As filed with the Securities and Exchange Commission on May 20, 2015
Registration No. 333-203389
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
RXi
PHARMACEUTICALS CORPORATION
(Exact name of Registrant as specified in its charter)
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Delaware |
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2834 |
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45-3215903 |
(State or other jurisdiction of
incorporation or organization) |
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification Number) |
257 Simarano Drive, Suite 101
Marlborough, Massachusetts 01752
(508) 767-3861
(Address, including zip code, and telephone number, including area code, of Registrants principal executive offices)
Geert Cauwenbergh, Dr. Med. Sc.
President
RXi
Pharmaceuticals Corporation
257 Simarano Drive, Suite 101
Marlborough, Massachusetts 01752
(508) 767-3861
(Name,
address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Ryan A. Murr
Christina Greenberg
Gibson, Dunn & Crutcher LLP
555 Mission Street, Suite 3000
San Francisco, CA 94105
Telephone: (415) 393-8373
Facsimile: (415) 374-8430
Approximate
date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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¨ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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CALCULATION OF REGISTRATION FEE
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Title of each class of
securities to be registered(1) |
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Proposed maximum aggregate
offering price |
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Amount of
registration fee(2) |
Units, each unit consisting of: |
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(i) Common Stock, par value $0.0001 per share |
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(ii) Overallotment Purchase Rights(3) |
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(iii) Common Stock Warrants(3) |
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Shares of common stock issuable upon exercise of the Overallotment Purchase Rights |
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Shares of common stock issuable upon exercise of the Common Stock Warrants |
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Total |
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$25,000,000 |
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$2,905.00(4) |
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(1) |
There is being registered hereunder 22,500,000 shares of common stock, overallotment purchase rights, common stock warrants and 22,500,000 shares of common stock
underlying the overallotment purchase rights and warrants, with total offering proceeds not to exceed $25,000,000, which may include the proceeds from sales of shares issued hereunder, as well as proceeds from any exercise of the overallotment
purchase rights and warrants that may be offered and sold pursuant to the prospectus to which this registration statement relates. |
(2) |
Calculated in accordance with Rule 457(o) under the Securities Act of 1933, as amended. |
(3) |
No separate fee is required pursuant to Rule 457(g) under the Securities Act of 1933, as amended. |
(4) |
Partially offset with filing fee of $2,324 previously paid. |
The Registrant
hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
Subject to completion, dated May 20, 2015
Prospectus
22,500,000 Units
Each Unit Consisting of:
One Share of Common Stock;
An Overallotment Purchase Right to Purchase
Half of One Share of Common Stock; and
A Warrant to Purchase
Half of One Share of Common Stock
We are offering 22,500,000
units, with each unit consisting of: (i) one share of our common stock, par value $0.0001 per share, (ii) an overallotment purchase right to purchase half of one (1/2) share of our common stock and (iii) a warrant to purchase half of one (1/2) share
of our common stock. The units will be immediately separated on issuance and purchasers will receive only shares of common stock, overallotment purchase rights and warrants. The common stock, overallotment purchase rights and warrants may be
transferred separately immediately upon issuance. The overallotment purchase rights will have a per share exercise price of $ . The warrants will have a per share exercise price
of $ . The overallotment purchase rights are exercisable at any time after the date of issuance and will expire thirteen months from the date of issuance. The warrants are exercisable at any time after
the date of issuance and will expire five years from the date of issuance.
Our common stock is listed on The NASDAQ Capital Market under the symbol
RXII. The last reported sale price of our common stock on The NASDAQ Capital Market on May 15, 2015 was $0.51 per share. There is no established public trading market for the overallotment purchase rights or warrants, and we do not
expect a market to develop. In addition, we do not intend to apply for a listing of the overallotment purchase rights or warrants on any national securities exchange.
Investing in our securities
involves a high degree of risk. You should consider carefully the risks and uncertainties in the section entitled Risk Factors beginning on page 7 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy
or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
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Per Unit |
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Total |
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Public offering price |
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$ |
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$ |
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Placement agents fees(1) |
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$ |
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$ |
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Proceeds to RXi Pharmaceuticals Corporation, before expenses |
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$ |
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$ |
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(1) |
In addition, we have agreed to reimburse the out-of-pocket legal fees and expenses of the placement agent in connection with this offering up to the lesser of (i)
0.5% of the aggregate gross proceeds of this offering and (ii) $50,000. See the Plan of Distribution section of this prospectus for more information on the placement agent arrangements. |
We have engaged H.C. Wainwright & Co., LLC (Wainwright or the Placement Agent) to act as our exclusive placement agent in
connection with this offering. Wainwright is not purchasing or selling the securities offered by us, and is not required to sell any specific number or dollar amount of securities, but will use its reasonable best efforts to arrange for the sale of
the securities offered. We have agreed to pay Wainwright a placement fee equal to 8% of the aggregate gross proceeds to us from the sale of the securities in the offering. Wainwright may engage one or more sub-agents or selected dealers in
connection with this offering. We estimate total expenses of this offering, excluding the placement agent fees, will be approximately $210,000. Because there is no minimum offering amount required as a condition to closing in this offering, the
actual public offering amount, placement agent fees, and proceeds to us, if any, are not presently determinable and may be substantially less than the total maximum offering amounts set forth above. This offering will terminate on
, 2015, unless the offering is fully subscribed before that date or we decide to terminate the offering prior to that date. In
either event, the offering may be closed without further notice to you. We have not arranged to place the funds from investors in an escrow, trust or similar account.
H.C. Wainwright & Co.
The date of this prospectus is
, 2015
TABLE OF CONTENTS
We have not authorized anyone to provide you with information other than that contained in this
prospectus or in any free writing prospectus prepared by or on behalf of us or to which we 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 to you. We
are offering to sell, and seeking offers to buy, shares of our common stock, overallotment purchase rights and warrants only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock, overallotment purchase rights or warrants. Our business, financial condition, results of operations, and prospects may have changed
since that date.
No action is being taken in any jurisdiction outside the United States to permit a public offering of our common stock,
overallotment purchase rights or warrants or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about
and to observe any restrictions as to this offering and the distribution of this prospectus applicable to that jurisdiction.
i
PROSPECTUS SUMMARY
The items in the following summary are described in more detail later in this prospectus. This summary provides an overview of selected
information and does not contain all of the information you should consider before buying our common stock, overallotment purchase rights and warrants. Therefore, you should read the entire prospectus carefully before deciding to invest in our
common stock, overallotment purchase rights and warrants. Investors should carefully consider the information set forth under Risk Factors beginning on page 7 of this prospectus. In this prospectus, unless the context otherwise requires,
references to the Company, we, us, our, or RXi refer to RXi Pharmaceuticals Corporation.
Overview
We are a biotechnology
company focused on discovering and developing innovative therapies, primarily in the areas of dermatology and ophthalmology, addressing high unmet medical needs. Our development programs are based on our siRNA technology and immunotherapy
agents. Our clinical development programs include, but are not limited to, our proprietary, self-delivering RNAi (sd-rxRNA®) compounds for the treatment of dermal and retinal scarring and an
immunodulating agent, Samcyprone, for the treatment of such disorders as alopecia areata, warts and cutaneous metastases of melanoma. In addition to these clinical programs, we have a pipeline of discovery and preclinical product candidates in
our core therapeutic areas, as well as in other areas of interest. The Companys pipeline, coupled with our extensive patent portfolio, provides support to further discover and develop innovative therapies either on our own or in collaboration
with strategic partners.
Clinical Development Program
Our first clinical product candidate is RXI-109, a self-delivering RNAi compound (sd-rxRNA) developed for the reduction of dermal scar
formation. RXI-109 is designed to reduce the expression of connective tissue growth factor (CTGF), a critical regulator of several biological pathways involved in fibrosis, including scar formation in the skin. RXI-109 is
currently being evaluated in Phase 2a clinical trials to prevent or reduce dermal scarring following surgery or trauma, as well as for the management of hypertrophic scars and keloids. Hypertrophic scars are abnormal scars that are raised above the
normal skin surface and can be reddened or darker than the existing skin tone. These scars result in part from an increased level of collagen and are less elastic than the surrounding skin. Keloids are also raised and reddened or
darkened scars resulting from increased collagen production, but keloids often spread beyond the original site of skin injury and may continue to grow in size. Keloids can result from skin trauma as common as an ear piercing or
vaccination and may grow to cover large areas.
Based on the safety profile shown in our two Phase 1 clinical trials, in November 2013,
the Company started its first Phase 2a study (Study 1301) in subjects who had pre-existing hypertrophic scars present on their lower abdomen for at least one year. In this study, subjects underwent scar revision surgery, after which they were
treated with RXI-109 on one end of the scar and placebo on the opposite end of the scar. In this first Phase 2a study, treatment was limited: three intradermal doses over a period of two weeks. Enrollment in this study has been completed and
subjects will continue to be monitored after this two-week treatment period according to the Study 1301 protocol. The top-line 3 month results support a clinical effect of RXI-109 in hypertrophic scars and have provided guidance on a dosing regimen.
From this early data, the Company also determined that initiating treatment two weeks post-surgery is more beneficial than initiating treatment immediately and that there may be a benefit to extending the treatment window farther into the
proliferation phase of healing. With these observations, the Company will be able to optimize the dosing regimens for our current and future clinical trials.
In April 2014, the Company began its second Phase 2a study (Study 1401) to evaluate RXI-109 for treatment to prevent the recurrence of keloids
in subjects undergoing a keloidectomy (removal of a keloid). In this study, subjects with two keloids of similar size and location were eligible for enrollment. Subjects underwent a keloidectomy after which the lesions were closed and one was
treated with RXI-109, and the other
1
was treated with placebo. Treatment was limited in this study; four weekly injections over a 1 month period. Enrollment in Study 1401 has been completed and subjects will be followed for
approximately five months after the end of treatment. In March 2015, the Company held a meeting with an expert panel comprised of clinical advisors, practicing dermatologists and plastic surgeons, including investigators participating in Study 1401.
The panel conducted a review of preliminary data from the study, where the panel members looked at blinded pictures of the first seven subjects for the first few months after treatment. Panel members more often identified the placebo-treated site as
showing faster recurrence of the keloid. Based on these preliminary clinical observations, which showed a reduced recurrence of keloids treated with RXI-109 as compared to placebo, this panel provided a unanimous recommendation to the Company to
lengthen the treatment regimen and to increase the number of doses with RXI-109 to reflect the chronic and aggressive nature of the formation process of a keloid. The Company expects to move forward with these recommendations and initiate an
additional keloid trial by the end of 2015.
The Companys third Phase 2a study (Study 1402) for RXI-109 was initiated in July 2014
to evaluate RXI-109 for the reduction of recurrence of hypertrophic scars following elective scar revision surgery. Subjects with either one long hypertrophic scar, or two scars comparable in length, anatomical location and characteristics will be
enrolled and be eligible to receive scar revision surgery. For a single scar, a portion of the revised scar segment will be treated with RXI-109 and a comparably sized length on the opposite end of the revised scar segment will be left
untreated. If two scars are revised, one revised scar segment will be treated with RXI-109 and one scar will be left untreated after revision surgery. Subjects in Study 1402 have entered on a rolling basis, of which enrollment is more than 50%
complete and will be evaluated up until month nine. This study incorporates the findings from Study 1301 regarding dosing regimen and includes six doses, initiating two weeks after surgery, thus extending the dosing period from Study 1301. Results
from this study will help to further define the dose and treatment duration to be used in the formal Phase 2b dose finding studies and ultimately in Phase 3 pivotal studies.
Our second clinical product candidate is Samcyprone, a proprietary topical formulation of diphenylcyclopropenone
(DPCP), exclusively licensed from Hapten Pharmaceuticals, LLC (Hapten) in December 2014. DPCP is an immunomodulation agent that works by initiating a T-cell response. Typically, patients treated with DPCP are
initially sensitized with a single, high concentration of drug and subsequently treated with low, non-irritant concentrations. Use of high concentrations of DPCP during the sensitization dose results in hyper-sensitizing the patient to subsequent
challenge doses. In contrast, the use of Samcyprone allows sensitization using a much lower concentration of DPCP, avoiding hyper-sensitization to challenge doses. This should result in an improved safety and tolerability profile while
maintaining the known efficacy of DPCP.
Samcyprone has been used for over 20 years to treat warts and alopecia areata, and has
shown efficacy against cutaneous metastases of melanoma. A Phase 2a trial to evaluate the efficacy and safety of Samcyprone for the treatment of viral warts was completed by Hapten in 2010. The Company plans to support the ongoing
investigator-sponsored clinical trial for the treatment of cutaneous metastases of melanoma, as well as a new investigator-sponsored clinical trial in alopecia areata. In March 2015, the Company was granted Orphan Drug Designation for Samcyprone by the U.S. Food and Drug Administration (FDA) for the treatment of malignant melanoma stage IIb to IV. A number of patients with stage IIb to IV malignant melanoma develop
cutaneous metastases. Samcyprone is being developed for treatment of these metastases. The Company expects to initiate a second Phase 2a clinical trial for the treatment of warts by the end
of 2015.
Preclinical Program
While focusing our efforts on our RXI-109 and Samcyprone clinical development programs, we also continue to advance our preclinical
programs, both on our own and through collaborations with academic and
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corporate third parties. The Companys preclinical program currently includes two ocular indications with RXI-109: retinal and corneal scarring. To
date, we have shown that CTGF protein levels are reduced in a dose-dependent manner in both the retina and cornea following an intravitreal injection of RXI-109 in a monkey. Toxicity testing of RXI-109 in the eye to support an investigational new
drug application (IND) is currently in progress and the Company is working toward filing an IND in mid-2015 for RXI-109 as a potential therapeutic for the scarring component of retinal diseases in the eye, such as age-related
macular degeneration (AMD). In AMD, a leading cause of severe visual impairment in people over age 50, blood vessels grow into the retina (neovascularization) and disrupt vision. Current available therapies for AMD rely on
suppression of vascular endothelial growth factor to address the neovascularization component of AMD, but not the subsequent retinal scarring that often occurs over time. Treatment with an anti-scarring agent such as RXI-109 could be of great
benefit to these patients.
Discovery Program
We also intend to advance additional development programs within our dermatology and ophthalmology franchises. Within our dermatology space,
the Company has selected collagenase and tyrosinase as new discovery stage targets for our self-delivering RNAi platform. Collagenase, or MMP1, is a matrix metalloproteinase involved in the breakdown of extracellular matrix. Selective reduction of
MMP1 may be beneficial in the treatment of skin aging disorders, arthritis, acne scarring, blistering skin disorders, corneal erosions, endometriosis and possibly cancer metastasis. Tyrosinase is the key enzyme in the synthesis of melanin. Melanin
is produced by melanocytes and is the pigment that gives human skin, hair and eyes their color. The inhibition of tyrosinase can play a key role in the management of diseases such as cutaneous hyperpigmentation disorders such as lentigines
(freckles, age spots and liver spots), retinitis pigmentosa, neuroblastoma, glioblastoma and possibly melanoma. We have identified potent sd-rxRNA compounds that target MMP1 or tyrosinase for further evaluation.
Current areas of focus in the discovery stage of the Companys ophthalmology franchise include a grant-funded program for discovery of
sd-rxRNA compounds for novel targets for oncology indications specifically including retinoblastoma, and other exploratory efforts to identify potential sd-rxRNA lead compounds and targets from the RNAi-related assets acquired from OPKO Health Inc.
(OPKO) in March 2013 (the OPKO Asset Purchase).
Future Potential Applications of Technology
Overexpression of CTGF is implicated in dermal scarring and fibrotic disease, and because of this, we believe that RXI-109 or other
CTGF-targeting RNAi compounds may be able to treat the fibrotic component of numerous indications, including acute spinal injury, endometriosis, organ fibrosis and vascular restenosis. If the current clinical trials of RXI-109 produce successful
results in dermal anti-scarring, we may explore opportunities in these additional indications that can be accessed by local administration, as well as other possible dermatology applications (e.g., cutaneous scleroderma). In addition, overexpression
of CTGF has been implicated in diseases such as liver and pulmonary fibrosis. Although the Company does not intend to develop systemic uses of RXI-109, the Company is open to business development and out-licensing opportunities for those
applications.
In March 2015, the Company granted an exclusive license to MirImmune LLC (MirImmune) to utilize the
Companys novel and proprietary sd-rxRNA technology for MirImmunes use in developing ex-vivo cell-based cancer immunotherapies. Under the terms of the agreement, MirImmune will be responsible for all research, development,
manufacturing, regulatory and commercialization activities for the licensed products. MirImmune will develop ex-vivo cell-based therapeutics utilizing our sd-rxRNA technology to target immune inhibitory pathways (checkpoints) which are
responsible for limiting the efficacy of cancer immunotherapies.
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RXi is eligible to receive an annual licensing fee, clinical milestone payments and royalties on sales from MirImmune. Upon the achievement of gating milestones, the Company will have the right
to acquire an equity stake in MirImmune. However, the Company does not expect to realize any significant milestone payments or royalties under this agreement in the near term. If successful, this collaboration has the potential to result in novel,
more effective and patient friendly cancer treatments that could be a significant step toward personalized medicine.
Market Opportunity
As there are currently no FDA-approved drugs to prevent dermal scar formation, a therapeutic of this type could have great benefit for
trauma and surgical patients, as a treatment during the surgical revision of existing unsatisfactory scars, and in the treatment, removal and inhibition of keloids (scars that extend beyond the original skin injury). There are over 42 million
procedures in the United States each year that could potentially benefit from a therapeutic treatment that could successfully reduce or prevent scarring; thus, the market potential is quite large. According to the American Society for Plastic
Surgery, there were more than 177,000 scar revision surgeries alone in 2014. In addition to cosmetic and reconstructive surgeries, medical interventions which could incorporate an anti-scarring agent include scarring that results from trauma,
surgery or burns (especially relating to raised or hypertrophic scarring or contracture scarring), and surgical revision of existing unsatisfactory scars and keloids.
In November 2013, we signed a distribution agreement with Ethicor Ltd. (Ethicor), a UK-based unlicensed medicinal products
pharmaceutical company. The agreement provides Ethicor with the distribution rights to RXI-109 in the European Union. Ethicor will pay us a double-digit percentage of any gross profits from its sales of RXI-109. Once RXI-109 becomes an
approved drug in a given country, the marketing rights in that country revert back to RXi. Under the European medicines legislation (Directive 2001/83/EC, Article 5(1)), we expect that Ethicor will be able to supply, prior to regulatory approval,
RXI-109 as a Special drug. A Special drug may be requested by an authorized health-care professional to meet the special needs of an individual patient under their direct responsibility. The collaboration is
important for health-care professionals and patients who can get safe controlled early access to a development drug and is a significant milestone for the Company, not only in possible early revenue, but as increased exposure to RXI-109 may be key
in accelerating the development of our drug. To date we have not generated any product revenue and may not generate product revenue in the foreseeable future, or ever.
Risks Associated with Our Business
Our
ability to implement our business strategy is subject to numerous risks that you should be aware of before making an investment decision. These risks are described more fully in the section entitled Risk Factors immediately following
this prospectus summary. These risks include, among others:
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We may not be able to regain compliance with the continued listing requirements of The Nasdaq Capital Market; |
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We are dependent on the success of our lead drug candidate, which may not receive regulatory approval or be successfully commercialized; |
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A number of different factors could prevent us from obtaining regulatory approval or commercializing our product candidates on a timely basis, or at all; |
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The approach we are taking to discover and develop novel therapeutics using RNAi is unproven and may never lead to marketable products; |
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The FDA could impose a unique regulatory regime for RNAi therapeutics; |
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Even if we receive regulatory approval to market our product candidates, our product candidates may not be accepted commercially, which may prevent us from becoming profitable; |
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We are subject to significant competition and may not be able to compete successfully; |
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We are dependent on technologies we license, and if we lose the right to license such technologies or fail to license new technologies in the future, our ability to develop new products would be harmed;
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We may be unable to protect our intellectual property rights licensed from other parties; our intellectual property rights may be inadequate to prevent third parties from using our technologies or developing competing
products; and we may need to license additional intellectual property from others; |
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We may not be able to obtain sufficient financing and may not be able to develop our product candidates; |
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Future financing may be obtained through, and future development efforts may be paid for by, the issuance of debt or equity, which may have an adverse effect on our stockholders or may otherwise adversely affect our
business; |
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We expect to continue to incur significant research and development expenses, which may make it difficult for us to attain profitability, and may lead to uncertainty as to our ability to continue as a going concern;
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We will rely upon third parties for the manufacture of our clinical product candidates; |
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We may not be able to establish or maintain the third-party relationships that are necessary to develop or potentially commercialize some or all of our product candidates; |
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We are subject to potential liabilities from clinical testing and future product liability claims; |
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Any drugs we develop may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which could have a material adverse effect on our business;
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Even if we obtain regulatory approvals, our marketed drugs will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and foreign regulations, we could lose our approvals to market drugs and
our business would be materially and adversely affected; and |
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If we fail to attract, hire and retain qualified personnel, we may not be able to design, develop, market or sell our products or successfully manage our business. |
Our Corporate Information
Our principal
executive offices are located at 257 Simarano Drive, Suite 101 Marlborough, Massachusetts 01752, and our telephone number is (508) 767-3861. Our Internet address is www.rxipharma.com. Our website and the information contained on
that site, or connected to that site, is not part of or incorporated by reference into this prospectus.
5
THE OFFERING
Securities offered by us |
22,500,000 units, with each unit consisting of one share of common stock, an overallotment purchase right to purchase an additional half of one (1/2) share of common stock and a warrant to purchase an additional half of one (1/2) share of common
stock. |
Common stock to be outstanding after this offering |
53,721,598 shares (76,221,598 if the overallotment purchase rights and warrants are exercised in full). |
Description of overallotment purchase rights |
The overallotment purchase rights will have a per share exercise price equal to $ . The overallotment purchase rights are exercisable at any time after the date of issuance
and expire thirteen months from the date of issuance. |
Description of warrants |
The warrants will have a per share exercise price equal to $ . The warrants are exercisable at any time after the date of issuance and expire five years from the date of issuance. |
Use of proceeds |
General corporate purposes, which include, but are not limited to, funding our ongoing and future clinical trials and for general and administrative expenses. We may also use a portion of the net proceeds to acquire or invest in complementary
businesses, products and technologies. See Use of Proceeds. |
Risk factors |
You should read the Risk Factors section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock. |
NASDAQ Capital Market symbol |
RXII |
The number of shares of common stock to be outstanding after this offering is based on 31,221,598
shares of common stock outstanding as of March 31, 2015.
The number of shares of our common stock to be outstanding after this
offering excludes the following:
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3,079,264 shares of common stock issuable upon the exercise of stock options outstanding, having a weighted average exercise price of $3.33 per share; |
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4,615 shares of common stock issuable upon the exercise of warrants outstanding, having a weighted average exercise price of $3.90 per share; |
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7,571,197 shares of common stock reserved for issuance upon conversion of our outstanding convertible preferred stock without regard to the beneficial ownership conversion limits applicable to such securities; as of the
date of this prospectus, all such shares were issued upon the full conversion of the previously outstanding convertible preferred stock; |
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an aggregate of 1,918,736 shares of common stock reserved for future issuance under our 2012 Long-Term Incentive Plan; and |
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an aggregate of 69,553 shares of common stock reserved for future issuance under our Employee Stock Purchase Plan. |
Unless otherwise indicated, all information in this prospectus reflects or assumes no exercise of outstanding options to purchase common stock
or warrants to purchase common stock after March 31, 2015.
6
RISK FACTORS
Investing in our common stock, overallotment purchase rights and warrants involves a high degree of risk. Before investing in our common
stock, overallotment purchase rights and warrants, you should consider carefully the risks described below, together with the other information contained in this prospectus. If any of the risks set forth below occur, our business, financial
condition, results of operations and future growth prospects could be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment.
Risks Relating to Our Business and Industry
We are dependent on the success of our lead drug candidate, which may not receive regulatory approval or be successfully commercialized.
RXI-109, our first RNAi-based product candidate, targets CTGF and may have a variety of medical applications. We began Phase 1
clinical trials for RXI-109 in June 2012 and began Phase 2 clinical trials for RXI-109 in November 2013. The FDA did not require additional information prior to the commencement of our ongoing Phase 2 clinical trials, but may require additional
information from the Company regarding our current or planned trials at any time, and such information may be costly to provide or cause potentially significant delays in development. There is no assurance that we will be able to successfully
develop RXI-109 or any other product candidate.
We have no commercial products and currently generate no revenue from commercial sales or
collaborations and may never be able to develop marketable products. The FDA or similar foreign governmental agencies must approve our products in development before they can be marketed. The process for obtaining FDA approval is both time-consuming
and costly, with no certainty of a successful outcome. Before obtaining regulatory approval for the sale of any drug candidate, we must conduct extensive preclinical tests and successful clinical trials to demonstrate the safety and efficacy of our
product candidates in humans. Although the results of our Phase 1 clinical trials and preliminary results of our Phase 2 clinical trials of RXI-109 are promising, additional clinical trials will be required to establish the safety and efficacy of
RXI-109. We have not yet shown safety or efficacy in humans for any of our other RNAi-based product candidates. A failure of any preclinical study or clinical trial can occur at any stage of testing. The results of preclinical and initial clinical
testing of these products may not necessarily indicate the results that will be obtained from later or more extensive testing. Additionally, any observations made with respect to blinded clinical data are inherently uncertain as we cannot know which
set of data come from subjects treated with an active drug versus the placebo vehicle. Investors are cautioned not to rely on observations coming from blinded data and not to rely on initial clinical trial results as necessarily indicative of
results that will be obtained in subsequent clinical trials.
A number of different factors could prevent us from obtaining
regulatory approval or commercializing our product candidates on a timely basis, or at all.
We, the FDA or other applicable
regulatory authorities or an Institutional Review Board (IRB) may suspend clinical trials of a drug candidate at any time for various reasons, including if we or they believe the subjects participating in such trials are being
exposed to unacceptable health risks. Among other reasons, adverse side effects of a drug candidate on subjects in a clinical trial could result in the FDA or other regulatory authorities suspending or terminating the trial and refusing to approve a
particular drug candidate for any or all indications of use.
Clinical trials of a new drug candidate require the enrollment of a
sufficient number of subjects, including subjects who are suffering from the disease or condition the drug candidate is intended to treat and who meet other eligibility criteria. Rates of subject enrollment are affected by many factors, and delays
in subject enrollment can result in increased costs and longer development times.
Clinical trials also require the review and oversight
of IRBs, which approve and continually review clinical investigations and protect the rights and welfare of human subjects. An inability or delay in obtaining IRB
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approval could prevent or delay the initiation and completion of clinical trials, and the FDA may decide not to consider any data or information derived from a clinical investigation not subject
to initial and continuing IRB review and approval.
Numerous factors could affect the timing, cost or outcome of our drug development
efforts, including the following:
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Delays in filing or acceptance of initial drug applications for our product candidates; |
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Difficulty in securing centers to conduct clinical trials; |
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Conditions imposed on us by the FDA or comparable foreign authorities regarding the scope or design of our clinical trials; |
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Problems in engaging IRBs to oversee trials or problems in obtaining or maintaining IRB approval of studies; |
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Difficulty in enrolling subjects in conformity with required protocols or projected timelines; |
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Third-party contractors failing to comply with regulatory requirements or to meet their contractual obligations to us in a timely manner; |
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Our drug candidates having unexpected and different chemical and pharmacological properties in humans than in laboratory testing and interacting with human biological systems in unforeseen, ineffective or harmful ways;
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The need to suspend or terminate clinical trials if the participants are being exposed to unacceptable health risks; |
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Insufficient or inadequate supply or quality of our drug candidates or other necessary materials necessary to conduct our clinical trials; |
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Effects of our drug candidates not being the desired effects or including undesirable side effects or the drug candidates having other unexpected characteristics; |
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The cost of our clinical trials being greater than we anticipate; |
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Negative or inconclusive results from our clinical trials or the clinical trials of others for similar drug candidates or inability to generate statistically significant data confirming the efficacy of the product being
tested; |
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Changes in the FDAs requirements for testing during the course of that testing; |
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Reallocation of our limited financial and other resources to other clinical programs; and |
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It is possible that
none of the product candidates that we may attempt to develop will obtain the appropriate regulatory approvals necessary to begin selling them or that any regulatory approval to market a product may be subject to limitations on the indicated uses
for which we may market the product. The time required to obtain FDA and other approvals is unpredictable, but often can take years following the commencement of clinical trials, depending upon the complexity of the drug candidate. Any analysis we
perform of data from clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. Any delay or failure in obtaining required approvals could have a material
adverse effect on our ability to generate revenue from the particular drug candidate.
We also are subject to numerous foreign regulatory
requirements governing the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval process includes all of the risks associated with the FDA approval described
above as well as risks attributable to the satisfaction of local regulations in foreign jurisdictions. Approval by the FDA does not assure approval by regulatory authorities outside of the United States.
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The approach we are taking to discover and develop novel therapeutics using RNAi is
unproven and may never lead to marketable products.
RNA interference is a relatively new scientific discovery. Our RNAi
technologies have been subject to only limited clinical testing. To date, no company has received regulatory approval to market therapeutics utilizing RNAi, and a number of clinical trials of RNAi technologies by other companies have been
unsuccessful. The scientific evidence to support the feasibility of developing drugs based on these discoveries is both preliminary and limited. To successfully develop RNAi-based products, we must resolve a number of issues, including stabilizing
the RNAi material and delivering it into target cells in the human body. We may spend large amounts of money trying to resolve these issues and may never succeed in doing so. In addition, any compounds that we develop may not demonstrate in subjects
the chemical and pharmacological properties ascribed to them in laboratory studies, and they may interact with human biological systems in unforeseen, ineffective or even harmful ways.
The FDA could impose a unique regulatory regime for RNAi therapeutics.
The substances we intend to develop may represent a new class of drug, and the FDA has not yet established any definitive policies, practices
or guidelines in relation to these drugs. While we expect any product candidates that we develop will be regulated as a new drug under the Federal Food, Drug, and Cosmetic Act, the FDA could decide to regulate them or other products we may develop
as biologics under the Public Health Service Act. The lack of policies, practices or guidelines may hinder or slow review by the FDA of any regulatory filings that we may submit. Moreover, the FDA may respond to these submissions by defining
requirements that we may not have anticipated.
Even if we receive regulatory approval to market our product candidates, our product
candidates may not be accepted commercially, which may prevent us from becoming profitable.
The RNAi product candidates that we
are developing are based on new technologies and therapeutic approaches. RNAi products may be more expensive to manufacture than traditional small molecule drugs, which may make them more costly than competing small molecule drugs. Additionally,
RNAi products do not readily cross the so-called blood brain barrier and, for various applications, are likely to require injection or implantation, which will make them less convenient to administer than drugs administered orally. Key participants
in the pharmaceutical marketplace, such as physicians, medical professionals working in large reference laboratories, public health laboratories and hospitals, third-party payors and consumers may not accept products intended to improve therapeutic
results based on RNAi technology. As a result, it may be more difficult for us to convince the medical community and third-party payors to accept and use our products or to provide favorable reimbursement. If medical professionals working with large
reference laboratories, public health laboratories and hospitals choose not to adopt and use our RNAi technology, our products may not achieve broader market acceptance.
Additionally, although we expect that we will have intellectual property protection for our technology, certain governments may elect to deny
patent protection for drugs targeting diseases with high unmet medical need (e.g., as in the case of HIV) and allow in their country internationally unauthorized generic competition. If this were to happen, our commercial prospects for developing
any such drugs would be substantially diminished in these countries.
We are subject to significant competition and may not be able
to compete successfully.
We believe numerous companies are investigating or plan to investigate a variety of proposed
anti-scarring therapies in clinical trials. The companies include large and small pharmaceutical, chemical and biotechnology companies, as well as universities, government agencies and other private and public research organizations. Such companies
include CoDa Therapeutics, Inc., Sirnaomics, Inc., FirstString Research, Inc., Promedior, Inc., FibroGen, Inc., miRagen Therapeutics, Inc. and Excaliard Pharmaceuticals, Inc., which was acquired by Pfizer, Inc.
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We believe other companies working in the RNAi area, generally, include Alnylam Pharmaceuticals,
Inc., Benitec Limited, Silence Therapeutics plc, Quark Pharmaceuticals, Inc., Tekmira Pharmaceuticals Corporation, Arrowhead Research Corporation, Dicerna Pharmaceuticals, Inc., Sylentis, S.A. and Roche Innovation Center Copenhagen A/S, as well as a
number of large pharmaceutical companies. Many other companies are pursuing non-RNAi-based therapies for one or more fibrotic disease indications, including ocular scarring or other indications that we may seek to pursue.
We believe numerous companies are developing, investigating, or plan to investigate a variety of proposed topical immunotherapies in the areas
of warts, alopecia areata and cutaneous metastasis of malignant melanoma. The companies include large, global pharmaceutical companies in the research phase and with products on the market. Such companies include Leo Pharma, Inc., Astellas Pharma
US, Inc., Valeant Pharmaceuticals International, Inc. and Perrigo Company, plc.
Most of these competitors have substantially greater
research and development capabilities and financial, scientific, technical, manufacturing, marketing, distribution and other resources than we have, and we may not be able to successfully compete with them. In addition, even if we are successful in
developing our product candidates, in order to compete successfully we may need to be first to market or to demonstrate that our products are superior to therapies based on different technologies. A number of our competitors have already commenced
clinical testing of product candidates and may be more advanced than we are in the process of developing products. If we are not first to market or are unable to demonstrate superiority, any products for which we are able to obtain approval may not
be successful.
We are dependent on technologies we license, and if we lose the right to license such technologies or fail to
license new technologies in the future, our ability to develop new products would be harmed.
Many patents in the RNAi field have
already been exclusively licensed to third parties, including our competitors. If any of our existing licenses are terminated, the development of the products contemplated by the licenses could be delayed or terminated and we may not be able to
negotiate additional licenses on acceptable terms, if at all, which would have a material adverse effect on our business.
We may be
unable to protect our intellectual property rights licensed from other parties; our intellectual property rights may be inadequate to prevent third parties from using our technologies or developing competing products; and we may need to license
additional intellectual property from others.
Therapeutic applications of gene silencing technologies, delivery methods and other
technologies that we license from third parties are claimed in a number of pending patent applications, but there is no assurance that these applications will result in any issued patents or that those patents would withstand possible legal
challenges or protect our technologies from competition. The United States Patent and Trademark Office and patent granting authorities in other countries have upheld stringent standards for the RNAi patents that have been prosecuted so far.
Consequently, pending patents that we have licensed and those that we own may continue to experience long and difficult prosecution challenges and may ultimately issue with much narrower claims than those in the pending applications. Third parties
may hold or seek to obtain additional patents that could make it more difficult or impossible for us to develop products based on RNAi technology without obtaining a license to such patents, which licenses may not be available on attractive terms,
or at all.
In addition, others may challenge the patents or patent applications that we currently license or may license in the future or
that we own and, as a result, these patents could be narrowed, invalidated or rendered unenforceable, which would negatively affect our ability to exclude others from using RNAi technologies described in these patents. There is no assurance that
these patent or other pending applications or issued patents we license or that we own will withstand possible legal challenges. Moreover, the laws of some foreign countries may not protect our proprietary rights to the same extent as do the laws of
the United States. Any patents issued to us or our licensors may not provide us with any competitive advantages, and there is no assurance that the
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patents of others will not have an adverse effect on our ability to do business or to continue to use our technologies freely. Our efforts to enforce and maintain our intellectual property rights
may not be successful and may result in substantial costs and diversion of management time. Even if our rights are valid, enforceable and broad in scope, competitors may develop products based on technology that is not covered by our licenses or
patents or patent application that we own.
There is no guarantee that future licenses will be available from third parties for our
product candidates on timely or satisfactory terms, or at all. To the extent that we are required and are able to obtain multiple licenses from third parties to develop or commercialize a product candidate, the aggregate licensing fees and
milestones and royalty payments made to these parties may materially reduce our economic returns or even cause us to abandon development or commercialization of a product candidate.
Our success depends upon our ability to obtain and maintain intellectual property protection for our products and technologies.
The applications based on RNAi technologies claim many different methods, compositions and processes relating to the discovery, development,
delivery and commercialization of RNAi therapeutics. Because this field is so new, very few of these patent applications have been fully processed by government patent offices around the world, and there is a great deal of uncertainty about which
patents will issue, when, to whom and with what claims. Although we are not aware of any blocking patents or other proprietary rights, it is likely that there will be significant litigation and other proceedings, such as interference and opposition
proceedings in various patent offices, relating to patent rights in the RNAi field. It is possible that we may become a party to such proceedings.
We may not be able to obtain sufficient financing and may not be able to develop our product candidates.
We believe that our existing cash and cash equivalents and funding available under our LPC purchase agreement should be sufficient to fund our
currently planned operations, including the planned Phase 2 programs for RXI-109 and Samcyprone, into the third quarter of fiscal 2016. However, in the future, we may need to incur debt or issue equity in order to fund our planned expenditures
as well as to make acquisitions and other investments. We cannot assure you that debt or equity financing will be available to us on acceptable terms or at all. If we cannot, or are limited in the ability to, incur debt, issue equity or enter into
strategic collaborations, we may be unable to fund the discovery and development of our product candidates, address gaps in our product offerings or improve our technology.
We anticipate that we will need to raise substantial amounts of money to fund a variety of future activities integral to the development of
our business, which may include but are not limited to the following:
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To conduct research and development to successfully develop our RNAi and immunotherapy technologies; |
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To obtain regulatory approval for our products; |
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To file and prosecute patent applications and to defend and assess patents to protect our technologies; |
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To retain qualified employees, particularly in light of intense competition for qualified scientists; |
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To manufacture products ourselves or through third parties; |
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To market our products, either through building our own sales and distribution capabilities or relying on third parties; and |
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To acquire new technologies, licenses or products. |
We cannot assure you that any needed
financing will be available to us on acceptable terms or at all. If we cannot obtain additional financing in the future, our operations may be restricted and we may ultimately be unable to continue to develop and potentially commercialize our
product candidates.
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Future financing may be obtained through, and future development efforts may be paid for
by, the issuance of debt or equity, which may have an adverse effect on our stockholders or may otherwise adversely affect our business.
If we raise funds through the issuance of debt or equity, any debt securities or preferred stock issued will have rights, preferences and
privileges senior to those of holders of our common stock in the event of a liquidation. In such event, there is a possibility that once all senior claims are settled, there may be no assets remaining to pay out to the holders of common stock. In
addition, if we raise funds through the issuance of additional equity, whether through private placements or public offerings, such an issuance would dilute your ownership in us.
The terms of debt securities may also impose restrictions on our operations, which may include limiting our ability to incur additional
indebtedness, to pay dividends on or repurchase our capital stock, or to make certain acquisitions or investments. In addition, we may be subject to covenants requiring us to satisfy certain financial tests and ratios, and our ability to satisfy
such covenants may be affected by events outside of our control.
We expect to continue to incur significant research and
development expenses, which may make it difficult for us to attain profitability, and may lead to uncertainty as to our ability to continue as a going concern.
We expend substantial funds to develop our RNAi and immunotherapy technologies, and additional substantial funds will be required for further
research and development, including preclinical testing and clinical trials of any product candidates, and to manufacture and market any products that are approved for commercial sale. Because the successful development of our products is uncertain,
we are unable to precisely estimate the actual funds we will require to develop and potentially commercialize them. In addition, we may not be able to generate enough revenue, even if we are able to commercialize any of our product candidates, to
become profitable.
If we are unable to achieve or sustain profitability or to secure additional financing, we may not be able to meet our
obligations as they come due, raising substantial doubts as to our ability to continue as a going concern. Any such inability to continue as a going concern may result in our common stockholders losing their entire investment. There is no guarantee
that we will become profitable or secure additional financing. Our financial statements contemplate that we will continue as a going concern and do not contain any adjustments that might result if we were unable to continue as a going concern.
Changes in our operating plans, our existing and anticipated working capital needs, the acceleration or modification of our expansion plans, increased expenses, potential acquisitions or other events will all affect our ability to continue as a
going concern.
We will rely upon third parties for the manufacture of our clinical product candidates.
We do not have the facilities or expertise to manufacture supplies of any of our potential product candidates for clinical trials. Accordingly,
we will be dependent upon contract manufacturers for these supplies. We currently obtain supplies for RXI-109 from a single supplier, Agilent Technologies, Nucleic Acid Solutions Division. If for any reason we are unable to obtain RXI-109 from this
supplier, we would have to seek to obtain it from another major oligonucleotide manufacturer. There is no assurance that we will be able to timely secure needed supply arrangements on satisfactory terms, or at all. Our failure to secure these
arrangements as needed could have a material adverse effect on our ability to complete the development of our product candidates or, if we obtain regulatory approval for our product candidates, to commercialize them.
We may not be able to establish or maintain the third-party relationships that are necessary to develop or potentially commercialize
some or all of our product candidates.
We expect to depend on collaborators, partners, licensees, clinical research organizations
and other third parties to support our discovery efforts, to formulate product candidates, to manufacture our product candidates
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and to conduct clinical trials for some or all of our product candidates. We cannot guarantee that we will be able to successfully negotiate agreements for or maintain relationships with
collaborators, partners, licensees, clinical investigators, vendors and other third parties on favorable terms, if at all. Our ability to successfully negotiate such agreements will depend on, among other things, potential partners evaluation
of the superiority of our technology over competing technologies, the quality of the preclinical and clinical data that we have generated and the perceived risks specific to developing our product candidates. If we are unable to obtain or maintain
these agreements, we may not be able to clinically develop, formulate, manufacture, obtain regulatory approvals for or commercialize our product candidates. We cannot necessarily control the amount or timing of resources that our contract partners
will devote to our research and development programs, product candidates or potential product candidates, and we cannot guarantee that these parties will fulfill their obligations to us under these arrangements in a timely fashion. For example,
Ethicor may never achieve significant profits, or any profits, from its distribution of RXI-109 pursuant to our distribution agreement, and we may receive limited or no revenue under the profit-sharing provisions of our agreement. We may not be able
to readily terminate any such agreements with contract partners even if such contract partners do not fulfill their obligations to us.
We are subject to potential liabilities from clinical testing and future product liability claims.
If any of our future products are alleged to be defective, they may expose us to claims for personal injury by subjects in clinical trials of
our products or as a result of our distribution agreement with Ethicor. If our products are approved by the FDA, users may claim that such products caused unintended adverse effects. We will seek to obtain clinical trial insurance for clinical
trials that we conduct, as well as liability insurance for any products that we market. There is no assurance that we will be able to obtain insurance in the amounts we seek, or at all. We anticipate that licensees who develop our products will
carry liability insurance covering the clinical testing and marketing of those products. There is no assurance, however, that any insurance maintained by us or our licensees will prove adequate in the event of a claim against us. Even if claims
asserted against us are unsuccessful, they may divert managements attention from our operations and we may have to incur substantial costs to defend such claims.
Any drugs we develop may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform
initiatives, which could have a material adverse effect on our business.
If approved, we intend to sell our products to
physicians, plastic surgeons and dermatologists, as well as hospitals, oncologists and clinics that receive reimbursement for the healthcare services they provide to their patients from third-party payors, such as Medicare, Medicaid and other
domestic and international government programs, private insurance plans and managed care programs. Most third-party payors may deny reimbursement if they determine that a medical product was not used in accordance with cost-effective treatment
methods, as determined by the third-party payor, was used for an unapproved indication or if they believe the cost of the product outweighs its benefits. Third-party payors also may refuse to reimburse for experimental procedures and devices.
Furthermore, because our programs are still in development, we are unable at this time to determine their cost-effectiveness and the level or method of reimbursement for them. Increasingly, the third-party payors who reimburse patients are requiring
that drug companies provide them with predetermined discounts from list prices, and are challenging the prices charged for medical products. If the price we are able to charge for any products we develop is inadequate in light of our development and
other costs, our profitability could be adversely affected.
We currently expect that any drugs we develop may need to be administered
under the supervision of a physician. Under currently applicable law, drugs that are not usually self-administered may be eligible for coverage by the Medicare program if:
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They are incidental to a physicians services; |
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They are reasonable and necessary for the diagnosis or treatment of the illness or injury for which they are administered according to accepted standard of medical practice; |
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They are not excluded as immunizations; and |
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They have been approved by the FDA. |
Insurers may refuse to provide insurance coverage for
newly approved drugs, or insurance coverage may be delayed or be more limited than the purpose for which the drugs are approved by the FDA. Moreover, eligibility for insurance coverage does not imply that any drug will be reimbursed in all cases or
at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement may be
based on payments for other services and may reflect budgetary constraints or imperfections in Medicare data. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by
any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting
their own reimbursement rates. Our inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and private payors for new drugs that we develop could have a material adverse effect on our operating results,
our ability to raise capital needed to develop products and our overall financial condition.
Additionally, third-party payors are
increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for medical products and services. Levels of reimbursement may decrease in the future, and future legislation, regulation or reimbursement
policies of third-party payors may adversely affect the demand for and price levels of our products. If our customers are not reimbursed for our products, they may reduce or discontinue purchases of our products, which could have a material adverse
effect on our business, financial condition and results of operations.
Comprehensive healthcare reform legislation, which became law in
2010, could adversely affect our business and financial condition. Among other provisions, the legislation provides that a biosimilar product may be approved by the FDA on the basis of analytical tests and certain clinical studies
demonstrating that such product is highly similar to an existing, approved product and that switching between an existing product and the biosimilar product will not result in diminished safety or efficacy. This abbreviated regulatory approval
process may result in increased competition if we are able to bring a product to market. The legislation also includes more stringent compliance programs for companies in various sectors of the life sciences industry with which we may need to comply
and enhanced penalties for non-compliance with the new healthcare regulations. Complying with new regulations may divert management resources, and inadvertent failure to comply with new regulations may result in penalties being imposed on us.
Some states and localities have established drug importation programs for their citizens, and federal drug import legislation has been
introduced in Congress. The Medicare Prescription Drug Plan legislation, which became law in 2003, required the Secretary of Health and Human Services to promulgate regulations for drug reimportation from Canada into the United States under some
circumstances, including when the drugs are sold at a lower price than in the United States. The Secretary, however, retained the discretion not to implement a drug reimportation plan if he finds that the benefits do not outweigh the costs, and has
so far declined to approve a reimportation plan. Proponents of drug reimportation may attempt to pass legislation that would directly allow reimportation under certain circumstances. Legislation or regulations allowing the reimportation of drugs, if
enacted, could decrease the price we receive for any products that we may develop and adversely affect our future revenues and prospects for profitability.
