As filed with the Securities and Exchange Commission on May 19, 2017
Registration
No. 333-
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
S-4
REGISTRATION STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
NIVALIS THERAPEUTICS, INC.
(Exact name of Registrant as specified in its charter)
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Delaware
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2834
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20-8969493
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(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)
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Nivalis Therapeutics, Inc.
5480 Valmont Road, Suite 200
Boulder, CO 80301
(720)
600-4740
(Address including zip code, and telephone number, including area code, of Registrants principal executive offices)
R. Michael Carruthers
Interim President and Chief Financial Officer
Nivalis Therapeutics, Inc.
5480 Valmont Road, Suite 200
Boulder, CO 80301
(720)
600-4740
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
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Alan C. Mendelson
Chad G. Rolston
Latham & Watkins LLP
140 Scott Drive
Menlo
Park, CA 94025
(650)
328-4600
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Mitchell H. Gold, M.D.
Executive Chairman and Chief
Executive Officer
Alpine
Immune Sciences, Inc.
201 Elliott Avenue West, Suite 230
Seattle, WA 98119
(206)
788-4545
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Sam Zucker
Sidley Austin LLP
1001
Page Mill Road, Building 1
Palo Alto, CA 94034
(650) 565-7000
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Approximate date of commencement of proposed sale to the public: As soon as practicable after the effectiveness of this registration
statement and the satisfaction or waiver of all other conditions under the Merger Agreement described herein.
If the securities being
registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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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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☐
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Emerging growth company
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☒
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule
13(e)-4(i)
(Cross-Border Issuer Tender Offer) ☐
Exchange Act Rule
14d-1(d)
(Cross-Border Third-Party Tender Offer) ☐
CALCULATION OF REGISTRATION FEE
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Title of Each Class of
Security Being Registered
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Amount
to be
Registered(1)
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Proposed
Maximum
Offering Price
Per Share
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Proposed
Maximum
Aggregate
Offering Price(2)
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Amount of
Registration Fee(3)
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Common stock, $0.001 par value per share
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11,176,632
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N/A
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$29,162,000
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$3,379.88
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(1)
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Relates to common stock, $0.001 par value per share, of Nivalis Therapeutics, Inc., a Delaware corporation (Nivalis), issuable to holders of common stock, $0.0001 par value per share, preferred stock,
$0.0001 par value per share, and warrants and options to purchase common stock or preferred stock, of Alpine Immune Sciences, Inc., a Delaware corporation (Alpine), in the proposed merger of Nautilus
Merger Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of Nivalis, with and into Alpine (the Merger). The amount of Nivalis common stock to be registered is based on the estimated number of shares of Nivalis common stock that are expected
to be issued pursuant to the Merger, after taking into account the effect of a reverse stock split of Nivalis common stock, at a ratio of one new share for every four shares outstanding, assuming an exchange ratio of 0.4969 shares of
Nivalis common stock for each outstanding share of Alpine common stock and for each option and warrant exercisable for shares of Alpine common stock or preferred stock.
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(2)
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Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(f) of the Securities Act of 1933, as amended, based upon the estimated book value of the Alpine securities to be exchanged in
the Merger, as of immediately prior to the merger (which such calculation takes into effect a new investment of approximately
$17.0 million in Alpine which is expected to occur following the date hereof and prior to the consummation of
the merger). Alpine is a private company, and no market exists for its securities.
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(3)
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This fee has been calculated pursuant to Section 6(b) of the Securities Act of 1933, as amended.
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The Registrant hereby amends
this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this proxy statement/prospectus/information statement is not complete
and may be changed. Nivalis may not sell its securities pursuant to the proposed transactions until the Registration Statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus/information statement is
not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to completion, dated May 19, 2017
PROPOSED MERGER
YOUR VOTE IS VERY IMPORTANT
To the
Stockholders of Nivalis Therapeutics, Inc. and Alpine Immune Sciences, Inc.:
Nivalis Therapeutics, Inc. (Nivalis) and Alpine
Immune Sciences, Inc. (Alpine) have entered into an Agreement and Plan of Merger and Reorganization (the Merger Agreement) pursuant to which a wholly owned subsidiary of Nivalis will merge with and into Alpine, with Alpine
surviving as a wholly owned subsidiary of Nivalis (the merger). Alpine and Nivalis believe that the merger will result in a combined organization with a novel protein-based immunotherapy discovery platform focused on treating cancer and
autoimmune /inflammatory disorders.
At the effective time of the merger, each share of (x) common stock of Alpine, $0.0001 par
value (Alpine common stock), and (y) preferred stock of Alpine (Alpine preferred stock and, together with the Alpine common stock, Alpine capital stock) will be converted into the right to receive
approximately 0.4969 shares of Nivalis common stock, assuming a 1:4 reverse stock split of Nivalis common stock to be implemented prior to the consummation of the merger as discussed in this proxy statement/prospectus/information
statement. This exchange ratio is an estimate only and the final exchange ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in the attached proxy statement/prospectus/information statement. Nivalis
will assume outstanding and unexercised warrants and options to purchase shares of Alpine capital stock, and they will be converted into warrants and options, as applicable, to purchase shares of Nivalis common stock. Nivalis
stockholders will continue to own and hold their existing shares of Nivalis common stock, the vesting of all outstanding and unexercised options to purchase shares of Nivalis common stock will be accelerated in full as of immediately
prior to the closing of the merger and all outstanding and unexercised warrants to purchase shares of Nivalis common stock will otherwise remain in effect pursuant to their terms. Immediately after the merger, current stockholders,
warrantholders and optionholders of Alpine will own, or hold rights to acquire, approximately 74%
of the fully-diluted common stock of Nivalis, which for these purposes is defined as the outstanding common stock of Nivalis, plus in the
money options and warrants of Nivalis, assuming that all in the money options and warrants of Nivalis outstanding immediately prior to the merger are exercised on a cashless basis immediately prior to the closing of the merger (the
Fully-Diluted Common Stock of Nivalis), with Nivalis current stockholders, optionholders and warrantholders owning, or holding rights to acquire, approximately 26% of the Fully-Diluted Common Stock of Nivalis.
Shares of Nivalis common stock are currently listed on The NASDAQ Global Market (NASDAQ) under the symbol NVLS.
Prior to consummation of the merger, Nivalis intends to file an initial listing application with NASDAQ pursuant to NASDAQs reverse merger rules. After completion of the merger, Nivalis will be renamed Alpine Immune Sciences,
Inc. and expects to trade on NASDAQ under the symbol ALPN. On May 18
, 2017, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of Nivalis
common stock on NASDAQ was $2.31 per share.
Nivalis is holding a special meeting of stockholders in order to obtain the stockholder
approvals necessary to complete the merger and related matters. At the Nivalis special meeting, which will be held at [●], Mountain time, on [●], 2017 at [●], unless postponed or adjourned to a later date, Nivalis will
ask its stockholders to, among other things, approve the Merger Agreement and thereby approve the transactions contemplated thereby, including the merger and the issuance of Nivalis common stock to Alpines stockholders, and approve an
amendment to the Nivalis amended and restated certificate of incorporation effecting a reverse stock split of Nivalis common stock, at a ratio of one new share for every four shares outstanding, and an amendment to
Nivalis amended and restated certificate of incorporation changing the Nivalis corporate name to Alpine Immune Sciences, Inc., each as described in the accompanying proxy
statement/prospectus/information statement.
