The Company must assign its rights and obligations under this Agreement to any of its affiliates or to any successor to all or substantially all of the business or the assets of the Company (by merger or otherwise). This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable. None of Executives rights or obligations may be assigned or transferred by Executive, other than Executives rights to payments hereunder, which may be transferred only by will or operation of law. Notwithstanding the foregoing, Executive shall be entitled, to the extent permitted under applicable law and applicable Company Arrangements, to select and change a beneficiary or beneficiaries to receive compensation hereunder following Executives death by giving written notice thereof to the Company.
7. Certain Definitions.
(a) Cause. The Company shall have Cause to terminate Executives employment
hereunder upon:
(i) Executives commission of, or indictment or conviction of, any felony or any crime involving dishonesty by Executive;
(ii) Executives participation in any fraud against the Company;
(iii) any intentional damage to any property of the Company by Executive;
(iv) Executives misconduct which materially and adversely reflects upon the business, operations, or reputation of the Company, which misconduct has not been cured (or cannot be cured) within thirty (30) days after the Company gives written notice to Executive regarding such misconduct; or
(v) Executives breach of any material provision of this Agreement or any other written agreement between Executive and the Company and failure to cure such breach (if capable of cure) within thirty (30) days after the Company gives written notice to Executive regarding such breach.
(b) Change in Control. Change in Control shall have the meaning set forth in the version of the Selecta Biosciences, Inc. 2016 Incentive Award Plan in effect on the Effective Date.
(c) Code. Code shall mean the Internal Revenue Code of 1986, as amended, and the regulations and guidance promulgated thereunder.
(d) Date of Termination. Date of Termination shall mean (i) if Executives employment is terminated by Executives death, the date of Executives death; or (ii) if Executives employment is terminated pursuant to Section 3(a)(ii) (vi) either the date indicated in the Notice of Termination or the date specified by the Company pursuant to Section 3(b), whichever is earlier.
(e) Disability. Disability shall mean, at any time the Company or any of its affiliates sponsors a long-term disability plan for the Companys employees, disability as defined in such long-term disability plan for the purpose of determining a participants eligibility for benefits, provided, however, if the long-term disability plan contains multiple definitions of disability, Disability shall refer to that definition of disability which, if Executive qualified for such disability benefits, would provide coverage for the longest period of time. The determination of whether Executive has a Disability shall be made by the person or persons required to make disability determinations under the long-term disability plan. At any time the Company does not sponsor a long-term disability plan for its employees, Disability shall mean Executives inability to perform, with or without reasonable accommodation, the essential functions of Executives positions hereunder for a total of six months during any twelve-month period as a result of incapacity due to mental or physical illness as determined by a physician selected by the Company or its insurers and acceptable to Executive or Executives legal representative, with such agreement as to acceptability not to be unreasonably withheld or delayed. Any unreasonable refusal by Executive to submit to a medical examination for the purpose of determining Disability shall be deemed to constitute conclusive evidence of Executives Disability.
(f) Good Reason. For the sole purpose of determining Executives right to severance payments and benefits as described above, Executives resignation will be with Good Reason if Executive resigns within one year after any of the following events, unless Executive consents to the applicable event in writing: (i) a material reduction in Executives Annual Base Salary or Target Bonus, (ii) a material diminution in Executives authority, title, duties or areas of responsibility, (iii) the
requirement that Executive report to someone other than the Board, (iv) the relocation of Executives primary office to a location more than 40 miles from the Boston metropolitan area, or (v) a material breach by the Company of this Agreement or any other written agreement with Executive. Notwithstanding the foregoing, no Good Reason will have occurred unless and until Executive has: (a) provided the Company, within 60 days of Executives knowledge of the occurrence of the facts and circumstances underlying the Good Reason event, written-notice stating with specificity the applicable facts and circumstances underlying such finding of Good Reason; and (b) provided the Company with an opportunity to cure the same within thirty (30) days after the receipt of such notice.
8. Parachute Payments.
(a) Notwithstanding any other provisions of this Agreement or any Company equity plan or agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments and benefits, including the payments and benefits under Section 4(b) and Section 4(c) hereof, being hereinafter referred to as the Total Payments), would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then the Total Payments shall be reduced (in the order provided in Section 8(b)) to the minimum extent necessary to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).
(b) The Total Payments shall be reduced in the following order: (i) reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code (Section 409A), (ii) reduction on a pro-rata basis of any non-cash severance payments or benefits that are exempt from Section 409A, (iii) reduction on a pro-rata basis of any other payments or benefits that are exempt from Section 409A, and (iv) reduction of any payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A; provided, in case of clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards shall be first applied to Company equity awards that would otherwise vest last in time.
(c) The Company will select an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax (the Independent Advisors) to make determinations regarding the application of this Section 8. For purposes of such determinations, no portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not constitute a parachute payment within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the base amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation. The costs of obtaining such determination and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company.
(d) If Executive incurs legal fees or other expenses (including expert witness and accounting fees) in an effort to determine the applicability of this Section 8 or establish entitlement to or obtain any
portion of the Total Payments that have been reduced under this Section 8 (collectively, Legal and Other Expenses), Executive shall be entitled to payment of or reimbursement for such Legal and Other Expenses in accordance with this Section 8(d). Subject to Sections 9(l)(iv) and 9(m) and the other provisions of this Section 8, the Company will reimburse all Legal and Other Expenses on a monthly basis reasonably promptly after presentation of Executives written request for reimbursement accompanied by evidence reasonably acceptable to the Company that such Legal and Other Expenses were incurred. If the Company establishes before a court of competent jurisdiction that Executive had no reasonable basis for a claim made by Executive hereunder, or acted in bad faith, no further payment of or reimbursement for Legal and Other Expenses shall be due to Executive in respect of such claim, and Executive shall refund any amounts previously paid or reimbursed hereunder with respect to such claim.
(e) In the event it is later determined that to implement the objective and intent of this Section 8, (i) a greater reduction in the Total Payments should have been made, the excess amount shall be returned promptly by Executive to the Company or (ii) a lesser reduction in the Total Payments should have been made, the excess amount shall be paid or provided promptly by the Company to Executive, except to the extent the Company reasonably determines would result in imposition of an excise tax under Section 409A.
9. Miscellaneous Provisions.
(a) Governing Law. This Agreement shall be governed, construed, interpreted and enforced in accordance with its express terms, and otherwise in accordance with the substantive laws of the Commonwealth of Massachusetts without reference to the principles of conflicts of law of the Commonwealth of Massachusetts or any other jurisdiction that would result in application of the laws of a jurisdiction other than the Commonwealth of Massachusetts, and where applicable, the laws of the United States.
(b) Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
(c) Notices. Any notice, request, claim, demand, document and other communication hereunder to any Party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile or certified or registered mail, postage prepaid, as follows:
(i) If to the Company, to the General Counsel of the Company at the Companys headquarters,
(ii) If to Executive, to the last address that the Company has in its personnel records for Executive, or
(iii) at any other address as any Party shall have specified by notice in writing to the other Party.
(d) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. Signatures delivered by facsimile or PDF shall be deemed effective for all purposes.
(e) Entire Agreement. The terms of this Agreement, the Restrictive Covenant Agreement incorporated herein by reference as set forth in Section 5, the Indemnification Agreement (defined below) and any stock option agreement between the Company and Executive entered into prior to the date hereof
are intended by the Parties to be the final expression of their agreement with respect to the subject matter hereof and supersede all prior understandings and agreements, whether written or oral, including without limitation any prior employment agreement or offer letter between Executive and the Company. The Parties further intend that this Agreement shall constitute the complete and exclusive statement of their terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.
(f) Indemnification. The Parties acknowledge that they have or will enter into an Indemnification Agreement in substantially the form attached as Exhibit C hereto.
(g) Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Executive and a duly authorized officer of Company. By an instrument in writing similarly executed, Executive or a duly authorized officer of the Company may waive compliance by the other Party with any specifically identified provision of this Agreement that such other Party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.
(h) No Inconsistent Actions. The Parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the Parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement.
(i) Construction. This Agreement shall be deemed drafted equally by both the Parties. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle that the language is to be construed against any Party shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation. Any references to paragraphs, subparagraphs, sections or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary. Also, unless the context clearly indicates to the contrary, (i) the plural includes the singular and the singular includes the plural; (ii) and and or are each used both conjunctively and disjunctively; (iii) any, all, each, or every means any and all, and each and every; (iv) includes and including are each without limitation; (v) herein, hereof, hereunder and other similar compounds of the word here refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection; and (vi) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require.
(j) Enforcement. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the Term, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.
(k) Withholding. The Company shall be entitled to withhold from any amounts payable under this Agreement any federal, state, local or foreign withholding or other taxes or charges which the
Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise.
(l) Section 409A.
(i) General. The intent of the Parties is that the payments and benefits under this Agreement comply with or be exempt from Section 409A and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.
(ii) Separation from Service. Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that is considered nonqualified deferred compensation under Section 409A and is designated under this Agreement as payable upon Executives termination of employment shall be payable only upon Executives separation from service with the Company within the meaning of Section 409A (a Separation from Service) and, except as provided below, any such compensation or benefits described in Section 4 shall not be paid, or, in the case of installments, shall not commence payment, until the sixtieth (60th) day following Executives Separation from Service (the First Payment Date). Any installment payments that would have been made to Executive during the sixty (60) day period immediately following Executives Separation from Service but for the preceding sentence shall be paid to Executive on the First Payment Date and the remaining payments shall be made as provided in this Agreement.
(iii) Specified Employee. Notwithstanding anything in this Agreement to the contrary, if Executive is deemed by the Company at the time of Executives Separation from Service to be a specified employee for purposes of Section 409A, to the extent delayed commencement of any portion of the benefits to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A, such portion of Executives benefits shall not be provided to Executive prior to the earlier of (i) the expiration of the six-month period measured from the date of Executives Separation from Service with the Company or (ii) the date of Executives death. Upon the first business day following the expiration of the applicable Section 409A period, all payments deferred pursuant to the preceding sentence shall be paid in a lump sum to Executive (or Executives estate or beneficiaries), and any remaining payments due to Executive under this Agreement shall be paid as otherwise provided herein.
(iv) Expense Reimbursements. To the extent that any reimbursements under this Agreement are subject to Section 409A, any such reimbursements payable to Executive shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred; provided, that Executive submits Executives reimbursement request promptly following the date the expense is incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, other than medical expenses referred to in Section 105(b) of the Code, and Executives right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.
(v) Installments. Executives right to receive any installment payments under this Agreement, including without limitation any continuation salary payments that are payable on Company payroll dates, shall be treated as a right to receive a series of separate payments and, accordingly, each such installment payment shall at all times be considered a separate and distinct payment as permitted under Section 409A. Except as otherwise permitted under Section 409A, no payment hereunder shall be accelerated or deferred unless such acceleration or deferral would not result in additional tax or interest pursuant to Section 409A.
(m) Attorneys Fees. In the event that either Party prevails in a dispute with the other Party concerning the rights and obligations hereunder, the non-prevailing Party shall pay the prevailing Partys reasonable attorneys fees and costs.
10. Executive Acknowledgement.
Executive acknowledges that Executive has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on Executives own judgment.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date and year first above written.
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SELECTA BIOSCIENCES, INC. | ||
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By: |
/s/ David Abraham | |
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Name: |
David Abraham |
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Title: |
General Counsel and Corporate Secretary |
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/s/ Werner Cautreels, Ph.D. | ||
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Werner Cautreels, Ph.D. |
[Signature Page to Employment Agreement]
EXHIBIT A
Separation Agreement and Release
This Separation Agreement and Release (Agreement) is made by and between Werner Cautreels, Ph.D. (Executive) and Selecta Biosciences, Inc. (the Company) (collectively referred to as the Parties or individually referred to as a Party). Capitalized terms used but not defined in this Agreement shall have the meanings set forth in the Employment Agreement (as defined below).
WHEREAS, the Parties have previously entered into that certain Employment Agreement, dated as of June 6, 2016 (the Employment Agreement); and
WHEREAS, in connection with Executives termination of employment with the Company or a subsidiary or affiliate of the Company effective , 20 , the Parties wish to resolve any and all disputes, claims, complaints, grievances, charges, actions, petitions, and demands that Executive may have against the Company and any of the Releasees as defined below, including, but not limited to, any and all claims arising out of or in any way related to Executives employment with or separation from the Company or its subsidiaries or affiliates but, for the avoidance of doubt, nothing herein will be deemed to release any rights or remedies in connection with Executives ownership of vested equity securities of the Company, vested benefits or Executives right to defense or indemnification by the Company or any of its affiliates pursuant to contract or applicable law (collectively, the Retained Claims). The Company agrees not to contest Executives application for unemployment benefits; provided that nothing herein shall prohibit the Company from responding truthfully to requests for information from, or require the Company to make any false or misleading statements to, any governmental authority.
NOW, THEREFORE, in consideration of the severance payments and benefits described in Section 4 of the Employment Agreement, which, pursuant to the Employment Agreement, are conditioned on Executives execution and non-revocation of this Agreement, and in consideration of the mutual promises made herein, the Company and Executive hereby agree as follows:
1. Severance Payments; Salary and Benefits. The Company agrees to provide Executive with the severance payments and benefits described in Section 4(b) and Section 4(c) of the Employment Agreement, payable at the times set forth in, and subject to the terms and conditions of, the Employment Agreement. In addition, to the extent not already paid, and subject to the terms and conditions of the Employment Agreement, the Company shall pay or provide to Executive all other payments or benefits described in Section 3(c) of the Employment Agreement, subject to and in accordance with the terms thereof.
2. Release of Claims. Executive agrees that, other than with respect to the Retained Claims, the foregoing consideration represents settlement in full of all outstanding obligations owed to Executive by the Company, any of its direct or indirect subsidiaries and affiliates, and any of their current and former officers, directors, equity holders, managers, employees, agents, investors, attorneys, shareholders, administrators, affiliates, benefit plans, plan administrators, insurers, trustees, divisions, and subsidiaries and predecessor and successor corporations and assigns (collectively, the Releasees). Executive, on Executives own behalf and on behalf of any of Executives affiliated companies or entities and any of their respective heirs, family members, executors, agents, and assigns, other than with respect to the Retained Claims, hereby and forever releases the Releasees from, and agrees not to sue concerning, or in any manner to institute, prosecute, or pursue, any claim, complaint, charge, duty, obligation, or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that Executive may possess against any of the Releasees arising from any omissions, acts, facts, or damages that have occurred up until and including the Effective Date of this Agreement (as defined in Section 7 below), including, without limitation:
(a) any and all claims relating to or arising from Executives employment or service relationship with the Company or any of its direct or indirect subsidiaries or affiliates and the termination of that relationship;
(b) any and all claims relating to, or arising from, Executives right to purchase, or actual purchase of any shares of stock or other equity interests of the Company or any of its affiliates, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law;
(c) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; harassment; retaliation; breach of contract, both express and implied; breach of covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; fraud; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; conversion; and disability benefits;
(d) any and all claims for violation of any federal, state, or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1991; the Rehabilitation Act of 1973; the Americans with Disabilities Act of 1990; the Equal Pay Act; the Fair Credit Reporting Act; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act; the Employee Retirement Income Security Act of 1974; the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act; and the Sarbanes-Oxley Act of 2002;
(e) any and all claims for violation of the federal or any state constitution;
(f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination;
(g) any claim for any loss, cost, damage, or expense arising out of any dispute over the non-withholding or other tax treatment of any of the proceeds received by Executive as a result of this Agreement; and
(h) any and all claims for attorneys fees and costs.
Executive agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not release claims that cannot be released as a matter of law, including, but not limited to, Executives right to report possible violations of federal law or regulation to any governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002, or any other whistleblower protection provisions of state or federal law or regulation, Executives right to file a charge with or participate in a charge by the Equal Employment Opportunity Commission, or any other local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against the Company (with the understanding that Executives release of claims herein bars Executive from recovering such monetary relief from the Company or any Releasee), claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law, claims to continued participation in certain of the Companys group benefit plans pursuant to the terms and conditions of COBRA, claims to any benefit entitlements vested as the date of separation of Executives employment, pursuant to written terms of any employee benefit plan of the Company or its affiliates and Executives right under applicable
law and any Retained Claims. This release further does not release claims for breach of Section 3(c), Section 4(b) or Section 4(c) of the Employment Agreement.
3. Acknowledgment of Waiver of Claims under ADEA. Executive understands and acknowledges that Executive is waiving and releasing any rights Executive may have under the Age Discrimination in Employment Act of 1967 (ADEA), and that this waiver and release is knowing and voluntary. Executive understands and agrees that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement. Executive understands and acknowledges that the consideration given for this waiver and release is in addition to anything of value to which Executive was already entitled. Executive further understands and acknowledges that Executive has been advised by this writing that: (a) Executive should consult with an attorney prior to executing this Agreement; (b) Executive has 21 days within which to consider this Agreement; (c) Executive has 7 days following Executives execution of this Agreement to revoke this Agreement pursuant to written notice to the General Counsel of the Company; (d) this Agreement shall not be effective until after the revocation period has expired; and (e) nothing in this Agreement prevents or precludes Executive from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties, or costs for doing so, unless specifically authorized by federal law. In the event Executive signs this Agreement and returns it to the Company in less than the 21 day period identified above, Executive hereby acknowledges that Executive has freely and voluntarily chosen to waive the time period allotted for considering this Agreement.
4. Severability. In the event that any provision or any portion of any provision hereof or any surviving agreement made a part hereof becomes or is declared by a court of competent jurisdiction or arbitrator to be illegal, unenforceable, or void, this Agreement shall continue in full force and effect without said provision or portion of provision.
5. No Oral Modification. This Agreement may only be amended in a writing signed by Executive and a duly authorized officer of the Company.
6. Governing Law. This Agreement shall be subject to the provisions of Sections 9(a) and 9(c) of the Employment Agreement.
7. Effective Date. If Executive has attained or is over the age of 40 as of the date of Executives termination of employment, then each Party has seven days after that Party signs this Agreement to revoke it and this Agreement will become effective on the eighth day after Executive signed this Agreement, so long as it has been signed by the Parties and has not been revoked by either Party before that date (the Effective Date). If Executive has not attained the age of 40 as of the date of Executives termination of employment, then the Effective Date shall be the date on which Executive signs this Agreement.
8. Voluntary Execution of Agreement. Executive understands and agrees that Executive executed this Agreement voluntarily, without any duress or undue influence on the part or behalf of the Company or any third party, with the full intent of releasing all of Executives claims against the Company and any of the other Releasees. Executive acknowledges that: (a) Executive has read this Agreement; (b) Executive has not relied upon any representations or statements made by the Company that are not specifically set forth in this Agreement; (c) Executive has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of Executives own choice or has elected not to retain legal counsel; (d) Executive understands the terms and consequences of this Agreement and of the releases it contains; and (e) Executive is fully aware of the legal and binding effect of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.
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Werner Cautreels, Ph.D. | ||||
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SELECTA BIOSCIENCES, INC. | ||||
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Dated: |
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EXHIBIT B
Employee Nondisclosure, Noncompetition and Assignment of Intellectual Property Agreement
[attached]
SELECTA BIOSCIENCES, INC.
EMPLOYEE NONDISCLOSURE, NONCOMPETITION AND
ASSIGNMENT OF INTELLECTUAL PROPERTY AGREEMENT
In consideration and as a condition of my employment by Selecta Biosciences, Inc., a Delaware corporation (the Company), and of the compensation to be paid to me, and in recognition of the fact that as an employee of the Company I will or may have access to confidential information, I agree with the Company as follows:
1. Performance: Prior Obligations.
(a) I agree to use best efforts to perform my assigned duties diligently, conscientiously, and with reasonable skill, and shall comply with all rules, procedures and standards promulgated from time to time by the Company with regard to my conduct and my access to and use of the Companys property, equipment and facilities. Among such rules, procedures and standards are those governing ethical and other professional standards for dealing with customers, government agencies, vendors, competitors, consultants, fellow employees, and the public-at-large, security provisions designed to protect Company property and the personal security of Company employees, rules respecting attendance, punctuality, and hours of work, and rules and procedures designed to protect the confidentiality of proprietary information. The Company agrees to make reasonable efforts to inform me of such rules, standards and procedures as are in effect from time to time.
(b) I hereby represent, warrant and agree (i) that I have the full right to enter into this Agreement and perform the services required of me hereunder, without any restriction whatsoever; (ii) that in the course of performing services hereunder, I will not violate the terms or conditions of any agreement between me and any third party or infringe or wrongfully appropriate any patents, copyrights, trade secrets or other intellectual property rights of any person or entity anywhere in the world; (iii) that I have not and will not disclose or use during my employment by the Company any confidential information that I acquired as a result of any previous employment or consulting arrangement or under a previous obligation of confidentiality; and (iv) that I have disclosed to the Company in writing any and all continuing obligations to previous employers or others that require me not to disclose any information to the Company.
2. Confidential Information. While employed by the Company and thereafter, I shall not, directly or indirectly, use any Confidential Information (as hereinafter defined) other than pursuant to my employment by and for the benefit of the Company, or disclose any Confidential Information to anyone outside of the Company, whether by private communication, public address, publication or otherwise, or disclose any Confidential Information to anyone within the Company who has not been authorized to receive such information, except as directed in writing by an authorized representative of the Company. The term Confidential Information as used throughout this Agreement shall mean all trade secrets, proprietary information, know-how, data, designs, specifications, processes, customer lists and other technical or business information (and any tangible evidence, record or representation thereof), whether prepared,
conceived or developed by a consultant or employee of the Company (including myself) or received by the Company from an outside source, which is in the possession of the Company (whether or not the property of the Company), which in any way relates to the present or future business of the Company, which is maintained in confidence by the Company, or which might permit the Company or its customers to obtain a competitive advantage over competitors who do not have access to such trade secrets, proprietary information, or other data or information. Without limiting the generality of the foregoing. Confidential Information shall include, without limitation:
(a) any idea, improvement, invention, innovation, development, concept, technical or clinical data, design, formula, device, pattern, sequence, method, process, composition of matter, computer program or software, source code, object code, algorithm, model, diagram, flow chart, product specification or design, plan for a new or revised product, sample, compilation of information, or work in process, or parts thereof, and any and all revisions and improvements relating to any of the foregoing (in each case whether or not reduced to tangible form); and
(b) the name of any customer, supplier, employee, prospective customer, sales agent, supplier or consultant, any sales plan, marketing material, plan or survey, business plan or opportunity, product or development plan or specification, business proposal, financial record, or business record or other record or information relating to the present or proposed business of the Company.
Notwithstanding the foregoing, the term Confidential Information shall not apply to information which the Company has voluntarily disclosed to the public without restriction, or which has otherwise lawfully entered the public domain.
I shall promptly notify my supervisor or any officer of the Company if I learn of any possible unauthorized use or disclosure of Confidential Information and shall cooperate fully with the Company to enforce its rights in such information.
I understand that the Company from time to time has in its possession information (including product and development plans and specifications) which is claimed by customers and others to be proprietary and which the Company has agreed to keep confidential. I agree that all such information shall be Confidential Information for purposes of this Agreement.
3. Ownership and Assignment of Intellectual Property.
(a) I agree that all originals and all copies of all manuscripts, drawings, prints, manuals, diagrams, letters, notes, notebooks, reports, models, records, files, memoranda, plans, sketches and all other documents and materials containing, representing, evidencing, recording, or constituting any Confidential Information (as defined in Section 2 above), however and whenever produced (whether by myself or others) during the course of my employment, shall be the sole property of the Company.
(b) I agree that all Confidential Information and all other discoveries, inventions, ideas, concepts, trademarks, service marks, logos, processes, products, formulas, computer programs or software, source codes, object codes, algorithms, machines, apparatuses,
items of manufacture or composition of matter, or any new uses therefor or improvements thereon, or any new designs or modifications or configurations of any kind, or works of authorship of any kind, including, without limitation, compilations and derivative works, whether or not patentable or copyrightable, conceived, developed, reduced to practice or otherwise made by me, either alone or with others, and related to the business of the Company or to tasks assigned to me during the course of my employment, whether or not made during my regular working hours, whether or not conceived, developed, reduced to practice or made on the Companys premises and whether or not disclosed by me to the Company (collectively Company Inventions), and any and all services and products which embody, emulate or employ any such Company Invention or Confidential Information shall be the sole property of the Company and all copyrights, patents, patent rights, trademarks and reproduction rights to, and other proprietary rights in, each such Company Invention or Confidential Information, whether or not patentable or copyrightable, shall belong exclusively to the Company. For the avoidance of doubt, Confidential Information shall only include information that relates to the present or future business of the Company, and Company Inventions shall only include inventions that relate to the business of the Company or to tasks assigned to me during the course of my employment.
(c) I agree to, and hereby do, assign to the Company all my right, title and interest throughout the world in and to all Company Inventions and to anything tangible which evidences, incorporates, constitutes, represents or records any Company Invention. I agree that all Company Inventions shall constitute works made for hire under the copyright laws of the United States and hereby assign and, to the extent any such assignment cannot be made at present, I hereby agree to assign to the Company all copyrights, patents and other proprietary rights I may have in any Company Inventions, together with the right to file for and/or own wholly without restriction United States and foreign patents, trademarks, and copyrights. I agree to waive, and hereby waive, all moral rights or proprietary rights in or to any Company Inventions and, to the extent that such rights may not be waived, agree not to assert such rights against the Company or its licensees, successors or assigns.
(d) I hereby certify Exhibit A sets forth any and all confidential information and intellectual property that I claim as my own or otherwise intend to exclude from this Agreement because it was developed by me prior to the date of this Agreement. I understand that after execution of this Agreement I shall have no right to exclude Confidential Information or Company Inventions from this Agreement.
4. Employees Obligation to Keep Records. I shall make and maintain adequate and current written records of all Company Inventions, including notebooks and invention disclosures, which records shall be available to and remain the property of the Company at all times. I shall disclose all Company Inventions promptly, fully and in writing to the Company immediately upon production or development of the same and at any time upon request.
5. Employees Obligation to Cooperate. I will, at any time during my employment, or after it terminates, upon request of the Company, execute all documents and perform all lawful acts which the Company considers necessary or advisable to secure its rights hereunder and to carry out the intent of this Agreement. Without limiting the generality of the foregoing, I will assist the Company in any reasonable manner to obtain for its own benefit patents or
copyrights in any and all countries with respect to all Company Inventions assigned pursuant to Section 3, and I will execute, when requested, patent and other applications and assignments thereof to the Company, or persons designated by it, and any other lawful documents deemed necessary by the Company to carry out the purposes of this Agreement, and I will further assist the Company in every way to enforce any patents and copyrights obtained, including, without limitation, testifying in any suit or proceeding involving any of said patents or copyrights or executing any documents deemed necessary by the Company, all without further consideration than provided for herein. It is understood that reasonable out-of-pocket expenses of my assistance incurred at the request of the Company under this Section will be reimbursed by the Company.
6. Noncompetition and Non-solicitation. During my employment with the Company and for a period of 12 months after the termination of my employment with the Company for any reason, I shall not, without the Companys prior written consent, on my own behalf, or as owner, manager, stockholder, consultant, director, officer, or employee of any business entity (except as a holder of not more than three (3%) percent of the stock of a publicly held company) participate in any capacity in any business activity that is in direct competition with any of the products or services being developed, marketed, distributed, planned, sold or otherwise provided by the Company or its affiliates at the time of, or during the 12 months preceding, my termination.
During my employment with the Company and for a period of 12 months after the termination of my employment with the Company for any reason, I shall not solicit, induce or encourage any employee of the Company to terminate his or her employment with the Company.
7. Return of Property. Upon termination of my employment with the Company, or at any other time upon request of the Company, I shall cease using and return promptly any and all customer or prospective customer lists, other customer or prospective customer information or related materials, computer programs, software, electronic data, specifications, drawings, blueprints, data storage devices, reproductions, sketches, notes, notebooks, memoranda, reports, records, proposals, business plans, or copies of them, other documents or materials, tools, equipment, or other property belonging to the Company or its customers which I may then possess or have under my direct or indirect control. I further agree that upon termination of employment, I shall not take with me any documents or data in any form or of any description containing or pertaining to Confidential Information or Company Inventions, other than documents I have a right to retain under applicable law (with the understanding that my obligations under this Agreement continue to apply to any such retained documents). For purposes of clarity, using best efforts to completely remove (with the Companys prior written permission) from any personal computer, laptop, smart phone, IPad, or any other electronic device, any Company Property that I have previously returned to the Company in accordance with this Section 7 satisfies my obligations under this section.
8. Other Obligations. I acknowledge that the Company from time to time may have agreements with other persons, including the government of the United States or other countries and agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. I agree to be bound by all such obligations and restrictions and to take all action necessary to discharge the obligations of the Company thereunder.
9. Miscellaneous.
(a) This Agreement contains the entire and only agreement between me and the Company with respect to the subject matter hereof, superseding any previous oral or written communications, representations, understandings, or agreements with the Company or any officer or representative hereof. In the event of any inconsistency between this Agreement and any other contract between me and the Company, the provisions of this Agreement shall prevail.
(b) My obligations under Sections 2, 3, 5, 6 (for the periods set forth therein), 7, 8 and 9 of this Agreement shall survive the termination of my employment with the Company regardless of the manner of or reasons for such termination, and regardless of whether such termination constitutes a breach of any other agreement I may have with the Company. My obligations under this Agreement shall be binding upon my heirs, assigns, executors, administrators and representatives, and the provisions of this Agreement shall inure to the benefit of and be binding on the successors and assigns of the Company.
(c) If any provision of this Agreement shall be determined to be unenforceable by any court of competent jurisdiction by reason of its extending for too great a period of time or over too large a geographic area or over too great a range of activities, it shall be interpreted to extend only over the maximum period of time, geographic area or range of activities as to which it may be enforceable. If, after application of the immediately preceding sentence, any provision of this Agreement shall be determined to be invalid, illegal or otherwise unenforceable by any court of competent jurisdiction, the validity, legality and enforceability of the other provisions of this Agreement shall not be affected thereby. Except as otherwise provided in this paragraph, any invalid, illegal or unenforceable provision of this Agreement shall be severable, and after any such severance, all other provisions hereof shall remain in full force and effect.
(d) I acknowledge and agree that violation of this Agreement by me would cause irreparable harm to the Company not adequately compensable by money damages alone, and I therefore agree that, in addition to all other remedies available to the Company at law, in equity or otherwise, the Company shall be entitled to injunctive relief to prevent an actual or threatened violation of this Agreement and to enforce the provisions hereof, without showing or proving any actual damage to the Company or posting any bond in connection therewith.
(e) No failure by the Company to insist upon strict compliance with any of the terms, covenants, or conditions hereof, and no delay or omission by the Company in exercising any right under this Agreement, will operate as a waiver of such terms, covenants, conditions or rights. A waiver or consent given by the Company on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
(f) This Agreement may not be changed, modified, released, discharged, abandoned, or otherwise amended, in whole or in part, except by an instrument in writing signed by me and the Company.
(g) This Agreement shall be governed by, and construed and enforced in accordance with, the laws of The Commonwealth of Massachusetts, without regard to its principles of conflicts of laws. This Agreement is executed under seal.
[Signature Page Follows]
BY PLACING MY SIGNATURE HEREUNDER, I ACKNOWLEDGE THAT I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL AND I HAVE READ ALL THE PROVISIONS OF THIS EMPLOYEE NONDISCLOSURE, NONCOMPETITION AND ASSIGNMENT OF INTELLECTUAL PROPERTY AGREEMENT AND THAT I AGREE TO ALL OF ITS TERMS.
Effective Date: June 4, 2016
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EMPLOYEE: | ||
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/s/ Werner Cautreels | ||
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Werner Cautreels | |
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Accepted and Agreed: | ||
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SELECTA BIOSCIENCES, INC. | ||
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By: |
/s/ David Abraham | |
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Name: David Abraham | ||
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Title: General Counsel, CS, CCC | ||
EXHIBIT A
Excluded Confidential Information and Inventions
EXHIBIT C
Form of Indemnification Agreement
[attached]
Exhibit 10.18
Employment Agreement
This Employment Agreement (this Agreement), dated as of June 6, 2016, is made by and between Selecta Biosciences, Inc., a Delaware corporation (together with any successor thereto, the Company), and Takashi Kei Kishimoto, Ph.D. (Executive) (collectively referred to as the Parties or individually referred to as a Party).
RECITALS
A. It is the desire of the Company to assure itself of the services of Executive following the Effective Date (as defined below) and thereafter by entering into this Agreement.
B. Executive and the Company mutually desire that Executive provide services to the Company on the terms herein provided.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the Parties hereto agree as follows:
1. Employment.
(a) General. Effective on the closing of the Companys initial public offering of stock pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the Effective Date), the Company shall employ Executive and Executive shall remain in the employ of the Company, for the period and in the positions set forth in this Section 1, and subject to the other terms and conditions herein provided.
(b) At-Will Employment. The Company and Executive acknowledge that Executives employment is and shall continue to be at-will, as defined under applicable law, and that Executives employment with the Company may be terminated by either Party at any time for any or no reason (subject to the notice requirements of Section 3(b)). This at-will nature of Executives employment shall remain unchanged during Executives tenure as an employee and may not be changed, except in an express writing signed by Executive and a duly authorized officer of the Company. If Executives employment terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement or otherwise agreed to in writing by the Company or as provided by applicable law. The term of this Agreement (the Term) shall commence on the Effective Date and end on the date this Agreement is terminated under Section 3.
(c) Positions and Duties. Executive shall serve as Chief Scientific Officer of the Company with such responsibilities, duties and authority normally associated with such positions and as may from time to time be reasonably assigned to Executive by the Chief Executive Officer of the Company. Executive shall devote substantially all of Executives working time and efforts to the business and affairs of the Company (which shall include service to its affiliates, if applicable), provided that Executive may engage in outside business activities (including serving on outside boards or committees) to the extent such activities do not materially interfere with the performance of Executives duties and responsibilities under this Agreement or violate the terms of the Employee Nondisclosure, Noncompetition and Assignment of Intellectual Property Agreement attached as Exhibit B (the Restrictive Covenant Agreement). Executive agrees to observe and comply with the rules and policies of the Company as adopted by the Company from time to time, in each case as amended from time to time, as set forth in writing, and as delivered or made available to Executive (each, a Policy).
2. Compensation and Related Matters.
(a) Annual Base Salary. During the Term, Executive shall receive a base salary at a rate of $315,000 per annum, which shall be paid in accordance with the customary payroll practices of the Company and shall be pro-rated for partial years of employment. Such annual base salary shall be reviewed (and may be increased) from time to time by the Board of Directors of the Company or an authorized committee of the Board (in either case, the Board) (such annual base salary, as it may be increased from time to time, the Annual Base Salary).
(b) Bonus. During the Term, Executive will be eligible to participate in an annual incentive program established by the Board. Executives annual incentive compensation under such incentive program (the Annual Bonus) shall be targeted at 35% of Executives Annual Base Salary (the Target Bonus). The Annual Bonus payable under the incentive program shall be based on the achievement of performance goals to be determined by the Board. The payment of any Annual Bonus pursuant to the incentive program will be made on or before March 15 of the year following the year in which such Annual Bonus is earned.
(c) Benefits. During the Term, Executive shall be eligible to participate in employee benefit plans, programs and arrangements of the Company (including medical, dental and 401(k) plans), consistent with the terms thereof and as such plans, programs and arrangements may be amended from time to time. In no event shall Executive be eligible to participate in any severance plan or program of the Company, except as set forth in Section 4 of this Agreement.
(d) Vacation. During the Term, Executive shall be entitled to four weeks of paid personal leave, or paid personal leave per calendar year in accordance with the Companys Policies, whichever is greater. Vacation days accrued, but not used by the end of any calendar year may be used in the subsequent calendar year; provided that no more than five accrued vacation days may be carried over from one year to the next. Any vacation shall be taken at the reasonable and mutual convenience of the Company and Executive.
(e) Business Expenses. During the Term, the Company shall reimburse Executive for all reasonable travel and other business expenses incurred by Executive in the performance of Executives duties to the Company in accordance with the Companys expense reimbursement Policy.
(f) Key Person Insurance. At any time during the Term, the Company shall have the right to insure the life of Executive for the Companys sole benefit. The Company shall have the right to determine the amount of insurance and the type of policy. Executive shall reasonably cooperate with the Company in obtaining such insurance by submitting to physical examinations, by supplying all information reasonably required by any insurance carrier, and by executing all necessary documents reasonably required by any insurance carrier, provided that any information provided to an insurance company or broker shall not be provided to the Company without the prior written authorization of Executive. Executive shall incur no financial obligation by executing any required document, and shall have no interest in any such policy.
3. Termination.
Executives employment hereunder may be terminated by the Company or Executive, as applicable, without any breach of this Agreement under the following circumstances:
(a) Circumstances.
(i) Death. Executives employment hereunder shall terminate upon Executives death.
(ii) Disability. If Executive has incurred a Disability, as defined below, the Company may terminate Executives employment.
(iii) Termination for Cause. The Company may terminate Executives employment for Cause, as defined below.
(iv) Termination without Cause. The Company may terminate Executives employment without Cause.
(v) Resignation from the Company with Good Reason. Executive may resign Executives employment with the Company with Good Reason, as defined below.
(vi) Resignation from the Company Without Good Reason. Executive may resign Executives employment with the Company for any reason other than Good Reason or for no reason.
(b) Notice of Termination. Any termination of Executives employment by the Company or by Executive under this Section 3 (other than termination pursuant to Section 3(a)(i)) shall be communicated by a written notice to the other Party hereto (i) indicating the specific termination provision in this Agreement relied upon, (ii) setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executives employment under the provision so indicated, if applicable, and (iii) specifying a Date of Termination which, except in the case of a termination pursuant to Section 3(a)(iii), shall be at least thirty (30) days following the date of such notice, but no more than forty (40) days following the date of such notice (a Notice of Termination); provided, however, that the Company may deliver a Notice of Termination to Executive that specifies any Date of Termination that occurs on or after the date of the Notice of Termination (but no more than forty (40) days following the date of such notice) and, in the event that Executive delivers a Notice of Termination to the Company, the Company may, in its sole discretion, change the Date of Termination to any date that occurs on or following the date of the Notice of Termination and is prior to the Date of Termination specified in the Notice of Termination, provided, in either case, that if the Company selects a Date of Termination that is less than thirty (30) days after the date of the Notice of Termination, the Company will pay Executive the base salary Executive would have earned during the period commencing on the Date of Termination selected by the Company and ending thirty (30) days after the date of the Notice of Termination. The failure by either party to set forth in the Notice of Termination any fact or circumstance shall not waive any right of the party hereunder or preclude the party from asserting such fact or circumstance in enforcing the partys rights hereunder. Any decision to terminate Executives employment for Cause shall be made by a majority vote of the Board after Executive has received written notice from the Board setting forth in reasonable detail the facts and circumstances claimed to provide the basis for the Cause and the Board has provided the Executive reasonable opportunity to be heard by the Board with counsel present if he chooses.
(c) Company Obligations upon Termination. Upon termination of Executives employment pursuant to any of the circumstances listed in this Section 3, Executive (or Executives estate) shall be entitled to receive the sum of: (i) the portion of Executives Annual Base Salary earned through the Date of Termination, but not yet paid to Executive; (ii) any unpaid Annual Bonus earned by Executive for the year prior to the year in which the Date of Termination occurs, as determined by the Board in its good faith discretion based upon actual performance achieved, which Annual Bonus, if any, shall be paid to Executive when bonuses for such year are paid to actively employed senior executives of the Company
but in no event later than March 15 of the year in which the Date of Termination occurs; (iii) any expenses owed to Executive pursuant to Section 2(e); and (iv) any amount accrued and arising from Executives participation in, or benefits accrued under any employee benefit plans, programs or arrangements, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (collectively, the Company Arrangements). Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided in a benefit plan or herein, all of Executives rights to salary, severance, benefits, bonuses and other compensatory amounts hereunder (if any) shall cease upon the termination of Executives employment hereunder.
(d) Deemed Resignation. Upon termination of Executives employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its subsidiaries.
4. Severance Payments.
(a) Termination for Cause, or Termination Upon Death, Disability or Resignation from the Company Without Good Reason. If Executives employment shall terminate as a result of Executives death pursuant to Section 3(a)(i) or Disability pursuant to Section 3(a)(ii), pursuant to Section 3(a)(iii) for Cause, or pursuant to Section 3(a)(vi) for Executives resignation from the Company without Good Reason, then Executive shall not be entitled to any severance payments or benefits, except as provided in Section 3(c).