Even if we obtain regulatory approvals, our marketed drugs will be subject to ongoing regulatory review. If we fail to comply with
continuing U.S. and foreign regulations, we could lose our approvals to market drugs and our business would be materially and adversely affected.
Following regulatory approval of any drugs we may develop, we will remain subject to continuing regulatory review, including the review of
adverse drug experiences and clinical results that are reported after our
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drug products are made available to patients. This would include results from any post-marketing tests or vigilance required as a condition of approval. The manufacturer and manufacturing
facilities we use to make any of our drug products will also be subject to periodic review and inspection by the FDA. The discovery of any new or previously unknown problems with the product, manufacturer or facility may result in restrictions on
the drug or manufacturer or facility, including withdrawal of the drug from the market. We would continue to be subject to the FDA requirements governing the labeling, packaging, storage, advertising, promotion, recordkeeping and submission of
safety and other post-market information for all of our product candidates, even those that the FDA had approved. If we fail to comply with applicable continuing regulatory requirements, we may be subject to fines, suspension or withdrawal of
regulatory approval, product recalls and seizures, operating restrictions and other adverse consequences.
If we fail to attract,
hire and retain qualified personnel, we may not be able to design, develop, market or sell our products or successfully manage our business.
Our business prospects are dependent on our management team and all of our employees. The loss of any of our key employees, including Drs.
Cauwenbergh and Pavco, who serve as our Chief Executive Officer and our Chief Development Officer, respectively, or our inability to identify, attract, retain and integrate additional qualified key personnel, could make it difficult for us to manage
our business successfully and achieve our business objectives.
Competition for skilled research, product development, regulatory and
technical personnel is intense, and we may not be able to recruit and retain the personnel we need. The loss of the services of any key research, product development, regulatory and technical personnel, or our inability to hire new personnel with
the requisite skills, could restrict our ability to develop our product candidates.
Risks Relating to Our Common Stock
We may not be able to regain compliance with the continued listing requirements of The Nasdaq Capital Market.
On May 7, 2015, we received written notice (the Notification Letter) from the Nasdaq Stock Market (Nasdaq) notifying us
that we are not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid
price of $1.00 per share, and Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the closing bid price of our common
stock for the 30 consecutive business days prior to the date of the Notification Letter, we no longer meet the minimum bid price requirement.
The Notification Letter does not impact our listing on The Nasdaq Capital Market at this time. The Notification Letter states that we have 180
calendar days, or until November 3, 2015, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the bid price of our common stock must have a closing bid price of at least $1.00 per share for a minimum of 10 consecutive
business days at any time prior to November 3, 2015. In the event that we do not regain compliance by November 3, 2015, we may be eligible for additional time to reach compliance with the minimum bid price requirement. However, if we fail to regain
compliance with the minimum bid price listing requirement or fail to maintain compliance with all other applicable continued listing requirements and Nasdaq determines to delist our common stock, the delisting could adversely impact us by, among
other things, reducing the liquidity and market price of our common stock; reducing the number of investors willing to hold or acquire our common stock; limiting our ability to issue additional securities in the future; and limiting our ability to
fund our operations.
The price of our common stock has been and may continue to be volatile and our recent relisting on the
Nasdaq Capital Market may further increase volatility.
The stock markets, in general, and the markets for drug delivery and
pharmaceutical company stocks, in particular, have experienced extreme volatility that has often been unrelated to the operating performance of
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particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In addition, the limited trading volume of our stock may contribute to its
volatility.
Further, in February 2014 our common stock commenced trading on the Nasdaq Capital Market. Our stock price may be subject to
additional volatility as a result of this listing on the Nasdaq Capital Market.
In the past, following periods of volatility in the
market price of a particular companys securities, litigation has often been brought against that company. If litigation of this type is brought against us, it could be extremely expensive and divert managements attention and the
Companys resources.
We have issued preferred stock in the past and possibly may issue more preferred stock in the future, and
the terms of the preferred stock may reduce the value of our common stock.
We are authorized to issue up to 10,000,000 shares
of preferred stock in one or more series. There were 3,085 shares of our Series A convertible preferred stock (Series A Preferred Stock) and 21 shares of our Series A-1 convertible preferred stock (Series A-1 Preferred
Stock) issued and outstanding as of March 31, 2015, all of which has been converted into common stock as of the date of this prospectus. Our Board of Directors may determine the terms of future preferred stock offerings without
further action by our stockholders. The issuance of our preferred stock could affect your rights or reduce the value of our outstanding common stock. In particular, rights granted to holders of preferred stock may include voting rights, preferences
as to dividends and liquidation, conversion and redemption rights and restrictions on our ability to merge with or sell our assets to a third party. Additionally, the sale of a significant number of shares of common stock received upon conversion of
our Series A or Series A-1 Preferred Stock could cause the market price of our common stock to decline.
We may acquire other
businesses or form joint ventures that may be unsuccessful and could dilute your ownership interest in the Company.
As part of our
business strategy, we may pursue future acquisitions of other complementary businesses and technology licensing arrangements. We also may pursue strategic alliances. We have no experience with respect to acquiring other companies and limited
experience with respect to the formation of collaborations, strategic alliances and joint ventures. We may not be able to integrate such acquisitions successfully into our existing business, and we could assume unknown or contingent liabilities. We
also could experience adverse effects on our reported results of operations from acquisition-related charges, amortization of acquired technology and other intangibles and impairment charges relating to write-offs of goodwill and other intangible
assets from time to time following the acquisition. Integration of an acquired company requires management resources that otherwise would be available for ongoing development of our existing business. We may not realize the anticipated benefits of
any acquisition, technology license or strategic alliance. For example, pursuant to the OPKO Asset Purchase, we acquired substantially all of OPKOs RNAi-related assets, including patents, licenses, clinical and preclinical data and other
assets. These assets are at an early stage of development and will require a significant investment of time and capital if we are to be successful in developing them. There is no assurance that we will be successful in developing the assets that we
acquired in the OPKO Asset Purchase, and a failure to successfully develop these assets could diminish our prospects. Further, if we fail to use commercially reasonable efforts to develop the OPKO assets for at least one clinical indication, OPKO
would have the right, after a 180-day cure period, to reacquire the assets from us without any consideration.
To finance future
acquisitions, we may choose to issue shares of our common stock or preferred stock as consideration, which would dilute your ownership interest in us. Alternatively, it may be necessary for us to raise additional funds through public or private
financings. Additional funds may not be available on terms that are favorable to us and, in the case of equity financings, may result in dilution to our stockholders. Any future acquisitions by us also could result in large and immediate write-offs,
the incurrence of contingent liabilities or amortization of expenses related to acquired intangible assets, any of which could harm our operating results.
16
We do not anticipate paying cash dividends in the foreseeable future.
Our business requires significant funding. We currently plan to invest all available funds and future earnings in the development and growth of
our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. As a result, capital appreciation, if any, of our common stock will be your sole source of potential gain for the foreseeable future.
Provisions of our certificate of incorporation and bylaws and Delaware law might discourage, delay or prevent a change of control of the
Company or changes in our management and, as a result, depress the trading price of our common stock.
Our certificate of
incorporation and bylaws contain provisions that could discourage, delay or prevent a change of control of the Company or changes in our management that the stockholders of the Company may deem advantageous. These provisions:
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Authorize the issuance of blank check preferred stock that our Board of Directors could issue to increase the number of outstanding shares and to discourage a takeover attempt; |
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Prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; |
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Provide that the Board of Directors is expressly authorized to adopt, alter or repeal our bylaws; and |
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Establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. |
Although we believe these provisions collectively provide for an opportunity to receive higher bids by requiring potential acquirers to
negotiate with our Board of Directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current
management team by making it more difficult for stockholders to replace members of our Board of Directors, which is responsible for appointing the members of our management.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation
Law, 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.
Risks Related to this Offering
We have broad discretion in how we use the net proceeds of this offering, and we may not use these proceeds effectively or in ways with
which you agree.
Our management will have broad discretion as to the application of the net proceeds of this offering and could
use them for purposes other than those contemplated at the time of this offering. Our stockholders may not agree with the manner in which our management chooses to allocate and spend the net proceeds. Moreover, our management may use the net
proceeds for corporate purposes that may not increase the market price of our common stock.
You may experience immediate and
substantial dilution in the net tangible book value per share of the common stock, overallotment purchase rights and warrants you purchase.
The assumed offering price of the common stock, overallotment purchase rights and warrants offered pursuant to this prospectus is substantially
higher than the net tangible book value per share of our common stock, overallotment purchase rights and warrants. Therefore, if you purchase shares of common stock, overallotment purchase rights and warrants in this offering, you will incur
immediate and substantial dilution in the pro forma net tangible book value per share of common stock, overallotment purchase rights and warrants from the price per share that you pay for the common stock, overallotment purchase rights and warrants.
If the holders of outstanding options or warrants exercise those options or warrants at prices below the assumed offering price, you will incur further dilution. See the section entitled Dilution below for a more detailed discussion of
the dilution you will incur if you purchase shares, overallotment purchase rights and warrants in this offering.
17
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements can be identified by words such as intends, believes, anticipates, indicates, plans, intends, expects, suggests,
may, should, potential, designed to, will and similar references. Such statements include, but are not limited to, statements about: our ability to successfully develop RXI-109 and our
other product candidates; the future success of our clinical trials with RXI-109; the timing for the commencement and completion of clinical trials; the future success of our strategic partnerships; and our ability to implement cost-saving measures.
Forward-looking statements are neither historical facts nor assurances of future performance. These statements are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies,
projections, anticipated events and trends, the economy and other future conditions.
Because forward-looking statements relate to the
future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated
in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the
forward-looking statements include, among others: the risk that our clinical trials with RXI-109 may not be successful in evaluating the safety and tolerability of RXI-109 or providing evidence of increased surgical scar reduction compared to
placebo; the successful and timely completion of clinical trials; uncertainties regarding the regulatory process; the availability of funds and resources to pursue our research and development projects, including our clinical trials with RXI-109;
general economic conditions; and those identified in this prospectus under the heading Risk Factors and in other filings the Company periodically makes with the Securities and Exchange Commission. Forward-looking statements contained in
this prospectus speak as of the date hereof and the Company does not undertake to update any of these forward-looking statements to reflect a change in its views or events or circumstances that occur after such date.
In evaluating our business, prospective investors should carefully consider these factors in addition to the other information set forth in
this prospectus, including under the caption Risk Factors. All forward-looking statements included in this document are based on information available to us on the date hereof. We disclaim any intent to update any forward-looking
statements.
18
USE OF PROCEEDS
General corporate purposes, which include, but are not limited to, funding our ongoing and future clinical trials and for general and
administrative expenses. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products and technologies or to fund the development of any such complementary businesses, products or technologies that we may
acquire in a stock-based acquisition. We have no current plans for any such acquisitions.
19
PRICE RANGE OF COMMON STOCK
Our common stock is listed on the NASDAQ Capital Market under the symbol RXII. On July 23, 2013, we effected a 1-for-30
reverse stock split. The share prices in the table below are shown on a post-split basis. The following table shows the high and low per-share sale prices of our common stock for the periods indicated:
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High |
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Low |
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2013 |
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First Quarter |
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$ |
10.74 |
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$ |
2.10 |
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Second Quarter |
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8.67 |
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5.10 |
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Third Quarter |
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6.23 |
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3.23 |
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Fourth Quarter |
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3.60 |
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2.55 |
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2014 |
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First Quarter |
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$ |
6.84 |
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$ |
2.82 |
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Second Quarter |
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4.44 |
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2.60 |
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Third Quarter |
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3.98 |
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1.93 |
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Fourth Quarter |
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2.30 |
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1.40 |
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2015 |
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First Quarter |
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$ |
1.73 |
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$ |
0.69 |
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Second Quarter (through May 15, 2015) |
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0.87 |
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0.50 |
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On May 15, 2015, the last reported sale price of our common stock on The NASDAQ Capital Market was
$0.51 per share. As of March 31, 2015, we had approximately 168 holders of record of our common stock.
20
DIVIDEND POLICY
We have never paid any cash dividends and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We expect
to retain future earnings, if any, for use in our development activities and the operation of our business. The payment of any future dividends will be subject to the discretion of our Board of Directors and will depend, among other things, upon our
results of operations, financial condition, cash requirements, prospects and other factors that our Board of Directors may deem relevant.
21
DILUTION
If you invest in our common stock, overallotment purchase rights to purchase common stock or warrants to purchase common stock in this
offering, your ownership interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the as-adjusted net tangible book value per share of our common stock immediately after this
offering.
Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number
of shares of common stock outstanding. Our historical net tangible book value as of March 31, 2015 was approximately $2.5 million, or $0.08 per share.
Dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock,
overallotment purchase rights and warrants in this offering and the as-adjusted net tangible book value per share of common stock immediately after completion of this offering. After giving effect to the sale of an assumed 22,500,000 shares of
common stock in this offering by us at an assumed public offering price of $0.51 per share (which represents the sale of the common stock included in the units offered hereby, and does not give effect to the potential issuance of shares underlying
the purchase rights and warrants offered hereby), which is the last reported sale price of our common stock on The NASDAQ Capital Market on May 15, 2015, and after deducting the estimated placement agent fees and expenses and estimated offering
expenses payable by us, our as-adjusted net tangible book value as of March 31, 2015 would have been $12.8 million, or $0.24 per share. This represents an immediate increase in net tangible book value of $0.16 per share to existing stockholders and
an immediate dilution of $0.27 per share to investors participating in this offering, as illustrated in the following table:
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Assumed public offering price per unit |
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$ |
0.51 |
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Historical net tangible book value per share as of March 31, 2015 |
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$ |
0.08 |
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Increase in as-adjusted net tangible book value per share attributable to new investors |
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$ |
0.16 |
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As-adjusted net tangible book value per share after this offering |
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$ |
0.24 |
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Dilution per share to investors participating in this offering |
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$ |
0.27 |
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Each $0.10 increase (decrease) in the assumed public offering price of $0.51 per unit, which is the
last reported sale price of our common stock on The NASDAQ Capital Market on May 15, 2015, would increase (decrease) the as adjusted net tangible book value by approximately $2.1 million, or approximately $0.04 per share, and increase (decrease) the
dilution per share to new investors by approximately $0.06 per share, 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 placement agent fees and
expenses and estimated offering expenses payable by us. An increase of 1,000,000 shares in the number of units offered by us would increase the as adjusted net tangible book value by approximately $470,000, or approximately $0.01 per share, and
decrease the dilution per share to new investors by approximately $0.01 per share, assuming that the assumed public offering price remains the same and after deducting the estimated placement agent fees and expenses and estimated offering expenses
payable by us. Similarly, a decrease of 1,000,000 shares in the number of units offered by us would decrease the as adjusted net tangible book value by approximately $470,000, or approximately $0.01 per share, and increase the dilution per share to
new investors by approximately $0.01 per share, assuming that the assumed public offering price remains the same and after deducting the estimated placement agent fees and expenses and estimated offering expenses payable by us. The as adjusted
information discussed above is illustrative only and will adjust based on the actual public offering price and other terms of this offering determined at pricing.
The foregoing calculations exclude the following shares as of March 31, 2015:
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3,079,264 shares of common stock issuable upon the exercise of stock options outstanding, having a weighted average exercise price of $3.33 per share; |
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4,615 shares of common stock issuable upon the exercise of warrants outstanding, having a weighted average exercise price of $3.90 per share; |
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7,571,197 shares of common stock reserved for issuance upon conversion of our outstanding convertible preferred stock, without regard to the beneficial ownership conversion limits applicable to such securities; as of
the date of this prospectus, all such shares were issued upon the full conversion of the previously outstanding convertible preferred stock; |
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an aggregate of 1,918,736 shares of common stock reserved for future issuance under our 2012 Long-Term Incentive Plan; and |
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an aggregate of 69,553 shares of common stock reserved for future issuance under our Employee Stock Purchase Plan. |
Furthermore, we may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or
strategic considerations even if we believe we have sufficient funds for our current or future operating plans. New investors will experience further dilution if any of our outstanding options or warrants are exercised, new options are issued and
exercised under our equity incentive plans or we issue additional shares of common stock, other equity securities or convertible debt securities in the future.
23
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction
with our financial statements and the notes to those financial statements included elsewhere in this prospectus. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such
as those set forth under Risk Factors and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements. Please refer to the discussion under the heading
Forward-Looking Statements above.
Overview
RXi Pharmaceuticals Corporation (RXi, we, our or the Company) is a
biotechnology company focused on discovering and developing innovative therapies, primarily in the areas of dermatology and ophthalmology, addressing high unmet medical needs. Our development programs are based on our siRNA technology and
immunotherapy agents. Our clinical development programs include, but are not limited to, our proprietary, self-delivering RNAi (sd-rxRNA®) compounds for the treatment of dermal and retinal
scarring and an immunodulating agent, Samcyprone, for the treatment of such disorders as alopecia areata, warts and cutaneous metastases of melanoma. In addition to these clinical programs, we have a pipeline of discovery and preclinical
product candidates in our core therapeutic areas, as well as in other areas of interest. The Companys pipeline, coupled with our extensive patent portfolio, provides support to further discover and develop innovative therapies either on our
own or in collaboration with strategic partners.
Our first clinical product candidate is RXI-109, a self-delivering RNAi compound
(sd-rxRNA) developed for the reduction of dermal scar formation. RXI-109 is designed to reduce the expression of connective tissue growth factor (CTGF), a critical regulator of several biological pathways involved in fibrosis,
including scar formation in the skin. RXI-109 is currently being evaluated in Phase 2a clinical trials to prevent or reduce dermal scarring following surgery or trauma, as well as for the management of hypertrophic scars and keloids. Hypertrophic
scars are abnormal scars that are raised above the normal skin surface and can be reddened or darker than the existing skin tone. These scars result in part from an increased level of collagen and are less elastic than the surrounding
skin. Keloids are also raised and reddened or darkened scars resulting from increased collagen production, but keloids often spread beyond the original site of skin injury and may continue to grow in size. Keloids can result from skin
trauma as common as an ear piercing or vaccination and may grow to cover large areas.
Based on the safety profile shown in
our two Phase 1 clinical trials, in November 2013, the Company started its first Phase 2a study (Study 1301) in subjects who had pre-existing hypertrophic scars present on their lower abdomen for at least one year. In this study, subjects
underwent scar revision surgery, after which they were treated with RXI-109 on one end of the scar and placebo on the opposite end of the scar. In this first Phase 2a study, treatment was limited: three intradermal doses over a period of two weeks.
Enrollment in this study has been completed and subjects will continue to be monitored after this two-week treatment period according to the Study 1301 protocol. The top-line 3 month results support a clinical effect of RXI-109 in hypertrophic scars
and have provided guidance on a dosing regimen. From this early data, the Company also determined that initiating treatment two weeks post-surgery is more beneficial than initiating treatment immediately and that there may be a benefit to extending
the treatment window farther into the proliferation phase of healing. With these observations, the Company will be able to optimize the dosing regimens for our current and future clinical trials.
In April 2014, the Company began its second Phase 2a study (Study 1401) to evaluate RXI-109 for treatment to prevent the recurrence of keloids
in subjects undergoing a keloidectomy (removal of a keloid). In this study, subjects with two keloids of similar size and location were eligible for enrollment. Subjects underwent a keloidectomy after which the lesions were closed and one was
treated with RXI-109, and the other was treated with placebo. Treatment was limited in this study; four weekly injections over a 1 month period. Enrollment in Study 1401 has been completed and subjects will be followed for approximately five months
after the end of
24
treatment. In March 2015, the Company held a meeting with an expert panel comprised of clinical advisors, practicing dermatologists and plastic surgeons, including investigators participating in
Study 1401. The panel conducted a review of preliminary data from the study, where the panel members looked at blinded pictures of the first seven subjects for the first few months after treatment. Panel members more often identified the
placebo-treated site as showing faster recurrence of the keloid. Based on these preliminary clinical observations, which showed a reduced recurrence of keloids treated with RXI-109 as compared to placebo, this panel provided a unanimous
recommendation to the Company to lengthen the treatment regimen and to increase the number of doses with RXI-109 to reflect the chronic and aggressive nature of the formation process of a keloid. The Company expects to move forward with these
recommendations and initiate an additional keloid trial by the end of 2015.
The Companys third Phase 2a study (Study 1402) for
RXI-109 was initiated in July 2014 to evaluate RXI-109 for the reduction of recurrence of hypertrophic scars following elective scar revision surgery. Subjects with either one long hypertrophic scar, or two scars comparable in length, anatomical
location and characteristics will be enrolled and be eligible to receive scar revision surgery. For a single scar, a portion of the revised scar segment will be treated with RXI-109 and a comparably sized length on the opposite end of the
revised scar segment will be left untreated. If two scars are revised, one revised scar segment will be treated with RXI-109 and one scar will be left untreated after revision surgery. Subjects in Study 1402 have entered on a rolling basis, of which
enrollment is more than 50% complete, and will be evaluated up until month nine. This study incorporates the findings from Study 1301 regarding dosing regimen and includes six doses, initiating two weeks after surgery, thus extending the dosing
period from Study 1301. Results from this study will help to further define the dose and treatment duration to be used in the formal Phase 2b dose finding studies and ultimately in Phase 3 pivotal studies.
Our second clinical product candidate is Samcyprone, a proprietary topical formulation of diphenylcyclopropenone
(DPCP), exclusively licensed from Hapten Pharmaceuticals, LLC (Hapten) in December 2014. DPCP is an immunomodulation agent that works by initiating a T-cell response. Typically, patients treated with DPCP are
initially sensitized with a single, high concentration of drug and subsequently treated with low, non-irritant concentrations. Use of high concentrations of DPCP during the sensitization dose results in hyper-sensitizing the patient to subsequent
challenge doses. In contrast, the use of Samcyprone allows sensitization using a much lower concentration of DPCP, avoiding hyper-sensitization to challenge doses. This should result in an improved safety and tolerability profile while
maintaining the known efficacy of DPCP.
Samcyprone has been used for over 20 years to treat warts and alopecia areata, and has
shown efficacy against cutaneous metastases of melanoma. A Phase 2a trial to evaluate the efficacy and safety of Samcyprone for the treatment of viral warts was completed by Hapten in 2010. The Company plans to support the ongoing
investigator-sponsored clinical trial for the treatment of cutaneous metastases of melanoma, as well as a new investigator-sponsored clinical trial in alopecia areata. In March 2015, the Company was granted Orphan Drug Designation for Samcyprone by the U.S. Food and Drug Administration (FDA) for the treatment of malignant melanoma stage IIb to IV. A number of patients with stage IIb to IV malignant melanoma develop
cutaneous metastases. Samcyprone is being developed for treatment of these metastases. The Company expects to initiate a second Phase 2a clinical trial for the treatment of warts by the end
of 2015.
While focusing our efforts on our RXI-109 and Samcyprone clinical development programs, we also continue to advance our
preclinical programs, both on our own and through collaborations with academic and corporate third parties. The Companys preclinical program currently includes two ocular indications with RXI-109: retinal and corneal scarring. Toxicology
studies for RXI-109 in the eye to support an IND are currently in progress and the Company is working toward filing an IND in mid-2015 for RXI-109 as a potential therapeutic for the scarring component of retinal diseases in the eye, such as
age-related macular degeneration. Current areas of focus in the discovery stage of the Companys ophthalmology franchise include a grant-funded program for discovery of sd-rxRNA compounds for novel targets for oncology indications specifically
including retinoblastoma, and other exploratory efforts to identify potential sd-rxRNA lead compounds and targets from
25
the RNAi-related assets acquired from OPKO in March 2013. Within our dermatology franchise, the Company has selected collagenase and tyrosinase as new discovery stage targets for our
self-delivering RNAi platform. For each of these two targets, we have identified potent sd-rxRNA compounds that target MMPI or tyrosinase for further evaluation.
On April 22, 2014, the Company entered into a purchase agreement (the Prior Purchase Agreement) with Lincoln Park
Capital Fund, LLC (LPC), pursuant to which and subject to the terms and conditions contained in the Prior Purchase Agreement, the Company had the right to sell to LPC up to $20,000,000 in shares of the Companys common stock
over a 30-month term. The Prior Purchase Agreement was terminable, among other circumstances, by mutual agreement of LPC and the Company at any time. The Company and LPC executed a termination agreement dated December 18, 2014, whereby the
parties mutually agreed to terminate the Prior Purchase Agreement effective immediately. The Company sold a total of $2.0 million in shares of common stock under the Prior Purchase Agreement and received net proceeds of approximately $1.9 million
after deducting commissions and other offering expenses of approximately $0.1 million.
On December 18, 2014, the Company entered
into a purchase agreement (the Purchase Agreement) with LPC, pursuant to which the Company has the right to sell to LPC up to $10,800,000 in shares of the Companys common stock, subject to certain limitations and conditions
set forth in the Purchase Agreement. The Company intends to use the net proceeds from this offering for working capital, to fund the development of the Companys therapeutic programs, as well as for other general corporate purposes. During the
three months ended March 31, 2015, the Company sold a total of 50,000 shares of common stock to LPC under the Purchase Agreement for net proceeds of $64,000. There have been no other sales under the Purchase Agreement to date.
Research and Development
To date,
our research programs have focused on optimizing the delivery technology necessary to make RNAi compounds available by local administration for diseases for which we intend to develop an RNAi therapeutic, discovering novel targets in immune
modulation for autoimmune disorders by topical delivery, identifying product candidates and moving those product candidates into the clinic. Since we commenced operations, research and development has comprised a significant proportion of our total
operating expenses and is expected to comprise the majority of our spending for the foreseeable future.
There are risks in any new
field of drug discovery that preclude certainty regarding the successful development of a product. We cannot reasonably estimate or know the nature, timing and costs of the efforts necessary to complete the development of, or the period in which
material net cash inflows are expected to commence from, any product candidate. Our inability to make these estimates results from the uncertainty of numerous factors, including but not limited to:
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Our ability to advance product candidates into preclinical research and clinical trials; |
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The scope and rate of progress of our preclinical program and other research and development activities; |
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The scope, rate of progress and cost of any clinical trials we commence; |
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The cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; |
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Clinical trial results; |
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The terms and timing of any collaborative, licensing and other arrangements that we may establish; |
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The cost and timing of regulatory approvals; |
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The cost of establishing clinical and commercial supplies of our product candidates and any products that we may develop; |
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The cost and timing of establishing sales, marketing and distribution capabilities; |
26
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The effect of competing technological and market developments; and |
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The effect of government regulation and insurance industry efforts to control healthcare costs through reimbursement policy and other cost management strategies. |
Failure to complete any stage of the development of our product candidates in a timely manner could have a material adverse effect on our
operations, financial position and liquidity.
License Agreements
We have entered into licensing relationships with academic institutions, research foundations and commercial entities, and may seek to enter
into additional licenses with pharmaceutical and biotechnology companies. We also may enter into strategic alliances to expand our intellectual property portfolio and to potentially accelerate our development programs by gaining access to technology
and funding, including equity sales, license fees and other revenues. For each product that we develop that is covered by the patents licensed to us, including our material licenses discussed elsewhere in this prospectus, we are obligated to make
additional payments upon the attainment of certain specified product development milestones.
See Business Intellectual
Property and Note 11 to our audited financial statements in this prospectus for information on our material license agreements.
Critical
Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our
financial statements, which have been prepared in accordance with United States generally accepted accounting principles (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to the impairment of long-lived assets, certain
accrued expenses and stock-based compensation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different
assumptions or conditions and could have a material impact on our reported results. While our significant accounting policies are more fully described in the Notes to our financial statements included elsewhere in this prospectus, we believe the
following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our financial statements.
Research and Development Expenses
Research and development costs are charged to expense as incurred and relate to salaries, employee benefits, facility-related expenses,
supplies, stock-based compensation related to employees and non-employees involved in the Companys research and development, external services, other operating costs and overhead related to our research and development departments, costs to
acquire technology licenses and expenses associated with preclinical activities and our clinical trials. Payments made by the Company in advance for research and development services not yet provided and/or for materials not yet received are
recorded as prepaid expenses. Accrued liabilities are recorded related to those expenses for which vendors have not yet billed us with respect to services provided and/or materials that we have received.
Preclinical and clinical trial expenses relate to third-party services, subject-related fees at the sites where our clinical trials are being
conducted, laboratory costs, analysis costs, toxicology studies and investigator fees. Costs associated with these expenses are generally payable upon the passage of time or when certain milestones are achieved. Expense is recorded during the period
incurred or in the period in which a milestone is achieved. In order to ensure that we have adequately provided for preclinical and clinical expenses during the proper period, we maintain an accrual to cover these expenses. These accruals are
assessed on a quarterly basis and are based on
27
such assumptions as expected total cost, the number of subjects and clinical trial sites and length of the study. Actual results may differ from these estimates and could have a material impact
on our reported results. Our historical accrual estimates have not been materially different from our actual costs.
Stock-based
Compensation
We follow the provisions of Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 718, Compensation Stock Compensation (ASC 718), which requires the measurement and recognition of compensation expense for all stock-based payment awards made
to employees, officers and non-employee directors, including stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service
period. Determining the amount of stock-based compensation to be recorded requires us to develop highly subjective estimates to be used in calculating the grant-date fair value of stock options. We use the Black-Scholes option pricing model to value
our option grants and determine the related compensation expense. The use of the model requires us to make estimates of the following assumptions:
Expected volatility Due to our limited trading history, we are responsible for estimating volatility and currently use the
expected volatilities of similar entities. We have considered a number of factors in making our determination as to entities that are considered similar, such as the industry, stage of development, size of the company, and financial leverage.
Expected term We use the simplified method to estimate the expected term assumption. The simplified method is based on the
vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting.
Risk-free interest
rate The yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected term assumption is used as the risk-free interest rate.
Dividend Yield We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and currently
have no intention to pay cash dividends.
For stock options granted as consideration for services rendered by non-employees, the Company
recognizes compensation expense in accordance with the requirements of FASB ASC Topic 505-50, Equity Based Payments to Non-Employees. Non-employee option grants that do not vest immediately upon grant are recorded as an
expense over the requisite service period of the underlying stock options. At the end of each financial reporting period prior to vesting, the value of these options, as calculated using the Black-Scholes option-pricing model, will be re-measured
using the fair value of the Companys common stock and the non-cash compensation recognized during the period will be adjusted accordingly. Since the fair value of options granted to non-employees is subject to change in the future, the amount
of the future compensation expense will include fair value re-measurements until the stock options are fully vested.
Results of Operations
The following data summarizes the results of our operations for the periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2015
|
|
|
2014
|
|
Revenues |
|
$ |
34 |
|
|
$ |
29 |
|
Research and development expenses |
|
|
(2,107 |
) |
|
|
(1,476 |
) |
General and administrative expenses |
|
|
(873 |
) |
|
|
(843 |
) |
Loss from operations |
|
|
(2,946 |
) |
|
|
(2,290 |
) |
Net loss |
|
|
(2,945 |
) |
|
|
(2,284 |
) |
Net loss applicable to common stockholders |
|
$ |
(3,130 |
) |
|
$ |
(4,039 |
) |
28
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2014
|
|
|
2013
|
|
Revenue |
|
$ |
71 |
|
|
$ |
399 |
|
Research and development expenses |
|
|
(5,680 |
) |
|
|
(17,651 |
) |
General and administrative expenses |
|
|
(3,217 |
) |
|
|
(3,697 |
) |
Operating loss |
|
|
(8,826 |
) |
|
|
(20,949 |
) |
Net loss |
|
|
(8,800 |
) |
|
|
(20,925 |
) |
Net loss applicable to common stockholders |
|
$ |
(12,930 |
) |
|
$ |
(29,535 |
) |
Comparison of the Three Months Ended March 31, 2015 and 2014
Revenues
To date,
we have generated revenues through government grants. The following table summarizes our total revenues from government grants, for the periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
Grant revenues |
|
$ |
34 |
|
|
$ |
29 |
|
|
|
|
|
|
|
|
|
|
Total revenues were approximately $34,000 for the three months ended March 31, 2015, compared with
$29,000 for the three months ended March 31, 2014. The increase of $5,000, or 17%, was due to the completion of work on the Companys outstanding government grant during the three months ended March 31, 2015.
Operating Expenses
The following table summarizes our total operating expenses, for the periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
Research and development expenses |
|
$ |
2,107 |
|
|
$ |
1,476 |
|
General and administrative expenses |
|
|
873 |
|
|
|
843 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
2,980 |
|
|
$ |
2,319 |
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses
Research and development expenses consist of compensation-related costs for our employees dedicated to research and development activities,
fees related to our Scientific Advisory Board members, expenses related to our ongoing research and development efforts primarily related to our clinical trials, drug manufacturing, outside contract services, licensing and patent fees and laboratory
supplies and services for our research programs. We expect research and development expenses to increase as we expand our discovery, preclinical and clinical activities.
Total research and development expenses were approximately $2,107,000 for the three months ended March 31, 2015, compared with $1,476,000
for the three months ended March 31, 2014. The increase of $631,000, or 43%, was primarily due to an increase of $666,000 in research and development expenses related to the ramp up in preclinical ocular toxicology studies and subject-related
fees for the Companys ongoing three clinical trials and research and development expenses related to the completion of the Hapten Assignment and License Agreement for Samcyprone in
February 2015 and an increase of $18,000 in employee stock-based compensation offset by a decrease of $53,000 in non-employee stock-based compensation related to the change in the fair value of options quarter over quarter.
29
General and Administrative Expenses
General and administrative expenses consist primarily of compensation-related costs for our employees dedicated to general and administrative
activities, legal fees, audit and tax fees, consultants, professional services and general corporate expenses.
General and
administrative expenses were approximately $873,000 for the three months ended March 31, 2015, compared with $843,000 for the three months ended March 31, 2014. The increase of $30,000, or 4%, was due to an increase of $75,000 in general
and administrative expenses primarily related to legal fees required during the quarter as compared with the same period in the prior year offset by a decrease of $45,000 in employee stock-based compensation.
Series A and Series A-1 Preferred Stock Dividends
The following table summarizes our Series A and Series A-1 Preferred Stock dividends for the periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
Series A and Series A-1 Preferred Stock dividends |
|
$ |
185 |
|
|
$ |
1,755 |
|
|
|
|
|
|
|
|
|
|
Total Series A and Series A-1 Preferred Stock dividends were approximately $185,000 for the three
months ended March 31, 2015, compared with $1,755,000 for the three months ended March 31, 2014. The decrease of $1,570,000, or 89%, was primarily due to a decrease in the Companys closing common stock price on the dividend payment dates and
the number of preferred shares earning dividends each quarter.
The rights and preferences of the Series A and Series A-1 Preferred Stock
and the calculation of the dividend payable, are described further in Notes 5 and 6 to the unaudited condensed financial statements in this prospectus.
Comparison of the Years Ended December 31, 2014 and 2013
Revenue
We
generate revenue through government grants. The following table summarizes our total revenues from government grants, for the periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
Grant revenues |
|
$ |
71 |
|
|
$ |
399 |
|
|
|
|
|
|
|
|
|
|
Total revenues were approximately $71,000 for the year ended December 31, 2014, compared with
$399,000 for the year ended December 31, 2013. The decrease of $328,000, or 82%, was due to the reduced number of the Companys outstanding government grants and a reduction of work related to the grants during the year ended December 31, 2014
as compared with the same period in the prior year.
We had $47,000 of deferred revenue at December 31, 2014, which consists of receipt of
grant awards from the government, which we have not yet recognized, pursuant to our revenue recognition policies, as the work has not been completed. For the foreseeable future, we expect our revenue to continue to be derived primarily from
government grants and we expect the amount of our grant revenue to fluctuate from period to period.
30
Operating Expenses
The following table summarizes our total operating expenses, for the periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
Research and development expenses |
|
$ |
5,680 |
|
|
$ |
17,651 |
|
General and administrative expenses |
|
|
3,217 |
|
|
|
3,697 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
8,897 |
|
|
$ |
21,348 |
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses
Research and development expenses consist of compensation-related costs for our employees dedicated to research and development activities,
fees related to our Scientific Advisory Board members, expenses related to our ongoing research and development efforts primarily related to our clinical trials, drug manufacturing, outside contract services, licensing and patent fees and laboratory
supplies and services for our research programs. We expect research and development expenses to increase as we expand our discovery, preclinical and clinical activities.
Total research and development expense was approximately $5,680,000 for the year ended December 31, 2014, compared with $17,651,000 for the
year ended December 31, 2013. The decrease of $11,971,000, or 68%, was primarily due to a decrease of $12,250,000 in expense related to the fair value of common stock issued in exchange for patent and technology rights and a decrease of $114,000 in
employee stock-based compensation expense offset by an increase of $355,000 in research and development expenses driven by the costs to support the Companys three Phase 2a clinical trials and an increase of $38,000 in non-employee stock-based
compensation related to the change in the fair value of stock options.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation-related costs for our employees dedicated to general and administrative
activities, legal fees, audit and tax fees, consultants, professional services and general corporate expenses.
General and administrative
expense was approximately $3,217,000 for the year ended December 31, 2014, compared with $3,697,000 for the year ended December 31, 2013. The decrease of $480,000, or 13%, was primarily due to a decrease of $423,000 in general and administrative
expenses primarily due to a decrease in professional services as compared to the prior year due to such transactions as the Companys completion of a reverse split and Nasdaq Listing application in 2013, a decrease in bonus expense, a decrease
in Delaware franchise tax as a result of the Companys reduction in authorized common stock approved by stockholders in 2014 and a decrease of $57,000 in employee stock-based compensation expense.
Series A and Series A-1 Preferred Stock Dividends
The following table summarizes our Series A and Series A-1 Preferred Stock transactions for the periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
Series A and Series A-1 Preferred Stock dividends |
|
$ |
4,130 |
|
|
$ |
8,610 |
|
|
|
|
|
|
|
|
|
|
31
Series A and Series A-1 Preferred Stock dividends were approximately $4,130,000 for the year
ended December 31, 2014, compared with $8,610,000 for the year ended December 31, 2013. The decrease of $4,480,000, or 52%, was due to changes in the Companys closing common stock price on the dividend payment dates and the number of preferred
shares earning dividends each quarter.
The rights and preferences of the Series A and Series A-1 Preferred Stock and the calculation of
the dividend payable, are described further in Notes 7 and 8 to the audited financial statements in this prospectus.
Liquidity and Capital
Resources
We had cash and cash equivalents of approximately $6.6 million as of March 31, 2015, compared with approximately
$8.5 million in cash and cash equivalents as of December 31, 2014.
On December 18, 2014, the Company entered into the
currently-effective Purchase Agreement with LPC, pursuant to which the Company has the right to sell to LPC up to $10,800,000 in shares of the Companys common stock, subject to certain limitations and conditions set forth in the Purchase
Agreement. During the three months ended March 31, 2015, the Company sold a total of 50,000 shares of common stock to LPC under the Purchase Agreement for net proceeds of $64,000. There have been no other sales under the Purchase Agreement to date.
We believe that our existing cash and cash equivalents and the potential proceeds available under our equity facility with LPC should be
sufficient to fund our operations for at least the next twelve months. We expect to incur significant operating losses as we advance our product candidates through the drug development and regulatory process. We have generated significant losses to
date, have not generated any product revenue to date and may not generate product revenue in the foreseeable future, or ever. In the future, we will be dependent on obtaining funding from third parties, such as proceeds from the issuance of debt,
sale of equity, funded research and development programs and payments under partnership and collaborative agreements, in order to maintain our operations and meet our obligations to licensors. There is no guarantee that debt, additional equity or
other funding will be available to the Company on acceptable terms, or at all. If we fail to obtain additional funding when needed, we may be forced to scale back or terminate operations or to seek to merge with or to be acquired by another company.
Net Cash Flow from Operating Activities
Net cash used in operating activities was approximately $1,972,000 for the three months ended March 31, 2015 and was primarily due to the
Companys net loss. Net cash used in operating activities was approximately $2,380,000 for the three months ended March 31, 2014 and was primarily due to the Companys net loss and decrease in accrued liabilities. In addition, net
cash used in operating activities is adjusted for other non-cash items to reconcile net loss to net cash used in operating activities. These other non-cash adjustments consist primarily of stock-based compensation, the fair value of common stock
issued in exchange for patent rights and depreciation and amortization.
Net Cash Flow from Investing Activities
For the three months ended March 31, 2015, net cash of $8,000 used in investing activities was due to fixed asset purchases during the
quarter. There were no cash flows related to investing activities for the three months ended March 31, 2014.
Net Cash Flow
from Financing Activities
Net cash provided by financing activities was approximately $64,000 for the three months ended
March 31, 2015 and was primarily due to net proceeds of $64,000 received from the issuance of 50,000 shares of our common stock to LPC in connection with the equity facility entered into in December 2014. There were no cash flows related to
financing activities for the three months ended March 31, 2014.
32
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or relationships
Recently Issued Accounting Standards
See Note 2 to our unaudited condensed financial statements and Note 3 to our audited financial statements in this prospectus for a
description of recent accounting pronouncements applicable to our business.
33
BUSINESS
Overview
RXi is a biotechnology
company focused on discovering and developing innovative therapies, primarily in the areas of dermatology and ophthalmology, addressing high unmet medical needs. Our development programs are based on our siRNA technology and immunotherapy agents.
Our clinical development programs include, but are not limited to, our proprietary, self-delivering RNAi (sd-rxRNA®) compounds for the treatment of dermal and retinal scarring and an
immunodulating agent, Samcyprone, for the treatment of such disorders as alopecia areata, warts and cutaneous metastases of melanoma. In addition to these clinical programs, we have a pipeline of discovery and preclinical product candidates in
our core therapeutic areas, as well as in other areas of interest. The Companys pipeline, coupled with our extensive patent portfolio, provides support to further discover and develop innovative therapies either on our own or in collaboration
with strategic partners.
Clinical Development Program
Our first clinical product candidate is RXI-109, a self-delivering RNAi compound (sd-rxRNA) developed for the reduction of dermal scar
formation. RXI-109 is designed to reduce the expression of connective tissue growth factor (CTGF), a critical regulator of several biological pathways involved in fibrosis, including scar formation in the skin. RXI-109 is
currently being evaluated in Phase 2a clinical trials to prevent or reduce dermal scarring following surgery or trauma, as well as for the management of hypertrophic scars and keloids. Hypertrophic scars are abnormal scars that are raised above the
normal skin surface and can be reddened or darker than the existing skin tone. These scars result in part from an increased level of collagen and are less elastic than the surrounding skin. Keloids are also raised and reddened or
darkened scars resulting from increased collagen production, but keloids often spread beyond the original site of skin injury and may continue to grow in size. Keloids can result from skin trauma as common as an ear piercing or
vaccination and may grow to cover large areas.
Based on the safety profile shown in our two Phase 1 clinical trials, in November 2013,
the Company started its first Phase 2a study (Study 1301) in subjects who had pre-existing hypertrophic scars present on their lower abdomen for at least one year. In this study, subjects underwent scar revision surgery, after which they were
treated with RXI-109 on one end of the scar and placebo on the opposite end of the scar. In this first Phase 2a study, treatment was limited: three intradermal doses over a period of two weeks. Enrollment in this study has been completed and
subjects will continue to be monitored after this two-week treatment period according to the Study 1301 protocol. The top-line 3 month results support a clinical effect of RXI-109 in hypertrophic scars and have provided guidance on a dosing regimen.
From this early data, the Company also determined that initiating treatment two weeks post-surgery is more beneficial than initiating treatment immediately and that there may be a benefit to extending the treatment window farther into the
proliferation phase of healing. With these observations, the Company will be able to optimize the dosing regimens for our current and future clinical trials.
In April 2014, the Company began its second Phase 2a study (Study 1401) to evaluate RXI-109 for treatment to prevent the recurrence of keloids
in subjects undergoing a keloidectomy (removal of a keloid). In this study, subjects with two keloids of similar size and location were eligible for enrollment. Subjects underwent a keloidectomy after which the lesions were closed and one was
treated with RXI-109, and the other was treated with placebo. Treatment was limited in this study; four weekly injections over a 1 month period. Enrollment in Study 1401 has been completed and subjects will be followed for approximately five months
after the end of treatment. In March 2015, the Company held a meeting with an expert panel comprised of clinical advisors, practicing dermatologists and plastic surgeons, including investigators participating in Study 1401. The panel conducted a
review of preliminary data from the study, where the panel members looked at blinded pictures of the first seven subjects for the first few months after treatment. Panel members more often identified the placebo-treated site as showing faster
recurrence of the keloid. Based on these preliminary clinical observations, which showed a reduced recurrence of keloids treated with RXI-109 as compared to placebo, this panel provided a unanimous recommendation to the Company to lengthen the
treatment regimen and to increase the number of
34
doses with RXI-109 to reflect the chronic and aggressive nature of the formation process of a keloid. The Company expects to move forward with these recommendations and initiate an additional
keloid trial by the end of 2015.
The Companys third Phase 2a study (Study 1402) for RXI-109 was initiated in July 2014 to evaluate
RXI-109 for the reduction of recurrence of hypertrophic scars following elective scar revision surgery. Subjects with either one long hypertrophic scar, or two scars comparable in length, anatomical location and characteristics will be enrolled and
be eligible to receive scar revision surgery. For a single scar, a portion of the revised scar segment will be treated with RXI-109 and a comparably sized length on the opposite end of the revised scar segment will be left untreated. If two
scars are revised, one revised scar segment will be treated with RXI-109 and one scar will be left untreated after revision surgery. Subjects in Study 1402 have entered on a rolling basis, of which enrollment is more than 50% complete, and will be
evaluated up until month nine. This study incorporates the findings from Study 1301 regarding dosing regimen and includes six doses, initiating two weeks after surgery, thus extending the dosing period from Study 1301. Results from this study will
help to further define the dose and treatment duration to be used in the formal Phase 2b dose finding studies and ultimately in Phase 3 pivotal studies.
Our second clinical product candidate is Samcyprone, a proprietary topical formulation of DPCP, exclusively licensed from Hapten in
December 2014. DCPC is an immunomodulation agent that works by initiating a T-cell response. Typically, patients treated with DPCP are initially sensitized with a single, high concentration of drug and subsequently treated with low, non-irritant
concentrations. Use of high concentrations of DPCP during the sensitization dose results in hyper-sensitizing the patient to subsequent challenge doses. In contrast, the use of Samcyprone allows sensitization using a much lower concentration
of DPCP, avoiding hyper-sensitization to challenge doses. This should result in an improved safety and tolerability profile while maintaining the known efficacy of DPCP.