As described in the accompanying proxy statement/prospectus/information statement, certain of
Alpines stockholders who in the aggregate own approximately 94% of the outstanding shares of Alpine capital stock on an as converted to common stock basis, and certain of Nivalis stockholders who in the aggregate own approximately 34% of
the outstanding shares of Nivalis common stock, are parties to support agreements with Nivalis and Alpine, respectively, whereby such stockholders have agreed to vote their shares (under specified circumstances described in the support
agreement, the aggregate number of shares of Alpine capital stock subject to the voting restrictions may be reduced from approximately 94% to 35% (the Alpine Support Agreement Cutback)), in favor of the adoption or approval, as
applicable, of the Merger Agreement and the approval of the transactions contemplated therein, including the merger and the issuance of shares of Nivalis common stock to Alpines stockholders, subject to the terms of the support
agreements. In addition, following the registration statement on Form
S-4,
of which this proxy statement/prospectus/information statement is a part, being declared effective by the U.S. Securities and Exchange
Commission (the SEC) and pursuant to the conditions of the Merger Agreement and the support agreements, Alpines stockholders who are party to the support agreements will, subject to the Alpine Support Agreement Cutback, each
execute an action by written consent of Alpines stockholders, referred to as the written consent, adopting the Merger Agreement, thereby approving the transactions contemplated therein, including the merger. Therefore, holders of a sufficient
number of shares of Alpine capital stock required to adopt the Merger Agreement will, subject to the Alpine Support Agreement Cutback, adopt the Merger Agreement, and no meeting of Alpines stockholders to adopt the Merger Agreement and approve
the merger and related transactions will be held. Nevertheless, all of Alpines stockholders will have the opportunity to elect to adopt the Merger Agreement, thereby approving the merger and related transactions, by signing and returning to
Alpine a written consent.
After careful consideration, each of Nivalis and Alpines boards of directors have
(i) determined that the transactions contemplated by the Merger Agreement are fair to, advisable and in the best interests of Nivalis or Alpine, as applicable, and their respective stockholders, (ii) approved and declared advisable the
Merger Agreement and the transactions contemplated therein and (iii) determined to recommend, upon the terms and subject to the conditions set forth in the Merger Agreement, that its stockholders vote to adopt or approve, as applicable, the
Merger Agreement and, therefore, approve the transactions contemplated therein. Nivalis board of directors recommends that Nivalis stockholders vote FOR the proposals described in the accompanying proxy
statement/prospectus/information statement, and Alpines board of directors recommends that Alpines stockholders sign and return the written consent indicating their approval of the merger and adoption of the Merger Agreement and the
transactions contemplated therein.
More information about Nivalis, Alpine and the proposed transaction is contained in this proxy
statement/prospectus/information statement. Nivalis and Alpine urge you to read the accompanying proxy statement/prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
RISK FACTORS
BEGINNING ON PAGE
25.
Nivalis and Alpine are excited
about the opportunities the merger brings to both Nivalis and Alpines stockholders, and thank you for your consideration and continued support.
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R. Michael Carruthers
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Mitchell H. Gold, M.D.
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Interim President and Chief Financial Officer
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Executive Chairman and Chief Executive Officer
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Nivalis Therapeutics, Inc.
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Alpine Immune Sciences, Inc.
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Neither the Securities and Exchange Commission nor any state securities commission has approved or
disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus/information statement. Any representation to the contrary is a criminal offense.
The accompanying proxy statement/prospectus/information statement is dated May 19, 2017, and is first being mailed to Nivalis and
Alpines stockholders on or about
[
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, 2017.
NIVALIS THERAPEUTICS, INC.
PO Box 18387
Boulder,
Colorado 80308
(720) 600-4740
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [
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Dear Stockholders of Nivalis:
On behalf of the
board of directors of Nivalis Therapeutics, Inc., a Delaware corporation (Nivalis), we are pleased to deliver this proxy statement/prospectus/information statement for the proposed merger between Nivalis and Alpine Immune Sciences, Inc.,
a Delaware corporation (Alpine), pursuant to which Nautilus Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Nivalis (Merger Sub), will merge with and into Alpine, with Alpine surviving as a wholly
owned subsidiary of Nivalis. The special meeting of stockholders of Nivalis will be held on
[
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, 2017 at
[
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, Mountain time, at
[
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, for the following purposes:
1. To consider and vote upon a proposal to
approve the Agreement and Plan of Merger and Reorganization, dated as of April 18, 2017, by and among Nivalis, Merger Sub, and Alpine, a copy of which is attached as
Annex A
to this proxy statement/prospectus/information statement, and
the transactions contemplated thereby, including the merger and the issuance of shares of Nivalis common stock to Alpines stockholders pursuant to the terms of the Merger Agreement.
2. To approve an amendment to the amended and restated certificate of incorporation of Nivalis to effect a reverse stock split
of Nivalis common stock, at a ratio of one new share for every four
shares outstanding, in the form attached as
Annex D
to this proxy statement/prospectus/information statement.
3. To approve an amendment to the amended and restated certificate of incorporation of Nivalis to change the corporate name of
Nivalis from Nivalis Therapeutics, Inc. to Alpine Immune Sciences, Inc. in the form attached as
Annex E
to this proxy statement/prospectus/information statement.
4. To consider and vote upon an adjournment of the Nivalis special meeting, if necessary, to solicit additional proxies if
there are not sufficient votes in favor of Proposal Nos. 1 or 2.
5. To transact such other business as may properly come
before the Nivalis special meeting or any adjournment or postponement thereof.
Nivalis board of directors has fixed [●],
2017, as the record date for the determination of stockholders entitled to notice of, and to vote at, the Nivalis special meeting and any adjournment or postponement thereof. Only holders of record of shares of Nivalis common stock at the
close of business on the record date are entitled to notice of, and to vote at, the Nivalis special meeting. At the close of business on the record date, Nivalis had [●] shares of common stock outstanding and entitled to vote.
Your vote is important. The affirmative vote of the holders of a majority of the shares of Nivalis common stock having voting power
present in person or represented by proxy at the Nivalis special meeting is required for approval of Proposal Nos. 1 and 4. The affirmative vote of the holders of a majority of shares of Nivalis common stock having voting power outstanding on
the record date for the Nivalis special meeting is required for approval of Proposal Nos. 2 and 3. Each of Proposal Nos. 1 and 2 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1 and
2.
Even if you plan to attend the Nivalis special meeting in person, Nivalis requests that you
sign and return the enclosed proxy to ensure that your shares will be represented at the Nivalis special meeting if you are unable to attend.
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By Order of Nivalis Board of Directors,
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R. Michael Carruthers
Interim President and
Chief Financial Officer
Boulder, Colorado
[●],
2017
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NIVALIS BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE
IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, NIVALIS AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. NIVALIS BOARD OF DIRECTORS RECOMMENDS THAT NIVALIS STOCKHOLDERS VOTE FOR EACH SUCH PROPOSAL.