(b) Termination without Cause, or Resignation from the Company with Good Reason. If Executives employment terminates without Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to Executives resignation with Good Reason, then, subject to Executive signing on or before the 60th day following Executives Separation from Service (as defined below), and not revoking, a release of claims (which Executive will receive no later than ten (10) business days following Executives Separation from Service) substantially in the form attached as Exhibit A to this Agreement (the Release), and Executives continued compliance with Section 5, Executive shall receive, in addition to payments and benefits set forth in Section 3(c), the following:
(i) an amount in cash equal to the Annual Base Salary, payable in the form of salary continuation in regular installments over the 12-month period following the date of Executives Separation from Service (the Severance Period) in accordance with the Companys normal payroll practices;
(ii) a pro-rata portion of the Annual Bonus, payable in the form of a lump sum payment, in an amount equal to the product of (A)(i) the Target Bonus, if the Date of Termination occurs during the first quarter of the calendar year or (ii) the Annual Bonus amount based on actual performance as determined by the Board or an authorized committee thereof, if the Date of Termination occurs after the first quarter of the calendar year, multiplied by (B) a fraction, using the number of full months of the year elapsed prior to the Date of Termination as the numerator and 12 as the denominator; and
(iii) if Executive elects to receive continued medical, dental and/or vision coverage under one or more of the Companys group healthcare plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA), the Company shall directly pay, or reimburse Executive for, the COBRA premiums for Executive and Executives covered dependents under such plans during the period commencing on Executives Separation from Service and ending upon the earliest of (X) the last day of the Severance Period, (Y) the date that Executive and/or Executives covered dependents become no longer eligible for
COBRA or (Z) the date Executive becomes eligible to receive medical, dental or vision coverage, as applicable, from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility). Notwithstanding the foregoing, if the Company determines in its sole discretion that it cannot provide the foregoing benefit without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act) or incurring an excise tax, the Company may alter the manner in which medical, dental or vision coverage is provided to Executive after the Date of Termination so long as such alteration does not increase the after-tax cost to Executive of such benefits.
(c) Change in Control. Notwithstanding anything to the contrary in any applicable Company equity plan or equity agreement, in the event Executives employment terminates without Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to Executives resignation with Good Reason, in either case, within 60 days prior to or on or within 12 months following the date of a Change in Control, subject to Executive signing on or before the 60th day following Executives Separation from Service, and not revoking, the Release (which Executive will receive no later than ten (10) business days following Executives Separation from Service), and Executives continued compliance with Section 5, Executive shall receive, in addition to the payments and benefits set forth in Section 3(c) and Section 4(b), immediate vesting of all unvested equity or equity-based awards held by Executive under any Company equity compensation plans that vest solely based on the passage of time (for the avoidance of doubt, with any such awards that vest in whole or in part based on the attainment of performance-vesting conditions being governed by the terms of the applicable award agreement).
(d) Survival. Notwithstanding anything to the contrary in this Agreement, the provisions of Sections 5 through 9 will survive the termination of Executives employment and the termination of the Term.
5. Restrictive Covenants. As a condition to the effectiveness of this Agreement, Executive will execute and deliver to the Company contemporaneously herewith the Restrictive Covenant Agreement. Executive agrees to abide by the terms of the Restrictive Covenant Agreement, which are hereby incorporated by reference into this Agreement. Executive acknowledges that the provisions of the Restrictive Covenant Agreement will survive the termination of Executives employment and the termination of the Term for the periods set forth in the Restrictive Covenant Agreement.
6. Assignment and Successors.
The Company must assign its rights and obligations under this Agreement to any of its affiliates or to any successor to all or substantially all of the business or the assets of the Company (by merger or otherwise). This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable. None of Executives rights or obligations may be assigned or transferred by Executive, other than Executives rights to payments hereunder, which may be transferred only by will or operation of law. Notwithstanding the foregoing, Executive shall be entitled, to the extent permitted under applicable law and applicable Company Arrangements, to select and change a beneficiary or beneficiaries to receive compensation hereunder following Executives death by giving written notice thereof to the Company.
7. Certain Definitions.
(a) Cause. The Company shall have Cause to terminate Executives employment hereunder upon:
(i) Executives commission of, or indictment or conviction of, any felony or any crime involving dishonesty by Executive;
(ii) Executives participation in any fraud against the Company;
(iii) any intentional damage to any property of the Company by Executive;
(iv) Executives misconduct which materially and adversely reflects upon the business, operations, or reputation of the Company, which misconduct has not been cured (or cannot be cured) within thirty (30) days after the Company gives written notice to Executive regarding such misconduct; or
(v) Executives breach of any material provision of this Agreement or any other written agreement between Executive and the Company and failure to cure such breach (if capable of cure) within thirty (30) days after the Company gives written notice to Executive regarding such breach.
(b) Change in Control. Change in Control shall have the meaning set forth in the version of the Selecta Biosciences, Inc. 2016 Incentive Award Plan in effect on the Effective Date.
(c) Code. Code shall mean the Internal Revenue Code of 1986, as amended, and the regulations and guidance promulgated thereunder.
(d) Date of Termination. Date of Termination shall mean (i) if Executives employment is terminated by Executives death, the date of Executives death; or (ii) if Executives employment is terminated pursuant to Section 3(a)(ii) (vi) either the date indicated in the Notice of Termination or the date specified by the Company pursuant to Section 3(b), whichever is earlier.
(e) Disability. Disability shall mean, at any time the Company or any of its affiliates sponsors a long-term disability plan for the Companys employees, disability as defined in such long-term disability plan for the purpose of determining a participants eligibility for benefits, provided, however, if the long-term disability plan contains multiple definitions of disability, Disability shall refer to that definition of disability which, if Executive qualified for such disability benefits, would provide coverage for the longest period of time. The determination of whether Executive has a Disability shall be made by the person or persons required to make disability determinations under the long-term disability plan. At any time the Company does not sponsor a long-term disability plan for its employees, Disability shall mean Executives inability to perform, with or without reasonable accommodation, the essential functions of Executives positions hereunder for a total of six months during any twelve-month period as a result of incapacity due to mental or physical illness as determined by a physician selected by the Company or its insurers and acceptable to Executive or Executives legal representative, with such agreement as to acceptability not to be unreasonably withheld or delayed. Any unreasonable refusal by Executive to submit to a medical examination for the purpose of determining Disability shall be deemed to constitute conclusive evidence of Executives Disability.
(f) Good Reason. For the sole purpose of determining Executives right to severance payments and benefits as described above, Executives resignation will be with Good Reason if Executive resigns within one year after any of the following events, unless Executive consents to the applicable event in writing: (i) a material reduction in Executives Annual Base Salary or Target Bonus, (ii) a material diminution in Executives authority, title, duties or areas of responsibility, (iii) the requirement that Executive report to someone other than the Chief Executive Officer, (iv) the relocation of Executives primary office to a location more than 40 miles from the Boston metropolitan area, or (v) a
material breach by the Company of this Agreement or any other written agreement with Executive. Notwithstanding the foregoing, no Good Reason will have occurred unless and until Executive has: (a) provided the Company, within 60 days of Executives knowledge of the occurrence of the facts and circumstances underlying the Good Reason event, written-notice stating with specificity the applicable facts and circumstances underlying such finding of Good Reason; and (b) provided the Company with an opportunity to cure the same within thirty (30) days after the receipt of such notice.
8. Parachute Payments.
(a) Notwithstanding any other provisions of this Agreement or any Company equity plan or agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments and benefits, including the payments and benefits under Section 4(b) and Section 4(c) hereof, being hereinafter referred to as the Total Payments), would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then the Total Payments shall be reduced (in the order provided in Section 8(b)) to the minimum extent necessary to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).
(b) The Total Payments shall be reduced in the following order: (i) reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code (Section 409A), (ii) reduction on a pro-rata basis of any non-cash severance payments or benefits that are exempt from Section 409A, (iii) reduction on a pro-rata basis of any other payments or benefits that are exempt from Section 409A, and (iv) reduction of any payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A; provided, in case of clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards shall be first applied to Company equity awards that would otherwise vest last in time.
(c) The Company will select an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax (the Independent Advisors) to make determinations regarding the application of this Section 8. For purposes of such determinations, no portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not constitute a parachute payment within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the base amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation. The costs of obtaining such determination and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company.
(d) If Executive incurs legal fees or other expenses (including expert witness and accounting fees) in an effort to determine the applicability of this Section 8 or establish entitlement to or obtain any portion of the Total Payments that have been reduced under this Section 8 (collectively, Legal and Other Expenses), Executive shall be entitled to payment of or reimbursement for such Legal and Other
Expenses in accordance with this Section 8(d). Subject to Sections 9(l)(iv) and 9(m) and the other provisions of this Section 8, the Company will reimburse all Legal and Other Expenses on a monthly basis reasonably promptly after presentation of Executives written request for reimbursement accompanied by evidence reasonably acceptable to the Company that such Legal and Other Expenses were incurred. If the Company establishes before a court of competent jurisdiction that Executive had no reasonable basis for a claim made by Executive hereunder, or acted in bad faith, no further payment of or reimbursement for Legal and Other Expenses shall be due to Executive in respect of such claim, and Executive shall refund any amounts previously paid or reimbursed hereunder with respect to such claim.
(e) In the event it is later determined that to implement the objective and intent of this Section 8, (i) a greater reduction in the Total Payments should have been made, the excess amount shall be returned promptly by Executive to the Company or (ii) a lesser reduction in the Total Payments should have been made, the excess amount shall be paid or provided promptly by the Company to Executive, except to the extent the Company reasonably determines would result in imposition of an excise tax under Section 409A.
9. Miscellaneous Provisions.
(a) Governing Law. This Agreement shall be governed, construed, interpreted and enforced in accordance with its express terms, and otherwise in accordance with the substantive laws of the Commonwealth of Massachusetts without reference to the principles of conflicts of law of the Commonwealth of Massachusetts or any other jurisdiction that would result in application of the laws of a jurisdiction other than the Commonwealth of Massachusetts, and where applicable, the laws of the United States.
(b) Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
(c) Notices. Any notice, request, claim, demand, document and other communication hereunder to any Party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile or certified or registered mail, postage prepaid, as follows:
(i) If to the Company, to the General Counsel of the Company at the Companys headquarters,
(ii) If to Executive, to the last address that the Company has in its personnel records for Executive, or
(iii) at any other address as any Party shall have specified by notice in writing to the other Party.
(d) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. Signatures delivered by facsimile or PDF shall be deemed effective for all purposes.
(e) Entire Agreement. The terms of this Agreement, the Restrictive Covenant Agreement incorporated herein by reference as set forth in Section 5, the Indemnification Agreement (defined below) and any stock option agreement between the Company and Executive entered into prior to the date hereof are intended by the Parties to be the final expression of their agreement with respect to the subject matter hereof and supersede all prior understandings and agreements, whether written or oral, including without
limitation any prior employment agreement or offer letter between Executive and the Company. The Parties further intend that this Agreement shall constitute the complete and exclusive statement of their terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.
(f) Indemnification. The Parties acknowledge that they have or will enter into an Indemnification Agreement in substantially the form attached as Exhibit C hereto.
(g) Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Executive and a duly authorized officer of Company. By an instrument in writing similarly executed, Executive or a duly authorized officer of the Company may waive compliance by the other Party with any specifically identified provision of this Agreement that such other Party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.
(h) No Inconsistent Actions. The Parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the Parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement.
(i) Construction. This Agreement shall be deemed drafted equally by both the Parties. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle that the language is to be construed against any Party shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation. Any references to paragraphs, subparagraphs, sections or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary. Also, unless the context clearly indicates to the contrary, (i) the plural includes the singular and the singular includes the plural; (ii) and and or are each used both conjunctively and disjunctively; (iii) any, all, each, or every means any and all, and each and every; (iv) includes and including are each without limitation; (v) herein, hereof, hereunder and other similar compounds of the word here refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection; and (vi) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require.
(j) Enforcement. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the Term, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.
(k) Withholding. The Company shall be entitled to withhold from any amounts payable under this Agreement any federal, state, local or foreign withholding or other taxes or charges which the Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise.
(l) Section 409A.
(i) General. The intent of the Parties is that the payments and benefits under this Agreement comply with or be exempt from Section 409A and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.
(ii) Separation from Service. Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that is considered nonqualified deferred compensation under Section 409A and is designated under this Agreement as payable upon Executives termination of employment shall be payable only upon Executives separation from service with the Company within the meaning of Section 409A (a Separation from Service) and, except as provided below, any such compensation or benefits described in Section 4 shall not be paid, or, in the case of installments, shall not commence payment, until the sixtieth (60th) day following Executives Separation from Service (the First Payment Date). Any installment payments that would have been made to Executive during the sixty (60) day period immediately following Executives Separation from Service but for the preceding sentence shall be paid to Executive on the First Payment Date and the remaining payments shall be made as provided in this Agreement.
(iii) Specified Employee. Notwithstanding anything in this Agreement to the contrary, if Executive is deemed by the Company at the time of Executives Separation from Service to be a specified employee for purposes of Section 409A, to the extent delayed commencement of any portion of the benefits to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A, such portion of Executives benefits shall not be provided to Executive prior to the earlier of (i) the expiration of the six-month period measured from the date of Executives Separation from Service with the Company or (ii) the date of Executives death. Upon the first business day following the expiration of the applicable Section 409A period, all payments deferred pursuant to the preceding sentence shall be paid in a lump sum to Executive (or Executives estate or beneficiaries), and any remaining payments due to Executive under this Agreement shall be paid as otherwise provided herein.
(iv) Expense Reimbursements. To the extent that any reimbursements under this Agreement are subject to Section 409A, any such reimbursements payable to Executive shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred; provided, that Executive submits Executives reimbursement request promptly following the date the expense is incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, other than medical expenses referred to in Section 105(b) of the Code, and Executives right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.
(v) Installments. Executives right to receive any installment payments under this Agreement, including without limitation any continuation salary payments that are payable on Company payroll dates, shall be treated as a right to receive a series of separate payments and, accordingly, each such installment payment shall at all times be considered a separate and distinct payment as permitted under Section 409A. Except as otherwise permitted under Section 409A, no payment hereunder shall be accelerated or deferred unless such acceleration or deferral would not result in additional tax or interest pursuant to Section 409A.
(m) Attorneys Fees. In the event that either Party prevails in a dispute with the other Party concerning the rights and obligations hereunder, the non-prevailing Party shall pay the prevailing Partys reasonable attorneys fees and costs.
10. Executive Acknowledgement.
Executive acknowledges that Executive has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on Executives own judgment.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date and year first above written.
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SELECTA BIOSCIENCES, INC. | |
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By: |
/s/ Werner Cautreels, Ph.D. |
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Name: Werner Cautreels, Ph.D. |
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Title: President and Chief Executive Officer |
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/s/ Takashi Kei Kishimoto, Ph.D. | |
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Takashi Kei Kishimoto, Ph.D. |
[Signature Page to Employment Agreement]
EXHIBIT A
Separation Agreement and Release
This Separation Agreement and Release (Agreement) is made by and between Takashi Kei Kishimoto, Ph.D. (Executive) and Selecta Biosciences, Inc. (the Company) (collectively referred to as the Parties or individually referred to as a Party). Capitalized terms used but not defined in this Agreement shall have the meanings set forth in the Employment Agreement (as defined below).
WHEREAS, the Parties have previously entered into that certain Employment Agreement, dated as of June 6, 2016 (the Employment Agreement); and
WHEREAS, in connection with Executives termination of employment with the Company or a subsidiary or affiliate of the Company effective , 20 , the Parties wish to resolve any and all disputes, claims, complaints, grievances, charges, actions, petitions, and demands that Executive may have against the Company and any of the Releasees as defined below, including, but not limited to, any and all claims arising out of or in any way related to Executives employment with or separation from the Company or its subsidiaries or affiliates but, for the avoidance of doubt, nothing herein will be deemed to release any rights or remedies in connection with Executives ownership of vested equity securities of the Company, vested benefits or Executives right to defense or indemnification by the Company or any of its affiliates pursuant to contract or applicable law (collectively, the Retained Claims). The Company agrees not to contest Executives application for unemployment benefits; provided that nothing herein shall prohibit the Company from responding truthfully to requests for information from, or require the Company to make any false or misleading statements to, any governmental authority.
NOW, THEREFORE, in consideration of the severance payments and benefits described in Section 4 of the Employment Agreement, which, pursuant to the Employment Agreement, are conditioned on Executives execution and non-revocation of this Agreement, and in consideration of the mutual promises made herein, the Company and Executive hereby agree as follows:
1. Severance Payments; Salary and Benefits. The Company agrees to provide Executive with the severance payments and benefits described in Section 4(b) and Section 4(c) of the Employment Agreement, payable at the times set forth in, and subject to the terms and conditions of, the Employment Agreement. In addition, to the extent not already paid, and subject to the terms and conditions of the Employment Agreement, the Company shall pay or provide to Executive all other payments or benefits described in Section 3(c) of the Employment Agreement, subject to and in accordance with the terms thereof.
2. Release of Claims. Executive agrees that, other than with respect to the Retained Claims, the foregoing consideration represents settlement in full of all outstanding obligations owed to Executive by the Company, any of its direct or indirect subsidiaries and affiliates, and any of their current and former officers, directors, equity holders, managers, employees, agents, investors, attorneys, shareholders, administrators, affiliates, benefit plans, plan administrators, insurers, trustees, divisions, and subsidiaries and predecessor and successor corporations and assigns (collectively, the Releasees). Executive, on Executives own behalf and on behalf of any of Executives affiliated companies or entities and any of their respective heirs, family members, executors, agents, and assigns, other than with respect to the Retained Claims, hereby and forever releases the Releasees from, and agrees not to sue concerning, or in any manner to institute, prosecute, or pursue, any claim, complaint, charge, duty, obligation, or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that Executive may possess against any of the Releasees arising from any omissions, acts, facts, or damages that have occurred up until and including the Effective Date of this Agreement (as defined in Section 7 below), including, without limitation:
(a) any and all claims relating to or arising from Executives employment or service relationship with the Company or any of its direct or indirect subsidiaries or affiliates and the termination of that relationship;
(b) any and all claims relating to, or arising from, Executives right to purchase, or actual purchase of any shares of stock or other equity interests of the Company or any of its affiliates, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law;
(c) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; harassment; retaliation; breach of contract, both express and implied; breach of covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; fraud; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; conversion; and disability benefits;
(d) any and all claims for violation of any federal, state, or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1991; the Rehabilitation Act of 1973; the Americans with Disabilities Act of 1990; the Equal Pay Act; the Fair Credit Reporting Act; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act; the Employee Retirement Income Security Act of 1974; the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act; and the Sarbanes-Oxley Act of 2002;
(e) any and all claims for violation of the federal or any state constitution;
(f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination;
(g) any claim for any loss, cost, damage, or expense arising out of any dispute over the non-withholding or other tax treatment of any of the proceeds received by Executive as a result of this Agreement; and
(h) any and all claims for attorneys fees and costs.
Executive agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not release claims that cannot be released as a matter of law, including, but not limited to, Executives right to report possible violations of federal law or regulation to any governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002, or any other whistleblower protection provisions of state or federal law or regulation, Executives right to file a charge with or participate in a charge by the Equal Employment Opportunity Commission, or any other local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against the Company (with the understanding that Executives release of claims herein bars Executive from recovering such monetary relief from the Company or any Releasee), claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law, claims to continued participation in certain of the Companys group benefit plans pursuant to the terms and conditions of COBRA, claims to any benefit entitlements vested as the date of separation of Executives employment, pursuant to written terms of any employee benefit plan of the Company or its affiliates and Executives right under applicable
law and any Retained Claims. This release further does not release claims for breach of Section 3(c), Section 4(b) or Section 4(c) of the Employment Agreement.
3. Acknowledgment of Waiver of Claims under ADEA. Executive understands and acknowledges that Executive is waiving and releasing any rights Executive may have under the Age Discrimination in Employment Act of 1967 (ADEA), and that this waiver and release is knowing and voluntary. Executive understands and agrees that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement. Executive understands and acknowledges that the consideration given for this waiver and release is in addition to anything of value to which Executive was already entitled. Executive further understands and acknowledges that Executive has been advised by this writing that: (a) Executive should consult with an attorney prior to executing this Agreement; (b) Executive has 21 days within which to consider this Agreement; (c) Executive has 7 days following Executives execution of this Agreement to revoke this Agreement pursuant to written notice to the General Counsel of the Company; (d) this Agreement shall not be effective until after the revocation period has expired; and (e) nothing in this Agreement prevents or precludes Executive from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties, or costs for doing so, unless specifically authorized by federal law. In the event Executive signs this Agreement and returns it to the Company in less than the 21 day period identified above, Executive hereby acknowledges that Executive has freely and voluntarily chosen to waive the time period allotted for considering this Agreement.
4. Severability. In the event that any provision or any portion of any provision hereof or any surviving agreement made a part hereof becomes or is declared by a court of competent jurisdiction or arbitrator to be illegal, unenforceable, or void, this Agreement shall continue in full force and effect without said provision or portion of provision.
5. No Oral Modification. This Agreement may only be amended in a writing signed by Executive and a duly authorized officer of the Company.
6. Governing Law. This Agreement shall be subject to the provisions of Sections 9(a) and 9(c) of the Employment Agreement.
7. Effective Date. If Executive has attained or is over the age of 40 as of the date of Executives termination of employment, then each Party has seven days after that Party signs this Agreement to revoke it and this Agreement will become effective on the eighth day after Executive signed this Agreement, so long as it has been signed by the Parties and has not been revoked by either Party before that date (the Effective Date). If Executive has not attained the age of 40 as of the date of Executives termination of employment, then the Effective Date shall be the date on which Executive signs this Agreement.
8. Voluntary Execution of Agreement. Executive understands and agrees that Executive executed this Agreement voluntarily, without any duress or undue influence on the part or behalf of the Company or any third party, with the full intent of releasing all of Executives claims against the Company and any of the other Releasees. Executive acknowledges that: (a) Executive has read this Agreement; (b) Executive has not relied upon any representations or statements made by the Company that are not specifically set forth in this Agreement; (c) Executive has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of Executives own choice or has elected not to retain legal counsel; (d) Executive understands the terms and consequences of this Agreement and of the releases it contains; and (e) Executive is fully aware of the legal and binding effect of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.
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Takashi Kei Kishimoto, Ph.D. | ||
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SELECTA BIOSCIENCES, INC. | ||
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EXHIBIT B
Employee Nondisclosure, Noncompetition and Assignment of Intellectual Property Agreement
[attached]
SELECTA BIOSCIENCES, INC.
EMPLOYEE NONDISCLOSURE, NONCOMPETITION AND
ASSIGNMENT OF INTELLECTUAL PROPERTY AGREEMENT
In consideration and as a condition of my employment by Selecta Biosciences, Inc., a Delaware corporation (the Company), and of the compensation to be paid to me, and in recognition of the fact that as an employee of the Company I will or may have access to confidential information, I agree with the Company as follows:
1. Performance: Prior Obligations.
(a) I agree to use best efforts to perform my assigned duties diligently, conscientiously, and with reasonable skill, and shall comply with all rules, procedures and standards promulgated from time to time by the Company with regard to my conduct and my access to and use of the Companys property, equipment and facilities. Among such rules, procedures and standards are those governing ethical and other professional standards for dealing with customers, government agencies, vendors, competitors, consultants, fellow employees, and the public-at-large, security provisions designed to protect Company property and the personal security of Company employees, rules respecting attendance, punctuality, and hours of work, and rules and procedures designed to protect the confidentiality of proprietary information. The Company agrees to make reasonable efforts to inform me of such rules, standards and procedures as are in effect from time to time.
(b) I hereby represent, warrant and agree (i) that I have the full right to enter into this Agreement and perform the services required of me hereunder, without any restriction whatsoever; (ii) that in the course of performing services hereunder, I will not violate the terms or conditions of any agreement between me and any third party or infringe or wrongfully appropriate any patents, copyrights, trade secrets or other intellectual property rights of any person or entity anywhere in the world; (iii) that I have not and will not disclose or use during my employment by the Company any confidential information that I acquired as a result of any previous employment or consulting arrangement or under a previous obligation of confidentiality; and (iv) that I have disclosed to the Company in writing any and all continuing obligations to previous employers or others that require me not to disclose any information to the Company.
2. Confidential Information. While employed by the Company and thereafter, I shall not, directly or indirectly, use any Confidential Information (as hereinafter defined) other than pursuant to my employment by and for the benefit of the Company, or disclose any Confidential Information to anyone outside of the Company, whether by private communication, public address, publication or otherwise, or disclose any Confidential Information to anyone within the Company who has not been authorized to receive such information, except as directed in writing by an authorized representative of the Company. The term Confidential Information as used throughout this Agreement shall mean all trade secrets, proprietary information, know-how, data, designs, specifications, processes, customer lists and other technical or business information (and any tangible evidence, record or representation thereof), whether prepared,
conceived or developed by a consultant or employee of the Company (including myself) or received by the Company from an outside source, which is in the possession of the Company (whether or not the property of the Company), which in any way relates to the present or future business of the Company, which is maintained in confidence by the Company, or which might permit the Company or its customers to obtain a competitive advantage over competitors who do not have access to such trade secrets, proprietary information, or other data or information. Without limiting the generality of the foregoing. Confidential Information shall include, without limitation:
(a) any idea, improvement, invention, innovation, development, concept, technical or clinical data, design, formula, device, pattern, sequence, method, process, composition of matter, computer program or software, source code, object code, algorithm, model, diagram, flow chart, product specification or design, plan for a new or revised product, sample, compilation of information, or work in process, or parts thereof, and any and all revisions and improvements relating to any of the foregoing (in each case whether or not reduced to tangible form); and
(b) the name of any customer, supplier, employee, prospective customer, sales agent, supplier or consultant, any sales plan, marketing material, plan or survey, business plan or opportunity, product or development plan or specification, business proposal, financial record, or business record or other record or information relating to the present or proposed business of the Company.
Notwithstanding the foregoing, the term Confidential Information shall not apply to information which the Company has voluntarily disclosed to the public without restriction, or which has otherwise lawfully entered the public domain.
I shall promptly notify my supervisor or any officer of the Company if I learn of any possible unauthorized use or disclosure of Confidential Information and shall cooperate fully with the Company to enforce its rights in such information.
I understand that the Company from time to time has in its possession information (including product and development plans and specifications) which is claimed by customers and others to be proprietary and which the Company has agreed to keep confidential. I agree that all such information shall be Confidential Information for purposes of this Agreement.
3. Ownership and Assignment of Intellectual Property.
(a) I agree that all originals and all copies of all manuscripts, drawings, prints, manuals, diagrams, letters, notes, notebooks, reports, models, records, files, memoranda, plans, sketches and all other documents and materials containing, representing, evidencing, recording, or constituting any Confidential Information (as defined in Section 2 above), however and whenever produced (whether by myself or others) during the course of my employment, shall be the sole property of the Company.
(b) I agree that all Confidential Information and all other discoveries, inventions, ideas, concepts, trademarks, service marks, logos, processes, products, formulas, computer programs or software, source codes, object codes, algorithms, machines, apparatuses,
items of manufacture or composition of matter, or any new uses therefor or improvements thereon, or any new designs or modifications or configurations of any kind, or works of authorship of any kind, including, without limitation, compilations and derivative works, whether or not patentable or copyrightable, conceived, developed, reduced to practice or otherwise made by me, either alone or with others, and related to the business of the Company or to tasks assigned to me during the course of my employment, whether or not made during my regular working hours, whether or not conceived, developed, reduced to practice or made on the Companys premises and whether or not disclosed by me to the Company (collectively Company Inventions), and any and all services and products which embody, emulate or employ any such Company Invention or Confidential Information shall be the sole property of the Company and all copyrights, patents, patent rights, trademarks and reproduction rights to, and other proprietary rights in, each such Company Invention or Confidential Information, whether or not patentable or copyrightable, shall belong exclusively to the Company. For the avoidance of doubt, Confidential Information shall only include information that relates to the present or future business of the Company, and Company Inventions shall only include inventions that relate to the business of the Company or to tasks assigned to me during the course of my employment.
(c) I agree to, and hereby do, assign to the Company all my right, title and interest throughout the world in and to all Company Inventions and to anything tangible which evidences, incorporates, constitutes, represents or records any Company Invention. I agree that all Company Inventions shall constitute works made for hire under the copyright laws of the United States and hereby assign and, to the extent any such assignment cannot be made at present, I hereby agree to assign to the Company all copyrights, patents and other proprietary rights I may have in any Company Inventions, together with the right to file for and/or own wholly without restriction United States and foreign patents, trademarks, and copyrights. I agree to waive, and hereby waive, all moral rights or proprietary rights in or to any Company Inventions and, to the extent that such rights may not be waived, agree not to assert such rights against the Company or its licensees, successors or assigns.
(d) I hereby certify Exhibit A sets forth any and all confidential information and intellectual property that I claim as my own or otherwise intend to exclude from this Agreement because it was developed by me prior to the date of this Agreement. I understand that after execution of this Agreement I shall have no right to exclude Confidential Information or Company Inventions from this Agreement.
4. Employees Obligation to Keep Records. I shall make and maintain adequate and current written records of all Company Inventions, including notebooks and invention disclosures, which records shall be available to and remain the property of the Company at all times. I shall disclose all Company Inventions promptly, fully and in writing to the Company immediately upon production or development of the same and at any time upon request.
5. Employees Obligation to Cooperate. I will, at any time during my employment, or after it terminates, upon request of the Company, execute all documents and perform all lawful acts which the Company considers necessary or advisable to secure its rights hereunder and to carry out the intent of this Agreement. Without limiting the generality of the foregoing, I will assist the Company in any reasonable manner to obtain for its own benefit patents or
copyrights in any and all countries with respect to all Company Inventions assigned pursuant to Section 3, and I will execute, when requested, patent and other applications and assignments thereof to the Company, or persons designated by it, and any other lawful documents deemed necessary by the Company to carry out the purposes of this Agreement, and I will further assist the Company in every way to enforce any patents and copyrights obtained, including, without limitation, testifying in any suit or proceeding involving any of said patents or copyrights or executing any documents deemed necessary by the Company, all without further consideration than provided for herein. It is understood that reasonable out-of-pocket expenses of my assistance incurred at the request of the Company under this Section will be reimbursed by the Company.
6. Noncompetition and Non-solicitation. During my employment with the Company and for a period of 12 months after the termination of my employment with the Company for any reason, I shall not, without the Companys prior written consent, on my own behalf, or as owner, manager, stockholder, consultant, director, officer, or employee of any business entity (except as a holder of not more than three (3%) percent of the stock of a publicly held company) participate in any capacity in any business activity that is in direct competition with any of the products or services being developed, marketed, distributed, planned, sold or otherwise provided by the Company or its affiliates at the time of, or during the 12 months preceding, my termination.
During my employment with the Company and for a period of 12 months after the termination of my employment with the Company for any reason, I shall not solicit, induce or encourage any employee of the Company to terminate his or her employment with the Company.
7. Return of Property. Upon termination of my employment with the Company, or at any other time upon request of the Company, I shall cease using and return promptly any and all customer or prospective customer lists, other customer or prospective customer information or related materials, computer programs, software, electronic data, specifications, drawings, blueprints, data storage devices, reproductions, sketches, notes, notebooks, memoranda, reports, records, proposals, business plans, or copies of them, other documents or materials, tools, equipment, or other property belonging to the Company or its customers which I may then possess or have under my direct or indirect control. I further agree that upon termination of employment, I shall not take with me any documents or data in any form or of any description containing or pertaining to Confidential Information or Company Inventions, other than documents I have a right to retain under applicable law (with the understanding that my obligations under this Agreement continue to apply to any such retained documents). For purposes of clarity, using best efforts to completely remove (with the Companys prior written permission) from any personal computer, laptop, smart phone, IPad, or any other electronic device, any Company Property that I have previously returned to the Company in accordance with this Section 7 satisfies my obligations under this section.
8. Other Obligations. I acknowledge that the Company from time to time may have agreements with other persons, including the government of the United States or other countries and agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. I agree to be bound by all such obligations and restrictions and to take all action necessary to discharge the obligations of the Company thereunder.
9. Miscellaneous.
(a) This Agreement contains the entire and only agreement between me and the Company with respect to the subject matter hereof, superseding any previous oral or written communications, representations, understandings, or agreements with the Company or any officer or representative hereof. In the event of any inconsistency between this Agreement and any other contract between me and the Company, the provisions of this Agreement shall prevail.
(b) My obligations under Sections 2, 3, 5, 6 (for the periods set forth therein), 7, 8 and 9 of this Agreement shall survive the termination of my employment with the Company regardless of the manner of or reasons for such termination, and regardless of whether such termination constitutes a breach of any other agreement I may have with the Company. My obligations under this Agreement shall be binding upon my heirs, assigns, executors, administrators and representatives, and the provisions of this Agreement shall inure to the benefit of and be binding on the successors and assigns of the Company.
(c) If any provision of this Agreement shall be determined to be unenforceable by any court of competent jurisdiction by reason of its extending for too great a period of time or over too large a geographic area or over too great a range of activities, it shall be interpreted to extend only over the maximum period of time, geographic area or range of activities as to which it may be enforceable. If, after application of the immediately preceding sentence, any provision of this Agreement shall be determined to be invalid, illegal or otherwise unenforceable by any court of competent jurisdiction, the validity, legality and enforceability of the other provisions of this Agreement shall not be affected thereby. Except as otherwise provided in this paragraph, any invalid, illegal or unenforceable provision of this Agreement shall be severable, and after any such severance, all other provisions hereof shall remain in full force and effect.
(d) I acknowledge and agree that violation of this Agreement by me would cause irreparable harm to the Company not adequately compensable by money damages alone, and I therefore agree that, in addition to all other remedies available to the Company at law, in equity or otherwise, the Company shall be entitled to injunctive relief to prevent an actual or threatened violation of this Agreement and to enforce the provisions hereof, without showing or proving any actual damage to the Company or posting any bond in connection therewith.
(e) No failure by the Company to insist upon strict compliance with any of the terms, covenants, or conditions hereof, and no delay or omission by the Company in exercising any right under this Agreement, will operate as a waiver of such terms, covenants, conditions or rights. A waiver or consent given by the Company on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
(f) This Agreement may not be changed, modified, released, discharged, abandoned, or otherwise amended, in whole or in part, except by an instrument in writing signed by me and the Company.
(g) This Agreement shall be governed by, and construed and enforced in accordance with, the laws of The Commonwealth of Massachusetts, without regard to its principles of conflicts of laws. This Agreement is executed under seal.
[Signature Page Follows]
BY PLACING MY SIGNATURE HEREUNDER, I ACKNOWLEDGE THAT I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL AND I HAVE READ ALL THE PROVISIONS OF THIS EMPLOYEE NONDISCLOSURE, NONCOMPETITION AND ASSIGNMENT OF INTELLECTUAL PROPERTY AGREEMENT AND THAT I AGREE TO ALL OF ITS TERMS.
Effective Date: June 2, 2016 |
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EMPLOYEE: | ||
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/s/ Takashi Kei Kishimoto | ||
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Signature | ||
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Takashi Kei Kishimoto | |
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Accepted and Agreed: | ||
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SELECTA BIOSCIENCES, INC. | ||
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/s/ Werner Cautreels, Ph.D. | |
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Name: Werner Cautreels, Ph.D. | ||
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Title: President and Chief Executive Officer | ||
EXHIBIT A
Excluded Confidential Information and Inventions
EXHIBIT C
Form of Indemnification Agreement
[attached]
Exhibit 10.19
Employment Agreement
This Employment Agreement (this Agreement), dated as of June 6, 2016, is made by and between Selecta Biosciences, Inc., a Delaware corporation (together with any successor thereto, the Company), and Peter Keller, M.Sci. (Executive) (collectively referred to as the Parties or individually referred to as a Party).
RECITALS
A. It is the desire of the Company to assure itself of the services of Executive following the Effective Date (as defined below) and thereafter by entering into this Agreement.
B. Executive and the Company mutually desire that Executive provide services to the Company on the terms herein provided.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the Parties hereto agree as follows:
1. Employment.
(a) General. Effective on the closing of the Companys initial public offering of stock pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the Effective Date), the Company shall employ Executive and Executive shall remain in the employ of the Company, for the period and in the positions set forth in this Section 1, and subject to the other terms and conditions herein provided.
(b) At-Will Employment. The Company and Executive acknowledge that Executives employment is and shall continue to be at-will, as defined under applicable law, and that Executives employment with the Company may be terminated by either Party at any time for any or no reason (subject to the notice requirements of Section 3(b)). This at-will nature of Executives employment shall remain unchanged during Executives tenure as an employee and may not be changed, except in an express writing signed by Executive and a duly authorized officer of the Company. If Executives employment terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement or otherwise agreed to in writing by the Company or as provided by applicable law. The term of this Agreement (the Term) shall commence on the Effective Date and end on the date this Agreement is terminated under Section 3.
(c) Positions and Duties. Executive shall serve as Chief Business Officer of the Company with such responsibilities, duties and authority normally associated with such positions and as may from time to time be reasonably assigned to Executive by the Chief Executive Officer of the Company. Executive shall devote substantially all of Executives working time and efforts to the business and affairs of the Company (which shall include service to its affiliates, if applicable), provided that Executive may engage in outside business activities (including serving on outside boards or committees or as a consultant to VIB) to the extent such activities do not materially interfere with the performance of Executives duties and responsibilities under this Agreement or violate the terms of the Employee Nondisclosure, Noncompetition and Assignment of Intellectual Property Agreement attached as Exhibit B (the Restrictive Covenant Agreement). The parties acknowledge that, except as would materially interfere with the performance of Executives duties and responsibilities under this Agreement or as could
reasonably be expected to result in significant adverse tax or other legal consequences for the Company, Executive will be permitted from time to time to perform his duties and responsibilities under this Agreement remotely. Executive agrees to observe and comply with the rules and policies of the Company as adopted by the Company from time to time, in each case as amended from time to time, as set forth in writing, and as delivered or made available to Executive (each, a Policy).
2. Compensation and Related Matters.
(a) Annual Base Salary. During the Term, Executive shall receive a base salary at a rate of $290,000 per annum, which shall be paid in accordance with the customary payroll practices of the Company and shall be pro-rated for partial years of employment. Such annual base salary shall be reviewed (and may be increased) from time to time by the Board of Directors of the Company or an authorized committee of the Board (in either case, the Board) (such annual base salary, as it may be increased from time to time, the Annual Base Salary).
(b) Bonus. During the Term, Executive will be eligible to participate in an annual incentive program established by the Board. Executives annual incentive compensation under such incentive program (the Annual Bonus) shall be targeted at 35% of Executives Annual Base Salary (the Target Bonus). The Annual Bonus payable under the incentive program shall be based on the achievement of performance goals to be determined by the Board. The payment of any Annual Bonus pursuant to the incentive program will be made on or before March 15 of the year following the year in which such Annual Bonus is earned.
(c) Benefits. During the Term, Executive shall be eligible to participate in employee benefit plans, programs and arrangements of the Company (including medical, dental and 401(k) plans), consistent with the terms thereof and as such plans, programs and arrangements may be amended from time to time. In no event shall Executive be eligible to participate in any severance plan or program of the Company, except as set forth in Section 4 of this Agreement. Subject to Section 9(l)(iv), the Company will reimburse Executives reasonable roundtrip airfare incurred for travel to visit Executives children not more than once per calendar month during the Term provided that such travel (i) does not materially interfere with the performance of Executives duties and responsibilities under this Agreement and (ii) is consistent with a class of air travel that would, if undertaken for business purposes, be reimbursable under the Companys travel expense reimbursement Policy. To the extent the Company reasonably determines all or a portion of any such reimbursement constitutes taxable income to Executive, Executive will be liable and responsible for the employee portion of all taxes owed in connection therewith and the Company may (but will not be required to) deduct or withhold such taxes from any compensation payable to Executive by the Company or its affiliates.
(d) Vacation. During the Term, Executive shall be entitled to four weeks of paid personal leave, or paid personal leave per calendar year in accordance with the Companys Policies, whichever is greater. Vacation days accrued, but not used by the end of any calendar year may be used in the subsequent calendar year; provided that no more than five accrued vacation days may be carried over from one year to the next. Any vacation shall be taken at the reasonable and mutual convenience of the Company and Executive.