Samcyprone has been used for over 20 years to treat warts and alopecia areata, and has shown efficacy against cutaneous metastases of
melanoma. A Phase 2a trial to evaluate the efficacy and safety of Samcyprone for the treatment of viral warts was completed by Hapten in 2010. The Company plans to support the ongoing investigator-sponsored clinical trial for the treatment of
cutaneous metastases of melanoma, as well as a new investigator-sponsored clinical trial in alopecia areata. In March 2015, the Company was granted Orphan Drug Designation for Samcyprone by
the FDA for the treatment of malignant melanoma stage IIb to IV. A number of patients with stage IIb to IV malignant melanoma develop cutaneous metastases. Samcyprone is being developed for
treatment of these metastases. The Company expects to initiate a second Phase 2a clinical trial for the treatment of warts by the end of 2015.
Preclinical Program
While focusing our efforts on our RXI-109 and Samcyprone clinical development programs, we also continue to advance our preclinical
programs, both on our own and through collaborations with academic and corporate third parties. The Companys preclinical program currently includes two ocular indications with RXI-109: retinal and corneal scarring. To date, we have shown that
CTGF protein levels are reduced in a dose-dependent manner in both the retina and cornea following an intravitreal injection of RXI-109 in a monkey. Toxicity testing of RXI-109 in the eye to support an IND is currently in progress and the Company is
working toward filing an IND in mid-2015 for RXI-109 as a potential therapeutic for the scarring component of retinal diseases in the eye, such as age-related macular degeneration (AMD). In AMD, a leading cause of severe visual
impairment in people over age 50, blood vessels grow into the retina (neovascularization) and disrupt vision. Current available therapies for AMD rely on suppression of vascular endothelial growth factor to address the neovascularization component
of AMD, but not the subsequent retinal scarring that often occurs over time. Treatment with an anti-scarring agent such as RXI-109 could be of great benefit to these patients.
35
Discovery Program
We also intend to advance additional development programs within our dermatology and ophthalmology franchises. Within our dermatology space,
the Company has selected collagenase and tyrosinase as new discovery stage targets for our self-delivering RNAi platform. Collagenase, or MMP1, is a matrix metalloproteinase involved in the breakdown of extracellular matrix. Selective reduction of
MMP1 may be beneficial in the treatment of skin aging disorders, arthritis, acne scarring, blistering skin disorders, corneal erosions, endometriosis and possibly cancer metastasis. Tyrosinase is the key enzyme in the synthesis of melanin. Melanin
is produced by melanocytes and is the pigment that gives human skin, hair and eyes their color. The inhibition of tyrosinase can play a key role in the management of diseases such as cutaneous hyperpigmentation disorders such as lentigines
(freckles, age spots and liver spots), retinitis pigmentosa, neuroblastoma, glioblastoma and possibly melanoma. We have identified potent sd-rxRNA compounds that target MMP1 or tyrosinase for further evaluation.
Current areas of focus in the discovery stage of the Companys ophthalmology franchise include a grant-funded program for discovery of
sd-rxRNA compounds for novel targets for oncology indications specifically including retinoblastoma, and other exploratory efforts to identify potential sd-rxRNA lead compounds and targets from the RNAi-related assets acquired from OPKO Health Inc.
(OPKO) in March 2013.
Future Potential Applications of Technology
Overexpression of CTGF is implicated in dermal scarring and fibrotic disease, and because of this, we believe that RXI-109 or other
CTGF-targeting RNAi compounds may be able to treat the fibrotic component of numerous indications, including acute spinal injury, endometriosis, organ fibrosis and vascular restenosis. If the current clinical trials of RXI-109 produce successful
results in dermal anti-scarring, we may explore opportunities in these additional indications that can be accessed by local administration, as well as other possible dermatology applications (e.g., cutaneous scleroderma). In addition, overexpression
of CTGF has been implicated in diseases such as liver and pulmonary fibrosis. Although the Company does not intend to develop systemic uses of RXI-109, the Company is open to business development and out-licensing opportunities for those
applications.
In March 2015, the Company granted an exclusive license to MirImmune LLC (MirImmune) to utilize the
Companys novel and proprietary sd-rxRNA technology for MirImmunes use in developing ex-vivo cell-based cancer immunotherapies. Under the terms of the agreement, MirImmune will be responsible for all research, development, manufacturing,
regulatory and commercialization activities for the licensed products. MirImmune will develop ex-vivo cell-based therapeutics utilizing our sd-rxRNA technology to target immune inhibitory pathways (checkpoints) which are responsible for limiting the
efficacy of cancer immunotherapies. RXi is eligible to receive an annual licensing fee, clinical milestone payments and royalties on sales from MirImmune. Upon the achievement of gating milestones, the Company will have the right to acquire a
double-digit equity stake in MirImmune. However, the Company does not expect to realize any significant milestone payments or royalties under this agreement in the near term. If successful, this collaboration has the potential to result in novel,
more effective and patient friendly cancer treatments that could be a significant step toward personalized medicine.
Market Opportunity
As there are currently no FDA-approved drugs to prevent dermal scar formation, a therapeutic of this type could have great benefit for
trauma and surgical patients, as a treatment during the surgical revision of existing unsatisfactory scars, and in the treatment, removal and inhibition of keloids (scars that extend beyond the original skin injury). There are over 42 million
procedures in the United States each year that could potentially benefit from a therapeutic treatment that could successfully reduce or prevent scarring; thus, the market potential is quite large. According to the American Society for Plastic
Surgery, there were more than 177,000 scar revision surgeries alone in 2014. In addition to cosmetic and reconstructive surgeries, medical interventions which could
36
incorporate an anti-scarring agent include scarring that results from trauma, surgery or burns (especially relating to raised or hypertrophic scarring or contracture scarring), and surgical
revision of existing unsatisfactory scars and keloids.
In November 2013, we signed a distribution agreement with Ethicor Ltd.
(Ethicor), a UK-based unlicensed medicinal products pharmaceutical company. The agreement provides Ethicor with the distribution rights to RXI-109 in the European Union. Ethicor will pay us a double-digit percentage of any gross
profits from its sales of RXI-109. Once RXI-109 becomes an approved drug in a given country, the marketing rights in that country revert back to RXi. Under the European medicines legislation (Directive 2001/83/EC, Article 5(1)), we expect that
Ethicor will be able to supply, prior to regulatory approval, RXI-109 as a Special drug. A Special drug may be requested by an authorized health-care professional to meet the special needs of an individual patient
under their direct responsibility. The collaboration is important for health-care professionals and patients who can get safe controlled early access to a development drug and is a significant milestone for the Company, not only in possible early
revenue, but as increased exposure to RXI-109 may be key in accelerating the development of our drug. To date we have not generated any product revenue and may not generate product revenue in the foreseeable future, or ever.
Financial Condition
We have generated
significant losses to date, have not generated any product revenue to date and may not generate product revenue in the foreseeable future, if ever. We expect to incur significant operating losses as we advance our product candidates through the drug
development and regulatory process. We will need to generate significant revenues to achieve profitability and might never do so. In the absence of product revenues, our potential sources of operational funding are expected to be the proceeds from
the issuance of debt, sale of equity, funded research and development payments and payments received under partnership and collaborative agreements.
On December 18, 2014, the Company entered into a Purchase Agreement with LPC, pursuant to which the Company has the right to sell to LPC
up to $10,800,000 in shares of the Companys common stock, subject to certain limitations and conditions set forth in the Purchase Agreement. During the three months ended March 31, 2015, the Company sold a total of 50,000 shares of common
stock to LPC under the Purchase Agreement for net proceeds of $64,000. There have been no other sales under the Purchase Agreement to date.
We believe that our existing cash and cash equivalents and the potential proceeds available under our equity facility with LPC should be
sufficient to fund our operations for at least the next twelve months. In the future, we will be dependent on obtaining funding from third parties, such as proceeds from the issuance of debt, sale of equity, funded research and development
programs and payments under partnership and collaborative agreements, in order to maintain our operations and meet our obligations to licensors. There is no guarantee that debt, additional equity or other funding will be available to the Company on
acceptable terms, or at all. If we fail to obtain additional funding when needed, we may be forced to scale back or terminate operations or to seek to merge with or to be acquired by another company.
Introduction to the Field of RNAi Therapeutics
RNAi is a naturally occurring phenomenon where short, double-stranded RNA molecules interfere with the expression of targeted genes. RNAi
technology takes advantage of this phenomenon and potentially allows us to effectively interfere with particular genes within living cells by designing RNA-derived molecules targeting those genes.
RNAi offers a novel approach to the drug development process because, as described below under The RNAi Mechanism, RNAi compounds
can potentially be designed to target any one of the thousands of human genes, many of which are undruggable by other modalities. The specificity of RNAi is achieved by an intrinsic,
37
well-understood biological mechanism based on designing the sequence of an RNAi compound to match the sequence of the targeted gene. The sequence of the entire human genome is now known, and the
mRNA coding sequence for many proteins is already available. Supported by numerous gene-silencing reports and our own research, we believe that this sequence information can be used to design RNAi compounds to interfere with the expression of almost
any specific gene.
The RNAi Mechanism
The genome is made of double-stranded DNA (the double helix) with 20,00025,000 protein coding genes that act as instruction manuals for
the production of all human proteins. Proteins are important molecules that allow cells and organisms to live and function. With rare exceptions, each cell in the human body has the entire complement of genes. However, only a subset of these genes
directs the production of proteins in any particular cell type. For example, a muscle cell produces muscle-specific protein, whereas a skin cell does not.
In order for a gene to guide the production of a protein, it must first be copied into a single-stranded chemical messenger (messenger RNA or
mRNA), which is then translated into protein. RNAi is a naturally occurring process by which a particular messenger RNA can be destroyed before it is translated into protein. The process of RNAi can be artificially induced by introducing a small,
double-stranded fragment of RNA corresponding to a particular messenger RNA into a cell. A protein complex within the cell called RISC (RNA-Induced Silencing Complex) recognizes this double-stranded RNA fragment and binds to it. RISC then splits the
double strands apart, retaining one strand in the RISC complex. The RISC then helps this guide strand of RNA bind to and destroy its corresponding cellular messenger RNA target. Thus, RNAi provides a method to potentially block the creation of the
proteins that cause disease.
Since gene expression controls most cellular processes, the ability to inhibit gene expression provides a
potentially powerful tool to treat human diseases. Furthermore, since the human genome has already been decoded, and based on numerous gene-silencing reports, we believe that RNAi compounds can readily be designed to interfere with the expression of
any specific gene. Based on our internal research and our review of certain scientific literature, we also believe that our RNAi platform may allow us to develop therapeutics with significant potential advantages over therapeutics developed using
traditional methods, including:
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High specificity for targeted genes; |
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High potency (low doses); |
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Ability to interfere with the expression of potentially any gene; |
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Accelerated generation of lead compounds; and |
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Low toxicity due to a natural mechanism of action. |
RXis RNAi Therapeutic Platform
RNAi Compound Design
Synthetic RNAi compounds are made from a strand or strands of RNA that are manufactured by a nucleic acid synthesizer. The synthesizer is
programmed to assemble a strand of RNA of a particular sequence using primarily four nucleotide units (Adenine (A), Uracil (U), Cytidine (C) and Guanosine (G)) that match a
small segment of the targeted gene. The hallmark of an RNAi compound is that it has a double-stranded region. The compounds can be of various lengths of nucleotide units and can contain various modifications of the nucleotide units or linkages. The
two strands can have overhangs or blunt ends. In some cases, a single strand can form an RNAi compound by forming a structure referred to as a hairpin.
The length and structure of the compound can affect the activity and hence the potency of the RNAi in cells. The first design of RNAi
compounds to be pursued for development as human therapeutics were short, double-stranded RNAs that included at least one overhanging single-stranded region and limited modifications, known as small-interfering RNA, or siRNA, which we also refer to
as classic siRNA.
38
We believe that classic siRNAs have drawbacks that may limit the usefulness of those agents as
human therapeutics, and that we may be able to utilize the technologies we have licensed and developed internally to optimize RNAi compounds for use as human therapeutic agents. It is the combination of the length, the nucleotide sequence and the
configuration of chemical modifications that are important for effective RNAi therapeutics.
Our internal research leads us to believe
that next generation rxRNA® compounds offer significant advantages over classic siRNA used by other companies developing RNAi therapeutics, highlighted by the following characteristics:
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Potent RNAi activity in the absence of a delivery vehicle; |
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More resistant to nuclease degradation; |
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Potentially more specific for the target gene; |
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More reliable at blocking immune side effects than classic siRNA; and |
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In the case of sd-rxRNA, the unique ability to be self-delivering, without the need for any additional delivery vehicle. |
Based on our own research, we have developed a variety of novel siRNA configurations with potential advantages for therapeutic use. The first
of these has been termed rxRNAori®. This configuration has some similarities to classic siRNA in that it is composed of two short RNA strands. We have found that by using a somewhat longer
length (25-29 base pairs), removing the overhangs and using proprietary chemical modification patterns, we achieve a high hit rate of very potent (picomolar potency) compounds in a given target sequence. These rxRNAori compounds are modified to
increase resistance to nucleases and to prevent off-target effects including induction of an immune response. These novel RNAi compounds are distinct from the siRNA compounds used by many other companies developing RNAi therapeutics in that they are
designed specifically for therapeutic use and offer many of the properties that we believe are important to the clinical development of RNAi-based drugs.
The second novel configuration has been called sd-rxRNA to indicate its novel self-delivering properties, which make
additional delivery vehicles unnecessary for efficient cellular uptake and RISC-mediated silencing. A combination of at least three characteristics is required for activity: (1) specific, proprietary chemical modifications; (2) a precise
number of chemical modifications; and (3) reduction in oligonucleotide content. Kinetic analyses of fluorescently-labeled compounds demonstrate that efficient cellular internalization is observed within minutes of exposure. These molecules are
taken up efficiently and cause target gene silencing in diverse cell types (cell lines and primary cells). This novel class of RNAi compounds may afford a broad opportunity for therapeutic development.
We believe that both chemical modification and formulation of RNAi compounds may be utilized to develop RNA drugs suitable for therapeutic
use. The route by which an RNAi therapeutic is brought into contact with the body depends on the intended organ or tissue to be treated. Delivery routes can be simplified into two major categories: (1) local (when a drug is delivered directly
to the tissue of interest); and (2) systemic (when a drug accesses the tissue of interest through the circulatory system). Local delivery may avoid some hurdles associated with systemic approaches such as rapid clearance from circulation and
inefficient tissue extravasation (crossing the endothelial barrier from the blood stream). However, the local delivery approach can only be applied to a limited number of organs or tissues (e.g., skin, eye, lung and potentially the central
nervous system).
The key to therapeutic success with RNAi lies in delivering intact RNAi compounds to the target tissue and the interior
of the target cells. To accomplish this, we have developed a comprehensive platform that includes a local delivery approach. We work with chemically synthesized RNAi compounds that are optimized for stability and efficacy and combine delivery at the
site of action and formulation with delivery agents to achieve optimal delivery to specific target tissues.
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Local Delivery
sd-rxRNA molecules have unique properties that improve tissue and cell uptake. Delivery of sd-rxRNA by a local route of administration may
avoid hurdles associated with systemic approaches such as rapid clearance from the bloodstream and inefficient extravasation (e.g., crossing the endothelial barrier from the blood stream). We have studied sd-rxRNA molecules in animal models
of dermal and ocular delivery. Direct administration of sd-rxRNA via intradermal injection with no additional delivery vehicle to the skin or to the eye demonstrates that target gene silencing can be measured after local administration. The dose
levels required for these direct-injection methods are small and suitable for clinical development, suggesting that local delivery indications will be very accessible with the sd-rxRNA technology platform. Target tissues that are potentially
accessible for local delivery using sd-rxRNA compounds include the skin, the eye, the lung, the central nervous system, mucosal tissues, sites of inflammation and tumors (direct administration).
Systemic Delivery
Systemic delivery occurs when a drug accesses the targeted tissue through the circulatory system. In some cases, such as in targeting a
treatment to the liver, the optimal route of delivery may be by a systemic route. We have developed a portfolio of systemic delivery solutions utilizing our RNAi therapeutic platforms. One novel approach involves the use of sd-rxRNA compounds. The
self-delivering technology introduces properties required for in vivo efficacy such as cell and tissue penetration, reduced blood clearance and improved distribution properties. Systemic delivery of these sd-rxRNAs to mice has
resulted in gene-specific inhibition in the liver with no additional delivery vehicle required, albeit at high concentrations. A proof-of-concept preclinical study using rxRNA in conjunction with a standard lipid-based delivery vehicle has enabled
us to demonstrate gene-specific inhibition in liver at much lower doses in a mouse model after intravenous, systemic delivery. While delivery of RNAi to the liver may be critical for the treatment of many diseases, additional target tissues that are
potentially accessible using rxRNA compounds by systemic delivery include kidney, fat, heart, lung, bone marrow, sites of inflammation, tumors and vascular endothelium.
Introduction to Immunomodulators
Immunotherapy is the treatment of disease by inducing, enhancing or suppressing an immune response. Active agents in immunotherapy are
collectively called immunomodulators. They are a diverse array of recombinant, synthetic and natural preparations that help to regulate or normalize the immune system. Samcyprone, licensed by the Company in 2014, is an immunomodulator
that works by initiating a T-cell response. T-cells or T lymphocytes are a type of white blood cell that play a key role in cell-mediated immunity. Recently published articles have supported the use of DPCP, the active ingredient in
Samcyprone, as an immunomodulator for the treatment of alopecia areata, warts and cutaneous metastases of malignant melanoma. Although DPCP has been used by physicians for several decades, it has never been reviewed or approved by a regulatory
authority as a drug. The use of Samcyprone, a topical formulation of DPCP, will allow for lower sensitizing and challenge doses levels than in current use, and should result in an improved safety margin and a more consistent immune response.
Intellectual Property
We protect
our proprietary information by means of United States and foreign patents, trademarks and copyrights. In addition, we rely upon trade secret protection and contractual arrangements to protect certain of our proprietary information and products. We
have pending patent applications that relate to potential drug targets, compounds we are developing to modulate those targets, methods of making or using those compounds and proprietary elements of our drug discovery platform.
Much of our technology and many of our processes depend upon the knowledge, experience and skills of key scientific and technical personnel.
To protect our rights to our proprietary know-how and technology, we require all employees, as well as our consultants and advisors when feasible, to enter into confidentiality
40
agreements that require disclosure and assignment to us of ideas, developments, discoveries and inventions made by these employees, consultants and advisors in the course of their service to us,
and we vigorously defend that position with partners, as well as with employees who leave the Company.
We have also obtained rights to
various patents and patent applications under licenses with third parties, which require us to pay royalties or milestone payments, or both. The degree of patent protection for biotechnology products and processes, including ours, remains uncertain,
both in the United States and in other important markets, because the scope of protection depends on decisions of patent offices, courts and lawmakers in these countries. There is no certainty that our existing patents or others, if obtained, will
afford us substantial protection or commercial benefit. Similarly, there is no assurance that our pending patent applications or patent applications licensed from third parties will ultimately be granted as patents or that those patents that have
been issued or are issued in the future will stand if they are challenged in court. We assess our license agreements on an ongoing basis, and may from time to time terminate licenses to technology that we do not intend to employ in our immunotherapy
or RNAi technology platforms, or in our product discovery or development activities.
Patents and Patent Applications
We are actively prosecuting twenty-eight patent families covering our compounds and technologies, including RXI-109, Samcyprone and the
RNAi patents and patent applications acquired from OPKO in March 2013. A summary of these patents and patent applications is set forth below in the following table.
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RNAi Platform |
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Immunomodulator Platform |
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Pending Applications |
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Issued
Patents |
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Pending Applications |
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Issued Patents |
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United States |
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16 |
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22 |
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2 |
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1 |
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Canada |
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7 |
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1 |
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0 |
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0 |
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Europe |
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8 |
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24 |
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1 |
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0 |
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Japan |
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5 |
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3 |
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0 |
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0 |
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Other Markets |
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10 |
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1 |
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0 |
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0 |
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RNAi Platform Patents and Patent Applications
Our portfolio includes fifty-one issued patents, two of which cover our self-delivering RNAi platform. The first patent covers the use of
sd-rxRNAs targeting CTGF for the treatment of fibrotic disorders. The second patent, titled Reduced Size Self-Delivering RNAi Compounds, broadly covers both the composition and methods of use of our self-delivering platform technology.
These patents (U.S. Patent Number 8,664,189 and U.S. Patent Number 8,796,443) are scheduled to expire in 2029. The patent applications, including one that was filed as an Patent Cooperation Treaty application, encompass what we believe to be
important new RNAi compounds and their use as therapeutics, chemical modifications of RNAi compounds that improve the compounds suitability for therapeutic uses (including delivery) and compounds directed to specific targets (i.e., that
address specific disease states).
The patents and any patents that may issue from these pending patent applications will, if issued, be
set to expire between 2022 and 2031, not including any patent term extensions that may be afforded under the Federal Food, Drug and Cosmetic Act (and the equivalent provisions in foreign jurisdictions) for any delays incurred during the regulatory
approval process relating to human drug products (or processes for making or using human drug products).
Immunomodulator Platform
Patent and Patent Applications
The Samcyprone portfolio includes one issued patent and three patent applications. The patent
and patent applications cover both the compositions and methods of use of Samcyprone for the treatment of warts, human papilloma virus (HPV) skin infections, skin cancer (including melanoma) and immunocompromised patients. The patent and any
patents that may issue from the pending applications will be set to expire between 2019 and
41
2031, not including any patent term extensions that may be afforded under the Federal Food, Drug and Cosmetic Act (and the equivalent provisions in foreign jurisdictions) for any delays incurred
during the regulatory approval process relating to human drug products (or processed for making or using human drug products).
License Agreements
We have secured exclusive and non-exclusive rights to develop therapeutics by licensing key RNAi and immunotherapy technologies and patent
rights from third parties. These rights relate to chemistry and configuration of compounds, delivery technologies of compounds to cells and therapeutic targets. As we continue to develop our own proprietary compounds, we continue to evaluate both
our in-licensed portfolio as well as the field for new technologies that could be in-licensed to further enhance our intellectual property portfolio and unique position in the RNAi and immunotherapy space.
Advirna. We have entered into agreements with Advirna, LLC (Advirna) pursuant to which Advirna assigned to us
its existing patent and technology rights related to sd-rxRNA® technology in exchange for our agreement to pay Advirna an annual maintenance fee of $100,000 and a one-time milestone
payment of $350,000 upon the issuance of the first patent with valid claims covering the assigned technology, which was paid in the first quarter of 2014. Additionally, we will be required to pay a 1% royalty to Advirna on any licensing revenue
received by us with respect to future licensing of the assigned Advirna patent and technology rights. We also granted back to Advirna a license under the assigned patent and technology rights for fields of use outside human therapeutics and
diagnostics and issued to Advirna 5% of the Companys fully-diluted shares of common stock upon the completion of the spin-off transaction in 2012.
Our rights under the Advirna agreement will expire upon the later of: (i) the expiration of the last-to-expire of the patent
rights (as defined therein) included in the Advirna agreement or (ii) the abandonment of the last-to-be abandoned of such patents, unless earlier terminated in accordance with the provisions of the agreement.
We may terminate the Advirna agreement at any time upon 90 days written notice to Advirna, and Advirna may terminate the agreement upon
90 days prior written notice in the event that we cease using commercially reasonable efforts to research, develop, license or otherwise commercialize the patent rights or royalty-bearing products (as defined therein), provided
that we may refute such claim within such 90-day period by showing budgeted expenditures for the research, development, licensing or other commercialization consistent with other technologies of similar stage of development and commercial potential
as the patent rights or royalty-bearing products. Further, either party at any time may provide to the other party written notice of a material breach of the agreement. If the other party fails to cure the identified breach within 90 days after the
date of the notice, the aggrieved party may terminate the agreement by written notice to the party in breach.
OPKO. In March 2013,
we acquired from OPKO substantially all of its RNAi-related assets, which included patents and patent applications, licenses, clinical and preclinical data and other related assets. In exchange for the assets that we purchased from OPKO, we issued
to OPKO 1,666,666 shares of our common stock and agreed to pay, if applicable: (i) up to $50 million in development and commercialization milestones for the successful development and commercialization of each Qualified Drug (as
defined in the Asset Purchase Agreement with OPKO) and (ii) royalty payments equal to: (a) a mid-single-digit percentage of Net Sales (as defined in the Asset Purchase Agreement) with respect to each Qualified Drug sold for an
ophthalmologic use during the applicable Royalty Period (as defined in the Asset Purchase Agreement) and (b) a low-single-digit percentage of Net Sales with respect to each Qualified Drug sold for a non-ophthalmologic use during the
applicable Royalty Period.
Hapten. On December 17, 2014, the Company entered into an Assignment and License Agreement with
Hapten under which Hapten agreed, effective at a closing that was subject to the satisfaction of certain closing conditions which occurred in February 2015, to sell and assign to us certain patent rights and related assets and rights, including an
investigational new drug application and clinical data, for Haptens Samcyprone gel
42
products for therapeutic and prophylactic use. Under the Assignment and License Agreement and upon the closing, Hapten received a one-time upfront cash payment of $100,000 and we issued to Hapten
200,000 shares of Company common stock. Pursuant to the Assignment and License Agreement, Hapten will be entitled to receive: (i) future milestone payments tied to the achievement of certain clinical and commercial objectives (all of which
payments may be made at our option in cash or through the issuance of common stock) and (ii) escalating royalties based on product sales by us and any sublicensees. We will have certain customary diligence obligations under the Assignment and
License Agreement requiring us to use commercially reasonable efforts to develop and commercialize one or more products covered by the Assignment and License Agreement, which obligations, if not performed, could result in rights assigned or licensed
to us reverting back to Hapten.
Research and Development
To date, our research programs have focused on identifying product candidates for diseases for which we intend to develop a therapeutic drug.
Since we commenced operations, research and development has comprised a significant proportion of our total operating expenses and is expected to comprise the majority of our spending for the foreseeable future. There are risks in any new field of
drug discovery that preclude certainty regarding the successful development of a product. We cannot reasonably estimate or know the nature, timing and costs of the efforts necessary to complete the development of, or the period in which material net
cash inflows are expected to commence from, any product candidate.
For more information on our research and development activity, see
Managements Discussion and Analysis of Financial Condition and Results of Operations Research and Development Expenses of this prospectus.
Competition
We believe numerous
companies are investigating or plan to investigate a variety of proposed anti-scarring therapies in clinical trials. The companies include large and small pharmaceutical, chemical and biotechnology companies, as well as universities, government
agencies and other private and public research organizations. Such companies include CoDa Therapeutics, Inc., Sirnaomics, Inc., FirstString Research, Inc., Promedior, Inc., FibroGen, Inc., miRagen Therapeutics, Inc. and Excaliard Pharmaceuticals,
Inc., which was acquired by Pfizer, Inc.
We believe that other companies working in the RNAi area, generally, include Alnylam
Pharmaceuticals, Inc., Benitec Limited, Silence Therapeutics plc, Quark Pharmaceuticals, Inc., Tekmira Pharmaceuticals Corporation, Arrowhead Research Corporation, Dicerna Pharmaceuticals, Inc., Sylentis, S.A. and Roche Innovation Center Copenhagen
A/S, as well as a number of large pharmaceutical companies. Many other companies are pursuing non-RNAi-based therapies for one or more fibrotic disease indications, including ocular scarring or other indications that we may seek to pursue. See
Item 1A, Risk Factors Risks Relating to Our Business and Industry.
We believe numerous companies are developing,
investigating, or plan to investigate a variety of proposed topical immunotherapies in the areas of warts, alopecia areata and cutaneous metastasis of malignant melanoma. The companies include large, global pharmaceutical companies in the research
phase and with products on the market. Such companies include Leo Pharma, Inc., Astellas Pharma US, Inc., Valeant Pharmaceuticals International, Inc. and Perrigo Company, plc.
Government Regulation
The United States
and other developed countries extensively regulate the preclinical and clinical testing, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution of drugs and biologic products. The FDA regulates
pharmaceutical and biologic products under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and other federal statutes and regulations.
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To obtain approval of our future product candidates from the FDA, we must, among other
requirements, submit data supporting safety and efficacy for the intended indication as well as detailed information on the manufacture and composition of the product candidate. In most cases, this will require extensive laboratory tests and
preclinical and clinical trials. The collection of these data, as well as the preparation of applications for review by the FDA involve significant time and expense. The FDA also may require post-marketing testing to monitor the safety and efficacy
of approved products or place conditions on any approvals that could restrict the therapeutic claims and commercial applications of these products. Regulatory authorities may withdraw product approvals if we fail to comply with regulatory standards
or if we encounter problems at any time following initial marketing of our products.
The first stage of the FDA approval process for a
new biologic or drug involves completion of preclinical studies and the submission of the results of these studies to the FDA. These data, together with proposed clinical protocols, manufacturing information, analytical data and other information
submitted to the FDA in an IND application, must become effective before human clinical trials may commence. Preclinical studies generally involve FDA regulated laboratory evaluation of product characteristics and animal studies to assess the
efficacy and safety of the product candidate.
After the IND becomes effective, a company may commence human clinical trials. These are
typically conducted in three sequential phases, but the phases may overlap. Phase 1 trials consist of testing the product candidate in a small number of patients or healthy volunteers, primarily for safety at one or more doses. Phase 2 trials, in
addition to safety, evaluate the efficacy of the product candidate in a patient population somewhat larger than Phase 1 trials. Phase 3 trials typically involve additional testing for safety and clinical efficacy in an expanded population at
multiple test sites. A company must submit to the FDA a clinical protocol, accompanied by the approval of the Institutional Review Board (IRB) at the institutions participating in the trials, prior to commencement of each clinical
trial.
To obtain FDA marketing authorization, a company must submit to the FDA the results of the preclinical and clinical testing,
together with, among other things, detailed information on the manufacture and composition of the product candidate, in the form of a new drug application (an NDA), or, in the case of a biologic, a biologics license application (a
BLA).
The amount of time taken by the FDA for approval of an NDA or BLA will depend upon a number of factors,
including whether the product candidate has received priority review, the quality of the submission and studies presented, the potential contribution that the compound will make in improving the treatment of the disease in question and the workload
at the FDA.
The FDA may, in some cases, confer upon an investigational product the status of a fast track product. A fast track product
is defined as a new drug or biologic intended for the treatment of a serious or life threatening condition that demonstrates the potential to address unmet medical needs for this condition. The FDA can base approval of an NDA or BLA for a fast track
product on an effect on a surrogate endpoint, or on another endpoint that is reasonably likely to predict clinical benefit. If a preliminary review of clinical data suggests that a fast track product may be effective, the FDA may initiate review of
entire sections of a marketing application for a fast track product before the sponsor completes the application.
We anticipate that our
products will be manufactured by our strategic partners, licensees or other third parties. Before approving an NDA or BLA, the FDA will inspect the facilities at which the product is manufactured and will not approve the product unless the
manufacturing facilities are in compliance with the FDAs current good manufacturing practices (cGMP), which are regulations that govern the manufacture, holding and distribution of a product. Manufacturers of biologics also
must comply with the FDAs general biological product standards. Our manufacturers also will be subject to regulation under the Occupational Safety and Health Act, the Nuclear Energy and Radiation Control Act, the Toxic Substance Control Act
and the Resource Conservation and Recovery Act and other applicable environmental statutes. Following approval, the
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FDA periodically inspects drug and biologic manufacturing facilities to ensure continued compliance with the cGMP. Our manufacturers will have to continue to comply with those requirements.
Failure to comply with these requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing or recall or seizure of product. Adverse patient experiences with the product must be reported to the FDA
and could result in the imposition of marketing restrictions through labeling changes or market removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of
the product occur following approval.
The labeling, advertising, promotion, marketing and distribution of a drug or biologic product also
must be in compliance with FDA and Federal Trade Commission requirements which include, among others, standards and regulations for off-label promotion, industry sponsored scientific and educational activities, promotional activities involving the
internet, and direct-to-consumer advertising. We also will be subject to a variety of federal, state and local regulations relating to the use, handling, storage and disposal of hazardous materials, including chemicals and radioactive and biological
materials. In addition, we will be subject to various laws and regulations governing laboratory practices and the experimental use of animals. In each of these areas, as above, the FDA has broad regulatory and enforcement powers, including the
ability to levy fines and civil penalties, suspend or delay issuance of product approvals, seize or recall products and deny or withdraw approvals.
We will also be subject to a variety of regulations governing clinical trials and sales of our products outside the United States. Whether or
not FDA approval has been obtained, approval of a product candidate by the comparable regulatory authorities of foreign countries and regions must be obtained prior to the commencement of marketing the product in those countries. The approval
process varies from one regulatory authority to another and the time may be longer or shorter than that required for FDA approval. In the European Union, Canada and Australia, regulatory requirements and approval processes are similar, in principle,
to those in the United States.
Environmental Compliance
Our research and development activities involve the controlled use of potentially harmful biological materials as well as hazardous materials,
chemicals and various radioactive compounds. We are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specific waste products. We are also subject to numerous
environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of bio-hazardous materials. The cost of compliance with these laws and regulations
could be significant and may adversely affect capital expenditures to the extent we are required to procure expensive capital equipment to meet regulatory requirements.
Human Resources
As of March 31,
2015, we had fifteen full-time employees, ten of whom were engaged in research and development, and five of whom were engaged in management, administration and finance. None of our employees are represented by a labor union or covered by a
collective bargaining agreement, nor have we experienced any work stoppages.
45
MANAGEMENT
Directors and Executive Officers of RXi
Our current Board of Directors and their respective ages and positions as of April 10, 2015:
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Name |
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Age |
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Director Since |
Geert Cauwenbergh, Dr. Med. Sc., President, Chief Executive Officer, acting Chief Financial Officer and Director |
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61 |
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2012 |
Robert J. Bitterman, Chairman of the Board of Directors |
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64 |
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2012 |
Keith L. Brownlie, Director |
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62 |
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2012 |
H. Paul Dorman, Director |
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78 |
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2013 |
Curtis A. Lockshin, Ph.D., Director |
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54 |
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2013 |
Geert Cauwenbergh, Dr. Med. Sc. was appointed to the Board and was elected as President and
Chief Executive Officer of the Company on April 27, 2012. Prior to joining us, from June 2011 to April 2012, Dr. Cauwenbergh was active, through his consulting company Phases123 LLC, in advising various small biotech and healthcare
companies. From July 2008 to June 2011, Dr. Cauwenbergh was the Chief Executive Officer of Rhei Pharmaceuticals HK Ltd, a Chinese company that licenses western drugs for development and commercialization in China, and Managing Director of the
Center for Medical Innovation, a government subsidized center for translational medicine for the Belgian Region of Flanders. In February 2008 and May 2009, Dr. Cauwenbergh founded Phases123 LLC and Aramis LLC, a dermatology company,
respectively. From September 2008 to March 2010, Dr. Cauwenbergh served as a member of the board of directors of DARA Biosciences, Inc., a publicly-traded biopharmaceutical company. From 2002 to 2008, Dr. Cauwenbergh served as Chief
Executive Officer and Chairman of Barrier Therapeutics, Inc., a publicly-traded biopharmaceutical company that he founded in 2001. Barrier, which focused on dermatology drug development, was acquired by Stiefel Laboratories, Inc. in 2008. Prior to
founding Barrier, Dr. Cauwenbergh held a number of ascending senior management positions at Johnson & Johnson, where he was employed for 23 years. As Vice President, Research and Development for Johnson & Johnsons Skin
Research Center, he was responsible for the worldwide research and development of all skin care products for the Johnson & Johnson consumer companies. He is a member of the board of directors of Moberg Derma AB, a Swedish pharmaceutical
company. In February 2014, Dr. Cauwenbergh joined the board of directors of Phosphagenics Ltd., an Australian company focused on developing new transdermal delivery systems for pharmaceutical products. Dr. Cauwenbergh currently serves as
chairman of the Compensation Committee of Phosphagenics. In February 2014, Dr. Cauwenbergh also joined the board of directors of Cutanea Life Sciences, Inc., a wholly owned subsidiary of Maruho Company, LTD., which focuses on the development
and commercialization of proprietary technologies to treat diseased and aging skin. In 2005, Dr. Cauwenbergh was inducted into the New Jersey High-Tech Hall of Fame, and, from 2009 to 2010, he served as Chairman of the Board of Trustees of
BioNJ. He has authored more than 100 publications and has been a guest editor for numerous books addressing mycology and infectious diseases. Dr. Cauwenbergh received his Doctorate in Medical Sciences from the Catholic University of Leuven,
Faculty of Medicine (Belgium), where he also completed his masters and undergraduate work. Based on Dr. Cauwenberghs understanding of the business through his role as our Chief Executive Officer and as an incumbent member of the Board, as
well as his extensive experience in dermatology and company-building, the Nominating Committee concluded that Dr. Cauwenbergh has the requisite experience, qualifications, attributes and skill necessary to serve as a member of the Board.
Keith L. Brownlie was appointed to the Board on June 18, 2012. Prior to joining us, Mr. Brownlie was employed by the
accounting firm Ernst & Young LLP from 1974 to 2010. At Ernst & Young, he served as audit partner for numerous public companies and was the Life Sciences Industry Leader for the New York Metro Area. Mr. Brownlie co-founded the
New Jersey Entrepreneur of the Year Program and was co-chair of the BIONJ/PABIO Annual Symposium. Since his retirement from Ernst & Young in 2010, Mr. Brownlie has served as a member of the Board of Directors of Soligenix, Inc., which
develops products to treat life-threatening side effects
46
of cancer treatments and serious gastrointestinal diseases and vaccines for certain bioterrorism agents. Mr. Brownlie currently serves as chairman of the Audit Committee of Soligenix. From
2011 to 2013, Mr. Brownlie also served as a member of the Board of Directors of EpiCept Corporation, which focused on the development and commercialization of pharmaceutical products for the treatment of pain and cancer and merged with Immune
Pharmaceuticals in August 2013. From 2013 to 2014, Mr. Brownlie was a member of the board of directors and served as the chairman of the Audit Committee of Cancer Genetics, Inc., an emerging leader in DNA-based cancer diagnostics that
personalizes the clinical management of difficult-to-diagnose cancers. Mr. Brownlie received a B.S. in Accounting from Lehigh University and is a Certified Public Accountant. Based on Mr. Brownlies experience in the area of public
company financial reporting, his responsibilities as an audit partner, which qualify him as a financial expert, and his membership on the board of directors of other public companies, the Nominating Committee concluded that Mr. Brownlie has the
requisite experience, qualifications, attributes and skill necessary to serve as a member of the Board.
Robert J.
Bitterman was appointed to the Board on June 19, 2012. Prior to joining the Company, Mr. Bitterman was employed by Aventis S.A. and its predecessor companies from 1977 to 2004 where he held various positions of increasing
responsibility in financial and commercial capacities. From 1994 to 2004, Mr. Bitterman served as the President and General Manager of Aventis Dermik Laboratories, a global, strategic business unit focused on therapeutic and aesthetic
dermatology development and commercialization. From 2004 to 2005, Mr. Bitterman served as President and CEO for Isolagen, Inc., a publicly traded bioscience technology company which developed and commercialized autologous human fibroblasts
targeting soft tissue enhancement. Since September 2005, Mr. Bitterman has served as the President and CEO of Cutanea Life Sciences, Inc., a wholly owned subsidiary of Maruho Company, LTD., which focuses on the development and commercialization
of proprietary technologies to treat diseased and aging skin. Mr. Bitterman holds an A.B. degree in Economics from The College of the Holy Cross and a Master of Business Administration degree from Boston University. Based on
Mr. Bittermans significant leadership roles in other bioscience companies, including the role of chief executive officer, his experience with development stage organizations, and his knowledge of dermatology and the pharmaceutical
industry, the Nominating Committee concluded that Mr. Bitterman has the requisite experience, qualifications, attributes and skill necessary to serve as a member of the Board.
H. Paul Dorman was appointed to the Board on April 18, 2013. Mr. Dorman currently serves as the Chairman and CEO of DFB
Pharmaceuticals, a holdings company specializing in investing in and operating pharmaceutical businesses. From 1990 to 2012, Mr. Dorman also served as the Chairman and CEO of DPT Laboratories, a contract manufacturer and developer of
pharmaceutical products. During that time, Mr. Dorman expanded DPT into a portfolio of healthcare companies that provides services and proprietary branded pharmaceutical products to the global market. Prior to acquiring DPT, Mr. Dorman was
employed by Johnson & Johnson for 12 years, where he served in various positions, including Vice President and as a member of the board of directors. Prior to Johnson & Johnson, Mr. Dorman was employed by Baxter-Travenol, a
large pharmaceuticals company. Mr. Dorman holds a B.S. degree in Mechanical Engineering from Tulane University and a Juris Doctor of Law from Loyola University. Based on Mr. Dormans experience through his roles as Chairman and CEO
and his deep understanding of the pharmaceutical industry in holding executive positions at large public companies, the Nominating Committee concluded that Mr. Dorman has the requisite experience, qualifications, attributes and skill necessary
to serve as a member of the Board.
Curtis A. Lockshin, Ph.D. was appointed to the Board on April 18, 2013. Since
March 2014, Dr. Lockshin has served as the Vice President of Research and Operations of Xenetic Biosciences, Inc., a biopharmaceutical company focused on developing biologic drugs and novel oncology therapeutics. Since September 2014,
Dr. Lockshin has served as the Chief Executive Officer of SciVac, Ltd., a private biologics and vaccine company in Rehovot, Israel and as the President and CEO of Guardum Pharmaceuticals, LLC, a private pharmaceutical company, since May 2013.
From October 2011 to February 2013, Dr. Lockshin served as Vice President of Corporate R&D Initiatives for OPKO Health, Inc., a multinational pharmaceutical and diagnostics company, at which time he then assumed the position of consultant
to OPKO until December 2013. From March 2011 until December 2013, Dr. Lockshin served as a member of the board of directors for ChromaDex, Inc., a natural products company engaged in the dietary supplement, food & beverage, cosmetic
and pharmaceutical industries.
47
From October 2009 to September 2012, Dr. Lockshin served as a member of the board of directors for Sorrento Therapeutics, Inc., a development-stage biopharmaceutical company. Since April
2004, Dr. Lockshin has also served as a member of the board of directors of the Ruth K. Broad Biomedical Research Foundation. The foundation is a Duke University Support Corporation that supports basic research related to Alzheimers
disease and neurodegeneration via intramural, extramural and international grants. Since 2003, Dr. Lockshin has worked as an independent consultant, focusing on small private companies in the healthcare, biotechnology and security sectors. From
August 2002 to March 2003, Dr. Lockshin held the position of Director of Discovery Biology at Beyond Genomics, Inc. (now BG Medicine, Inc.), a company engaged in the discovery of disease-associated biomarkers and identification of therapeutic
targets. Dr. Lockshin held various positions from June 1998 to July 2002 at Sepracor, Inc. (now Sunovion Pharmaceuticals, Inc.), a pharmaceutical company that develops therapeutic products for the central nervous system and respiratory
disorders. Dr. Lockshin holds a S.B. degree in Life Sciences and a Ph.D. in Biological Chemistry from the Massachusetts Institute of Technology. Based on Dr. Lockshins industry knowledge in the biotechnology and pharmaceutical fields
and his membership on the board of directors of other public companies, the Nominating Committee concluded that Dr. Lockshin has the requisite experience, qualifications, attributes and skill necessary to serve as a member of the Board.
Executive Officers
The following table
sets forth information regarding our executive officers as of April 10, 2015:
|
|
|
|
|
|
|
Name |
|
Age |
|
|
Position |
Geert Cauwenbergh, Dr. Med. Sc. |
|
|
61 |
|
|
President and Chief Executive Officer |
Pamela Pavco, Ph.D. |
|
|
58 |
|
|
Chief Development Officer |
Pamela Pavco, Ph.D. Dr. Pavco currently serves as our Chief Development Officer. Prior to
this, Dr. Pavco served as our Senior Vice President of Pharmaceutical Development from September 24, 2011 until April 2012. From March 2007 to September 24, 2011, she served as the Vice President of Pharmaceutical Development of
Galena Biopharma, Inc. Dr. Pavco has over 20 years of research and development experience in oligonucleotides. Dr. Pavco was Senior Director, Research and Development Project Management at Sirna Therapeutics, Inc., from 2002 until 2006,
when it was acquired by Merck & Co., Inc. for $1.1 billion. While at Sirna, she was responsible for the discovery research and development of Sirna-027, the first chemically modified siRNA to enter clinical trials. Dr. Pavco also
managed Sirnas alliance with Allergan, Inc. that was initiated to continue discovery research in the area of ophthalmology and take Sirna-027 forward into Phase 2 clinical studies. While at Sirna, Dr. Pavco served in various additional
capacities, including Director of Biology Research and Director of Pharmacology and she also managed numerous corporate collaborations and internal programs focusing on the development of therapeutic oligonucleotides in the fields of oncology,
anti-angiogenesis, hepatitis, respiratory disease and Huntingtons disease. Dr. Pavco has authored numerous scientific articles and contributed to approximately 58 patents and patent applications in the oligonucleotide therapeutics field.
Dr. Pavco received a Ph.D. in Biochemistry from Virginia Commonwealth University in 1983 and did her post-doctoral work at Duke University. She is a member of the American Association of Cancer Research and the Association for Research and
Vision in Ophthalmology.