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus/information statement incorporates important business and financial information about Nivalis that is not included in or
delivered with this document. You may obtain this information without charge through the Securities and Exchange Commission, or the SEC, website (www.sec.gov) or upon your written or oral request by contacting the Chief Financial Officer of Nivalis
Therapeutics, Inc., PO Box 18387, Boulder, Colorado 80308 or by calling (720) 600-4740.
To ensure timely delivery of these documents, any request
should be made no later than [
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2017 to receive them before the special meeting.
For additional
details about where you can find information about Nivalis, please see the section entitled Where You Can Find More Information in this proxy statement/prospectus/information statement.
Table of contents
QUESTIONS AND ANSWERS ABOUT THE MERGER
Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information
statement does not give effect to the proposed 1:4 reverse stock split described in Proposal No. 2, beginning on page 154 in this proxy statement/prospectus/information statement (the Nivalis Reverse Stock Split).
The following section provides answers to frequently asked questions about the merger. This section, however, provides only summary
information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.
A:
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Nivalis Therapeutics, Inc. (Nivalis) and Alpine Immune Sciences, Inc. (Alpine) have entered into an Agreement and Plan of Merger and Reorganization, dated as of April 18, 2017 (the
Merger Agreement). The Merger Agreement contains the terms and conditions of the proposed business combination of Nivalis and Alpine. Under the Merger Agreement, Nautilus Merger Sub, Inc., a wholly owned subsidiary of Nivalis
(Merger Sub), will merge with and into Alpine, with Alpine surviving as a wholly owned subsidiary of Nivalis. This transaction is referred to as the merger.
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At the effective time of the merger (the Effective Time), each share of Alpines common stock and Alpines preferred
stock outstanding immediately prior to the Effective Time (excluding certain shares to be canceled pursuant to the Merger Agreement, and shares held by stockholders who have exercised and perfected appraisal rights as more fully described in the
section titled The MergerAppraisal Rights below) will be converted into the right to receive approximately 1.9878 shares of Nivalis common stock, subject to adjustment to account for the Nivalis Reverse Stock Split. This
exchange ratio is an estimate only and the final exchange ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in the attached proxy statement/prospectus/information statement. As a result of the
merger, current holders of Alpines capital stock and options and warrants to purchase Alpines capital stock are expected to own, or hold rights to acquire, in the aggregate approximately 74% of the Fully-Diluted Common Stock of Nivalis
and Nivalis current stockholders, optionholders and warrantholders are expected to own, or hold rights to acquire, in the aggregate approximately 26% of the Fully-Diluted Common Stock of Nivalis and, in each case, following the Effective Time.
After the completion of the merger, Nivalis will change its corporate name to Alpine Immune Sciences, Inc. as required by the Merger Agreement (the Nivalis Name Change).
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What will happen to Nivalis if, for any reason, the merger does not close?
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A:
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If, for any reason, the merger does not close, Nivalis board of directors may elect to, among other things, attempt to complete another strategic transaction like the merger, attempt to sell or otherwise dispose
of the various assets of Nivalis, resume its research and development activities and continue to operate the business of Nivalis or dissolve and liquidate its assets. If Nivalis decides to dissolve and liquidate its assets, Nivalis would be required
to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims. There can be no assurances as to the amount or timing of available cash left to distribute to stockholders after paying the debts and
other obligations of Nivalis and setting aside funds for reserves.
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If Nivalis were to continue its business, it would need
to hire scientific personnel necessary to resume research and development activities on its GSNOR inhibitor platform, or identify, acquire and develop other products or product candidates. In addition, as of May 1, 2017, the Nivalis workforce
was comprised of five employees, all of whom are involved in either financial and administrative roles or in conducting limited activities related to maintenance of Nivalis patent portfolio. Nivalis has ceased all research activities and
has no ongoing clinical trials. If Nivalis decides to reestablish a viable operating business and/or pursue development of other products or product candidates, Nivalis will need to rebuild its senior
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management team and hire scientific managerial and other personnel to lead and staff all of its necessary functions, especially its research, development and commercialization areas, and raise
substantial funds to support these activities.
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Why are the two companies proposing to merge?
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A:
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Alpine and Nivalis believe that the merger will result in a specialty pharmaceutical company focused on the development and commercialization of proprietary, protein-based immunotherapies to treat cancer, inflammatory
disorders and other diseases. For a discussion of Nivalis and Alpines reasons for the merger, please see the section entitled The MergerNivalis Reasons for the Merger and The MergerAlpine Reasons for the
Merger in this proxy statement/prospectus/information statement.
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Q:
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Why am I receiving this proxy statement/prospectus/information statement?
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A:
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You are receiving this proxy statement/prospectus/information statement because you have been identified as a stockholder of Nivalis or of Alpine as of the applicable record date. If you are a stockholder of Nivalis,
you are entitled to vote at Nivalis special stockholder meeting (referred to herein as the Nivalis special meeting) to approve the Merger Agreement and the transactions contemplated thereby, including the merger and the issuance of
shares of Nivalis common stock pursuant to the Merger Agreement. If you are a stockholder of Alpine, you are entitled to sign and return the Alpine written consent to adopt the Merger Agreement and approve the transactions contemplated
thereby, including the merger. This document serves as:
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a proxy statement of Nivalis used to solicit proxies for the Nivalis special meeting;
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a prospectus of Nivalis used to offer shares of Nivalis common stock in exchange for shares of Alpines capital stock in the merger and issuable upon exercise of Alpines warrants and options, as
applicable; and
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an information statement of Alpine used to solicit the written consent of its stockholders for the adoption of the Merger Agreement and the approval of the merger and related transactions.
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Q:
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What is required to consummate the merger?
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A:
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To consummate the merger, Nivalis stockholders must approve the issuance of Nivalis common stock pursuant to the Merger Agreement and an amendment to the amended and restated certificate of incorporation of
Nivalis effecting the Nivalis Reverse Stock Split, and Alpines stockholders must adopt the Merger Agreement and, thereby, approve the merger and the other transactions contemplated therein.
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The approval of the merger and the issuance of Nivalis common stock pursuant to the Merger Agreement by Nivalis stockholders
requires the affirmative vote of the holders of a majority of the shares of Nivalis outstanding common stock having voting power present in person or represented by proxy at the Nivalis special meeting. The approval of the amendments to the
amended and restated certificate of incorporation of Nivalis to effect the Nivalis Reverse Stock Split and the Nivalis Name Change requires the affirmative vote of the holders of a majority of the shares of Nivalis common stock having voting
power outstanding on the record date for the Nivalis special meeting. The approval of the Nivalis Reverse Stock Split is required in order to authorize Nivalis issuance of the shares of its common stock pursuant to the Merger Agreement and
avoid a delisting of Nivalis common stock from NASDAQ. Therefore, if the requisite stockholders of Nivalis approve the merger and the issuance of Nivalis common stock pursuant to the Merger Agreement but do not approve the Nivalis
Reverse Stock Split, the merger will not be consummated.
The adoption of the Merger Agreement and the approval of the merger and related
transactions by Alpines stockholders requires the affirmative vote (or written consent) of the holders of a majority of (a) the outstanding shares of Alpines common stock and preferred stock, voting together as one class and
(b) the outstanding shares of Alpines preferred stock voting as a separate class.