(e) Business Expenses. During the Term, the Company shall reimburse Executive for all reasonable travel and other business expenses incurred by Executive in the performance of Executives duties to the Company in accordance with the Companys expense reimbursement Policy.
(f) Key Person Insurance. At any time during the Term, the Company shall have the right to insure the life of Executive for the Companys sole benefit. The Company shall have the right to determine the amount of insurance and the type of policy. Executive shall reasonably cooperate with the Company in obtaining such insurance by submitting to physical examinations, by supplying all information reasonably required by any insurance carrier, and by executing all necessary documents reasonably required by any insurance carrier, provided that any information provided to an insurance company or broker shall not be provided to the Company without the prior written authorization of Executive. Executive shall incur no financial obligation by executing any required document, and shall have no interest in any such policy.
3. Termination.
Executives employment hereunder may be terminated by the Company or Executive, as applicable, without any breach of this Agreement under the following circumstances:
(a) Circumstances.
(i) Death. Executives employment hereunder shall terminate upon Executives death.
(ii) Disability. If Executive has incurred a Disability, as defined below, the Company may terminate Executives employment.
(iii) Termination for Cause. The Company may terminate Executives employment for Cause, as defined below.
(iv) Termination without Cause. The Company may terminate Executives employment without Cause.
(v) Resignation from the Company with Good Reason. Executive may resign Executives employment with the Company with Good Reason, as defined below.
(vi) Resignation from the Company Without Good Reason. Executive may resign Executives employment with the Company for any reason other than Good Reason or for no reason.
(b) Notice of Termination. Any termination of Executives employment by the Company or by Executive under this Section 3 (other than termination pursuant to Section 3(a)(i)) shall be communicated by a written notice to the other Party hereto (i) indicating the specific termination provision in this Agreement relied upon, (ii) setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executives employment under the provision so indicated, if applicable, and (iii) specifying a Date of Termination which, except in the case of a termination pursuant to Section 3(a)(iii), shall be at least thirty (30) days following the date of such notice, but no more than forty (40) days following the date of such notice (a Notice of Termination); provided, however, that the Company may deliver a Notice of Termination to Executive that specifies any Date of Termination that occurs on or after the date of the Notice of Termination (but no more than forty (40) days following the date of such notice) and, in the event that Executive delivers a Notice of Termination to the Company, the Company may, in its sole discretion, change the Date of Termination to any date that occurs on or following the date of the Notice of Termination and is prior to the Date of Termination specified in the Notice of Termination, provided, in either case, that if the Company selects a Date of Termination that is
less than thirty (30) days after the date of the Notice of Termination, the Company will pay Executive the base salary Executive would have earned during the period commencing on the Date of Termination selected by the Company and ending thirty (30) days after the date of the Notice of Termination. The failure by either party to set forth in the Notice of Termination any fact or circumstance shall not waive any right of the party hereunder or preclude the party from asserting such fact or circumstance in enforcing the partys rights hereunder. Any decision to terminate Executives employment for Cause shall be made by a majority vote of the Board after Executive has received written notice from the Board setting forth in reasonable detail the facts and circumstances claimed to provide the basis for the Cause and the Board has provided the Executive reasonable opportunity to be heard by the Board with counsel present if he chooses.
(c) Company Obligations upon Termination. Upon termination of Executives employment pursuant to any of the circumstances listed in this Section 3, Executive (or Executives estate) shall be entitled to receive the sum of: (i) the portion of Executives Annual Base Salary earned through the Date of Termination, but not yet paid to Executive; (ii) any unpaid Annual Bonus earned by Executive for the year prior to the year in which the Date of Termination occurs, as determined by the Board in its good faith discretion based upon actual performance achieved, which Annual Bonus, if any, shall be paid to Executive when bonuses for such year are paid to actively employed senior executives of the Company but in no event later than March 15 of the year in which the Date of Termination occurs; (iii) any expenses owed to Executive pursuant to Section 2(e); and (iv) any amount accrued and arising from Executives participation in, or benefits accrued under any employee benefit plans, programs or arrangements, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (collectively, the Company Arrangements). Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided in a benefit plan or herein, all of Executives rights to salary, severance, benefits, bonuses and other compensatory amounts hereunder (if any) shall cease upon the termination of Executives employment hereunder.
(d) Deemed Resignation. Upon termination of Executives employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its subsidiaries.
4. Severance Payments.
(a) Termination for Cause, or Termination Upon Death, Disability or Resignation from the Company Without Good Reason. If Executives employment shall terminate as a result of Executives death pursuant to Section 3(a)(i) or Disability pursuant to Section 3(a)(ii), pursuant to Section 3(a)(iii) for Cause, or pursuant to Section 3(a)(vi) for Executives resignation from the Company without Good Reason, then Executive shall not be entitled to any severance payments or benefits, except as provided in Section 3(c).
(b) Termination without Cause, or Resignation from the Company with Good Reason. If Executives employment terminates without Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to Executives resignation with Good Reason, then, subject to Executive signing on or before the 60th day following Executives Separation from Service (as defined below), and not revoking, a release of claims (which Executive will receive no later than ten (10) business days following Executives Separation from Service) substantially in the form attached as Exhibit A to this Agreement (the Release), and Executives continued compliance with Section 5, Executive shall receive, in addition to payments and benefits set forth in Section 3(c), the following:
(i) an amount in cash equal to the Annual Base Salary, payable in the form of salary continuation in regular installments over the 12-month period following the date of Executives Separation from Service (the Severance Period) in accordance with the Companys normal payroll practices;
(ii) a pro-rata portion of the Annual Bonus, payable in the form of a lump sum payment, in an amount equal to the product of (A)(i) the Target Bonus, if the Date of Termination occurs during the first quarter of the calendar year or (ii) the Annual Bonus amount based on actual performance as determined by the Board or an authorized committee thereof, if the Date of Termination occurs after the first quarter of the calendar year, multiplied by (B) a fraction, using the number of full months of the year elapsed prior to the Date of Termination as the numerator and 12 as the denominator; and
(iii) if Executive elects to receive continued medical, dental and/or vision coverage under one or more of the Companys group healthcare plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA), the Company shall directly pay, or reimburse Executive for, the COBRA premiums for Executive and Executives covered dependents under such plans during the period commencing on Executives Separation from Service and ending upon the earliest of (X) the last day of the Severance Period, (Y) the date that Executive and/or Executives covered dependents become no longer eligible for COBRA or (Z) the date Executive becomes eligible to receive medical, dental or vision coverage, as applicable, from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility). Notwithstanding the foregoing, if the Company determines in its sole discretion that it cannot provide the foregoing benefit without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act) or incurring an excise tax, the Company may alter the manner in which medical, dental or vision coverage is provided to Executive after the Date of Termination so long as such alteration does not increase the after-tax cost to Executive of such benefits.
(c) Change in Control. Notwithstanding anything to the contrary in any applicable Company equity plan or equity agreement, in the event Executives employment terminates without Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to Executives resignation with Good Reason, in either case, within 60 days prior to or on or within 12 months following the date of a Change in Control, subject to Executive signing on or before the 60th day following Executives Separation from Service, and not revoking, the Release (which Executive will receive no later than ten (10) business days following Executives Separation from Service), and Executives continued compliance with Section 5, Executive shall receive, in addition to the payments and benefits set forth in Section 3(c) and Section 4(b), immediate vesting of all unvested equity or equity-based awards held by Executive under any Company equity compensation plans that vest solely based on the passage of time (for the avoidance of doubt, with any such awards that vest in whole or in part based on the attainment of performance-vesting conditions being governed by the terms of the applicable award agreement).
(d) Survival. Notwithstanding anything to the contrary in this Agreement, the provisions of Sections 5 through 9 will survive the termination of Executives employment and the termination of the Term.
5. Restrictive Covenants. As a condition to the effectiveness of this Agreement, Executive will execute and deliver to the Company contemporaneously herewith the Restrictive Covenant Agreement. Executive agrees to abide by the terms of the Restrictive Covenant Agreement, which are hereby incorporated by reference into this Agreement. Executive acknowledges that the provisions of the
Restrictive Covenant Agreement will survive the termination of Executives employment and the termination of the Term for the periods set forth in the Restrictive Covenant Agreement.
6. Assignment and Successors.
The Company must assign its rights and obligations under this Agreement to any of its affiliates or to any successor to all or substantially all of the business or the assets of the Company (by merger or otherwise). This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable. None of Executives rights or obligations may be assigned or transferred by Executive, other than Executives rights to payments hereunder, which may be transferred only by will or operation of law. Notwithstanding the foregoing, Executive shall be entitled, to the extent permitted under applicable law and applicable Company Arrangements, to select and change a beneficiary or beneficiaries to receive compensation hereunder following Executives death by giving written notice thereof to the Company.
7. Certain Definitions.
(a) Cause. The Company shall have Cause to terminate Executives employment hereunder upon:
(i) Executives commission of, or indictment or conviction of, any felony or any crime involving dishonesty by Executive;
(ii) Executives participation in any fraud against the Company;
(iii) any intentional damage to any property of the Company by Executive;
(iv) Executives misconduct which materially and adversely reflects upon the business, operations, or reputation of the Company, which misconduct has not been cured (or cannot be cured) within thirty (30) days after the Company gives written notice to Executive regarding such misconduct; or
(v) Executives breach of any material provision of this Agreement or any other written agreement between Executive and the Company and failure to cure such breach (if capable of cure) within thirty (30) days after the Company gives written notice to Executive regarding such breach.
(b) Change in Control. Change in Control shall have the meaning set forth in the version of the Selecta Biosciences, Inc. 2016 Incentive Award Plan in effect on the Effective Date.
(c) Code. Code shall mean the Internal Revenue Code of 1986, as amended, and the regulations and guidance promulgated thereunder.
(d) Date of Termination. Date of Termination shall mean (i) if Executives employment is terminated by Executives death, the date of Executives death; or (ii) if Executives employment is terminated pursuant to Section 3(a)(ii) (vi) either the date indicated in the Notice of Termination or the date specified by the Company pursuant to Section 3(b), whichever is earlier.
(e) Disability. Disability shall mean, at any time the Company or any of its affiliates sponsors a long-term disability plan for the Companys employees, disability as defined in such long-term disability plan for the purpose of determining a participants eligibility for benefits, provided, however, if the long-term disability plan contains multiple definitions of disability, Disability shall refer to that definition of disability which, if Executive qualified for such disability benefits, would provide coverage for the longest period of time. The determination of whether Executive has a Disability shall be made by the person or persons required to make disability determinations under the long-term disability plan. At any time the Company does not sponsor a long-term disability plan for its employees, Disability shall mean Executives inability to perform, with or without reasonable accommodation, the essential functions of Executives positions hereunder for a total of six months during any twelve-month period as a result of incapacity due to mental or physical illness as determined by a physician selected by the Company or its insurers and acceptable to Executive or Executives legal representative, with such agreement as to acceptability not to be unreasonably withheld or delayed. Any unreasonable refusal by Executive to submit to a medical examination for the purpose of determining Disability shall be deemed to constitute conclusive evidence of Executives Disability.
(f) Good Reason. For the sole purpose of determining Executives right to severance payments and benefits as described above, Executives resignation will be with Good Reason if Executive resigns within one year after any of the following events, unless Executive consents to the applicable event in writing: (i) a material reduction in Executives Annual Base Salary or Target Bonus, (ii) a material diminution in Executives authority, title, duties or areas of responsibility, (iii) the requirement that Executive report to someone other than the Chief Executive Officer, (iv) the relocation of Executives primary office to a location more than 40 miles from the Boston metropolitan area, or (v) a material breach by the Company of this Agreement or any other written agreement with Executive. Notwithstanding the foregoing, no Good Reason will have occurred unless and until Executive has: (a) provided the Company, within 60 days of Executives knowledge of the occurrence of the facts and circumstances underlying the Good Reason event, written-notice stating with specificity the applicable facts and circumstances underlying such finding of Good Reason; and (b) provided the Company with an opportunity to cure the same within thirty (30) days after the receipt of such notice.
8. Parachute Payments.
(a) Notwithstanding any other provisions of this Agreement or any Company equity plan or agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments and benefits, including the payments and benefits under Section 4(b) and Section 4(c) hereof, being hereinafter referred to as the Total Payments), would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then the Total Payments shall be reduced (in the order provided in Section 8(b)) to the minimum extent necessary to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).
(b) The Total Payments shall be reduced in the following order: (i) reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code (Section 409A), (ii) reduction on a pro-rata basis of any non-cash severance payments or benefits that are exempt from Section 409A, (iii) reduction on a pro-rata basis of any other payments or benefits that are exempt from Section 409A, and (iv) reduction of any payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A; provided, in case of clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards shall be first applied to Company equity awards that would otherwise vest last in time.
(c) The Company will select an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax (the Independent Advisors) to make determinations regarding the application of this Section 8. For purposes of such determinations, no portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not constitute a parachute payment within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the base amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation. The costs of obtaining such determination and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company.
(d) If Executive incurs legal fees or other expenses (including expert witness and accounting fees) in an effort to determine the applicability of this Section 8 or establish entitlement to or obtain any portion of the Total Payments that have been reduced under this Section 8 (collectively, Legal and Other Expenses), Executive shall be entitled to payment of or reimbursement for such Legal and Other Expenses in accordance with this Section 8(d). Subject to Sections 9(l)(iv) and 9(m) and the other provisions of this Section 8, the Company will reimburse all Legal and Other Expenses on a monthly basis reasonably promptly after presentation of Executives written request for reimbursement accompanied by evidence reasonably acceptable to the Company that such Legal and Other Expenses were incurred. If the Company establishes before a court of competent jurisdiction that Executive had no reasonable basis for a claim made by Executive hereunder, or acted in bad faith, no further payment of or reimbursement for Legal and Other Expenses shall be due to Executive in respect of such claim, and Executive shall refund any amounts previously paid or reimbursed hereunder with respect to such claim.
(e) In the event it is later determined that to implement the objective and intent of this Section 8, (i) a greater reduction in the Total Payments should have been made, the excess amount shall be returned promptly by Executive to the Company or (ii) a lesser reduction in the Total Payments should have been made, the excess amount shall be paid or provided promptly by the Company to Executive, except to the extent the Company reasonably determines would result in imposition of an excise tax under Section 409A.
9. Miscellaneous Provisions.
(a) Governing Law. This Agreement shall be governed, construed, interpreted and enforced in accordance with its express terms, and otherwise in accordance with the substantive laws of the Commonwealth of Massachusetts without reference to the principles of conflicts of law of the Commonwealth of Massachusetts or any other jurisdiction that would result in application of the laws of a jurisdiction other than the Commonwealth of Massachusetts, and where applicable, the laws of the United States.
(b) Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
(c) Notices. Any notice, request, claim, demand, document and other communication hereunder to any Party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile or certified or registered mail, postage prepaid, as follows:
(i) If to the Company, to the General Counsel of the Company at the Companys headquarters,
(ii) If to Executive, to the last address that the Company has in its personnel records for Executive, or
(iii) at any other address as any Party shall have specified by notice in writing to the other Party.
(d) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. Signatures delivered by facsimile or PDF shall be deemed effective for all purposes.
(e) Entire Agreement. The terms of this Agreement, the Restrictive Covenant Agreement incorporated herein by reference as set forth in Section 5, the Indemnification Agreement (defined below) and any stock option agreement between the Company and Executive entered into prior to the date hereof are intended by the Parties to be the final expression of their agreement with respect to the subject matter hereof and supersede all prior understandings and agreements, whether written or oral, including without limitation any prior employment agreement or offer letter between Executive and the Company. The Parties further intend that this Agreement shall constitute the complete and exclusive statement of their terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.
(f) Indemnification. The Parties acknowledge that they have or will enter into an Indemnification Agreement in substantially the form attached as Exhibit C hereto.
(g) Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Executive and a duly authorized officer of Company. By an instrument in writing similarly executed, Executive or a duly authorized officer of the Company may waive compliance by the other Party with any specifically identified provision of this Agreement that such other Party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.
(h) No Inconsistent Actions. The Parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the Parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement.
(i) Construction. This Agreement shall be deemed drafted equally by both the Parties. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle
that the language is to be construed against any Party shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation. Any references to paragraphs, subparagraphs, sections or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary. Also, unless the context clearly indicates to the contrary, (i) the plural includes the singular and the singular includes the plural; (ii) and and or are each used both conjunctively and disjunctively; (iii) any, all, each, or every means any and all, and each and every; (iv) includes and including are each without limitation; (v) herein, hereof, hereunder and other similar compounds of the word here refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection; and (vi) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require.
(j) Enforcement. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the Term, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.
(k) Withholding. The Company shall be entitled to withhold from any amounts payable under this Agreement any federal, state, local or foreign withholding or other taxes or charges which the Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise.
(l) Section 409A.
(i) General. The intent of the Parties is that the payments and benefits under this Agreement comply with or be exempt from Section 409A and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.
(ii) Separation from Service. Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that is considered nonqualified deferred compensation under Section 409A and is designated under this Agreement as payable upon Executives termination of employment shall be payable only upon Executives separation from service with the Company within the meaning of Section 409A (a Separation from Service) and, except as provided below, any such compensation or benefits described in Section 4 shall not be paid, or, in the case of installments, shall not commence payment, until the sixtieth (60th) day following Executives Separation from Service (the First Payment Date). Any installment payments that would have been made to Executive during the sixty (60) day period immediately following Executives Separation from Service but for the preceding sentence shall be paid to Executive on the First Payment Date and the remaining payments shall be made as provided in this Agreement.
(iii) Specified Employee. Notwithstanding anything in this Agreement to the contrary, if Executive is deemed by the Company at the time of Executives Separation from Service to be a specified employee for purposes of Section 409A, to the extent delayed commencement of any portion of the benefits to which Executive is entitled under this Agreement
is required in order to avoid a prohibited distribution under Section 409A, such portion of Executives benefits shall not be provided to Executive prior to the earlier of (i) the expiration of the six-month period measured from the date of Executives Separation from Service with the Company or (ii) the date of Executives death. Upon the first business day following the expiration of the applicable Section 409A period, all payments deferred pursuant to the preceding sentence shall be paid in a lump sum to Executive (or Executives estate or beneficiaries), and any remaining payments due to Executive under this Agreement shall be paid as otherwise provided herein.
(iv) Expense Reimbursements. To the extent that any reimbursements under this Agreement are subject to Section 409A, any such reimbursements payable to Executive shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred; provided, that Executive submits Executives reimbursement request promptly following the date the expense is incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, other than medical expenses referred to in Section 105(b) of the Code, and Executives right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.
(v) Installments. Executives right to receive any installment payments under this Agreement, including without limitation any continuation salary payments that are payable on Company payroll dates, shall be treated as a right to receive a series of separate payments and, accordingly, each such installment payment shall at all times be considered a separate and distinct payment as permitted under Section 409A. Except as otherwise permitted under Section 409A, no payment hereunder shall be accelerated or deferred unless such acceleration or deferral would not result in additional tax or interest pursuant to Section 409A.
(m) Attorneys Fees. In the event that either Party prevails in a dispute with the other Party concerning the rights and obligations hereunder, the non-prevailing Party shall pay the prevailing Partys reasonable attorneys fees and costs.
10. Executive Acknowledgement.
Executive acknowledges that Executive has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on Executives own judgment.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date and year first above written.
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SELECTA BIOSCIENCES, INC. | |
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/s/ Werner Cautreels, Ph.D. |
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Name: Werner Cautreels, Ph.D. |
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Title: President and Chief Executive Officer |
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/s/ Peter Keller, M.Sci. | |
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Peter Keller, M.Sci. |
[Signature Page to Employment Agreement]
EXHIBIT A
Separation Agreement and Release
This Separation Agreement and Release (Agreement) is made by and between Peter Keller, M.Sci. (Executive) and Selecta Biosciences, Inc. (the Company) (collectively referred to as the Parties or individually referred to as a Party). Capitalized terms used but not defined in this Agreement shall have the meanings set forth in the Employment Agreement (as defined below).
WHEREAS, the Parties have previously entered into that certain Employment Agreement, dated as of June 6, 2016 (the Employment Agreement); and
WHEREAS, in connection with Executives termination of employment with the Company or a subsidiary or affiliate of the Company effective , 20 , the Parties wish to resolve any and all disputes, claims, complaints, grievances, charges, actions, petitions, and demands that Executive may have against the Company and any of the Releasees as defined below, including, but not limited to, any and all claims arising out of or in any way related to Executives employment with or separation from the Company or its subsidiaries or affiliates but, for the avoidance of doubt, nothing herein will be deemed to release any rights or remedies in connection with Executives ownership of vested equity securities of the Company, vested benefits or Executives right to defense or indemnification by the Company or any of its affiliates pursuant to contract or applicable law (collectively, the Retained Claims). The Company agrees not to contest Executives application for unemployment benefits; provided that nothing herein shall prohibit the Company from responding truthfully to requests for information from, or require the Company to make any false or misleading statements to, any governmental authority.
NOW, THEREFORE, in consideration of the severance payments and benefits described in Section 4 of the Employment Agreement, which, pursuant to the Employment Agreement, are conditioned on Executives execution and non-revocation of this Agreement, and in consideration of the mutual promises made herein, the Company and Executive hereby agree as follows:
1. Severance Payments; Salary and Benefits. The Company agrees to provide Executive with the severance payments and benefits described in Section 4(b) and Section 4(c) of the Employment Agreement, payable at the times set forth in, and subject to the terms and conditions of, the Employment Agreement. In addition, to the extent not already paid, and subject to the terms and conditions of the Employment Agreement, the Company shall pay or provide to Executive all other payments or benefits described in Section 3(c) of the Employment Agreement, subject to and in accordance with the terms thereof.
2. Release of Claims. Executive agrees that, other than with respect to the Retained Claims, the foregoing consideration represents settlement in full of all outstanding obligations owed to Executive by the Company, any of its direct or indirect subsidiaries and affiliates, and any of their current and former officers, directors, equity holders, managers, employees, agents, investors, attorneys, shareholders, administrators, affiliates, benefit plans, plan administrators, insurers, trustees, divisions, and subsidiaries and predecessor and successor corporations and assigns (collectively, the Releasees). Executive, on Executives own behalf and on behalf of any of Executives affiliated companies or entities and any of their respective heirs, family members, executors, agents, and assigns, other than with respect to the Retained Claims, hereby and forever releases the Releasees from, and agrees not to sue concerning, or in any manner to institute, prosecute, or pursue, any claim, complaint, charge, duty, obligation, or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that Executive may possess against any of the Releasees arising from any omissions, acts, facts, or damages that have occurred up until and including the Effective Date of this Agreement (as defined in Section 7 below), including, without limitation:
(a) any and all claims relating to or arising from Executives employment or service relationship with the Company or any of its direct or indirect subsidiaries or affiliates and the termination of that relationship;
(b) any and all claims relating to, or arising from, Executives right to purchase, or actual purchase of any shares of stock or other equity interests of the Company or any of its affiliates, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law;
(c) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; harassment; retaliation; breach of contract, both express and implied; breach of covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; fraud; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; conversion; and disability benefits;
(d) any and all claims for violation of any federal, state, or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1991; the Rehabilitation Act of 1973; the Americans with Disabilities Act of 1990; the Equal Pay Act; the Fair Credit Reporting Act; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act; the Employee Retirement Income Security Act of 1974; the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act; and the Sarbanes-Oxley Act of 2002;
(e) any and all claims for violation of the federal or any state constitution;
(f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination;
(g) any claim for any loss, cost, damage, or expense arising out of any dispute over the non-withholding or other tax treatment of any of the proceeds received by Executive as a result of this Agreement; and
(h) any and all claims for attorneys fees and costs.
Executive agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not release claims that cannot be released as a matter of law, including, but not limited to, Executives right to report possible violations of federal law or regulation to any governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002, or any other whistleblower protection provisions of state or federal law or regulation, Executives right to file a charge with or participate in a charge by the Equal Employment Opportunity Commission, or any other local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against the Company (with the understanding that Executives release of claims herein bars Executive from recovering such monetary relief from the Company or any Releasee), claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law, claims to continued participation in certain of the Companys group benefit plans pursuant to the terms and conditions of COBRA, claims to any benefit entitlements vested as the date of separation of Executives employment, pursuant to written terms of any employee benefit plan of the Company or its affiliates and Executives right under applicable
law and any Retained Claims. This release further does not release claims for breach of Section 3(c), Section 4(b) or Section 4(c) of the Employment Agreement.
3. Acknowledgment of Waiver of Claims under ADEA. Executive understands and acknowledges that Executive is waiving and releasing any rights Executive may have under the Age Discrimination in Employment Act of 1967 (ADEA), and that this waiver and release is knowing and voluntary. Executive understands and agrees that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement. Executive understands and acknowledges that the consideration given for this waiver and release is in addition to anything of value to which Executive was already entitled. Executive further understands and acknowledges that Executive has been advised by this writing that: (a) Executive should consult with an attorney prior to executing this Agreement; (b) Executive has 21 days within which to consider this Agreement; (c) Executive has 7 days following Executives execution of this Agreement to revoke this Agreement pursuant to written notice to the General Counsel of the Company; (d) this Agreement shall not be effective until after the revocation period has expired; and (e) nothing in this Agreement prevents or precludes Executive from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties, or costs for doing so, unless specifically authorized by federal law. In the event Executive signs this Agreement and returns it to the Company in less than the 21 day period identified above, Executive hereby acknowledges that Executive has freely and voluntarily chosen to waive the time period allotted for considering this Agreement.
4. Severability. In the event that any provision or any portion of any provision hereof or any surviving agreement made a part hereof becomes or is declared by a court of competent jurisdiction or arbitrator to be illegal, unenforceable, or void, this Agreement shall continue in full force and effect without said provision or portion of provision.
5. No Oral Modification. This Agreement may only be amended in a writing signed by Executive and a duly authorized officer of the Company.
6. Governing Law. This Agreement shall be subject to the provisions of Sections 9(a) and 9(c) of the Employment Agreement.
7. Effective Date. If Executive has attained or is over the age of 40 as of the date of Executives termination of employment, then each Party has seven days after that Party signs this Agreement to revoke it and this Agreement will become effective on the eighth day after Executive signed this Agreement, so long as it has been signed by the Parties and has not been revoked by either Party before that date (the Effective Date). If Executive has not attained the age of 40 as of the date of Executives termination of employment, then the Effective Date shall be the date on which Executive signs this Agreement.
8. Voluntary Execution of Agreement. Executive understands and agrees that Executive executed this Agreement voluntarily, without any duress or undue influence on the part or behalf of the Company or any third party, with the full intent of releasing all of Executives claims against the Company and any of the other Releasees. Executive acknowledges that: (a) Executive has read this Agreement; (b) Executive has not relied upon any representations or statements made by the Company that are not specifically set forth in this Agreement; (c) Executive has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of Executives own choice or has elected not to retain legal counsel; (d) Executive understands the terms and consequences of this Agreement and
of the releases it contains; and (e) Executive is fully aware of the legal and binding effect of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.
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Peter Keller, M.Sci. | |||
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SELECTA BIOSCIENCES, INC. | |||
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EXHIBIT B
Employee Nondisclosure, Noncompetition and Assignment of Intellectual Property Agreement
[attached]
SELECTA BIOSCIENCES, INC.
EMPLOYEE NONDISCLOSURE, NONCOMPETITION AND
ASSIGNMENT OF INTELLECTUAL PROPERTY AGREEMENT
In consideration and as a condition of my employment by Selecta Biosciences, Inc., a Delaware corporation (the Company), and of the compensation to be paid to me, and in recognition of the fact that as an employee of the Company I will or may have access to confidential information, I agree with the Company as follows:
1. Performance: Prior Obligations.
(a) I agree to use best efforts to perform my assigned duties diligently, conscientiously, and with reasonable skill, and shall comply with all rules, procedures and standards promulgated from time to time by the Company with regard to my conduct and my access to and use of the Companys property, equipment and facilities. Among such rules, procedures and standards are those governing ethical and other professional standards for dealing with customers, government agencies, vendors, competitors, consultants, fellow employees, and the public-at-large, security provisions designed to protect Company property and the personal security of Company employees, rules respecting attendance, punctuality, and hours of work, and rules and procedures designed to protect the confidentiality of proprietary information. The Company agrees to make reasonable efforts to inform me of such rules, standards and procedures as are in effect from time to time.
(b) I hereby represent, warrant and agree (i) that I have the full right to enter into this Agreement and perform the services required of me hereunder, without any restriction whatsoever; (ii) that in the course of performing services hereunder, I will not violate the terms or conditions of any agreement between me and any third party or infringe or wrongfully appropriate any patents, copyrights, trade secrets or other intellectual property rights of any person or entity anywhere in the world; (iii) that I have not and will not disclose or use during my employment by the Company any confidential information that I acquired as a result of any previous employment or consulting arrangement or under a previous obligation of confidentiality; and (iv) that I have disclosed to the Company in writing any and all continuing obligations to previous employers or others that require me not to disclose any information to the Company.
2. Confidential Information. While employed by the Company and thereafter, I shall not, directly or indirectly, use any Confidential Information (as hereinafter defined) other than pursuant to my employment by and for the benefit of the Company, or disclose any Confidential Information to anyone outside of the Company, whether by private communication, public address, publication or otherwise, or disclose any Confidential Information to anyone within the Company who has not been authorized to receive such information, except as directed in writing by an authorized representative of the Company. The term Confidential Information as used throughout this Agreement shall mean all trade secrets, proprietary information, know-how, data, designs, specifications, processes, customer lists and other technical or business information (and any tangible evidence, record or representation thereof), whether prepared,
conceived or developed by a consultant or employee of the Company (including myself) or received by the Company from an outside source, which is in the possession of the Company (whether or not the property of the Company), which in any way relates to the present or future business of the Company, which is maintained in confidence by the Company, or which might permit the Company or its customers to obtain a competitive advantage over competitors who do not have access to such trade secrets, proprietary information, or other data or information. Without limiting the generality of the foregoing. Confidential Information shall include, without limitation:
(a) any idea, improvement, invention, innovation, development, concept, technical or clinical data, design, formula, device, pattern, sequence, method, process, composition of matter, computer program or software, source code, object code, algorithm, model, diagram, flow chart, product specification or design, plan for a new or revised product, sample, compilation of information, or work in process, or parts thereof, and any and all revisions and improvements relating to any of the foregoing (in each case whether or not reduced to tangible form); and
(b) the name of any customer, supplier, employee, prospective customer, sales agent, supplier or consultant, any sales plan, marketing material, plan or survey, business plan or opportunity, product or development plan or specification, business proposal, financial record, or business record or other record or information relating to the present or proposed business of the Company.
Notwithstanding the foregoing, the term Confidential Information shall not apply to information which the Company has voluntarily disclosed to the public without restriction, or which has otherwise lawfully entered the public domain.
I shall promptly notify my supervisor or any officer of the Company if I learn of any possible unauthorized use or disclosure of Confidential Information and shall cooperate fully with the Company to enforce its rights in such information.
I understand that the Company from time to time has in its possession information (including product and development plans and specifications) which is claimed by customers and others to be proprietary and which the Company has agreed to keep confidential. I agree that all such information shall be Confidential Information for purposes of this Agreement.
3. Ownership and Assignment of Intellectual Property.
(a) I agree that all originals and all copies of all manuscripts, drawings, prints, manuals, diagrams, letters, notes, notebooks, reports, models, records, files, memoranda, plans, sketches and all other documents and materials containing, representing, evidencing, recording, or constituting any Confidential Information (as defined in Section 2 above), however and whenever produced (whether by myself or others) during the course of my employment, shall be the sole property of the Company.
(b) I agree that all Confidential Information and all other discoveries, inventions, ideas, concepts, trademarks, service marks, logos, processes, products, formulas, computer programs or software, source codes, object codes, algorithms, machines, apparatuses,
items of manufacture or composition of matter, or any new uses therefor or improvements thereon, or any new designs or modifications or configurations of any kind, or works of authorship of any kind, including, without limitation, compilations and derivative works, whether or not patentable or copyrightable, conceived, developed, reduced to practice or otherwise made by me, either alone or with others, and related to the business of the Company or to tasks assigned to me during the course of my employment, whether or not made during my regular working hours, whether or not conceived, developed, reduced to practice or made on the Companys premises and whether or not disclosed by me to the Company (collectively Company Inventions), and any and all services and products which embody, emulate or employ any such Company Invention or Confidential Information shall be the sole property of the Company and all copyrights, patents, patent rights, trademarks and reproduction rights to, and other proprietary rights in, each such Company Invention or Confidential Information, whether or not patentable or copyrightable, shall belong exclusively to the Company. For the avoidance of doubt, Confidential Information shall only include information that relates to the present or future business of the Company, and Company Inventions shall only include inventions that relate to the business of the Company or to tasks assigned to me during the course of my employment.
(c) I agree to, and hereby do, assign to the Company all my right, title and interest throughout the world in and to all Company Inventions and to anything tangible which evidences, incorporates, constitutes, represents or records any Company Invention. I agree that all Company Inventions shall constitute works made for hire under the copyright laws of the United States and hereby assign and, to the extent any such assignment cannot be made at present, I hereby agree to assign to the Company all copyrights, patents and other proprietary rights I may have in any Company Inventions, together with the right to file for and/or own wholly without restriction United States and foreign patents, trademarks, and copyrights. I agree to waive, and hereby waive, all moral rights or proprietary rights in or to any Company Inventions and, to the extent that such rights may not be waived, agree not to assert such rights against the Company or its licensees, successors or assigns.
(d) I hereby certify Exhibit A sets forth any and all confidential information and intellectual property that I claim as my own or otherwise intend to exclude from this Agreement because it was developed by me prior to the date of this Agreement. I understand that after execution of this Agreement I shall have no right to exclude Confidential Information or Company Inventions from this Agreement.
4. Employees Obligation to Keep Records. I shall make and maintain adequate and current written records of all Company Inventions, including notebooks and invention disclosures, which records shall be available to and remain the property of the Company at all times. I shall disclose all Company Inventions promptly, fully and in writing to the Company immediately upon production or development of the same and at any time upon request.
5. Employees Obligation to Cooperate. I will, at any time during my employment, or after it terminates, upon request of the Company, execute all documents and perform all lawful acts which the Company considers necessary or advisable to secure its rights hereunder and to carry out the intent of this Agreement. Without limiting the generality of the foregoing, I will assist the Company in any reasonable manner to obtain for its own benefit patents or
copyrights in any and all countries with respect to all Company Inventions assigned pursuant to Section 3, and I will execute, when requested, patent and other applications and assignments thereof to the Company, or persons designated by it, and any other lawful documents deemed necessary by the Company to carry out the purposes of this Agreement, and I will further assist the Company in every way to enforce any patents and copyrights obtained, including, without limitation, testifying in any suit or proceeding involving any of said patents or copyrights or executing any documents deemed necessary by the Company, all without further consideration than provided for herein. It is understood that reasonable out-of-pocket expenses of my assistance incurred at the request of the Company under this Section will be reimbursed by the Company.
6. Noncompetition and Non-solicitation. During my employment with the Company and for a period of 12 months after the termination of my employment with the Company for any reason, I shall not, without the Companys prior written consent, on my own behalf, or as owner, manager, stockholder, consultant, director, officer, or employee of any business entity (except as a holder of not more than three (3%) percent of the stock of a publicly held company) participate in any capacity in any business activity that is in direct competition with any of the products or services being developed, marketed, distributed, planned, sold or otherwise provided by the Company or its affiliates at the time of, or during the 12 months preceding, my termination.
During my employment with the Company and for a period of 12 months after the termination of my employment with the Company for any reason, I shall not solicit, induce or encourage any employee of the Company to terminate his or her employment with the Company.
7. Return of Property. Upon termination of my employment with the Company, or at any other time upon request of the Company, I shall cease using and return promptly any and all customer or prospective customer lists, other customer or prospective customer information or related materials, computer programs, software, electronic data, specifications, drawings, blueprints, data storage devices, reproductions, sketches, notes, notebooks, memoranda, reports, records, proposals, business plans, or copies of them, other documents or materials, tools, equipment, or other property belonging to the Company or its customers which I may then possess or have under my direct or indirect control. I further agree that upon termination of employment, I shall not take with me any documents or data in any form or of any description containing or pertaining to Confidential Information or Company Inventions, other than documents I have a right to retain under applicable law (with the understanding that my obligations under this Agreement continue to apply to any such retained documents). For purposes of clarity, using best efforts to completely remove (with the Companys prior written permission) from any personal computer, laptop, smart phone, IPad, or any other electronic device, any Company Property that I have previously returned to the Company in accordance with this Section 7 satisfies my obligations under this section.
8. Other Obligations. I acknowledge that the Company from time to time may have agreements with other persons, including the government of the United States or other countries and agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. I agree to be bound by all such obligations and restrictions and to take all action necessary to discharge the obligations of the Company thereunder.
9. Miscellaneous.
(a) This Agreement contains the entire and only agreement between me and the Company with respect to the subject matter hereof, superseding any previous oral or written communications, representations, understandings, or agreements with the Company or any officer or representative hereof. In the event of any inconsistency between this Agreement and any other contract between me and the Company, the provisions of this Agreement shall prevail.
(b) My obligations under Sections 2, 3, 5, 6 (for the periods set forth therein), 7, 8 and 9 of this Agreement shall survive the termination of my employment with the Company regardless of the manner of or reasons for such termination, and regardless of whether such termination constitutes a breach of any other agreement I may have with the Company. My obligations under this Agreement shall be binding upon my heirs, assigns, executors, administrators and representatives, and the provisions of this Agreement shall inure to the benefit of and be binding on the successors and assigns of the Company.
(c) If any provision of this Agreement shall be determined to be unenforceable by any court of competent jurisdiction by reason of its extending for too great a period of time or over too large a geographic area or over too great a range of activities, it shall be interpreted to extend only over the maximum period of time, geographic area or range of activities as to which it may be enforceable. If, after application of the immediately preceding sentence, any provision of this Agreement shall be determined to be invalid, illegal or otherwise unenforceable by any court of competent jurisdiction, the validity, legality and enforceability of the other provisions of this Agreement shall not be affected thereby. Except as otherwise provided in this paragraph, any invalid, illegal or unenforceable provision of this Agreement shall be severable, and after any such severance, all other provisions hereof shall remain in full force and effect.
(d) I acknowledge and agree that violation of this Agreement by me would cause irreparable harm to the Company not adequately compensable by money damages alone, and I therefore agree that, in addition to all other remedies available to the Company at law, in equity or otherwise, the Company shall be entitled to injunctive relief to prevent an actual or threatened violation of this Agreement and to enforce the provisions hereof, without showing or proving any actual damage to the Company or posting any bond in connection therewith.
(e) No failure by the Company to insist upon strict compliance with any of the terms, covenants, or conditions hereof, and no delay or omission by the Company in exercising any right under this Agreement, will operate as a waiver of such terms, covenants, conditions or rights. A waiver or consent given by the Company on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
(f) This Agreement may not be changed, modified, released, discharged, abandoned, or otherwise amended, in whole or in part, except by an instrument in writing signed by me and the Company.
(g) This Agreement shall be governed by, and construed and enforced in accordance with, the laws of The Commonwealth of Massachusetts, without regard to its principles of conflicts of laws. This Agreement is executed under seal.
[Signature Page Follows]
BY PLACING MY SIGNATURE HEREUNDER, I ACKNOWLEDGE THAT I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL AND I HAVE READ ALL THE PROVISIONS OF THIS EMPLOYEE NONDISCLOSURE, NONCOMPETITION AND ASSIGNMENT OF INTELLECTUAL PROPERTY AGREEMENT AND THAT I AGREE TO ALL OF ITS TERMS.
Effective Date: June 6, 2016 |
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EMPLOYEE: | ||
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/s/ Peter Keller | ||
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Signature | ||
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Name: |
Peter Keller | |
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Address: |
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Accepted and Agreed: | ||
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SELECTA BIOSCIENCES, INC. | ||
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By: |
/s/ Werner Cautreels | |
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Name: Werner Cautreels | ||
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Title: CEO | ||
EXHIBIT A
Excluded Confidential Information and Inventions
EXHIBIT C
Form of Indemnification Agreement
[attached]
Exhibit 10.20
Employment Agreement
This Employment Agreement (this Agreement), dated as of June 6, 2016, is made by and between Selecta Biosciences, Inc., a Delaware corporation (together with any successor thereto, the Company), and Earl Sands, M.D. (Executive) (collectively referred to as the Parties or individually referred to as a Party).