48
EXECUTIVE COMPENSATION
The following describes the compensation earned in fiscal 2014 and 2013 by each of the executive officers identified below in the Summary
Compensation Table, who are referred to collectively as our named executive officers. Our named executive officers with respect to the fiscal year that ended on December 31, 2014 are Geert Cauwenbergh, Dr. Med. Sc., President,
Chief Executive Officer, acting Chief Financial Officer and Director, and Pamela Pavco, Ph.D., Chief Development Officer. The principal terms of our employment agreements with Drs. Cauwenbergh and Pavco are described below in the Executive
Compensation Employment Agreements section of this prospectus.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principle Position |
|
Year |
|
|
Salary ($) |
|
|
Bonus ($) |
|
|
Option Awards ($)(1) |
|
|
All Other Compensation ($) |
|
|
Total ($) |
|
Geert Cauwenbergh, Dr. Med. Sc. |
|
|
2014 |
|
|
|
381,274 |
|
|
|
114,000 |
|
|
|
305,900 |
|
|
|
552 |
(2) |
|
|
801,726 |
|
President and Chief Executive Officer |
|
|
2013 |
|
|
|
368,135 |
|
|
|
187,500 |
|
|
|
538,669 |
|
|
|
956 |
(2) |
|
|
1,095,260 |
|
|
|
|
|
|
|
|
Pamela Pavco, Ph.D. |
|
|
2014 |
|
|
|
350,577 |
|
|
|
63,000 |
|
|
|
150,480 |
|
|
|
300 |
(3) |
|
|
564,357 |
|
Chief Development Officer |
|
|
2013 |
|
|
|
324,404 |
|
|
|
103,500 |
|
|
|
264,001 |
|
|
|
300 |
(3) |
|
|
692,205 |
|
(1) |
The amounts shown reflect the grant date fair value computed in accordance with FASB ASC 718 for the indicated year, adjusted to disregard the effects of any estimate of forfeitures related to service-based vesting. The
assumptions we used in valuing options are described more fully in the Managements Discussion and Analysis section and the Notes to Financial Statements included in this prospectus. |
(2) |
Represents amounts for the dollar value of life insurance premiums paid and a gross-up for the related tax liability in connection with Dr. Cauwenberghs health insurance premiums. |
(3) |
Represents amounts for the dollar value of life insurance premiums paid. |
Outstanding Equity Awards at
Fiscal Year-End
The following table shows information regarding outstanding equity awards at December 31, 2014 for our named
executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards(1) |
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities Underlying Unexercised Options |
|
|
|
|
|
|
|
|
Number of Shares or Units of Stock that Have Not Vested (#) |
|
|
Market Value of Shares or Units of Stock that Have Not Vested ($)(2) |
|
Name |
|
Exercisable |
|
|
Unexercisable |
|
|
Option Exercise Price ($) |
|
|
Option Expiration Date |
|
|
|
Geert Cauwenbergh, Dr. Med. Sc. |
|
|
758,998 |
|
|
|
379,508 |
|
|
|
2.55 |
|
|
|
06/08/2022 |
|
|
|
379,508 |
|
|
|
607,213 |
|
|
|
|
50,000 |
|
|
|
83,334 |
|
|
|
6.00 |
|
|
|
06/07/2023 |
|
|
|
83,334 |
|
|
|
133,334 |
|
|
|
|
|
|
|
|
133,000 |
|
|
|
2.85 |
|
|
|
06/02/2024 |
|
|
|
133,000 |
|
|
|
212,800 |
|
|
|
|
|
|
|
|
Pamela Pavco, Ph.D. |
|
|
453,445 |
|
|
|
104,646 |
|
|
|
3.90 |
|
|
|
05/04/2022 |
|
|
|
104,646 |
|
|
|
167,434 |
|
|
|
|
25,000 |
|
|
|
41,667 |
|
|
|
6.00 |
|
|
|
06/07/2023 |
|
|
|
41,667 |
|
|
|
66,667 |
|
|
|
|
8,250 |
|
|
|
57,750 |
|
|
|
2.85 |
|
|
|
06/02/2024 |
|
|
|
57,750 |
|
|
|
92,400 |
|
(1) |
Options have different vesting parameters, but generally vest within 48 months after the award is granted. |
(2) |
Calculated by multiplying the number of unvested shares by $1.60, the closing price per share of our common stock on the NASDAQ Capital Market on December 31, 2014. |
Nonqualified Deferred Compensation
We do
not have any nonqualified deferred compensation plans.
49
Employment and Change of Control Agreements
Geert Cauwenbergh, Dr. Med. Sc.
Dr. Cauwenbergh was appointed Chief Executive Officer pursuant to an employment agreement, dated April 27, 2012, pursuant to which he
is entitled to receive an initial base salary of $360,000 per annum, as well as a performance bonus of up to 50% of his base salary, subject to the achievement of performance goals to be established annually. On June 8, 2012,
Dr. Cauwenbergh received an option entitling him to purchase 1,138,506 shares of Company common stock at an exercise price equal to the fair value of the underlying common stock on the date of grant. The option became exercisable with respect
to one quarter of the underlying shares on April 27, 2013, and then vests on a ratable basis monthly thereafter over the next three years such that the option is fully vested and exercisable on April 27, 2016.
Dr. Cauwenberghs employment agreement provides that, upon termination of Dr. Cauwenberghs employment without
cause (as defined) by us or by Dr. Cauwenbergh for good reason (as defined), he will be entitled to payment of: (1) any accrued but unpaid salary, business expenses and unused vacation as of the date of his
termination as well as any unpaid bonus compensation awarded for the prior year; (2) six months of salary from the date of termination; and (3) continued participation, at our expense, during the applicable severance period in our
sponsored group medical and dental plans. In the event his employment is terminated within twelve months following a change of control of RXi, he will be entitled to: (x) twelve months of salary from the date of termination;
(y) accelerated vesting of any unvested RXi stock options held by him; and (z) continued participation, at our expense, during the severance period in our sponsored group medical and dental plans.
Pamela Pavco, Ph.D.
Dr. Pavco serves as our Chief Development Officer. Under her employment agreement dated September 24, 2011, Dr. Pavco receives
an initial annual salary of $300,000. She also received an option to purchase up to 558,091 shares of common stock at an exercise price equal to the fair value of the underlying common stock on the date of grant. The option vests in equal monthly
installments of 11,626 shares beginning on October 24, 2011 with a final monthly installment of 11,669 shares on September 24, 2015, subject to accelerated vesting in some events.
Dr. Pavcos employment agreement provides that, upon termination of Dr. Pavcos employment without cause (as
defined) by us or by Dr. Pavco for good reason (as defined), she will be entitled to payment of: (1) any accrued but unpaid salary and unused vacation as of the date of her termination; (2) twelve months (in the event of
such termination within twelve months of the effective date of her employment) or six months (in the event of such termination after twelve months from the effective date of her employment), as the case may be, of salary from the date of
termination; and (3) continued participation, at our expense, during the applicable severance period in our sponsored group medical and dental plans. In the event her employment is terminated within twelve months following a change of
control of RXi, she will be entitled to: (x) twelve months of salary from the date of termination; (y) accelerated vesting of any unvested RXi stock options held by her as to 50% of the unvested option shares or the portion of the
unvested option shares that would have vested over the following twenty-four months, whichever is greater; and (z) continued participation, at our expense, during the severance period in our sponsored group medical and dental plans.
50
DIRECTOR COMPENSATION
As our only director who is also an employee, Dr. Cauwenbergh receives no separate compensation for Board service. A description of our
non-employee director compensation is set forth below.
|
|
|
|
|
Annual Cash Retainer |
|
$ |
25,000 (paid quarterly) |
|
Annual Cash Retainer for Chairman of the Board and Audit Committee |
|
$ |
10,000 (paid quarterly) |
|
Annual Cash Retainer for Chairman of Nominating and Governance Committees |
|
$ |
5,000 (paid quarterly) |
|
Initial Option Grant |
|
|
33,000 shares(1) |
|
Annual Option Grant |
|
|
16,666 shares(1) |
|
(1) |
Options vest on a ratable quarterly basis over a one-year period from the date of grant. |
Non-employee directors are also reimbursed for their travel and reasonable out-of-pocket expenses incurred in connection with attending Board
and committee meetings and in attending continuing education seminars, to the extent that attendance is required by the Board or the committee(s) on which that director serves.
The Compensation Committee and the Board reassesses the appropriate level of equity compensation for non-employee directors on an annual
basis. Future equity compensation payments will be determined on a year-by-year basis for the foreseeable future due to the volatility of the Companys stock price.
The following table shows the compensation paid in fiscal year 2014 to the Companys non-employee directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
Director Compensation |
|
|
|
|
|
|
|
|
|
Name |
|
Fees Earned or Paid in Cash |
|
|
Option Awards($)(1) |
|
|
Total ($) |
|
Keith L. Brownlie |
|
$ |
35,000 |
|
|
|
35,499 |
|
|
|
70,499 |
|
Robert J. Bitterman |
|
$ |
35,000 |
|
|
|
35,499 |
|
|
|
70,499 |
|
H. Paul Dorman |
|
$ |
30,000 |
|
|
|
35,499 |
|
|
|
65,499 |
|
Curtis A. Lockshin, Ph.D. |
|
$ |
30,000 |
|
|
|
35,499 |
|
|
|
65,499 |
|
(1) |
The value of the option awards has been computed in accordance with FASB ASC 718, excluding the effect of estimated forfeitures. The assumptions we used in valuing options are described more fully in the
Managements Discussion and Analysis section and the Notes to Financial Statements included in this prospectus. |
51
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Since the past two years, there has not been, nor is there currently proposed, any transaction or series of related transactions to which we
were or will be a party in which the amount involved exceeded or will exceed $120,000 and in which the other parties included or will include any of our directors, executive officers, holders of 5% or more of our voting securities, or any member of
the immediate family of any of the foregoing persons, other than compensation arrangements with directors and executive officers, which are described where required in Management, Executive Compensation, and the transactions
described below.
Procedures for Review, Approval or Ratification of Transactions with Related Persons
Our Board of Directors has a policy to review and approve all transactions with directors, officers and holders of more than 5% of our voting
securities and their affiliates. The policy provides that, prior to Board consideration of a transaction with such a related party, the material facts as to the related partys relationship or interest in the transaction must be disclosed to
the Board, and the transaction will not be considered approved by the Board unless a majority of the directors who are not interested in the transaction (if applicable) approve the transaction. Furthermore, when stockholders are entitled to vote on
a transaction with a related party, the material facts of the related partys relationship or interest in the transaction must be disclosed to the stockholders, who must approve the transaction in good faith.
Indemnification Agreements
We have
entered into indemnification agreements with each of our executive officers and directors. These agreements provide that, subject to limited exceptions and among other things, we will indemnify each of our executive officers and directors to the
fullest extent permitted by law and advance expenses to each indemnitee in connection with any proceeding in which a right to indemnification is available.
52
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information relating to the beneficial ownership of our common stock as of April 1, 2015 by:
|
|
|
each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding shares of common stock; |
|
|
|
each of our named executive officers; and |
|
|
|
all directors and executive officers as a group. |
The number of shares beneficially owned by
each entity, person, director, executive officer or selling stockholder is determined in accordance with the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares over which the individual or entity has sole or shared voting power or investment power as well as any shares that the individual or entity has the right to acquire within 60 days of April 1, 2015
through the exercise of any stock option, warrants or other rights. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of
common stock held by that person or entity.
The percentage of shares beneficially owned is computed on the basis of 31,221,598 shares of
our common stock outstanding as of April 1, 2015. Shares of our common stock that a person or entity has the right to acquire within 60 days of April 1, 2015 are deemed outstanding for purposes of computing the percentage ownership of the
person or entity holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person or entity, except with respect to the percentage ownership of all directors and executive officers as a
group. Unless otherwise indicated below, the address for each beneficial owner listed is c/o RXi Pharmaceuticals Corporation, at 257 Simarano Drive, Suite 101 Marlborough, Massachusetts 01752.
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially Owned Prior to the Offering |
|
Name and Address of Beneficial Owner |
|
Number(1) |
|
|
Percent of Class(2) |
|
Greater than 5% Holders |
|
|
|
|
|
|
|
|
OPKO Health, Inc.(3)
4400 Biscayne Boulevard
Miami, Florida 33137 |
|
|
2,241,378 |
|
|
|
7.18 |
% |
Tang Capital Partners, LP(4)
4747 Executive Drive, Suite 510
San Diego, CA 92121 |
|
|
2,236,438 |
|
|
|
6.89 |
% |
|
|
|
Directors, Officers and Named Executive Officers: |
|
|
|
|
|
|
|
|
Geert Cauwenbergh, Dr. Med. Sc.(5) |
|
|
1,008,980 |
|
|
|
3.14 |
% |
Keith L. Brownlie(6) |
|
|
62,499 |
|
|
|
* |
|
Robert J. Bitterman(7) |
|
|
68,999 |
|
|
|
* |
|
H. Paul Dorman(8) |
|
|
45,832 |
|
|
|
* |
|
Curtis A. Lockshin, Ph.D.(9) |
|
|
46,832 |
|
|
|
* |
|
Pamela J. Pavco, Ph.D.(10) |
|
|
579,867 |
|
|
|
1.82 |
% |
All current directors and executive officers as a group (six persons) |
|
|
1,813,009 |
|
|
|
5.50 |
% |
* |
Indicates less than 1%. |
(1) |
Represents shares of common stock and shares of restricted stock held as of April 1, 2015 plus shares of common stock that may be acquired upon exercise of options, warrants and other rights exercisable within
60 days of April 1, 2015. |
53
(2) |
Based on 31,221,598 shares of the registrants Common Stock that were issued and outstanding as of April 1, 2015. The percentage ownership and voting power for each person (or all directors and executive
officers as a group) is calculated by assuming the exercise or conversion of all options, warrants and convertible securities exercisable or convertible within 60 days of April 1, 2015 held by such person and the non-exercise and non-conversion
of all outstanding warrants, options and convertible securities held by all other persons. |
(3) |
Based solely on a Schedule 13D filed with the SEC on March 22, 2013. |
(4) |
Based solely on a Schedule 13G/A filed with the SEC on January 27, 2015. Represents 1,001,841 shares of common stock and 1,234,597 shares of common stock issuable upon the conversion of shares of Series A Preferred
Stock and Series A-1 Preferred Stock that are owned of record by Tang Capital Partners, LP (TCP) as of that date. In accordance with the conversion limitation contained within the Series A Preferred Stock Certificate of Designations and
the Series A-1 Preferred Stock Certificate of Designations, in no event may TCP convert shares of Series A Preferred Stock or Series A-1 Preferred Stock into shares of our common stock if such conversion would result in beneficial ownership of more
than 9.999% of the then issued and outstanding shares of our common stock. This conversion limitation may not be waived and any purported conversion that is inconsistent with this conversion limitation is null and void. Tang Capital Management, LLC
is the general partner of TCP. Kevin C. Tang is the Managing Director of Tang Capital Management, LLC. Mr. Tang shares voting and investment power over the shares shown with TCP and Tang Capital Management, LLC and, as such, may be deemed
to be a beneficial owner of such shares. Mr. Tang disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein. The percent of common stock shown in the table as beneficially owned is reported as less
than 9.999% due to an increase in the total shares outstanding from the date of the Schedule 13G/A filed by TCP and April 1, 2015, which is the date as of which beneficial holdings are reported. |
(5) |
Consists of (a) 67,500 shares of common stock and (b) 941,480 shares of common stock issuable upon the exercise of options exercisable within 60 days of April 1, 2015. |
(6) |
Consists of 62,499 shares of common stock issuable upon the exercise of options exercisable within 60 days of April 1, 2015. |
(7) |
Consists of (a) 6,500 shares of common stock and (b) 62,499 shares of common stock issuable upon the exercise of options exercisable within 60 days of April 1, 2015. |
(8) |
Consists of 45,832 shares of common stock issuable upon the exercise of options exercisable within 60 days of April 1, 2015. |
(9) |
Consists of (a) 1,000 shares of common stock and (b) 45,832 shares of common stock issuable upon the exercise of options exercisable within 60 days of April 1, 2015. |
(10) |
Consists of (a) 21,218 shares of common stock and (b) 558,649 shares of common stock issuable upon the exercise of options exercisable within 60 days of April 1, 2015. |
54
DESCRIPTION OF CAPITAL STOCK
Authorized Capital Stock
Our
authorized capital stock consists of 100,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share, of which 15,000 shares are designated as Series A Convertible Preferred
Stock, or Series A Preferred Stock and 10,000 shares are designated as Series A-1 Convertible Preferred Stock, or Series A-1 Preferred Stock. As of March 31, 2015, 31,221,598 shares of our common stock were
outstanding, held of record by 168 stockholders, 3,085 shares of our Series A Preferred Stock were outstanding and 21 shares of our Series A-1 Preferred Stock were outstanding; as of the date of this prospectus, all previously issued shares of
Series A Preferred Stock and Series A-1 Preferred Stock had been tendered for conversion into common stock. As a result, no preferred stock is outstanding as of the date hereof.
Common Stock
The holders of our common
stock are entitled to one vote for each share on all matters voted on by stockholders, including elections of directors, and, except as otherwise required by law or provided in any resolution adopted by our board with respect to any series of
preferred stock, the holders of such shares will possess all voting power. Our certificate of incorporation does not provide for cumulative voting in the election of directors. The shares of common stock have no conversion rights or sinking fund
provisions and are not liable for further call or assessment. Subject to any preferential rights of any outstanding series of our preferred stock created by our board from time to time, the holders of common stock are entitled to such dividends as
may be declared from time to time by our board from funds available therefor and upon liquidation are entitled to receive their pro rata share of all assets available for distribution to such holders. Our common stock is not redeemable.
The holders of our common stock have no preemptive rights.
The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders
of shares of any series of preferred stock that we may designate and issue in the future.
Preferred Stock
Our board of directors, without further action by the holders of our common stock, may issue shares of our preferred stock in one or more
series. Our board is vested with the authority to fix by resolution the designations, preferences and relative, participating, optional or other special rights, and such qualifications, limitations or restrictions thereof, including, without
limitation, redemption rights, dividend rights, liquidation preferences and conversion or exchange rights of any class or series of preferred stock, and to fix the number of classes or series of preferred stock, the number of shares constituting any
such class or series and the voting powers for each class or series.
The authority possessed by our board to issue preferred stock could
potentially be used to discourage attempts by third parties to obtain control of us through a merger, tender offer, proxy contest or otherwise by making such attempts more difficult or more costly. Our board may issue preferred stock with voting
rights or conversion rights that, if exercised, could adversely affect the voting power of the holders of common stock. There are no current agreements or understandings with respect to the future issuance of preferred stock and our board has no
present intention to issue any additional shares of preferred stock except for those from Series A and Series A-1 Preferred Stock dividends.
Series A
Preferred Stock
Holders of Series A Preferred Stock are entitled to receive cumulative mandatory dividends at the rate per share of
seven percent (7%) of the face amount ($1,000 per share) per annum, payable quarterly on each
55
March 31, June 30, September 30 and December 31. Dividends shall be payable in additional shares of Series A Preferred Stock valued for this purpose at the face
amount. In the event there are not sufficient authorized Series A Preferred Shares available to pay such a dividend, the dividend shall instead accrete to and increase the face value of the outstanding Series A Preferred Stock. The fair value of the
Series A Preferred Stock dividend, which is included in the Companys net loss applicable to common stockholders, is calculated by multiplying the number of common shares that a preferred holder would receive upon conversion by the closing
price of the Companys common stock on the dividend payment date.
Each holder of shares of Series A Preferred Stock may, at any time
and from time to time, convert each of its shares into a number of fully paid and non-assessable shares of common stock at the defined conversion rate. Each share of Series A Preferred Stock is convertible into 2,437.57 shares of common stock.
In no event shall any holder of shares of Series A Preferred Stock have the right to convert shares of Series A Preferred Stock into shares of common stock to the extent that, after giving effect to such conversion, the holder, together with any of
its affiliates, would beneficially own more than 9.999% of the then-issued and outstanding shares of common stock.
The Liquidation
Preference with respect to a share of Series A Preferred Stock means an amount equal to the face amount of the shares ($1,000 per share) plus all accrued and unpaid dividends on the Series A Preferred Stock (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to such shares). In the event of a liquidation, dissolution, or winding up, whether voluntary or involuntary, no distribution shall be made to the holders of any shares of
capital stock of the Company (other than Senior Securities (as defined in the Certificate of Designations), pursuant to the rights, preferences and privileges thereof) unless prior thereto the holders of shares of Series A Preferred Stock have
received the Liquidation Preference with respect to each share then outstanding.
The holders of Series A Preferred Stock do not have any
right to elect directors and have only limited voting rights, which consist primarily of the right to vote under certain protective provisions set forth in the Certificate of Designations, regarding: (i) any proposed amendment to the Series A
Preferred Stock or its right and preferences; and (ii) any proposed Deemed Liquidation Event as defined in the Certificate of Designations.
Series A-1 Preferred Stock
Holders of
Series A-1 Preferred Stock are entitled to receive cumulative mandatory dividends at the rate per share of seven percent (7%) of the face amount ($1,000 per share) per annum, payable quarterly on each
March 31, June 30, September 30 and December 31. Dividends shall be payable in additional shares of Series A-1 Preferred Stock valued for this purpose at the face amount. In the
event there are not sufficient authorized Series A-1 Preferred Shares available to pay such a dividend, the dividend shall instead accrete to and increase the face value of the outstanding Series A-1 Preferred Stock. The fair value of the Series A-1
Preferred Stock dividend, which is included in the Companys net loss applicable to common stockholders, is calculated by multiplying the number of common shares that a preferred holder would receive upon conversion by the closing price of the
Companys common stock on the dividend payment date.
Each holder of shares of Series A-1 Preferred Stock may, at any time and from
time to time, convert each of its shares into a number of fully paid and non-assessable shares of common stock at the defined conversion rate. Each share of Series A-1 Preferred Stock is convertible into 2,437.57 shares of common stock. In no
event shall any holder of shares of Series A-1 Preferred Stock have the right to convert shares of Series A-1 Preferred Stock into shares of common stock to the extent that such issuance or sale or right to effect such conversion would result in the
holder or any of its affiliates together beneficially owning more than 9.999% of the then issued and outstanding shares of common stock.
The Liquidation Preference with respect to a share of Series A-1 Preferred Stock means an amount equal to the face amount of the
shares ($1,000 per share) plus all accrued and unpaid dividends on the Series A-1
56
Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). In the event of a liquidation, dissolution, or winding up,
whether voluntary or involuntary, no distribution shall be made to the holders of any shares of capital stock of the Company (other than Senior Securities (as defined in the Certificate of Designations), pursuant to the rights, preferences and
privileges thereof) unless prior thereto the holders of shares of Series A-1 Preferred Stock have received the Liquidation Preference with respect to each share then outstanding. The liquidation preference of the Series A Preferred Stock
is pari passu with the liquidation preference of the Series A-1 Preferred Stock.
The holders of Series A-1 Preferred
Stock do not have any right to elect directors and have only limited voting rights, which consist primarily of the right to vote under certain protective provisions set forth in the Certificate of Designations, regarding: (i) any proposed
amendment to the Series A-1 Preferred Stock or its right and preferences; and (ii) any proposed Deemed Liquidation Event as defined in the Certificate of Designations.
Warrants
As of March 31, 2015, we
had outstanding warrants to purchase 4,615 shares of common stock at a weighted-average exercise price of $3.90 per share, which expire on April 27, 2017.
Anti-Takeover Effects of Provisions of the Certificate of Incorporation and Bylaws
Certificate of Incorporation and Bylaw Provisions. Our certificate of incorporation and bylaws include a number of provisions that
may have the effect of encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. They are intended to enhance
long-term value to our stockholders by increasing the likelihood of continued stability in the composition of our board of directors and its policies and discouraging certain types of transactions that may involve an actual or threatened acquisition
of us. These provisions are also designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others
from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our stock that could result from actual or rumored takeover attempts. These provisions include the items described below.
Filling Vacancies. Any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the
size of our board of directors, may only be filled by the affirmative vote of a majority of our directors then in office even if less than a quorum.
No Written Consent of Stockholders. Our certificate of incorporation provides that all stockholder actions are required to be
taken by a vote of the stockholders at an annual or special meeting, and that stockholders may not take any action by written consent in lieu of a meeting.
Meetings of Stockholders. Our certificate of incorporation provides that only our board of directors or holders of 5% or more of
our outstanding shares of common stock may call special meetings of stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders. Our bylaws limit the
business that may be conducted at an annual meeting of stockholders to those matters properly brought before the meeting.
Advance
Notice Requirements. Our bylaws include advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders.
These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal
executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year. The notice must contain certain information specified in the amended and restated bylaws.
57
Amendment to Bylaws and Certificate of Incorporation. As required by the Delaware
General Corporation Law (the DGCL) any amendment of our certificate of incorporation must first be approved by a majority of our board of directors and, if required by law or our certificate of incorporation, thereafter be
approved by a majority of the outstanding shares entitled to vote on the amendment, and a majority of the outstanding shares of each class entitled to vote thereon as a class. Our bylaws may be amended by the affirmative vote of a majority vote of
the directors then in office, subject to any limitations set forth in the bylaws.
Blank Check Preferred Stock. Our amended
and restated certificate of incorporation provides for 10,000,000 authorized shares of preferred stock, of which 15,000 shares are designated as Series A Preferred Stock and 10,000 shares are designated as Series A-1 Preferred Stock. The existence
of authorized but unissued shares of preferred stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest, or otherwise. For example, if in
the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in the best interests of our company or our stockholders, our board of directors could cause shares of preferred stock to be
issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group. In this regard, our amended and restated
certificate of incorporation grants our board of directors broad power to establish the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and
assets available for distribution to holders of shares of common stock. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying, deterring, or preventing a change of
control of us.
Delaware Business Combination Statute
Section 203 of the DGCL provides that, subject to exceptions set forth therein, an interested stockholder of a Delaware
corporation shall not engage in any business combination, including mergers or consolidations or acquisitions of additional shares of the corporation, with the corporation for a three-year period following the date that such stockholder becomes an
interested stockholder unless:
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Prior to such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; |
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Upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, other than statutorily excluded shares; or |
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On or subsequent to such date, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least
66-2/3% of the outstanding voting stock which is not owned by the interested stockholder. |
Except as otherwise set forth in
Section 203, an interested stockholder is defined to include:
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Any person that is the owner of 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within three years immediately prior to the date of determination; and |
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The affiliates and associates of any such person. |
The restrictions contained in
Section 203 are not applicable to any of our existing stockholders that owned 15% or more of our outstanding common stock upon the completion of our spin-off from Galena.
Section 203 may make it more difficult for a person who would be an interested stockholder to effect various business combinations with a
corporation for a three-year period. We have not elected to be exempt from the restrictions imposed under Section 203. The provisions of Section 203 may encourage persons interested in
58
acquiring us to negotiate in advance with our board, since the stockholder approval requirement would be avoided if a majority of the directors then in office approves either the business
combination or the transaction which results in any such person becoming an interested stockholder. Such provisions also may have the effect of preventing changes in our management. It is possible that such provisions could make it more difficult to
accomplish transactions, which our stockholders may otherwise deem to be in their best interests.
Exchange Listing
Our common stock is listed on the Nasdaq Capital Market under the trading symbol RXII.
Transfer Agent and Registrar
Computershare Trust Company, N.A. is the transfer agent and registrar for our common stock.
59
DESCRIPTION OF SECURITIES WE ARE OFFERING
We are offering units, each unit consisting of one share of our common stock, one overallotment purchase right to purchase half of one (1/2)
share of our common stock and one warrant to purchase half of one (1/2) share of our common stock. The units will not be issued or certificated. The shares of common stock, the overallotment purchase rights and the warrants that we are issuing are
immediately separable and will be issued separately. The shares of common stock issuable from time to time upon exercise of the overallotment purchase rights and the warrants, if any, are also being offered pursuant to this prospectus.
Common Stock
The material terms and
provisions of our common stock and each other class of our securities which qualifies or limits our common stock are described under the caption Description of Capital Stock in this prospectus.
Overallotment Purchase Rights
The
material terms and provisions of the overallotment purchase rights being issued in this offering are summarized below. The following description is subject to, and qualified in its entirety by, the form of overallotment purchase right, which has
been filed as an exhibit to the registration statement of which this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the form of overallotment purchase right.
Form. The overallotment purchase rights will be issued as individual overallotment purchase rights to the investors.
Exercisability. The overallotment purchase rights are exercisable at any time after the date of issuance, and at any time up to the
date that is thirteen months from the date of issuance, at which time any unexercised overallotment purchase rights will expire and cease to be exercisable. The overallotment purchase rights will be exercisable, at the option of each holder, in
whole or in part by delivering to us a duly executed exercise notice and by payment in full in immediately available funds for the number of shares of common stock purchased upon such exercise. If a registration statement registering the issuance of
the shares of common stock underlying the overallotment purchase rights under the Securities Act of 1933, as amended, is not then effective or available, the holder may only exercise the overallotment purchase right through a cashless exercise, in
whole or in part, in which case the holder would receive upon such exercise the net number of shares of common stock determined according to the formula set forth in the overallotment purchase right. No fractional shares of common stock will be
issued in connection with the exercise of an overallotment purchase right. In lieu of fractional shares, we will either pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price or round up to the next whole
share.
Exercise Limitation. A holder will not have the right to exercise any portion of the overallotment purchase right if the
holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms
of the overallotment purchase rights. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after such notice
to us.
Call Provision. Subject to the Exercise Limitation discussed above, we may call these overallotment purchase rights for
redemption at any time after the sixth month following the date of issuance if the volume weighted average price of our common stock exceeds $ for each of 10 consecutive trading days. During the 5
trading days following a redemption call, holders of the overallotment purchase rights may choose to exercise the overallotment purchase rights, or a portion thereof, by paying the then applicable exercise price. Any
60
overallotment purchase rights subject to the redemption call that are unexercised during such 5-day period will be cancelled. We may call overallotment purchase rights that are covered by an
effective registration statement from the time of the call through the end of the 5-day period only.
Exercise Price. The initial
exercise price per share of common stock is $ per share of common stock. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits,
stock combinations, reclassifications or similar events affecting our common stock.
Transferability. Subject to applicable laws,
the overallotment purchase rights may be offered for sale, sold, transferred or assigned without our consent. There is currently no trading market for the overallotment purchase rights and a trading market is not expected to develop.
Exchange Listing. We do not plan to apply to list the overallotment purchase rights on the NASDAQ Capital Market, any other national
securities exchange or any other nationally recognized trading system.
Fundamental Transactions. In the event of a fundamental
transaction, as described in the overallotment purchase rights and generally including any reorganization, recapitalization or reclassification of our common stock, the sale, transfer or other disposition of all or substantially all of our
properties or assets, our consolidation or merger with or into another person, the holders of the overallotment purchase rights will be entitled to receive upon exercise of the overallotment purchase rights the kind and amount of securities, cash or
other property that the holders would have received had they exercised the overallotment purchase rights immediately prior to such fundamental transaction.
Rights as a Stockholder. Except as otherwise provided in the overallotment purchase rights or by virtue of such holders ownership
of shares of our common stock, the holder of an overallotment purchase right does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises the overallotment purchase right.
Warrants
The material terms and
provisions of the warrants being issued in this offering are summarized below. The following description is subject to, and qualified in its entirety by, the form of warrant, which has been filed as an exhibit to the registration statement of which
this prospectus is a part. Prospective investors should carefully review the terms and provisions set forth in the form of warrant.
Form. The warrants will be issued as individual warrants to the investors.
Exercisability. The warrants are exercisable at any time after the date of issuance, and at any time up to the date that is five years
from the date of issuance, at which time any unexercised warrants will expire and cease to be exercisable. The warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and by
payment in full in immediately available funds for the number of shares of common stock purchased upon such exercise. If a registration statement registering the issuance of the shares of common stock underlying the warrants under the Securities Act
of 1933, as amended, is not then effective or available, the holder may only exercise the warrant through a cashless exercise, in whole or in part, in which case the holder would receive upon such exercise the net number of shares of common stock
determined according to the formula set forth in the warrant. No fractional shares of common stock will be issued in connection with the exercise of a warrant. In lieu of fractional shares, we will either pay the holder an amount in cash equal to
the fractional amount multiplied by the exercise price or round up to the next whole share.
Exercise Limitation. A holder
will not have the right to exercise any portion of the warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% of the number of shares of our stock outstanding immediately after giving effect to the exercise,
as such percentage ownership is determined in
61
accordance with the terms of the warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such
percentage shall not be effective until 61 days after such notice to us.
Exercise Price;. The initial exercise price per share
of common stock is $ per share of common stock. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations,
reclassifications or similar events affecting our common stock.
Transferability. Subject to applicable laws, the warrants may
be offered for sale, sold, transferred or assigned without our consent. There is currently no trading market for the warrants and a trading market is not expected to develop.
Exchange Listing. We do not plan to apply to list the warrants on the NASDAQ Capital Market, any other national securities exchange or
any other nationally recognized trading system.
Fundamental Transactions. In the event of a fundamental transaction, as
described in the warrants and generally including any reorganization, recapitalization or reclassification of our common stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, or our consolidation or
merger with or into another person, the holders of the warrants will be entitled to receive upon exercise of the warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the warrants
immediately prior to such fundamental transaction.
Rights as a Stockholder. Except as otherwise provided in the warrants or
by virtue of such holders ownership of shares of our common stock, the holder of a warrant does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises the warrant.
62
PLAN OF DISTRIBUTION
We are offering 22,500,000 units. Each unit will consist of: (i) one share of our common stock; (ii) an overallotment purchase right to
purchase half of one (1/2) share of our common stock; and (iii) a warrant to purchase half of one (1/2) share of our common stock. The units will be immediately separated on issuance and purchasers will receive only shares of common stock,
overallotment purchase rights and warrants. The common stock, overallotment purchase rights and warrants may be transferred separately immediately upon issuance. However, there is no minimum offering amount required as a condition to closing
and we may sell significantly fewer shares of common stock, overallotment purchase rights and warrants in the offering. The offering will terminate
on , 2015, unless the offering is fully subscribed before that date or we decide to terminate the offering prior to that
date.
In determining the offering price of the common stock and the exercise price of the overallotment purchase rights and warrants, we
will consider a number of factors including, but not limited to, the current market price of our common stock, trading prices of our common stock over time, the illiquidity and volatility of our common stock, our current financial condition and the
prospects for our future cash flows and earnings, and market and economic conditions at the time of the offering. Once the offering price is determined, the offering price for the common stock and the exercise price of the overallotment purchase
rights and warrants will remain fixed for the duration of the offering.
H.C. Wainwright & Co., LLC
(Wainwright or the Placement Agent) has agreed to act as our exclusive placement agent in connection with the offering pursuant to the terms and conditions of an engagement agreement. The Placement Agent is not
purchasing or selling any securities offered by this prospectus, and is not required to arrange for the purchaser or sale of any specific number or dollar amount of securities, but will use its reasonable best efforts to arrange for the sale of the
securities offered by this prospectus. We will enter into securities purchase agreements directly with certain institutional investors which will purchase not less than $100,000 of units in this offering. We will not enter into any securities
purchase agreement with investors which will purchase less than $100,000 of units in this offering and such investors which purchase less than $100,000 shall rely solely on this prospectus in connection with the purchase of securities in this
offering. The Placement Agent may retain one or more sub-agents or selected dealers in connection with the offering.
We have agreed to
pay to the Placement Agent a placement agent fee equal to eight percent (8%) of the aggregate gross proceeds to us from the sale of the securities in the offering (excluding any proceeds from the exercise of the overallotment purchase rights
and warrants issued in the offering). In addition, we have agreed to reimburse the Placement Agent for its out-of-pocket legal fees and expenses in connection with this offering up to the lesser of (i) 0.5% of the aggregate gross proceeds of this
offering and (ii) $50,000, subject to compliance with FINRA Rule 5110(f)(2)(D)(i). We estimate total expenses of this offering, excluding the placement agent fees, will be approximately $210,000. The following table shows the per share and
total fees we will pay to the placement agent assuming the sale of all of the shares offered pursuant to this prospectus.
63
In addition, we have granted to the Placement Agent a right of first refusal with respect to
additional raises of funds by means of a public offering or private placement of equity or debt securities using an underwriter or placement agent during the 12 months following the consummation of this offering, subject to FINRA Rule 5110(f)(2)(D).
The engagement agreement provides that we will indemnify the Placement Agent against specified liabilities, including liabilities under
the Securities Act of 1933, as amended. The Placement Agent may be deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act, and any commissions received by it and any profit realized on the resale of the
securities sold by it while acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. As an underwriter, the Placement Agent would be required to comply with the Securities Act and the Securities
Exchange Act of 1934, as amended (Exchange Act), including without limitation, Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of shares of common
stock, overallotment purchase rights and warrants by the Placement Agent acting as principal. Under these rules and regulations, the Placement Agent:
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may not engage in any stabilization activity in connection with our securities; and |
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may not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until it has completed its participation in the
distribution. |
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LEGAL MATTERS
Gibson, Dunn & Crutcher LLP, San Francisco, California will pass upon the validity of the shares of common stock offered hereby and
the binding nature of the overallotment purchase rights and warrants offered hereby. Certain legal matters in connection with this offering will be passed upon for Wainwright by Ellenoff Grossman & Schole LLP.
EXPERTS
The financial statements of RXi Pharmaceuticals Corporation as of December 31, 2014 and 2013 and for the years then ended included in
this Prospectus have been so included in reliance on the report of BDO USA, LLP, an independent registered public accounting firm, appearing elsewhere herein and in the Registration Statement, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any
document filed by us at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings with the SEC are also available to
the public at the SECs Internet web site at http://www.sec.gov.
We have filed a registration statement, of which this
prospectus is a part, covering the securities offered hereby. As allowed by SEC rules, this prospectus does not include all of the information contained in the registration statement and the included exhibits, financial statements and schedules. You
are referred to the registration statement, the included exhibits, financial statements and schedules for further information. This prospectus is qualified in its entirety by such other information.
We are subject to the information and periodic reporting requirements of the Exchange Act and, in accordance therewith, file periodic reports,
proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information are available for inspection and copying at the public reference room and website of the SEC referred to above. We maintain a website
at www.rxipharma.com. The reference to our website address does not constitute incorporation by reference of the information contained on our website, and you should not consider the contents of our website in making an investment decision
with respect to our common stock.
65
INDEX TO FINANCIAL STATEMENTS
F-1
RXi PHARMACEUTICALS CORPORATION
CONDENSED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
(Unaudited)
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|
|
|
|
|
|
|
March 31, 2015 |
|
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December 31, 2014 |
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ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
6,580 |
|
|
$ |
8,496 |
|
Restricted cash |
|
|
50 |
|
|
|
50 |
|
Prepaid expenses and other current assets |
|
|
351 |
|
|
|
442 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
6,981 |
|
|
|
8,988 |
|
Property and equipment, net |
|
|
170 |
|
|
|
183 |
|
Other assets |
|
|
18 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
7,169 |
|
|
$ |
9,189 |
|
|
|
|
|
|
|
|
|
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LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
459 |
|
|
$ |
285 |
|
Accrued expenses and other current liabilities |
|
|
1,097 |
|
|
|
1,002 |
|
Deferred revenue |
|
|
|
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,556 |
|
|
|
1,334 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Convertible preferred stock (Note 5) |
|
|
|
|
|
|
|
|
Series A convertible preferred stock, $0.0001 par value, 15,000 shares authorized; 3,085 and 5,110 shares issued and outstanding at
March 31, 2015 and December 31, 2014, respectively (at liquidation value) |
|
|
3,085 |
|
|
|
5,110 |
|
Stockholders equity (Note 6): |
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 10,000,000 authorized |
|
|
|
|
|
|
|
|
Series A-1 convertible preferred stock, $0.0001 par value, 10,000 shares authorized; 21 and 1,578 issued and outstanding at
March 31, 2015 and December 31, 2014, respectively (at liquidation value) |
|
|
21 |
|
|
|
1,578 |
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 31,221,598 and 21,984,272 shares issued and outstanding at
March 31, 2015 and December 31, 2014, respectively |
|
|
3 |
|
|
|
2 |
|
Additional paid-in capital |
|
|
52,331 |
|
|
|
48,047 |
|
Accumulated deficit |
|
|
(49,827 |
) |
|
|
(46,882 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
2,528 |
|
|
|
2,745 |
|
|
|
|
|
|
|
|
|
|
Total liabilities, convertible preferred stock and stockholders equity |
|
$ |
7,169 |
|
|
$ |
9,189 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-2
RXi PHARMACEUTICALS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
Revenues: |
|
|
|
|
|
|
|
|
Grant revenues |
|
$ |
34 |
|
|
$ |
29 |
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Research and development expenses (1) |
|
|
2,107 |
|
|
|
1,476 |
|
General and administrative expenses (1) |
|
|
873 |
|
|
|
843 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
2,980 |
|
|
|
2,319 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(2,946 |
) |
|
|
(2,290 |
) |
|
|
|
|
|
|
|
|
|
Interest income, net |
|
|
1 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(2,945 |
) |
|
|
(2,284 |
) |
Series A and Series A-1 convertible preferred stock dividends |
|
|
(185 |
) |
|
|
(1,755 |
) |
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders |
|
$ |
(3,130 |
) |
|
$ |
(4,039 |
) |
|
|
|
|
|
|
|
|
|
Net loss per common share applicable to common stockholders: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.13 |
) |
|
$ |
(0.32 |
) |
|
|
|
|
|
|
|
|
|
Weighted average common shares: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
23,763,486 |
|
|
|
12,616,086 |
|
|
|
|
|
|
|
|
|
|
(1) Non-cash stock-based compensation expenses included in operating expenses are as
follows: |
|
|
|
|
|
Research and development |
|
$ |
175 |
|
|
$ |
210 |
|
General and administrative |
|
|
236 |
|
|
|
281 |
|
The accompanying notes are an integral part of these financial statements.
F-3
RXi PHARMACEUTICALS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,945 |
) |
|
$ |
(2,284 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
21 |
|
|
|
22 |
|
Non-cash stock-based compensation |
|
|
411 |
|
|
|
491 |
|
Fair value of common stock issued in exchange for patent and technology rights |
|
|
228 |
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Prepaid expenses and other assets |
|
|
91 |
|
|
|
77 |
|
Accounts payable |
|
|
174 |
|
|
|
114 |
|
Accrued expenses and other current liabilities |
|
|
95 |
|
|
|
(771 |
) |
Deferred revenue |
|
|
(47 |
) |
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(1,972 |
) |
|
|
(2,380 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Cash paid for purchase of equipment and furnishings |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net proceeds from the issuance of common stock |
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(1,916 |
) |
|
|
(2,380 |
) |
Cash and cash equivalents at the beginning of period |
|
|
8,496 |
|
|
|
11,390 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of period |
|
$ |
6,580 |
|
|
$ |
9,010 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Exchange of Series A convertible preferred stock into Series A-1 convertible preferred stock |
|
$ |
2,000 |
|
|
$ |
3,000 |
|
|
|
|
|
|
|
|
|
|
Conversion of Series A and Series A-1 convertible preferred stock into common stock |
|
$ |
3,686 |
|
|
$ |
672 |
|
|
|
|
|
|
|
|
|
|
Fair value of Series A and Series A-1 convertible preferred stock dividends |
|
$ |
185 |
|
|
$ |
1,755 |
|
|
|
|
|
|
|
|
|
|
Series A and Series A-1 convertible preferred stock dividends |
|
$ |
105 |
|
|
$ |
168 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-4
RXi PHARMACEUTICALS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Business and Basis of Presentation
RXi Pharmaceuticals Corporation (RXi, we, our or the
Company) is a biotechnology company focused on discovering and developing innovative therapies, primarily in the areas of dermatology and ophthalmology, addressing high unmet medical needs. Our development programs are based
on our siRNA technology and immunotherapy agents. Our clinical development programs include, but are not limited to, our proprietary, self-delivering RNAi (sd-rxRNA®) compounds for the
treatment of dermal and retinal scarring and an immunodulating agent, Samcyprone, for the treatment of such disorders as alopecia areata, warts and cutaneous metastases of melanoma. In addition to these clinical programs, we have a pipeline of
discovery and preclinical product candidates in our core therapeutic areas, as well as in other areas of interest. The Companys pipeline, coupled with our extensive patent portfolio, provides support to further discover and develop innovative
therapies either on our own or in collaboration with strategic partners.
Basis of Presentation
The accompanying condensed financial statements are unaudited and have been prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP). Certain information and footnote disclosures included in the Companys annual financial statements have been condensed or omitted. The year-end condensed balance sheet data was
derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of the condensed
financial statements have been included. Interim results are not necessarily indicative of results for a full year.
Uses of Estimates in Preparation
of Financial Statements
The preparation of financial statements in accordance with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of amounts invested in money market accounts and certificates of deposit.
Restricted Cash
Restricted cash consists of certificates of deposit held by financial institutions as collateral for the Companys corporate credit cards.
Revenue Recognition
Principal
sources of revenue consist of government research grants. Revenue from government grants is recognized over the respective contract periods as the services are performed, provided there is persuasive evidence of an arrangement, the fee is fixed or
determinable and collection of the related receivable is reasonably assured, and no contingencies remain outstanding. Monies received prior to the recognition of revenue are recorded as deferred revenue.
F-5
Research and Development Expenses
Research and development costs are charged to expense as incurred and relate to salaries, employee benefits, facility-related expenses,
supplies, stock-based compensation related to employees and non-employees involved in the Companys research and development, external services, other operating costs and overhead related to our research and development departments, costs to
acquire technology licenses and expenses associated with pre-clinical activities and our clinical trials. Payments made by the Company in advance for research and development services not yet provided and/or for materials not yet received are
recorded as prepaid expenses. Accrued liabilities are recorded related to those expenses for which vendors have not yet billed us with respect to services provided and/or materials that we have received.
Preclinical and clinical trial expenses relate to third-party services, subject-related fees at the sites
where our clinical trials are being conducted, laboratory costs, analysis costs, toxicology studies and investigator fees. Costs associated with these expenses are generally payable on the passage of time or when certain milestones are achieved.
Expense is recorded during the period incurred or in the period in which a milestone is achieved. In order to ensure that we have adequately provided for preclinical and clinical expenses during the proper period, we maintain an accrual to cover
these expenses. These accruals are assessed on a quarterly basis and are based on such assumptions as expected total cost, the number of subjects and clinical trial sites and length of the study. Actual results may differ from these estimates and
could have a material impact on our reported results. Our historical accrual estimates have not been materially different from our actual costs.
Stock-based Compensation
The Company
follows the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Compensation Stock Compensation (ASC
718), which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees, officers and non-employee directors, including stock options. Stock compensation expense based on the grant
date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period.