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Certain of Alpines stockholders who in the aggregate own approximately 94% of the
outstanding shares of Alpines capital stock on an as converted to common stock basis (subject to the Alpine Support Agreement Cutback), and certain of Nivalis stockholders who in the aggregate own approximately 34% of the outstanding
shares of Nivalis common stock, are parties to support agreements with Nivalis and Alpine, respectively, whereby such stockholders have agreed, subject to the terms of the support agreements, to vote their shares in favor of the adoption or
approval, as applicable, of the Merger Agreement and the transactions contemplated therein, including the merger and the issuance of Nivalis common stock to Alpines stockholders pursuant to the Merger Agreement. In addition, following
the registration statement on Form
S-4,
of which this proxy statement/prospectus/information statement is a part, being declared effective by the SEC and pursuant to the conditions of the Merger Agreement,
Alpines stockholders who are party to the support agreements will, subject to the Alpine Support Agreement Cutback, each execute written consents approving the merger and related transactions. Therefore, holders of a sufficient number of
shares of Alpine capital stock required to adopt the Merger Agreement, thereby approving the merger, have agreed, subject to the Alpine Support Agreement Cutback, to adopt the Merger Agreement via written consent. Stockholders of Alpine, including
those who are parties to support agreements, are being requested to execute written consents providing such approvals.
In addition to the
requirement of obtaining the stockholder approvals described above and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived. For a more complete description of the
closing conditions under the Merger Agreement, we urge you to read the section entitled The Merger AgreementConditions to the Completion of the Merger in this proxy statement/prospectus/information statement.
Q:
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What will Alpines stockholders, warrantholders and optionholders receive in the merger?
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A:
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As a result of the merger, Alpines stockholders, warrantholders and optionholders will become entitled to receive shares, or rights to acquire shares, of Nivalis common stock equal to, in the aggregate,
approximately 74% of the Fully-Diluted Common Stock of Nivalis. At the closing of the merger, Alpine warrantholders and optionholders will have their Alpine warrants and options converted into warrants and options to purchase Nivalis common
stock, with the number of Nivalis shares subject to such warrant or option, and the exercise price, being appropriately adjusted to reflect the exchange ratio between Nivalis common stock and Alpine capital stock determined in accordance with
the Merger Agreement.
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For a more complete description of what Alpines stockholders, warrantholders and optionholders
will receive in the merger, please see the sections entitled and The Merger AgreementMerger Consideration in this proxy statement/prospectus/information statement.
Q:
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Who will be the directors of Nivalis following the merger?
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A:
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In connection with the merger, Nivalis board of directors will be expanded to include a total of seven directors. Pursuant to the terms of the Merger Agreement, four of such directors will be designated by Alpine,
two of such directors will be designated by Nivalis, and one director will be an independent designee approved by a majority of the other directors. It is anticipated that, following the closing of the merger, Nivalis board of directors will
be constituted as follows:
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Name
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Current Principal Affiliation
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Mitchell H. Gold, M.D.
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Alpine Immune Sciences, Inc. Executive Chairman and Chief Executive Officer
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Peter Thompson M.D.
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Alpine Immune Sciences, Inc., Director
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James N. Topper, M.D., Ph.D.
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Alpine Immune Sciences, Inc., Director
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Jay Venkatesan, M.D.
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Alpine Immune Sciences, Inc. President and Director
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Robert Conway
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Nivalis Therapeutics, Inc., Director
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Paul Sekhri
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Nivalis Therapeutics, Inc., Director
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Independent Designee (TBD)
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(TBD)
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3
Q:
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Who will be the executive officers of Nivalis immediately following the merger?
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A:
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Immediately following the consummation of the merger, the executive management team of Nivalis is expected to be composed solely of the members of the Alpine executive management team prior to the merger:
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Name
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Title
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Mitchell H. Gold, M.D.
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Executive Chairman and Chief Executive Officer
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Jay Venkatesan, M.D.
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President and Director
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Stanford Peng, M.D. Ph.D.
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Executive Vice President of Research and Development and Chief Medical Officer
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Paul Rickey
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Senior Vice President and Chief Financial Officer
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Q:
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As a stockholder of Nivalis, how does Nivalis board of directors recommend that I vote?
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A:
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After careful consideration, Nivalis board of directors recommends that Nivalis stockholders vote:
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FOR Proposal No. 1 to approve the Merger Agreement and the transactions contemplated thereby, including the merger and the issuance of shares of Nivalis common stock to Alpines stockholders
in the merger;
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FOR Proposal No. 2 to approve an amendment to the amended and restated certificate of incorporation of Nivalis to effect the Nivalis Reverse Stock Split;
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FOR Proposal No. 3 to approve an amendment to the amended and restated certificate of incorporation of Nivalis to effect the Nivalis Name Change;
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FOR Proposal No. 4 to adjourn the special meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 or 2.
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Q:
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As a stockholder of Alpine, how does Alpines board of directors recommend that I vote?
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A:
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After careful consideration, Alpines board of directors recommends that Alpines stockholders execute the written consent indicating their vote in favor of the adoption of the Merger Agreement and the
approval of the merger and the transactions contemplated by the Merger Agreement.
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Q:
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What risks should I consider in deciding whether to vote in favor of the merger or to execute and return the written consent, as applicable?
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A:
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You should carefully review the section of this proxy statement/prospectus/information statement entitled Risk Factors, which sets forth certain risks and uncertainties related to the merger, risks and
uncertainties to which the combined organizations business will be subject, and risks and uncertainties to which each of Nivalis and Alpine, as an independent company, is subject.
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Q:
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When do you expect the merger to be consummated?
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A:
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We anticipate that the merger will occur sometime soon after the Nivalis special meeting to be held on [●], 2017 but we cannot predict the exact timing. For more information, please see the section entitled
The Merger AgreementConditions to the Completion of the Merger in this proxy statement/prospectus/information statement.
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Q:
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What do I need to do now?
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A:
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Nivalis and Alpine urge you to read this proxy statement/prospectus/information statement carefully, including its annexes, and to consider how the merger affects you.
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4
If you are a stockholder of Nivalis, you may provide your proxy instructions in one of two
different ways. First, you can mail your signed proxy card in the enclosed return envelope. You may also provide your proxy instructions via phone or via the Internet by following the instructions on your proxy card or voting instruction form.
Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the Nivalis special meeting.
If you are a stockholder of Alpine, you may execute and return your written consent to Alpine in accordance with the instructions provided by
Alpine.
Q:
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What happens if I do not return a proxy card or otherwise provide proxy instructions, as applicable?
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A:
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If you are a stockholder of Nivalis, the failure to return your proxy card or otherwise provide proxy instructions will reduce the aggregate number of votes required to approve Proposal Nos. 1 and 4 and will have
the same effect as voting against Proposal Nos. 2 and 3 and your shares will not be counted for purposes of determining whether a quorum is present at the Nivalis special meeting.
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Q:
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May I vote in person at the special meeting of stockholders of Nivalis?
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A:
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If your shares of Nivalis common stock are registered directly in your name with Nivalis transfer agent, you are considered to be the stockholder of record with respect to those shares, and the proxy
materials and proxy card are being sent directly to you by Nivalis. If you are a stockholder of Nivalis of record, you may attend the Nivalis special meeting and vote your shares in person. Even if you plan to attend the Nivalis special meeting in
person, Nivalis requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Nivalis special meeting if you become unable to attend. If your shares of Nivalis common stock are held in a brokerage
account or by another nominee, you are considered the beneficial owner of shares held in street name, and the proxy materials are being forwarded to you by your broker or other nominee together with a voting instruction card. As the
beneficial owner, you are also invited to attend the Nivalis special meeting. Because a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Nivalis special meeting unless you obtain a proxy from the
broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the Nivalis special meeting.