RECITALS
A. It is the desire of the Company to assure itself of the services of Executive following the Effective Date (as defined below) and thereafter by entering into this Agreement.
B. Executive and the Company mutually desire that Executive provide services to the Company on the terms herein provided.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the Parties hereto agree as follows:
1. Employment.
(a) General. Effective on the closing of the Companys initial public offering of stock pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the Effective Date), the Company shall employ Executive and Executive shall remain in the employ of the Company, for the period and in the positions set forth in this Section 1, and subject to the other terms and conditions herein provided.
(b) At-Will Employment. The Company and Executive acknowledge that Executives employment is and shall continue to be at-will, as defined under applicable law, and that Executives employment with the Company may be terminated by either Party at any time for any or no reason (subject to the notice requirements of Section 3(b)). This at-will nature of Executives employment shall remain unchanged during Executives tenure as an employee and may not be changed, except in an express writing signed by Executive and a duly authorized officer of the Company. If Executives employment terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement or otherwise agreed to in writing by the Company or as provided by applicable law. The term of this Agreement (the Term) shall commence on the Effective Date and end on the date this Agreement is terminated under Section 3.
(c) Positions and Duties. Executive shall serve as Chief Medical Officer of the Company with such responsibilities, duties and authority normally associated with such positions and as may from time to time be reasonably assigned to Executive by the Chief Executive Officer of the Company. Executive shall devote substantially all of Executives working time and efforts to the business and affairs of the Company (which shall include service to its affiliates, if applicable), provided that Executive may engage in outside business activities (including serving on outside boards or committees) to the extent such activities do not materially interfere with the performance of Executives duties and responsibilities under this Agreement or violate the terms of the Employee Nondisclosure, Noncompetition and Assignment of Intellectual Property Agreement attached as Exhibit B (the Restrictive Covenant Agreement). Executive agrees to observe and comply with the rules and policies of the Company as adopted by the Company from time to time, in each case as amended from time to time, as set forth in writing, and as delivered or made available to Executive (each, a Policy).
2. Compensation and Related Matters.
(a) Annual Base Salary. During the Term, Executive shall receive a base salary at a rate of $300,000 per annum, which shall be paid in accordance with the customary payroll practices of the Company and shall be pro-rated for partial years of employment. Such annual base salary shall be reviewed (and may be increased) from time to time by the Board of Directors of the Company or an authorized committee of the Board (in either case, the Board) (such annual base salary, as it may be increased from time to time, the Annual Base Salary).
(b) Bonus. During the Term, Executive will be eligible to participate in an annual incentive program established by the Board. Executives annual incentive compensation under such incentive program (the Annual Bonus) shall be targeted at 35% of Executives Annual Base Salary (the Target Bonus). The Annual Bonus payable under the incentive program shall be based on the achievement of performance goals to be determined by the Board. The payment of any Annual Bonus pursuant to the incentive program will be made on or before March 15 of the year following the year in which such Annual Bonus is earned.
(c) Benefits. During the Term, Executive shall be eligible to participate in employee benefit plans, programs and arrangements of the Company (including medical, dental and 401(k) plans), consistent with the terms thereof and as such plans, programs and arrangements may be amended from time to time. In no event shall Executive be eligible to participate in any severance plan or program of the Company, except as set forth in Section 4 of this Agreement.
(d) Vacation. During the Term, Executive shall be entitled to four weeks of paid personal leave, or paid personal leave per calendar year in accordance with the Companys Policies, whichever is greater. Vacation days accrued, but not used by the end of any calendar year may be used in the subsequent calendar year; provided that no more than five accrued vacation days may be carried over from one year to the next. Any vacation shall be taken at the reasonable and mutual convenience of the Company and Executive.
(e) Business Expenses. During the Term, the Company shall reimburse Executive for all reasonable travel and other business expenses incurred by Executive in the performance of Executives duties to the Company in accordance with the Companys expense reimbursement Policy. The parties acknowledge that (i) the Companys principal place of business is currently in Watertown, Massachusetts, (ii) Executives primary work place is currently in the state of Georgia, and (iii) Executive may from time to time perform his obligations under this Agreement remotely. Notwithstanding any contrary terms of the Companys expense reimbursement Policy, but subject to Section 9(l)(iv), the Company shall reimburse Executive for reasonable expenses incurred by Executive for travel between Massachusetts and Georgia in performing his duties for the Company, including airfare, lodging and local transportation, up to a maximum of $6,100 per month, which for the avoidance of doubt shall not limit amounts otherwise reimbursable under the Companys expense reimbursement Policy. To the extent the Company reasonably determines all or a portion of any such reimbursement constitutes taxable income to Executive, Executive will be liable and responsible for the employee portion of all taxes owed in connection therewith and the Company may (but will not be required to) deduct or withhold such taxes from any compensation payable to Executive by the Company or its affiliates.
(f) Key Person Insurance. At any time during the Term, the Company shall have the right to insure the life of Executive for the Companys sole benefit. The Company shall have the right to determine the amount of insurance and the type of policy. Executive shall reasonably cooperate with the Company in obtaining such insurance by submitting to physical examinations, by supplying all information reasonably required by any insurance carrier, and by executing all necessary documents
reasonably required by any insurance carrier, provided that any information provided to an insurance company or broker shall not be provided to the Company without the prior written authorization of Executive. Executive shall incur no financial obligation by executing any required document, and shall have no interest in any such policy.
3. Termination.
Executives employment hereunder may be terminated by the Company or Executive, as applicable, without any breach of this Agreement under the following circumstances:
(a) Circumstances.
(i) Death. Executives employment hereunder shall terminate upon Executives death.
(ii) Disability. If Executive has incurred a Disability, as defined below, the Company may terminate Executives employment.
(iii) Termination for Cause. The Company may terminate Executives employment for Cause, as defined below.
(iv) Termination without Cause. The Company may terminate Executives employment without Cause.
(v) Resignation from the Company with Good Reason. Executive may resign Executives employment with the Company with Good Reason, as defined below.
(vi) Resignation from the Company Without Good Reason. Executive may resign Executives employment with the Company for any reason other than Good Reason or for no reason.
(b) Notice of Termination. Any termination of Executives employment by the Company or by Executive under this Section 3 (other than termination pursuant to Section 3(a)(i)) shall be communicated by a written notice to the other Party hereto (i) indicating the specific termination provision in this Agreement relied upon, (ii) setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executives employment under the provision so indicated, if applicable, and (iii) specifying a Date of Termination which, except in the case of a termination pursuant to Section 3(a)(iii), shall be at least thirty (30) days following the date of such notice, but no more than forty (40) days following the date of such notice (a Notice of Termination); provided, however, that the Company may deliver a Notice of Termination to Executive that specifies any Date of Termination that occurs on or after the date of the Notice of Termination (but no more than forty (40) days following the date of such notice) and, in the event that Executive delivers a Notice of Termination to the Company, the Company may, in its sole discretion, change the Date of Termination to any date that occurs on or following the date of the Notice of Termination and is prior to the Date of Termination specified in the Notice of Termination, provided, in either case, that if the Company selects a Date of Termination that is less than thirty (30) days after the date of the Notice of Termination, the Company will pay Executive the base salary Executive would have earned during the period commencing on the Date of Termination selected by the Company and ending thirty (30) days after the date of the Notice of Termination. The failure by either party to set forth in the Notice of Termination any fact or circumstance shall not waive any right of the party hereunder or preclude the party from asserting such fact or circumstance in enforcing the partys rights hereunder. Any decision to terminate Executives employment for Cause
shall be made by a majority vote of the Board after Executive has received written notice from the Board setting forth in reasonable detail the facts and circumstances claimed to provide the basis for the Cause and the Board has provided the Executive reasonable opportunity to be heard by the Board with counsel present if he chooses.
(c) Company Obligations upon Termination. Upon termination of Executives employment pursuant to any of the circumstances listed in this Section 3, Executive (or Executives estate) shall be entitled to receive the sum of: (i) the portion of Executives Annual Base Salary earned through the Date of Termination, but not yet paid to Executive; (ii) any unpaid Annual Bonus earned by Executive for the year prior to the year in which the Date of Termination occurs, as determined by the Board in its good faith discretion based upon actual performance achieved, which Annual Bonus, if any, shall be paid to Executive when bonuses for such year are paid to actively employed senior executives of the Company but in no event later than March 15 of the year in which the Date of Termination occurs; (iii) any expenses owed to Executive pursuant to Section 2(e); and (iv) any amount accrued and arising from Executives participation in, or benefits accrued under any employee benefit plans, programs or arrangements, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (collectively, the Company Arrangements). Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided in a benefit plan or herein, all of Executives rights to salary, severance, benefits, bonuses and other compensatory amounts hereunder (if any) shall cease upon the termination of Executives employment hereunder.
(d) Deemed Resignation. Upon termination of Executives employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its subsidiaries.
4. Severance Payments.
(a) Termination for Cause, or Termination Upon Death, Disability or Resignation from the Company Without Good Reason. If Executives employment shall terminate as a result of Executives death pursuant to Section 3(a)(i) or Disability pursuant to Section 3(a)(ii), pursuant to Section 3(a)(iii) for Cause, or pursuant to Section 3(a)(vi) for Executives resignation from the Company without Good Reason, then Executive shall not be entitled to any severance payments or benefits, except as provided in Section 3(c).
(b) Termination without Cause, or Resignation from the Company with Good Reason. If Executives employment terminates without Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to Executives resignation with Good Reason, then, subject to Executive signing on or before the 60th day following Executives Separation from Service (as defined below), and not revoking, a release of claims (which Executive will receive no later than ten (10) business days following Executives Separation from Service) substantially in the form attached as Exhibit A to this Agreement (the Release), and Executives continued compliance with Section 5, Executive shall receive, in addition to payments and benefits set forth in Section 3(c), the following:
(i) an amount in cash equal to the Annual Base Salary, payable in the form of salary continuation in regular installments over the 12-month period following the date of Executives Separation from Service (the Severance Period) in accordance with the Companys normal payroll practices;
(ii) a pro-rata portion of the Annual Bonus, payable in the form of a lump sum payment, in an amount equal to the product of (A)(i) the Target Bonus, if the Date of Termination occurs during the first quarter of the calendar year or (ii) the Annual Bonus amount based on
actual performance as determined by the Board or an authorized committee thereof, if the Date of Termination occurs after the first quarter of the calendar year, multiplied by (B) a fraction, using the number of full months of the year elapsed prior to the Date of Termination as the numerator and 12 as the denominator; and
(iii) if Executive elects to receive continued medical, dental and/or vision coverage under one or more of the Companys group healthcare plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA), the Company shall directly pay, or reimburse Executive for, the COBRA premiums for Executive and Executives covered dependents under such plans during the period commencing on Executives Separation from Service and ending upon the earliest of (X) the last day of the Severance Period, (Y) the date that Executive and/or Executives covered dependents become no longer eligible for COBRA or (Z) the date Executive becomes eligible to receive medical, dental or vision coverage, as applicable, from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility). Notwithstanding the foregoing, if the Company determines in its sole discretion that it cannot provide the foregoing benefit without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act) or incurring an excise tax, the Company may alter the manner in which medical, dental or vision coverage is provided to Executive after the Date of Termination so long as such alteration does not increase the after-tax cost to Executive of such benefits.
(c) Change in Control. Notwithstanding anything to the contrary in any applicable Company equity plan or equity agreement, in the event Executives employment terminates without Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to Executives resignation with Good Reason, in either case, within 60 days prior to or on or within 12 months following the date of a Change in Control, subject to Executive signing on or before the 60th day following Executives Separation from Service, and not revoking, the Release (which Executive will receive no later than ten (10) business days following Executives Separation from Service), and Executives continued compliance with Section 5, Executive shall receive, in addition to the payments and benefits set forth in Section 3(c) and Section 4(b), immediate vesting of all unvested equity or equity-based awards held by Executive under any Company equity compensation plans that vest solely based on the passage of time (for the avoidance of doubt, with any such awards that vest in whole or in part based on the attainment of performance-vesting conditions being governed by the terms of the applicable award agreement).
(d) Survival. Notwithstanding anything to the contrary in this Agreement, the provisions of Sections 5 through 9 will survive the termination of Executives employment and the termination of the Term.
5. Restrictive Covenants. As a condition to the effectiveness of this Agreement, Executive will execute and deliver to the Company contemporaneously herewith the Restrictive Covenant Agreement. Executive agrees to abide by the terms of the Restrictive Covenant Agreement, which are hereby incorporated by reference into this Agreement. Executive acknowledges that the provisions of the Restrictive Covenant Agreement will survive the termination of Executives employment and the termination of the Term for the periods set forth in the Restrictive Covenant Agreement.
6. Assignment and Successors.
The Company must assign its rights and obligations under this Agreement to any of its affiliates or to any successor to all or substantially all of the business or the assets of the Company (by merger or otherwise). This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators,
heirs, distributees, devisees, and legatees, as applicable. None of Executives rights or obligations may be assigned or transferred by Executive, other than Executives rights to payments hereunder, which may be transferred only by will or operation of law. Notwithstanding the foregoing, Executive shall be entitled, to the extent permitted under applicable law and applicable Company Arrangements, to select and change a beneficiary or beneficiaries to receive compensation hereunder following Executives death by giving written notice thereof to the Company.
7. Certain Definitions.
(a) Cause. The Company shall have Cause to terminate Executives employment hereunder upon:
(i) Executives commission of, or indictment or conviction of, any felony or any crime involving dishonesty by Executive;
(ii) Executives participation in any fraud against the Company;
(iii) any intentional damage to any property of the Company by Executive;
(iv) Executives misconduct which materially and adversely reflects upon the business, operations, or reputation of the Company, which misconduct has not been cured (or cannot be cured) within thirty (30) days after the Company gives written notice to Executive regarding such misconduct; or
(v) Executives breach of any material provision of this Agreement or any other written agreement between Executive and the Company and failure to cure such breach (if capable of cure) within thirty (30) days after the Company gives written notice to Executive regarding such breach.
(b) Change in Control. Change in Control shall have the meaning set forth in the version of the Selecta Biosciences, Inc. 2016 Incentive Award Plan in effect on the Effective Date.
(c) Code. Code shall mean the Internal Revenue Code of 1986, as amended, and the regulations and guidance promulgated thereunder.
(d) Date of Termination. Date of Termination shall mean (i) if Executives employment is terminated by Executives death, the date of Executives death; or (ii) if Executives employment is terminated pursuant to Section 3(a)(ii) (vi) either the date indicated in the Notice of Termination or the date specified by the Company pursuant to Section 3(b), whichever is earlier.
(e) Disability. Disability shall mean, at any time the Company or any of its affiliates sponsors a long-term disability plan for the Companys employees, disability as defined in such long-term disability plan for the purpose of determining a participants eligibility for benefits, provided, however, if the long-term disability plan contains multiple definitions of disability, Disability shall refer to that definition of disability which, if Executive qualified for such disability benefits, would provide coverage for the longest period of time. The determination of whether Executive has a Disability shall be made by the person or persons required to make disability determinations under the long-term disability plan. At any time the Company does not sponsor a long-term disability plan for its employees, Disability shall mean Executives inability to perform, with or without reasonable accommodation, the essential functions of Executives positions hereunder for a total of six months during any twelve-month period as a result of incapacity due to mental or physical illness as determined by a physician selected by
the Company or its insurers and acceptable to Executive or Executives legal representative, with such agreement as to acceptability not to be unreasonably withheld or delayed. Any unreasonable refusal by Executive to submit to a medical examination for the purpose of determining Disability shall be deemed to constitute conclusive evidence of Executives Disability.
(f) Good Reason. For the sole purpose of determining Executives right to severance payments and benefits as described above, Executives resignation will be with Good Reason if Executive resigns within one year after any of the following events, unless Executive consents to the applicable event in writing: (i) a material reduction in Executives Annual Base Salary or Target Bonus, (ii) a material diminution in Executives authority, title, duties or areas of responsibility, (iii) the requirement that Executive report to someone other than the Chief Executive Officer or (iv) a material breach by the Company of this Agreement or any other written agreement with Executive. Notwithstanding the foregoing, no Good Reason will have occurred unless and until Executive has: (a) provided the Company, within 60 days of Executives knowledge of the occurrence of the facts and circumstances underlying the Good Reason event, written-notice stating with specificity the applicable facts and circumstances underlying such finding of Good Reason; and (b) provided the Company with an opportunity to cure the same within thirty (30) days after the receipt of such notice.
8. Parachute Payments.
(a) Notwithstanding any other provisions of this Agreement or any Company equity plan or agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments and benefits, including the payments and benefits under Section 4(b) and Section 4(c) hereof, being hereinafter referred to as the Total Payments), would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then the Total Payments shall be reduced (in the order provided in Section 8(b)) to the minimum extent necessary to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).
(b) The Total Payments shall be reduced in the following order: (i) reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code (Section 409A), (ii) reduction on a pro-rata basis of any non-cash severance payments or benefits that are exempt from Section 409A, (iii) reduction on a pro-rata basis of any other payments or benefits that are exempt from Section 409A, and (iv) reduction of any payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A; provided, in case of clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards shall be first applied to Company equity awards that would otherwise vest last in time.
(c) The Company will select an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax (the Independent Advisors) to make determinations regarding the application of this Section 8. For purposes of such determinations, no portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not constitute a parachute payment within the
meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the base amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation. The costs of obtaining such determination and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company.
(d) If Executive incurs legal fees or other expenses (including expert witness and accounting fees) in an effort to determine the applicability of this Section 8 or establish entitlement to or obtain any portion of the Total Payments that have been reduced under this Section 8 (collectively, Legal and Other Expenses), Executive shall be entitled to payment of or reimbursement for such Legal and Other Expenses in accordance with this Section 8(d). Subject to Sections 9(l)(iv) and 9(m) and the other provisions of this Section 8, the Company will reimburse all Legal and Other Expenses on a monthly basis reasonably promptly after presentation of Executives written request for reimbursement accompanied by evidence reasonably acceptable to the Company that such Legal and Other Expenses were incurred. If the Company establishes before a court of competent jurisdiction that Executive had no reasonable basis for a claim made by Executive hereunder, or acted in bad faith, no further payment of or reimbursement for Legal and Other Expenses shall be due to Executive in respect of such claim, and Executive shall refund any amounts previously paid or reimbursed hereunder with respect to such claim.
(e) In the event it is later determined that to implement the objective and intent of this Section 8, (i) a greater reduction in the Total Payments should have been made, the excess amount shall be returned promptly by Executive to the Company or (ii) a lesser reduction in the Total Payments should have been made, the excess amount shall be paid or provided promptly by the Company to Executive, except to the extent the Company reasonably determines would result in imposition of an excise tax under Section 409A.
9. Miscellaneous Provisions.
(a) Governing Law. This Agreement shall be governed, construed, interpreted and enforced in accordance with its express terms, and otherwise in accordance with the substantive laws of the Commonwealth of Massachusetts without reference to the principles of conflicts of law of the Commonwealth of Massachusetts or any other jurisdiction that would result in application of the laws of a jurisdiction other than the Commonwealth of Massachusetts, and where applicable, the laws of the United States.
(b) Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
(c) Notices. Any notice, request, claim, demand, document and other communication hereunder to any Party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile or certified or registered mail, postage prepaid, as follows:
(i) If to the Company, to the General Counsel of the Company at the Companys headquarters,
(ii) If to Executive, to the last address that the Company has in its personnel records for Executive, or
(iii) at any other address as any Party shall have specified by notice in writing to the other Party.
(d) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. Signatures delivered by facsimile or PDF shall be deemed effective for all purposes.
(e) Entire Agreement. The terms of this Agreement, the Restrictive Covenant Agreement incorporated herein by reference as set forth in Section 5, the Indemnification Agreement (defined below) and any stock option agreement between the Company and Executive entered into prior to the date hereof are intended by the Parties to be the final expression of their agreement with respect to the subject matter hereof and supersede all prior understandings and agreements, whether written or oral, including without limitation any prior employment agreement or offer letter between Executive and the Company. The Parties further intend that this Agreement shall constitute the complete and exclusive statement of their terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.
(f) Indemnification. The Parties acknowledge that they have or will enter into an Indemnification Agreement in substantially the form attached as Exhibit C hereto.
(g) Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Executive and a duly authorized officer of Company. By an instrument in writing similarly executed, Executive or a duly authorized officer of the Company may waive compliance by the other Party with any specifically identified provision of this Agreement that such other Party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.
(h) No Inconsistent Actions. The Parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the Parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement.
(i) Construction. This Agreement shall be deemed drafted equally by both the Parties. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle that the language is to be construed against any Party shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation. Any references to paragraphs, subparagraphs, sections or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary. Also, unless the context clearly indicates to the contrary, (i) the plural includes the singular and the singular includes the plural; (ii) and and or are each used both conjunctively and disjunctively; (iii) any, all, each, or every means any and all, and each and every; (iv) includes and including are each without limitation; (v) herein, hereof, hereunder and other similar compounds of the word here refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection; and (vi) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require.
(j) Enforcement. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the Term, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.
(k) Withholding. The Company shall be entitled to withhold from any amounts payable under this Agreement any federal, state, local or foreign withholding or other taxes or charges which the Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise.
(l) Section 409A.
(i) General. The intent of the Parties is that the payments and benefits under this Agreement comply with or be exempt from Section 409A and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.
(ii) Separation from Service. Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that is considered nonqualified deferred compensation under Section 409A and is designated under this Agreement as payable upon Executives termination of employment shall be payable only upon Executives separation from service with the Company within the meaning of Section 409A (a Separation from Service) and, except as provided below, any such compensation or benefits described in Section 4 shall not be paid, or, in the case of installments, shall not commence payment, until the sixtieth (60th) day following Executives Separation from Service (the First Payment Date). Any installment payments that would have been made to Executive during the sixty (60) day period immediately following Executives Separation from Service but for the preceding sentence shall be paid to Executive on the First Payment Date and the remaining payments shall be made as provided in this Agreement.
(iii) Specified Employee. Notwithstanding anything in this Agreement to the contrary, if Executive is deemed by the Company at the time of Executives Separation from Service to be a specified employee for purposes of Section 409A, to the extent delayed commencement of any portion of the benefits to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A, such portion of Executives benefits shall not be provided to Executive prior to the earlier of (i) the expiration of the six-month period measured from the date of Executives Separation from Service with the Company or (ii) the date of Executives death. Upon the first business day following the expiration of the applicable Section 409A period, all payments deferred pursuant to the preceding sentence shall be paid in a lump sum to Executive (or Executives estate or beneficiaries), and any remaining payments due to Executive under this Agreement shall be paid as otherwise provided herein.
(iv) Expense Reimbursements. To the extent that any reimbursements under this Agreement are subject to Section 409A, any such reimbursements payable to Executive shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred; provided, that Executive submits Executives reimbursement request promptly following the date the expense is incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, other than medical
expenses referred to in Section 105(b) of the Code, and Executives right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.
(v) Installments. Executives right to receive any installment payments under this Agreement, including without limitation any continuation salary payments that are payable on Company payroll dates, shall be treated as a right to receive a series of separate payments and, accordingly, each such installment payment shall at all times be considered a separate and distinct payment as permitted under Section 409A. Except as otherwise permitted under Section 409A, no payment hereunder shall be accelerated or deferred unless such acceleration or deferral would not result in additional tax or interest pursuant to Section 409A.
(m) Attorneys Fees. In the event that either Party prevails in a dispute with the other Party concerning the rights and obligations hereunder, the non-prevailing Party shall pay the prevailing Partys reasonable attorneys fees and costs.
10. Executive Acknowledgement.
Executive acknowledges that Executive has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on Executives own judgment.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date and year first above written.
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SELECTA BIOSCIENCES, INC. | |
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/s/ Werner Cautreels, Ph.D. |
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Name: Werner Cautreels, Ph.D. |
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Title: President and Chief Executive Officer |
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/s/ Earl Sands, M.D. | |
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Earl Sands, M.D. |
[Signature Page to Employment Agreement]
EXHIBIT A
Separation Agreement and Release
This Separation Agreement and Release (Agreement) is made by and between Earl Sands, M.D. (Executive) and Selecta Biosciences, Inc. (the Company) (collectively referred to as the Parties or individually referred to as a Party). Capitalized terms used but not defined in this Agreement shall have the meanings set forth in the Employment Agreement (as defined below).
WHEREAS, the Parties have previously entered into that certain Employment Agreement, dated as of June 6, 2016 (the Employment Agreement); and
WHEREAS, in connection with Executives termination of employment with the Company or a subsidiary or affiliate of the Company effective , 20 , the Parties wish to resolve any and all disputes, claims, complaints, grievances, charges, actions, petitions, and demands that Executive may have against the Company and any of the Releasees as defined below, including, but not limited to, any and all claims arising out of or in any way related to Executives employment with or separation from the Company or its subsidiaries or affiliates but, for the avoidance of doubt, nothing herein will be deemed to release any rights or remedies in connection with Executives ownership of vested equity securities of the Company, vested benefits or Executives right to defense or indemnification by the Company or any of its affiliates pursuant to contract or applicable law (collectively, the Retained Claims). The Company agrees not to contest Executives application for unemployment benefits; provided that nothing herein shall prohibit the Company from responding truthfully to requests for information from, or require the Company to make any false or misleading statements to, any governmental authority.
NOW, THEREFORE, in consideration of the severance payments and benefits described in Section 4 of the Employment Agreement, which, pursuant to the Employment Agreement, are conditioned on Executives execution and non-revocation of this Agreement, and in consideration of the mutual promises made herein, the Company and Executive hereby agree as follows:
1. Severance Payments; Salary and Benefits. The Company agrees to provide Executive with the severance payments and benefits described in Section 4(b) and Section 4(c) of the Employment Agreement, payable at the times set forth in, and subject to the terms and conditions of, the Employment Agreement. In addition, to the extent not already paid, and subject to the terms and conditions of the Employment Agreement, the Company shall pay or provide to Executive all other payments or benefits described in Section 3(c) of the Employment Agreement, subject to and in accordance with the terms thereof.
2. Release of Claims. Executive agrees that, other than with respect to the Retained Claims, the foregoing consideration represents settlement in full of all outstanding obligations owed to Executive by the Company, any of its direct or indirect subsidiaries and affiliates, and any of their current and former officers, directors, equity holders, managers, employees, agents, investors, attorneys, shareholders, administrators, affiliates, benefit plans, plan administrators, insurers, trustees, divisions, and subsidiaries and predecessor and successor corporations and assigns (collectively, the Releasees). Executive, on Executives own behalf and on behalf of any of Executives affiliated companies or entities and any of their respective heirs, family members, executors, agents, and assigns, other than with respect to the Retained Claims, hereby and forever releases the Releasees from, and agrees not to sue concerning, or in any manner to institute, prosecute, or pursue, any claim, complaint, charge, duty, obligation, or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that Executive may possess against any of the Releasees arising from any omissions, acts, facts, or damages that have occurred up until and including the Effective Date of this Agreement (as defined in Section 7 below), including, without limitation:
(a) any and all claims relating to or arising from Executives employment or service relationship with the Company or any of its direct or indirect subsidiaries or affiliates and the termination of that relationship;
(b) any and all claims relating to, or arising from, Executives right to purchase, or actual purchase of any shares of stock or other equity interests of the Company or any of its affiliates, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law;
(c) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; harassment; retaliation; breach of contract, both express and implied; breach of covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; fraud; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; conversion; and disability benefits;
(d) any and all claims for violation of any federal, state, or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1991; the Rehabilitation Act of 1973; the Americans with Disabilities Act of 1990; the Equal Pay Act; the Fair Credit Reporting Act; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act; the Employee Retirement Income Security Act of 1974; the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act; and the Sarbanes-Oxley Act of 2002;
(e) any and all claims for violation of the federal or any state constitution;
(f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination;
(g) any claim for any loss, cost, damage, or expense arising out of any dispute over the non-withholding or other tax treatment of any of the proceeds received by Executive as a result of this Agreement; and
(h) any and all claims for attorneys fees and costs.
Executive agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not release claims that cannot be released as a matter of law, including, but not limited to, Executives right to report possible violations of federal law or regulation to any governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002, or any other whistleblower protection provisions of state or federal law or regulation, Executives right to file a charge with or participate in a charge by the Equal Employment Opportunity Commission, or any other local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against the Company (with the understanding that Executives release of claims herein bars Executive from recovering such monetary relief from the Company or any Releasee), claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law, claims to continued participation in certain of the Companys group benefit plans pursuant to the terms and conditions of COBRA, claims to any benefit entitlements vested as the date of separation of Executives employment, pursuant to written terms of any employee benefit plan of the Company or its affiliates and Executives right under applicable
law and any Retained Claims. This release further does not release claims for breach of Section 3(c), Section 4(b) or Section 4(c) of the Employment Agreement.
3. Acknowledgment of Waiver of Claims under ADEA. Executive understands and acknowledges that Executive is waiving and releasing any rights Executive may have under the Age Discrimination in Employment Act of 1967 (ADEA), and that this waiver and release is knowing and voluntary. Executive understands and agrees that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement. Executive understands and acknowledges that the consideration given for this waiver and release is in addition to anything of value to which Executive was already entitled. Executive further understands and acknowledges that Executive has been advised by this writing that: (a) Executive should consult with an attorney prior to executing this Agreement; (b) Executive has 21 days within which to consider this Agreement; (c) Executive has 7 days following Executives execution of this Agreement to revoke this Agreement pursuant to written notice to the General Counsel of the Company; (d) this Agreement shall not be effective until after the revocation period has expired; and (e) nothing in this Agreement prevents or precludes Executive from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties, or costs for doing so, unless specifically authorized by federal law. In the event Executive signs this Agreement and returns it to the Company in less than the 21 day period identified above, Executive hereby acknowledges that Executive has freely and voluntarily chosen to waive the time period allotted for considering this Agreement.
4. Severability. In the event that any provision or any portion of any provision hereof or any surviving agreement made a part hereof becomes or is declared by a court of competent jurisdiction or arbitrator to be illegal, unenforceable, or void, this Agreement shall continue in full force and effect without said provision or portion of provision.
5. No Oral Modification. This Agreement may only be amended in a writing signed by Executive and a duly authorized officer of the Company.
6. Governing Law. This Agreement shall be subject to the provisions of Sections 9(a) and 9(c) of the Employment Agreement.
7. Effective Date. If Executive has attained or is over the age of 40 as of the date of Executives termination of employment, then each Party has seven days after that Party signs this Agreement to revoke it and this Agreement will become effective on the eighth day after Executive signed this Agreement, so long as it has been signed by the Parties and has not been revoked by either Party before that date (the Effective Date). If Executive has not attained the age of 40 as of the date of Executives termination of employment, then the Effective Date shall be the date on which Executive signs this Agreement.
8. Voluntary Execution of Agreement. Executive understands and agrees that Executive executed this Agreement voluntarily, without any duress or undue influence on the part or behalf of the Company or any third party, with the full intent of releasing all of Executives claims against the Company and any of the other Releasees. Executive acknowledges that: (a) Executive has read this Agreement; (b) Executive has not relied upon any representations or statements made by the Company that are not specifically set forth in this Agreement; (c) Executive has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of Executives own choice or has elected not to retain legal counsel; (d) Executive understands the terms and consequences of this Agreement and of the releases it contains; and (e) Executive is fully aware of the legal and binding effect of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.
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Earl Sands, M.D. | |
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SELECTA BIOSCIENCES, INC. | ||
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EXHIBIT B
Employee Nondisclosure, Noncompetition and Assignment of Intellectual Property Agreement
[attached]
SELECTA BIOSCIENCES, INC.
EMPLOYEE NONDISCLOSURE, NONCOMPETITION AND
ASSIGNMENT OF INTELLECTUAL PROPERTY AGREEMENT
In consideration and as a condition of my employment by Selecta Biosciences, Inc., a Delaware corporation (the Company), and of the compensation to be paid to me, and in recognition of the fact that as an employee of the Company I will or may have access to confidential information, I agree with the Company as follows:
1. Performance: Prior Obligations.
(a) I agree to use best efforts to perform my assigned duties diligently, conscientiously, and with reasonable skill, and shall comply with all rules, procedures and standards promulgated from time to time by the Company with regard to my conduct and my access to and use of the Companys property, equipment and facilities. Among such rules, procedures and standards are those governing ethical and other professional standards for dealing with customers, government agencies, vendors, competitors, consultants, fellow employees, and the public-at-large, security provisions designed to protect Company property and the personal security of Company employees, rules respecting attendance, punctuality, and hours of work, and rules and procedures designed to protect the confidentiality of proprietary information. The Company agrees to make reasonable efforts to inform me of such rules, standards and procedures as are in effect from time to time.
(b) I hereby represent, warrant and agree (i) that I have the full right to enter into this Agreement and perform the services required of me hereunder, without any restriction whatsoever; (ii) that in the course of performing services hereunder, I will not violate the terms or conditions of any agreement between me and any third party or infringe or wrongfully appropriate any patents, copyrights, trade secrets or other intellectual property rights of any person or entity anywhere in the world; (iii) that I have not and will not disclose or use during my employment by the Company any confidential information that I acquired as a result of any previous employment or consulting arrangement or under a previous obligation of confidentiality; and (iv) that I have disclosed to the Company in writing any and all continuing obligations to previous employers or others that require me not to disclose any information to the Company.
2. Confidential Information. While employed by the Company and thereafter, I shall not, directly or indirectly, use any Confidential Information (as hereinafter defined) other than pursuant to my employment by and for the benefit of the Company, or disclose any Confidential Information to anyone outside of the Company, whether by private communication, public address, publication or otherwise, or disclose any Confidential Information to anyone within the Company who has not been authorized to receive such information, except as directed in writing by an authorized representative of the Company. The term Confidential Information as used throughout this Agreement shall mean all trade secrets, proprietary information, know-how, data, designs, specifications, processes, customer lists and other technical or business information (and any tangible evidence, record or representation thereof), whether prepared,
conceived or developed by a consultant or employee of the Company (including myself) or received by the Company from an outside source, which is in the possession of the Company (whether or not the property of the Company), which in any way relates to the present or future business of the Company, which is maintained in confidence by the Company, or which might permit the Company or its customers to obtain a competitive advantage over competitors who do not have access to such trade secrets, proprietary information, or other data or information. Without limiting the generality of the foregoing. Confidential Information shall include, without limitation:
(a) any idea, improvement, invention, innovation, development, concept, technical or clinical data, design, formula, device, pattern, sequence, method, process, composition of matter, computer program or software, source code, object code, algorithm, model, diagram, flow chart, product specification or design, plan for a new or revised product, sample, compilation of information, or work in process, or parts thereof, and any and all revisions and improvements relating to any of the foregoing (in each case whether or not reduced to tangible form); and
(b) the name of any customer, supplier, employee, prospective customer, sales agent, supplier or consultant, any sales plan, marketing material, plan or survey, business plan or opportunity, product or development plan or specification, business proposal, financial record, or business record or other record or information relating to the present or proposed business of the Company.
Notwithstanding the foregoing, the term Confidential Information shall not apply to information which the Company has voluntarily disclosed to the public without restriction, or which has otherwise lawfully entered the public domain.
I shall promptly notify my supervisor or any officer of the Company if I learn of any possible unauthorized use or disclosure of Confidential Information and shall cooperate fully with the Company to enforce its rights in such information.
I understand that the Company from time to time has in its possession information (including product and development plans and specifications) which is claimed by customers and others to be proprietary and which the Company has agreed to keep confidential. I agree that all such information shall be Confidential Information for purposes of this Agreement.
3. Ownership and Assignment of Intellectual Property.
(a) I agree that all originals and all copies of all manuscripts, drawings, prints, manuals, diagrams, letters, notes, notebooks, reports, models, records, files, memoranda, plans, sketches and all other documents and materials containing, representing, evidencing, recording, or constituting any Confidential Information (as defined in Section 2 above), however and whenever produced (whether by myself or others) during the course of my employment, shall be the sole property of the Company.
(b) I agree that all Confidential Information and all other discoveries, inventions, ideas, concepts, trademarks, service marks, logos, processes, products, formulas, computer programs or software, source codes, object codes, algorithms, machines, apparatuses,
items of manufacture or composition of matter, or any new uses therefor or improvements thereon, or any new designs or modifications or configurations of any kind, or works of authorship of any kind, including, without limitation, compilations and derivative works, whether or not patentable or copyrightable, conceived, developed, reduced to practice or otherwise made by me, either alone or with others, and related to the business of the Company or to tasks assigned to me during the course of my employment, whether or not made during my regular working hours, whether or not conceived, developed, reduced to practice or made on the Companys premises and whether or not disclosed by me to the Company (collectively Company Inventions), and any and all services and products which embody, emulate or employ any such Company Invention or Confidential Information shall be the sole property of the Company and all copyrights, patents, patent rights, trademarks and reproduction rights to, and other proprietary rights in, each such Company Invention or Confidential Information, whether or not patentable or copyrightable, shall belong exclusively to the Company. For the avoidance of doubt, Confidential Information shall only include information that relates to the present or future business of the Company, and Company Inventions shall only include inventions that relate to the business of the Company or to tasks assigned to me during the course of my employment.
(c) I agree to, and hereby do, assign to the Company all my right, title and interest throughout the world in and to all Company Inventions and to anything tangible which evidences, incorporates, constitutes, represents or records any Company Invention. I agree that all Company Inventions shall constitute works made for hire under the copyright laws of the United States and hereby assign and, to the extent any such assignment cannot be made at present, I hereby agree to assign to the Company all copyrights, patents and other proprietary rights I may have in any Company Inventions, together with the right to file for and/or own wholly without restriction United States and foreign patents, trademarks, and copyrights. I agree to waive, and hereby waive, all moral rights or proprietary rights in or to any Company Inventions and, to the extent that such rights may not be waived, agree not to assert such rights against the Company or its licensees, successors or assigns.
(d) I hereby certify Exhibit A sets forth any and all confidential information and intellectual property that I claim as my own or otherwise intend to exclude from this Agreement because it was developed by me prior to the date of this Agreement. I understand that after execution of this Agreement I shall have no right to exclude Confidential Information or Company Inventions from this Agreement.
4. Employees Obligation to Keep Records. I shall make and maintain adequate and current written records of all Company Inventions, including notebooks and invention disclosures, which records shall be available to and remain the property of the Company at all times. I shall disclose all Company Inventions promptly, fully and in writing to the Company immediately upon production or development of the same and at any time upon request.
5. Employees Obligation to Cooperate. I will, at any time during my employment, or after it terminates, upon request of the Company, execute all documents and perform all lawful acts which the Company considers necessary or advisable to secure its rights hereunder and to carry out the intent of this Agreement. Without limiting the generality of the foregoing, I will assist the Company in any reasonable manner to obtain for its own benefit patents or
copyrights in any and all countries with respect to all Company Inventions assigned pursuant to Section 3, and I will execute, when requested, patent and other applications and assignments thereof to the Company, or persons designated by it, and any other lawful documents deemed necessary by the Company to carry out the purposes of this Agreement, and I will further assist the Company in every way to enforce any patents and copyrights obtained, including, without limitation, testifying in any suit or proceeding involving any of said patents or copyrights or executing any documents deemed necessary by the Company, all without further consideration than provided for herein. It is understood that reasonable out-of-pocket expenses of my assistance incurred at the request of the Company under this Section will be reimbursed by the Company.
6. Noncompetition and Non-solicitation. During my employment with the Company and for a period of 12 months after the termination of my employment with the Company for any reason, I shall not, without the Companys prior written consent, on my own behalf, or as owner, manager, stockholder, consultant, director, officer, or employee of any business entity (except as a holder of not more than three (3%) percent of the stock of a publicly held company) participate in any capacity in any business activity that is in direct competition with any of the products or services being developed, marketed, distributed, planned, sold or otherwise provided by the Company or its affiliates at the time of, or during the 12 months preceding, my termination.
During my employment with the Company and for a period of 12 months after the termination of my employment with the Company for any reason, I shall not solicit, induce or encourage any employee of the Company to terminate his or her employment with the Company.