For
stock options granted as consideration for services rendered by non-employees, the Company recognizes compensation expense in accordance with the requirements of FASB ASC Topic 505-50, Equity Based Payments to Non-Employees. Non-employee option grants that do not vest immediately upon grant are recorded as an expense over the requisite service period of the underlying stock options. At the end of each financial reporting period prior to
vesting, the value of these options, as calculated using the Black-Scholes option-pricing model, will be re-measured using the fair value of the Companys common stock and the non-cash compensation
recognized during the period will be adjusted accordingly. Since the fair market value of options granted to non-employees is subject to change in the future, the amount of the future compensation expense will include fair value re-measurements
until the stock options are fully vested.
Net Loss per Share
The Company accounts for and discloses net loss per share attributable to common stockholders in accordance with FASB ASC Topic 260,
Earnings per Share. Basic and diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. When the effects are not
anti-dilutive, diluted earnings per share is computed by dividing the Companys net earnings by the weighted average number of common shares outstanding and the impact of all dilutive potential common shares.
Comprehensive Loss
The Companys
net loss is equal to its comprehensive loss for all periods presented.
F-6
2. Recent Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update (ASU) 2014-15, Presentation of
Financial
Statements Going Concern (Topic 915): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. ASU 2014-15 states that in connection with preparing financial statements for each
annual and interim reporting period, an entitys management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entitys ability to continue as a going concern within
one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). ASU 2014-15 will be effective for annual and interim periods beginning on
or after December 15, 2016, and will be effective for the Company beginning on January 1, 2017. Early adoption is permitted. The Company is currently evaluating the impact, if any, of the adoption of this update.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 states that
an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard
will be effective for annual and interim periods beginning on or after December 15, 2016, and will be effective for the Company beginning on January 1, 2017. Early adoption is not permitted. The Company is currently evaluating the
method of adoption and the potential impact the update may have on our financial position and results of operations.
3. Net Loss per Share Attributable to Common Stockholders
The following table sets forth the potential common shares excluded from the calculation of net loss per common share
attributable to common stockholders because their inclusion would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2015 |
|
|
2014 |
|
Options to purchase common stock |
|
|
3,079,264 |
|
|
|
2,581,268 |
|
Common stock underlying Series A and Series A-1 convertible preferred stock |
|
|
7,571,197 |
|
|
|
23,084,880 |
|
Warrants to purchase common stock |
|
|
4,615 |
|
|
|
4,615 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
10,655,076 |
|
|
|
25,670,763 |
|
|
|
|
|
|
|
|
|
|
4. Fair Value Measurements
The Company follows the provisions of FASB ASC Topic 820, Fair Value Measurements and Disclosures, for
the Companys financial assets and liabilities that are re-measured and reported at fair value at each reporting period and are re-measured and reported at fair value at least annually using a fair value hierarchy that is broken down into three
levels. Level inputs are defined as follows:
Level 1 quoted prices in active markets for identical assets or liabilities.
Level 2 other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement
date.
Level 3 significant unobservable inputs that reflect managements best estimate of what market participants would use to
price the assets or liabilities at the measurement date.
The Company categorized its restricted cash and cash equivalents as Level 2
hierarchy. The assets classified as Level 2 have initially been valued at the applicable transaction price and subsequently valued, at the end of each
F-7
reporting period, using other market observable data. Observable market data points include quoted prices, interest rates, reportable trades and other industry and economic events. Financial
assets measured at fair value on a recurring basis are summarized as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
March 31, 2015 |
|
|
Quoted Prices in Active Markets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Unobservable Inputs (Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
$ |
50 |
|
|
$ |
|
|
|
$ |
50 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
50 |
|
|
$ |
|
|
|
$ |
50 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
December 31, 2014 |
|
|
Quoted Prices in Active Markets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Unobservable Inputs (Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
4,000 |
|
|
$ |
|
|
|
$ |
4,000 |
|
|
$ |
|
|
Restricted cash |
|
|
50 |
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,050 |
|
|
$ |
|
|
|
$ |
4,050 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash equivalents, restricted cash and accounts payable approximate their fair values due
to their short-term nature.
5. Convertible Preferred Stock
The Company currently has authorized for issuance a total of 15,000 shares of Series A convertible preferred stock
(Series A Preferred Stock), $0.0001 par value per share. At March 31, 2015, 3,085 shares of Series A Preferred Stock were outstanding.
Dividends
Holders of Series A Preferred
Stock are entitled to receive cumulative mandatory dividends at the rate per share of seven percent (7%) of the face amount ($1,000 per share) per annum, payable quarterly on each March 31, June 30, September 30 and
December 31. Dividends shall be payable in additional shares of Series A Preferred Stock valued for this purpose at the face amount. The fair value of the Series A Preferred Stock dividend, which is included in the Companys net loss
applicable to common shareholders, is calculated by multiplying the number of common shares that a preferred holder would receive upon conversion by the closing price of the Companys common stock on the dividend payment date.
The Company paid dividends in additional shares of Series A Preferred Stock of 84 and 96 shares for the three months ended March 31, 2015
and 2014, respectively.
Included in the Companys net loss applicable to common shareholders related to the fair value of the Series
A Preferred Stock dividends was $148,000 and $1,010,000 for the three months ended March 31, 2015 and 2014, respectively.
F-8
Conversion
Each holder of shares of Series A Preferred Stock may, at any time and from time to time, convert each of its shares into a number of fully
paid and non-assessable shares of common stock at the defined conversion rate. Each share of Series A Preferred Stock is convertible into 2,437.57 shares of common stock. In no event shall any holder of shares of Series A Preferred Stock have the
right to convert shares of Series A Preferred Stock into shares of common stock to the extent that, after giving effect to such conversion, the holder, together with any of its affiliates, would beneficially own more than 9.999% of the then-issued
and outstanding shares of common stock.
During the three months ended March 31, 2015, 109 shares of Series A Preferred stock were
converted into 266,182 shares of common stock and during the three months ended March 31, 2014, 166 shares of Series A Preferred Stock were converted into 405,720 shares of common stock.
Exchange Transaction
On March 20,
2015, the Company entered into an exchange agreement (the Exchange Agreement) with Tang Capital Partners, L.P. (TCP) pursuant to which TCP exchanged a total of 2,000 shares of Series A Preferred Stock for a like
number of shares of Series A-1 convertible preferred stock (Series A-1 Preferred Stock). The exchange transaction resulted in a decrease in the face value of the Series A Preferred Stock and a corresponding increase in the face
value of the Series A-1 Preferred Stock.
6. Stockholders Equity
The Company currently has authorized for issuance 100,000,000 shares of common stock, par value $0.0001 per share, and
10,000,000 shares of preferred stock, par value $0.0001 per share.
Series A-1 Preferred Stock
The Company currently has authorized for issuance a total of 10,000 shares of Series A-1 Preferred Stock, $0.0001 par value per share. At
March 31, 2015, 21 shares of Series A-1 Preferred Stock were outstanding.
Dividends
Holders of Series A-1 Preferred Stock are entitled to receive cumulative mandatory dividends at the rate per share of seven percent
(7%) of the face amount ($1,000 per share) per annum, payable quarterly on each March 31, June 30, September 30 and December 31. Dividends shall be payable in additional shares of Series A-1 Preferred Stock valued for this purpose at the face amount. The fair value of the Series A-1 Preferred Stock dividend, which is included in the Companys net loss applicable to common shareholders, is
calculated by multiplying the number of common shares that a preferred holder would receive upon conversion by the closing price of the Companys common stock on the dividend payment date.
The Company paid dividends in additional shares of Series A-1 Preferred Stock of 21 and 72 shares for the three months ended March 31,
2015 and 2014, respectively.
Included in the Companys net loss applicable to common shareholders related to the fair value of the
Series A-1 Preferred Stock dividends was $37,000 and $745,000 for the three months ended March 31, 2015 and 2014, respectively.
F-9
Conversion
Each holder of shares of Series A-1 Preferred Stock may, at any time and from time to time, convert each of its shares into a number of fully
paid and non-assessable shares of common stock at the defined conversion rate. Each share of Series A-1 Preferred Stock is convertible into 2,437.57 shares of common stock. In no event shall any holder of shares of Series A-1 Preferred Stock have
the right to convert shares of Series A-1 Preferred Stock into shares of common stock to the extent that, after giving effect to such conversion, the holder, together with any of its affiliates, would beneficially own more than 9.999% of the
then-issued and outstanding shares of common stock.
During the three months ended March 31, 2015, 3,578 shares of Series A-1
Preferred stock were converted into 8,721,144 shares of common stock and during the three months ended March 31, 2014, 506 shares of Series A-1 Preferred Stock were converted into 1,233,402 shares of common stock.
Exchange Transaction
On March 20,
2015, the Company entered into the Exchange Agreement with TCP pursuant to which TCP exchanged a total of 2,000 shares of Series A Preferred Stock for a like number of shares of Series A-1 Preferred Stock. The terms of the Series A-1 Preferred Stock
are identical in all respects to the Series A Preferred Stock, other than the elimination of cash penalties that would potentially be due and payable upon the failure of the Company to have enough shares of common stock available to permit the
conversion of Series A Preferred Stock into common stock. The exchange transaction resulted in a decrease in the face value of the Series A Preferred Stock and a corresponding increase in the face value of the Series A-1 Preferred Stock.
Common Stock
On
December 17, 2014, the Company entered into an assignment and exclusive license agreement, (the Hapten Assignment and License Agreement) with Hapten Pharmaceuticals, LLC (Hapten) under which Hapten agreed,
effective at a closing that occurred on February 4, 2015, to sell and assign to us certain patent rights and related assets and rights, including an investigational new drug application and clinical data, for Haptens Samcyprone
products for therapeutic and prophylactic use. Samcyprone is a proprietary topical formulation of diphenylcyclopropenone (DPCP), an immunomodulation agent that works by initiating a T-cell response. Hapten has been
developing Samcyprone for the treatment of alopecia areata, warts and cutaneous metastases of malignant melanoma. Upon the closing of the Hapten Assignment and License Agreement on February 4, 2015, the Company paid to Hapten a one-time
upfront cash payment of $100,000 and issued 200,000 shares of common stock, the fair value of which was determined using the quoted market price of the Companys common stock on the date of issuance. Accordingly, the cash payment of $100,000
and the fair value of the common stock of $228,000 was recorded as research and development expense during the quarter ended March 31, 2015.
On December 18, 2014, the Company entered into a purchase agreement (the Purchase Agreement) with Lincoln Park Capital
Fund, LLC (LPC), pursuant to which the Company has the right to sell to LPC up to $10,800,000 in shares of the Companys common stock, subject to certain limitations and conditions set forth in the Purchase Agreement. During
the three months ended March 31, 2015, the Company sold a total of 50,000 shares of common stock to LPC under the Purchase Agreement for net proceeds of $64,000. There have been no other sales under the Purchase Agreement to date.
Refer to the Series A Preferred Stock and Series A-1 Preferred Stock conversions described above in this Note and Note 5 for shares issued as
a result of the conversions of Series A and Series A-1 Preferred Stock during the three months ended March 31, 2015 and 2014, respectively.
F-10
7. Stock-based Compensation
Stock-based Compensation
The Company uses the Black-Scholes option-pricing model to determine the fair value of all its option grants. For valuing options granted
during the three months ended March 31, 2015 and 2014, the following assumptions were used:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
Risk-free interest rate |
|
|
1.47 1.51 |
% |
|
|
2.73 |
% |
Expected volatility |
|
|
90.10 91.16 |
% |
|
|
107.01 |
% |
Weighted average expected volatility |
|
|
90.29 |
% |
|
|
107.01 |
% |
Expected lives (in years) |
|
|
6.05 6.25 |
|
|
|
10.00 |
|
Expected dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
The weighted average fair value of options granted during the three month periods ended March 31,
2015 and 2014 was $0.88 and $4.62, respectively.
The risk-free interest rate used for each grant was based upon the yield on zero-coupon
U.S. Treasury securities with a term similar to the expected life of the related option. The Companys expected stock price volatility assumption is based upon the volatility of a composition of comparable companies. The expected life
assumption for employee grants was based upon the simplified method provided for under ASC 718 and the expected life assumption for non-employees was based upon the contractual term of the option. The dividend yield assumption of zero is based upon
the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends.
The following table
summarizes the activity of Companys stock option plan for the period from January 1, 2015 to March 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
|
Weighted- Average Exercise Price Per Share |
|
|
Weighted- Average Remaining Contractual Term |
|
|
Aggregate Intrinsic Value |
|
Balance at January 1, 2015 |
|
|
3,000,264 |
|
|
$ |
3.39 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
79,000 |
|
|
|
1.18 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2015 |
|
|
3,079,264 |
|
|
$ |
3.33 |
|
|
|
7.67 years |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2015 |
|
|
1,912,321 |
|
|
$ |
3.40 |
|
|
|
7.40 years |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense for the three months ended March 31, 2015 and 2014 was approximately
$411,000 and $491,000, respectively. Of this, the Company recognized approximately $16,500 of income and $37,000 of expense related to non-employee stock options for the same respective periods.
Employee Stock Purchase Plan
The Companys Employee Stock Purchase Plan (ESPP) allows employees to contribute a percentage of their cash earnings,
subject to certain maximum amounts, to be used to purchase shares of the Companys common stock on each of two semi-annual purchase dates. The purchase price is equal to 90% of the market value per share on either (a) the date of grant of
a purchase right under the ESPP or (b) the date on which such purchase right is deemed exercised, whichever is lower. The maximum number of shares available for issuance pursuant to the ESPP is equal to 113,333 shares.
F-11
The Company uses the Black-Scholes option-pricing model to determine the fair value of the ESPP
stock rights. For valuing stock rights issued during the three months ended March 31, 2015 and 2014, the following assumptions were used:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2015 |
|
|
2014 |
|
Risk-free interest rate |
|
|
0.11 |
% |
|
|
0.09 |
% |
Expected volatility |
|
|
82.72 |
% |
|
|
94.99 |
% |
Expected lives (in years) |
|
|
0.50 |
|
|
|
0.50 |
|
Expected dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
The weighted average fair value of stock rights issued during the three month periods ended March 31,
2015 and 2014 was $0.58 and $1.14, respectively.
The risk-free interest rate used was based upon the yield on zero-coupon U.S. Treasury
securities with a term similar to the expected life of the related option. The Companys expected volatility is based upon the volatility of a composition of comparable companies for the expected term. The expected life assumption was based
upon the purchase period and the dividend yield assumption of zero is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends.
Of the total stock-based compensation expense recorded for the three months ended March 31, 2015 and 2014, the Company recognized $6,500
and $6,600 of expense related to the ESPP for the same respective periods.
8. Subsequent Events
Subsequent to the balance sheet date, 2,026 shares of Series A Preferred Stock were converted into 4,938,515 shares of
common stock.
F-12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
RXi Pharmaceuticals
Corporation
Marlborough, Massachusetts
We have audited the
accompanying balance sheets of RXi Pharmaceuticals Corporation (the Company) as of December 31, 2014 and 2013, and the related statements of operations, convertible preferred stock and stockholders equity(deficit) and cash
flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit 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, as well as evaluating the overall presentation of the financial statements. 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 financial position of the Company at
December 31, 2014 and 2013 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ BDO USA, LLP
Boston,
Massachusetts
March 30, 2015
F-13
RXi PHARMACEUTICALS CORPORATION
BALANCE SHEETS
(Amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
|
December 31, 2013 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
8,496 |
|
|
$ |
11,390 |
|
Restricted cash |
|
|
50 |
|
|
|
50 |
|
Short-term investments |
|
|
|
|
|
|
3,000 |
|
Prepaid expenses and other current assets |
|
|
442 |
|
|
|
303 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
8,988 |
|
|
|
14,743 |
|
Equipment and furnishings, net of accumulated depreciation of $702 and $632, in 2014 and 2013, respectively |
|
|
183 |
|
|
|
177 |
|
Other assets |
|
|
18 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
9,189 |
|
|
$ |
14,938 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
285 |
|
|
$ |
163 |
|
Accrued expenses and other current liabilities |
|
|
1,002 |
|
|
|
1,795 |
|
Deferred revenue |
|
|
47 |
|
|
|
118 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,334 |
|
|
|
2,076 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6) |
|
|
|
|
|
|
|
|
Convertible preferred stock (Note 7): |
|
|
|
|
|
|
|
|
Series A convertible preferred stock, $0.0001 par value, 15,000 shares authorized; 5,110 and 7,920 shares issued and outstanding at
December 31, 2014 and 2013, respectively (at liquidation value) |
|
|
5,110 |
|
|
|
7,920 |
|
Stockholders equity (Note 8): |
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 10,000,000 authorized |
|
|
|
|
|
|
|
|
Series A-1 convertible preferred stock, $0.0001 par value, 10,000 shares authorized; 1,578 and 2,054 shares issued and outstanding at
December 31, 2014 and 2013, respectively (at liquidation value) |
|
|
1,578 |
|
|
|
2,054 |
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 21,984,272 and 11,788,045 shares issued and outstanding at
December 31, 2014 and 2013, respectively |
|
|
2 |
|
|
|
1 |
|
Additional paid-in capital |
|
|
48,047 |
|
|
|
40,969 |
|
Accumulated deficit |
|
|
(46,882 |
) |
|
|
(38,082 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
2,745 |
|
|
|
4,942 |
|
|
|
|
|
|
|
|
|
|
Total liabilities, convertible preferred stock and stockholders equity |
|
$ |
9,189 |
|
|
$ |
14,938 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-14
RXi PHARMACEUTICALS CORPORATION
STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
Revenues: |
|
|
|
|
|
|
|
|
Grant revenues |
|
$ |
71 |
|
|
$ |
399 |
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Research and development expenses (1) |
|
|
5,680 |
|
|
|
17,651 |
|
General and administrative expenses (1) |
|
|
3,217 |
|
|
|
3,697 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
8,897 |
|
|
|
21,348 |
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(8,826 |
) |
|
|
(20,949 |
) |
|
|
|
|
|
|
|
|
|
Interest income, net |
|
|
17 |
|
|
|
24 |
|
Other income, net |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes |
|
|
(8,800 |
) |
|
|
(20,925 |
) |
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(8,800 |
) |
|
$ |
(20,925 |
) |
|
|
|
|
|
|
|
|
|
Series A and A-1 convertible preferred stock dividends |
|
|
(4,130 |
) |
|
|
(8,610 |
) |
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders |
|
$ |
(12,930 |
) |
|
$ |
(29,535 |
) |
|
|
|
|
|
|
|
|
|
Net loss per common share applicable to common stockholders (Note 2): |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.79 |
) |
|
$ |
(2.88 |
) |
|
|
|
|
|
|
|
|
|
Weighted average common shares: basic and diluted |
|
|
16,362,905 |
|
|
|
10,263,954 |
|
|
|
|
|
|
|
|
|
|
|
(1) Non-cash stock-based compensation expenses included in operating expenses are as
follows: |
|
Research and development |
|
$ |
836 |
|
|
$ |
912 |
|
General and administrative |
|
$ |
1,010 |
|
|
$ |
1,067 |
|
See accompanying notes to financial statements.
F-15
RXi PHARMACEUTICALS CORPORATION
STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY (DEFICIT)
(Amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Convertible Preferred Stock |
|
|
|
|
Series A-1 Convertible Preferred Stock |
|
|
Common Stock |
|
|
Additional Paid-in Capital
|
|
|
Accumulated Deficit |
|
|
|
|
|
|
Shares Issued |
|
|
Amount |
|
|
|
|
Shares Issued |
|
|
Amount |
|
|
Shares Issued |
|
|
Amount |
|
|
|
|
|
|
|
|
Total |
|
Balance at December 31, 2012 |
|
|
9,726 |
|
|
$ |
9,726 |
|
|
|
|
|
|
|
|
$ |
|
|
|
|
5,289,007 |
|
|
$ |
|
|
|
$ |
11,317 |
|
|
$ |
(17,157 |
) |
|
$ |
(5,840 |
) |
Issuance of common stock, net of offering costs of $727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,765,230 |
|
|
|
1 |
|
|
|
15,650 |
|
|
|
|
|
|
|
15,651 |
|
Issuance of common stock in exchange for patent and technology rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,666,666 |
|
|
|
|
|
|
|
12,250 |
|
|
|
|
|
|
|
12,250 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,979 |
|
|
|
|
|
|
|
1,979 |
|
Cash paid in lieu of fractional shares for 1:30 reverse stock split |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,807 |
) |
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
(12 |
) |
Common stock issued upon exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
Issuance of common stock under employee stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,265 |
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
28 |
|
Exchange of Series A convertible preferred stock into Series A-1 convertible preferred stock |
|
|
(2,000 |
) |
|
|
(2,000 |
) |
|
|
|
|
2,000 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
Conversions of Series A and Series A-1 convertible preferred stock into common stock |
|
|
(434 |
) |
|
|
(434 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
1,056,684 |
|
|
|
|
|
|
|
434 |
|
|
|
|
|
|
|
434 |
|
Fair value of Series A and Series A-1 convertible preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,610 |
) |
|
|
|
|
|
|
(8,610 |
) |
Dividends issued on Series A and Series A-1 convertible preferred stock |
|
|
628 |
|
|
|
628 |
|
|
|
|
|
54 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
7,928 |
|
|
|
|
|
|
|
7,982 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,925 |
) |
|
|
(20,925 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013 |
|
|
7,920 |
|
|
|
7,920 |
|
|
|
|
|
2,054 |
|
|
|
2,054 |
|
|
|
11,788,045 |
|
|
|
1 |
|
|
|
40,969 |
|
|
|
(38,082 |
) |
|
|
4,942 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,846 |
|
|
|
|
|
|
|
1,846 |
|
Issuance of common stock, net of offering costs of $114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700,000 |
|
|
|
|
|
|
|
1,886 |
|
|
|
|
|
|
|
1,886 |
|
Issuance of common stock under employee stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,515 |
|
|
|
|
|
|
|
61 |
|
|
|
|
|
|
|
61 |
|
Exchange of Series A convertible preferred stock into Series A-1 convertible preferred stock |
|
|
(3,000 |
) |
|
|
(3,000 |
) |
|
|
|
|
3,000 |
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
Conversions of Series A and Series A-1 convertible preferred stock into common stock |
|
|
(166 |
) |
|
|
(166 |
) |
|
|
|
|
(3,716 |
) |
|
|
(3,716 |
) |
|
|
9,463,712 |
|
|
|
1 |
|
|
|
3,881 |
|
|
|
|
|
|
|
166 |
|
Fair value of Series A and Series A-1 convertible preferred stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,130 |
) |
|
|
|
|
|
|
(4,130 |
) |
Dividends issued on Series A and Series A-1 convertible preferred stock |
|
|
356 |
|
|
|
356 |
|
|
|
|
|
240 |
|
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
3,534 |
|
|
|
|
|
|
|
3,774 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,800 |
) |
|
|
(8,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014 |
|
|
5,110 |
|
|
$ |
5,110 |
|
|
|
|
|
1,578 |
|
|
$ |
1,578 |
|
|
|
21,984,272 |
|
|
$ |
2 |
|
|
$ |
48,047 |
|
|
$ |
(46,882 |
) |
|
$ |
2,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-16
RXi PHARMACEUTICALS CORPORATION
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(8,800 |
) |
|
$ |
(20,925 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
87 |
|
|
|
99 |
|
Gain on disposal of equipment |
|
|
(10 |
) |
|
|
|
|
Non-cash share-based compensation expense |
|
|
1,846 |
|
|
|
1,979 |
|
Fair value of common stock issued in exchange for patent and technology rights |
|
|
|
|
|
|
12,250 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Prepaid expenses and other assets |
|
|
(139 |
) |
|
|
(89 |
) |
Accounts payable |
|
|
122 |
|
|
|
(253 |
) |
Accrued expenses and other current liabilities |
|
|
(793 |
) |
|
|
1,028 |
|
Deferred revenue |
|
|
(71 |
) |
|
|
(400 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(7,758 |
) |
|
|
(6,311 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Change in restricted cash |
|
|
|
|
|
|
3 |
|
Purchase of short-term investments |
|
|
(5,000 |
) |
|
|
(9,000 |
) |
Maturities of short-term investments |
|
|
8,000 |
|
|
|
6,000 |
|
Cash paid for purchase of equipment and furnishings |
|
|
(95 |
) |
|
|
(78 |
) |
Proceeds from disposal of equipment and furnishings |
|
|
12 |
|
|
|
|
|
Cash paid for lease deposit |
|
|
|
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
2,917 |
|
|
|
(3,093 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net proceeds from the issuance of common stock |
|
|
1,886 |
|
|
|
15,651 |
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
5 |
|
Proceeds from issuance of common stock in connection with employee stock purchase plan |
|
|
61 |
|
|
|
28 |
|
Cash paid in lieu of fractional shares for 1:30 reverse stock split |
|
|
|
|
|
|
(12 |
) |
Repayments of capital lease obligations |
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
1,947 |
|
|
|
15,667 |
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(2,894 |
) |
|
|
6,263 |
|
Cash and cash equivalents at the beginning of period |
|
|
11,390 |
|
|
|
5,127 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of period |
|
$ |
8,496 |
|
|
$ |
11,390 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Exchange of Series A convertible preferred stock into Series A-1 convertible preferred stock |
|
$ |
3,000 |
|
|
$ |
2,000 |
|
|
|
|
|
|
|
|
|
|
Conversion of Series A and Series A-1 convertible preferred stock into common stock |
|
$ |
3,882 |
|
|
$ |
434 |
|
|
|
|
|
|
|
|
|
|
Fair value of Series A and Series A-1 convertible preferred stock dividends |
|
$ |
4,130 |
|
|
$ |
8,610 |
|
|
|
|
|
|
|
|
|
|
Series A and Series A-1 convertible preferred stock dividends |
|
$ |
596 |
|
|
$ |
682 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-17
RXi PHARMACEUTICALS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business
RXi Pharmaceuticals Corporation (RXi, we, our or the
Company) is a biotechnology company focused on discovering and developing innovative therapies addressing high unmet medical needs, primarily in the areas of dermatology and ophthalmology. Our development programs are based
on our siRNA technology and immunotherapy agents. Our clinical development programs include, but are not limited to, our proprietary, self-delivering RNAi (sd-rxRNA®) compounds for the
treatment of dermal and retinal scarring and an immunodulating agent, Samcyprone, for the treatment of such disorders as alopecia areata, warts and cutaneous metastases of melanoma. In addition to these clinical programs, we have a pipeline of
discovery and preclinical product candidates in our core therapeutic areas, as well as in other areas of interest. The Companys pipeline, coupled with our extensive patent portfolio, provides for the advancement to further discover and develop
innovative therapies either on our own or in collaboration with strategic partners.
2. Summary of Significant Accounting Policies
Basis of Presentation The accompanying financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP).
Uses of Estimates in Preparation of Financial
Statements The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates.
Cash and Cash Equivalents The Company considers all highly liquid debt instruments with an original maturity of three months or
less to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts and certificates of deposit.
Restricted Cash Restricted cash consists of certificates of deposit held by financial institutions as collateral for the
Companys corporate credit cards.
Short-term Investments The Companys short-term investments consist of
certificates of deposit with original maturities ranging from three months to one year.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and short-term investments. The Company maintains cash balances in several accounts with one bank, which at
times are in excess of federally insured limits. The Company has established guidelines related to credit ratings and maturities intended to safeguard principal balances and maintain liquidity. The Companys investments are maintained in
accordance with the Companys investment policy, which defines allowable investments, specifies credit quality standards and limits the exposure of any single issuer.
Fair Value of Financial Instruments The carrying amounts reported in the balance sheet for cash equivalents, restricted cash,
short-term investments and accounts payable approximate their fair values due to their short-term nature or market rates of interest.
Equipment and Furnishings Equipment and furnishings are stated at cost and depreciated using the straight-line method based on
the estimated useful lives of the related assets. The Company provides for depreciation over the assets estimated useful lives as follows:
|
|
|
|
|
Computer equipment |
|
|
3 years |
|
Machinery & equipment |
|
|
5 years |
|
Office furniture |
|
|
5 years |
|
F-18
Depreciation and amortization expense for the years ended December 31, 2014 and 2013 was
approximately $87,000 and $99,000, respectively.
Impairment of Long-Lived Assets The Company reviews long-lived assets for
impairment on an annual basis, as of December 31, or on an interim basis if an event occurs that might reduce the fair value of such assets below their carrying values. An impairment loss would be recognized based on the difference between the
carrying value of the asset and its estimated fair value, which would be determined based on either discounted future cash flows or other appropriate fair value methods. The Company believes no impairment existed as of December 31, 2014 and
2013.
Revenue Recognition The Company recognizes revenue when all of the following criteria are met: there is persuasive
evidence of an arrangement, the fee is fixed or determinable, delivery has occurred or services have been rendered and collection of the related receivable is reasonably assured. The Company may generate revenue from product sales, license
agreements, collaborative research and development arrangements, and government grants. To date the Companys principal source of revenue consists of government research grants. Revenue from a government grant is recognized over the respective
contract periods as the services are performed. Monies received prior to the recognition of revenue are recorded as deferred revenue.
Stock-based Compensation The Company follows the provisions of the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) Topic 718, Compensation Stock Compensation (ASC 718) which requires the measurement and recognition of compensation
expense for all stock-based payment awards made to employees, officers and non-employee directors, including stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is
recognized as an expense over the requisite service period.
For stock options granted as consideration for services rendered by
non-employees, the Company recognizes compensation expense in accordance with the requirements of FASB ASC Topic 505-50, Equity Based Payments to Non-Employees. Non-employee option grants that do not vest immediately upon grant
are recorded as an expense over the requisite service period of the underlying stock options. At the end of each financial reporting period prior to vesting, the value of these options, as calculated using the Black-Scholes option-pricing model,
will be re-measured using the fair value of the Companys common stock and the non-cash compensation recognized during the period will be adjusted accordingly. Since the fair market value of options granted to non-employees is subject to change
in the future, the amount of the future compensation expense will include fair value re-measurements until the stock options are fully vested.
Research and Development Expenses Research and development costs are charged to expense as incurred and relate to salaries,
employee benefits, facility-related expenses, supplies, share-based compensation related to employees and non-employees involved in the Companys research and development, external services, other operating costs and overhead related to our
research and development departments, costs to acquire technology licenses and expenses associated with preclinical activities and our clinical trials. Payments made by the Company in advance for research and development services not yet provided
and/or for materials not yet received are recorded as prepaid expenses. Accrued liabilities are recorded related to those expenses for which vendors have not yet billed us with respect to services provided and/or materials that we have received.
Preclinical and clinical trial expenses relate to third-party services, subject-related fees at the sites where our clinical trials are
being conducted, laboratory costs, analysis costs, toxicology studies and investigator fees. Costs associated with these expenses are generally payable on the passage of time or when certain milestones are achieved. Expense is recorded during the
period incurred or in the period in which a milestone is achieved. In order to ensure that we have adequately provided for preclinical and clinical expenses during the proper period, we maintain an accrual to cover these expenses. These accruals are
assessed on a quarterly basis and are based on such assumptions as expected total cost, the number of subjects and clinical trial sites and length of the study. Actual results may differ from these estimates and could have a material impact on our
reported results. Our historical accrual estimates have not been materially different from our actual costs.
F-19
Patents and Patent Application Costs Although the Company believes that its patents
and underlying technology have continuing value, the amount of future benefits to be derived from the patents is uncertain. Patent costs are, therefore, expensed as incurred.
Income Taxes The Company recognizes assets or liabilities for the deferred tax consequences of temporary differences between the
tax basis of assets or liabilities and their reported amounts in the financial statements in accordance with FASB ASC 740, Accounting for Income Taxes (ASC 740). These temporary differences will result in
taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. ASC 740 requires that a valuation allowance be established when management determines that it is more likely than not that
all or a portion of a deferred asset will not be realized. The Company evaluates the realizability of its net deferred income tax assets and valuation allowances as necessary, at least on an annual basis. During this evaluation, the Company reviews
its forecasts of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred income tax assets to determine if a valuation allowance is required. Adjustments to the valuation allowance will increase
or decrease the Companys income tax provision or benefit. The recognition and measurement of benefits related to the Companys tax positions requires significant judgment, as uncertainties often exist with respect to new laws, new
interpretations of existing laws, and rulings by taxing authorities. Differences between actual results and the Companys assumptions or changes in the Companys assumptions in future periods are recorded in the period they become known.
Comprehensive Loss The Companys comprehensive loss is equal to its net loss for all periods presented.
Net Loss per Share The Company accounts for and discloses net loss per common share in accordance with FASB ASC Topic 260,
Earnings per Share. Basic and diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. When the effects are not
anti-dilutive, diluted earnings per share is computed by dividing the Companys net earnings by the weighted average number of common shares outstanding and the impact of all dilutive potential common shares.
The following table sets forth the potential common shares excluded from the calculation of net loss per common share because their inclusion
would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Options to purchase common stock |
|
|
3,000,264 |
|
|
|
2,556,269 |
|
Common stock underlying Series A and Series A-1 convertible preferred stock |
|
|
16,300,969 |
|
|
|
24,313,108 |
|
Warrants to purchase common stock |
|
|
4,615 |
|
|
|
4,615 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
19,305,848 |
|
|
|
26,873,992 |
|
|
|
|
|
|
|
|
|
|
3. Recent Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update (ASU) 2014-15, Presentation of Financial
Statements Going Concern (Topic 915): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. ASU 2014-15 states that in connection with preparing financial statements for each annual and interim
reporting period, an entitys management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entitys ability to continue as a going concern within one year after the
date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). ASU 2014-15 will be effective for annual and interim periods beginning on or after
December 15, 2016, and will be effective for the Company beginning on January 1, 2017. Early adoption is permitted. The Company is currently evaluating the impact, if any, of the adoption of this update.
F-20
In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915)
Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. ASU 2014-10 eliminates the concept of a development-stage entity in its entirety from
current accounting guidance. Under current guidance, development-stage entities are required to present inception-to-date financial information in their annual statements. The new standard eliminates the concept of a development-stage entity from
generally accepted accounting principles. Therefore, the current incremental reporting requirements for a development-stage entity, including inception-to-date information, will no longer apply. The new standard is effective for reporting periods
beginning on or after December 15, 2014, and interim periods therein. The Company adopted this standard in June 2014. Other than the exclusion of the presentation of inception-to-date financial information, the adoption of this standard did not
have a material impact on the Companys financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from
Contracts with Customers (Topic 606). ASU 2014-09 states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The new standard will be effective for annual and interim periods beginning on or after December 15, 2016, and will be effective for the Company beginning on January 1, 2017.
Early adoption is not permitted. The Company is currently evaluating the method of adoption and the potential impact the update may have on our financial position and results of operations.
4. Fair Value Measurements
The Company follows the provisions of FASB ASC Topic 820, Fair Value Measurements and Disclosures, for
the Companys financial assets and liabilities that are re-measured and reported at fair value at each reporting period and are re-measured and reported at fair value at least annually using a fair value hierarchy that is broken down into three
levels. Level inputs are as defined as follows:
|
|
|
Level 1 |
|
quoted prices in active markets for identical assets or liabilities. |
|
|
Level 2 |
|
other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date. |
|
|
Level 3 |
|
significant unobservable inputs that reflect managements best estimate of what market participants would use to price the assets or liabilities at the measurement date. |
The Company categorized its cash equivalents, restricted cash and short-term investments as Level 2 hierarchy.
The assets classified as Level 2 have initially been valued at transaction price and subsequently valued, at the end of each reporting period, using other market observable data. Observable market data points include quoted prices, interest rates,
reportable trades and other industry and economic events. Financial assets measured at fair value on a recurring basis are summarized as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
December 31, 2014 |
|
|
Quoted Prices in Active Markets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Unobservable Inputs (Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
4,000 |
|
|
$ |
|
|
|
$ |
4,000 |
|
|
$ |
|
|
Restricted cash |
|
|
50 |
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,050 |
|
|
$ |
|
|
|
$ |
4,050 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
December 31, 2013 |
|
|
Quoted Prices in Active Markets (Level 1) |
|
|
Significant Other Observable Inputs (Level
2) |
|
|
Unobservable Inputs (Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
9,500 |
|
|
$ |
|
|
|
$ |
9,500 |
|
|
$ |
|
|
Restricted cash |
|
|
50 |
|
|
|
|
|
|
|
50 |
|
|
|
|
|
Short-term investments |
|
|
3,000 |
|
|
|
|
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,550 |
|
|
$ |
|
|
|
$ |
12,550 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following, in thousands:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Employee compensation and benefits |
|
$ |
528 |
|
|
$ |
627 |
|
Clinical development expenses |
|
|
186 |
|
|
|
665 |
|
Professional fees |
|
|
165 |
|
|
|
190 |
|
Research and development costs |
|
|
118 |
|
|
|
130 |
|
Other |
|
|
5 |
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
Total accrued expenses and other current liabilities |
|
$ |
1,002 |
|
|
$ |
1,795 |
|
|
|
|
|
|
|
|
|
|
6. Commitments and Contingencies
License Commitments
The Company acquires assets under development and enters into research and development arrangements with third parties that often require
milestone and royalty payments based on the progress of the asset through development stages. Milestone payments may be required, for example, upon approval of the product for marketing by a regulatory agency. In certain agreements, the Company is
required to make royalty payments based upon a percentage of the sales of the products licensed pursuant to such agreements. Because of the contingent nature of these payments, they are not included in the table of contractual obligations shown
below (see also Note 11).
These arrangements may be material individually, and in the unlikely event that milestones for multiple
products covered by these arrangements were reached in the same period, the aggregate charge to expense could be material to the results of operations. In addition, these arrangements often give the Company the discretion to unilaterally terminate
development of the product, which would allow the Company to avoid making the contingent payments; however, the Company is unlikely to cease development if the compound successfully achieves clinical testing objectives.
License agreements generally relate to the Companys obligations associated with our core technologies, RNAi and immunomodulators. The
Company continually assesses the progress of its licensed technology and the progress of its research and development efforts as it relates to its licensed technology and may terminate with notice to the licensor at any time. In the event these
licenses are terminated, no amounts will be due.
The Companys contractual license obligations that will require future cash
payments as of December 31, 2014 are as follows, in thousands:
|
|
|
|
|
Year Ending December 31, |
|
|
|
2015 |
|
$ |
478 |
|
2016 |
|
|
150 |
|
2017 |
|
|
150 |
|
2018 |
|
|
150 |
|
2019 |
|
|
150 |
|
Thereafter |
|
|
530 |
|
|
|
|
|
|
Total |
|
$ |
1,608 |
|
|
|
|
|
|
Operating Leases
The Company leases office and laboratory space for its corporate headquarters in Marlborough, Massachusetts. The lease for the space commenced
on April 1, 2014 and will expire in March 2019. The monthly
F-22
base rent for the premises during the first year was approximately $9,000. Each year thereafter, the base rent shall increase by approximately 3% over the base rent from the prior year. The base
rent includes the Companys pro rata share of the estimated annual real estate taxes and operating expenses.
Total rent expense
under the Companys operating leases was $107,500 and $62,900 for the years ended December 31, 2014 and 2013, respectively.
At
December 31, 2014, the Companys future minimum payments required under operating leases are as follows, in thousands:
|
|
|
|
|
Year Ending December 31, |
|
|
|
2015 |
|
$ |
119 |
|
2016 |
|
|
119 |
|
2017 |
|
|
117 |
|
2018 |
|
|
120 |
|
2019 |
|
|
30 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
505 |
|
|
|
|
|
|
The Company applies the disclosure provisions of FASB ASC Topic 460, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (ASC 460), to its agreements that contain guarantee or indemnification clauses. The Company provides:
(i) indemnifications of varying scope and size to certain investors and other parties for certain losses suffered or incurred by the indemnified party in connection with various types of third-party claims; and (ii) indemnifications of
varying scope and size to officers and directors against third party claims arising from the services they provide to us. These indemnifications give rise only to the disclosure provisions of ASC 460. To date, the Company has not incurred costs as a
result of these obligations and does not expect to incur material costs in the future. Accordingly, the Company has not accrued any liabilities in its financial statements related to these indemnifications.
7. Convertible Preferred Stock
The Company has authorized up to 10,000,000 shares of preferred stock, $0.0001 par value per share, for issuance. The
Companys Board of Directors is authorized under the Companys Amended and Restated Articles of Incorporation, to designate the authorized preferred stock into one or more series and to fix and determine such rights, preferences,
privileges and restrictions of any series of preferred stock, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Companys Board of Directors upon its
issuance. See also Note 8 to our financial statements for the rights and preferences of the Series A-1 convertible preferred stock (Series A-1 Preferred Stock).
Series A Preferred Stock
The Company currently has authorized a total of 15,000 shares of Series A convertible preferred stock (Series A Preferred
Stock), $0.0001 par value per share, for issuance.
Accounting Treatment
The Series A Preferred Stock has been classified outside of permanent equity (within the mezzanine section between liabilities and equity on
the balance sheets) as the Company may not be able to control the actions necessary to issue the maximum number of common shares needed to provide for a conversion in full of the then outstanding Series A Preferred Stock, at which time a holder
of the Series A Preferred Stock may elect to redeem
F-23
their preferred shares outstanding in the amount equal to the face value per share, plus unpaid accrued dividends. The Companys Series A-1 Preferred Stock has the same rights, privileges
and preferences as the Series A Preferred Stock, but does not provide for any potential payment in cash in the event that the Company has insufficient shares of common stock authorized to honor conversions. Accordingly, the Series A-1 Preferred
Stock is classified within permanent equity. The Series A-1 Preferred Stock is discussed further in Note 8.
Dividends
Holders of Series A Preferred Stock are entitled to receive cumulative mandatory dividends at the rate per share of seven percent (7%) of
the face amount ($1,000 per share) per annum, payable quarterly on each March 31, June 30, September 30 and December 31. Dividends shall be payable in additional shares of Series A Preferred Stock valued for this
purpose at the face amount. In the event there are not sufficient authorized Series A Preferred Shares available to pay such a dividend, the dividend shall instead accrete to and increase the face value of the outstanding Series A Preferred Stock.
The fair value of the Series A Preferred Stock dividend, which is included in the Companys net loss applicable to common stockholders, is calculated by multiplying the number of common shares that a preferred holder would receive upon
conversion by the closing price of the Companys common stock on the dividend payment date.
The Company recorded Series A Preferred
Stock dividends of $2,399,000 and $8,198,000 during the years ended December 31, 2014 and 2013, respectively.
Conversion
Each holder of shares of Series A Preferred Stock may, at any time and from time to time, convert each of its shares into a number of
fully paid and non-assessable shares of common stock at the defined conversion rate. Each share of Series A Preferred Stock is convertible into 2,437.57 shares of common stock. In no event shall any holder of shares of Series A Preferred Stock have
the right to convert shares of Series A Preferred Stock into shares of common stock to the extent that, after giving effect to such conversion, the holder, together with any of its affiliates, would beneficially own more than 9.999% of the
then-issued and outstanding shares of common stock.
Exchange Transaction
On January 24, 2014, the Company entered into an exchange agreement (the Exchange Agreement) with Tang Capital
Partners, L.P. (TCP) pursuant to which TCP exchanged a total of 3,000 shares of Series A Preferred Stock for a like number of shares of Series A-1 Preferred Stock.
On August 13, 2013, the Company entered into an exchange agreement (the Prior Exchange Agreement) with TCP pursuant to
which TCP agreed to exchange a total of 2,000 shares of Series A Preferred Stock for a like number of shares of Series A-1 Preferred Stock.
In both transactions, the terms of the Series A-1 Preferred Stock were identical in all respects to the Series A Preferred Stock, other than
the elimination of cash penalties that would potentially be due and payable upon the failure of the Company to have enough shares of common stock available to permit the conversion of Series A-1 Preferred Stock into common stock. The exchange
transaction was recognized as a decrease in the face value of the Series A Preferred Stock and a corresponding increase in the face value of the Series A-1 Preferred Stock.
Liquidation Preference
The Liquidation Preference with respect to a share of Series A Preferred Stock means an amount equal to the face amount of the
shares ($1,000 per share) plus all accrued and unpaid dividends on the Series A Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to
F-24
such shares). In the event of a liquidation, dissolution, or winding up, whether voluntary or involuntary, no distribution shall be made to the holders of any shares of capital stock of the
Company (other than Senior Securities (as defined in the Certificate of Designations), pursuant to the rights, preferences and privileges thereof) unless prior thereto the holders of shares of Series A Preferred Stock have received the Liquidation
Preference with respect to each share then outstanding.
Voting
The holders of Series A Preferred Stock do not have any right to elect directors and have only limited voting rights, which consist primarily
of the right to vote under certain protective provisions set forth in the Certificate of Designations, regarding: (i) any proposed amendment to the Series A Preferred Stock or its right and preferences; and (ii) any proposed Deemed
Liquidation Event as defined in the Certificate of Designations.
8. Stockholders Equity
Series A-1 Preferred Stock
The Company currently has authorized a total of 10,000 shares of Series A-1 Preferred Stock, $0.0001 par value per share, for issuance. On
January 24, 2014, the Company filed a Certificate of Increase with the Secretary of State of the State of Delaware amending the Companys previously filed Certificate of Designation for the Series A-1 Preferred Stock to increase the total
number of shares of Series A-1 Preferred Stock authorized from 5,000 shares to 10,000 shares.
Accounting Treatment
The Series A-1 Preferred Stock has been classified as permanent equity as the Company is not required to effect a net cash settlement in the
instance that the Company does not have enough shares of common stock available to permit the conversion of Series A-1 Preferred Stock into common stock.
Dividends
Holders of
Series A-1 Preferred Stock are entitled to receive cumulative mandatory dividends at the rate per share of seven percent (7%) of the face amount ($1,000 per share) per annum, payable quarterly on each
March 31, June 30, September 30 and December 31. Dividends shall be payable in additional shares of Series A-1 Preferred Stock valued for this purpose at the face amount. In the event there are not sufficient authorized
Series A-1 Preferred Shares available to pay such a dividend, the dividend shall instead accrete to and increase the face value of the outstanding Series A-1 Preferred Stock. The fair value of the Series A-1 Preferred Stock dividend, which is
included in the Companys net loss applicable to common stockholders, is calculated by multiplying the number of common shares that a preferred holder would receive upon conversion by the closing price of the Companys common stock on the
dividend payment date.
The Company recorded Series A-1 Preferred Stock dividends of $1,731,000 and $412,000 during the years ended
December 31, 2014 and 2013, respectively.