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Q:
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When and where is the special meeting of Nivalis stockholders?
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A:
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The Nivalis special meeting will be held at [●], at [●], Mountain time, on [●], 2017. Subject to space availability, all of Nivalis stockholders as of the record date, or their duly appointed
proxies, may attend the Nivalis special meeting. Since seating is limited, admission to the Nivalis special meeting will be on a first-come, first-served basis. Registration and seating will begin at [●], Mountain time.
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Q:
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If my Nivalis shares are held in street name by my broker, will my broker vote my shares for me?
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A:
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Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your shares of Nivalis common stock without instructions from you. Brokers are not expected to have
discretionary authority to vote for Proposal Nos. 1, 2 or 3. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.
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Q:
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May I change my vote after I have submitted a proxy or provided proxy instructions?
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A:
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Nivalis stockholders of record, other than those of Nivalis stockholders who are parties to support
agreements, may change their vote at any time before their proxy is voted at the Nivalis special meeting in one of three ways. First, a stockholder of record of Nivalis can send a written notice to the Secretary of Nivalis stating that it would like
to revoke its proxy. Second, a stockholder of record of Nivalis can submit
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new proxy instructions either on a new proxy card or via the Internet. Third, a stockholder of record of Nivalis can attend the Nivalis special meeting and vote in person. Attendance alone will
not revoke a proxy. If a stockholder of Nivalis of record or a stockholder who owns Nivalis shares in street name has instructed a broker to vote its shares of Nivalis common stock, the stockholder must follow directions received
from its broker to change those instructions.
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Q:
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Who is paying for this proxy solicitation?
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A:
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Nivalis and Alpine will share equally the cost of printing and filing of this proxy statement/prospectus/information statement and the proxy card. Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries who are record holders of Nivalis common stock for the forwarding of solicitation materials to the beneficial owners of Nivalis common stock. Nivalis will reimburse these brokers, custodians, nominees
and fiduciaries for the reasonable
out-of-pocket
expenses they incur in connection with the forwarding of solicitation materials.
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Q:
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Who can help answer my questions?
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A:
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If you are a stockholder of Nivalis and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for
voting your shares, you should contact:
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Nivalis Therapeutics, Inc.
PO Box 18387
Boulder, CO 80308
Tel: (720) 600-4740
Attn:
R. Michael Carruthers, Interim President and Chief Financial Officer
If you are a stockholder of Alpine, and would like additional copies,
without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact:
Alpine Immune Sciences, Inc.
201
Elliott Avenue West, Suite 230
Seattle, WA 98119
Tel:
(206) 788-4545
Attn: Mitchell H. Gold, M.D., Executive Chairman and Chief Executive Officer
6
Prospectus Summary
This summary highlights selected information from this proxy statement/prospectus/information statement and may not contain all of the
information that is important to you. To better understand the merger, the proposals being considered at the Nivalis special meeting and Alpines stockholder actions that are the subject of the written consent, you should read this entire proxy
statement/prospectus/information statement carefully, including the Merger Agreement attached as Annex A, the opinion of Ladenburg Thalmann & Co. Inc. attached as Annex B and the other annexes to which you are referred herein. For more
information, please see the section entitled Where You Can Find More Information in this proxy statement/prospectus/information statement.
The Companies
Nivalis Therapeutics, Inc.
PO Box 18387
Boulder, Colorado
80308
(720) 600-4740
Nivalis is a pharmaceutical company that has historically been focused on the discovery and development of product candidates for patients
with cystic fibrosis (CF). Nivalis GSNOR inhibitors selectively target an enzyme known as
S-nitrosoglutathione
reductase, which we refer to as GSNOR. GSNOR regulates levels of an endogenous
protein known as
S-nitrosoglutathione
or GSNO. Depleted levels of GSNO have been associated with CF, asthma, inflammatory bowel diseases and certain cardiovascular diseases. Our lead product candidate,
cavosonstat (N91115), is a small molecule inhibitor of GSNOR that was being evaluated in patients with CF. However, in light of recent negative results from two clinical trials of cavosonstat in CF patients, Nivalis determined to discontinue the
development of this compound in CF and has shifted its strategic emphasis to focus on identifying and evaluating strategic alternatives not related to GSNOR inhibition or specific to CF. Nivalis currently does not have any drugs that are
commercially available and none of its drug candidates have obtained the approval of the U.S. Food and Drug Administration (FDA) or any similar foreign regulatory authority.
Alpine Immune Sciences, Inc.
201 Elliott Avenue West, Suite 230
Seattle, Washington 98119
(206)
788-4545
Alpine is a development-stage specialty pharmaceutical company focused on discovering and
developing protein-based immunotherapies targeting the immune synapse to treat cancer, inflammatory disorders, and other diseases. Alpines proprietary Variant Immunoglobulin Domain ( vIgD) scientific platform uses a
process known as directed evolution to create therapeutics potentially capable of modulating human immune system proteins. Alpines vIgD platform creates molecules which can be formatted in many different ways, including standard Fc fusion
proteins, localized Fc fusion proteins, and monoclonal antibody fusion proteins as well as formulated as a Transmembrane Immunomodulatory Protein (TIP) or as a Secreted Immunomodulatory Protein (SIP). Alpine
expects to request regulatory approval to begin human clinical trials of ALPN-101, Alpines dual ICOS/CD28 antagonist program, in the second half of 2018. Alpine expects the target indication for the ALPN-101 program will be inflammatory
disorders. In October 2015, Alpine signed a research and license agreement with Kite Pharma, Inc. (Kite), granting Kite an exclusive license to two of Alpines TIP programs for use in Kites chimeric antigen receptor T cell
(CAR-T) and T cell receptor (TCR) programs. Alpine received $5.5 million in up front cash and is eligible to receive up to $530 million in developmental, clinical, and regulatory milestone payments in addition to
royalties on any products containing Alpines TIPs. Alpine currently does not have any drugs commercially available and none of its drug candidates have obtained approval of the FDA or any similar foreign regulatory authority.
7
Nautilus Merger Sub, Inc.
Merger Sub is a wholly owned subsidiary of Nivalis, and was formed solely for the purposes of carrying out the merger.
The Merger
(see page 94)
If the merger is completed, Merger Sub will merge with and into Alpine, with Alpine surviving as a wholly owned subsidiary of
Nivalis.
At the Effective Time, each share of Alpine capital stock outstanding immediately prior to the Effective Time
(excluding certain shares to be canceled pursuant to the Merger Agreement, and shares held by stockholders who have exercised and perfected appraisal rights as more fully described in the section titled The MergerAppraisal Rights
below) will be converted into the right to receive approximately 1.9878 shares of Nivalis common stock, subject to adjustment to account for the Nivalis Reverse Stock Split. This exchange ratio is an estimate only and the final exchange
ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement. Immediately following the consummation of the merger, current stockholders, optionholders
and warrantholders of Alpine will own, or hold rights to acquire, approximately 74% of the Fully-Diluted Common Stock of Nivalis, with current stockholders, optionholders and warrantholders of Nivalis owning, or holding rights to acquire,
approximately 26% of the Fully-Diluted Common Stock of Nivalis. Nivalis will assume outstanding and unexercised options and warrants to purchase Alpine capital stock, and each such option or warrant will be converted into options or warrants, as
applicable, to purchase Nivalis common stock.