7. Return of Property. Upon termination of my employment with the Company, or at any other time upon request of the Company, I shall cease using and return promptly any and all customer or prospective customer lists, other customer or prospective customer information or related materials, computer programs, software, electronic data, specifications, drawings, blueprints, data storage devices, reproductions, sketches, notes, notebooks, memoranda, reports, records, proposals, business plans, or copies of them, other documents or materials, tools, equipment, or other property belonging to the Company or its customers which I may then possess or have under my direct or indirect control. I further agree that upon termination of employment, I shall not take with me any documents or data in any form or of any description containing or pertaining to Confidential Information or Company Inventions, other than documents I have a right to retain under applicable law (with the understanding that my obligations under this Agreement continue to apply to any such retained documents). For purposes of clarity, using best efforts to completely remove (with the Companys prior written permission) from any personal computer, laptop, smart phone, IPad, or any other electronic device, any Company Property that I have previously returned to the Company in accordance with this Section 7 satisfies my obligations under this section.
8. Other Obligations. I acknowledge that the Company from time to time may have agreements with other persons, including the government of the United States or other countries and agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. I agree to be bound by all such obligations and restrictions and to take all action necessary to discharge the obligations of the Company thereunder.
9. Miscellaneous.
(a) This Agreement contains the entire and only agreement between me and the Company with respect to the subject matter hereof, superseding any previous oral or written communications, representations, understandings, or agreements with the Company or any officer or representative hereof. In the event of any inconsistency between this Agreement and any other contract between me and the Company, the provisions of this Agreement shall prevail.
(b) My obligations under Sections 2, 3, 5, 6 (for the periods set forth therein), 7, 8 and 9 of this Agreement shall survive the termination of my employment with the Company regardless of the manner of or reasons for such termination, and regardless of whether such termination constitutes a breach of any other agreement I may have with the Company. My obligations under this Agreement shall be binding upon my heirs, assigns, executors, administrators and representatives, and the provisions of this Agreement shall inure to the benefit of and be binding on the successors and assigns of the Company.
(c) If any provision of this Agreement shall be determined to be unenforceable by any court of competent jurisdiction by reason of its extending for too great a period of time or over too large a geographic area or over too great a range of activities, it shall be interpreted to extend only over the maximum period of time, geographic area or range of activities as to which it may be enforceable. If, after application of the immediately preceding sentence, any provision of this Agreement shall be determined to be invalid, illegal or otherwise unenforceable by any court of competent jurisdiction, the validity, legality and enforceability of the other provisions of this Agreement shall not be affected thereby. Except as otherwise provided in this paragraph, any invalid, illegal or unenforceable provision of this Agreement shall be severable, and after any such severance, all other provisions hereof shall remain in full force and effect.
(d) I acknowledge and agree that violation of this Agreement by me would cause irreparable harm to the Company not adequately compensable by money damages alone, and I therefore agree that, in addition to all other remedies available to the Company at law, in equity or otherwise, the Company shall be entitled to injunctive relief to prevent an actual or threatened violation of this Agreement and to enforce the provisions hereof, without showing or proving any actual damage to the Company or posting any bond in connection therewith.
(e) No failure by the Company to insist upon strict compliance with any of the terms, covenants, or conditions hereof, and no delay or omission by the Company in exercising any right under this Agreement, will operate as a waiver of such terms, covenants, conditions or rights. A waiver or consent given by the Company on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
(f) This Agreement may not be changed, modified, released, discharged, abandoned, or otherwise amended, in whole or in part, except by an instrument in writing signed by me and the Company.
(g) This Agreement shall be governed by, and construed and enforced in accordance with, the laws of The Commonwealth of Massachusetts, without regard to its principles of conflicts of laws. This Agreement is executed under seal.
[Signature Page Follows]
BY PLACING MY SIGNATURE HEREUNDER, I ACKNOWLEDGE THAT I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL AND I HAVE READ ALL THE PROVISIONS OF THIS EMPLOYEE NONDISCLOSURE, NONCOMPETITION AND ASSIGNMENT OF INTELLECTUAL PROPERTY AGREEMENT AND THAT I AGREE TO ALL OF ITS TERMS.
Effective Date: June 6, 2016
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EMPLOYEE: | ||
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/s/ Earl E. Sands, M.D. | ||
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Signature | ||
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Name: |
Earl E. Sands, M.D. | |
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Address: |
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Accepted and Agreed: | ||
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SELECTA BIOSCIENCES, INC. | ||
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By: |
/s/ Werner Cautreels, Ph.D. | |
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Name: Werner Cautreels, Ph.D. | ||
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Title: President and Chief Executive Officer | ||
EXHIBIT A
Excluded Confidential Information and Inventions
EXHIBIT C
Form of Indemnification Agreement
[attached]
Exhibit 10.21
Employment Agreement
This Employment Agreement (this Agreement), dated as of June 6, 2016, is made by and between Selecta Biosciences, Inc., a Delaware corporation (together with any successor thereto, the Company), and Lloyd Johnston, Ph.D. (Executive) (collectively referred to as the Parties or individually referred to as a Party).
RECITALS
A. It is the desire of the Company to assure itself of the services of Executive following the Effective Date (as defined below) and thereafter by entering into this Agreement.
B. Executive and the Company mutually desire that Executive provide services to the Company on the terms herein provided.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the Parties hereto agree as follows:
1. Employment.
(a) General. Effective on the closing of the Companys initial public offering of stock pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the Effective Date), the Company shall employ Executive and Executive shall remain in the employ of the Company, for the period and in the positions set forth in this Section 1, and subject to the other terms and conditions herein provided.
(b) At-Will Employment. The Company and Executive acknowledge that Executives employment is and shall continue to be at-will, as defined under applicable law, and that Executives employment with the Company may be terminated by either Party at any time for any or no reason (subject to the notice requirements of Section 3(b)). This at-will nature of Executives employment shall remain unchanged during Executives tenure as an employee and may not be changed, except in an express writing signed by Executive and a duly authorized officer of the Company. If Executives employment terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement or otherwise agreed to in writing by the Company or as provided by applicable law. The term of this Agreement (the Term) shall commence on the Effective Date and end on the date this Agreement is terminated under Section 3.
(c) Positions and Duties. Executive shall serve as Chief Operating Officer and Senior Vice President, Research and Development of the Company with such responsibilities, duties and authority normally associated with such positions and as may from time to time be reasonably assigned to Executive by the Chief Executive Officer of the Company. Executive shall devote substantially all of Executives working time and efforts to the business and affairs of the Company (which shall include service to its affiliates, if applicable), provided that Executive may engage in outside business activities (including serving on outside boards or committees) to the extent such activities do not materially interfere with the performance of Executives duties and responsibilities under this Agreement or violate the terms of the Employee Nondisclosure, Noncompetition and Assignment of Intellectual Property Agreement attached as Exhibit B (the Restrictive Covenant Agreement). Executive agrees to observe and comply with the rules and
policies of the Company as adopted by the Company from time to time, in each case as amended from time to time, as set forth in writing, and as delivered or made available to Executive (each, a Policy).
2. Compensation and Related Matters.
(a) Annual Base Salary. During the Term, Executive shall receive a base salary at a rate of $318,000 per annum, which shall be paid in accordance with the customary payroll practices of the Company and shall be pro-rated for partial years of employment. Such annual base salary shall be reviewed (and may be increased) from time to time by the Board of Directors of the Company or an authorized committee of the Board (in either case, the Board) (such annual base salary, as it may be increased from time to time, the Annual Base Salary).
(b) Bonus. During the Term, Executive will be eligible to participate in an annual incentive program established by the Board. Executives annual incentive compensation under such incentive program (the Annual Bonus) shall be targeted at 35% of Executives Annual Base Salary (the Target Bonus). The Annual Bonus payable under the incentive program shall be based on the achievement of performance goals to be determined by the Board. The payment of any Annual Bonus pursuant to the incentive program will be made on or before March 15 of the year following the year in which such Annual Bonus is earned.
(c) Benefits. During the Term, Executive shall be eligible to participate in employee benefit plans, programs and arrangements of the Company (including medical, dental and 401(k) plans), consistent with the terms thereof and as such plans, programs and arrangements may be amended from time to time. In no event shall Executive be eligible to participate in any severance plan or program of the Company, except as set forth in Section 4 of this Agreement.
(d) Vacation. During the Term, Executive shall be entitled to four weeks of paid personal leave, or paid personal leave per calendar year in accordance with the Companys Policies, whichever is greater. Vacation days accrued, but not used by the end of any calendar year may be used in the subsequent calendar year; provided that no more than five accrued vacation days may be carried over from one year to the next. Any vacation shall be taken at the reasonable and mutual convenience of the Company and Executive.
(e) Business Expenses. During the Term, the Company shall reimburse Executive for all reasonable travel and other business expenses incurred by Executive in the performance of Executives duties to the Company in accordance with the Companys expense reimbursement Policy.
(f) Key Person Insurance. At any time during the Term, the Company shall have the right to insure the life of Executive for the Companys sole benefit. The Company shall have the right to determine the amount of insurance and the type of policy. Executive shall reasonably cooperate with the Company in obtaining such insurance by submitting to physical examinations, by supplying all information reasonably required by any insurance carrier, and by executing all necessary documents reasonably required by any insurance carrier, provided that any information provided to an insurance company or broker shall not be provided to the Company without the prior written authorization of Executive. Executive shall incur no financial obligation by executing any required document, and shall have no interest in any such policy.
(g) Life Insurance. Subject to Executives satisfaction of eligibility requirements during the Term, the Company will maintain a term life insurance policy for Executive in the
coverage amount of $230,000 and pay the premiums on such policy while Executive is an employee of the Company.
3. Termination.
Executives employment hereunder may be terminated by the Company or Executive, as applicable, without any breach of this Agreement under the following circumstances:
(a) Circumstances.
(i) Death. Executives employment hereunder shall terminate upon Executives death.
(ii) Disability. If Executive has incurred a Disability, as defined below, the Company may terminate Executives employment.
(iii) Termination for Cause. The Company may terminate Executives employment for Cause, as defined below.
(iv) Termination without Cause. The Company may terminate Executives employment without Cause.
(v) Resignation from the Company with Good Reason. Executive may resign Executives employment with the Company with Good Reason, as defined below.
(vi) Resignation from the Company Without Good Reason. Executive may resign Executives employment with the Company for any reason other than Good Reason or for no reason.
(b) Notice of Termination. Any termination of Executives employment by the Company or by Executive under this Section 3 (other than termination pursuant to Section 3(a)(i)) shall be communicated by a written notice to the other Party hereto (i) indicating the specific termination provision in this Agreement relied upon, (ii) setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executives employment under the provision so indicated, if applicable, and (iii) specifying a Date of Termination which, except in the case of a termination pursuant to Section 3(a)(iii), shall be at least thirty (30) days following the date of such notice, but no more than forty (40) days following the date of such notice (a Notice of Termination); provided, however, that the Company may deliver a Notice of Termination to Executive that specifies any Date of Termination that occurs on or after the date of the Notice of Termination (but no more than forty (40) days following the date of such notice) and, in the event that Executive delivers a Notice of Termination to the Company, the Company may, in its sole discretion, change the Date of Termination to any date that occurs on or following the date of the Notice of Termination and is prior to the Date of Termination specified in the Notice of Termination, provided, in either case, that if the Company selects a Date of Termination that is less than thirty (30) days after the date of the Notice of Termination, the Company will pay Executive the base salary Executive would have earned during the period commencing on the Date of Termination selected by the Company and ending thirty (30) days after the date of the Notice of Termination. The failure by either party to set forth in the Notice of Termination any fact or circumstance shall not waive any right of the party hereunder or preclude the party from asserting such fact or circumstance in enforcing the partys rights hereunder. Any decision to terminate Executives employment for Cause shall be made by a majority vote of the Board after Executive has received written notice from the Board setting forth in reasonable detail the facts and circumstances claimed to provide the basis for the Cause
and the Board has provided the Executive reasonable opportunity to be heard by the Board with counsel present if he chooses.
(c) Company Obligations upon Termination. Upon termination of Executives employment pursuant to any of the circumstances listed in this Section 3, Executive (or Executives estate) shall be entitled to receive the sum of: (i) the portion of Executives Annual Base Salary earned through the Date of Termination, but not yet paid to Executive; (ii) any unpaid Annual Bonus earned by Executive for the year prior to the year in which the Date of Termination occurs, as determined by the Board in its good faith discretion based upon actual performance achieved, which Annual Bonus, if any, shall be paid to Executive when bonuses for such year are paid to actively employed senior executives of the Company but in no event later than March 15 of the year in which the Date of Termination occurs; (iii) any expenses owed to Executive pursuant to Section 2(e); and (iv) any amount accrued and arising from Executives participation in, or benefits accrued under any employee benefit plans, programs or arrangements, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (collectively, the Company Arrangements). Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided in a benefit plan or herein, all of Executives rights to salary, severance, benefits, bonuses and other compensatory amounts hereunder (if any) shall cease upon the termination of Executives employment hereunder.
(d) Deemed Resignation. Upon termination of Executives employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its subsidiaries.
4. Severance Payments.
(a) Termination for Cause, or Termination Upon Death, Disability or Resignation from the Company Without Good Reason. If Executives employment shall terminate as a result of Executives death pursuant to Section 3(a)(i) or Disability pursuant to Section 3(a)(ii), pursuant to Section 3(a)(iii) for Cause, or pursuant to Section 3(a)(vi) for Executives resignation from the Company without Good Reason, then Executive shall not be entitled to any severance payments or benefits, except as provided in Section 3(c).
(b) Termination without Cause, or Resignation from the Company with Good Reason. If Executives employment terminates without Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to Executives resignation with Good Reason, then, subject to Executive signing on or before the 60th day following Executives Separation from Service (as defined below), and not revoking, a release of claims (which Executive will receive no later than ten (10) business days following Executives Separation from Service) substantially in the form attached as Exhibit A to this Agreement (the Release), and Executives continued compliance with Section 5, Executive shall receive, in addition to payments and benefits set forth in Section 3(c), the following:
(i) an amount in cash equal to the Annual Base Salary, payable in the form of salary continuation in regular installments over the 12-month period following the date of Executives Separation from Service (the Severance Period) in accordance with the Companys normal payroll practices;
(ii) a pro-rata portion of the Annual Bonus, payable in the form of a lump sum payment, in an amount equal to the product of (A)(i) the Target Bonus, if the Date of Termination occurs during the first quarter of the calendar year or (ii) the Annual Bonus amount based on actual performance as determined by the Board or an authorized committee thereof, if the Date of Termination occurs after the first quarter of the calendar year, multiplied by (B) a fraction,
using the number of full months of the year elapsed prior to the Date of Termination as the numerator and 12 as the denominator; and
(iii) if Executive elects to receive continued medical, dental and/or vision coverage under one or more of the Companys group healthcare plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA), the Company shall directly pay, or reimburse Executive for, the COBRA premiums for Executive and Executives covered dependents under such plans during the period commencing on Executives Separation from Service and ending upon the earliest of (X) the last day of the Severance Period, (Y) the date that Executive and/or Executives covered dependents become no longer eligible for COBRA or (Z) the date Executive becomes eligible to receive medical, dental or vision coverage, as applicable, from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility). Notwithstanding the foregoing, if the Company determines in its sole discretion that it cannot provide the foregoing benefit without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act) or incurring an excise tax, the Company may alter the manner in which medical, dental or vision coverage is provided to Executive after the Date of Termination so long as such alteration does not increase the after-tax cost to Executive of such benefits.
(c) Change in Control. Notwithstanding anything to the contrary in any applicable Company equity plan or equity agreement, in the event Executives employment terminates without Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to Executives resignation with Good Reason, in either case, within 60 days prior to or on or within 12 months following the date of a Change in Control, subject to Executive signing on or before the 60th day following Executives Separation from Service, and not revoking, the Release (which Executive will receive no later than ten (10) business days following Executives Separation from Service), and Executives continued compliance with Section 5, Executive shall receive, in addition to the payments and benefits set forth in Section 3(c) and Section 4(b), immediate vesting of all unvested equity or equity-based awards held by Executive under any Company equity compensation plans that vest solely based on the passage of time (for the avoidance of doubt, with any such awards that vest in whole or in part based on the attainment of performance-vesting conditions being governed by the terms of the applicable award agreement).
(d) Survival. Notwithstanding anything to the contrary in this Agreement, the provisions of Sections 5 through 9 will survive the termination of Executives employment and the termination of the Term.
5. Restrictive Covenants. As a condition to the effectiveness of this Agreement, Executive will execute and deliver to the Company contemporaneously herewith the Restrictive Covenant Agreement. Executive agrees to abide by the terms of the Restrictive Covenant Agreement, which are hereby incorporated by reference into this Agreement. Executive acknowledges that the provisions of the Restrictive Covenant Agreement will survive the termination of Executives employment and the termination of the Term for the periods set forth in the Restrictive Covenant Agreement.
6. Assignment and Successors.
The Company must assign its rights and obligations under this Agreement to any of its affiliates or to any successor to all or substantially all of the business or the assets of the Company (by merger or otherwise). This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable. None of Executives rights or obligations may be assigned or transferred by Executive, other than Executives rights to payments hereunder, which may be
transferred only by will or operation of law. Notwithstanding the foregoing, Executive shall be entitled, to the extent permitted under applicable law and applicable Company Arrangements, to select and change a beneficiary or beneficiaries to receive compensation hereunder following Executives death by giving written notice thereof to the Company.
7. Certain Definitions.
(a) Cause. The Company shall have Cause to terminate Executives employment hereunder upon:
(i) Executives commission of, or indictment or conviction of, any felony or any crime involving dishonesty by Executive;
(ii) Executives participation in any fraud against the Company;
(iii) any intentional damage to any property of the Company by Executive;
(iv) Executives misconduct which materially and adversely reflects upon the business, operations, or reputation of the Company, which misconduct has not been cured (or cannot be cured) within thirty (30) days after the Company gives written notice to Executive regarding such misconduct; or
(v) Executives breach of any material provision of this Agreement or any other written agreement between Executive and the Company and failure to cure such breach (if capable of cure) within thirty (30) days after the Company gives written notice to Executive regarding such breach.
(b) Change in Control. Change in Control shall have the meaning set forth in the version of the Selecta Biosciences, Inc. 2016 Incentive Award Plan in effect on the Effective Date.
(c) Code. Code shall mean the Internal Revenue Code of 1986, as amended, and the regulations and guidance promulgated thereunder.
(d) Date of Termination. Date of Termination shall mean (i) if Executives employment is terminated by Executives death, the date of Executives death; or (ii) if Executives employment is terminated pursuant to Section 3(a)(ii) (vi) either the date indicated in the Notice of Termination or the date specified by the Company pursuant to Section 3(b), whichever is earlier.
(e) Disability. Disability shall mean, at any time the Company or any of its affiliates sponsors a long-term disability plan for the Companys employees, disability as defined in such long-term disability plan for the purpose of determining a participants eligibility for benefits, provided, however, if the long-term disability plan contains multiple definitions of disability, Disability shall refer to that definition of disability which, if Executive qualified for such disability benefits, would provide coverage for the longest period of time. The determination of whether Executive has a Disability shall be made by the person or persons required to make disability determinations under the long-term disability plan. At any time the Company does not sponsor a long-term disability plan for its employees, Disability shall mean Executives inability to perform, with or without reasonable accommodation, the essential functions of Executives positions hereunder for a total of six months during any twelve-month period as a result of incapacity due to mental or physical illness as determined by a physician selected by the Company or its insurers and acceptable to Executive or Executives legal representative, with such agreement as to acceptability not to be unreasonably withheld or delayed. Any unreasonable refusal by
Executive to submit to a medical examination for the purpose of determining Disability shall be deemed to constitute conclusive evidence of Executives Disability.
(f) Good Reason. For the sole purpose of determining Executives right to severance payments and benefits as described above, Executives resignation will be with Good Reason if Executive resigns within one year after any of the following events, unless Executive consents to the applicable event in writing: (i) a material reduction in Executives Annual Base Salary or Target Bonus, (ii) a material diminution in Executives authority, title, duties or areas of responsibility, (iii) the requirement that Executive report to someone other than the Chief Executive Officer, (iv) the relocation of Executives primary office to a location more than 40 miles from the Boston metropolitan area, or (v) a material breach by the Company of this Agreement or any other written agreement with Executive. Notwithstanding the foregoing, no Good Reason will have occurred unless and until Executive has: (a) provided the Company, within 60 days of Executives knowledge of the occurrence of the facts and circumstances underlying the Good Reason event, written-notice stating with specificity the applicable facts and circumstances underlying such finding of Good Reason; and (b) provided the Company with an opportunity to cure the same within thirty (30) days after the receipt of such notice.
8. Parachute Payments.
(a) Notwithstanding any other provisions of this Agreement or any Company equity plan or agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments and benefits, including the payments and benefits under Section 4(b) and Section 4(c) hereof, being hereinafter referred to as the Total Payments), would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then the Total Payments shall be reduced (in the order provided in Section 8(b)) to the minimum extent necessary to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).
(b) The Total Payments shall be reduced in the following order: (i) reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code (Section 409A), (ii) reduction on a pro-rata basis of any non-cash severance payments or benefits that are exempt from Section 409A, (iii) reduction on a pro-rata basis of any other payments or benefits that are exempt from Section 409A, and (iv) reduction of any payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A; provided, in case of clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards shall be first applied to Company equity awards that would otherwise vest last in time.
(c) The Company will select an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax (the Independent Advisors) to make determinations regarding the application of this Section 8. For purposes of such determinations, no portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not constitute a parachute payment within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code)
or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the base amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation. The costs of obtaining such determination and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company.
(d) If Executive incurs legal fees or other expenses (including expert witness and accounting fees) in an effort to determine the applicability of this Section 8 or establish entitlement to or obtain any portion of the Total Payments that have been reduced under this Section 8 (collectively, Legal and Other Expenses), Executive shall be entitled to payment of or reimbursement for such Legal and Other Expenses in accordance with this Section 8(d). Subject to Sections 9(l)(iv) and 9(m) and the other provisions of this Section 8, the Company will reimburse all Legal and Other Expenses on a monthly basis reasonably promptly after presentation of Executives written request for reimbursement accompanied by evidence reasonably acceptable to the Company that such Legal and Other Expenses were incurred. If the Company establishes before a court of competent jurisdiction that Executive had no reasonable basis for a claim made by Executive hereunder, or acted in bad faith, no further payment of or reimbursement for Legal and Other Expenses shall be due to Executive in respect of such claim, and Executive shall refund any amounts previously paid or reimbursed hereunder with respect to such claim.
(e) In the event it is later determined that to implement the objective and intent of this Section 8, (i) a greater reduction in the Total Payments should have been made, the excess amount shall be returned promptly by Executive to the Company or (ii) a lesser reduction in the Total Payments should have been made, the excess amount shall be paid or provided promptly by the Company to Executive, except to the extent the Company reasonably determines would result in imposition of an excise tax under Section 409A.
9. Miscellaneous Provisions.
(a) Governing Law. This Agreement shall be governed, construed, interpreted and enforced in accordance with its express terms, and otherwise in accordance with the substantive laws of the Commonwealth of Massachusetts without reference to the principles of conflicts of law of the Commonwealth of Massachusetts or any other jurisdiction that would result in application of the laws of a jurisdiction other than the Commonwealth of Massachusetts, and where applicable, the laws of the United States.
(b) Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
(c) Notices. Any notice, request, claim, demand, document and other communication hereunder to any Party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile or certified or registered mail, postage prepaid, as follows:
(i) If to the Company, to the General Counsel of the Company at the Companys headquarters,
(ii) If to Executive, to the last address that the Company has in its personnel records for Executive, or
(iii) at any other address as any Party shall have specified by notice in writing to the other Party.
(d) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. Signatures delivered by facsimile or PDF shall be deemed effective for all purposes.
(e) Entire Agreement. The terms of this Agreement, the Restrictive Covenant Agreement incorporated herein by reference as set forth in Section 5, the Indemnification Agreement (defined below) and any stock option agreement between the Company and Executive entered into prior to the date hereof are intended by the Parties to be the final expression of their agreement with respect to the subject matter hereof and supersede all prior understandings and agreements, whether written or oral, including without limitation any prior employment agreement or offer letter between Executive and the Company. The Parties further intend that this Agreement shall constitute the complete and exclusive statement of their terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.
(f) Indemnification. The Parties acknowledge that they have or will enter into an Indemnification Agreement in substantially the form attached as Exhibit C hereto.
(g) Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Executive and a duly authorized officer of Company. By an instrument in writing similarly executed, Executive or a duly authorized officer of the Company may waive compliance by the other Party with any specifically identified provision of this Agreement that such other Party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.
(h) No Inconsistent Actions. The Parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the Parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement.
(i) Construction. This Agreement shall be deemed drafted equally by both the Parties. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle that the language is to be construed against any Party shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation. Any references to paragraphs, subparagraphs, sections or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary. Also, unless the context clearly indicates to the contrary, (i) the plural includes the singular and the singular includes the plural; (ii) and and or are each used both conjunctively and disjunctively; (iii) any, all, each, or every means any and all, and each and every; (iv) includes and including are each without limitation; (v) herein, hereof, hereunder and other similar compounds of the word here refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection; and (vi) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require.
(j) Enforcement. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the Term, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal,
invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.
(k) Withholding. The Company shall be entitled to withhold from any amounts payable under this Agreement any federal, state, local or foreign withholding or other taxes or charges which the Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise.
(l) Section 409A.
(i) General. The intent of the Parties is that the payments and benefits under this Agreement comply with or be exempt from Section 409A and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.
(ii) Separation from Service. Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that is considered nonqualified deferred compensation under Section 409A and is designated under this Agreement as payable upon Executives termination of employment shall be payable only upon Executives separation from service with the Company within the meaning of Section 409A (a Separation from Service) and, except as provided below, any such compensation or benefits described in Section 4 shall not be paid, or, in the case of installments, shall not commence payment, until the sixtieth (60th) day following Executives Separation from Service (the First Payment Date). Any installment payments that would have been made to Executive during the sixty (60) day period immediately following Executives Separation from Service but for the preceding sentence shall be paid to Executive on the First Payment Date and the remaining payments shall be made as provided in this Agreement.
(iii) Specified Employee. Notwithstanding anything in this Agreement to the contrary, if Executive is deemed by the Company at the time of Executives Separation from Service to be a specified employee for purposes of Section 409A, to the extent delayed commencement of any portion of the benefits to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A, such portion of Executives benefits shall not be provided to Executive prior to the earlier of (i) the expiration of the six-month period measured from the date of Executives Separation from Service with the Company or (ii) the date of Executives death. Upon the first business day following the expiration of the applicable Section 409A period, all payments deferred pursuant to the preceding sentence shall be paid in a lump sum to Executive (or Executives estate or beneficiaries), and any remaining payments due to Executive under this Agreement shall be paid as otherwise provided herein.
(iv) Expense Reimbursements. To the extent that any reimbursements under this Agreement are subject to Section 409A, any such reimbursements payable to Executive shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred; provided, that Executive submits Executives reimbursement request promptly following the date the expense is incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, other than medical expenses referred to in Section 105(b) of the Code, and Executives right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.
(v) Installments. Executives right to receive any installment payments under this Agreement, including without limitation any continuation salary payments that are payable on Company payroll dates, shall be treated as a right to receive a series of separate payments and, accordingly, each such installment payment shall at all times be considered a separate and distinct payment as permitted under Section 409A. Except as otherwise permitted under Section 409A, no payment hereunder shall be accelerated or deferred unless such acceleration or deferral would not result in additional tax or interest pursuant to Section 409A.
(m) Attorneys Fees. In the event that either Party prevails in a dispute with the other Party concerning the rights and obligations hereunder, the non-prevailing Party shall pay the prevailing Partys reasonable attorneys fees and costs.
10. Executive Acknowledgement.
Executive acknowledges that Executive has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on Executives own judgment.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date and year first above written.
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SELECTA BIOSCIENCES, INC. | |
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/s/ Werner Cautreels, Ph.D. |
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Name: Werner Cautreels, Ph.D. |
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Title: President and Chief Executive Officer |
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/s/ Lloyd Johnston, Ph.D. | |
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Lloyd Johnston, Ph.D. |
[Signature Page to Employment Agreement]
EXHIBIT A
Separation Agreement and Release
This Separation Agreement and Release (Agreement) is made by and between Lloyd Johnston, Ph.D. (Executive) and Selecta Biosciences, Inc. (the Company) (collectively referred to as the Parties or individually referred to as a Party). Capitalized terms used but not defined in this Agreement shall have the meanings set forth in the Employment Agreement (as defined below).
WHEREAS, the Parties have previously entered into that certain Employment Agreement, dated as of June 6, 2016 (the Employment Agreement); and
WHEREAS, in connection with Executives termination of employment with the Company or a subsidiary or affiliate of the Company effective , 20 , the Parties wish to resolve any and all disputes, claims, complaints, grievances, charges, actions, petitions, and demands that Executive may have against the Company and any of the Releasees as defined below, including, but not limited to, any and all claims arising out of or in any way related to Executives employment with or separation from the Company or its subsidiaries or affiliates but, for the avoidance of doubt, nothing herein will be deemed to release any rights or remedies in connection with Executives ownership of vested equity securities of the Company, vested benefits or Executives right to defense or indemnification by the Company or any of its affiliates pursuant to contract or applicable law (collectively, the Retained Claims). The Company agrees not to contest Executives application for unemployment benefits; provided that nothing herein shall prohibit the Company from responding truthfully to requests for information from, or require the Company to make any false or misleading statements to, any governmental authority.
NOW, THEREFORE, in consideration of the severance payments and benefits described in Section 4 of the Employment Agreement, which, pursuant to the Employment Agreement, are conditioned on Executives execution and non-revocation of this Agreement, and in consideration of the mutual promises made herein, the Company and Executive hereby agree as follows:
1. Severance Payments; Salary and Benefits. The Company agrees to provide Executive with the severance payments and benefits described in Section 4(b) and Section 4(c) of the Employment Agreement, payable at the times set forth in, and subject to the terms and conditions of, the Employment Agreement. In addition, to the extent not already paid, and subject to the terms and conditions of the Employment Agreement, the Company shall pay or provide to Executive all other payments or benefits described in Section 3(c) of the Employment Agreement, subject to and in accordance with the terms thereof.
2. Release of Claims. Executive agrees that, other than with respect to the Retained Claims, the foregoing consideration represents settlement in full of all outstanding obligations owed to Executive by the Company, any of its direct or indirect subsidiaries and affiliates, and any of their current and former officers, directors, equity holders, managers, employees, agents, investors, attorneys, shareholders, administrators, affiliates, benefit plans, plan administrators, insurers, trustees, divisions, and subsidiaries and predecessor and successor corporations and assigns (collectively, the Releasees). Executive, on Executives own behalf and on behalf of any of Executives affiliated companies or entities and any of their respective heirs, family members, executors, agents, and assigns, other than with respect to the Retained Claims, hereby and forever releases the Releasees from, and agrees not to sue concerning, or in any manner to institute, prosecute, or pursue, any claim, complaint, charge, duty, obligation, or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that Executive may possess against any of the Releasees arising from any omissions, acts, facts, or damages that have occurred up until and including the Effective Date of this Agreement (as defined in Section 7 below), including, without limitation:
(a) any and all claims relating to or arising from Executives employment or service relationship with the Company or any of its direct or indirect subsidiaries or affiliates and the termination of that relationship;
(b) any and all claims relating to, or arising from, Executives right to purchase, or actual purchase of any shares of stock or other equity interests of the Company or any of its affiliates, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law;
(c) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; harassment; retaliation; breach of contract, both express and implied; breach of covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; fraud; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; conversion; and disability benefits;
(d) any and all claims for violation of any federal, state, or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1991; the Rehabilitation Act of 1973; the Americans with Disabilities Act of 1990; the Equal Pay Act; the Fair Credit Reporting Act; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act; the Employee Retirement Income Security Act of 1974; the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act; and the Sarbanes-Oxley Act of 2002;
(e) any and all claims for violation of the federal or any state constitution;
(f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination;
(g) any claim for any loss, cost, damage, or expense arising out of any dispute over the non-withholding or other tax treatment of any of the proceeds received by Executive as a result of this Agreement; and
(h) any and all claims for attorneys fees and costs.
Executive agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not release claims that cannot be released as a matter of law, including, but not limited to, Executives right to report possible violations of federal law or regulation to any governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002, or any other whistleblower protection provisions of state or federal law or regulation, Executives right to file a charge with or participate in a charge by the Equal Employment Opportunity Commission, or any other local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against the Company (with the understanding that Executives release of claims herein bars Executive from recovering such monetary relief from the Company or any Releasee), claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law, claims to continued participation in certain of the Companys group benefit plans pursuant to the terms and conditions of COBRA, claims to any benefit entitlements vested as the date of separation of Executives employment, pursuant to written terms of any employee benefit plan of the Company or its affiliates and Executives right under applicable
law and any Retained Claims. This release further does not release claims for breach of Section 3(c), Section 4(b) or Section 4(c) of the Employment Agreement.
3. Acknowledgment of Waiver of Claims under ADEA. Executive understands and acknowledges that Executive is waiving and releasing any rights Executive may have under the Age Discrimination in Employment Act of 1967 (ADEA), and that this waiver and release is knowing and voluntary. Executive understands and agrees that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement. Executive understands and acknowledges that the consideration given for this waiver and release is in addition to anything of value to which Executive was already entitled. Executive further understands and acknowledges that Executive has been advised by this writing that: (a) Executive should consult with an attorney prior to executing this Agreement; (b) Executive has 21 days within which to consider this Agreement; (c) Executive has 7 days following Executives execution of this Agreement to revoke this Agreement pursuant to written notice to the General Counsel of the Company; (d) this Agreement shall not be effective until after the revocation period has expired; and (e) nothing in this Agreement prevents or precludes Executive from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties, or costs for doing so, unless specifically authorized by federal law. In the event Executive signs this Agreement and returns it to the Company in less than the 21 day period identified above, Executive hereby acknowledges that Executive has freely and voluntarily chosen to waive the time period allotted for considering this Agreement.
4. Severability. In the event that any provision or any portion of any provision hereof or any surviving agreement made a part hereof becomes or is declared by a court of competent jurisdiction or arbitrator to be illegal, unenforceable, or void, this Agreement shall continue in full force and effect without said provision or portion of provision.
5. No Oral Modification. This Agreement may only be amended in a writing signed by Executive and a duly authorized officer of the Company.
6. Governing Law. This Agreement shall be subject to the provisions of Sections 9(a) and 9(c) of the Employment Agreement.
7. Effective Date. If Executive has attained or is over the age of 40 as of the date of Executives termination of employment, then each Party has seven days after that Party signs this Agreement to revoke it and this Agreement will become effective on the eighth day after Executive signed this Agreement, so long as it has been signed by the Parties and has not been revoked by either Party before that date (the Effective Date). If Executive has not attained the age of 40 as of the date of Executives termination of employment, then the Effective Date shall be the date on which Executive signs this Agreement.
8. Voluntary Execution of Agreement. Executive understands and agrees that Executive executed this Agreement voluntarily, without any duress or undue influence on the part or behalf of the Company or any third party, with the full intent of releasing all of Executives claims against the Company and any of the other Releasees. Executive acknowledges that: (a) Executive has read this Agreement; (b) Executive has not relied upon any representations or statements made by the Company that are not specifically set forth in this Agreement; (c) Executive has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of Executives own choice or has elected not to retain legal counsel; (d) Executive understands the terms and consequences of this Agreement and of the releases it contains; and (e) Executive is fully aware of the legal and binding effect of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.
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Lloyd Johnston, Ph.D. | ||
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SELECTA BIOSCIENCES, INC. | ||
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Title: |
EXHIBIT B
Employee Nondisclosure, Noncompetition and Assignment of Intellectual Property Agreement
[attached]
SELECTA BIOSCIENCES, INC.
EMPLOYEE NONDISCLOSURE, NONCOMPETITION AND
ASSIGNMENT OF INTELLECTUAL PROPERTY AGREEMENT
In consideration and as a condition of my employment by Selecta Biosciences, Inc., a Delaware corporation (the Company), and of the compensation to be paid to me, and in recognition of the fact that as an employee of the Company I will or may have access to confidential information, I agree with the Company as follows:
1. Performance: Prior Obligations.
(a) I agree to use best efforts to perform my assigned duties diligently, conscientiously, and with reasonable skill, and shall comply with all rules, procedures and standards promulgated from time to time by the Company with regard to my conduct and my access to and use of the Companys property, equipment and facilities. Among such rules, procedures and standards are those governing ethical and other professional standards for dealing with customers, government agencies, vendors, competitors, consultants, fellow employees, and the public-at-large, security provisions designed to protect Company property and the personal security of Company employees, rules respecting attendance, punctuality, and hours of work, and rules and procedures designed to protect the confidentiality of proprietary information. The Company agrees to make reasonable efforts to inform me of such rules, standards and procedures as are in effect from time to time.
(b) I hereby represent, warrant and agree (i) that I have the full right to enter into this Agreement and perform the services required of me hereunder, without any restriction whatsoever; (ii) that in the course of performing services hereunder, I will not violate the terms or conditions of any agreement between me and any third party or infringe or wrongfully appropriate any patents, copyrights, trade secrets or other intellectual property rights of any person or entity anywhere in the world; (iii) that I have not and will not disclose or use during my employment by the Company any confidential information that I acquired as a result of any previous employment or consulting arrangement or under a previous obligation of confidentiality; and (iv) that I have disclosed to the Company in writing any and all continuing obligations to previous employers or others that require me not to disclose any information to the Company.
2. Confidential Information. While employed by the Company and thereafter, I shall not, directly or indirectly, use any Confidential Information (as hereinafter defined) other than pursuant to my employment by and for the benefit of the Company, or disclose any Confidential Information to anyone outside of the Company, whether by private communication, public address, publication or otherwise, or disclose any Confidential Information to anyone within the Company who has not been authorized to receive such information, except as directed in writing by an authorized representative of the Company. The term Confidential Information as used throughout this Agreement shall mean all trade secrets, proprietary information, know-how, data, designs, specifications, processes, customer lists and other technical or business information (and any tangible evidence, record or representation thereof), whether prepared,
conceived or developed by a consultant or employee of the Company (including myself) or received by the Company from an outside source, which is in the possession of the Company (whether or not the property of the Company), which in any way relates to the present or future business of the Company, which is maintained in confidence by the Company, or which might permit the Company or its customers to obtain a competitive advantage over competitors who do not have access to such trade secrets, proprietary information, or other data or information. Without limiting the generality of the foregoing. Confidential Information shall include, without limitation:
(a) any idea, improvement, invention, innovation, development, concept, technical or clinical data, design, formula, device, pattern, sequence, method, process, composition of matter, computer program or software, source code, object code, algorithm, model, diagram, flow chart, product specification or design, plan for a new or revised product, sample, compilation of information, or work in process, or parts thereof, and any and all revisions and improvements relating to any of the foregoing (in each case whether or not reduced to tangible form); and
(b) the name of any customer, supplier, employee, prospective customer, sales agent, supplier or consultant, any sales plan, marketing material, plan or survey, business plan or opportunity, product or development plan or specification, business proposal, financial record, or business record or other record or information relating to the present or proposed business of the Company.
Notwithstanding the foregoing, the term Confidential Information shall not apply to information which the Company has voluntarily disclosed to the public without restriction, or which has otherwise lawfully entered the public domain.
I shall promptly notify my supervisor or any officer of the Company if I learn of any possible unauthorized use or disclosure of Confidential Information and shall cooperate fully with the Company to enforce its rights in such information.
I understand that the Company from time to time has in its possession information (including product and development plans and specifications) which is claimed by customers and others to be proprietary and which the Company has agreed to keep confidential. I agree that all such information shall be Confidential Information for purposes of this Agreement.
3. Ownership and Assignment of Intellectual Property.
(a) I agree that all originals and all copies of all manuscripts, drawings, prints, manuals, diagrams, letters, notes, notebooks, reports, models, records, files, memoranda, plans, sketches and all other documents and materials containing, representing, evidencing, recording, or constituting any Confidential Information (as defined in Section 2 above), however and whenever produced (whether by myself or others) during the course of my employment, shall be the sole property of the Company.