Conversion
Each holder of shares of Series A-1 Preferred Stock may, at any time and from time to time, convert each of its shares into a number of
fully paid and non-assessable shares of common stock at the defined conversion rate. Each share of Series A-1 Preferred Stock is convertible into 2,437.57 shares of common stock. In no event shall any holder of shares of Series A-1 Preferred Stock
have the right to convert shares of Series A-1 Preferred Stock into shares of common stock to the extent that such issuance or sale or right to effect such conversion would result in the holder or any of its affiliates together beneficially owning
more than 9.999% of the then issued and outstanding shares of common stock.
F-25
Exchange Transaction
On January 24, 2014, the Company entered into the Exchange Agreement with TCP pursuant to which TCP exchanged a total of 3,000 shares of
Series A Preferred Stock for a like number of shares of Series A-1 Preferred Stock.
On August 13, 2013, the Company entered into the
Prior Exchange Agreement with TCP pursuant to which TCP agreed to exchange a total of 2,000 shares of Series A Preferred Stock for a like number of shares of Series A-1 Preferred Stock.
In both transactions, the terms of the Series A-1 Preferred Stock were identical in all respects to the Series A Preferred Stock, other than
the elimination of cash penalties that would potentially be due and payable upon the failure of the Company to have enough shares of common stock available to permit the conversion of Series A-1 Preferred Stock into common stock. The exchange
transaction was recognized as a decrease in the face value of the Series A Preferred Stock and a corresponding increase in the face value of the Series A-1 Preferred Stock.
Liquidation Preference
The Liquidation Preference with respect to a share of Series A-1 Preferred Stock means an amount equal to the face amount of the
shares ($1,000 per share) plus all accrued and unpaid dividends on the Series A-1 Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). In the event of a liquidation,
dissolution, or winding up, whether voluntary or involuntary, no distribution shall be made to the holders of any shares of capital stock of the Company (other than Senior Securities (as defined in the Certificate of Designations), pursuant to the
rights, preferences and privileges thereof) unless prior thereto the holders of shares of Series A-1 Preferred Stock have received the Liquidation Preference with respect to each share then outstanding. The liquidation preference of the
Series A Preferred Stock is pari passu with the liquidation preference of the Series A-1 Preferred Stock.
Voting
The holders of Series A-1 Preferred Stock do not have any right to elect directors and have only limited voting rights, which consist primarily
of the right to vote under certain protective provisions set forth in the Certificate of Designations, regarding: (i) any proposed amendment to the Series A-1 Preferred Stock or its right and preferences; and (ii) any proposed Deemed
Liquidation Event as defined in the Certificate of Designations.
Common Stock
On July 10, 2014, the Company filed a Certificate of Amendment with the Secretary of State of the State of Delaware amending the
Companys previously filed Amended and Restated Certificate of Incorporation to decrease the total number of shares of common stock authorized to 100,000,000. The decrease in the total number of shares of common stock authorized was approved by
the Companys stockholders at the Companys Annual Meeting of Stockholders held on June 2, 2014.
On April 22, 2014,
the Company entered into a purchase agreement (the Prior Purchase Agreement) with Lincoln Park Capital Fund, LLC (LPC), pursuant to which and subject to the terms and conditions contained in the Prior Purchase
Agreement, the Company had the right to sell to LPC up to $20 million in shares of the Companys common stock over a 30-month term. The Prior Purchase Agreement was terminable, among other circumstances, by mutual agreement of LPC and the
Company at any time. The Company and LPC executed a termination agreement dated December 18, 2014, whereby the parties mutually agreed to terminate the Prior Purchase Agreement effective immediately. The Company sold a total of $2.0 million in
shares of common stock to LPC at a price of $4.00 per share and previously issued 100,000 shares of common stock at a price of $4.00 per share as a commitment fee, recorded as a cost of capital, under the Prior Purchase Agreement. As a result of
this purchase, the Company received net proceeds of approximately $1.9 million, after deducting commissions and other offering expenses of approximately $0.1 million.
F-26
On December 18, 2014, the Company entered into a purchase agreement (the Purchase
Agreement) with LPC, pursuant to which the Company has the right to sell to LPC up to $10.8 million in shares of the Companys common stock, subject to certain limitations and conditions set forth in the Purchase Agreement. Pursuant
to the Purchase Agreement, the Company issued 100,000 shares of common stock at price per share of $1.93 as a commitment fee under the Purchase Agreement, which was recorded as a cost of capital. The Company intends to use the net proceeds from this
offering for working capital, to fund the development of the Companys development programs, as well as for other general corporate purposes.
On March 1, 2013, the Company entered into an asset purchase agreement with OPKO Health, Inc. (OPKO) pursuant to which
the Company acquired substantially all of OPKOs RNAi-related assets, including patents, licenses, clinical and preclinical data and other related assets (the OPKO Asset Purchase). Upon the close of the OPKO Asset Purchase on
March 12, 2013, the Company issued to OPKO 1,666,666 shares of common stock. The asset purchase agreement with OPKO is described further in Note 11.
On March 6, 2013, the Company entered into a securities purchase agreement with certain purchasers, pursuant to which the Company agreed
to issue a total of 3,765,230 shares of common stock at a price of $4.35 per share. The Company received net proceeds of $15.7 million from the Offering, which closed on March 12, 2013, after deducting payment of commissions and other costs of
$0.7 million.
During the years ended December 31, 2014 and 2013, the Company issued 9,463,712 and 1,056,684 shares of common stock
as a result of Series A and Series A-1 Preferred Stock conversions.
9. Stock-Based Compensation
Stock Plans
On January 23, 2012, the Companys Board of Directors and sole stockholder adopted the RXi Pharmaceuticals Corporation 2012 Long-Term
Incentive Plan (the 2012 Incentive Plan). Under the 2012 Incentive Plan, the Company may grant incentive stock options, nonqualified stock options, cash awards, stock appreciation rights, restricted and unrestricted stock and
stock unit awards and other stock-based awards. The Companys Board of Directors currently acts as the administrator of the Companys 2012 Incentive Plan. The administrator has the power to select participants from among the key employees,
directors and consultants of and advisors to the Company, establish the terms, conditions and vesting schedule, if applicable, of each award and to accelerate vesting or exercisability of any award.
As of December 31, 2014, an aggregate of 5,000,000 shares of common stock were reserved for issuance under the Companys 2012
Incentive Plan, including 3,000,264 shares subject to outstanding common stock options granted under the 2012 Incentive Plan and 1,997,736 shares available for future grants. Each option shall expire within ten years of issuance. Stock options
granted by the Company to employees generally vest as to 12.5% of the shares on the six-month and first anniversary of the grant date and 25% of the shares at the end of each successive three-year period until fully vested.
Stock-Based Compensation
The Company follows the provisions of ASC 718, which requires the measurement and recognition of compensation expense for all stock-based
payment awards made to employees and non-employee directors including employee stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the
requisite service period.
For stock options granted as consideration for services rendered by non-employees, the Company recognizes
compensation expense in accordance with the requirements of FASB ASC Topic 505-50, Equity Based Payments to Non-Employees. Non-employee option grants that do not vest immediately upon grant are
F-27
recorded as an expense over the requisite service period of the underlying stock options. At the end of each financial reporting period prior to vesting, the value of these options, as calculated
using the Black-Scholes option-pricing model, will be re-measured using the fair value of the Companys common stock and the non-cash compensation recognized during the period will be adjusted accordingly. Since the fair value of options
granted to non-employees is subject to change in the future, the amount of the future compensation expense will include fair value re-measurements until the stock options are fully vested.
The Company is currently using the Black-Scholes option-pricing model to determine the fair value of all its option grants. For option grants
for the years ended December 31, 2014 and 2013, the following assumptions were used:
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2014 |
|
2013 |
Risk-free interest rate |
|
1.60% - 2.73% |
|
0.71% - 2.19% |
Expected volatility |
|
97.91% - 107.01% |
|
74.53% - 107.30% |
Weighted average expected volatility |
|
101.52% |
|
76.27% |
Expected life (in years) |
|
5.20 - 10.00 |
|
5.20 - 10.00 |
Expected dividend yield |
|
0.00% |
|
0.00% |
The weighted-average fair value of options granted during the years ended December 31, 2014 and 2013 was
$2.43 and $4.05 per share, respectively.
The risk-free interest rate used for each grant was based upon the yield on zero-coupon U.S.
Treasury securities with a term similar to the expected life of the related option. The Companys expected stock price volatility assumption is based upon the volatility of a composition of comparable companies. The expected life assumption for
employee grants was based upon the simplified method provided for under ASC 718 and the expected life assumption for non-employees was based upon the contractual term of the option. The dividend yield assumption of zero is based upon the fact that
the Company has never paid cash dividends and presently has no intention of paying cash dividends.
The following table summarizes the
option activity of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
|
Weighted- Average Exercise Price Per Share |
|
|
Weighted- Average Remaining Contractual Term |
|
|
Aggregate Intrinsic Value |
|
Balance at December 31, 2013 |
|
|
2,556,269 |
|
|
$ |
3.47 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
443,995 |
|
|
|
2.96 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014 |
|
|
3,000,264 |
|
|
$ |
3.39 |
|
|
|
7.86 years |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2014 |
|
|
1,739,455 |
|
|
$ |
3.39 |
|
|
|
7.60 years |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense for the years ended December 31, 2014 and 2013 was approximately
$1,846,000 and $1,979,000, respectively. Of this, the Company recognized approximately $81,000 and $43,000 of expense related to non-employee stock options for the same period. There is no income tax benefit as the Company is currently operating at
a loss and an actual income tax benefit may not be realized.
The intrinsic value of stock options exercised was $2,000 for the year ended
December 31, 2013. No options were exercised during the year ended December 31, 2014.
F-28
As of December 31, 2014, the compensation expense for all unvested stock options in the
amount of approximately $2,700,000 will be recognized in the Companys results of operations over a weighted average period of 2.02 years.
Employee Stock Purchase Plan
On June 7, 2013, the Compensation Committee approved an employee stock purchase plan (ESPP), which was subsequently
approved by the Companys stockholders at the Companys 2014 Annual Meeting of Stockholders. The ESPP allows employees to contribute a percentage of their cash earnings, subject to certain maximum amounts, to be used to purchase shares of
the Companys common stock on each of two semi-annual purchase dates. The purchase price is equal to 90% of the market value per share on either (a) the date of grant of a purchase right under the ESPP or (b) the date on which such
purchase right is deemed exercised, whichever is lower.
As of December 31, 2014, an aggregate of 113,333 shares of common stock were
reserved for issuance under the Companys ESPP, of which 43,780 shares of common stock have been issued under the ESPP and 69,553 shares are available for future issuances.
The Company is currently using the Black-Scholes option-pricing model to determine the fair value of the ESPP stock rights. For stock rights
issued in the years ended December 31, 2014 and 2013, the following assumptions were used:
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2014 |
|
2013 |
|
Risk-free interest rate |
|
0.06% - 0.09% |
|
|
0.09 |
% |
Expected volatility |
|
94.99% - 103.36% |
|
|
88.68 |
% |
Weighted average expected volatility |
|
100.39% |
|
|
88.68 |
% |
Expected life (in years) |
|
0.50 |
|
|
0.50 |
|
Expected dividend yield |
|
0.00 |
|
|
0.00 |
% |
The weighted average fair value of stock purchase rights granted as part of the ESPP was $1.20 and $2.04 for
the years ended December 31, 2014 and 2013.
The risk-free interest rate used was based upon the yield on zero-coupon U.S. Treasury
securities with a term similar to the expected life of the related option. The Companys expected volatility is based upon the volatility of a composition of comparable companies for the expected term. The expected life assumption was based
upon the purchase period and the dividend yield assumption of zero is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends.
The Company recorded $28,800 and $10,200 of stock-based compensation expense for the year ended December 31, 2014 and 2013, respectively,
related to the ESPP.
F-29
10. Income Taxes
The components of federal and state income tax expense are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
Current |
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
|
|
State |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
Federal |
|
|
(2,727 |
) |
|
|
(9,123 |
) |
State |
|
|
(583 |
) |
|
|
(2,002 |
) |
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
(3,310 |
) |
|
|
(11,125 |
) |
Valuation allowance |
|
|
3,310 |
|
|
|
11,125 |
|
|
|
|
|
|
|
|
|
|
Total income tax expense |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
The components of net deferred tax assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2014 |
|
|
2013 |
|
Net operating loss carryforwards |
|
$ |
9,805 |
|
|
$ |
6,590 |
|
Tax credit carryforwards |
|
|
261 |
|
|
|
146 |
|
Stock based compensation |
|
|
1,392 |
|
|
|
861 |
|
Licensing deduction deferral |
|
|
6,367 |
|
|
|
6,864 |
|
Other timing differences |
|
|
110 |
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
17,935 |
|
|
|
14,626 |
|
Valuation allowance |
|
|
(17,935 |
) |
|
|
(14,626 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
The Companys deferred tax assets at December 31, 2014 and 2013 consisted primarily of its net
operating loss carryforwards, deferred compensation, tax credit carryforwards, Section 197 intangible assets capitalized for federal income tax purposes and certain accruals that for tax purposes are not deductible until future payment is made.
The Company has incurred net operating losses since inception. At December 31, 2014, the Company had federal and state net operating
loss carryforwards of approximately $46.8 million, which are available to reduce future taxable income expiring through 2034. Based on an assessment of all available evidence including, but not limited to the Companys limited operating history
in its core business and lack of profitability, uncertainties of the commercial viability of its technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, the
Company has concluded that it is more likely than not that these net operating loss carryforwards and credits will not be realized and, as a result, a full deferred income tax valuation allowance has been recorded against these assets.
Under the provisions of the Internal Revenue Code, certain substantial changes in the Companys ownership may result in a limitation on
the amount of net operating loss carryforwards and research and development credit carryforwards which could be utilized annually to offset future taxable income and taxes payable.
The Company files income tax returns in the United States, Massachusetts and New Jersey. The Company is subject to tax examinations for
Federal and state purposes for tax years 2012 through 2014. The Company has
F-30
not recorded any uncertain tax positions as of December 31, 2014 or 2013. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12
months. RXi has not incurred any interest or penalties. In the event that the Company is assessed interest or penalties at some point in the future, they will be classified in the financial statements as general and administrative expenses.
11. License Agreements
As part of its business, the Company enters into licensing agreements with third parties that often require milestone and
royalty payments based on the progress of the asset through development stages. Milestone payments may be required, for example, upon approval of the product for marketing by a regulatory agency. In certain agreements, the Company is required to
make royalty payments based upon a percentage of the sales of the products licensed pursuant to such agreements.
The expenditures
required under these arrangements may be material individually in the event that the Company develops product candidates covered by the intellectual property licensed under any such arrangement, and in the unlikely event that milestones for multiple
products covered by these arrangements were reached in the same period, the aggregate charge to expense could be material to the results of operations. In addition, these arrangements often give the Company discretion to unilaterally terminate
development of the product, which would allow the Company to avoid making the contingent payments; however, the Company is unlikely to cease development if the compound successfully achieves clinical testing objectives.
Advirna. We have entered into agreements with Advirna, or their surviving entity, pursuant to which Advirna assigned to us its existing
patent and technology rights related to sd-rxRNA technology in exchange for our agreement to pay Advirna an annual maintenance fee of $100,000. Pursuant to the terms of the agreement, in the first quarter of 2014 we paid to Advirna and recorded
research and development expense of $350,000 for a one-time milestone payment upon the issuance of the first patent with valid claims covering the assigned technology. Additionally, we will be required to pay a 1% royalty to Advirna on any licensing
revenue received by us with respect to future licensing of the assigned Advirna patent and technology rights. We also granted back to Advirna a license under the assigned patent and technology rights for fields of use outside human therapeutics.
Our rights under the Advirna agreement will expire upon the later of: (i) the expiration of the last-to-expire of the patent
rights (as defined) included in the Advirna agreement; or (ii) the abandonment of the last-to-be abandoned of such patents, unless earlier terminated in accordance with the provisions of the agreement.
We may terminate the Advirna agreement at any time upon 90 days written notice to Advirna, and Advirna may terminate the agreement upon
90 days prior written notice in the event that we cease using commercially reasonable efforts to research, develop, license or otherwise commercialize the patent rights or royalty-bearing products (as defined), provided that we may
refute such claim within such 90-day period by showing budgeted expenditures for the research, development, licensing or other commercialization consistent with other technologies of similar stage of development and commercial potential as the
patent rights or royalty-bearing products. Further, either party at any time may provide to the other party written notice of a material breach of the agreement. If the other party fails to cure the identified breach within 90 days after the date of
the notice, the aggrieved party may terminate the agreement by written notice to the party in breach.
OPKO. In March 2013, we
acquired from OPKO substantially all of its RNAi-related assets, which included patents and patent applications, licenses, clinical and preclinical data and other related assets. In exchange for the assets that we purchased from OPKO, we issued to
OPKO 1,666,666 shares of our common stock and agreed to pay, if applicable: (i) up to $50 million in development and commercialization milestones for the successful development and commercialization of each Qualified Drug (as
defined in the Asset Purchase Agreement with OPKO); and (ii) royalty payments equal to: (a) a mid-single-digit percentage of Net Sales (as defined in the Asset Purchase Agreement) with respect to each Qualified Drug sold for an
ophthalmologic use during the applicable Royalty Period (as defined in the Asset Purchase Agreement); and (b) a low-single-digit percentage
F-31
of Net Sales with respect to each Qualified Drug sold for a non-ophthalmologic use during the applicable Royalty Period (collectively, the Royalty Payments). The Company recorded
research and development expense of $12,250,000 during the year ended December 31, 2013 to recognize the fair value of the common shares issued to OPKO in exchange for the RNAi-related assets acquired by the Company.
Hapten. On December 17, 2014, the Company entered into an assignment and exclusive license agreement, (the Assignment and
License Agreement) with Hapten Pharmaceuticals, LLC (Hapten) under which Hapten agreed, effective at a closing that was subject to the satisfaction of certain closing conditions which occurred in February 2015, to sell
and assign to us certain patent rights and related assets and rights, including an investigational new drug application and clinical data, for Haptens Samcyprone gel products for therapeutic and prophylactic use. Samcyprone is a
proprietary gel formulation of diphenylcyclopropenone (DPCP), an immunomodulation agent that works by initiating a T-cell response. Hapten has been developing Samcyprone for the treatment of alopecia areata, warts and
cutaneous metastases of malignant melanoma.
Under the Assignment and License Agreement, Hapten will receive at closing an upfront payment
from us, payable in cash and stock, and will be entitled to receive: (i) future milestone payments tied to the achievement of certain clinical and commercial objectives (all of which payments may be made at our option in cash or through the
issuance of common stock); and (ii) escalating royalties based on product sales by us and any sublicensees. The Assignment and License Agreement with Hapten is described further in Note 12.
12. Subsequent Events
Subsequent to the balance sheet date and up to March 30, 2015, a total of 50,000 shares of common stock were sold to
LPC pursuant to the Purchase Agreement, with proceeds received from such transactions totaling $65,000.
Subsequent to the balance sheet
date and up to March 30, 2015, the Company issued 8,987,326 shares of common stock as a result of Series A and A-1 Preferred Stock conversions.
On February 4, 2015, the Company closed the Assignment and License Agreement with Hapten. Pursuant to the Assignment and License
Agreement, the Company paid $100,000 in cash to Hapten as consideration for a license fee and issued 200,000 shares of common stock at a share price of $1.14 as additional consideration.
On March 20, 2015, the Company entered into an exchange agreement with TCP pursuant to which TCP exchanged a total of 2,000 shares of Series A
Preferred Stock for a like number of shares of Series A-1 Preferred Stock. The terms of the Series A-1 Preferred Stock are identical in all respects to the Series A Preferred Stock, other than the elimination of cash penalties that would potentially
be due and payable upon the failure of the Company to have enough shares of common stock available to permit the conversion of Series A Preferred Stock into common stock. This exchange transaction will be recognized as a decrease in the face value
of the Series A Preferred Stock and a corresponding increase in the face value of the Series A-1 Preferred Stock.
F-32
RXi Pharmaceuticals Corporation
22,500,000 Units
Each Unit Consisting of:
One Share of Common Stock;
An Overallotment Purchase Right to Purchase Half of One Share of Common Stock; and
A Warrant to Purchase Half of One Share of Common Stock
PROSPECTUS
, 2015
PART II
Information Not Required in Prospectus
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses, other than placement agent fees and expenses, payable in connection with the
registration of the common stock hereunder. All amounts are estimates except the SEC registration fee and the FINRA filing fee.
|
|
|
|
|
Item |
|
Amount to be paid |
|
SEC registration fee |
|
$ |
2,905 |
|
FINRA filing fee |
|
|
3,500 |
|
Printing and engraving expenses |
|
|
30,000 |
|
Legal fees and expenses |
|
|
100,000 |
|
Accounting fees and expenses |
|
|
60,000 |
|
Transfer Agent fees and expenses |
|
|
5,000 |
|
Miscellaneous expenses |
|
|
8,595 |
|
|
|
|
|
|
Total |
|
$ |
210,000 |
|
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (DGCL) authorizes a corporation to indemnify its directors and
officers against liabilities arising out of actions, suits and proceedings to which they are made or threatened to be made a party by reason of the fact that they have served or are currently serving as a director or officer to a corporation. The
indemnity may cover expenses (including attorneys fees) judgments, fines and amounts paid in settlement actually and reasonably incurred by the director or officer in connection with any such action, suit or proceeding. Section 145
permits corporations to pay expenses (including attorneys fees) incurred by directors and officers in advance of the final disposition of such action, suit or proceeding. In addition, Section 145 provides that a corporation has the
power to purchase and maintain insurance on behalf of its directors and officers against any liability asserted against them and incurred by them in their capacity as a director or officer, or arising out of their status as such, whether or not the
corporation would have the power to indemnify the director or officer against such liability under Section 145.
Our certificate of
incorporation provides that we will indemnify to the fullest extent authorized or permitted by the DGCL or any other applicable law as now or hereafter in effect any person made, or threatened to be made, a defendant or witness to any action, suit
or proceeding (whether civil, criminal or otherwise) by reason of the fact that he is or was a director of our corporation or by reason of the fact that such director, at our request, is or was serving any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity. Our certificate of incorporation also provides that no amendment or repeal of the certificate of incorporation will apply to or have any effect on any right to
indemnification provided in the certificate of incorporation with respect to any acts or omissions occurring prior to such amendment or repeal.
As permitted by the DGCL, our bylaws, as amended, provide that we will indemnify to the fullest extent authorized or permitted by applicable
law as now or hereafter in effect any person who was or is made, or is threatened to be made, a party or is otherwise involved in any action, suit or proceeding (whether civil, criminal, administrative or investigative), by reason of the fact that
he (or a person for whom he is the legal representative) is or was a director or officer of our corporation, is or was serving at our request as a director, officer, employee, member, trustee or agent of another corporation or of a partnership,
joint venture, trust, nonprofit entity or other enterprise.
II-1
Consequently, no director of the corporation will be personally liable to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such a director as a director. However, notwithstanding the preceding sentence, a director will be liable to the extent provided by Delaware law (1) for any breach of the
directors duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) for payments of unlawful dividends or for
unlawful stock repurchases or redemption, or (4) for any transaction from which the director derived an improper personal benefit.
We have entered into indemnification agreements with each of our executive officers and directors. These agreements provide that, subject to
limited exceptions and among other things, we will indemnify each of our executive officers and directors to the fullest extent permitted by law and advance expenses to each indemnitee in connection with any proceeding in which a right to
indemnification is available.
We also maintain insurance on behalf of any person who is or was our director, officer, trustee, employee
or agent or serving at our request as a director, officer, trustee, employee or agent of another corporation, partnership, joint venture, trust, non-profit entity or other enterprise against any liability asserted against the person and incurred by
the person in any such capacity, or arising out of his or her status as such.
Insofar as indemnification for liabilities arising under
the Securities Act may be permitted for directors, officers, or persons who control us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, we have issued the following securities that were not registered in
the Securities Act.
On April 27, 2012, TCP and RTW Investments, LLC (RTW) purchased from us a total of 9,500
shares of Series A Preferred Stock in consideration for $9.5 million, payable in cash, and through the extinguishment of approximately $1 million of aggregate indebtedness owed to TCP and RTW by the Company.
On April 27, 2012, the Company issued a total of 1,394,997 shares of Common Stock to Advirna, LLC in partial consideration for the
assignment of certain patent rights to the Company.
On March 12, 2013, the Company issued a total of 1,666,666 shares of Common
Stock to OPKO Health, Inc. (OPKO) pursuant to that certain Asset Purchase Agreement dated March 1, 2013, in consideration for the Companys acquisition of substantially all of OPKOs RNAi-related assets.
On March 12, 2013, the Company issued a total of 3,765,230 shares of Common Stock, at a price of $4.35 per share for aggregate
consideration of approximately $16.4 million, to investors named in that certain Securities Purchase Agreement dated March 6, 2013.
On August 13, 2013, the Company entered into an exchange agreement with TCP. In connection with the Exchange Agreement, the Company
designated a new series of preferred stock on August 13, 2013: its Series A-1 Convertible Preferred Stock, par value $0.0001 (the Series A-1 Preferred Stock). Pursuant to the exchange agreement, TCP exchanged a total of 2,000
shares of Series A Preferred Stock for a like number of shares of Series A-1 Preferred Stock. The terms of the Series A-1 Preferred Stock are identical in all respects to the Series A Preferred Stock, other than the elimination of cash penalties
that would potentially be due and payable upon the failure of the Company to have enough shares of its Common Stock available to permit the conversion of Series A Preferred Stock into Common Stock.
II-2
On January 24, 2014, the Company entered into an exchange agreement with TCP pursuant to
which TCP exchanged a total of 3,000 shares of Series A Preferred Stock for a like number of shares of Series A-1 Preferred Stock.
On
March 20, 2015, the Company entered into an exchange agreement with TCP pursuant to which TCP exchanged a total of 2,000 shares of Series A Preferred Stock for a like number of shares of Series A-1 Preferred Stock.
With respect to the foregoing exchange agreements, the Company issued the Series A-1 Preferred Stock in transactions exempt from the
registration requirements of the Securities Act by virtue of the exemption provided for in Section 3(a)(9) of the Act for securities exchanged by the issuer with an existing security holder.
On February 4, 2015, the Company issued 200,000 shares of common stock to Hapten Pharmaceuticals, LLC, pursuant to that certain
Assignment and Exclusive License Agreement dated as of December 17, 2014, in partial consideration for certain patent rights and related assets and rights, including an investigational new drug application and clinical data for Haptens
Samcyprone gel products for therapeutic and prophylactic use.
Holders of Series A Preferred Stock received dividends payable in
shares of Series A Preferred Stock of 356, 628 and 450 during the years ended December 31, 2014, 2013 and 2012, respectively.
Holders of
Series A-1 Preferred Stock received dividends payable in shares of Series A-1 Preferred Stock of 240 and 54 during the years ended December 31, 2014 and 2013, respectively.
Holders of the Series A Preferred Stock received dividends payable in shares of Series A Preferred Stock of 85 during the quarter ended March
31, 2015.
Holders of the Series A-1 Preferred Stock received dividends payable in shares of Series A-1 Preferred Stock of 21 during the
quarter ended March 31, 2015.
On June 7, 2013, the Compensation Committee approved an employee stock purchase plan
(ESPP), which was subsequently approved by the Companys stockholders at the Companys 2014 Annual Meeting of Stockholders. The ESPP allows employees to contribute a percentage of their cash earnings, subject to certain
maximum amounts, to be used to purchase shares of the Companys common stock on each of two semi-annual purchase dates. The purchase price is equal to 90% of the market value per share on either (a) the date of grant of a purchase right
under the ESPP or (b) the date on which such purchase right is deemed exercised, whichever is lower.
As of March 31, 2015, an
aggregate of 113,333 shares of common stock were reserved for issuance under the Companys ESPP, of which 43,780 shares of common stock have been issued under the ESPP and 69,553 shares are available for future issuances.
As of March 31, 2015, we have sold an aggregate of 45,780 shares of common stock to employees, directors, and consultants for cash
consideration in the aggregate amount of approximately $95,100 upon the exercise of stock options and stock awards.
Unless otherwise
noted, all of the transactions described in Item 15 were exempt from registration under the Securities Act pursuant to Section 4(a)(2) of the Securities Act in that such sales did not involve a public offering or under Rule 701 promulgated
under the Securities Act, in that they were offered and sold either pursuant to written compensatory plans or pursuant to a written contract relating to compensation, as provided by Rule 701.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See the Exhibit Index set forth on page II-6 to this Registration Statement, which is incorporated herein by reference.
II-3
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, or the 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 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 Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material change to such information in the registration statement;
(b) That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof;
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the termination of the offering;
(d) That, for the purpose of
determining liability under the Securities Act of 1933 to any purchaser:
(i) Each prospectus filed by the Registrant
pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in
reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the
II-4
registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made
in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date;
(e) That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this registration statement as of the time it was declared effective; and
(f) That, for the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-5
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Marlborough, Massachusetts, on May 20, 2015.
|
|
|
RXi PHARMACEUTICALS CORPORATION |
|
|
By: |
|
/s/ Geert Cauwenbergh |
|
|
Geert Cauwenbergh, Dr. Med. Sc. |
|
|
President, Chief Executive Officer and Chief Financial Officer |
Pursuant to the requirements of the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
/s/ Geert Cauwenbergh
Geert Cauwenbergh, Dr. Med. Sc. |
|
President, Chief Executive Officer,
Chief Financial Officer and Director
(Principal Executive Officer and Principal Financial Officer) |
|
May 20, 2015 |
|
|
|
/s/ Caitlin Kontulis
Caitlin Kontulis |
|
Controller and Secretary
(Principal Accounting Officer) |
|
May 20, 2015 |
|
|
|
*
Keith L. Brownlie |
|
Director |
|
May 20, 2015 |
|
|
|
*
Robert J. Bitterman |
|
Director |
|
May 20, 2015 |
|
|
|
*
H. Paul Dorman |
|
Director |
|
May 20, 2015 |
|
|
|
*
Curtis A. Lockshin, Ph.D. |
|
Director |
|
May 20, 2015 |
* By: /s/ Geert Cauwenbergh
Geert Cauwenbergh, Attorney-in-Fact
May 20, 2015
II-6
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference Herein |
Exhibit Number |
|
Description |
|
Form |
|
Date |
|
|
|
|
2.1 |
|
Contribution Agreement, dated as of September 24, 2011, between RXi Pharmaceuticals Corporation (formerly RNCS, Inc.) and Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation). |
|
Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-177498) |
|
December 8, 2011 |
|
|
|
|
2.2 |
|
Securities Purchase Agreement, dated as of September 24, 2011, among RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Tang Capital Partners, LP and RTW
Investments, LLC. |
|
Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-177498) |
|
December 8, 2011 |
|
|
|
|
2.3 |
|
Asset Purchase Agreement, dated March 1, 2013, between RXi Pharmaceuticals Corporation and OPKO Health, Inc. + |
|
Quarterly Report on Form 10-Q (File No. 000-54910) |
|
March 15, 2013 |
|
|
|
|
3.1 |
|
Amended and Restated Certificate of Incorporation of RXi Pharmaceuticals Corporation. |
|
Amendment No. 4 to the Registration Statement on Form S-1 (File No. 333-177498) |
|
February 7, 2012 |
|
|
|
|
3.2 |
|
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of RXi Pharmaceuticals Corporation. |
|
Current Report on Form 8-K (File No. 000-54910) |
|
July 22, 2013 |
|
|
|
|
3.3 |
|
Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of RXi Pharmaceuticals Corporation. |
|
Amendment No. 4 to Registration Statement Form S-1 (File No. 333-177498) |
|
February 7, 2012 |
|
|
|
|
3.4 |
|
Certificate of Designations, Preferences and Rights of Series A-1 Convertible Preferred Stock of RXi Pharmaceuticals Corporation. |
|
Quarterly Report on Form 10-Q (File No. 000-54910) |
|
August 14, 2013 |
|
|
|
|
3.5 |
|
Certificate of Increase, filed with the Secretary of State of the State of Delaware on January 24, 2014. |
|
Current Report on Form 8-K (File No. 000-54910) |
|
January 24, 2014 |
|
|
|
|
3.6 |
|
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of RXi Pharmaceuticals Corporation. |
|
Registration Statement on Form S-1 (File No. 333-203389) |
|
April 13, 2015 |
|
|
|
|
3.7 |
|
Amended and Restated Bylaws of RXi Pharmaceuticals Corporation. |
|
Quarterly Report on Form 10-Q (File No. 333-177498) |
|
May 14, 2012 |
|
|
|
|
4.1 |
|
Secured Convertible Promissory Note, dated September 24, 2011 of RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), issued to Tang Capital Partners, LP. |
|
Registration Statement on Form S-1 (File No. 333-177498) |
|
October 25, 2011 |
II-7
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference Herein |
Exhibit Number |
|
Description |
|
Form |
|
Date |
|
|
|
|
4.2 |
|
Secured Convertible Promissory Note, dated September 24, 2011 of RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), issued to RTW Investments, LLC. |
|
Registration Statement on Form S-1 (File No. 333-177498) |
|
October 25, 2011 |
|
|
|
|
4.3 |
|
Form of Overallotment Purchase Right*** |
|
|
|
|
|
|
|
|
4.4 |
|
Form of Warrant*** |
|
|
|
|
|
|
|
|
5.1 |
|
Opinion of Gibson, Dunn & Crutcher LLP regarding the securities being registered.*** |
|
|
|
|
|
|
|
|
10.1 |
|
Employment Agreement, dated September 24, 2011, between RXi Pharmaceuticals Corporation (formerly, RNCS, Inc.) and Pamela Pavco, Ph.D.** |
|
Current Report on Form 8-K of Galena Biopharma, Inc. (File No. 001-33958) |
|
September 26, 2011 |
|
|
|
|
10.2 |
|
Patent and Technology Assignment Agreement between RXi Pharmaceuticals Corporation (formerly RNCS, Inc.) and Advirna, LLC, effective as of September 24, 2011. |
|
Registration Statement on Form S-1 (File No. 333-177498) |
|
October 25, 2011 |
|
|
|
|
10.3 |
|
RXi Pharmaceuticals Corporation 2012 Long Term Incentive Plan.** |
|
Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-177498) |
|
January 23, 2012 |
|
|
|
|
10.4 |
|
Form of Incentive Stock Option Award under the Companys 2012 Long Term Incentive Plan, as amended.** |
|
Registration Statement on Form S-1 (File No. 333-191236 |
|
September 18, 2013 |
|
|
|
|
10.5 |
|
Form of Non-qualified Stock Option Award under the Companys 2012 Long Term Incentive Plan, as amended.** |
|
Registration Statement on Form S-1 (File No. 333-191236 |
|
September 18, 2013 |
|
|
|
|
10.6 |
|
Form of Restricted Stock Unit Award under the Companys 2012 Long Term Incentive Plan, as amended.** |
|
Registration Statement on Form S-1 (File No. 333-191236 |
|
September 18, 2013 |
|
|
|
|
10.7 |
|
Amendment to RXi Pharmaceuticals Corporation Long-Term Incentive Plan.** |
|
Registration Statement on Form S-1 (File No. 333-191236 |
|
September 18, 2013 |
|
|
|
|
10.8 |
|
RXi Pharmaceuticals Corporation Employee Stock Purchase Plan.** |
|
Registration Statement on Form S-1 (File No. 333-191236 |
|
September 18, 2013 |
|
|
|
|
10.9 |
|
Form of Indemnification Agreement.** |
|
Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-177498) |
|
January 23, 2012 |
|
|
|
|
10.10 |
|
Employment Agreement, dated April 27, 2012, between RXi Pharmaceuticals Corporation and Geert Cauwenbergh, Dr. Med. Sc.** |
|
Current Report on Form 8-K (File No. 333-177498) |
|
May 3, 2012 |
|
|
|
|
10.11 |
|
Securities Purchase Agreement, dated as of March 6, 2013, among RXi Pharmaceuticals Corporation and the purchasers named therein. |
|
Current Report on Form 8-K (File No. 000-54910) |
|
March 7, 2013 |
II-8
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference Herein |
Exhibit Number |
|
Description |
|
Form |
|
Date |
|
|
|
|
10.12 |
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Lease Agreement dated December 17, 2013 between RXi Pharmaceuticals Corporation and 257 Simarano Drive, LLC, Brighton Properties, LLC, Robert Stubblebine 1, LLC and Robert Stubblebine 2, LLC |
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Current Report on Form 8-K (File No. 000-54910) |
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December 20, 2013 |
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10.13 |
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Purchase Agreement, dated as of April 22, 2014, between RXi Pharmaceuticals Corporation and Lincoln Park Capital Fund, LLC |
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Current Report on Form 8-K (File No. 001-36304) |
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April 23, 2014 |
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10.14 |
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Purchase Agreement, dated as of December 18, 2014, between RXi Pharmaceuticals Corporation and Lincoln Park Capital Fund, LLC |
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Current Report on Form 8-K (File No. 001-36304) |
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December 19, 2014 |
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10.15 |
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Manufacturing and Distribution Agreement, dated November 14, 2013 between RXi Pharmaceuticals Corporation and Ethicor Pharmaceuticals Ltd. + |
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Annual Report on Form 10-K (File No. 000-54910) |
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March 28, 2014 |
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10.16 |
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Engagement Agreement, dated February 25, 2015 between RXi Pharmaceuticals Corporation and H.C. Wainwright & Co., LLC*** |
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10.17 |
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Amendment to Engagement Agreement, dated April 20, 2015 between RXi Pharmaceuticals Corporation and H.C. Wainwright & Co., LLC*** |
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10.18 |
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Amendment to Engagement Agreement, dated May 19, 2015 between RXi Pharmaceuticals Corporation and H.C. Wainwright & Co., LLC*** |
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10.19 |
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Form of Securities Purchase Agreement*** |
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23.1 |
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Consent of BDO USA, LLP, Independent Registered Public Accounting Firm*** |
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23.2 |
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Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1)*** |
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24.1 |
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Powers of Attorney (included on the signature page of Part II of prior filing) |
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** |
Indicates a management contract or compensatory plan or arrangement. |
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Confidential treatment has been requested or granted for certain portions which have been blanked out in the copy of the exhibit filed with the Securities and Exchange Commission. The omitted information has been filed
separately with the Securities and Exchange Commission. |
II-9
Exhibit 4.3
OVERALLOTMENT COMMON STOCK PURCHASE RIGHT
RXI PHARMACEUTICALS CORPORATION
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Overallotment Shares: |
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Initial Exercise Date: , 2015 |
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THIS OVERALLOTMENT COMMON STOCK PURCHASE RIGHT (the Overallotment Purchase Right) certifies
that, for value received, or its assigns (the Holder) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter
set forth, at any time on or after the date hereof (the Initial Exercise Date) and on or prior to the close of business on the date that is thirteen (13) months following the Initial Exercise Date (the Termination
Date) but not thereafter, to subscribe for and purchase from RXi Pharmaceuticals Corporation, a Delaware corporation (the Company), up to shares
(as subject to adjustment hereunder, the Overallotment Shares) of the Companys common stock, par value $0.0001 per share (the Common Stock). The purchase price of one share of Common Stock under this
Overallotment Purchase Right shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1.
Definitions. In addition to the terms defined elsewhere in this Overallotment Purchase Right, the following terms have the meanings indicated in this Section 1:
Affiliate means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or
is under common control with a Person as such terms are used in and construed under Rule 405 under the Securities Act.
Board of
Directors means the board of directors of the Company.
Business Day means any day except any Saturday, any
Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
Commission means the United States Securities and Exchange Commission.
Common Stock Equivalent means any securities of the Company which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
Liens means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive
right or other restriction.
Person means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
1
Proceeding means an action, claim, lawsuit, investigation or proceeding
(including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
Purchase Agreement means Securities Purchase Agreement, dated as of
, 2015, between the Company and purchasers signatory thereto.
Registration Statement means the effective registration statement on Form S-1 (Commission File No. 333-203389).
Rule 144 means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or
interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
Trading Day means a day on which the principal Trading Market is open for trading.
Trading Market means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).
Transfer Agent means Computershare Trust Company, N.A., the current transfer agent of the Company.
Section 2. Exercise.
a) Exercise of Overallotment Purchase Right. Exercise of the purchase rights represented by this Overallotment Purchase
Right may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in
writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form annexed hereto and within three (3) Trading Days
of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashiers check drawn on a United States bank or, if
available, pursuant to the cashless exercise procedure specified in Section 2(c) below. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of
Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Overallotment Purchase Right to the Company until the Holder has purchased all of the Overallotment Shares
available hereunder and the Overallotment Purchase Right has been exercised in full, in which case, the Holder shall surrender this Overallotment Purchase Right to the Company for cancellation within three Trading
2
Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Overallotment Purchase Right resulting in purchases of a portion of the total number of
Overallotment Shares available hereunder shall have the effect of lowering the outstanding number of Overallotment Shares purchasable hereunder in an amount equal to the applicable number of Overallotment Shares purchased. The Holder and the Company
shall maintain records showing the number of Overallotment Shares purchased and the date of such purchases. The Holder and any assignee, by acceptance of this Overallotment Purchase Right or any partial assignment of this Overallotment Purchase
Right, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase or assignment of a portion of the Overallotment Shares hereunder, the number of Overallotment Shares available for purchase hereunder at any
given time may be less than the amount stated on the face hereof.
b) Exercise Price. The exercise price per
share of the Common Stock under this Overallotment Purchase Right shall be $ , subject to adjustment hereunder (the Exercise Price).
c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the
prospectus contained therein is not available for the issuance of the Overallotment Shares to the Holder, then this Overallotment Purchase Right may only be exercised, in whole or in part, at such time by means of a cashless exercise in
which the Holder shall be entitled to receive a number of Overallotment Shares equal to the quotient obtained by dividing ((A-B) x (X)) by (A), where:
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(A) = |
the VWAP (as defined below) on the Trading Day immediately preceding the date on which Holder elects to exercise this Overallotment Purchase Right by means of a cashless exercise, as set forth in the
applicable Notice of Exercise; |
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(B) = |
the Exercise Price of this Overallotment Purchase Right, as adjusted hereunder; and |
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(X) = |
the number of Overallotment Shares that would be issuable upon exercise of this Overallotment Purchase Right in accordance with the terms of this Overallotment Purchase Right if such exercise were by means of a cash
exercise rather than a cashless exercise. |
If Overallotment Shares are issued in such a cashless exercise,
the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Overallotment Shares shall take on the registered characteristics of the Overallotment Purchase Rights being exercised, and the holding period
of the Overallotment Purchase Rights being exercised may be tacked on to the holding period of the Overallotment Shares. The Company agrees not to take any position contrary to this Section 2(c).
VWAP means, for any date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or
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the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to
4:00 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is
not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the Pink Sheets published by OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as mutually determined by the Company and the Holder, provided that, if the Company and
the Holder are unable to agree upon the fair market value of such security, then the fair market value will be determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then
outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company. All such determinations will be appropriately adjusted for any stock dividend, stock split, stock combination or other similar
transaction during such period.
d) Mechanics of Exercise.
i. Delivery of Overallotment Shares Upon Exercise. Overallotment Shares purchased hereunder shall be transmitted by the
Transfer Agent to the Holder by crediting the account of the Holders or its designees balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (DWAC) if the Company is
then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Overallotment Shares to or resale of the Overallotment Shares by Holder or (B) this Overallotment Purchase Right
is being exercised via cashless exercise, and otherwise by physical delivery of a certificate, registered in the Companys share register in the name of the Holder or its designee, for the number of Overallotment Shares to which the Holder is
entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is three Trading Days after the delivery to the Company of the Notice of Exercise (such date, the Overallotment Share
Delivery Date), provided that the Holder has paid any required Exercise Price for the portion of this Overallotment Purchase Right being exercised on or prior to such Overallotment Share Delivery Date (including by cashless exercise, if
permitted pursuant to Section 2(c)). The Overallotment Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the Overallotment Purchase Right has been validly exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to
Section 2(d)(vi) prior to the issuance of such shares, having been paid. If the Company fails for any reason to deliver to
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the Holder the Overallotment Shares subject to a Notice of Exercise by the Overallotment Share Delivery Date, and the Holder has paid any required Exercise Price for the portion of this
Overallotment Purchase Right being exercised on or prior to such Overallotment Share Delivery Date (including by cashless exercise, if permitted pursuant to Section 2(c)), the Company shall pay to the Holder, in cash, as liquidated damages and
not as a penalty, for each $1,000 of Overallotment Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $5 per Trading Day for each Trading Day after such second Trading Day
following the Overallotment Share Delivery Date until such Overallotment Shares are delivered or Holder rescinds such exercise.
ii. Delivery of New Overallotment Purchase Rights Upon Exercise. If this Overallotment Purchase Right shall have been
exercised in part, the Company shall, at the request of a Holder and upon surrender of this Overallotment Purchase Right, at the time of delivery of the Overallotment Shares, deliver to the Holder a new Overallotment Purchase Right evidencing the
rights of the Holder to purchase the unpurchased Overallotment Shares called for by this Overallotment Purchase Right, which new Overallotment Purchase Right shall in all other respects be identical with this Overallotment Purchase Right.
iii. Rescission Rights. In the event that the Buy-In remedy pursuant to section 2(d)(iv) below does not apply or is
otherwise not exercised, if the Company fails to cause the Transfer Agent to transmit to the Holder the Overallotment Shares pursuant to Section 2(d)(i) by the second Trading Day following the Overallotment Share Delivery Date and the Holder
has paid any required Exercise Price for the portion of this Overallotment Purchase Right being exercised on or prior to such Overallotment Share Delivery Date (including by cashless exercise, if permitted pursuant to Section 2(c)), then the
Holder will have the right to rescind such exercise.
iv. Buy-In Remedy. In addition to any other rights available
to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Overallotment Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the second Trading Day following
the Overallotment Share Delivery Date and the Holder has paid any required Exercise Price for the portion of this Overallotment Purchase Right being exercised on or prior to such Overallotment Share Delivery Date (including by cashless exercise, if
permitted pursuant to Section 2(c)), and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holders brokerage firm otherwise purchases, shares of Common Stock to deliver
in satisfaction of a sale by the Holder of the Overallotment Shares which the Holder anticipated receiving upon such exercise (a Buy-In), then the
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Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holders total purchase price (including reasonable brokerage commissions, if any) for the shares
of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Overallotment Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at
which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Overallotment Purchase Right and equivalent number of Overallotment Shares for which such
exercise was not honored (in which case such exercise shall be deemed rescinded, provided, however, that such right to reinstate or rescind shall only apply in the event that the rights pursuant to Section 2(d)(iii) above have not been
exercised) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding
sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of
such loss. Nothing herein shall limit a Holders right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the
Companys failure to timely deliver shares of Common Stock upon exercise of the Overallotment Purchase Right as required pursuant to the terms hereof. Notwithstanding anything to the contrary in the foregoing, any amounts payable by the Company
to the Holder pursuant to this Section 2(d)(iv) shall be reduced by any amounts that have been paid or are required to be paid to such Holder by the Company pursuant to the last sentence of Section 2(d)(i).