For a more complete description of the merger exchange ratio please
see the section entitled The Merger Agreement in this proxy statement/prospectus/information statement.
The
closing of the merger will occur no later than the second business day after the last of the conditions to the merger has been satisfied or waived (other than those conditions that by their nature are to be satisfied at the closing, but subject to
the satisfaction or waiver of each such conditions), or at such other time as Nivalis and Alpine agree. Nivalis and Alpine anticipate that the consummation of the merger will occur in the third quarter of the fiscal year. However, because the merger
is subject to a number of conditions, neither Nivalis nor Alpine can predict exactly when the closing will occur or if it will occur at all. After completion of the merger, assuming that Nivalis receives the required stockholder approval of Proposal
No. 3, Nivalis will be renamed Alpine Immune Sciences, Inc.
Reasons for the Merger
(see page 108)
Following the merger, the combined organization will focus on the development and commercialization of Alpines
innovative immunotherapies. Alpine is focused on discovering and developing modern, protein-based immunotherapies targeting the immune synapse to treat cancer, inflammation, and other diseases. Alpines proprietary variant immunoglobulin domain
(vIgD) platform uses a process known as directed evolution to create therapeutics potentially capable of modulating human immune system proteins. In Alpines pre-clinical studies, the vIgD platform has identified novel proteins with
the ability to either enhance or diminish an immune response. These proteins could be potentially applicable therapeutically to both oncology (cancer) and inflammatory diseases. Alpine has also developed its transmembrane immunomodulatory protein
(TIP) technology, based on the vIgD platform, to potentially enhance engineered cellular therapies. Nivalis and Alpine believe that the combined organization will have the following potential advantages:
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Emerging Development-Stage Company.
Alpine is focused on discovering and developing, using its vIgD
platform, modern, protein-based immunotherapies potentially capable of either enhancing or
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diminishing an immune response and thereby potentially applicable therapeutically to both oncology and inflammatory diseases. Alpine expects to request regulatory approval to begin human clinical
trials of ALPN-101, Alpines dual ICOS/CD28 antagonist program, in the second half of 2018.
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Management Team
. It is expected that the combined organization will be led by the experienced senior management from Alpine and a board of directors with representation from each of Nivalis and Alpine.
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Cash Resources.
The combined organization is expected to have approximately $90.0 million in cash and cash equivalents at the closing of the merger, which Nivalis and Alpine believe is sufficient to enable Alpine
to implement its near-term business plans.
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Each of Nivalis and Alpines respective board of
directors also considered other reasons for the merger, as described herein. For example, Nivalis board of directors considered, among other things:
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the strategic alternatives of Nivalis to the merger, including the discussions that Nivalis management and Nivalis board of directors previously conducted with other potential merger partners;
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the failure of cavosonstat to show success in clinical trials and the unlikelihood that such circumstances would change for the benefit of Nivalis stockholders in the foreseeable future;
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the risk associated with, and uncertain value and costs to stockholders of, liquidating Nivalis;
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the risks of continuing to operate Nivalis on a stand-alone basis, including the early-stage nature of its GSNOR inhibitor portfolio and the need to raise additional funding and expend significant resources to advance
this portfolio and to rebuild its infrastructure and management to continue its operations; and
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the opportunity as a result of the merger for Nivalis stockholders to participate in the potential value of the Alpine product candidate portfolio.
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In addition, Alpines board of directors approved the merger based on a number of factors, including the following:
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the potential increased access to sources of capital and a broader range of investors to support the clinical development of its products than it could otherwise obtain if it continued to operate as a privately held
company;
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the potential to provide its current stockholders with greater liquidity by owning stock in a public company;
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Alpines board of directors belief that no alternatives to the merger were reasonably likely to create greater value for Alpines stockholders after reviewing the various strategic options to enhance
stockholder value that were considered by Alpines board of directors;
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the cash resources of the combined organization expected to be available at the closing of the merger; and
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the expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes.
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Opinion of the Nivalis Financial Advisor
(see page 113)
Ladenburg Thalmann & Co. Inc. (Ladenburg), the financial advisor of Nivalis, delivered to Nivalis
board of directors a written opinion dated April 17, 2017, addressed to Nivalis board of directors, to the effect that, as of the date of the opinion and based on and subject to various assumptions, qualifications and limitations
described in the opinion, the consideration to be paid by Nivalis in the proposed merger was fair, from a financial point of view, to Nivalis stockholders. The full text of this written opinion to Nivalis board of directors, which
describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as
Annex B
to this proxy statement/
9
prospectus/information statement and is incorporated by reference in its entirety into this proxy statement. Holders of Nivalis common stock are encouraged to read the opinion carefully in
its entirety.
The Ladenburg opinion was provided to Nivalis board of directors in connection with its evaluation of the consideration provided for in the merger. It
does not address any other aspect of the proposed merger or any
alternative to the merger and does not constitute a recommendation as to how Nivalis stockholders of Nivalis should vote or act in connection with the merger or otherwise.
Overview of the Merger Agreement
Merger Consideration
(see page 128)
At
the Effective Time, all outstanding shares of Alpine capital stock shall convert into the right to receive shares of Nivalis common stock as follows:
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each share of Alpines capital stock outstanding immediately prior to the Effective Time (excluding shares of Alpines common stock held as treasury stock or held by Alpine, Merger Sub or any subsidiary of
Alpine) will automatically be converted into the right to receive a number of shares of Nivalis common stock equal to approximately 1.9878 (subject to adjustment to account for the Nivalis Reverse Stock Split, if consummated, the
exchange ratio). This exchange ratio is an estimate only and the final exchange ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement.
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Immediately after the merger, based on the exchange ratio, Alpines current stockholders, warrantholders and option
holders will own, or hold rights to acquire, approximately 74% of the Fully-Diluted Common Stock of Nivalis with current stockholders, optionholders and warrantholders of Nivalis owning, or holding rights to acquire, approximately 26% of the
Fully-Diluted Common Stock of Nivalis.
The Merger Agreement does not include a price-based termination right, and there will be no
adjustment to the total number of shares of Nivalis common stock that Alpines stockholders will be entitled to receive for changes in the market price of Nivalis common stock after the date the Merger Agreement was signed.
Accordingly, the market value of the shares of Nivalis common stock issued pursuant to the merger will depend on the market value of the shares of Nivalis common stock at the time the merger closes, and could vary significantly from the
market value on the date of this proxy statement/prospectus/information statement.
Treatment of Nivalis Stock Options
(see page 135)
Prior to the closing of the merger, Nivalis board of directors will adopt appropriate resolutions and take all other actions necessary
and appropriate to provide that the vesting of each unexpired and unexercised option to purchase Nivalis common stock will be accelerated in full effective as of immediately prior to the Effective Time. The number of shares of common stock
underlying such options and the exercise price for such options will be adjusted to account for the Reverse Stock Split. The terms governing options to purchase Nivalis common stock will otherwise remain in full force and effect following the
closing of the merger.