(b) I agree that all Confidential Information and all other discoveries, inventions, ideas, concepts, trademarks, service marks, logos, processes, products, formulas, computer programs or software, source codes, object codes, algorithms, machines, apparatuses,
items of manufacture or composition of matter, or any new uses therefor or improvements thereon, or any new designs or modifications or configurations of any kind, or works of authorship of any kind, including, without limitation, compilations and derivative works, whether or not patentable or copyrightable, conceived, developed, reduced to practice or otherwise made by me, either alone or with others, and related to the business of the Company or to tasks assigned to me during the course of my employment, whether or not made during my regular working hours, whether or not conceived, developed, reduced to practice or made on the Companys premises and whether or not disclosed by me to the Company (collectively Company Inventions), and any and all services and products which embody, emulate or employ any such Company Invention or Confidential Information shall be the sole property of the Company and all copyrights, patents, patent rights, trademarks and reproduction rights to, and other proprietary rights in, each such Company Invention or Confidential Information, whether or not patentable or copyrightable, shall belong exclusively to the Company. For the avoidance of doubt, Confidential Information shall only include information that relates to the present or future business of the Company, and Company Inventions shall only include inventions that relate to the business of the Company or to tasks assigned to me during the course of my employment.
(c) I agree to, and hereby do, assign to the Company all my right, title and interest throughout the world in and to all Company Inventions and to anything tangible which evidences, incorporates, constitutes, represents or records any Company Invention. I agree that all Company Inventions shall constitute works made for hire under the copyright laws of the United States and hereby assign and, to the extent any such assignment cannot be made at present, I hereby agree to assign to the Company all copyrights, patents and other proprietary rights I may have in any Company Inventions, together with the right to file for and/or own wholly without restriction United States and foreign patents, trademarks, and copyrights. I agree to waive, and hereby waive, all moral rights or proprietary rights in or to any Company Inventions and, to the extent that such rights may not be waived, agree not to assert such rights against the Company or its licensees, successors or assigns.
(d) I hereby certify Exhibit A sets forth any and all confidential information and intellectual property that I claim as my own or otherwise intend to exclude from this Agreement because it was developed by me prior to the date of this Agreement. I understand that after execution of this Agreement I shall have no right to exclude Confidential Information or Company Inventions from this Agreement.
4. Employees Obligation to Keep Records. I shall make and maintain adequate and current written records of all Company Inventions, including notebooks and invention disclosures, which records shall be available to and remain the property of the Company at all times. I shall disclose all Company Inventions promptly, fully and in writing to the Company immediately upon production or development of the same and at any time upon request.
5. Employees Obligation to Cooperate. I will, at any time during my employment, or after it terminates, upon request of the Company, execute all documents and perform all lawful acts which the Company considers necessary or advisable to secure its rights hereunder and to carry out the intent of this Agreement. Without limiting the generality of the foregoing, I will assist the Company in any reasonable manner to obtain for its own benefit patents or
copyrights in any and all countries with respect to all Company Inventions assigned pursuant to Section 3, and I will execute, when requested, patent and other applications and assignments thereof to the Company, or persons designated by it, and any other lawful documents deemed necessary by the Company to carry out the purposes of this Agreement, and I will further assist the Company in every way to enforce any patents and copyrights obtained, including, without limitation, testifying in any suit or proceeding involving any of said patents or copyrights or executing any documents deemed necessary by the Company, all without further consideration than provided for herein. It is understood that reasonable out-of-pocket expenses of my assistance incurred at the request of the Company under this Section will be reimbursed by the Company.
6. Noncompetition and Non-solicitation. During my employment with the Company and for a period of 12 months after the termination of my employment with the Company for any reason, I shall not, without the Companys prior written consent, on my own behalf, or as owner, manager, stockholder, consultant, director, officer, or employee of any business entity (except as a holder of not more than three (3%) percent of the stock of a publicly held company) participate in any capacity in any business activity that is in direct competition with any of the products or services being developed, marketed, distributed, planned, sold or otherwise provided by the Company or its affiliates at the time of, or during the 12 months preceding, my termination.
During my employment with the Company and for a period of 12 months after the termination of my employment with the Company for any reason, I shall not solicit, induce or encourage any employee of the Company to terminate his or her employment with the Company.
7. Return of Property. Upon termination of my employment with the Company, or at any other time upon request of the Company, I shall cease using and return promptly any and all customer or prospective customer lists, other customer or prospective customer information or related materials, computer programs, software, electronic data, specifications, drawings, blueprints, data storage devices, reproductions, sketches, notes, notebooks, memoranda, reports, records, proposals, business plans, or copies of them, other documents or materials, tools, equipment, or other property belonging to the Company or its customers which I may then possess or have under my direct or indirect control. I further agree that upon termination of employment, I shall not take with me any documents or data in any form or of any description containing or pertaining to Confidential Information or Company Inventions, other than documents I have a right to retain under applicable law (with the understanding that my obligations under this Agreement continue to apply to any such retained documents). For purposes of clarity, using best efforts to completely remove (with the Companys prior written permission) from any personal computer, laptop, smart phone, IPad, or any other electronic device, any Company Property that I have previously returned to the Company in accordance with this Section 7 satisfies my obligations under this section.
8. Other Obligations. I acknowledge that the Company from time to time may have agreements with other persons, including the government of the United States or other countries and agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. I agree to be bound by all such obligations and restrictions and to take all action necessary to discharge the obligations of the Company thereunder.
9. Miscellaneous.
(a) This Agreement contains the entire and only agreement between me and the Company with respect to the subject matter hereof, superseding any previous oral or written communications, representations, understandings, or agreements with the Company or any officer or representative hereof. In the event of any inconsistency between this Agreement and any other contract between me and the Company, the provisions of this Agreement shall prevail.
(b) My obligations under Sections 2, 3, 5, 6 (for the periods set forth therein), 7, 8 and 9 of this Agreement shall survive the termination of my employment with the Company regardless of the manner of or reasons for such termination, and regardless of whether such termination constitutes a breach of any other agreement I may have with the Company. My obligations under this Agreement shall be binding upon my heirs, assigns, executors, administrators and representatives, and the provisions of this Agreement shall inure to the benefit of and be binding on the successors and assigns of the Company.
(c) If any provision of this Agreement shall be determined to be unenforceable by any court of competent jurisdiction by reason of its extending for too great a period of time or over too large a geographic area or over too great a range of activities, it shall be interpreted to extend only over the maximum period of time, geographic area or range of activities as to which it may be enforceable. If, after application of the immediately preceding sentence, any provision of this Agreement shall be determined to be invalid, illegal or otherwise unenforceable by any court of competent jurisdiction, the validity, legality and enforceability of the other provisions of this Agreement shall not be affected thereby. Except as otherwise provided in this paragraph, any invalid, illegal or unenforceable provision of this Agreement shall be severable, and after any such severance, all other provisions hereof shall remain in full force and effect.
(d) I acknowledge and agree that violation of this Agreement by me would cause irreparable harm to the Company not adequately compensable by money damages alone, and I therefore agree that, in addition to all other remedies available to the Company at law, in equity or otherwise, the Company shall be entitled to injunctive relief to prevent an actual or threatened violation of this Agreement and to enforce the provisions hereof, without showing or proving any actual damage to the Company or posting any bond in connection therewith.
(e) No failure by the Company to insist upon strict compliance with any of the terms, covenants, or conditions hereof, and no delay or omission by the Company in exercising any right under this Agreement, will operate as a waiver of such terms, covenants, conditions or rights. A waiver or consent given by the Company on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
(f) This Agreement may not be changed, modified, released, discharged, abandoned, or otherwise amended, in whole or in part, except by an instrument in writing signed by me and the Company.
(g) This Agreement shall be governed by, and construed and enforced in accordance with, the laws of The Commonwealth of Massachusetts, without regard to its principles of conflicts of laws. This Agreement is executed under seal.
[Signature Page Follows]
BY PLACING MY SIGNATURE HEREUNDER, I ACKNOWLEDGE THAT I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL AND I HAVE READ ALL THE PROVISIONS OF THIS EMPLOYEE NONDISCLOSURE, NONCOMPETITION AND ASSIGNMENT OF INTELLECTUAL PROPERTY AGREEMENT AND THAT I AGREE TO ALL OF ITS TERMS.
Effective Date: June 6, 2016 |
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EMPLOYEE: | ||
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/s/ Lloyd Johnston | ||
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Signature | ||
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Name: |
Lloyd Johnston | |
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Address: |
[***] | |
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Accepted and Agreed: | ||
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SELECTA BIOSCIENCES, INC. | ||
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By: |
/s/ Werner Cautreels, Ph.D. | |
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Name: Werner Cautreels | ||
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Title: President and Chief Executive Officer | ||
EXHIBIT A
Excluded Confidential Information and Inventions
EXHIBIT C
Form of Indemnification Agreement
[attached]
Exhibit 10.22
Employment Agreement
This Employment Agreement (this Agreement), dated as of June 6, 2016, is made by and between Selecta Biosciences, Inc., a Delaware corporation (together with any successor thereto, the Company), and David Abraham, J.D. (Executive) (collectively referred to as the Parties or individually referred to as a Party).
RECITALS
A. It is the desire of the Company to assure itself of the services of Executive following the Effective Date (as defined below) and thereafter by entering into this Agreement.
B. Executive and the Company mutually desire that Executive provide services to the Company on the terms herein provided.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the Parties hereto agree as follows:
1. Employment.
(a) General. Effective on the closing of the Companys initial public offering of stock pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the Effective Date), the Company shall employ Executive and Executive shall remain in the employ of the Company, for the period and in the positions set forth in this Section 1, and subject to the other terms and conditions herein provided.
(b) At-Will Employment. The Company and Executive acknowledge that Executives employment is and shall continue to be at-will, as defined under applicable law, and that Executives employment with the Company may be terminated by either Party at any time for any or no reason (subject to the notice requirements of Section 3(b)). This at-will nature of Executives employment shall remain unchanged during Executives tenure as an employee and may not be changed, except in an express writing signed by Executive and a duly authorized officer of the Company. If Executives employment terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement or otherwise agreed to in writing by the Company or as provided by applicable law. The term of this Agreement (the Term) shall commence on the Effective Date and end on the date this Agreement is terminated under Section 3.
(c) Positions and Duties. Executive shall serve as General Counsel of the Company with such responsibilities, duties and authority normally associated with such positions and as may from time to time be reasonably assigned to Executive by the Chief Executive Officer of the Company. Executive shall devote substantially all of Executives working time and efforts to the business and affairs of the Company (which shall include service to its affiliates, if applicable), provided that Executive may engage in outside business activities (including serving on outside boards or committees) to the extent such activities do not materially interfere with the performance of Executives duties and responsibilities under this Agreement or violate the terms of the Employee Nondisclosure, Noncompetition and Assignment of Intellectual Property Agreement attached as Exhibit B (the Restrictive Covenant Agreement). Executive agrees to observe and comply with the rules and policies of the Company as adopted by the Company from time to time, in each case as amended from time to time, as set forth in writing, and as delivered or made available to Executive (each, a Policy).
2. Compensation and Related Matters.
(a) Annual Base Salary. During the Term, Executive shall receive a base salary at a rate of $260,000 per annum, which shall be paid in accordance with the customary payroll practices of the Company and shall be pro-rated for partial years of employment. Such annual base salary shall be reviewed (and may be increased) from time to time by the Board of Directors of the Company or an authorized committee of the Board (in either case, the Board) (such annual base salary, as it may be increased from time to time, the Annual Base Salary).
(b) Bonus. During the Term, Executive will be eligible to participate in an annual incentive program established by the Board. Executives annual incentive compensation under such incentive program (the Annual Bonus) shall be targeted at 35% of Executives Annual Base Salary (the Target Bonus). The Annual Bonus payable under the incentive program shall be based on the achievement of performance goals to be determined by the Board. The payment of any Annual Bonus pursuant to the incentive program will be made on or before March 15 of the year following the year in which such Annual Bonus is earned.
(c) Benefits. During the Term, Executive shall be eligible to participate in employee benefit plans, programs and arrangements of the Company (including medical, dental and 401(k) plans), consistent with the terms thereof and as such plans, programs and arrangements may be amended from time to time. In no event shall Executive be eligible to participate in any severance plan or program of the Company, except as set forth in Section 4 of this Agreement.
(d) Vacation. During the Term, Executive shall be entitled to four weeks of paid personal leave, or paid personal leave per calendar year in accordance with the Companys Policies, whichever is greater. Vacation days accrued, but not used by the end of any calendar year may be used in the subsequent calendar year; provided that no more than five accrued vacation days may be carried over from one year to the next. Any vacation shall be taken at the reasonable and mutual convenience of the Company and Executive.
(e) Business Expenses. During the Term, the Company shall reimburse Executive for all reasonable travel and other business expenses incurred by Executive in the performance of Executives duties to the Company in accordance with the Companys expense reimbursement Policy.
(f) Key Person Insurance. At any time during the Term, the Company shall have the right to insure the life of Executive for the Companys sole benefit. The Company shall have the right to determine the amount of insurance and the type of policy. Executive shall reasonably cooperate with the Company in obtaining such insurance by submitting to physical examinations, by supplying all information reasonably required by any insurance carrier, and by executing all necessary documents reasonably required by any insurance carrier, provided that any information provided to an insurance company or broker shall not be provided to the Company without the prior written authorization of Executive. Executive shall incur no financial obligation by executing any required document, and shall have no interest in any such policy.
3. Termination.
Executives employment hereunder may be terminated by the Company or Executive, as applicable, without any breach of this Agreement under the following circumstances:
(a) Circumstances.
(i) Death. Executives employment hereunder shall terminate upon Executives death.
(ii) Disability. If Executive has incurred a Disability, as defined below, the Company may terminate Executives employment.
(iii) Termination for Cause. The Company may terminate Executives employment for Cause, as defined below.
(iv) Termination without Cause. The Company may terminate Executives employment without Cause.
(v) Resignation from the Company with Good Reason. Executive may resign Executives employment with the Company with Good Reason, as defined below.
(vi) Resignation from the Company Without Good Reason. Executive may resign Executives employment with the Company for any reason other than Good Reason or for no reason.
(b) Notice of Termination. Any termination of Executives employment by the Company or by Executive under this Section 3 (other than termination pursuant to Section 3(a)(i)) shall be communicated by a written notice to the other Party hereto (i) indicating the specific termination provision in this Agreement relied upon, (ii) setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executives employment under the provision so indicated, if applicable, and (iii) specifying a Date of Termination which, except in the case of a termination pursuant to Section 3(a)(iii), shall be at least thirty (30) days following the date of such notice, but no more than forty (40) days following the date of such notice (a Notice of Termination); provided, however, that the Company may deliver a Notice of Termination to Executive that specifies any Date of Termination that occurs on or after the date of the Notice of Termination (but no more than forty (40) days following the date of such notice) and, in the event that Executive delivers a Notice of Termination to the Company, the Company may, in its sole discretion, change the Date of Termination to any date that occurs on or following the date of the Notice of Termination and is prior to the Date of Termination specified in the Notice of Termination, provided, in either case, that if the Company selects a Date of Termination that is less than thirty (30) days after the date of the Notice of Termination, the Company will pay Executive the base salary Executive would have earned during the period commencing on the Date of Termination selected by the Company and ending thirty (30) days after the date of the Notice of Termination. The failure by either party to set forth in the Notice of Termination any fact or circumstance shall not waive any right of the party hereunder or preclude the party from asserting such fact or circumstance in enforcing the partys rights hereunder. Any decision to terminate Executives employment for Cause shall be made by a majority vote of the Board after Executive has received written notice from the Board setting forth in reasonable detail the facts and circumstances claimed to provide the basis for the Cause and the Board has provided the Executive reasonable opportunity to be heard by the Board with counsel present if he chooses.
(c) Company Obligations upon Termination. Upon termination of Executives employment pursuant to any of the circumstances listed in this Section 3, Executive (or Executives estate) shall be entitled to receive the sum of: (i) the portion of Executives Annual Base Salary earned through the Date of Termination, but not yet paid to Executive; (ii) any unpaid Annual Bonus earned by Executive for the year prior to the year in which the Date of Termination occurs, as determined by the Board in its good faith discretion based upon actual performance achieved, which Annual Bonus, if any, shall be paid to Executive when bonuses for such year are paid to actively employed senior executives of the Company
but in no event later than March 15 of the year in which the Date of Termination occurs; (iii) any expenses owed to Executive pursuant to Section 2(e); and (iv) any amount accrued and arising from Executives participation in, or benefits accrued under any employee benefit plans, programs or arrangements, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (collectively, the Company Arrangements). Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided in a benefit plan or herein, all of Executives rights to salary, severance, benefits, bonuses and other compensatory amounts hereunder (if any) shall cease upon the termination of Executives employment hereunder.
(d) Deemed Resignation. Upon termination of Executives employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its subsidiaries.
4. Severance Payments.
(a) Termination for Cause, or Termination Upon Death, Disability or Resignation from the Company Without Good Reason. If Executives employment shall terminate as a result of Executives death pursuant to Section 3(a)(i) or Disability pursuant to Section 3(a)(ii), pursuant to Section 3(a)(iii) for Cause, or pursuant to Section 3(a)(vi) for Executives resignation from the Company without Good Reason, then Executive shall not be entitled to any severance payments or benefits, except as provided in Section 3(c).
(b) Termination without Cause, or Resignation from the Company with Good Reason. If Executives employment terminates without Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to Executives resignation with Good Reason, then, subject to Executive signing on or before the 60th day following Executives Separation from Service (as defined below), and not revoking, a release of claims (which Executive will receive no later than ten (10) business days following Executives Separation from Service) substantially in the form attached as Exhibit A to this Agreement (the Release), and Executives continued compliance with Section 5, Executive shall receive, in addition to payments and benefits set forth in Section 3(c), the following:
(i) an amount in cash equal to the Annual Base Salary, payable in the form of salary continuation in regular installments over the 12-month period following the date of Executives Separation from Service (the Severance Period) in accordance with the Companys normal payroll practices;
(ii) a pro-rata portion of the Annual Bonus, payable in the form of a lump sum payment, in an amount equal to the product of (A)(i) the Target Bonus, if the Date of Termination occurs during the first quarter of the calendar year or (ii) the Annual Bonus amount based on actual performance as determined by the Board or an authorized committee thereof, if the Date of Termination occurs after the first quarter of the calendar year, multiplied by (B) a fraction, using the number of full months of the year elapsed prior to the Date of Termination as the numerator and 12 as the denominator; and
(iii) if Executive elects to receive continued medical, dental and/or vision coverage under one or more of the Companys group healthcare plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA), the Company shall directly pay, or reimburse Executive for, the COBRA premiums for Executive and Executives covered dependents under such plans during the period commencing on Executives Separation from Service and ending upon the earliest of (X) the last day of the Severance Period, (Y) the date that Executive and/or Executives covered dependents become no longer eligible for
COBRA or (Z) the date Executive becomes eligible to receive medical, dental or vision coverage, as applicable, from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility). Notwithstanding the foregoing, if the Company determines in its sole discretion that it cannot provide the foregoing benefit without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act) or incurring an excise tax, the Company may alter the manner in which medical, dental or vision coverage is provided to Executive after the Date of Termination so long as such alteration does not increase the after-tax cost to Executive of such benefits.
(c) Change in Control. Notwithstanding anything to the contrary in any applicable Company equity plan or equity agreement, in the event Executives employment terminates without Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to Executives resignation with Good Reason, in either case, within 60 days prior to or on or within 12 months following the date of a Change in Control, subject to Executive signing on or before the 60th day following Executives Separation from Service, and not revoking, the Release (which Executive will receive no later than ten (10) business days following Executives Separation from Service), and Executives continued compliance with Section 5, Executive shall receive, in addition to the payments and benefits set forth in Section 3(c) and Section 4(b), immediate vesting of all unvested equity or equity-based awards held by Executive under any Company equity compensation plans that vest solely based on the passage of time (for the avoidance of doubt, with any such awards that vest in whole or in part based on the attainment of performance-vesting conditions being governed by the terms of the applicable award agreement).
(d) Survival. Notwithstanding anything to the contrary in this Agreement, the provisions of Sections 5 through 9 will survive the termination of Executives employment and the termination of the Term.
5. Restrictive Covenants. As a condition to the effectiveness of this Agreement, Executive will execute and deliver to the Company contemporaneously herewith the Restrictive Covenant Agreement. Executive agrees to abide by the terms of the Restrictive Covenant Agreement, which are hereby incorporated by reference into this Agreement. Executive acknowledges that the provisions of the Restrictive Covenant Agreement will survive the termination of Executives employment and the termination of the Term for the periods set forth in the Restrictive Covenant Agreement.
6. Assignment and Successors.
The Company must assign its rights and obligations under this Agreement to any of its affiliates or to any successor to all or substantially all of the business or the assets of the Company (by merger or otherwise). This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable. None of Executives rights or obligations may be assigned or transferred by Executive, other than Executives rights to payments hereunder, which may be transferred only by will or operation of law. Notwithstanding the foregoing, Executive shall be entitled, to the extent permitted under applicable law and applicable Company Arrangements, to select and change a beneficiary or beneficiaries to receive compensation hereunder following Executives death by giving written notice thereof to the Company.
7. Certain Definitions.
(a) Cause. The Company shall have Cause to terminate Executives employment hereunder upon:
(i) Executives commission of, or indictment or conviction of, any felony or any crime involving dishonesty by Executive;
(ii) Executives participation in any fraud against the Company;
(iii) any intentional damage to any property of the Company by Executive;
(iv) Executives misconduct which materially and adversely reflects upon the business, operations, or reputation of the Company, which misconduct has not been cured (or cannot be cured) within thirty (30) days after the Company gives written notice to Executive regarding such misconduct; or
(v) Executives breach of any material provision of this Agreement or any other written agreement between Executive and the Company and failure to cure such breach (if capable of cure) within thirty (30) days after the Company gives written notice to Executive regarding such breach.
(b) Change in Control. Change in Control shall have the meaning set forth in the version of the Selecta Biosciences, Inc. 2016 Incentive Award Plan in effect on the Effective Date.
(c) Code. Code shall mean the Internal Revenue Code of 1986, as amended, and the regulations and guidance promulgated thereunder.
(d) Date of Termination. Date of Termination shall mean (i) if Executives employment is terminated by Executives death, the date of Executives death; or (ii) if Executives employment is terminated pursuant to Section 3(a)(ii) (vi) either the date indicated in the Notice of Termination or the date specified by the Company pursuant to Section 3(b), whichever is earlier.
(e) Disability. Disability shall mean, at any time the Company or any of its affiliates sponsors a long-term disability plan for the Companys employees, disability as defined in such long-term disability plan for the purpose of determining a participants eligibility for benefits, provided, however, if the long-term disability plan contains multiple definitions of disability, Disability shall refer to that definition of disability which, if Executive qualified for such disability benefits, would provide coverage for the longest period of time. The determination of whether Executive has a Disability shall be made by the person or persons required to make disability determinations under the long-term disability plan. At any time the Company does not sponsor a long-term disability plan for its employees, Disability shall mean Executives inability to perform, with or without reasonable accommodation, the essential functions of Executives positions hereunder for a total of six months during any twelve-month period as a result of incapacity due to mental or physical illness as determined by a physician selected by the Company or its insurers and acceptable to Executive or Executives legal representative, with such agreement as to acceptability not to be unreasonably withheld or delayed. Any unreasonable refusal by Executive to submit to a medical examination for the purpose of determining Disability shall be deemed to constitute conclusive evidence of Executives Disability.
(f) Good Reason. For the sole purpose of determining Executives right to severance payments and benefits as described above, Executives resignation will be with Good Reason if Executive resigns within one year after any of the following events, unless Executive consents to the applicable event in writing: (i) a material reduction in Executives Annual Base Salary or Target Bonus, (ii) a material diminution in Executives authority, title, duties or areas of responsibility, (iii) the requirement that Executive report to someone other than the Chief Executive Officer, (iv) the relocation of Executives primary office to a location more than 40 miles from the Boston metropolitan area, or (v) a
material breach by the Company of this Agreement or any other written agreement with Executive. Notwithstanding the foregoing, no Good Reason will have occurred unless and until Executive has: (a) provided the Company, within 60 days of Executives knowledge of the occurrence of the facts and circumstances underlying the Good Reason event, written-notice stating with specificity the applicable facts and circumstances underlying such finding of Good Reason; and (b) provided the Company with an opportunity to cure the same within thirty (30) days after the receipt of such notice.
8. Parachute Payments.
(a) Notwithstanding any other provisions of this Agreement or any Company equity plan or agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments and benefits, including the payments and benefits under Section 4(b) and Section 4(c) hereof, being hereinafter referred to as the Total Payments), would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then the Total Payments shall be reduced (in the order provided in Section 8(b)) to the minimum extent necessary to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).
(b) The Total Payments shall be reduced in the following order: (i) reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code (Section 409A), (ii) reduction on a pro-rata basis of any non-cash severance payments or benefits that are exempt from Section 409A, (iii) reduction on a pro-rata basis of any other payments or benefits that are exempt from Section 409A, and (iv) reduction of any payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A; provided, in case of clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards shall be first applied to Company equity awards that would otherwise vest last in time.
(c) The Company will select an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax (the Independent Advisors) to make determinations regarding the application of this Section 8. For purposes of such determinations, no portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not constitute a parachute payment within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the base amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation. The costs of obtaining such determination and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company.
(d) If Executive incurs legal fees or other expenses (including expert witness and accounting fees) in an effort to determine the applicability of this Section 8 or establish entitlement to or obtain any portion of the Total Payments that have been reduced under this Section 8 (collectively, Legal and Other Expenses), Executive shall be entitled to payment of or reimbursement for such Legal and Other
Expenses in accordance with this Section 8(d). Subject to Sections 9(l)(iv) and 9(m) and the other provisions of this Section 8, the Company will reimburse all Legal and Other Expenses on a monthly basis reasonably promptly after presentation of Executives written request for reimbursement accompanied by evidence reasonably acceptable to the Company that such Legal and Other Expenses were incurred. If the Company establishes before a court of competent jurisdiction that Executive had no reasonable basis for a claim made by Executive hereunder, or acted in bad faith, no further payment of or reimbursement for Legal and Other Expenses shall be due to Executive in respect of such claim, and Executive shall refund any amounts previously paid or reimbursed hereunder with respect to such claim.
(e) In the event it is later determined that to implement the objective and intent of this Section 8, (i) a greater reduction in the Total Payments should have been made, the excess amount shall be returned promptly by Executive to the Company or (ii) a lesser reduction in the Total Payments should have been made, the excess amount shall be paid or provided promptly by the Company to Executive, except to the extent the Company reasonably determines would result in imposition of an excise tax under Section 409A.
9. Miscellaneous Provisions.
(a) Governing Law. This Agreement shall be governed, construed, interpreted and enforced in accordance with its express terms, and otherwise in accordance with the substantive laws of the Commonwealth of Massachusetts without reference to the principles of conflicts of law of the Commonwealth of Massachusetts or any other jurisdiction that would result in application of the laws of a jurisdiction other than the Commonwealth of Massachusetts, and where applicable, the laws of the United States.
(b) Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
(c) Notices. Any notice, request, claim, demand, document and other communication hereunder to any Party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile or certified or registered mail, postage prepaid, as follows:
(i) If to the Company, to the General Counsel of the Company at the Companys headquarters,
(ii) If to Executive, to the last address that the Company has in its personnel records for Executive, or
(iii) at any other address as any Party shall have specified by notice in writing to the other Party.
(d) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. Signatures delivered by facsimile or PDF shall be deemed effective for all purposes.
(e) Entire Agreement. The terms of this Agreement, the Restrictive Covenant Agreement incorporated herein by reference as set forth in Section 5, the Indemnification Agreement (defined below) and any stock option agreement between the Company and Executive entered into prior to the date hereof are intended by the Parties to be the final expression of their agreement with respect to the subject matter hereof and supersede all prior understandings and agreements, whether written or oral, including without
limitation any prior employment agreement or offer letter between Executive and the Company. The Parties further intend that this Agreement shall constitute the complete and exclusive statement of their terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.
(f) Indemnification. The Parties acknowledge that they have or will enter into an Indemnification Agreement in substantially the form attached as Exhibit C hereto.
(g) Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Executive and a duly authorized officer of Company. By an instrument in writing similarly executed, Executive or a duly authorized officer of the Company may waive compliance by the other Party with any specifically identified provision of this Agreement that such other Party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.
(h) No Inconsistent Actions. The Parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the Parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement.
(i) Construction. This Agreement shall be deemed drafted equally by both the Parties. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle that the language is to be construed against any Party shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation. Any references to paragraphs, subparagraphs, sections or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary. Also, unless the context clearly indicates to the contrary, (i) the plural includes the singular and the singular includes the plural; (ii) and and or are each used both conjunctively and disjunctively; (iii) any, all, each, or every means any and all, and each and every; (iv) includes and including are each without limitation; (v) herein, hereof, hereunder and other similar compounds of the word here refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection; and (vi) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require.
(j) Enforcement. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the Term, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.
(k) Withholding. The Company shall be entitled to withhold from any amounts payable under this Agreement any federal, state, local or foreign withholding or other taxes or charges which the Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise.
(l) Section 409A.
(i) General. The intent of the Parties is that the payments and benefits under this Agreement comply with or be exempt from Section 409A and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.
(ii) Separation from Service. Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that is considered nonqualified deferred compensation under Section 409A and is designated under this Agreement as payable upon Executives termination of employment shall be payable only upon Executives separation from service with the Company within the meaning of Section 409A (a Separation from Service) and, except as provided below, any such compensation or benefits described in Section 4 shall not be paid, or, in the case of installments, shall not commence payment, until the sixtieth (60th) day following Executives Separation from Service (the First Payment Date). Any installment payments that would have been made to Executive during the sixty (60) day period immediately following Executives Separation from Service but for the preceding sentence shall be paid to Executive on the First Payment Date and the remaining payments shall be made as provided in this Agreement.
(iii) Specified Employee. Notwithstanding anything in this Agreement to the contrary, if Executive is deemed by the Company at the time of Executives Separation from Service to be a specified employee for purposes of Section 409A, to the extent delayed commencement of any portion of the benefits to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A, such portion of Executives benefits shall not be provided to Executive prior to the earlier of (i) the expiration of the six-month period measured from the date of Executives Separation from Service with the Company or (ii) the date of Executives death. Upon the first business day following the expiration of the applicable Section 409A period, all payments deferred pursuant to the preceding sentence shall be paid in a lump sum to Executive (or Executives estate or beneficiaries), and any remaining payments due to Executive under this Agreement shall be paid as otherwise provided herein.
(iv) Expense Reimbursements. To the extent that any reimbursements under this Agreement are subject to Section 409A, any such reimbursements payable to Executive shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred; provided, that Executive submits Executives reimbursement request promptly following the date the expense is incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, other than medical expenses referred to in Section 105(b) of the Code, and Executives right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.
(v) Installments. Executives right to receive any installment payments under this Agreement, including without limitation any continuation salary payments that are payable on Company payroll dates, shall be treated as a right to receive a series of separate payments and, accordingly, each such installment payment shall at all times be considered a separate and distinct payment as permitted under Section 409A. Except as otherwise permitted under Section 409A, no payment hereunder shall be accelerated or deferred unless such acceleration or deferral would not result in additional tax or interest pursuant to Section 409A.
(m) Attorneys Fees. In the event that either Party prevails in a dispute with the other Party concerning the rights and obligations hereunder, the non-prevailing Party shall pay the prevailing Partys reasonable attorneys fees and costs.
10. Executive Acknowledgement.
Executive acknowledges that Executive has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on Executives own judgment.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date and year first above written.
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SELECTA BIOSCIENCES, INC. | |
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/s/ Werner Cautreels, Ph.D |
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Name: Werner Cautreels, Ph.D. |
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Title: President and Chief Executive Officer |
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/s/ David Abraham, J.D. | |
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David Abraham, J.D. |
[Signature Page to Employment Agreement]
EXHIBIT A
Separation Agreement and Release
This Separation Agreement and Release (Agreement) is made by and between David Abraham, J.D. (Executive) and Selecta Biosciences, Inc. (the Company) (collectively referred to as the Parties or individually referred to as a Party). Capitalized terms used but not defined in this Agreement shall have the meanings set forth in the Employment Agreement (as defined below).
WHEREAS, the Parties have previously entered into that certain Employment Agreement, dated as of June 6, 2016 (the Employment Agreement); and
WHEREAS, in connection with Executives termination of employment with the Company or a subsidiary or affiliate of the Company effective , 20 , the Parties wish to resolve any and all disputes, claims, complaints, grievances, charges, actions, petitions, and demands that Executive may have against the Company and any of the Releasees as defined below, including, but not limited to, any and all claims arising out of or in any way related to Executives employment with or separation from the Company or its subsidiaries or affiliates but, for the avoidance of doubt, nothing herein will be deemed to release any rights or remedies in connection with Executives ownership of vested equity securities of the Company, vested benefits or Executives right to defense or indemnification by the Company or any of its affiliates pursuant to contract or applicable law (collectively, the Retained Claims). The Company agrees not to contest Executives application for unemployment benefits; provided that nothing herein shall prohibit the Company from responding truthfully to requests for information from, or require the Company to make any false or misleading statements to, any governmental authority.
NOW, THEREFORE, in consideration of the severance payments and benefits described in Section 4 of the Employment Agreement, which, pursuant to the Employment Agreement, are conditioned on Executives execution and non-revocation of this Agreement, and in consideration of the mutual promises made herein, the Company and Executive hereby agree as follows:
1. Severance Payments; Salary and Benefits. The Company agrees to provide Executive with the severance payments and benefits described in Section 4(b) and Section 4(c) of the Employment Agreement, payable at the times set forth in, and subject to the terms and conditions of, the Employment Agreement. In addition, to the extent not already paid, and subject to the terms and conditions of the Employment Agreement, the Company shall pay or provide to Executive all other payments or benefits described in Section 3(c) of the Employment Agreement, subject to and in accordance with the terms thereof.
2. Release of Claims. Executive agrees that, other than with respect to the Retained Claims, the foregoing consideration represents settlement in full of all outstanding obligations owed to Executive by the Company, any of its direct or indirect subsidiaries and affiliates, and any of their current and former officers, directors, equity holders, managers, employees, agents, investors, attorneys, shareholders, administrators, affiliates, benefit plans, plan administrators, insurers, trustees, divisions, and subsidiaries and predecessor and successor corporations and assigns (collectively, the Releasees). Executive, on Executives own behalf and on behalf of any of Executives affiliated companies or entities and any of their respective heirs, family members, executors, agents, and assigns, other than with respect to the Retained Claims, hereby and forever releases the Releasees from, and agrees not to sue concerning, or in any manner to institute, prosecute, or pursue, any claim, complaint, charge, duty, obligation, or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that Executive may possess against any of the Releasees arising from any omissions, acts, facts, or damages that have occurred up until and including the Effective Date of this Agreement (as defined in Section 7 below), including, without limitation:
(a) any and all claims relating to or arising from Executives employment or service relationship with the Company or any of its direct or indirect subsidiaries or affiliates and the termination of that relationship;
(b) any and all claims relating to, or arising from, Executives right to purchase, or actual purchase of any shares of stock or other equity interests of the Company or any of its affiliates, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law;
(c) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; harassment; retaliation; breach of contract, both express and implied; breach of covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; fraud; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; conversion; and disability benefits;
(d) any and all claims for violation of any federal, state, or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1991; the Rehabilitation Act of 1973; the Americans with Disabilities Act of 1990; the Equal Pay Act; the Fair Credit Reporting Act; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act; the Employee Retirement Income Security Act of 1974; the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act; and the Sarbanes-Oxley Act of 2002;
(e) any and all claims for violation of the federal or any state constitution;
(f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination;
(g) any claim for any loss, cost, damage, or expense arising out of any dispute over the non-withholding or other tax treatment of any of the proceeds received by Executive as a result of this Agreement; and
(h) any and all claims for attorneys fees and costs.
Executive agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not release claims that cannot be released as a matter of law, including, but not limited to, Executives right to report possible violations of federal law or regulation to any governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002, or any other whistleblower protection provisions of state or federal law or regulation, Executives right to file a charge with or participate in a charge by the Equal Employment Opportunity Commission, or any other local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against the Company (with the understanding that Executives release of claims herein bars Executive from recovering such monetary relief from the Company or any Releasee), claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law, claims to continued participation in certain of the Companys group benefit plans pursuant to the terms and conditions of COBRA, claims to any benefit entitlements vested as the date of separation of Executives employment, pursuant to written terms of any employee benefit plan of the Company or its affiliates and Executives right under applicable
law and any Retained Claims. This release further does not release claims for breach of Section 3(c), Section 4(b) or Section 4(c) of the Employment Agreement.
3. Acknowledgment of Waiver of Claims under ADEA. Executive understands and acknowledges that Executive is waiving and releasing any rights Executive may have under the Age Discrimination in Employment Act of 1967 (ADEA), and that this waiver and release is knowing and voluntary. Executive understands and agrees that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement. Executive understands and acknowledges that the consideration given for this waiver and release is in addition to anything of value to which Executive was already entitled. Executive further understands and acknowledges that Executive has been advised by this writing that: (a) Executive should consult with an attorney prior to executing this Agreement; (b) Executive has 21 days within which to consider this Agreement; (c) Executive has 7 days following Executives execution of this Agreement to revoke this Agreement pursuant to written notice to the General Counsel of the Company; (d) this Agreement shall not be effective until after the revocation period has expired; and (e) nothing in this Agreement prevents or precludes Executive from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties, or costs for doing so, unless specifically authorized by federal law. In the event Executive signs this Agreement and returns it to the Company in less than the 21 day period identified above, Executive hereby acknowledges that Executive has freely and voluntarily chosen to waive the time period allotted for considering this Agreement.
4. Severability. In the event that any provision or any portion of any provision hereof or any surviving agreement made a part hereof becomes or is declared by a court of competent jurisdiction or arbitrator to be illegal, unenforceable, or void, this Agreement shall continue in full force and effect without said provision or portion of provision.
5. No Oral Modification. This Agreement may only be amended in a writing signed by Executive and a duly authorized officer of the Company.
6. Governing Law. This Agreement shall be subject to the provisions of Sections 9(a) and 9(c) of the Employment Agreement.
7. Effective Date. If Executive has attained or is over the age of 40 as of the date of Executives termination of employment, then each Party has seven days after that Party signs this Agreement to revoke it and this Agreement will become effective on the eighth day after Executive signed this Agreement, so long as it has been signed by the Parties and has not been revoked by either Party before that date (the Effective Date). If Executive has not attained the age of 40 as of the date of Executives termination of employment, then the Effective Date shall be the date on which Executive signs this Agreement.
8. Voluntary Execution of Agreement. Executive understands and agrees that Executive executed this Agreement voluntarily, without any duress or undue influence on the part or behalf of the Company or any third party, with the full intent of releasing all of Executives claims against the Company and any of the other Releasees. Executive acknowledges that: (a) Executive has read this Agreement; (b) Executive has not relied upon any representations or statements made by the Company that are not specifically set forth in this Agreement; (c) Executive has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of Executives own choice or has elected not to retain legal counsel; (d) Executive understands the terms and consequences of this Agreement and of the releases it contains; and (e) Executive is fully aware of the legal and binding effect of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.
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David Abraham, J.D. | ||
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SELECTA BIOSCIENCES, INC. | ||
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EXHIBIT B
Employee Nondisclosure, Noncompetition and Assignment of Intellectual Property Agreement
[attached]
SELECTA BIOSCIENCES, INC.
EMPLOYEE NONDISCLOSURE, NONCOMPETITION AND
ASSIGNMENT OF INTELLECTUAL PROPERTY AGREEMENT
In consideration and as a condition of my employment by Selecta Biosciences, Inc., a Delaware corporation (the Company), and of the compensation to be paid to me, and in recognition of the fact that as an employee of the Company I will or may have access to confidential information, I agree with the Company as follows:
1. Performance: Prior Obligations.
(a) I agree to use best efforts to perform my assigned duties diligently, conscientiously, and with reasonable skill, and shall comply with all rules, procedures and standards promulgated from time to time by the Company with regard to my conduct and my access to and use of the Companys property, equipment and facilities. Among such rules, procedures and standards are those governing ethical and other professional standards for dealing with customers, government agencies, vendors, competitors, consultants, fellow employees, and the public-at-large, security provisions designed to protect Company property and the personal security of Company employees, rules respecting attendance, punctuality, and hours of work, and rules and procedures designed to protect the confidentiality of proprietary information. The Company agrees to make reasonable efforts to inform me of such rules, standards and procedures as are in effect from time to time.