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the
exercise of this Overallotment Purchase Right. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share; provided that the Company shall not be required to make any fractional payments on exercise if the aggregate value of fractional
shares is less than $100 and any such lesser amount shall be deemed forfeited.
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vi. Charges, Taxes and Expenses. Issuance of Overallotment Shares shall
be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of Overallotment Shares, all of which taxes and expenses shall be paid by the Company, and such Overallotment Shares shall be
issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Overallotment Shares are to be issued in a name other than the name of the Holder, this Overallotment
Purchase Right when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for timely processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar
functions) required for timely electronic delivery of the Overallotment Shares.
vii. Closing of Books. The Company
will not close its stockholder books or records in any manner which prevents the timely exercise of this Overallotment Purchase Right, pursuant to the terms hereof.
e) Holders Exercise Limitations. The Company shall not effect any exercise of this Overallotment Purchase Right,
and a Holder shall not have the right to exercise any portion of this Overallotment Purchase Right, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice
of Exercise, the Holder (together with the Holders Affiliates, and any other Persons acting as a group together with the Holder or any of the Holders Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation
(as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Overallotment
Purchase Right with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Overallotment Purchase Right
beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents)
subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(e),
beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such
calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e)
applies, the determination of whether this Overallotment Purchase Right is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Overallotment Purchase Right is exercisable shall
be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holders
7
determination of whether this Overallotment Purchase Right is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this
Overallotment Purchase Right is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination and will have no liability for exercises of
this Overallotment Purchase Right that are in non-compliance with the Beneficial Ownership Limitation. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as
reflected in (A) the Companys most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding as established by clauses (A), (B), or (C), as applicable. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and
in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company,
including this Overallotment Purchase Right, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The Beneficial Ownership Limitation shall be 4.99% of the
number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Overallotment Purchase Right. The Holder, upon notice to the Company, may increase or decrease
the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon exercise of this Overallotment Purchase Right held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective
until the 61st day after such notice is delivered to the Company and shall only be effective with regard to such Holder. The provisions of this Section 2(e) shall be construed and implemented
in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or
to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this Section 2(e) shall apply to a successor holder of this Overallotment Purchase Right.
f) Call Provision. Subject to the provisions of Section 2(e) and this Section 2(f), if, at any time after the
sixth (6th) month following the Initial Exercise Date, the VWAP for each of 10 consecutive Trading Days (the Measurement Period, which 10 consecutive Trading Day period shall not have commenced until after the Initial
Exercise Date) exceeds $ (subject to adjustment for forward and reverse stock splits, recapitalizations, stock dividends and the like after the Initial Exercise Date), then the
Company may, within 5 Trading Days of the end of such Measurement Period, call for cancellation of all or any portion of this Overallotment Purchase Right for which a Notice
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of Exercise has not yet been delivered (such right, a Call) for consideration equal to $0.0001 per Overallotment Share. To exercise this right, the Company must deliver to the
Holder an irrevocable written notice (a Call Notice), indicating therein the unexercised portion of this Overallotment Purchase Right to which such notice applies. If the conditions set forth below for such Call are satisfied from
the period from the date of the Call Notice through and including the Call Date (as defined below), then any portion of this Overallotment Purchase Right subject to such Call Notice for which a Notice of Exercise shall not have been received by the
Call Date will be cancelled at 6:30 p.m. (New York City time) on the fifth (5th) Trading Day after the date the Call Notice is delivered to the Holder (such date and time, the Call Date). Any unexercised portion of this
Overallotment Purchase Right to which the Call Notice does not pertain will be unaffected by such Call Notice. In furtherance thereof, the Company covenants and agrees that it will honor all Notices of Exercise with respect to Overallotment Shares
subject to a Call Notice that are tendered through 6:30 p.m. (New York City time) on the Call Date. The parties agree that any Notice of Exercise delivered following a Call Notice which calls less than all the Overallotment Purchase Rights shall
first reduce to zero the number of Overallotment Shares subject to such Call Notice prior to reducing the remaining Overallotment Shares available for purchase under this Overallotment Purchase Right. For example, if (A) this Overallotment
Purchase Right then permits the Holder to acquire 100 Overallotment Shares, (B) a Call Notice pertains to 75 Overallotment Shares, and (C) prior to 6:30 p.m. (New York City time) on the Call Date the Holder tenders a Notice of Exercise in
respect of 50 Overallotment Shares, then (x) on the Call Date the right under this Overallotment Purchase Right to acquire 25 Overallotment Shares will be automatically cancelled, (y) the Company, in the time and manner required under this
Overallotment Purchase Right, will have issued and delivered to the Holder 50 Overallotment Shares in respect of the exercises following receipt of the Call Notice, and (z) the Holder may, until the Termination Date, exercise this Overallotment
Purchase Right for 25 Overallotment Shares (subject to adjustment as herein provided and subject to subsequent Call Notices). Subject again to the provisions of this Section 2(f), the Company may deliver subsequent Call Notices for any portion
of this Overallotment Purchase Right for which the Holder shall not have delivered a Notice of Exercise. Notwithstanding anything to the contrary set forth in this Overallotment Purchase Right, the Company may not deliver a Call Notice or require
the cancellation of this Overallotment Purchase Right (and any such Call Notice shall be void), unless, from the beginning of the Measurement Period through the Call Date, (1) the Company shall have honored in accordance with the terms of this
Overallotment Purchase Right all Notices of Exercise delivered by 6:30 p.m. (New York City time) on the Call Date, and (2) the Registration Statement shall be effective as to all Overallotment Shares and the prospectus thereunder available for
use by the Company for the sale of all such Overallotment Shares to the Holder, and (3) the Common Stock shall be listed or quoted for trading on the Trading Market, and (4) there is a sufficient number of authorized shares of Common Stock
for issuance of all Securities under the Transaction Documents, and (5) the issuance upon exercise of the Overallotment Shares subject to the Call shall not cause a breach of any provision of Section 2(e) herein. The Companys right
to call the Overallotment Purchase Rights under this Section 2(f) shall be exercised ratably among the Holders based on each Holders initial purchase of Overallotment Purchase Rights.
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Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Overallotment Purchase Right is outstanding:
(i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include
any shares of Common Stock issued by the Company upon exercise of this Overallotment Purchase Right or any other securities issued pursuant to the Registration Statement), (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the
Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Overallotment Purchase Right shall be proportionately adjusted such that the aggregate
Exercise Price of this Overallotment Purchase Right shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the
Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the Purchase Rights), then the
Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise
of this Overallotment Purchase Right (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the
Holders right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial
ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder
exceeding the Beneficial Ownership Limitation).
c) Pro Rata Distributions. During such time as this Overallotment
Purchase Right is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without
limitation, any distribution of cash, stock or other securities, property or options by way of a dividend,
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spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a Distribution), at any time after the issuance of this Overallotment
Purchase Right, then, in each such case, the Holder shall be entitled following partial or complete exercise of this Overallotment Purchase Right to participate in such Distribution to the same extent that the Holder would have participated therein
if the Holder had held the number of shares of Common Stock acquirable upon such partial or complete exercise of this Overallotment Purchase Right, as applicable (without regard to any limitations on exercise hereof, including without limitation,
the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the
participation in such Distribution (provided, however, to the extent that the Holders right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall
not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the
benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). In addition, to the extent that this Overallotment Purchase Right has not been partially or
completely exercised at the time of such Distribution, such portion of the Distribution will be held in abeyance for the benefit of the Holder until the Holder has exercised this Overallotment Purchase Right.
d) Fundamental Transaction. If, at any time while this Overallotment Purchase Right is outstanding, (i) the
Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person (other than for the purpose of changing the name of the Company or changing the Companys
jurisdiction of incorporation to another state within the United States), (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its
assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to
sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions
effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or
(v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a Fundamental Transaction), then, upon any subsequent exercise of this
Overallotment Purchase Right, the Holder shall have the right to receive, for each Overallotment Share that would have
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been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the
exercise of this Overallotment Purchase Right), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the Alternate
Consideration) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Overallotment Purchase Right is exercisable immediately prior to such Fundamental Transaction (without
regard to any limitation in Section 2(e) on the exercise of this Overallotment Purchase Right). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration
based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting
the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the
same choice as to the Alternate Consideration it receives upon any exercise of this Overallotment Purchase Right following such Fundamental Transaction.
e) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of
a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if
any) issued and outstanding.
f) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this
Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Overallotment Shares and setting forth a brief statement of the facts
requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If, during the term in which this Overallotment
Purchase Right is exercisable by the Holder, (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption
of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any
stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or
any compulsory share exchange
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whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the
affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Overallotment Purchase Right Register of the Company, at least 10 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of
which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be
specified in such notice. To the extent that any notice provided in this Overallotment Purchase Right constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file
such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Overallotment Purchase Right during the period commencing on the date of such notice to the effective date of the event
triggering such notice except as may otherwise be expressly set forth herein.
Section 4. Transfer of Overallotment
Purchase Right.
a) Transferability. Subject to compliance with applicable securities laws, the Holder may
transfer this Overallotment Purchase Right and all rights hereunder (including, without limitation, any registration rights), in whole or in part, upon surrender of this Overallotment Purchase Right at the principal office of the Company or its
designated agent, together with a written assignment of this Overallotment Purchase Right substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the
making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Overallotment Purchase Right or Overallotment Purchase Rights in the name of the assignee or assignees, as applicable, and in
the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Overallotment Purchase Right evidencing the portion of this Overallotment Purchase Right not so assigned, and this Overallotment
Purchase Right shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Overallotment Purchase Right to the Company unless the Holder has assigned this Overallotment
Purchase Right in full, in which case,
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the Holder shall surrender this Overallotment Purchase Right to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this
Overallotment Purchase Right in full. The Overallotment Purchase Right, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Overallotment Shares without having a new Overallotment Purchase Right issued.
b) New Overallotment Purchase Rights. This Overallotment Purchase Right may be divided or combined with other
Overallotment Purchase Rights upon presentation hereof at the principal office of the Company, together with a written notice specifying the names and denominations in which new Overallotment Purchase Rights are to be issued, signed by the Holder or
its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Overallotment Purchase Right or Overallotment Purchase Rights
in exchange for the Overallotment Purchase Right or Overallotment Purchase Rights to be divided or combined in accordance with such notice. All Overallotment Purchase Rights issued on transfers or exchanges shall be dated the initial issuance date
of this Overallotment Purchase Right and shall be identical with this Overallotment Purchase Right except as to the number of Overallotment Shares issuable pursuant thereto.
c) Overallotment Purchase Right Register. The Company shall register this Overallotment Purchase Right, upon records to
be maintained by the Company for that purpose (the Overallotment Purchase Right Register), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Overallotment
Purchase Right as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
Section 5. Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Overallotment Purchase Right does not entitle the Holder to any voting
rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.
b) Loss, Theft, Destruction or Mutilation of Overallotment Purchase Right. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Overallotment Purchase Right or any stock certificate relating to the Overallotment Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of such Overallotment Purchase Right or stock certificate, if mutilated, the Company will make and deliver a new Overallotment Purchase Right or stock certificate of like tenor, in
lieu of such Overallotment Purchase Right or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last
or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.
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d) Authorized Shares.
The Company covenants that, during the period the Overallotment Purchase Right is outstanding, it will reserve from its
authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Overallotment Shares upon the exercise of any purchase rights under this Overallotment Purchase Right. The Company further covenants that its
issuance of this Overallotment Purchase Right shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary Overallotment Shares upon the exercise of the purchase
rights under this Overallotment Purchase Right. The Company will take all such reasonable action as may be necessary to assure that such Overallotment Shares may be issued as provided herein without violation of any applicable law or regulation, or
of any requirements of the Trading Market upon which the Common Stock may be listed. All Overallotment Shares which may be issued upon the exercise of the purchase rights represented by this Overallotment Purchase Right will, upon exercise of this
Overallotment Purchase Right and payment for such Overallotment Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the
extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending 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 of this Overallotment Purchase Right, but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Overallotment Purchase Right against impairment. Without limiting the generality of the foregoing, the Company will
(i) not increase the par value of any Overallotment Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable Overallotment Shares upon the exercise of this Overallotment Purchase Right and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Overallotment Purchase Right.
Before taking any action which would result in an adjustment in the number of Overallotment Shares for which this Overallotment
Purchase Right is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
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e) Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Overallotment Purchase Right shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each
party agrees that all legal proceedings concerning the interpretation, enforcement and defense of this Overallotment Purchase Right shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the
New York Courts). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Overallotment Purchase Right. If any party shall commence an action or proceeding to enforce any provisions of this Overallotment Purchase Right, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
f) Restrictions. The Holder acknowledges that the Overallotment Shares acquired upon the exercise of this Overallotment
Purchase Right, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of
Holder shall operate as a waiver of such right or otherwise prejudice the Holders rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. Without limiting any other provision of this
Overallotment Purchase Right or the Purchase Agreement, if a party willfully and knowingly fails to comply with any provision of this Overallotment Purchase Right, which results in any material damages to the other party, the offending party shall
pay to the other party such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys fees, including those of appellate proceedings, incurred by such other party in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices.
Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Exercise, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized
overnight courier service, addressed to the Company, at , Attention: , facsimile number:
, email address: ,
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or such other facsimile number, email address or address as the Company may specify for such purposes by notice to the Holders. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the
books of the Company. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile
number set forth in this Section prior to 5:30 p.m. (New York City time) on any Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth
in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be given.
i) Limitation of Liability.
No provision hereof, in the absence of any affirmative action by the Holder to exercise this Overallotment Purchase Right to purchase Overallotment Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any
liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this Overallotment Purchase Right. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions
of this Overallotment Purchase Right and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Overallotment Purchase Right and the rights and
obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Overallotment Purchase Right are intended
to be for the benefit of any Holder from time to time of this Overallotment Purchase Right and shall be enforceable by the Holder or holder of Overallotment Shares.
l) Amendment. This Overallotment Purchase Right is one of a series of Overallotment Purchase Rights issued by the
Company pursuant to the Registration Statement (such series of Overallotment Purchase Rights, the Offering Overallotment Purchase Rights). Any term of this Overallotment Purchase Right may be modified or amended or the provisions
hereof waived with the written consent of the Company and the holders of at least 67% of the Overallotment Shares underlying the then outstanding Offering Overallotment Purchase Rights, provided that any such written consent must include the consent
of any holder of outstanding Offering Overallotment Purchase Rights that were purchased pursuant to the Purchase Agreement which had a Subscription Amount (as defined in the Purchase Agreement) of at least $1 million.
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m) Severability. Wherever possible, each provision of this Overallotment
Purchase Right shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Overallotment Purchase Right shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Overallotment Purchase Right.
n) Headings. The headings used in this Overallotment Purchase Right are for the convenience of reference only and shall
not, for any purpose, be deemed a part of this Overallotment Purchase Right.
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(Signature Page Follows)
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IN WITNESS WHEREOF, the Company has caused this Overallotment Purchase Right to be executed by
its officer thereunto duly authorized as of the date first above indicated.
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RXI PHARMACEUTICALS CORPORATION |
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NOTICE OF EXERCISE
TO: |
RXI PHARMACEUTICALS CORPORATION |
(1) The undersigned hereby elects to purchase
Overallotment Shares of the Company pursuant to the terms of the attached Overallotment Purchase Right (only if exercised in full), and tenders herewith payment of the exercise
price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
¨ in lawful money of the United States; or
¨ if permitted the cancellation of such number of Overallotment Shares as is
necessary, in accordance with the formula set forth in subsection 2(c) of the Overallotment Purchase Right, to exercise this Overallotment Purchase Right with respect to the maximum number of Overallotment Shares purchasable pursuant to the cashless
exercise procedure set forth in subsection 2(c) of the Overallotment Purchase Right.
(3) Please issue said Overallotment Shares in the
name of the undersigned or in such other name as is specified below:
The Overallotment Shares shall be delivered to the following DWAC Account Number:
[SIGNATURE OF HOLDER]
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Signature of Authorized Signatory of Investing Entity: |
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EXHIBIT B
ASSIGNMENT FORM
(To assign
the foregoing Overallotment Purchase Right, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Overallotment Purchase Right and all rights evidenced thereby are hereby assigned to
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Name: |
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Address: |
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Dated: ,
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Holders Signature: |
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Exhibit 4.4
COMMON STOCK PURCHASE WARRANT
RXI PHARMACEUTICALS CORPORATION
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Warrant Shares: |
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Initial Exercise Date: , 2015 |
THIS COMMON STOCK PURCHASE WARRANT (the Warrant) certifies that, for value received,
or its assigns (the Holder) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on
or after the date hereof (the Initial Exercise Date) and on or prior to the close of business on the 5th year anniversary of the Initial Exercise Date (the Termination Date) but not thereafter, to subscribe for
and purchase from RXi Pharmaceuticals Corporation, a Delaware corporation (the Company), up to shares (as subject to adjustment hereunder, the
Warrant Shares) of the Companys common stock, par value $0.0001 per share (the Common Stock). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as
defined in Section 2(b).
Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant, the
following terms have the meanings indicated in this Section 1:
Affiliate means any Person that, directly or
indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 405 under the Securities Act.
Board of Directors means the board of directors of the Company.
Business Day means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States
or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
Commission means the United States Securities and Exchange Commission.
Common Stock Equivalent means any securities of the Company which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
Liens means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive
right or other restriction.
Person means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
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Proceeding means an action, claim, lawsuit, investigation or proceeding
(including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
Purchase Agreement means Securities Purchase Agreement, dated as of
, 2015, between the Company and purchasers signatory thereto.
Registration Statement means the effective registration statement on Form S-1 (Commission File No. 333-203389).
Rule 144 means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or
interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
Trading Day means a day on which the principal Trading Market is open for trading.
Trading Market means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on
the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).
Transfer Agent means Computershare Trust Company, N.A., the current transfer agent of the Company.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at
any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address
of the Holder appearing on the books of the Company) of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise in the form annexed hereto and within three (3) Trading Days of the date said Notice of Exercise is
delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashiers check drawn on a United States bank or, if available, pursuant to the cashless
exercise procedure specified in Section 2(c) below. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding
anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which
case, the Holder shall surrender this Warrant to the Company for cancellation within three Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of
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this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Holder and any assignee, by
acceptance of this Warrant or any partial assignment of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase or assignment of a portion of the Warrant Shares hereunder, the number of Warrant
Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b)
Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $ , subject to adjustment hereunder (the Exercise
Price).
c) Cashless Exercise. If at the time of exercise hereof there is no effective registration
statement registering, or the prospectus contained therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may only be exercised, in whole or in part, at such time by means of a cashless exercise
in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing ((A-B) x (X)) by (A), where:
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(A) = |
the VWAP (as defined below) on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a cashless exercise, as set forth in the applicable Notice of
Exercise; |
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(B) = |
the Exercise Price of this Warrant, as adjusted hereunder; and |
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(X) = |
the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.
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If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in
accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised, and the holding period of the Warrants being exercised may be tacked on to the holding
period of the Warrant Shares. The Company agrees not to take any position contrary to this Section 2(c).
VWAP means, for any date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:00 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if
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prices for the Common Stock are then reported in the Pink Sheets published by OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as mutually determined by the Company and the Holder, provided that, if the Company and the Holder
are unable to agree upon the fair market value of such security, then the fair market value will be determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and
reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company. All such determinations will be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such
period.
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. Warrant Shares purchased hereunder shall be transmitted by the Transfer
Agent to the Holder by crediting the account of the Holders or its designees balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (DWAC) if the Company is then a
participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise,
and otherwise by physical delivery of a certificate, registered in the Companys share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address
specified by the Holder in the Notice of Exercise by the date that is three Trading Days after the delivery to the Company of the Notice of Exercise (such date, the Warrant Share Delivery Date), provided that the Holder has paid
any required Exercise Price for the portion of this Warrant being exercised on or prior to such Warrant Share Delivery Date (including by cashless exercise, if permitted pursuant to Section 2(c)). The Warrant Shares shall be deemed to have been
issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been validly exercised, with payment to the Company of the
Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid. If the Company fails for any reason to deliver
to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, and the Holder has paid any required Exercise Price for the portion of this Warrant being exercised on or prior to such Warrant Share Delivery Date
(including by cashless exercise, if permitted pursuant to Section 2(c)), the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of
the Common Stock on the date of the applicable Notice of Exercise), $5 per Trading
4
Day for each Trading Day after such second Trading Day following the Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise.
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at
the request of a Holder and upon surrender of this Warrant, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. In the event
that the Buy-In remedy pursuant to section 2(d)(iv) below does not apply or is otherwise not exercised, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the second
Trading Day following the Warrant Share Delivery Date and the Holder has paid any required Exercise Price for the portion of this Warrant being exercised on or prior to such Warrant Share Delivery Date (including by cashless exercise, if permitted
pursuant to Section 2(c)), then the Holder will have the right to rescind such exercise.
iv. Buy-In Remedy.
In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or
before the second Trading Day following the Warrant Share Delivery Date and the Holder has paid any required Exercise Price for the portion of this Warrant being exercised on or prior to such Warrant Share Delivery Date (including by cashless
exercise, if permitted pursuant to Section 2(c)), and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holders brokerage firm otherwise purchases, shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a Buy-In), then the Company shall (A) pay in cash to the Holder the amount, if any, by
which (x) the Holders total purchase price (including reasonable brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the
Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate
the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded, provided, however, that such right to reinstate or rescind shall only apply in the
event that the rights pursuant to Section 2(d)(iii) above have not been exercised) or deliver to the Holder the number of shares of Common
5
Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the
Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.
Nothing herein shall limit a Holders right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Companys
failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof. Notwithstanding anything to the contrary in the foregoing, any amounts payable by the Company to the Holder pursuant to this
Section 2(d)(iv) shall be reduced by any amounts that have been paid or are required to be paid to such Holder by the Company pursuant to the last sentence of Section 2(d)(i).
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the
exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount
equal to such fraction multiplied by the Exercise Price or round up to the next whole share; provided that the Company shall not be required to make any fractional payments on exercise if the aggregate value of fractional shares is less than $100
and any such lesser amount shall be deemed forfeited.
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares
shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued
in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered
for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The
Company shall pay all Transfer Agent fees required for timely processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for timely electronic
delivery of the Warrant Shares.
6
vii. Closing of Books. The Company will not close its stockholder books
or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
e)
Holders Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after
giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holders Affiliates, and any other Persons acting as a group together with the Holder or any of the Holders
Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall
include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the
remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without
limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the
Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the
limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable
shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holders determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with
any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination and will have no
liability for exercises of this Warrant that are in non-compliance with the Beneficial Ownership Limitation. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as
reflected in (A) the Companys most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common
Stock then outstanding as established by clauses (A), (B), or (C), as applicable. In any case, the
7
number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its
Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The Beneficial Ownership Limitation shall be 4.99% of the number of shares of the Common Stock outstanding immediately after
giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that
the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the
provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the
Company and shall only be effective with regard to such Holder. The provisions of this Section 2(e) shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The
limitations contained in this Section 2(e) shall apply to a successor holder of this Warrant.
Section 3. Certain
Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding:
(i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include
any shares of Common Stock issued by the Company upon exercise of this Warrant or any other securities issued pursuant to the Registration Statement), (ii) subdivides outstanding shares of Common Stock into a larger number of shares,
(iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then
in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall
be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain
unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or re-classification.
b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the
Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to
8
the record holders of any class of shares of Common Stock (the Purchase Rights), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without
limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of
Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holders right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial
Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to
such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
c) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a Distribution), at any time after the issuance of this Warrant, then, in each
such case, the Holder shall be entitled following partial or complete exercise of this Warrant to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of
Common Stock acquirable upon such partial or complete exercise of this Warrant, as applicable (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of
which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the
extent that the Holders right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the
beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not
result in the Holder exceeding the Beneficial Ownership Limitation). In addition, to the extent that this Warrant has not been partially or completely exercised at the time of such Distribution, such portion of the Distribution will be held in
abeyance for the benefit of the Holder until the Holder has exercised this Warrant.
d) Fundamental Transaction. If,
at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person (other than for the purpose of changing
the name of the Company or changing the Companys
9
jurisdiction of incorporation to another state within the United States), (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or
other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company,
directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common
Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a Fundamental
Transaction), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental
Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and any additional consideration (the Alternate Consideration) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to
apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.
e) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of
a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if
any) issued and outstanding.
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f) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this
Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring
such adjustment.
ii. Notice to Allow Exercise by Holder. If, during the term in which this Warrant is exercisable
by the Holder, (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock,
(C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case,
the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as
of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in
this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder
shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
11
Section 4. Transfer of Warrant.
a) Transferability. Subject to compliance with applicable securities laws, the Holder may transfer this Warrant and all
rights hereunder (including, without limitation, any registration rights), in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant
substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company
shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the
Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full. The
Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the principal
office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer
which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers
or exchanges shall be dated the initial issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that
purpose (the Warrant Register), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or
any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
Section 5.
Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any
voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.
b) Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in
12
case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it , and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor, in lieu of such Warrant or stock certificate.
c)
Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised
on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority
to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be
necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. All Warrant Shares which may
be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free
from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without
limitation, amending 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 of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth
in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase
in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
13
Before taking any action which would result in an adjustment in the number of
Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
e) Governing Law. All questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings
concerning the interpretation, enforcement and defense of this Warrant shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the New York Courts). Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York
Courts are improper or inconvenient venue for such proceeding. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to
this Warrant. If any party shall commence an action or proceeding to enforce any provisions of this Warrant, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs
and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
f)
Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal
securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right
hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holders rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. Without limiting any
other provision of this Warrant or the Purchase Agreement, if a party willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the other party, the offending party shall pay to the other
party such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys fees, including those of appellate proceedings, incurred by such other party in collecting any amounts due pursuant
hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any and all notices
or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Exercise, shall be in writing and delivered personally, by facsimile, or sent by a nationally
14
recognized overnight courier service, addressed to the Company, at ,
Attention: , facsimile number:
, email address:
, or such other facsimile number, email address or address as the Company may specify for such purposes by notice to the Holders.
Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at
the facsimile number or address of such Holder appearing on the books of the Company. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number set forth in this Section prior to 5:30 p.m. (New York City time) on any Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent
by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this
Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
j) Remedies. The Holder, in addition to being
entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced
hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from
time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. This
Warrant is one of a series of Warrants issued by the Company pursuant to the Registration Statement (such series of Warrants, the Offering Warrants). Any term of this Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and the holders of at least 67% of the Warrant Shares underlying the then outstanding Offering Warrants, provided that any such written consent must include the consent of any holder of then outstanding
Offering Warrants that were purchased pursuant to the Purchase Agreement where such holder had a Subscription Amount (as defined in the Purchase Agreement) of at least $1 million.
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m) Severability. Wherever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n)
Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto
duly authorized as of the date first above indicated.
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NOTICE OF EXERCISE
TO: |
RXI PHARMACEUTICALS CORPORATION |
(1) The undersigned hereby elects to purchase
Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together
with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
¨ in lawful money of the United States; or
¨ if permitted the cancellation of such number of Warrant Shares as is necessary,
in accordance with the formula set forth in subsection 2(c) of the Warrant, to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c) of the
Warrant.
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
The Warrant Shares shall be delivered to the following DWAC Account Number:
[SIGNATURE OF HOLDER]
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EXHIBIT B
ASSIGNMENT FORM
(To assign
the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE
RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
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Dated: ,
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Exhibit 5.1
Client: 79920-00004
May 20, 2015
RXi Pharmaceuticals Corporation
257 Simarino Drive, Suite 101
Marlborough, MA 01752
Re: |
RXi Pharmaceuticals Corporation |
Registration Statement on Form S-1 (File No. 333-203389)
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1, File No. 333-203389, as amended (the Registration Statement), of RXi
Pharmaceuticals Corporation, a Delaware corporation (the Company), filed with the Securities and Exchange Commission (the Commission) pursuant to the Securities Act of 1933, as amended (the Securities
Act), in connection with the offering by the Company of: (i) up to 22,500,000 shares (the Shares) of the Companys common stock, par value $0.0001 per share (the Common Stock);
(ii) rights (the Overallotment Purchase Rights) to purchase up to 11,250,000 shares of Common Stock (the Overallotment Shares); and (iii) warrants (the Warrants) to purchase up to
11,250,000 shares of Common Stock (the Warrant Shares).
In arriving at the opinions expressed below, we have examined originals, or
copies certified or otherwise identified to our satisfaction as being true and complete copies of the originals, of specimen stock certificates and such other documents, corporate records, certificates of officers of the Company and of public
officials and other instruments as we have deemed necessary or advisable to enable us to render the opinions set forth below. In our examination, we have assumed without independent investigation the genuineness of all signatures, the legal capacity
and competency of all natural persons, the authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as copies.
Based upon the foregoing, and subject to the assumptions, exceptions, qualifications and limitations set forth herein, we are of the opinion that:
(i) the Shares, when issued against payment therefor as set forth in the Registration Statement, will be validly issued, fully paid and non-assessable; (ii) the Overallotment Shares, when issued upon exercise of the Overallotment Purchase
Rights against payment therefor as set forth in the Registration Statement, will be validly issued, fully paid and non-assessable; (iii) the Warrant Shares,
May 20, 2015
Page
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when issued upon exercise of the Warrants against payment therefor as set forth in the Registration Statement, will be validly issued, fully paid and non-assessable; and (iv) the
Overallotment Purchase Rights and the Warrants are legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms.
The opinions expressed above are subject to the following additional exceptions, qualifications, limitations and assumptions:
A. We render no opinion herein as to matters involving the laws of any jurisdiction other than the State of New York and the United States of
America and, for purposes of clauses (i), (ii) and (iii), the Delaware General Corporation Law. We are not admitted to practice in the State of Delaware; however, we are generally familiar with the Delaware General Corporation Law as currently
in effect and have made such inquiries as we consider necessary to render the opinions contained in clauses (i), (ii) and (iii) above. This opinion is limited to the effect of the current state of the laws of the State of New York,
the United States of America and, to the limited extent set forth above, the laws of the State of Delaware and the facts as they currently exist. We assume no obligation to revise or supplement this opinion in the event of future changes in such
laws or the interpretations thereof or such facts.
B. The opinion in clause (iv) above is subject to (i) the effect of any
bankruptcy, insolvency, reorganization, moratorium, arrangement or similar laws affecting the rights and remedies of creditors generally, including without limitation the effect of statutory or other laws regarding fraudulent transfers or
preferential transfers, and (ii) general principles of equity, including without limitation concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance, injunctive relief or other
equitable remedies regardless of whether enforceability is considered in a proceeding in equity or at law.
We consent to the filing of this opinion as an
exhibit to the Registration Statement, and we further consent to the use of our name under the caption Legal Matters in the Registration Statement and the prospectus that forms a part thereof. In giving these consents, we do not
thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the Rules and Regulations of the Commission.
Very truly yours,
/s/ Gibson, Dunn & Crutcher LLP
Exhibit 10.16
February 25, 2015
STRICTLY CONFIDENTIAL
Geert Cauwenbergh, Dr. Med.
Sc.
President and Chief Executive Officer
RXi
Pharmaceuticals Corporation
257 Simarano Drive, Suite 101
Marlborough, Massachusetts 01752
Dear Dr. Cauwenbergh:
This letter agreement (this Agreement) constitutes the agreement between RXi Pharmaceuticals Corporation (the
Company) and H.C. Wainwright & Co., LLC (Wainwright) that Wainwright shall serve as the exclusive agent, advisor or underwriter in any offering (each, an Offering) of securities of
the Company sold by or on behalf of the Company (Securities) during the Term (as defined below) of this Agreement. The terms of each Offering and the Securities issued in connection therewith shall be mutually agreed upon by the
Company and Wainwright and nothing herein implies that Wainwright would have the power or authority to bind the Company and nothing herein implies that the Company shall have an obligation to issue any Securities. It is understood that
Wainwrights assistance in an Offering will be subject to the satisfactory completion of such investigation and inquiry into the affairs of the Company as Wainwright deems appropriate under the circumstances and to the receipt of all internal
approvals of Wainwright in connection with the transaction. The Company expressly acknowledges and agrees that Wainwrights involvement in an Offering is strictly on a reasonable best efforts basis and that the consummation of an Offering will
be subject to, among other things, market conditions. The execution of this Agreement does not constitute a commitment by Wainwright to purchase the Securities and does not ensure a successful Offering of the Securities or the success of Wainwright
with respect to securing any other financing on behalf of the Company. Wainwright may, with the prior written consent of the Company, retain other brokers, dealers, agents or underwriters on its behalf in connection with an Offering.
A. Compensation; Reimbursement.
1. Compensation. At each closing of the Offering (each, a Closing), the Company shall pay to
Wainwright a cash fee, or as to an underwritten Offering an underwriter discount, equal to 7% of the aggregate gross proceeds raised by the Company in each Offering (when determining gross proceeds in this Agreement, any proceeds raised in any
multiple closing transaction or additional investment right shall be deemed part of such determination when such component is exercised, but not including the proceeds of any warrants issued as part of the Offering).
2. Warrant Coverage. The Company shall issue to Wainwright or its designees at each Closing, warrants (the
Wainwright Warrants) to purchase that number of shares of common stock of the Company equal to (i) 6% of the aggregate number of shares of Common Stock placed in each Offering (if the Securities are convertible or include an
additional investment option component, such shares of Common Stock underlying such Securities or options but not including the proceeds of any warrants issued as part of the Offering) in the event the gross proceeds in such Offering are
$7,000,000 or more and (ii) 4% of the aggregate number of shares of Common Stock placed in each Offering (if the Securities are convertible or include an additional investment option component, such shares of Common Stock underlying
such Securities or options but not including the proceeds of any warrants issued as part of the Offering) in the event the gross proceeds in such Offering are less than $7,000,000. If the Securities
included in an Offering are non-convertible, the Wainwright Warrants shall be determined by dividing the gross proceeds raised in such Offering divided by the then market price of the Common
Stock. The Wainwright Warrants shall have the same terms as the warrants issued to investors in the applicable Offering. If no warrants are issued to investors in an Offering, the Wainwright Warrants shall be in a customary form reasonably
acceptable to Wainwright, have a term of 5 years and an exercise price equal to 125% of the then market price of the Common Stock.
3. Expense Allowance. Out of the proceeds of the initial Closing, the Company also agrees to reimburse Wainwright for
its out of pocket expenses up to $50,000 (provided, however, that such reimbursement amount in no way limits or impairs the indemnification and contribution provisions of this Agreement).
B. Term and Termination of Engagement; Exclusivity. The term of Wainwrights exclusive engagement will begin on the date hereof
and end ninety (90) days after the date hereof (the Term); provided, however, if an Offering is consummated, the Term shall be extended to end on the 12-month anniversary of the date of such Offering. Notwithstanding anything
to the contrary contained herein, the Company agrees that the provisions relating to the payment of fees, reimbursement of expenses, indemnification and contribution, confidentiality, conflicts, independent contractor and waiver of the right to
trial by jury will survive any termination of this Agreement. During Wainwrights engagement hereunder: (i) the Company will not, and will not permit its representatives to, other than in coordination with Wainwright, contact or solicit
institutions, corporations or other entities or individuals as potential purchasers of the Securities and (ii) the Company will not pursue any financing transaction which would be in lieu of an Offering, provided that the foregoing shall not
apply to the exercise of any outstanding options or warrants or the conversion of any outstanding convertible securities. Furthermore, the Company agrees that during Wainwrights engagement hereunder, all inquiries, whether direct or indirect,
from prospective investors interested in purchasing the Securities will be referred to Wainwright and will be deemed to have been contacted by Wainwright in connection with an Offering. For the avoidance of doubt, Wainwright acknowledges that the
Company shall be permitted during the Term to solicit third party interest for a potential purchase of Company securities that may be sold by existing stockholders of the Company.
C. Information; Reliance. The Company shall furnish, or cause to be furnished, to Wainwright all information requested by Wainwright
for the purpose of rendering services hereunder (all such information being the Information). In addition, the Company agrees to make available to Wainwright upon request from time to time the officers, directors, accountants,
counsel and other advisors of the Company. The Company recognizes and confirms that Wainwright (a) will use and rely on the Information, including any documents provided to investors in each Offering (the Offering Documents
which shall include any Purchase Agreements (as defined below)), and on information available from generally recognized public sources in performing the services contemplated by this Agreement without having independently verified the same;
(b) does not assume responsibility for the accuracy or completeness of the Offering Documents or the Information and such other information; and (c) will not make an appraisal of any of the assets or liabilities of the Company. Upon
reasonable request, the Company will meet with Wainwright or its representatives to discuss all information relevant for disclosure in the Offering Documents and will cooperate in any investigation undertaken by Wainwright thereof, including any
document included or incorporated by reference therein. At each Offering, at the request of Wainwright, the Company shall deliver such legal letters, comfort letters and officers certificates, all in form and substance satisfactory to
Wainwright and its counsel as is customary for such Offering. Wainwright shall be a third party beneficiary of any representations, warranties, covenants and closing conditions made by the Company in any Offering Documents, including
representations, warranties, covenants and closing conditions made to any investor in an Offering.
D. Related Agreements. At each
Offering, it is contemplated that the Company will enter into the following additional agreements (it being understood that the Company is under no obligation pursuant to this
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Agreement to: accept any offer for the offer and sale of Securities, enter into any of the following agreements or consummate any Offering hereunder):
1. Underwritten Offering. If an Offering is an underwritten Offering, the Company and Wainwright shall enter into a
customary underwriting agreement in form and substance mutually satisfactory to Wainwright and the Company.
2. Best
Efforts Offering. If an Offering is on a best efforts basis, the sale of Securities to the investors in the Offering will be evidenced by a purchase agreement or subscription agreement (Purchase Agreement) between the Company
and such investors in a form reasonably satisfactory to the Company and Wainwright. Prior to the signing of any Purchase Agreement, officers of the Company with responsibility for financial affairs will be available to answer inquiries from
prospective investors, subject to entering into reasonable non-disclosure agreements satisfactory to the Company.
3.
FINRA Amendments. Notwithstanding anything herein to the contrary, in the event that Wainwright determines that any of the terms provided for hereunder shall not comply with a FINRA rule, including but not limited to FINRA Rule 5110, then the
Company shall agree to amend this Agreement (or include such revisions in the final underwriting) in writing upon the request of Wainwright to comply with any such rules; provided, however, that any such amendments shall not provide for terms
that are less favorable to the Company.
E. Confidentiality. In the event of the consummation or public announcement of any
Offering, Wainwright shall have the right to disclose its participation in such Offering, including, without limitation, the Offering at its cost of tombstone advertisements in financial and other newspapers and journals.
F. Indemnity.
1. In connection with the Companys engagement of Wainwright as Offering agent, the Company hereby agrees to indemnify and
hold harmless Wainwright and its affiliates, and the respective controlling persons, directors, officers, members, shareholders, agents and employees of any of the foregoing (collectively the Indemnified Persons), from and against
any and all claims, actions, suits, proceedings (including those of shareholders), damages, liabilities and expenses incurred by any of them (including the reasonable fees and expenses of counsel), as incurred, (collectively a
Claim), that are (A) related to or arise out of (i) any actions taken or omitted to be taken (including any untrue statements made or any statements omitted to be made) by the Company, or (ii) any actions taken or
omitted to be taken by any Indemnified Person in connection with the Companys engagement of Wainwright, or (B) otherwise relate to or arise out of Wainwrights activities on the Companys behalf under Wainwrights
engagement, and the Company shall reimburse any Indemnified Person for all expenses (including the reasonable fees and expenses of counsel) as incurred by such Indemnified Person in connection with investigating, preparing or defending any such
claim, action, suit or proceeding, whether or not in connection with pending or threatened litigation in which any Indemnified Person is a party. The Company will not, however, be responsible for any Claim that is finally judicially determined to
have resulted from the gross negligence or willful misconduct of any person seeking indemnification for such Claim. The Company further agrees that no Indemnified Person shall have any liability to the Company for or in connection with the
Companys engagement of Wainwright except for any Claim incurred by the Company as a result of such Indemnified Persons gross negligence or willful misconduct.
2. The Company further agrees that it will not, without the prior written consent of Wainwright, settle, compromise or consent
to the entry of any judgment in any pending or threatened Claim in respect of which indemnification may be sought hereunder (whether or not any Indemnified Person is an actual or potential party to such Claim), unless such settlement, compromise or
consent includes an unconditional, irrevocable release of each Indemnified Person from any and all liability arising out of such Claim.
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3. Promptly upon receipt by an Indemnified Person of notice of any complaint or
the assertion or institution of any Claim with respect to which indemnification is being sought hereunder, such Indemnified Person shall notify the Company in writing of such complaint or of such assertion or institution but failure to so notify the
Company shall not relieve the Company from any obligation it may have hereunder, except and only to the extent such failure results in the forfeiture by the Company of substantial rights and defenses. If the Company so elects or is requested by such
Indemnified Person, the Company will assume the defense of such Claim, including the employment of counsel reasonably satisfactory to such Indemnified Person and the payment of the fees and expenses of such counsel. In the event, however, that legal
counsel to such Indemnified Person reasonably determines that having common counsel would present such counsel with a conflict of interest or if the defendant in, or target of, any such Claim, includes an Indemnified Person and the Company, and
legal counsel to such Indemnified Person reasonably concludes that there may be legal defenses available to it or other Indemnified Persons different from or in addition to those available to the Company, then such Indemnified Person may employ its
own separate counsel to represent or defend him, her or it in any such Claim and the Company shall pay the reasonable fees and expenses of such counsel. Notwithstanding anything herein to the contrary, if the Company fails timely or diligently to
defend, contest, or otherwise protect against any Claim, the relevant Indemnified Party shall have the right, but not the obligation, to defend, contest, compromise, settle, assert crossclaims, or counterclaims or otherwise protect against the same,
and shall be fully indemnified by the Company therefor, including without limitation, for the reasonable fees and expenses of its counsel and all amounts paid as a result of such Claim or the compromise or settlement thereof. In addition, with
respect to any Claim in which the Company assumes the defense, the Indemnified Person shall have the right to participate in such Claim and to retain his, her or its own counsel therefor at his, her or its own expense.
4. The Company agrees that if any indemnity sought by an Indemnified Person hereunder is held by a court to be unavailable for
any reason then (whether or not Wainwright is the Indemnified Person), the Company and Wainwright shall contribute to the Claim for which such indemnity is held unavailable in such proportion as is appropriate to reflect the relative benefits to the
Company, on the one hand, and Wainwright on the other, in connection with Wainwrights engagement referred to above, subject to the limitation that in no event shall the amount of Wainwrights contribution to such Claim exceed the amount
of fees actually received by Wainwright from the Company pursuant to Wainwrights engagement. The Company hereby agrees that the relative benefits to the Company, on the one hand, and Wainwright on the other, with respect to Wainwrights
engagement shall be deemed to be in the same proportion as (a) the total value received by the Company pursuant to the applicable Offering (whether or not consummated) for which Wainwright is engaged to render services bears to (b) the fee
paid to Wainwright in connection with such engagement.
5. The Companys indemnity, reimbursement and contribution
obligations under this Agreement (a) shall be in addition to, and shall in no way limit or otherwise adversely affect any rights that any Indemnified Party may have at law or at equity and (b) shall be effective whether or not the Company
is at fault in any way.
G. Limitation of Engagement to the Company. The Company acknowledges that Wainwright has been retained
only by the Company, that Wainwright is providing services hereunder as an independent contractor (and not in any fiduciary or agency capacity) and that the Companys engagement of Wainwright is not deemed to be on behalf of, and is not
intended to confer rights upon, any shareholder, owner or partner of the Company or any other person not a party hereto as against Wainwright or any of its affiliates, or any of its or their respective officers, directors, controlling persons
(within the meaning of Section 15 of the Securities Act or Section 20 of the
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Securities Exchange Act of 1934, as amended (the Exchange Act)), employees or agents. Unless otherwise expressly agreed in writing by Wainwright, no one other than the Company
is authorized to rely upon this Agreement or any other statements or conduct of Wainwright, and no one other than the Company is intended to be a beneficiary of this Agreement. The Company acknowledges that any recommendation or advice, written or
oral, given by Wainwright to the Company in connection with Wainwrights engagement is intended solely for the benefit and use of the Companys management and directors in considering a possible Offering, and any such recommendation or
advice is not on behalf of, and shall not confer any rights or remedies upon, any other person or be used or relied upon for any other purpose. Wainwright shall not have the authority to make any commitment binding on the Company. The Company, in
its sole discretion, shall have the right to reject any investor introduced to it by Wainwright.
H. Limitation of Wainwrights
Liability to the Company. Wainwright and the Company further agree that neither Wainwright nor any of its affiliates or any of its their respective officers, directors, controlling persons (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act), employees or agents shall have any liability to the Company, its security holders or creditors, or any person asserting claims on behalf of or in the right of the Company (whether direct or indirect, in
contract, tort, for an act of negligence or otherwise) for any losses, fees, damages, liabilities, costs, expenses or equitable relief arising out of or relating to this Agreement or the services rendered hereunder, except for losses, fees, damages,
liabilities, costs or expenses that arise out of or are based on any action of or failure to act by Wainwright and that are finally judicially determined to have resulted solely from the gross negligence or willful misconduct of Wainwright.
I. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to
agreements made and to be fully performed therein. Any disputes that arise under this Agreement, even after the termination of this Agreement, will be heard only in the state or federal courts located in the County of New York, State of New York.
The parties hereto expressly agree to submit themselves to the jurisdiction of the foregoing courts in the County of New York, State of New York. The parties hereto expressly waive any rights they may have to contest the jurisdiction, venue or
authority of any court sitting in the County and State of New York. In the event of the bringing of any action, or suit by a party hereto against the other party hereto, arising out of or relating to this Agreement, the party in whose favor the
final judgment or award shall be entered shall be entitled to have and recover from the other party the costs and expenses incurred in connection therewith, including its reasonable attorneys fees. Any rights to trial by jury with respect to
any such action, proceeding or suit are hereby waived by Wainwright and the Company.