Treatment of Alpines Stock Options and Warrants
(see page 135)
Pursuant to the Merger Agreement, at the Effective Time:
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each option to purchase shares of Alpines capital stock that is outstanding and unexercised immediately
prior to the Effective Time granted under the Alpine Amended and Restated 2015 Stock Plan, whether or not vested, will be assumed by Nivalis and will become an option to purchase that number of shares of Nivalis common stock equal to the
product obtained by multiplying (i) the number of shares of Alpines common stock that were subject to such option immediately prior to the
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Effective Time by (ii) the exchange ratio. The per share exercise price for shares of Nivalis common stock issuable upon exercise of each Alpine option assumed by Nivalis shall be
determined by dividing (a) the per share exercise price of Alpines common stock subject to such Alpine option, as in effect immediately prior to the Effective Time, by (b) the exchange ratio. Any restriction on the exercise of any
Alpine option assumed by Nivalis will continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such Alpine option shall otherwise remain unchanged; and
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each warrant to purchase shares of Alpine capital stock outstanding and unexercised immediately prior to the Effective Time will be assumed by Nivalis and will become a warrant to purchase that number of shares of
Nivalis common stock equal to the product obtained by multiplying (i) the number of shares of Alpines common stock, or the number of shares of Alpines common stock issuable upon conversion of the shares of Alpines
preferred stock issuable upon exercise of the Alpine warrant, as applicable, that were subject to such warrant immediately prior to the Effective Time by (ii) the exchange ratio. The per share exercise price for shares of Nivalis common
stock issuable upon exercise of each Alpine warrant assumed by Nivalis shall be determined by dividing (a) the per share exercise price of Alpines common stock or preferred stock subject to such Alpine warrant, as in effect immediately
prior to the Effective Time, by (b) the exchange ratio. Any restriction on any Alpine warrant assumed by Nivalis shall continue in full force and effect and the terms and other provisions of such Alpine warrant shall otherwise remain unchanged.
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Conditions to the Completion of the Merger
(see page 135)
To consummate the merger, Nivalis stockholders must approve (a) the Merger Agreement and the transactions contemplated thereby,
including the merger and the issuance of shares of Nivalis common stock in the merger, and (b) an amendment to the amended and restated certificate of incorporation of Nivalis effecting the Nivalis Reverse Stock Split. Additionally,
Alpines stockholders must adopt the Merger Agreement thereby approving the merger and the other transactions contemplated by the Merger Agreement. In addition to obtaining such stockholder approvals and appropriate regulatory approvals, each
of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.
No Solicitation
(see page 140)
Each of Nivalis and Alpine agreed that, except as described below, from the date of the Merger Agreement until the earlier of the consummation
of the merger or the termination of the Merger Agreement in accordance with its terms, Nivalis and Alpine and any of their respective subsidiaries will not, nor will either party or any of its subsidiaries authorize any of the directors, officers,
employees, agents, attorneys, accountants, investment bankers, advisors or representatives retained by it or any of its subsidiaries to, directly or indirectly:
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solicit, initiate or knowingly encourage, induce or facilitate the communication, making, submission or announcement of, any acquisition proposal (as defined in the section titled The Merger
AgreementNo Solicitation below), or acquisition inquiry (as defined in the section titled The Merger AgreementNo Solicitation below);
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furnish any
non-public
information with respect to it to any person in connection with or in response to an acquisition proposal or acquisition inquiry;
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engage in discussions or negotiations with any person with respect to any acquisition proposal or acquisition inquiry;
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approve, endorse or recommend an acquisition proposal;
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execute or enter into any letter of intent or similar document or any contract contemplating or otherwise relating to an acquisition transaction (as defined in the section titled The Merger AgreementNo
Solicitation below); or
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publicly propose to do any of the above.
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Termination of the Merger Agreement
(see page 145)
Either Nivalis or Alpine can terminate the Merger Agreement under certain circumstances, which would prevent the merger from being
consummated.
Termination Fee
(see page 147)
If the Merger Agreement is terminated under certain circumstances, Nivalis or Alpine will be required to pay the other party a termination fee
of $2.5 million or, in some circumstances, reimburse the other party for expenses incurred in connection with the merger, up to a maximum of $1.0 million.
Subscription Agreement
(see page 149)
On April 18, 2017, in conjunction with the execution and delivery of the Merger Agreement, Alpine entered into the subscription agreement
(the Subscription Agreement) with certain current stockholders of Alpine pursuant to which Alpine agreed to sell, and the purchasers listed therein agreed to purchase, shares of Alpines capital stock for an aggregate purchase price
of approximately $17.0 million. The merger is conditioned upon the closing of the
Pre-Closing
Financing (as defined in the section titled The MergerBackground of the MergerHistorical
Background for Alpine below), to occur immediately prior to the closing of the merger.
The consummation of the
Pre-Closing
Financing is subject to certain conditions, including the satisfaction or waiver of each of the conditions to the consummation of the merger set forth in the Merger Agreement (other than those conditions
that are to be satisfied or waived at the closing of the merger or the Pre-Closing Financing, but subject to the satisfaction or waiver of such conditions) and the parties to the Merger Agreement being ready, willing and able to consummate the
merger immediately after the closing of the Pre-Closing Financing, the SEC having declared effective the registration statement of which this proxy statement/prospectus/information statement is a part and no stop order suspending the effectiveness
of the registration statement of which this proxy statement/prospectus/information statement is a part having been issued and remain pending, and the adoption of the Merger Agreement and the approval of the merger by Alpines stockholders.
Nivalis has certain termination and amendment consent rights under the Subscription Agreement and is also an express third-party beneficiary
of the Subscription Agreement, with the right to specifically enforce its terms, including the obligations of the parties to consummate the
Pre-Closing
Financing if the conditions to consummation have been
satisfied.
Support Agreements
(see page 151)
Certain stockholders of Alpine are each party to a support agreement with Nivalis pursuant to which, among other things, each
of these stockholders agreed, solely in his, her or its capacity as a stockholder of Alpine, to vote all of his, her or its shares of Alpines capital stock in favor of the adoption of the Merger Agreement and the approval of any other matter
necessary to consummate the transactions contemplated by the Merger Agreement that are considered and voted upon by Alpines stockholders and against any acquisition proposal. The parties to the support agreements with Nivalis are as follows:
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Alpine Immunosciences, L.P.
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OrbiMed Private Investments VI, LP
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Frazier Life Sciences VIII, L.P.
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The stockholders of Alpine that are party to a support
agreement with Nivalis owned an aggregate of 315,625 shares of Alpines common stock and 16,032,028 shares of Alpines preferred stock, representing approximately 94% of the outstanding shares of Alpines capital stock on an
as converted to common stock basis, in each case as of April 18, 2017. These stockholders include only executive officers and directors of Alpine and any stockholder owning more than 5% of Alpines outstanding stock. Following the
effectiveness of the registration statement of which this proxy statement/prospectus/information statement is a part, stockholders of Alpine holding a sufficient number of shares to adopt the Merger Agreement and thereby approve the merger will
execute written consents (subject to the Alpine Support Agreement Cutback) providing for such adoption and approval.