(b) I hereby represent, warrant and agree (i) that I have the full right to enter into this Agreement and perform the services required of me hereunder, without any restriction whatsoever; (ii) that in the course of performing services hereunder, I will not violate the terms or conditions of any agreement between me and any third party or infringe or wrongfully appropriate any patents, copyrights, trade secrets or other intellectual property rights of any person or entity anywhere in the world; (iii) that I have not and will not disclose or use during my employment by the Company any confidential information that I acquired as a result of any previous employment or consulting arrangement or under a previous obligation of confidentiality; and (iv) that I have disclosed to the Company in writing any and all continuing obligations to previous employers or others that require me not to disclose any information to the Company.
2. Confidential Information. While employed by the Company and thereafter, I shall not, directly or indirectly, use any Confidential Information (as hereinafter defined) other than pursuant to my employment by and for the benefit of the Company, or disclose any Confidential Information to anyone outside of the Company, whether by private communication, public address, publication or otherwise, or disclose any Confidential Information to anyone within the Company who has not been authorized to receive such information, except as directed in writing by an authorized representative of the Company. The term Confidential Information as used throughout this Agreement shall mean all trade secrets, proprietary information, know-how, data, designs, specifications, processes, customer lists and other technical or business information (and any tangible evidence, record or representation thereof), whether prepared,
conceived or developed by a consultant or employee of the Company (including myself) or received by the Company from an outside source, which is in the possession of the Company (whether or not the property of the Company), which in any way relates to the present or future business of the Company, which is maintained in confidence by the Company, or which might permit the Company or its customers to obtain a competitive advantage over competitors who do not have access to such trade secrets, proprietary information, or other data or information. Without limiting the generality of the foregoing. Confidential Information shall include, without limitation:
(a) any idea, improvement, invention, innovation, development, concept, technical or clinical data, design, formula, device, pattern, sequence, method, process, composition of matter, computer program or software, source code, object code, algorithm, model, diagram, flow chart, product specification or design, plan for a new or revised product, sample, compilation of information, or work in process, or parts thereof, and any and all revisions and improvements relating to any of the foregoing (in each case whether or not reduced to tangible form); and
(b) the name of any customer, supplier, employee, prospective customer, sales agent, supplier or consultant, any sales plan, marketing material, plan or survey, business plan or opportunity, product or development plan or specification, business proposal, financial record, or business record or other record or information relating to the present or proposed business of the Company.
Notwithstanding the foregoing, the term Confidential Information shall not apply to information which the Company has voluntarily disclosed to the public without restriction, or which has otherwise lawfully entered the public domain.
I shall promptly notify my supervisor or any officer of the Company if I learn of any possible unauthorized use or disclosure of Confidential Information and shall cooperate fully with the Company to enforce its rights in such information.
I understand that the Company from time to time has in its possession information (including product and development plans and specifications) which is claimed by customers and others to be proprietary and which the Company has agreed to keep confidential. I agree that all such information shall be Confidential Information for purposes of this Agreement.
3. Ownership and Assignment of Intellectual Property.
(a) I agree that all originals and all copies of all manuscripts, drawings, prints, manuals, diagrams, letters, notes, notebooks, reports, models, records, files, memoranda, plans, sketches and all other documents and materials containing, representing, evidencing, recording, or constituting any Confidential Information (as defined in Section 2 above), however and whenever produced (whether by myself or others) during the course of my employment, shall be the sole property of the Company.
(b) I agree that all Confidential Information and all other discoveries, inventions, ideas, concepts, trademarks, service marks, logos, processes, products, formulas, computer programs or software, source codes, object codes, algorithms, machines, apparatuses,
items of manufacture or composition of matter, or any new uses therefor or improvements thereon, or any new designs or modifications or configurations of any kind, or works of authorship of any kind, including, without limitation, compilations and derivative works, whether or not patentable or copyrightable, conceived, developed, reduced to practice or otherwise made by me, either alone or with others, and related to the business of the Company or to tasks assigned to me during the course of my employment, whether or not made during my regular working hours, whether or not conceived, developed, reduced to practice or made on the Companys premises and whether or not disclosed by me to the Company (collectively Company Inventions), and any and all services and products which embody, emulate or employ any such Company Invention or Confidential Information shall be the sole property of the Company and all copyrights, patents, patent rights, trademarks and reproduction rights to, and other proprietary rights in, each such Company Invention or Confidential Information, whether or not patentable or copyrightable, shall belong exclusively to the Company. For the avoidance of doubt, Confidential Information shall only include information that relates to the present or future business of the Company, and Company Inventions shall only include inventions that relate to the business of the Company or to tasks assigned to me during the course of my employment.
(c) I agree to, and hereby do, assign to the Company all my right, title and interest throughout the world in and to all Company Inventions and to anything tangible which evidences, incorporates, constitutes, represents or records any Company Invention. I agree that all Company Inventions shall constitute works made for hire under the copyright laws of the United States and hereby assign and, to the extent any such assignment cannot be made at present, I hereby agree to assign to the Company all copyrights, patents and other proprietary rights I may have in any Company Inventions, together with the right to file for and/or own wholly without restriction United States and foreign patents, trademarks, and copyrights. I agree to waive, and hereby waive, all moral rights or proprietary rights in or to any Company Inventions and, to the extent that such rights may not be waived, agree not to assert such rights against the Company or its licensees, successors or assigns.
(d) I hereby certify Exhibit A sets forth any and all confidential information and intellectual property that I claim as my own or otherwise intend to exclude from this Agreement because it was developed by me prior to the date of this Agreement. I understand that after execution of this Agreement I shall have no right to exclude Confidential Information or Company Inventions from this Agreement.
4. Employees Obligation to Keep Records. I shall make and maintain adequate and current written records of all Company Inventions, including notebooks and invention disclosures, which records shall be available to and remain the property of the Company at all times. I shall disclose all Company Inventions promptly, fully and in writing to the Company immediately upon production or development of the same and at any time upon request.
5. Employees Obligation to Cooperate. I will, at any time during my employment, or after it terminates, upon request of the Company, execute all documents and perform all lawful acts which the Company considers necessary or advisable to secure its rights hereunder and to carry out the intent of this Agreement. Without limiting the generality of the foregoing, I will assist the Company in any reasonable manner to obtain for its own benefit patents or
copyrights in any and all countries with respect to all Company Inventions assigned pursuant to Section 3, and I will execute, when requested, patent and other applications and assignments thereof to the Company, or persons designated by it, and any other lawful documents deemed necessary by the Company to carry out the purposes of this Agreement, and I will further assist the Company in every way to enforce any patents and copyrights obtained, including, without limitation, testifying in any suit or proceeding involving any of said patents or copyrights or executing any documents deemed necessary by the Company, all without further consideration than provided for herein. It is understood that reasonable out-of-pocket expenses of my assistance incurred at the request of the Company under this Section will be reimbursed by the Company.
6. Noncompetition and Non-solicitation. During my employment with the Company and for a period of 12 months after the termination of my employment with the Company for any reason, I shall not, without the Companys prior written consent, on my own behalf, or as owner, manager, stockholder, consultant, director, officer, or employee of any business entity (except as a holder of not more than three (3%) percent of the stock of a publicly held company) participate in any capacity in any business activity that is in direct competition with any of the products or services being developed, marketed, distributed, planned, sold or otherwise provided by the Company or its affiliates at the time of, or during the 12 months preceding, my termination.
During my employment with the Company and for a period of 12 months after the termination of my employment with the Company for any reason, I shall not solicit, induce or encourage any employee of the Company to terminate his or her employment with the Company.
7. Return of Property. Upon termination of my employment with the Company, or at any other time upon request of the Company, I shall cease using and return promptly any and all customer or prospective customer lists, other customer or prospective customer information or related materials, computer programs, software, electronic data, specifications, drawings, blueprints, data storage devices, reproductions, sketches, notes, notebooks, memoranda, reports, records, proposals, business plans, or copies of them, other documents or materials, tools, equipment, or other property belonging to the Company or its customers which I may then possess or have under my direct or indirect control. I further agree that upon termination of employment, I shall not take with me any documents or data in any form or of any description containing or pertaining to Confidential Information or Company Inventions, other than documents I have a right to retain under applicable law (with the understanding that my obligations under this Agreement continue to apply to any such retained documents). For purposes of clarity, using best efforts to completely remove (with the Companys prior written permission) from any personal computer, laptop, smart phone, IPad, or any other electronic device, any Company Property that I have previously returned to the Company in accordance with this Section 7 satisfies my obligations under this section.
8. Other Obligations. I acknowledge that the Company from time to time may have agreements with other persons, including the government of the United States or other countries and agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. I agree to be bound by all such obligations and restrictions and to take all action necessary to discharge the obligations of the Company thereunder.
9. Miscellaneous.
(a) This Agreement contains the entire and only agreement between me and the Company with respect to the subject matter hereof, superseding any previous oral or written communications, representations, understandings, or agreements with the Company or any officer or representative hereof. In the event of any inconsistency between this Agreement and any other contract between me and the Company, the provisions of this Agreement shall prevail.
(b) My obligations under Sections 2, 3, 5, 6 (for the periods set forth therein), 7, 8 and 9 of this Agreement shall survive the termination of my employment with the Company regardless of the manner of or reasons for such termination, and regardless of whether such termination constitutes a breach of any other agreement I may have with the Company. My obligations under this Agreement shall be binding upon my heirs, assigns, executors, administrators and representatives, and the provisions of this Agreement shall inure to the benefit of and be binding on the successors and assigns of the Company.
(c) If any provision of this Agreement shall be determined to be unenforceable by any court of competent jurisdiction by reason of its extending for too great a period of time or over too large a geographic area or over too great a range of activities, it shall be interpreted to extend only over the maximum period of time, geographic area or range of activities as to which it may be enforceable. If, after application of the immediately preceding sentence, any provision of this Agreement shall be determined to be invalid, illegal or otherwise unenforceable by any court of competent jurisdiction, the validity, legality and enforceability of the other provisions of this Agreement shall not be affected thereby. Except as otherwise provided in this paragraph, any invalid, illegal or unenforceable provision of this Agreement shall be severable, and after any such severance, all other provisions hereof shall remain in full force and effect.
(d) I acknowledge and agree that violation of this Agreement by me would cause irreparable harm to the Company not adequately compensable by money damages alone, and I therefore agree that, in addition to all other remedies available to the Company at law, in equity or otherwise, the Company shall be entitled to injunctive relief to prevent an actual or threatened violation of this Agreement and to enforce the provisions hereof, without showing or proving any actual damage to the Company or posting any bond in connection therewith.
(e) No failure by the Company to insist upon strict compliance with any of the terms, covenants, or conditions hereof, and no delay or omission by the Company in exercising any right under this Agreement, will operate as a waiver of such terms, covenants, conditions or rights. A waiver or consent given by the Company on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
(f) This Agreement may not be changed, modified, released, discharged, abandoned, or otherwise amended, in whole or in part, except by an instrument in writing signed by me and the Company.
(g) This Agreement shall be governed by, and construed and enforced in accordance with, the laws of The Commonwealth of Massachusetts, without regard to its principles of conflicts of laws. This Agreement is executed under seal.
[Signature Page Follows]
BY PLACING MY SIGNATURE HEREUNDER, I ACKNOWLEDGE THAT I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL AND I HAVE READ ALL THE PROVISIONS OF THIS EMPLOYEE NONDISCLOSURE, NONCOMPETITION AND ASSIGNMENT OF INTELLECTUAL PROPERTY AGREEMENT AND THAT I AGREE TO ALL OF ITS TERMS.
Effective Date: June 6, 2016
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/s/ David Abraham | ||
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David Abraham | |
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SELECTA BIOSCIENCES, INC. | ||
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Name: Werner Cautreels, Ph.D. | ||
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Title: President and Chief Executive Officer | ||
EXHIBIT A
Excluded Confidential Information and Inventions
Phoenix Pharmaceutical Group: any confidential information or inventions that do not in any way relate to the present or future business of the Company and were generated as a result of PPG investment or start-up incubator activities
Innovation Legal Group: any confidential information or inventions that do not in any way relate to the present or future business of the Company and were generated as a result of ILG legal activities
EXHIBIT C
Form of Indemnification Agreement
[attached]
Exhibit 10.23
Employment Agreement
This Employment Agreement (this Agreement), dated as of June 6, 2016, is made by and between Selecta Biosciences, Inc., a Delaware corporation (together with any successor thereto, the Company), and David Siewers, CPA (Executive) (collectively referred to as the Parties or individually referred to as a Party).
RECITALS
A. It is the desire of the Company to assure itself of the services of Executive following the Effective Date (as defined below) and thereafter by entering into this Agreement.
B. Executive and the Company mutually desire that Executive provide services to the Company on the terms herein provided.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the Parties hereto agree as follows:
1. Employment.
(a) General. Effective on the closing of the Companys initial public offering of stock pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the Effective Date), the Company shall employ Executive and Executive shall remain in the employ of the Company, for the period and in the positions set forth in this Section 1, and subject to the other terms and conditions herein provided.
(b) At-Will Employment. The Company and Executive acknowledge that Executives employment is and shall continue to be at-will, as defined under applicable law, and that Executives employment with the Company may be terminated by either Party at any time for any or no reason (subject to the notice requirements of Section 3(b)). This at-will nature of Executives employment shall remain unchanged during Executives tenure as an employee and may not be changed, except in an express writing signed by Executive and a duly authorized officer of the Company. If Executives employment terminates for any reason, Executive shall not be entitled to any payments, benefits, damages, award or compensation other than as provided in this Agreement or otherwise agreed to in writing by the Company or as provided by applicable law. The term of this Agreement (the Term) shall commence on the Effective Date and end on the date this Agreement is terminated under Section 3.
(c) Positions and Duties. Executive shall serve as Chief Financial Officer of the Company with such responsibilities, duties and authority normally associated with such positions and as may from time to time be reasonably assigned to Executive by the Chief Executive Officer of the Company. Executive shall devote substantially all of Executives working time and efforts to the business and affairs of the Company (which shall include service to its affiliates, if applicable), provided that Executive may engage in outside business activities (including serving on outside boards or committees) to the extent such activities do not materially interfere with the performance of Executives duties and responsibilities under this Agreement or violate the terms of the Employee Nondisclosure, Noncompetition and Assignment of Intellectual Property Agreement attached as Exhibit B (the Restrictive Covenant Agreement). Executive agrees to observe and comply with the rules and policies of the Company as adopted by the Company from time to time, in each case as amended from time to time, as set forth in writing, and as delivered or made available to Executive (each, a Policy).
2. Compensation and Related Matters.
(a) Annual Base Salary. During the Term, Executive shall receive a base salary at a rate of $250,000 per annum, which shall be paid in accordance with the customary payroll practices of the Company and shall be pro-rated for partial years of employment. Such annual base salary shall be reviewed (and may be increased) from time to time by the Board of Directors of the Company or an authorized committee of the Board (in either case, the Board) (such annual base salary, as it may be increased from time to time, the Annual Base Salary).
(b) Bonus. During the Term, Executive will be eligible to participate in an annual incentive program established by the Board. Executives annual incentive compensation under such incentive program (the Annual Bonus) shall be targeted at 35% of Executives Annual Base Salary (the Target Bonus). The Annual Bonus payable under the incentive program shall be based on the achievement of performance goals to be determined by the Board. The payment of any Annual Bonus pursuant to the incentive program will be made on or before March 15 of the year following the year in which such Annual Bonus is earned.
(c) Benefits. During the Term, Executive shall be eligible to participate in employee benefit plans, programs and arrangements of the Company (including medical, dental and 401(k) plans), consistent with the terms thereof and as such plans, programs and arrangements may be amended from time to time. In no event shall Executive be eligible to participate in any severance plan or program of the Company, except as set forth in Section 4 of this Agreement.
(d) Vacation. During the Term, Executive shall be entitled to four weeks of paid personal leave, or paid personal leave per calendar year in accordance with the Companys Policies, whichever is greater. Vacation days accrued, but not used by the end of any calendar year may be used in the subsequent calendar year; provided that no more than five accrued vacation days may be carried over from one year to the next. Any vacation shall be taken at the reasonable and mutual convenience of the Company and Executive.
(e) Business Expenses. During the Term, the Company shall reimburse Executive for all reasonable travel and other business expenses incurred by Executive in the performance of Executives duties to the Company in accordance with the Companys expense reimbursement Policy.
(f) Key Person Insurance. At any time during the Term, the Company shall have the right to insure the life of Executive for the Companys sole benefit. The Company shall have the right to determine the amount of insurance and the type of policy. Executive shall reasonably cooperate with the Company in obtaining such insurance by submitting to physical examinations, by supplying all information reasonably required by any insurance carrier, and by executing all necessary documents reasonably required by any insurance carrier, provided that any information provided to an insurance company or broker shall not be provided to the Company without the prior written authorization of Executive. Executive shall incur no financial obligation by executing any required document, and shall have no interest in any such policy.
3. Termination.
Executives employment hereunder may be terminated by the Company or Executive, as applicable, without any breach of this Agreement under the following circumstances:
(a) Circumstances.
(i) Death. Executives employment hereunder shall terminate upon Executives death.
(ii) Disability. If Executive has incurred a Disability, as defined below, the Company may terminate Executives employment.
(iii) Termination for Cause. The Company may terminate Executives employment for Cause, as defined below.
(iv) Termination without Cause. The Company may terminate Executives employment without Cause.
(v) Resignation from the Company with Good Reason. Executive may resign Executives employment with the Company with Good Reason, as defined below.
(vi) Resignation from the Company Without Good Reason. Executive may resign Executives employment with the Company for any reason other than Good Reason or for no reason.
(b) Notice of Termination. Any termination of Executives employment by the Company or by Executive under this Section 3 (other than termination pursuant to Section 3(a)(i)) shall be communicated by a written notice to the other Party hereto (i) indicating the specific termination provision in this Agreement relied upon, (ii) setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executives employment under the provision so indicated, if applicable, and (iii) specifying a Date of Termination which, except in the case of a termination pursuant to Section 3(a)(iii), shall be at least thirty (30) days following the date of such notice, but no more than forty (40) days following the date of such notice (a Notice of Termination); provided, however, that the Company may deliver a Notice of Termination to Executive that specifies any Date of Termination that occurs on or after the date of the Notice of Termination (but no more than forty (40) days following the date of such notice) and, in the event that Executive delivers a Notice of Termination to the Company, the Company may, in its sole discretion, change the Date of Termination to any date that occurs on or following the date of the Notice of Termination and is prior to the Date of Termination specified in the Notice of Termination, provided, in either case, that if the Company selects a Date of Termination that is less than thirty (30) days after the date of the Notice of Termination, the Company will pay Executive the base salary Executive would have earned during the period commencing on the Date of Termination selected by the Company and ending thirty (30) days after the date of the Notice of Termination. The failure by either party to set forth in the Notice of Termination any fact or circumstance shall not waive any right of the party hereunder or preclude the party from asserting such fact or circumstance in enforcing the partys rights hereunder. Any decision to terminate Executives employment for Cause shall be made by a majority vote of the Board after Executive has received written notice from the Board setting forth in reasonable detail the facts and circumstances claimed to provide the basis for the Cause and the Board has provided the Executive reasonable opportunity to be heard by the Board with counsel present if he chooses.
(c) Company Obligations upon Termination. Upon termination of Executives employment pursuant to any of the circumstances listed in this Section 3, Executive (or Executives estate) shall be entitled to receive the sum of: (i) the portion of Executives Annual Base Salary earned through the Date of Termination, but not yet paid to Executive; (ii) any unpaid Annual Bonus earned by Executive for the year prior to the year in which the Date of Termination occurs, as determined by the Board in its good faith discretion based upon actual performance achieved, which Annual Bonus, if any, shall be paid to Executive when bonuses for such year are paid to actively employed senior executives of the Company
but in no event later than March 15 of the year in which the Date of Termination occurs; (iii) any expenses owed to Executive pursuant to Section 2(e); and (iv) any amount accrued and arising from Executives participation in, or benefits accrued under any employee benefit plans, programs or arrangements, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (collectively, the Company Arrangements). Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided in a benefit plan or herein, all of Executives rights to salary, severance, benefits, bonuses and other compensatory amounts hereunder (if any) shall cease upon the termination of Executives employment hereunder.
(d) Deemed Resignation. Upon termination of Executives employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its subsidiaries.
4. Severance Payments.
(a) Termination for Cause, or Termination Upon Death, Disability or Resignation from the Company Without Good Reason. If Executives employment shall terminate as a result of Executives death pursuant to Section 3(a)(i) or Disability pursuant to Section 3(a)(ii), pursuant to Section 3(a)(iii) for Cause, or pursuant to Section 3(a)(vi) for Executives resignation from the Company without Good Reason, then Executive shall not be entitled to any severance payments or benefits, except as provided in Section 3(c).
(b) Termination without Cause, or Resignation from the Company with Good Reason. If Executives employment terminates without Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to Executives resignation with Good Reason, then, subject to Executive signing on or before the 60th day following Executives Separation from Service (as defined below), and not revoking, a release of claims (which Executive will receive no later than ten (10) business days following Executives Separation from Service) substantially in the form attached as Exhibit A to this Agreement (the Release), and Executives continued compliance with Section 5, Executive shall receive, in addition to payments and benefits set forth in Section 3(c), the following:
(i) an amount in cash equal to the Annual Base Salary, payable in the form of salary continuation in regular installments over the 12-month period following the date of Executives Separation from Service (the Severance Period) in accordance with the Companys normal payroll practices;
(ii) a pro-rata portion of the Annual Bonus, payable in the form of a lump sum payment, in an amount equal to the product of (A)(i) the Target Bonus, if the Date of Termination occurs during the first quarter of the calendar year or (ii) the Annual Bonus amount based on actual performance as determined by the Board or an authorized committee thereof, if the Date of Termination occurs after the first quarter of the calendar year, multiplied by (B) a fraction, using the number of full months of the year elapsed prior to the Date of Termination as the numerator and 12 as the denominator; and
(iii) if Executive elects to receive continued medical, dental and/or vision coverage under one or more of the Companys group healthcare plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA), the Company shall directly pay, or reimburse Executive for, the COBRA premiums for Executive and Executives covered dependents under such plans during the period commencing on Executives Separation from Service and ending upon the earliest of (X) the last day of the Severance Period, (Y) the date that Executive and/or Executives covered dependents become no longer eligible for
COBRA or (Z) the date Executive becomes eligible to receive medical, dental or vision coverage, as applicable, from a subsequent employer (and Executive agrees to promptly notify the Company of such eligibility). Notwithstanding the foregoing, if the Company determines in its sole discretion that it cannot provide the foregoing benefit without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act) or incurring an excise tax, the Company may alter the manner in which medical, dental or vision coverage is provided to Executive after the Date of Termination so long as such alteration does not increase the after-tax cost to Executive of such benefits.
(c) Change in Control. Notwithstanding anything to the contrary in any applicable Company equity plan or equity agreement, in the event Executives employment terminates without Cause pursuant to Section 3(a)(iv), or pursuant to Section 3(a)(v) due to Executives resignation with Good Reason, in either case, within 60 days prior to or on or within 12 months following the date of a Change in Control, subject to Executive signing on or before the 60th day following Executives Separation from Service, and not revoking, the Release (which Executive will receive no later than ten (10) business days following Executives Separation from Service), and Executives continued compliance with Section 5, Executive shall receive, in addition to the payments and benefits set forth in Section 3(c) and Section 4(b), immediate vesting of all unvested equity or equity-based awards held by Executive under any Company equity compensation plans that vest solely based on the passage of time (for the avoidance of doubt, with any such awards that vest in whole or in part based on the attainment of performance-vesting conditions being governed by the terms of the applicable award agreement).
(d) Survival. Notwithstanding anything to the contrary in this Agreement, the provisions of Sections 5 through 9 will survive the termination of Executives employment and the termination of the Term.
5. Restrictive Covenants. As a condition to the effectiveness of this Agreement, Executive will execute and deliver to the Company contemporaneously herewith the Restrictive Covenant Agreement. Executive agrees to abide by the terms of the Restrictive Covenant Agreement, which are hereby incorporated by reference into this Agreement. Executive acknowledges that the provisions of the Restrictive Covenant Agreement will survive the termination of Executives employment and the termination of the Term for the periods set forth in the Restrictive Covenant Agreement.
6. Assignment and Successors.
The Company must assign its rights and obligations under this Agreement to any of its affiliates or to any successor to all or substantially all of the business or the assets of the Company (by merger or otherwise). This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable. None of Executives rights or obligations may be assigned or transferred by Executive, other than Executives rights to payments hereunder, which may be transferred only by will or operation of law. Notwithstanding the foregoing, Executive shall be entitled, to the extent permitted under applicable law and applicable Company Arrangements, to select and change a beneficiary or beneficiaries to receive compensation hereunder following Executives death by giving written notice thereof to the Company.
7. Certain Definitions.
(a) Cause. The Company shall have Cause to terminate Executives employment hereunder upon:
(i) Executives commission of, or indictment or conviction of, any felony or any crime involving dishonesty by Executive;
(ii) Executives participation in any fraud against the Company;
(iii) any intentional damage to any property of the Company by Executive;
(iv) Executives misconduct which materially and adversely reflects upon the business, operations, or reputation of the Company, which misconduct has not been cured (or cannot be cured) within thirty (30) days after the Company gives written notice to Executive regarding such misconduct; or
(v) Executives breach of any material provision of this Agreement or any other written agreement between Executive and the Company and failure to cure such breach (if capable of cure) within thirty (30) days after the Company gives written notice to Executive regarding such breach.
(b) Change in Control. Change in Control shall have the meaning set forth in the version of the Selecta Biosciences, Inc. 2016 Incentive Award Plan in effect on the Effective Date.
(c) Code. Code shall mean the Internal Revenue Code of 1986, as amended, and the regulations and guidance promulgated thereunder.
(d) Date of Termination. Date of Termination shall mean (i) if Executives employment is terminated by Executives death, the date of Executives death; or (ii) if Executives employment is terminated pursuant to Section 3(a)(ii) (vi) either the date indicated in the Notice of Termination or the date specified by the Company pursuant to Section 3(b), whichever is earlier.
(e) Disability. Disability shall mean, at any time the Company or any of its affiliates sponsors a long-term disability plan for the Companys employees, disability as defined in such long-term disability plan for the purpose of determining a participants eligibility for benefits, provided, however, if the long-term disability plan contains multiple definitions of disability, Disability shall refer to that definition of disability which, if Executive qualified for such disability benefits, would provide coverage for the longest period of time. The determination of whether Executive has a Disability shall be made by the person or persons required to make disability determinations under the long-term disability plan. At any time the Company does not sponsor a long-term disability plan for its employees, Disability shall mean Executives inability to perform, with or without reasonable accommodation, the essential functions of Executives positions hereunder for a total of six months during any twelve-month period as a result of incapacity due to mental or physical illness as determined by a physician selected by the Company or its insurers and acceptable to Executive or Executives legal representative, with such agreement as to acceptability not to be unreasonably withheld or delayed. Any unreasonable refusal by Executive to submit to a medical examination for the purpose of determining Disability shall be deemed to constitute conclusive evidence of Executives Disability.
(f) Good Reason. For the sole purpose of determining Executives right to severance payments and benefits as described above, Executives resignation will be with Good Reason if Executive resigns within one year after any of the following events, unless Executive consents to the applicable event in writing: (i) a material reduction in Executives Annual Base Salary or Target Bonus, (ii) a material diminution in Executives authority, title, duties or areas of responsibility, (iii) the requirement that Executive report to someone other than the Chief Executive Officer, (iv) the relocation of Executives primary office to a location more than 40 miles from the Boston metropolitan area, or (v) a
material breach by the Company of this Agreement or any other written agreement with Executive. Notwithstanding the foregoing, no Good Reason will have occurred unless and until Executive has: (a) provided the Company, within 60 days of Executives knowledge of the occurrence of the facts and circumstances underlying the Good Reason event, written-notice stating with specificity the applicable facts and circumstances underlying such finding of Good Reason; and (b) provided the Company with an opportunity to cure the same within thirty (30) days after the receipt of such notice.
8. Parachute Payments.
(a) Notwithstanding any other provisions of this Agreement or any Company equity plan or agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (all such payments and benefits, including the payments and benefits under Section 4(b) and Section 4(c) hereof, being hereinafter referred to as the Total Payments), would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then the Total Payments shall be reduced (in the order provided in Section 8(b)) to the minimum extent necessary to avoid the imposition of the Excise Tax on the Total Payments, but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income and employment taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income and employment taxes on such Total Payments and the amount of the Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).
(b) The Total Payments shall be reduced in the following order: (i) reduction on a pro-rata basis of any cash severance payments that are exempt from Section 409A of the Code (Section 409A), (ii) reduction on a pro-rata basis of any non-cash severance payments or benefits that are exempt from Section 409A, (iii) reduction on a pro-rata basis of any other payments or benefits that are exempt from Section 409A, and (iv) reduction of any payments or benefits otherwise payable to Executive on a pro-rata basis or such other manner that complies with Section 409A; provided, in case of clauses (ii), (iii) and (iv), that reduction of any payments attributable to the acceleration of vesting of Company equity awards shall be first applied to Company equity awards that would otherwise vest last in time.
(c) The Company will select an accounting firm or consulting group with experience in performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax (the Independent Advisors) to make determinations regarding the application of this Section 8. For purposes of such determinations, no portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, (i) does not constitute a parachute payment within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) or (ii) constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the base amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation. The costs of obtaining such determination and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company.
(d) If Executive incurs legal fees or other expenses (including expert witness and accounting fees) in an effort to determine the applicability of this Section 8 or establish entitlement to or obtain any portion of the Total Payments that have been reduced under this Section 8 (collectively, Legal and Other Expenses), Executive shall be entitled to payment of or reimbursement for such Legal and Other
Expenses in accordance with this Section 8(d). Subject to Sections 9(l)(iv) and 9(m) and the other provisions of this Section 8, the Company will reimburse all Legal and Other Expenses on a monthly basis reasonably promptly after presentation of Executives written request for reimbursement accompanied by evidence reasonably acceptable to the Company that such Legal and Other Expenses were incurred. If the Company establishes before a court of competent jurisdiction that Executive had no reasonable basis for a claim made by Executive hereunder, or acted in bad faith, no further payment of or reimbursement for Legal and Other Expenses shall be due to Executive in respect of such claim, and Executive shall refund any amounts previously paid or reimbursed hereunder with respect to such claim.
(e) In the event it is later determined that to implement the objective and intent of this Section 8, (i) a greater reduction in the Total Payments should have been made, the excess amount shall be returned promptly by Executive to the Company or (ii) a lesser reduction in the Total Payments should have been made, the excess amount shall be paid or provided promptly by the Company to Executive, except to the extent the Company reasonably determines would result in imposition of an excise tax under Section 409A.
9. Miscellaneous Provisions.
(a) Governing Law. This Agreement shall be governed, construed, interpreted and enforced in accordance with its express terms, and otherwise in accordance with the substantive laws of the Commonwealth of Massachusetts without reference to the principles of conflicts of law of the Commonwealth of Massachusetts or any other jurisdiction that would result in application of the laws of a jurisdiction other than the Commonwealth of Massachusetts, and where applicable, the laws of the United States.
(b) Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
(c) Notices. Any notice, request, claim, demand, document and other communication hereunder to any Party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by facsimile or certified or registered mail, postage prepaid, as follows:
(i) If to the Company, to the General Counsel of the Company at the Companys headquarters,
(ii) If to Executive, to the last address that the Company has in its personnel records for Executive, or
(iii) at any other address as any Party shall have specified by notice in writing to the other Party.
(d) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. Signatures delivered by facsimile or PDF shall be deemed effective for all purposes.
(e) Entire Agreement. The terms of this Agreement, the Restrictive Covenant Agreement incorporated herein by reference as set forth in Section 5, the Indemnification Agreement (defined below) and any stock option agreement between the Company and Executive entered into prior to the date hereof are intended by the Parties to be the final expression of their agreement with respect to the subject matter hereof and supersede all prior understandings and agreements, whether written or oral, including without
limitation any prior employment agreement or offer letter between Executive and the Company. The Parties further intend that this Agreement shall constitute the complete and exclusive statement of their terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement.
(f) Indemnification. The Parties acknowledge that they have or will enter into an Indemnification Agreement in substantially the form attached as Exhibit C hereto.
(g) Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by Executive and a duly authorized officer of Company. By an instrument in writing similarly executed, Executive or a duly authorized officer of the Company may waive compliance by the other Party with any specifically identified provision of this Agreement that such other Party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder preclude any other or further exercise of any other right, remedy, or power provided herein or by law or in equity.
(h) No Inconsistent Actions. The Parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the Parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement.
(i) Construction. This Agreement shall be deemed drafted equally by both the Parties. Its language shall be construed as a whole and according to its fair meaning. Any presumption or principle that the language is to be construed against any Party shall not apply. The headings in this Agreement are only for convenience and are not intended to affect construction or interpretation. Any references to paragraphs, subparagraphs, sections or subsections are to those parts of this Agreement, unless the context clearly indicates to the contrary. Also, unless the context clearly indicates to the contrary, (i) the plural includes the singular and the singular includes the plural; (ii) and and or are each used both conjunctively and disjunctively; (iii) any, all, each, or every means any and all, and each and every; (iv) includes and including are each without limitation; (v) herein, hereof, hereunder and other similar compounds of the word here refer to the entire Agreement and not to any particular paragraph, subparagraph, section or subsection; and (vi) all pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the entities or persons referred to may require.
(j) Enforcement. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the Term, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a portion of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.
(k) Withholding. The Company shall be entitled to withhold from any amounts payable under this Agreement any federal, state, local or foreign withholding or other taxes or charges which the Company is required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of withholding shall arise.
(l) Section 409A.
(i) General. The intent of the Parties is that the payments and benefits under this Agreement comply with or be exempt from Section 409A and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.
(ii) Separation from Service. Notwithstanding anything in this Agreement to the contrary, any compensation or benefits payable under this Agreement that is considered nonqualified deferred compensation under Section 409A and is designated under this Agreement as payable upon Executives termination of employment shall be payable only upon Executives separation from service with the Company within the meaning of Section 409A (a Separation from Service) and, except as provided below, any such compensation or benefits described in Section 4 shall not be paid, or, in the case of installments, shall not commence payment, until the sixtieth (60th) day following Executives Separation from Service (the First Payment Date). Any installment payments that would have been made to Executive during the sixty (60) day period immediately following Executives Separation from Service but for the preceding sentence shall be paid to Executive on the First Payment Date and the remaining payments shall be made as provided in this Agreement.
(iii) Specified Employee. Notwithstanding anything in this Agreement to the contrary, if Executive is deemed by the Company at the time of Executives Separation from Service to be a specified employee for purposes of Section 409A, to the extent delayed commencement of any portion of the benefits to which Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A, such portion of Executives benefits shall not be provided to Executive prior to the earlier of (i) the expiration of the six-month period measured from the date of Executives Separation from Service with the Company or (ii) the date of Executives death. Upon the first business day following the expiration of the applicable Section 409A period, all payments deferred pursuant to the preceding sentence shall be paid in a lump sum to Executive (or Executives estate or beneficiaries), and any remaining payments due to Executive under this Agreement shall be paid as otherwise provided herein.
(iv) Expense Reimbursements. To the extent that any reimbursements under this Agreement are subject to Section 409A, any such reimbursements payable to Executive shall be paid to Executive no later than December 31 of the year following the year in which the expense was incurred; provided, that Executive submits Executives reimbursement request promptly following the date the expense is incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, other than medical expenses referred to in Section 105(b) of the Code, and Executives right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.
(v) Installments. Executives right to receive any installment payments under this Agreement, including without limitation any continuation salary payments that are payable on Company payroll dates, shall be treated as a right to receive a series of separate payments and, accordingly, each such installment payment shall at all times be considered a separate and distinct payment as permitted under Section 409A. Except as otherwise permitted under Section 409A, no payment hereunder shall be accelerated or deferred unless such acceleration or deferral would not result in additional tax or interest pursuant to Section 409A.
(m) Attorneys Fees. In the event that either Party prevails in a dispute with the other Party concerning the rights and obligations hereunder, the non-prevailing Party shall pay the prevailing Partys reasonable attorneys fees and costs.
10. Executive Acknowledgement.
Executive acknowledges that Executive has read and understands this Agreement, is fully aware of its legal effect, has not acted in reliance upon any representations or promises made by the Company other than those contained in writing herein, and has entered into this Agreement freely based on Executives own judgment.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date and year first above written.
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SELECTA BIOSCIENCES, INC. | |
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By: |
/s/ Werner Cautreels, Ph.D. |
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Name: Werner Cautreels, Ph.D. |
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Title: President and Chief Executive Officer |
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/s/ David Siewers, CPA | |
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David Siewers, CPA |
[Signature Page to Employment Agreement]
EXHIBIT A
Separation Agreement and Release
This Separation Agreement and Release (Agreement) is made by and between David Siewers, CPA (Executive) and Selecta Biosciences, Inc. (the Company) (collectively referred to as the Parties or individually referred to as a Party). Capitalized terms used but not defined in this Agreement shall have the meanings set forth in the Employment Agreement (as defined below).
WHEREAS, the Parties have previously entered into that certain Employment Agreement, dated as of June 6, 2016 (the Employment Agreement); and
WHEREAS, in connection with Executives termination of employment with the Company or a subsidiary or affiliate of the Company effective , 20 , the Parties wish to resolve any and all disputes, claims, complaints, grievances, charges, actions, petitions, and demands that Executive may have against the Company and any of the Releasees as defined below, including, but not limited to, any and all claims arising out of or in any way related to Executives employment with or separation from the Company or its subsidiaries or affiliates but, for the avoidance of doubt, nothing herein will be deemed to release any rights or remedies in connection with Executives ownership of vested equity securities of the Company, vested benefits or Executives right to defense or indemnification by the Company or any of its affiliates pursuant to contract or applicable law (collectively, the Retained Claims). The Company agrees not to contest Executives application for unemployment benefits; provided that nothing herein shall prohibit the Company from responding truthfully to requests for information from, or require the Company to make any false or misleading statements to, any governmental authority.
NOW, THEREFORE, in consideration of the severance payments and benefits described in Section 4 of the Employment Agreement, which, pursuant to the Employment Agreement, are conditioned on Executives execution and non-revocation of this Agreement, and in consideration of the mutual promises made herein, the Company and Executive hereby agree as follows:
1. Severance Payments; Salary and Benefits. The Company agrees to provide Executive with the severance payments and benefits described in Section 4(b) and Section 4(c) of the Employment Agreement, payable at the times set forth in, and subject to the terms and conditions of, the Employment Agreement. In addition, to the extent not already paid, and subject to the terms and conditions of the Employment Agreement, the Company shall pay or provide to Executive all other payments or benefits described in Section 3(c) of the Employment Agreement, subject to and in accordance with the terms thereof.
2. Release of Claims. Executive agrees that, other than with respect to the Retained Claims, the foregoing consideration represents settlement in full of all outstanding obligations owed to Executive by the Company, any of its direct or indirect subsidiaries and affiliates, and any of their current and former officers, directors, equity holders, managers, employees, agents, investors, attorneys, shareholders, administrators, affiliates, benefit plans, plan administrators, insurers, trustees, divisions, and subsidiaries and predecessor and successor corporations and assigns (collectively, the Releasees). Executive, on Executives own behalf and on behalf of any of Executives affiliated companies or entities and any of their respective heirs, family members, executors, agents, and assigns, other than with respect to the Retained Claims, hereby and forever releases the Releasees from, and agrees not to sue concerning, or in any manner to institute, prosecute, or pursue, any claim, complaint, charge, duty, obligation, or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that Executive may possess against any of the Releasees arising from any omissions, acts, facts, or damages that have occurred up until and including the Effective Date of this Agreement (as defined in Section 7 below), including, without limitation:
(a) any and all claims relating to or arising from Executives employment or service relationship with the Company or any of its direct or indirect subsidiaries or affiliates and the termination of that relationship;
(b) any and all claims relating to, or arising from, Executives right to purchase, or actual purchase of any shares of stock or other equity interests of the Company or any of its affiliates, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law;
(c) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; harassment; retaliation; breach of contract, both express and implied; breach of covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; fraud; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; conversion; and disability benefits;
(d) any and all claims for violation of any federal, state, or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964; the Civil Rights Act of 1991; the Rehabilitation Act of 1973; the Americans with Disabilities Act of 1990; the Equal Pay Act; the Fair Credit Reporting Act; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act; the Employee Retirement Income Security Act of 1974; the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act; and the Sarbanes-Oxley Act of 2002;
(e) any and all claims for violation of the federal or any state constitution;
(f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination;
(g) any claim for any loss, cost, damage, or expense arising out of any dispute over the non-withholding or other tax treatment of any of the proceeds received by Executive as a result of this Agreement; and
(h) any and all claims for attorneys fees and costs.