J. Notices. All notices hereunder will be in
writing and sent by certified mail, hand delivery, overnight delivery or fax, if sent to Wainwright, to H. C. Wainwright & Co. LLC, at the address set forth on the first page hereof, e-mail: notices@hcwco.com, Attention: Head of Investment
Banking, and if sent to the Company, to the address set forth on the first page hereof, fax number Attention: Chief Executive Officer. Notices sent by
certified mail shall be deemed received five days thereafter, notices sent by hand delivery or overnight delivery shall be deemed received on the date of the relevant written record of receipt, and notices delivered by fax shall be deemed received
as of the date and time printed thereon by the fax machine.
K. Conflicts. The Company acknowledges that Wainwright and its
affiliates may have and may continue to have investment banking and other relationships with parties other than the Company pursuant to which Wainwright may acquire information of interest to the Company. Wainwright shall have no obligation to
disclose such information to the Company or to use such information in connection with any contemplated transaction.
L. Anti-Money
Laundering. To help the United States government fight the funding of terrorism and money laundering, the federal laws of the United States requires all financial institutions to obtain, verify and record information that identifies each person
with whom they do business. This means we must ask you for certain identifying information, including a government-issued identification number (e.g., a U.S. taxpayer
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identification number) and such other information or documents that we consider appropriate to verify your identity, such as certified articles of incorporation, a government-issued business
license, a partnership agreement or a trust instrument.
M. Miscellaneous. The Company represents and warrants that it has all
requisite power and authority to enter into and carry out the terms and provisions of this Agreement and the execution, delivery and performance of this Agreement does not breach or conflict with any agreement, document or instrument to which it is
a party or bound. This Agreement shall not be modified or amended except in writing signed by Wainwright and the Company. This Agreement shall be binding upon and inure to the benefit of both Wainwright and the Company and their respective assigns,
successors, and legal representatives. This Agreement constitutes the entire agreement of Wainwright and the Company with respect to this Offering and supersedes any prior agreements with respect to the subject matter hereof. If any provision of
this Agreement is determined to be invalid or unenforceable in any respect, such determination will not affect such provision in any other respect, and the remainder of the Agreement shall remain in full force and effect. This Agreement may be
executed in counterparts (including facsimile counterparts), each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
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In acknowledgment that the foregoing correctly sets forth the understanding reached by Wainwright
and the Company, please sign in the space provided below, whereupon this letter shall constitute a binding Agreement as of the date indicated above.
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Very truly yours, |
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H.C. WAINWRIGHT & CO., LLC |
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By |
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/s/ Mark W. Viklund |
Name: Mark W. Viklund |
Title: Chief Executive Officer |
Accepted and Agreed:
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RXI PHARMACEUTICALS CORPORATION |
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By |
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/s/ Geert Cauwenbergh |
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Name: Geert Cauwenbergh, Dr. Med. Sc. |
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Title: President and Chief Executive Officer |
Exhibit 10.17
April 20, 2015
STRICTLY CONFIDENTIAL
Geert Cauwenbergh, Dr. Med. Sc.
President and Chief Executive Officer
RXi Pharmaceuticals
Corporation
257 Simarano Drive, Suite 101
Marlborough,
Massachusetts 01752
Dear Dr. Cauwenbergh:
Reference is made to the engagement agreement (the Engagement Agreement), dated February 25, 2015, by and between RXi
Pharmaceuticals Corporation (the Company) and H.C. Wainwright & Co., LLC (Wainwright), pursuant to which Wainwright shall serve as the exclusive agent, advisor or underwriter of the Company in connection
with an Offering (as defined in the Engagement Agreement).
The Company and Wainwright hereby agree to amend the Engagement Agreement in
order to increase the cash compensation set forth in Section A.1 of the Engagement Agreement and to delete the warrant compensation set forth in Section A.2 of the Engagement Agreement. As such, Section A.1 is hereby amended and restated in its
entirety to read as follows:
Compensation. At each closing of the Offering (each, a
Closing), the Company shall pay to Wainwright a cash fee, or as to an underwritten Offering an underwriter discount, equal to 8% of the aggregate gross proceeds raised by the Company in each Offering (when
determining gross proceeds in this Agreement, any proceeds raised in any multiple closing transaction or additional investment right shall be deemed part of such determination when such component is exercised, but not including the
proceeds of any warrants issued as part of the Offering).
Section A.2 is hereby deleted in its entirety.
Except as expressly set forth above, all of the terms and conditions of the Engagement Agreement shall continue in full force and effect after
the execution of this agreement and shall not be in any way changed, modified or superseded by the terms set forth herein. Defined terms used herein but not defined herein shall have the meanings given to such terms in the Engagement Agreement.
This agreement may be executed in two or more counterparts and by facsimile or .pdf signature or otherwise, and each of such
counterparts shall be deemed an original and all of such counterparts together shall constitute one and the same agreement.
IN WITNESS WHEREOF, this agreement is executed as of the date first set forth above.
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Very truly yours, |
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H.C. WAINWRIGHT & CO., LLC |
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By |
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/s/ Mark W. Viklund |
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Name: Mark W. Viklund |
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Title: Chief Executive Officer |
Accepted and Agreed:
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RXI PHARMACEUTICALS CORPORATION |
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By |
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/s/ Geert Cauwenbergh |
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Name: Geert Cauwenbergh, Dr. Med. Sc. |
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Title: President and Chief Executive Officer |
Exhibit 10.18
May 19, 2015
STRICTLY CONFIDENTIAL
Geert Cauwenbergh, Dr. Med.
Sc.
President and Chief Executive Officer
RXi
Pharmaceuticals Corporation
257 Simarano Drive, Suite 101
Marlborough, Massachusetts 01752
Dear Dr. Cauwenbergh:
Reference is made to the engagement agreement (the Engagement Agreement), dated February 25, 2015, as amended on
April 20, 2015, by and between RXi Pharmaceuticals Corporation (the Company) and H.C. Wainwright & Co., LLC (Wainwright), pursuant to which Wainwright shall serve as the exclusive agent, advisor or
underwriter of the Company in connection with an Offering (as defined in the Engagement Agreement).
The Company and Wainwright hereby
agree to amend Section A.3 of the Engagement Agreement, insert a new Section A.4 of the Engagement Agreement, and amend Section B of the Engagement Agreement. As such, Section A.3 is hereby amended and restated in its entirety to read as follows:
Expense Allowance. Out of the proceeds of the initial Closing of an Offering, the Company also agrees to reimburse
Wainwright for its legal fees and expenses up to the lesser of 0.5% of the aggregate gross proceeds of the Offering and $50,000 (provided, however, that such reimbursement amount in no way limits or impairs the indemnification and
contribution provisions of this Agreement).
As such, Section A.4 is inserted as follows:
4. Right of First Refusal. If within the 12-month period following consummation of the initial Offering hereunder, and only if
the Offering is consummated, the Company or any of its subsidiaries decides to raise funds by means of a public offering or a private placement of equity or debt securities using an underwriter or placement agent, Wainwright (or any affiliate
designated by Wainwright) shall have the right to act as lead underwriter or lead placement agent for such financing. If Wainwright or one of its affiliates decides to accept any such engagement, the agreement governing such engagement will contain,
among other things, provisions for customary fees for transactions of similar size and nature and the provisions of this Agreement, including indemnification, which are appropriate to such a transaction.
As such, Section B is hereby amended and restated in its entirety to read as follows:
Term and Termination of Engagement; Exclusivity. The term of Wainwrights exclusive engagement will begin on the
date hereof and end one hundred and twenty (120) days after the date hereof (the Term). Either party may terminate this engagement at any time by providing 30 days
430 Park Avenue | New York, New York 10022 | 212.356.0500 | www.hcwco.com
Member: FINRA/SIPC
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prior written notice of termination following the date hereof. Upon any termination of this Agreement, Wainwright shall be entitled to receive only out-of-pocket accountable expenses actually
incurred. Notwithstanding anything to the contrary contained herein, the Company agrees that the provisions relating to the payment of fees, reimbursement of expenses, indemnification and contribution, confidentiality, conflicts, independent
contractor and waiver of the right to trial by jury will survive any termination of this Agreement. During Wainwrights engagement hereunder: (i) the Company will not, and will not permit its representatives to, other than in coordination
with Wainwright, contact or solicit institutions, corporations or other entities or individuals as potential purchasers of the Securities and (ii) the Company will not pursue any financing transaction which would be in lieu of an Offering,
provided that the foregoing shall not apply to the exercise of any outstanding options or warrants or the conversion of any outstanding convertible securities. Furthermore, the Company agrees that during Wainwrights engagement hereunder, all
inquiries, whether direct or indirect, from prospective investors interested in purchasing the Securities will be referred to Wainwright and will be deemed to have been contacted by Wainwright in connection with an Offering. For the avoidance of
doubt, Wainwright acknowledges that the Company shall be permitted during the Term to solicit third party interest for a potential purchase of Company securities that may be sold by existing stockholders of the Company.
Except as expressly set forth above, all of the terms and conditions of the Engagement Agreement shall continue in full force and effect after
the execution of this agreement and shall not be in any way changed, modified or superseded by the terms set forth herein. Defined terms used herein but not defined herein shall have the meanings given to such terms in the Engagement Agreement.
This agreement may be executed in two or more counterparts and by facsimile or .pdf signature or otherwise, and each of such
counterparts shall be deemed an original and all of such counterparts together shall constitute one and the same agreement.
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of page intentionally blank]
430 Park Avenue | New York, New York 10022 | 212.356.0500 | www.hcwco.com
Member: FINRA/SIPC
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IN WITNESS WHEREOF, this agreement is executed as of the date first set forth above.
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Very truly yours, |
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H.C. WAINWRIGHT & CO., LLC |
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By |
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/s/ Mark W. Viklund |
Name: |
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Mark W. Viklund |
Title: |
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Chief Executive Officer |
Accepted and Agreed:
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RXI PHARMACEUTICALS CORPORATION |
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By |
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/s/ Geert Cauwenbergh |
Name: |
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Geert Cauwenbergh, Dr. Med. Sc. |
Title: |
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President and Chief Executive Officer |
430 Park Avenue | New York, New York 10022 | 212.356.0500 | www.hcwco.com
Member: FINRA/SIPC
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Exhibit 10.19
RXI PHARMACEUTICALS CORPORATION
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this Agreement) is dated as of
, 2015, between RXi Pharmaceuticals Corporation, a Delaware corporation (the Company), and each purchaser identified on the signature pages hereto (each, including its successors and
assigns, a Purchaser and collectively the Purchasers).
WHEREAS, subject to the terms and conditions
set forth in this Agreement and pursuant to an effective registration statement under the Securities Act of 1933, as amended (the Securities Act), the Company desires to issue and sell to each Purchaser, and each Purchaser,
severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1
Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:
8-K Filing shall have the meaning ascribed to such term in Section 4.4.
Action means any action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of its properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign).
Affiliate means any Person that, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a Person as such terms are used in and construed under Rule 405 under the Securities Act.
BHCA shall have the meaning ascribed to such term in Section 3.1(kk).
Board of Directors means the board of directors of the Company.
Business Day means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the
United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
Closing means the closing of the purchase and sale of the Securities pursuant to Section 2.1.
Closing Date means the Trading Day on which all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers obligations to pay the Subscription Amount
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and (ii) the Companys obligations to deliver the Securities, in each case, have been satisfied or waived, but in no event later than the third Trading Day following the date hereof.
Commission means the United States Securities and Exchange Commission.
Common Stock means the common stock of the Company, par value $0.0001 per share, and any other class of
securities into which such securities may hereafter be reclassified or changed.
Common Stock
Equivalents means any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any
time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
EGS means Ellenoff Grossman & Schole LLP, with offices located at 1345 Avenue of the Americas, New
York, New York 10105-0302.
Environmental Laws shall have the meaning ascribed to such term in
Section 3.1(m).
Evaluation Date shall have the meaning ascribed to such term in Section 3.1(s).
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
Exempt Issuance means the issuance of (a) shares of Common Stock or
options to employees, officers, directors or consultants of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a
committee of non-employee directors established for such purpose for services to be rendered to the Company, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to
decrease the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations) or to extend the term of such securities, (c) securities issued pursuant to acquisitions or
strategic transactions approved by a majority of the disinterested directors of the Company, and (d) unregistered securities issued pursuant to collaboration agreements, development, distribution, marketing, technology or other similar
agreements, licenses or strategic partnerships approved by a majority of disinterested directors of the Company, provided that any issuance referred to in clause (c) above shall only be to a Person (or to the equityholders of a Person) which
is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company, but shall not include a transaction in which the Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is investing in securities.
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FCPA means the Foreign Corrupt Practices Act of 1977, as
amended.
FDA shall have the meaning ascribed to such term in Section 3.1(hh).
FDCA shall have the meaning ascribed to such term in Section 3.1(hh).
Federal Reserve shall have the meaning ascribed to such term in Section 3.1(kk).
Final Prospectus means the supplement to the Prospectus which includes pricing information and complies with
Rule 424(b) of the Securities Act that is filed with the Commission and delivered by the Company to each Purchaser at the Closing.
GAAP shall have the meaning ascribed to such term in Section 3.1(h).
Hazardous Materials shall have the meaning ascribed to such term in Section 3.1(m).
Indebtedness shall have the meaning ascribed to such term in Section 3.1(aa).
Intellectual Property Rights shall have the meaning ascribed to such term in Section 3.1(p).
Liens means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.
Material Adverse Effect shall have the meaning assigned to such term in
Section 3.1(b).
Material Permits shall have the meaning ascribed to such term in
Section 3.1(n).
Money Laundering Laws shall have the meaning ascribed to such term in Section
3.1(ll).
OFAC shall have the meaning ascribed to such term in Section 3.1(ii).
Overallotment Purchase Rights means, collectively, the Common Stock purchase rights delivered to the
Purchasers at the Closing in accordance with Section 2.2(a) hereof, which shall be exercisable immediately and have a term of exercise equal to 13 months, in the form of Exhibit A-1 attached hereto.
Overallotment Shares means the shares of Common Stock issuable upon exercise of the Overallotment Purchase
Rights.
Per Share Purchase Price equals
$ , subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date
of this Agreement.
Person means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
Pharmaceutical Product shall have the meaning ascribed to such term in Section 3.1(hh).
Placement Agent means H.C. Wainwright & Co., LLC.
Proceeding means an action, claim, lawsuit, investigation or proceeding (including, without limitation, an
informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
Prospectus means the final prospectus filed for the Registration Statement complying with Rule 430A of the
Securities Act.
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Purchaser Party shall have the meaning ascribed to such term
in Section 4.7.
Registration Statement means the effective registration statement with Commission
File No. 333-203389 which registers the sale of the Shares, the Overallotment Purchase Rights, the Overallotment Shares, the Warrants and the Warrant Shares to the Purchasers.
Required Approvals shall have the meaning ascribed to such term in Section 3.1(e).
Rule 144 means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be
amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
Rule 424 means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be
amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
Rule 430A means Rule 430A promulgated by the Commission pursuant to the Securities Act, as such Rule may be
amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
SEC Reports shall have the meaning ascribed to such term in Section 3.1(h).
Securities means the Shares, the Overallotment Purchase Rights, the Overallotment Shares, the Warrants and
the Warrant Shares.
Securities Act means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
Shares means the shares of Common Stock issued or issuable to each
Purchaser pursuant to this Agreement.
Short Sales means all short sales as defined in Rule
200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock).
Subscription Amount means, as to each Purchaser, the aggregate amount to be paid for Shares, Overallotment
Purchase Rights and Warrants purchased hereunder as specified below such Purchasers name on the signature page of this Agreement and next to the heading Subscription Amount, in United States dollars and in immediately available
funds.
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Trading Day means a day on which the principal Trading Market
is open for trading.
Trading Market means any of the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the
foregoing).
Transaction Documents means this Agreement, the Overallotment Purchase Rights, the Warrants
and any other documents or agreements executed in connection with the transactions contemplated hereunder.
Transfer Agent means Computershare Trust Company, N.A., the current transfer agent of the Company.
Variable Rate Transaction shall have the meaning ascribed to such term in Section 4.11(b).
Warrants means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing
in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to 5 years, in the form of Exhibit A-2 attached hereto.
Warrant Shares means the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND
SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent
with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, up to an aggregate of
Shares, Overallotment Purchase Rights and
Warrants. Each Purchaser shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to such Purchasers Subscription Amount as
set forth on the signature page hereto executed by such Purchaser and the Company shall deliver to each Purchaser its respective Shares and a Warrant as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the
other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of EGS or such other location as the parties shall
mutually agree. Unless otherwise directed by the Placement Agent, settlement of the Shares shall occur via Delivery Versus Payment (DVP) (i.e., on the Closing Date, the Company shall issue the Shares registered in the
Purchasers names and addresses and released by the Transfer Agent directly to the account(s) at the Placement Agent identified by each Purchaser; whereupon payment therefor shall be made by wire transfer to the Company).
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2.2 Deliveries.
(a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) subject to the last sentence of Section 2.1, a copy of the irrevocable instructions to the Transfer Agent instructing
the Transfer Agent to deliver on an expedited basis via The Depository Trust Company Deposit or Withdrawal at Custodian system (DWAC) Shares equal to such Purchasers Subscription Amount divided by the Per Share Purchase
Price, registered in the name of such Purchaser;
(iii) an Overallotment Purchase Right registered in the name of such
Purchaser to purchase up to a number of shares of Common Stock equal to 50% of such Purchasers Shares, with an exercise price equal to $ , subject to adjustment therein
(such Overallotment Purchase Right may be delivered within three Trading Days of the Closing Date);
(iv) a Warrant
registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to % of such Purchasers Shares, with an exercise price equal to
$ , subject to adjustment therein (such Warrant may be delivered within three Trading Days of the Closing Date); and
(v) the Prospectus and Final Prospectus (which may be delivered in accordance with Rule 172 under the Securities Act).
(b) On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:
(i) this Agreement duly executed by such Purchaser; and
(ii) such Purchasers Subscription Amount by wire transfer as directed by the Placement Agent for delivery to the account
of the Company.
2.3 Closing Conditions.
(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or
Material Adverse Effect, in all respects) on the Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);
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(ii) all obligations, covenants and agreements of each Purchaser required to be
performed at or prior to the Closing Date shall have been performed; and
(iii) the delivery by each Purchaser of the items
set forth in Section 2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in
connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects
(or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a
specific date therein);
(ii) all obligations, covenants and agreements of the Company required to be performed at or prior
to the Closing Date shall have been performed;
(iii) the delivery by the Company of the items set forth in
Section 2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with respect to the Company
since the date hereof; and
(v) from the date hereof to the Closing Date, trading in the Common Stock shall not have been
suspended by the Commission or the Companys principal Trading Market, and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred
any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such
Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth in the Registration Statement, which shall qualify any
representations or warranties of the Company made herein, the Company hereby makes the following representations and warranties to each Purchaser:
(a) Subsidiaries. The Company has no subsidiaries.
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(b) Organization and Qualification. The Company is an entity duly
incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company is not in violation or default of any of the provisions of its articles of incorporation or bylaws. The Company is duly qualified to conduct business and is in good standing as a foreign corporation or
other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not have or
reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, or financial
condition of the Company, or (iii) a material adverse effect on the Companys ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a Material
Adverse Effect) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other
Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the
Board of Directors or the Companys stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will
have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except
(i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(d) No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction
Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Companys
articles of incorporation or bylaws, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of
the Company, or give to others any rights of termination, amendment, acceleration or
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cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company debt or otherwise) or other understanding to which
the Company is a party or by which any property or asset of the Company is bound, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company is bound; except in the case of each of clauses
(ii) and (iii), such as would not have or reasonably be expected to result in a Material Adverse Effect.
(e)
Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental
authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.4 of this Agreement, (ii) the filing with the
Commission of the Final Prospectus, (iii) application(s) to each applicable Trading Market for the listing of the Shares and Warrant Shares for trading thereon in the time and manner required thereby and (iv) such filings as are required
to be made under applicable state securities laws (collectively, the Required Approvals).
(f)
Issuance of the Securities; Registration. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear
of all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to this Agreement and the Warrants. The Company has prepared and filed the
Registration Statement in conformity with the requirements of the Securities Act, which became effective on , 2015 (the Effective Date), including the
Prospectus, and such amendments and supplements thereto as may have been required to the date of this Agreement. The Registration Statement is effective under the Securities Act and no stop order preventing or suspending the effectiveness of the
Registration Statement or suspending or preventing the use of the Prospectus has been issued by the Commission and no proceedings for that purpose have been instituted or, to the knowledge of the Company, are threatened by the Commission. The
Company, if required by the rules and regulations of the Commission, shall file the Prospectus with the Commission pursuant to Rule 424(b) and Rule 430A. At the time the Registration Statement and any amendments thereto became effective, at the date
of this Agreement and at the Closing Date, the Registration Statement and any amendments thereto conformed and will conform in all material respects to the requirements of the Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the Prospectus and any amendments or supplements thereto, at the time the Prospectus or any amendment or
supplement thereto was filed and at the Closing Date, conformed and will conform in all material respects to the requirements of the Securities Act and did not and will 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 were made, not misleading.
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(g) Capitalization. The capitalization of the Company is as set forth in
the SEC Reports. The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of stock options under the Companys stock option plans, the issuance of
shares of Common Stock to employees pursuant to the Companys employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under
the Exchange Act. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of
the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under any of such securities. There are no outstanding securities or instruments of the Company that contain any redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company is or may become bound to redeem a security of the Company. The Company does not have any stock appreciation rights or phantom stock plans or any similar plan or agreement. All of the
outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There
are no stockholders agreements, voting agreements or other similar agreements with respect to the Companys capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Companys
stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms,
statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the
Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, together with the Registration Statement, Prospectus and the Final Prospectus,
being collectively referred to herein as the SEC Reports) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied
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in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company has never been an issuer subject
to Rule 144(i) under the Securities Act. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto
as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (GAAP), except as
may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the
Company as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
(i) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof, (i) there has been no event, occurrence or development that has had or that would reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice
and (B) liabilities not required to be reflected in the Companys financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued
any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the
issuance of the Securities contemplated by this Agreement, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its business, properties,
operations, assets or financial condition that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior
to the date that this representation is made.
(j) Litigation. There is no Action which (i) adversely affects
or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) would, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither
the Company, nor any director or officer thereof in such directors or officers capacity as a director or officer of the Company, is or has been the subject of any Action involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty.
11
There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or
officer of the Company in such directors or officers capacity as a director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the
Company under the Exchange Act or the Securities Act.
(k) Labor Relations. No labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of the Company, which would reasonably be expected to result in a Material Adverse Effect. None of the Companys employees is a member of a union that relates to such
employees relationship with the Company, and the Company is not a party to any collective bargaining agreement. To the knowledge of the Company, no executive officer of the Company is, or is now expected to be, in violation of any material
term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment
of each such executive officer does not subject the Company to any liability with respect to any of the foregoing matters. The Company is in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and
employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(l) Compliance. The Company is not: (i) in default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a default by the Company under), nor has the Company received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) in violation of any judgment, decree or order of any court,
arbitrator or other governmental authority or (iii) in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as would not have or reasonably be expected to result in a Material Adverse Effect.
(m) Environmental Laws. The Company (i) is in compliance with all federal, state, local and foreign laws relating
to pollution or protection of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including laws relating to emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, Hazardous Materials) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice letters, orders,
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permits, plans or regulations, issued, entered, promulgated or approved thereunder (Environmental Laws); (ii) has received all permits licenses or other approvals required
of it under applicable Environmental Laws to conduct its business; and (iii) is in compliance with all terms and conditions of any such permit, license or approval where in each clause (i), (ii) and (iii), the failure to so comply or
receive such approvals would be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.
(n) Regulatory Permits. The Company possesses all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to conduct its business as described in the SEC Reports, except where the failure to possess such permits would not reasonably be expected to result in a Material Adverse Effect
(Material Permits), and the Company has not received any notice of proceedings relating to the revocation or modification of any Material Permit.
(o) Title to Assets. The Company has good and marketable title in fee simple to all real property owned by it and good
and marketable title in all personal property owned by it that is material to the business of the Company, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property by the Company and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and,
the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company are held by it under valid, subsisting and enforceable leases with which the Company is in compliance in all
material respects.
(p) Intellectual Property. To the Companys knowledge, the Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports
necessary or required for use in connection with its business and which the failure to so have would have a Material Adverse Effect (collectively, the Intellectual Property Rights). The Company has not received a notice (written
or otherwise) that any of the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. The Company has not received,
since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as
would not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual
Property Rights. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of its Intellectual Property Rights, except where failure to do so would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.
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(q) Insurance. The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company is engaged, including, but not limited to, directors and officers insurance coverage. The Company does not have any
reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in
cost.
(r) Transactions With Executive Officers, Employees and Directors. None of the executive officers or
directors of the Company, and, to the Companys knowledge, none of the employees of the Company is presently a party to any transaction with the Company (other than for services as employees, executive officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring
payments to or from any executive officer, director or such employee or, to the Companys knowledge, any entity in which any executive officer, director, or any such employee has a substantial interest or is an officer, director, trustee,
stockholder, member or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other
employee benefits, including but not limited to stock option agreements under any stock option plan of the Company.
(s)
Sarbanes-Oxley; Internal Accounting Controls. The Company is in compliance in all material respects with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all
applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance
that: (i) transactions are executed in accordance with managements general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance with managements general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the
Commissions rules and forms. The Companys certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company as of the end of the period covered by the most recently filed periodic report under
the Exchange Act (such date, the Evaluation Date). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the
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internal control over financial reporting (as such term is defined in the Exchange Act) of the Company that have materially affected, or are reasonably likely to materially affect, the internal
control over financial reporting of the Company.
(t) Certain Fees. Except as set forth in the Final Prospectus, no
brokerage or finders fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by
the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents.
(u) Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an investment company within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become an investment company subject to registration under the Investment Company Act of 1940, as amended.
(v) Registration Rights. No Person has any right to cause the Company to effect the registration under the Securities
Act of any securities of the Company.
(w) Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the Commission is contemplating terminating such registration. The Common Stock is currently eligible for electronic transfer through the Depository Trust Company or another established clearing corporation
and the Company is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer.
(x) Application of Takeover Protections. Subject to the accuracy of the share ownership information provided by each
Purchaser on the signature page attached hereto, the Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision under the Companys certificate of incorporation (or similar charter documents) or the laws of its state of incorporation
that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the
Companys issuance of the Securities and the Purchasers ownership of the Securities.
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(y) Disclosure. Except with respect to the material terms and conditions
of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes
constitutes or might constitute material, non-public information which is not otherwise disclosed in the Final Prospectus. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions
in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company, its business and the transactions contemplated hereby, is true and correct and does not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during
the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other
than those specifically set forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of
the Purchasers representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of any applicable shareholder approval provisions of any Trading Market
on which any of the securities of the Company are listed or designated.
(aa) Solvency. Based on the consolidated
financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Companys assets exceeds the amount
that will be required to be paid on or in respect of the Companys existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Companys assets do not constitute unreasonably small capital to
carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and
capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts
of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any
jurisdiction within one year from the Closing Date. The SEC Reports disclose all of the outstanding secured and unsecured Indebtedness of the Company, or for which the Company has commitments, as of the date hereof. For the purposes of this
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Agreement, Indebtedness means (x) any liabilities for borrowed money or amounts owed in excess of $250,000 (other than trade accounts payable incurred in the ordinary
course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Companys consolidated balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $100,000 due under leases
required to be capitalized in accordance with GAAP. The Company is not in material default with respect to any Indebtedness.
(bb) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is
subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably
adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be past due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such claim for any material amount.
(cc) Foreign
Corrupt Practices. In the past two years, neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns
from corporate funds, (iii) failed to disclose (where such disclosure is required by applicable law) fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of
law, or (iv) violated in any material respect any provision of FCPA.
(dd) Accountants. The Companys
accounting firm is BDO USA, LLP. To the knowledge and belief of the Company, such accounting firm (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial
statements to be included in the Companys Annual Report for the fiscal year ending December 31, 2015.
(ee)
Acknowledgment Regarding Purchasers Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arms length purchaser with respect to the Transaction Documents and
the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions
contemplated thereby and any advice given by any Purchaser or any of their respective representatives
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or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers purchase of the Securities. The Company further
represents to each Purchaser that the Companys decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its
representatives.
(ff) Acknowledgement Regarding Purchasers Trading Activity. Anything in this Agreement or
elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f) and 4.14 hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser
agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or derivative securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) past or future
open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or derivative transactions, before or after the closing of this or future private placement transactions, may negatively impact
the market price of the Companys publicly-traded securities; (iii) any Purchaser, and counter-parties in derivative transactions to which any such Purchaser is a party, directly or indirectly, may presently have a
short position in the Common Stock, and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arms length counter-party in any derivative transaction. The Company further
understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the
Warrant Shares deliverable with respect to Securities are being determined, and (z) such hedging activities (if any) could reduce the value of the existing stockholders equity interests in the Company at and after the time that the
hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.
(gg) Regulation M Compliance. The Company has not, and to its knowledge no one acting on its behalf has,
(i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or, paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the
case of clauses (ii) and (iii), compensation paid to the Placement Agent in connection with the placement of the Securities.
(hh) FDA. As to each product subject to the jurisdiction of the U.S. Food and Drug Administration (the
FDA) under the Federal Food, Drug and Cosmetic Act, as amended, and the regulations thereunder (the FDCA) that is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by the Company (each
such product, a Pharmaceutical Product), such Pharmaceutical Product is being manufactured, packaged, labeled, tested, distributed, sold and/or marketed by the Company in substantial compliance with all applicable requirements
under the FDCA and similar
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laws, rules and regulations relating to registration, investigational use, premarket clearance, licensure, or application approval, good manufacturing practices, good laboratory practices, good
clinical practices, product listing, quotas, labeling, advertising, record keeping and filing of reports, except where the failure to be in compliance would not have or reasonably be expected to result in a Material Adverse Effect. There is no
pending, completed or, to the Companys knowledge, threatened, action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge, complaint, or investigation) against the Company, and the Company has not
received any notice, warning letter or other communication from the FDA or any other governmental entity, which (i) contests the premarket clearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing
or packaging of, the testing of, the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii) withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or orders the withdrawal of advertising or
sales promotional materials relating to, any Pharmaceutical Product, (iii) imposes a clinical hold on any clinical investigation by the Company, (iv) enjoins production at any facility of the Company, (v) enters or proposes to enter
into a consent decree of permanent injunction with the Company, or (vi) otherwise alleges any violation of any such laws, rules or regulations by the Company, and which, either individually or in the aggregate, would have or reasonably be
expected to result in a Material Adverse Effect. The properties, business and operations of the Company have been and are being conducted in all material respects in accordance with all applicable laws, rules and regulations of the FDA. The Company
has not been informed by the FDA that the FDA will prohibit the marketing, sale, license or use in the United States of any product proposed to be developed, produced or marketed by the Company nor has the FDA expressed any concern as to approving
or clearing for marketing any product being developed or proposed to be developed by the Company.
(ii) Office of
Foreign Assets Control. Neither the Company nor, to the Companys knowledge, any director, officer, agent, or employee of the Company is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the
U.S. Treasury Department (OFAC).
(jj) U.S. Real Property Holding Corporation. The Company is not
and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended.
(kk) Bank Holding Company Act. The Company is not subject to the Bank Holding Company Act of 1956, as amended (the
BHCA) or to regulation by the Board of Governors of the Federal Reserve System (the Federal Reserve). The Company does not own or control, directly or indirectly, five percent (5%) or more of the
outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. The Company does not exercise a controlling
influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
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(ll) Money Laundering. The operations of the Company are and, for the past
two years have been conducted, in material compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable
rules and regulations thereunder (collectively, the Money Laundering Laws), and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company with respect to the
Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
3.2 Representations and Warranties of the
Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):
(a) Organization; Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly
existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and performance by such Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when
delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors rights generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b) Understandings or Arrangements. Such Purchaser is acquiring the Securities as principal for its own account and has
no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchasers right to sell the Securities pursuant to
the Registration Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.
(c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is,
and on each date on which it exercises any Warrants, it will be an accredited investor as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is
able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
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(e) Access to Information. Such Purchaser acknowledges that it has had the
opportunity to review the Transaction Documents (including all exhibits and schedules thereto) and the SEC Reports and has been afforded, (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of
operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort
or expense that is necessary to make an informed investment decision with respect to the investment. Such Purchaser acknowledges and agrees that neither the Placement Agent nor any Affiliate of the Placement Agent has provided such Purchaser
with any information or advice with respect to the Securities nor is such information or advice necessary or desired. Neither the Placement Agent nor any Affiliate has made or makes any representation as to the Company or the quality of the
Securities and the Placement Agent and any Affiliate may have acquired non-public information with respect to the Company which such Purchaser agrees need not be provided to it. In connection with the issuance of the Securities to such
Purchaser, neither the Placement Agent nor any of its Affiliates has acted as a financial advisor or fiduciary to such Purchaser.
(f) Certain Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such
Purchaser has not, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed any purchases or sales, including Short Sales, of the securities of the Company during the period
commencing as of the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material pricing terms of the transactions contemplated hereunder and ending
immediately prior to the execution hereof. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchasers assets and the
portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchasers assets, the representation set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement or to such Purchasers representatives, including, without limitation,
its officers, directors, partners, legal and other advisors, agents and Affiliates, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this
transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of,
available shares to borrow in order to effect Short Sales or similar transactions in the future.
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The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify,
amend or affect such Purchasers right to rely on the Companys representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or
instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.
ARTICLE IV.
OTHER
AGREEMENTS OF THE PARTIES
4.1 Overallotment Shares and Warrant Shares. If all or any portion of an Overallotment Purchase Right or
Warrant is exercised at a time when there is an effective registration statement to cover the issuance or resale of the Overallotment Shares or Warrant Shares, as applicable or if the Overallotment Purchase Right or Warrant is exercised via cashless
exercise, the Overallotment Shares or Warrant Shares, as applicable, issued pursuant to any such exercise shall be issued free of all legends. If at any time following the date hereof the Registration Statement (or any subsequent registration
statement registering the sale or resale of the Warrant Shares) is not effective or is not otherwise available for the sale or resale of the Overallotment Shares or Warrant Shares, the Company shall promptly notify the holders of the Overallotment
Purchase Right or Warrants in writing that such registration statement is not then effective and thereafter shall promptly notify such holders when the registration statement is effective again and available for the sale or resale of the
Overallotment Shares or Warrant Shares (it being understood and agreed that the foregoing shall not limit the ability of the Company to issue, or any Purchaser to sell, any of the Overallotment Shares or Warrant Shares in compliance with applicable
federal and state securities laws). The Company shall use commercially reasonable efforts to keep a registration statement (such as the Registration Statement) registering the issuance or resale of the Overallotment Shares or Warrant Shares
effective during the term of the Warrants.
4.2 Furnishing of Information. Until the earliest of the time that (i) no
Purchaser owns Securities or (ii) the Overallotment Purchase Rights and Warrants have expired, the Company covenants to use commercially reasonable efforts to timely file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act.
4.3 Integration.
The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall (a) by 9:30 a.m. (New York City time) on the Trading Day immediately
following the date hereof, issue a press release disclosing the material terms of the transactions contemplated hereby, and (b) file a Current Report on Form 8-K, including the Transaction Documents as exhibits thereto (which may be
incorporation by reference from the Registration Statement), with the Commission within the
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time required by the Exchange Act (the 8-K Filing). From and after such press release, the Company represents to the Purchasers that it shall have publicly disclosed all
material, non-public information delivered to any of the Purchasers by the Company, or any of its officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon
such press release, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company or any of its officers, directors, agents, employees or Affiliates on
the one hand, and any of the Purchasers or any of their Affiliates on the other hand, shall terminate. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (a) as required by federal securities law in connection with the filing of final Transaction Documents with the
Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).
4.5 Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the
Transaction Documents, which shall be disclosed pursuant to Section 4.4, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that
constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto such Purchaser shall have consented to the receipt of such information and agreed with the Company to keep such information
confidential. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. To the extent that the Company delivers any material, non-public information to
a Purchaser without such Purchasers consent, the Company hereby covenants and agrees that such Purchaser shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or any of their respective officers, directors,
agents, employees or Affiliates, or a duty to the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or Affiliates not to trade on the basis of, such material, non-public information, provided that the
Purchaser shall remain subject to applicable law. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
4.6 Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder for the purposes described
in the Prospectus.
4.7 Indemnification of Purchasers. Subject to the provisions of this Section 4.7, the Company will
indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or
any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and
any other Persons with a functionally equivalent role of a Person
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holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a Purchaser Party) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys fees and costs of investigation that any such Purchaser Party may suffer
or incur (but excluding punitive damages) as a result of or relating to any breach by the Company of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents. If any
action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense
thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which
case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party
effected without the Companys prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Partys
breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents or any violations by such Purchaser Party of state or federal securities laws or any
conduct by such Purchaser Party that constitutes fraud, gross negligence, willful misconduct or malfeasance. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the
Company or others and any liabilities the Company may be subject to pursuant to law.
4.8 Reservation of Common Stock. As of the
date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Shares
pursuant to this Agreement and the Overallotment Shares and the Warrant Shares pursuant to any exercise of the Overallotment Purchase Rights and the Warrants.
4.9 Listing of Common Stock. During the term of the Warrants, the Company hereby agrees to use reasonable best efforts to maintain the
listing or quotation of the Common Stock on the Trading Market on which it is currently listed, and concurrently with the Closing, to the extent required by such Trading Market, the Company shall apply to list or quote all of the Shares and Warrant
Shares on such Trading Market and promptly secure the listing of all of the Shares and Warrant Shares on such Trading Market. The Company further agrees, if the Company applies during the term of the Warrants to have the Common Stock traded on any
other Trading Market, it will then include in such application all of the Shares and Warrant Shares, and will take such other action as is necessary to cause all of the Shares and Warrant Shares to be listed or quoted on such other Trading Market as
promptly as possible. The Company will then take all action reasonably necessary to continue the listing or quotation and trading of its
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Common Stock on a Trading Market and will comply in all respects with the Companys reporting, filing and other obligations under the bylaws or rules of the Trading Market. The Company
agrees to use reasonable best efforts to maintain the eligibility of the Common Stock for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees
to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.
4.10
[RESERVED]
4.11 Subsequent Equity Sales.
(a) Except as set forth below, from the date hereof until 90 days after the Closing Date, the Company shall not issue, enter
into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents.
(b) From the date hereof until the date that is 13 months from the date hereof, the Company shall be prohibited from effecting
or entering into an agreement to effect any issuance by the Company of Common Stock or Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. Variable Rate Transaction means a
transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion
price, exercise price or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities, or (B) with
a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the
business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price; . Any Purchaser shall
be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
(c) Notwithstanding the foregoing, this Section 4.11 shall not apply in respect of an Exempt Issuance, except that no
Variable Rate Transaction shall be an Exempt Issuance.
4.12 Equal Treatment of Purchasers. No consideration (including any
modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered to all of the parties to
such Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a
class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.
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4.13 Certain Transactions and Confidentiality. Each Purchaser, severally and not jointly
with the other Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or pursuant to any understanding with it, will execute any purchases or sales, including Short Sales of any of the Companys securities during the
period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the initial press release as described in
Section 4.4, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents. Notwithstanding the foregoing, and notwithstanding anything contained
in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company
after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4, (ii) no Purchaser shall be restricted or prohibited from effecting any
transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described
in Section 4.4 and (iii) no Purchaser shall have any duty of confidentiality or duty not to trade in the securities of the Company to the Company after the issuance of the initial press release as described in
Section 4.4. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchasers assets and the portfolio managers have
no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchasers assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by this Agreement.
4.14 Exercise Procedures. The form
of Notice of Exercise included in the Overallotment Purchase Rights and Warrants set forth the totality of the procedures required of the Purchasers in order to exercise the Overallotment Purchase Rights and Warrants. No additional legal opinion,
other information or instructions shall be required of the Purchasers to exercise their Overallotment Purchase Rights or Warrants. Without limiting the preceding sentences, no ink-original Notice of Exercise shall be required, nor shall any
medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required in order to exercise the Overallotment Purchase Rights or the Warrants. The Company shall honor exercises of the Overallotment Purchase
Rights and the Warrants and shall deliver Overallotment Shares and the Warrant Shares, as applicable, in accordance with the terms, conditions and time periods set forth in the Transaction Documents.
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ARTICLE V.
MISCELLANEOUS
5.1
Termination. This Agreement may be terminated by any Purchaser, or by the Company with respect to any Purchaser, as to such Purchasers obligations hereunder only and without any effect whatsoever on the obligations between the
Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before , 2015; provided, however, that no
such termination will affect the right of any party to sue for any breach by any other party (or parties); provided, further, that no Purchaser may terminate this Agreement pursuant to this Section 5.1 if the reason for the failure to timely
close is due to such Purchasers failure to satisfy closing conditions applicable to such Purchaser.
5.2 Fees and Expenses.
Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the
Company and any exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.
5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, the Prospectus and the Final
Prospectus, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile or email
attachment at the facsimile number or email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile or email attachment at the facsimile number or email address as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom
such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains,
material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.
5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument
signed, in the case of an amendment, by the Company and the Purchasers which purchased at least 51% in interest of the Shares based on the initial Subscription Amounts hereunder or, in the case of a waiver, by the
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party against whom enforcement of any such waived provision is sought, provided that if any amendment, modification or waiver disproportionately and adversely impacts a Purchaser (or group of
Purchasers), the consent of such disproportionately impacted Purchaser (or group of Purchasers) shall also be required. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise
of any such right.
5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the provisions hereof.
5.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement (other than by merger) or any rights or obligations hereunder without the prior written consent of each Purchaser. Any
Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by
the provisions of the Transaction Documents that apply to the Purchaser.
5.8 No Third-Party Beneficiaries. The
Placement Agent shall be the third party beneficiary of the representations and warranties of the Company in Section 3.1 and the representations and warranties of the Purchasers in Section 3.2. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 5.8.
5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents
shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal Proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or
agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of
Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party
hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at
the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve
process
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in any other manner permitted by law. If any party shall commence an Action or Proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the
Company under Section 4.7, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys fees and other costs and expenses incurred with the investigation, preparation and
prosecution of such Action or Proceeding.
5.10 Survival. The representations and warranties contained herein shall survive the
Closing and the delivery of the Securities.
5.11 Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a .pdf format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile or .pdf signature page were an original thereof.
5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall
use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar
provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein
provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights;
provided, however, that in the case of a rescission of an exercise of a Warrant, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded exercise notice concurrently with the return
to such Purchaser of the aggregate exercise price paid to the Company for such shares and the restoration of such Purchasers right to acquire such shares pursuant to such Purchasers Warrant (including, issuance of a replacement warrant
certificate evidencing such restored right).
5.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence
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reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party
costs (including customary indemnity) associated with the issuance of such replacement Securities.
5.15 Remedies. In addition to
being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary
damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any Action for specific performance of any such obligation
the defense that a remedy at law would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as
if such payment had not been made or such enforcement or setoff had not occurred.
5.17 Independent Nature of Purchasers
Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or
non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it
shall not be necessary for any other Purchaser to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents.
For reasons of administrative convenience only, each Purchaser and its respective counsel have chosen to communicate with the Company through EGS. EGS does not represent any of the Purchasers and only represents the Placement Agent. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers.
5.18 Liquidated Damages. The Companys obligations to pay any partial liquidated damages or other amounts owing under the
Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other
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amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.
5.19 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right
required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
5.20 Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise
the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments
thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement.
5.21 WAIVER OF JURY TRIAL. IN ANY ACTION,
LAWSUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY
WAIVES FOREVER TRIAL BY JURY.
(Signature Pages Follow)
31
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly
executed by their respective authorized signatories as of the date first indicated above.
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RXI PHARMACEUTICALS CORPORATION |
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With a copy to (which shall not constitute notice): |
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
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[PURCHASER SIGNATURE PAGES TO RXII SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
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Signature of Authorized Signatory of Purchaser: |
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Name of Authorized Signatory: |
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Title of Authorized Signatory: |
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Email Address of Authorized Signatory: |
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Facsimile Number of Authorized Signatory: |
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Address for Notice to Purchaser: |
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Address for Delivery of Securities to Purchaser (if not same as
address for notice):
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Numberof Shares Beneficially Held by Purchaser1: |
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¨ Notwithstanding anything contained in this Agreement to the contrary, by
checking this box (i) the obligations of the above-signed to purchase the securities set forth in this Agreement to be purchased from the Company by the above-signed, and the obligations of the Company to sell such securities to the
above-signed, shall be unconditional and all conditions to Closing shall be disregarded, (ii) the Closing shall occur on the third (3rd) Trading Day following the date of this Agreement
and (iii) any condition to Closing contemplated by this Agreement (but prior to being disregarded by clause (i) above) that required delivery by the Company or the above-signed of any agreement, instrument, certificate or the like or
purchase price (as applicable) shall no longer be a condition and shall instead be
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For purposes of Section 203 of the Delaware General Corporation Law, please provide information on shares of common stock beneficially held, including shares that can be acquired over the passage of time; shares
excluded from beneficial ownership due to a blocker or similar provision should be included (notwithstanding the blocker) if such provision can be waived. If you do not fill this in, it will be assumed that you do not beneficially hold
any shares of common stock of the Company. |
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an unconditional obligation of the Company or the above-signed (as applicable) to deliver such agreement, instrument, certificate or the like or purchase price (as applicable) to such other party
on the Closing Date.
[SIGNATURE PAGES CONTINUE]
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Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
RXi Pharmaceuticals Corporation
Marlborough, Massachusetts
We hereby consent to the use in the Prospectus constituting a part of this Amendment No. 1 to Registration Statement on
Form S-1 of our report dated March 30, 2015, relating to the financial statements of RXi Pharmaceuticals Corporation, which is contained in that Prospectus.
We also consent to the reference to us under the caption Experts in the Prospectus.
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/s/ BDO USA, LLP |
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Boston, MA |
May 19, 2015 |
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