Executive agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not release claims that cannot be released as a matter of law, including, but not limited to, Executives right to report possible violations of federal law or regulation to any governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002, or any other whistleblower protection provisions of state or federal law or regulation, Executives right to file a charge with or participate in a charge by the Equal Employment Opportunity Commission, or any other local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against the Company (with the understanding that Executives release of claims herein bars Executive from recovering such monetary relief from the Company or any Releasee), claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law, claims to continued participation in certain of the Companys group benefit plans pursuant to the terms and conditions of COBRA, claims to any benefit entitlements vested as the date of separation of Executives employment, pursuant to written terms of any employee benefit plan of the Company or its affiliates and Executives right under applicable
law and any Retained Claims. This release further does not release claims for breach of Section 3(c), Section 4(b) or Section 4(c) of the Employment Agreement.
3. Acknowledgment of Waiver of Claims under ADEA. Executive understands and acknowledges that Executive is waiving and releasing any rights Executive may have under the Age Discrimination in Employment Act of 1967 (ADEA), and that this waiver and release is knowing and voluntary. Executive understands and agrees that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement. Executive understands and acknowledges that the consideration given for this waiver and release is in addition to anything of value to which Executive was already entitled. Executive further understands and acknowledges that Executive has been advised by this writing that: (a) Executive should consult with an attorney prior to executing this Agreement; (b) Executive has 21 days within which to consider this Agreement; (c) Executive has 7 days following Executives execution of this Agreement to revoke this Agreement pursuant to written notice to the General Counsel of the Company; (d) this Agreement shall not be effective until after the revocation period has expired; and (e) nothing in this Agreement prevents or precludes Executive from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties, or costs for doing so, unless specifically authorized by federal law. In the event Executive signs this Agreement and returns it to the Company in less than the 21 day period identified above, Executive hereby acknowledges that Executive has freely and voluntarily chosen to waive the time period allotted for considering this Agreement.
4. Severability. In the event that any provision or any portion of any provision hereof or any surviving agreement made a part hereof becomes or is declared by a court of competent jurisdiction or arbitrator to be illegal, unenforceable, or void, this Agreement shall continue in full force and effect without said provision or portion of provision.
5. No Oral Modification. This Agreement may only be amended in a writing signed by Executive and a duly authorized officer of the Company.
6. Governing Law. This Agreement shall be subject to the provisions of Sections 9(a) and 9(c) of the Employment Agreement.
7. Effective Date. If Executive has attained or is over the age of 40 as of the date of Executives termination of employment, then each Party has seven days after that Party signs this Agreement to revoke it and this Agreement will become effective on the eighth day after Executive signed this Agreement, so long as it has been signed by the Parties and has not been revoked by either Party before that date (the Effective Date). If Executive has not attained the age of 40 as of the date of Executives termination of employment, then the Effective Date shall be the date on which Executive signs this Agreement.
8. Voluntary Execution of Agreement. Executive understands and agrees that Executive executed this Agreement voluntarily, without any duress or undue influence on the part or behalf of the Company or any third party, with the full intent of releasing all of Executives claims against the Company and any of the other Releasees. Executive acknowledges that: (a) Executive has read this Agreement; (b) Executive has not relied upon any representations or statements made by the Company that are not specifically set forth in this Agreement; (c) Executive has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of Executives own choice or has elected not to retain legal counsel; (d) Executive understands the terms and consequences of this Agreement and of the releases it contains; and (e) Executive is fully aware of the legal and binding effect of this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.
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David Siewers, CPA | |
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SELECTA BIOSCIENCES, INC. | |
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EXHIBIT B
Employee Nondisclosure, Noncompetition and Assignment of Intellectual Property Agreement
[attached]
SELECTA BIOSCIENCES, INC.
EMPLOYEE NONDISCLOSURE, NONCOMPETITION AND
ASSIGNMENT OF INTELLECTUAL PROPERTY AGREEMENT
In consideration and as a condition of my employment by Selecta Biosciences, Inc., a Delaware corporation (the Company), and of the compensation to be paid to me, and in recognition of the fact that as an employee of the Company I will or may have access to confidential information, I agree with the Company as follows:
1. Performance: Prior Obligations.
(a) I agree to use best efforts to perform my assigned duties diligently, conscientiously, and with reasonable skill, and shall comply with all rules, procedures and standards promulgated from time to time by the Company with regard to my conduct and my access to and use of the Companys property, equipment and facilities. Among such rules, procedures and standards are those governing ethical and other professional standards for dealing with customers, government agencies, vendors, competitors, consultants, fellow employees, and the public-at-large, security provisions designed to protect Company property and the personal security of Company employees, rules respecting attendance, punctuality, and hours of work, and rules and procedures designed to protect the confidentiality of proprietary information. The Company agrees to make reasonable efforts to inform me of such rules, standards and procedures as are in effect from time to time.
(b) I hereby represent, warrant and agree (i) that I have the full right to enter into this Agreement and perform the services required of me hereunder, without any restriction whatsoever; (ii) that in the course of performing services hereunder, I will not violate the terms or conditions of any agreement between me and any third party or infringe or wrongfully appropriate any patents, copyrights, trade secrets or other intellectual property rights of any person or entity anywhere in the world; (iii) that I have not and will not disclose or use during my employment by the Company any confidential information that I acquired as a result of any previous employment or consulting arrangement or under a previous obligation of confidentiality; and (iv) that I have disclosed to the Company in writing any and all continuing obligations to previous employers or others that require me not to disclose any information to the Company.
2. Confidential Information. While employed by the Company and thereafter, I shall not, directly or indirectly, use any Confidential Information (as hereinafter defined) other than pursuant to my employment by and for the benefit of the Company, or disclose any Confidential Information to anyone outside of the Company, whether by private communication, public address, publication or otherwise, or disclose any Confidential Information to anyone within the Company who has not been authorized to receive such information, except as directed in writing by an authorized representative of the Company. The term Confidential Information as used throughout this Agreement shall mean all trade secrets, proprietary information, know-how, data, designs, specifications, processes, customer lists and other technical or business information (and any tangible evidence, record or representation thereof), whether prepared,
conceived or developed by a consultant or employee of the Company (including myself) or received by the Company from an outside source, which is in the possession of the Company (whether or not the property of the Company), which in any way relates to the present or future business of the Company, which is maintained in confidence by the Company, or which might permit the Company or its customers to obtain a competitive advantage over competitors who do not have access to such trade secrets, proprietary information, or other data or information. Without limiting the generality of the foregoing. Confidential Information shall include, without limitation:
(a) any idea, improvement, invention, innovation, development, concept, technical or clinical data, design, formula, device, pattern, sequence, method, process, composition of matter, computer program or software, source code, object code, algorithm, model, diagram, flow chart, product specification or design, plan for a new or revised product, sample, compilation of information, or work in process, or parts thereof, and any and all revisions and improvements relating to any of the foregoing (in each case whether or not reduced to tangible form); and
(b) the name of any customer, supplier, employee, prospective customer, sales agent, supplier or consultant, any sales plan, marketing material, plan or survey, business plan or opportunity, product or development plan or specification, business proposal, financial record, or business record or other record or information relating to the present or proposed business of the Company.
Notwithstanding the foregoing, the term Confidential Information shall not apply to information which the Company has voluntarily disclosed to the public without restriction, or which has otherwise lawfully entered the public domain.
I shall promptly notify my supervisor or any officer of the Company if I learn of any possible unauthorized use or disclosure of Confidential Information and shall cooperate fully with the Company to enforce its rights in such information.
I understand that the Company from time to time has in its possession information (including product and development plans and specifications) which is claimed by customers and others to be proprietary and which the Company has agreed to keep confidential. I agree that all such information shall be Confidential Information for purposes of this Agreement.
3. Ownership and Assignment of Intellectual Property.
(a) I agree that all originals and all copies of all manuscripts, drawings, prints, manuals, diagrams, letters, notes, notebooks, reports, models, records, files, memoranda, plans, sketches and all other documents and materials containing, representing, evidencing, recording, or constituting any Confidential Information (as defined in Section 2 above), however and whenever produced (whether by myself or others) during the course of my employment, shall be the sole property of the Company.
(b) I agree that all Confidential Information and all other discoveries, inventions, ideas, concepts, trademarks, service marks, logos, processes, products, formulas, computer programs or software, source codes, object codes, algorithms, machines, apparatuses,
items of manufacture or composition of matter, or any new uses therefor or improvements thereon, or any new designs or modifications or configurations of any kind, or works of authorship of any kind, including, without limitation, compilations and derivative works, whether or not patentable or copyrightable, conceived, developed, reduced to practice or otherwise made by me, either alone or with others, and related to the business of the Company or to tasks assigned to me during the course of my employment, whether or not made during my regular working hours, whether or not conceived, developed, reduced to practice or made on the Companys premises and whether or not disclosed by me to the Company (collectively Company Inventions), and any and all services and products which embody, emulate or employ any such Company Invention or Confidential Information shall be the sole property of the Company and all copyrights, patents, patent rights, trademarks and reproduction rights to, and other proprietary rights in, each such Company Invention or Confidential Information, whether or not patentable or copyrightable, shall belong exclusively to the Company. For the avoidance of doubt, Confidential Information shall only include information that relates to the present or future business of the Company, and Company Inventions shall only include inventions that relate to the business of the Company or to tasks assigned to me during the course of my employment.
(c) I agree to, and hereby do, assign to the Company all my right, title and interest throughout the world in and to all Company Inventions and to anything tangible which evidences, incorporates, constitutes, represents or records any Company Invention. I agree that all Company Inventions shall constitute works made for hire under the copyright laws of the United States and hereby assign and, to the extent any such assignment cannot be made at present, I hereby agree to assign to the Company all copyrights, patents and other proprietary rights I may have in any Company Inventions, together with the right to file for and/or own wholly without restriction United States and foreign patents, trademarks, and copyrights. I agree to waive, and hereby waive, all moral rights or proprietary rights in or to any Company Inventions and, to the extent that such rights may not be waived, agree not to assert such rights against the Company or its licensees, successors or assigns.
(d) I hereby certify Exhibit A sets forth any and all confidential information and intellectual property that I claim as my own or otherwise intend to exclude from this Agreement because it was developed by me prior to the date of this Agreement. I understand that after execution of this Agreement I shall have no right to exclude Confidential Information or Company Inventions from this Agreement.
4. Employees Obligation to Keep Records. I shall make and maintain adequate and current written records of all Company Inventions, including notebooks and invention disclosures, which records shall be available to and remain the property of the Company at all times. I shall disclose all Company Inventions promptly, fully and in writing to the Company immediately upon production or development of the same and at any time upon request.
5. Employees Obligation to Cooperate. I will, at any time during my employment, or after it terminates, upon request of the Company, execute all documents and perform all lawful acts which the Company considers necessary or advisable to secure its rights hereunder and to carry out the intent of this Agreement. Without limiting the generality of the foregoing, I will assist the Company in any reasonable manner to obtain for its own benefit patents or
copyrights in any and all countries with respect to all Company Inventions assigned pursuant to Section 3, and I will execute, when requested, patent and other applications and assignments thereof to the Company, or persons designated by it, and any other lawful documents deemed necessary by the Company to carry out the purposes of this Agreement, and I will further assist the Company in every way to enforce any patents and copyrights obtained, including, without limitation, testifying in any suit or proceeding involving any of said patents or copyrights or executing any documents deemed necessary by the Company, all without further consideration than provided for herein. It is understood that reasonable out-of-pocket expenses of my assistance incurred at the request of the Company under this Section will be reimbursed by the Company.
6. Noncompetition and Non-solicitation. During my employment with the Company and for a period of 12 months after the termination of my employment with the Company for any reason, I shall not, without the Companys prior written consent, on my own behalf, or as owner, manager, stockholder, consultant, director, officer, or employee of any business entity (except as a holder of not more than three (3%) percent of the stock of a publicly held company) participate in any capacity in any business activity that is in direct competition with any of the products or services being developed, marketed, distributed, planned, sold or otherwise provided by the Company or its affiliates at the time of, or during the 12 months preceding, my termination.
During my employment with the Company and for a period of 12 months after the termination of my employment with the Company for any reason, I shall not solicit, induce or encourage any employee of the Company to terminate his or her employment with the Company.
7. Return of Property. Upon termination of my employment with the Company, or at any other time upon request of the Company, I shall cease using and return promptly any and all customer or prospective customer lists, other customer or prospective customer information or related materials, computer programs, software, electronic data, specifications, drawings, blueprints, data storage devices, reproductions, sketches, notes, notebooks, memoranda, reports, records, proposals, business plans, or copies of them, other documents or materials, tools, equipment, or other property belonging to the Company or its customers which I may then possess or have under my direct or indirect control. I further agree that upon termination of employment, I shall not take with me any documents or data in any form or of any description containing or pertaining to Confidential Information or Company Inventions, other than documents I have a right to retain under applicable law (with the understanding that my obligations under this Agreement continue to apply to any such retained documents). For purposes of clarity, using best efforts to completely remove (with the Companys prior written permission) from any personal computer, laptop, smart phone, IPad, or any other electronic device, any Company Property that I have previously returned to the Company in accordance with this Section 7 satisfies my obligations under this section.
8. Other Obligations. I acknowledge that the Company from time to time may have agreements with other persons, including the government of the United States or other countries and agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. I agree to be bound by all such obligations and restrictions and to take all action necessary to discharge the obligations of the Company thereunder.
9. Miscellaneous.
(a) This Agreement contains the entire and only agreement between me and the Company with respect to the subject matter hereof, superseding any previous oral or written communications, representations, understandings, or agreements with the Company or any officer or representative hereof. In the event of any inconsistency between this Agreement and any other contract between me and the Company, the provisions of this Agreement shall prevail.
(b) My obligations under Sections 2, 3, 5, 6 (for the periods set forth therein), 7, 8 and 9 of this Agreement shall survive the termination of my employment with the Company regardless of the manner of or reasons for such termination, and regardless of whether such termination constitutes a breach of any other agreement I may have with the Company. My obligations under this Agreement shall be binding upon my heirs, assigns, executors, administrators and representatives, and the provisions of this Agreement shall inure to the benefit of and be binding on the successors and assigns of the Company.
(c) If any provision of this Agreement shall be determined to be unenforceable by any court of competent jurisdiction by reason of its extending for too great a period of time or over too large a geographic area or over too great a range of activities, it shall be interpreted to extend only over the maximum period of time, geographic area or range of activities as to which it may be enforceable. If, after application of the immediately preceding sentence, any provision of this Agreement shall be determined to be invalid, illegal or otherwise unenforceable by any court of competent jurisdiction, the validity, legality and enforceability of the other provisions of this Agreement shall not be affected thereby. Except as otherwise provided in this paragraph, any invalid, illegal or unenforceable provision of this Agreement shall be severable, and after any such severance, all other provisions hereof shall remain in full force and effect.
(d) I acknowledge and agree that violation of this Agreement by me would cause irreparable harm to the Company not adequately compensable by money damages alone, and I therefore agree that, in addition to all other remedies available to the Company at law, in equity or otherwise, the Company shall be entitled to injunctive relief to prevent an actual or threatened violation of this Agreement and to enforce the provisions hereof, without showing or proving any actual damage to the Company or posting any bond in connection therewith.
(e) No failure by the Company to insist upon strict compliance with any of the terms, covenants, or conditions hereof, and no delay or omission by the Company in exercising any right under this Agreement, will operate as a waiver of such terms, covenants, conditions or rights. A waiver or consent given by the Company on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
(f) This Agreement may not be changed, modified, released, discharged, abandoned, or otherwise amended, in whole or in part, except by an instrument in writing signed by me and the Company.
(g) This Agreement shall be governed by, and construed and enforced in accordance with, the laws of The Commonwealth of Massachusetts, without regard to its principles of conflicts of laws. This Agreement is executed under seal.
[Signature Page Follows]
BY PLACING MY SIGNATURE HEREUNDER, I ACKNOWLEDGE THAT I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL AND I HAVE READ ALL THE PROVISIONS OF THIS EMPLOYEE NONDISCLOSURE, NONCOMPETITION AND ASSIGNMENT OF INTELLECTUAL PROPERTY AGREEMENT AND THAT I AGREE TO ALL OF ITS TERMS.
Effective Date: June 2, 2016 |
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/s/ David Siewers | ||
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David Siewers | |
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Accepted and Agreed: | ||
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SELECTA BIOSCIENCES, INC. | ||
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/s/ Werner Cautreels, Ph.D. | |
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Name: Werner Cautreels, Ph.D. | ||
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Title: President and Chief Executive Officer | ||
EXHIBIT A
Excluded Confidential Information and Inventions
EXHIBIT C
Form of Indemnification Agreement
[attached]
Exhibit 10.24
SELECTA BIOSCIENCES, INC.
INDEPENDENT DIRECTOR CONSULTING AGREEMENT
(George R. Siber, M.D.)
This Independent Director Consulting Agreement (this Agreement) dated as of May 5, 2009 (the Effective Date), is made by and between Selecta Biosciences, Inc., a Delaware corporation (the Company), and George R. Siber, M.D. (the Consultant).
WHEREAS, the Company desires to engage the Consultant as a member of the Board of Directors (the Board) and the Consultant desires to serve as a member of the Board; and
WHEREAS, the Company desires to engage the Consultant to perform consulting services on behalf of the Company and the Consultant desires to perform such services on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein the parties hereby agree as follows:
1. Consulting Services.
(a) The Company hereby retains the Consultant and the Consultant hereby agrees to perform such consulting and advisory services relating to the Field of Interest (as defined in Section 14(j)) as the Company may request and as set forth in Schedule A (the Consulting Services).
(b) The Consultant agrees to make himself available to render the Consulting Services, at such times and locations as may be mutually agreed, from time to time as requested by the Company. Except as provided in Schedule A, the Consultant may deliver the Consulting Services over the telephone, in person or by written correspondence.
(c) The Consultant represents and warrants to the Company that, except as set forth in Schedule B, he is not currently an employee or consultant of any Person (as defined in Section 14(j)). The Consultant agrees to notify the Company promptly after entering into any employment or consulting agreement with a third party between the Effective Date and the termination of this Agreement. The Company acknowledges that the Consultant has obligations to provide services to the Persons listed in Schedule B and disclosed pursuant to the preceding sentence (collectively, Other Clients) and that the Consultant must take these obligations into account when scheduling meetings or calls with the Company. The Consultant acknowledges that the Company has the right to terminate this Agreement in accordance with Section 4 if the Consultant is not able satisfy the Companys requests for meetings and calls.
(d) The Consultant agrees to devote his best efforts to performing the Consulting Services. The Consultant shall comply with all rules, procedures and standards promulgated and made known to the Consultant from time to time by the Company with regard to the Consultants access to and use of the Companys property, information, equipment and facilities.
2. Compensation. The Company shall pay the Consultant a consulting fee as provided in Schedule A and will reimburse the Consultant for business expenses, also as provided in Schedule A.
3. Independent Contractor. In furnishing the Consulting Services, the Consultant understands that he will at all times be acting as an independent contractor of the Company and, as such, will not be an employee of the Company and will not by reason of this Agreement or by reason of his Consulting Services to the Company be entitled to participate in or to receive any benefit or right under any of the Companys employee benefit or welfare plans. The Consultant also will be responsible for paying all withholding and other taxes required by law to be paid as and when the same become due and payable. The Consultant shall not enter into any agreements or incur any obligations on behalf of the Company.
4. Term. The parties may agree to terminate this Agreement at any time with the mutual consent of both parties. Either party may terminate this Agreement at any time and for any reason or for no reason; provided, however, that the terminating party shall first provide written notice to the other party at least 30 days prior to the effective date of termination.
5. Exceptions to this Agreement. The Company acknowledges that (I) the Consultant is now or may become an employee or consultant of Other Clients, and (II) the Consultant is now or may become a party to agreements with Other Clients relating to the disclosure of information, the ownership of inventions, restrictions against competition and/or similar matters. The Consultant represents and agrees that the execution, delivery and performance of this Agreement does not and will not conflict with any other agreement, policy or rule applicable to the Consultant. The Consultant will not (i) disclose to the Company any information that he is required to keep secret pursuant to an existing confidentiality agreement with Other Clients or any other third party, (ii) use the funding, resources, facilities or inventions of Other Clients or any other third party to perform the Consulting Services, or (iii) perform the Consulting Services in any manner that would give Other Clients or any other third party rights to any intellectual property created in connection with such services.
6. Confidential Information. While providing the Consulting Services to the Company and for five years thereafter, the Consultant shall not, directly or indirectly, use any Confidential Information (as defined below) other than pursuant to his provision of the Consulting Services by and for the benefit of the Company, or disclose to anyone outside of the Company any such Confidential Information. The term Confidential Information as used throughout this Agreement shall mean all trade secrets, proprietary information and other data or information (and any tangible evidence, record or representation thereof), written or oral, whether prepared, conceived or developed by a consultant or employee of the Company (including the Consultant) or received by the Company from an outside source, which is in the possession of the Company (whether or not the property of the Company) and which is maintained in secrecy or confidence by the Company. Without limiting the generality of the foregoing, Confidential Information shall include:
(a) any idea, improvement, invention, innovation, development, concept, technical data, design, formula, device, pattern, sequence, method, process, composition of matter, computer program or software, source code, object code, algorithm, model, diagram,
flow chart, product specification or design, plan for a new or revised product, sample, compilation of information, or work in process, or parts thereof, and any and all revisions and improvements relating to any of the foregoing (in each case whether or not reduced to tangible form); and
(b) the name of any customer, supplier, employee, prospective customer, sales agent, supplier or consultant, any sales plan, marketing material, plan or survey, business plan or opportunity, product or development plan or specification, business proposal, financial record, or business record or other record or information relating to the present or proposed business of the Company.
Notwithstanding the foregoing, the term Confidential Information shall not apply to information which the Company has voluntarily disclosed to the public without restriction, which has otherwise lawfully entered the public domain or which becomes available to the Consultant on a non-confidential basis from a third-party source that is entitled to disclose it to the Consultant.
The Consultant acknowledges that the Company from time to time has in its possession information (including product and development plans and specifications) which is claimed by others to be proprietary and which the Company has agreed to keep confidential. The Consultant agrees that all such information shall be Confidential Information for purposes of this Agreement.
The Consultant agrees that all originals and all copies of materials containing, representing, evidencing, recording, or constituting any Confidential Information, however and whenever produced (whether by the Consultant or others), shall be the sole property of the Company.
7. Inventions.
(a) Certain Inventions Made by Others. Subject to the Consultants obligations to Other Clients, during the term of this Agreement the Consultant will disclose to the President of the Company, on a confidential basis, (i) technology and product opportunities which come to the attention of the Consultant in the Field of Interest, and (ii) any invention, improvement, discovery, process, formula or method or other intellectual property relating to or useful in, the Field of Interest, whether or not patentable or copyrightable, and whether or not discovered or developed by the Consultant.
(b) Inventions Made by the Consultant. Consultant agrees that all Confidential Information and all other discoveries, inventions, ideas, concepts, products or formulas, or any new uses therefor or improvements thereon, or any new designs or modifications or configurations of any kind, or works of authorship of any kind, including, without limitation, compilations and derivative works, whether or not patentable or copyrightable, conceived, developed, reduced to practice or otherwise made by the Consultant during the term of this Agreement, either alone or with others, and directly related to or directly arising out of: (i) the Field of Interest; (ii) the Consulting Services; or (iii) Confidential Information of the Company, whether or not conceived, developed, reduced to practice or made
on the Companys premises (collectively, Company Inventions), and any and all services and products which embody, emulate or employ any such Company Inventions or Confidential Information, shall be the sole property of the Company and all copyrights, patents, patent rights, trademarks and reproduction rights to, and other proprietary rights in, each such Company Invention or Confidential Information, whether or not patentable or copyrightable, shall belong exclusively to the Company. The Consultant agrees that all such Company Inventions shall constitute works made for hire under the copyright laws of the United States and hereby assigns and, to the extent any such assignment cannot be made at the present time, agrees to assign, to the Company any and all copyrights, patents and other proprietary rights he may have in any such Company Invention, together with the right to file and/or own wholly without restrictions applications for United States and foreign patents, trademark registration and copyright registration and any patent, or trademark or copyright registration issuing thereon.
8. Consultants Obligation to Keep Records. The Consultant shall make and maintain adequate and current written records of all Company Inventions, and shall disclose all Company Inventions promptly, fully and in writing to the Company immediately upon development of the same and at any time upon request.
9. Consultants Obligation to Cooperate. The Consultant will, during or after the term of this Agreement, upon request of the Company, execute all documents and perform all lawful acts which are reasonably necessary or advisable to secure the Companys rights hereunder and to carry out the intent of this Agreement. Without limiting the generality of the foregoing, the Consultant will assist the Company in any reasonable manner to obtain for its own benefit patents or copyrights in any and all countries with respect to all Company Inventions assigned pursuant to Section 7, and the Consultant will execute, when requested, patent and other applications and assignments thereof to the Company, or Persons designated by it, and any other lawful documents deemed necessary by the Company to carry out the purposes of this Agreement, and the Consultant will further assist the Company as reasonably necessary to enforce any patents and copyrights obtained, including testifying in any suit or proceeding involving any of said patents or copyrights or executing any documents deemed necessary by the Company, all without further consideration than provided for herein. It is understood that reasonable out-of-pocket expenses of the Consultant incurred at the request of the Company under this Section 9 will promptly be reimbursed by the Company and that in the event that the Consultant is required to devote more than a de minimis amount of time to assisting the Company under this Section 9 subsequent to the term of this Agreement, the Consultant will be compensated by the Company at his then current per diem rate for consulting services.
10. Indemnification. The Company and the Consultant shall enter into an Indemnification Agreement providing for indemnification of the Consultant in his capacity as a director, to the maximum extent permissible under applicable law, such Indemnification Agreement to be in substantially the form provided to the Companys other outside directors.
11. Noncompetition. Subject to written waivers that may be provided by the Company upon request, which shall not be unreasonably withheld or delayed, the Consultant agrees that during the term of this Agreement and for a period of six months after the termination of this Agreement, the Consultant shall not directly or indirectly (i) provide any services in the Field of Interest to any Person other than the Company, or (ii) become an owner, partner,
shareholder, consultant, agent, employee or co-venturer of any Person that has committed, or intends to commit, significant resources to the Field of Interest. Notwithstanding the foregoing, the Consultant may purchase as a passive investment up to one percent (1%) of any class or series of outstanding voting securities of any Person that has committed significant resources to the Field of Interest if such class or series is listed on a national or regional securities exchange or publicly traded in the over-the-counter market.
12. Nonsolicitation. During the term of this Agreement and for a period of one year after the termination of this Agreement, the Consultant shall not (i) solicit, encourage, or take any other action which is intended to induce any employee of, or consultant to, the Company (or any other Person who may have been employed by, or may have been a consultant to, the Company during the term of this Agreement) to terminate his or her employment or relationship with the Company in order to become employed by or otherwise perform services for any other Person, or (ii) solicit, endeavor to entice away from the Company or otherwise interfere with the relationship of the Company with any Person who is, or was within the then-most recent 12 month period, a client or customer of the Company.
13. Return of Property. Upon termination of the Consultants engagement with the Company, or at any other time upon request of the Company, the Consultant shall return promptly any and all Confidential Information, including customer or prospective customer lists, other customer or prospective customer information or related materials, computer programs, software, electronic data, specifications, drawings, blueprints, medical devices, samples, reproductions, sketches, notes, notebooks, memoranda, reports, records, proposals, business plans, or copies of them, other documents or materials, tools, equipment, or other property belonging to the Company or its customers which the Consultant may then possess or have under his control. The Consultant further agrees that upon termination of his engagement he shall not take with him any documents or data in any form or of any description containing or pertaining to Confidential Information or any Company Inventions.
14. Miscellaneous.
(a) Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, between the parties with respect to such subject matter.
(b) Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder, except as otherwise expressly provided herein and shall not be assignable by operation of law or otherwise.
(c) Amendments and Supplements. This Agreement may not be altered, changed or amended, except by an instrument in writing signed by the parties hereto.
(d) No Waiver. The terms and conditions of this Agreement may be waived only by a written instrument signed by the party waiving compliance. The failure of any party
hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of or non-compliance with this Agreement shall be held to be a waiver of any other or subsequent breach or non-compliance.
(e) Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the substantive laws of The Commonwealth of Massachusetts, without regard to its principles of conflicts of laws.
(f) Notice. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered by hand, sent by facsimile transmission with confirmation of receipt, sent via a reputable overnight courier service with confirmation of receipt requested, or mailed by registered or certified mail (postage prepaid and return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice), and shall be deemed given on the date on which delivered by hand or otherwise on the date of receipt as confirmed:
To the Company:
Selecta Biosciences, Inc.
480 Arsenal Street, Building One
Watertown, MA 02472
Tel: 1.617.923.1400
Fax: 1.617.924.3454
Attention: President
To the Consultant:
George R. Siber, M.D.
[***]
(g) Remedies. The Consultant recognizes that money damages alone would not adequately compensate the Company in the event of breach by the Consultant of his obligations set forth in Sections 6, 7, 8, 9, 11, 12 and 13, and the Consultant therefore agrees that, in addition to all other remedies available to the Company at law, in equity or otherwise, the Company shall be entitled to injunctive relief for the enforcement thereof. All rights and remedies hereunder are cumulative and are in addition to and not exclusive of any other rights and remedies available at law, in equity, by agreement or otherwise.
(h) Survival; Validity. Notwithstanding the termination of the Consultants relationship with the Company (whether pursuant to Section 4 or otherwise), the Consultants covenants and obligations set forth in Sections 6, 7, 9, 11, 12 and 13 shall remain in effect and be
fully enforceable in accordance with the provisions thereof. In the event that any provision of this Agreement shall be determined to be unenforceable by reason of its extension for too great a period of time or over too large a geographic area or over too great a range of activities, it shall be interpreted to extend only over the maximum period of time, geographic area or range of activities as to which it may be enforceable. If, after application of the preceding sentence, any provision of this Agreement shall be determined to be invalid, illegal or otherwise unenforceable by a court of competent jurisdiction, the validity, legality and enforceability of the other provisions of this Agreement shall not be affected thereby. Except as otherwise provided in this Section 14(h), any invalid, illegal or unenforceable provision of this Agreement shall be severable, and after any such severance, all other provisions hereof shall remain in full force and effect.
(i) Construction. A reference to a Section or a Schedule shall mean a Section in or Schedule to this Agreement unless otherwise expressly stated. The titles and headings herein are for reference purposes only and shall not in any manner limit the construction of this Agreement which shall be considered as a whole. The words include, includes and including when used herein shall be deemed in each case to be followed by the words without limitation. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of names and pronouns shall include the plural and vice-versa.
(j) Certain Definitions.
Field of Interest shall mean immunomodulatory polymeric nanoparticles, liposomal nanoparticles, and lipid/polymer hybrid nanoparticles for prophylactic and therapeutic applications.
Person shall mean an individual, a corporation, an association, a partnership, an estate, a trust and any other entity or organization.
(k) Counterparts. This Agreement may be executed in one or more counterparts, all of which together shall constitute one and the same agreement.
*****
IN WITNESS WHEREOF, the parties have caused this Independent Director Consulting Agreement to be executed as an agreement under seal as of the date first written above.
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SELECTA BIOSCIENCES, INC. | |
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/s/ Robert Bratzler |
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Name: Robert Bratzler | |
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Title: Executive Chairman | |
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CONSULTANT: | |
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/s/ George R. Siber | |
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George R. Siber, M.D. |
Schedule A
1. Description of the Consulting Services. The Consultant shall:
(a) Serve as a member of the Board of Directors, including attendance at meetings of the Board of Directors. The Companys Board of Directors currently meets in person approximately six time per year, however, this rate may vary as determined by the Board of Directors.
(b) Provide guidance on preclinical and clinical research and development plans, regulatory strategy, competitive therapies and technologies, and business development, the provision of which shall involve:
i. Up to four hours per week on telephone calls, email communications and other Company business; and
ii. One day per month at the offices of the Company, or at external meetings on behalf of the Company for purposes of business development, securing financing, or other purposes requested by the Company.
The Consultant and the Company will be flexible regarding these commitments in light of the Companys needs and the Consultants other professional obligations and commitments.
2. Compensation.
(a) The Company shall pay the Consultant a fee at the rate of $3,000 per month for the Consulting Services described in paragraph 1(b) above.
(b) Within 50 days after the Effective Date, the Company shall grant to the Consultant two nonstatutory stock options (the Options) to purchase an aggregate of 123,140 shares (the Option Shares) of common stock of the Company, $.0001 par value per share (the Common Stock), at a purchase price equal to the fair market value (as determined by the Board of Directors) on the date of the grant:
i. Board Service Option: The Company shall grant the Consultant 87,957 Option Shares as consideration for the Consultants service on the Board as provided in paragraph 1(a) above (the Board Service Option); and
ii. Consulting Option: The Company shall grant the Consultant 35,183 Option Shares as partial compensation for the Consulting Services described in paragraph 1(b) above (the Consulting Option).
Each of the Options shall be subject to the terms of a separate nonstatutory stock option agreement, which shall provide, inter alia, for vesting such that 25% of the Option Shares shall vest on the first anniversary of the Effective Date, and an additional 2.0833% of the Option Shares shall vest at the end of each month thereafter so that 100% of the Option Shares shall be fully vested on or before the fourth anniversary of the Effective Date.
(c) In the event that the Consultant ceases to provide the Consulting Services described in paragraph 1(b) above, but continues to serve as a member of the Board of Directors, the cash compensation provided in paragraph 2(a) above shall cease, and all vesting of the Consulting Option shall terminate; provided, however, that the Board Service Option shall continue to vest according to its original terms until such time as the Consultant no longer serves on the Board.
(d) The Consultant shall be reimbursed for all reasonable, appropriate or necessary travel and other out-of-pocket expenses incurred in the performance of his duties hereunder upon submission and approval of written statements and bills in accordance with the then regular reimbursement procedures of the Company, including, without limitation, travel and lodging expenses incurred in traveling to and from the Companys offices to render the Consulting Services and to attend meetings of the Board of Directors. In the event that the Consultant performs services on behalf of Other Clients during a trip in which he also provides Consulting Services on behalf of the Company, he shall equitably allocate the costs of such trip among the Company and such Other Clients.
Schedule B
1. List of employers as of the Effective Date: None
2. List of the Other Clients as of the Effective Date:
Commercial:
Genocea Biosciences
Wyeth Vaccines
Novartis Vaccines and Diagnostics
Ligocyte Pharmaceuticals, Inc.
Variation Biotechnologies
Vaccine Technology Institute (VTI)
Matrivax Research & Development Corp.
Non-Commercial:
Massachusetts Biologic Laboratories
National Institute of Allergy and Infectious Diseases
Vaccine Research Institute - NIAID - Council
PATH - Pneumococcal Advisory Committee
PATH - Malaria Vaccine Advisory Committee
Gates Foundation - Maternal Immunization
World Health Organization Pneumococcal Vaccines
SELECTA BIOSCIENCES, INC.
FIRST AMENDMENT
TO
INDEPENDENT DIRECTOR CONSULTING AGREEMENT
(George R. Siber, M.D.)
This First Amendment to Independent Director Consulting Agreement dated as of July 22, 2009 (this First Amendment), is made by and between Selecta Biosciences, Inc., a Delaware corporation (the Company), and George R. Siber, M.D. (Consultant).
WHEREAS, the Company and Consultant are parties to an Independent Director Consulting Agreement dated as of May 5, 2009 (the Original Agreement); and
WHEREAS, the parties desire to amend certain provisions of the Original Agreement in the manner set forth herein.
NOW, THEREFORE, in consideration of the premises and the covenants set forth herein and in the Original Agreement, the parties hereby agree as follows:
1. Defined Terms. Capitalized terms used, but not defined, herein shall have the meanings ascribed to them in the Original Agreement.
2. Confidential Information. The first sentence of Section 6 of the Original Agreement (Confidential Information) is hereby amended to delete the words five years thereafter and to insert in place thereof the words ten years thereafter.
3. Noncompetition. The Original Agreement is hereby amended to delete Section 11 (Noncompetition) in its entirety and to insert the following in its place:
11. Noncompetition. Subject to written waivers that may be provided by the Company upon request, which shall not be unreasonably withheld or delayed, the Consultant agrees that, during the term of this Agreement, the Consultant shall not directly or indirectly (i) provide any services in the Field of Interest to any Person other than the Company, or (ii) become an owner, partner, shareholder, consultant, agent, employee or co-venturer of any Person that has committed, or intends to commit, significant resources to the Field of Interest.
Notwithstanding anything to the contrary contained in Section 11(ii), the Consultant may purchase as a passive investment up to one percent (1%) of any class or series of outstanding voting securities of any Person that has committed significant resources to the Field of Interest if such class or series is listed on a national or regional securities exchange or publicly traded in the over-the-counter market.
4. Field of Interest. Section 14(j) of the Original Agreement (Miscellaneous) is hereby amended to delete the definition of Field of Interest in its entirety and to insert the following in its place:
Field of Interest shall mean (i) immunomodulatory polymeric nanoparticles for prophylactic and therapeutic applications, and (ii) immunomodulatory lipid/polymer hybrid nanoparticles for prophylactic and therapeutic applications, provided that not less than ten percent (10%) of the weight of the particle is composed of polymers. Immunomodulatory nanoparticles shall mean nanoparticles into which immunological adjuvant(s) have been incorporated.
5. Ratification. The Original Agreement, as amended hereby, is hereby ratified and confirmed in all respects and shall continue in full force and effect. The Original Agreement shall, together with this First Amendment, be read and construed as a single agreement.
6. Governing Law. This First Amendment shall be governed by, and construed and enforced in accordance with, the substantive laws of The Commonwealth of Massachusetts, without regard to its principles of conflicts of laws.
7. Counterparts. This First Amendment 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.
IN WITNESS WHEREOF, the parties have executed this First Amendment to Independent Director Consulting Agreement as an instrument under seal as of the date first written above.
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SELECTA BIOSCIENCES, INC. | |
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By: |
/s/ Robert Bratzler |
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Robert Bratzler |
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Executive Chairman |
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CONSULTANT: | |
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/s/ George R. Siber | |
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George R. Siber, M.D. |
Selecta Biosciences, Inc.
480 Arsenal St., Building One
Watertown, MA 02472 |
www.selectabio.com
phone 617.923.1400
fax 617.924.3454 |
June 1, 2016
George Siber, M.D.
[***]
Dear George,
Reference is made to that certain Independent Director Consulting Agreement, dated as of May 5, 2009, as amended by the First Amendment to Independent Director Consulting Agreement, dated as of July 22, 2009, by and between Selecta Biosciences, Inc. (the Company) and you (as amended, the Consulting Agreement).
The Company hereby notifies you of the termination of the Consulting Agreement effective upon the closing of the initial public offering of the Companys common stock pursuant to the Registration Statement on Form S-1 (File No. 333-211555) (the Termination Date). For services prior to the Termination Date, the Company shall pay you (i) for any unpaid services rendered under the Consulting Agreement prior to the Termination Date and (ii) an amount equal to the consulting fee paid to you during the 30 days preceding the date of the Termination Date. Such payment will fulfill the Companys obligations to you under the Consulting Agreement in their entirety. We remind you of your continuing obligations under the Consulting Agreement regarding Confidential Information, Inventions, Obligation to Cooperate, Noncompetition, Nonsolicitation, Return of Property, and other matters in accordance with Section 14(h) thereof.
By signing below, you hereby acknowledge and agree that the Consulting Agreement shall terminate effective upon the Termination Date, and waive the thirty (30) day notice period pursuant to Section 4 of the Consulting Agreement.
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Sincerely, |
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/s/ Werner Cautreels, Ph.D. |
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Werner Cautreels, Ph.D. |
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President and Chief Executive Officer |
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Acknowledged and agreed: |
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/s/ George Siber, M.D. |
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George Siber, M.D. |
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Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption Experts and to the use of our report dated March 30, 2016 (except for Note 17(b) as to which the date is June 8, 2016) in the Amendment No. 1 to the Registration Statement (Form S-1 No. 333-211555) and related Prospectus of Selecta Biosciences, Inc. for the registration of its common stock.
/s/ Ernst & Young LLP |
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Boston, Massachusetts |
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June 8, 2016 |
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