Certain of Nivalis stockholders are each party to a support agreement with Alpine pursuant to which, among other things,
each of these stockholders agreed, solely in his, her or its capacity as a stockholder, to vote all of his, her or its shares of Nivalis common stock in favor of approval of (i) the Merger Agreement and the transactions contemplated
thereby, including the merger and the issuance of Nivalis common stock to Alpines stockholders, (ii) an amendment to the amended and restated certificate of incorporation of Nivalis to effect the Nivalis Reverse Stock Split,
(iii) an amendment to the amended and restated certificate of incorporation of Nivalis to effect the Nivalis Name Change, (iv) any proposal to adjourn or postpone the meeting to a later date, if there are not sufficient votes for the
approval of the other matters to be approved on date of the Nivalis special meeting, and (v) any other matter necessary to consummate the transactions contemplated by the Merger Agreement that are considered and voted upon by Nivalis
stockholders at the Nivalis special meeting and against any acquisition proposal.
The stockholders of Nivalis that are
party to a support agreement with Alpine owned an aggregate of 5,367,209 shares of Nivalis common stock, representing approximately 34% of the outstanding common stock of Nivalis as of April 18, 2017. These stockholders include executive
officers and directors of Nivalis and certain stockholders owning more than 5% of Nivalis outstanding stock. The parties to the support agreements with Alpine are as follows:
|
|
|
The Estate of Arnold S. Snider, III
|
|
|
|
Deerfield Special Situations Fund, L.P.
|
|
|
|
Deerfield Private Design Fund, L.P.
|
|
|
|
Deerfield Private Design International, L.P.
|
|
|
|
Deerfield Private Design Fund II., L.P.
|
|
|
|
Deerfield Private Design International II, L.P.
|
13
The support agreements are discussed in greater detail in the
section entitled Agreements Related to the MergerSupport Agreements and Written Consent in this proxy statement/prospectus/information statement.
Lock-up
Agreements
(see page 153)
As a condition to the closing of the merger, certain of Nivalis stockholders and Alpines stockholders have entered
into
lock-up
agreements, pursuant to which such parties have agreed not to, except in limited circumstances, sell or transfer, or engage in swap or similar transactions with respect to, shares of Nivalis
common stock, including, as applicable, shares received in the merger and issuable upon exercise of certain warrants and options, from the closing of the merger until 180 days from the closing date of the merger.
As of April 18, 2017, Nivalis stockholders who have committed to execute
lock-up
agreements beneficially owned in the aggregate approximately 24% of the outstanding shares of Nivalis common stock.
Alpines stockholders who have committed to execute
lock-up
agreements as of
April 18, 2017 owned in the aggregate approximately 94% of the outstanding shares of Alpines capital stock on an as if converted into common stock basis.
Management Following the Merger
(see page 237)
Effective as of the closing of the merger, Nivalis executive officers are expected to include:
|
|
|
Name
|
|
Title
|
Mitchell H. Gold, M.D.
Jay Venkatesan,
M.D.
|
|
Chief Executive Officer
President
|
Stanford Peng, M.D. Ph.D.
|
|
Executive Vice President of Research and Development and Chief Medical Officer
|
Paul Rickey
|
|
Senior Vice President and Chief Financial Officer
|
Interests of Certain Directors, Officers and Affiliates of Nivalis and Alpine
(see pages 120 and 124)
In considering the recommendation of Nivalis board of directors with respect to
the issuance of Nivalis common stock pursuant to the Merger Agreement and the other matters to be acted upon by Nivalis stockholders at the Nivalis special meeting, Nivalis stockholders should be aware that certain members of
Nivalis board of directors and executive officers of Nivalis have interests in the merger that may be different from, or in addition to, interests they have as Nivalis stockholders. For example, Nivalis has entered into certain
employment and retention agreements with each of its remaining executive officers that may result in the receipt by such executive officers of cash severance payments and other benefits with a total value of approximately $940,835 (collectively, not
individually, and excluding the value of any accelerated vesting of stock options) and the acceleration of options to purchase shares of Nivalis common stock, held by those officers, based on data available as of April 25, 2017 and
assuming a covered termination of employment of each executive officers employment as of such date.
As of
April 18, 2017, Nivalis directors and executive officers beneficially owned, in the aggregate approximately 3% of the outstanding shares of Nivalis common stock. Additionally, approximately 24% of
14
the outstanding shares of Nivalis common stock are beneficially owned by funds affiliated with Deerfield Management Company, L.P., an investment firm with which one of Nivalis
directors is affiliated. Certain of Nivalis officers and directors, and their affiliates, have also entered into support agreements in connection with the merger. The support agreements are discussed in greater detail in the section entitled
Agreements Related to the MergerSupport Agreements and Written Consent in this proxy statement/prospectus/information statement.
In considering the recommendation of Alpines board of directors with respect to approving the merger and related
transactions by written consent, Alpines stockholders should be aware that certain members of Alpines board of directors and certain of Alpines executive officers have interests in the merger that may be different from, or in
addition to, interests they have as Alpines stockholders. For example, certain of Alpines directors and executive officers have options, subject to vesting, to purchase shares of Alpines common stock which, at the closing of the
merger, shall be converted into and become options to purchase shares of Nivalis common stock, certain of Alpines directors and executive officers are expected to become directors and executive officers of Nivalis upon the closing of the
merger, and all of Alpines directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement.
As of April 18, 2017, all of Alpines directors and executive officers, together with their affiliates, owned
approximately 94% of the outstanding shares of Alpine capital stock, on an as converted to common stock basis. Certain of Alpines officers and directors, and their affiliates, have also entered into support agreements in connection with the
merger. The support agreements are discussed in greater detail in the section entitled Agreements Related to the MergerSupport Agreements and Written Consent in this proxy statement/prospectus/information statement.
Risk Factors
(see page 25)
Both Nivalis and Alpine are subject to various risks associated with their businesses and their industries. In addition, the
merger poses a number of risks to each company and its respective stockholders, including the possibility that the merger may not be completed and the following risks:
|
|
|
The exchange ratio is not adjustable based on the market price of Nivalis common stock, so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was
signed;
|
|
|
|
The exchange ratio is not adjustable based on the net cash of either Nivalis or Alpine at the Effective Time, so the relative ownership of the combined organization as between current stockholders of Alpine and current
stockholders of Nivalis may not reflect the ratio of net cash of Nivalis and Alpine, respectively, at the closing of the merger;
|
|
|
|
Failure to complete the merger may result in Nivalis and Alpine paying a termination fee or expenses to the other and could harm the price of Nivalis common stock and the future business and operations of each
company;
|
|
|
|
The merger may be completed even though material adverse changes may result solely from the announcement of the merger, changes in the industry in which Nivalis and Alpine operate that apply to all companies generally
and other causes;
|
|
|
|
Some of Nivalis and Alpines respective officers and directors have interests that are different from or in addition to those considered by other stockholders of Alpine and Nivalis and which may influence
them to support or approve the merger;
|
|
|
|
The market price of the combined organizations common stock may decline as a result of the merger;
|
15
|
|
|
Nivalis and Alpines stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger;
|
|
|
|
During the pendency of the merger, Nivalis and Alpine may not be able to enter into a business combination with another party under certain circumstances because of restrictions in the Merger Agreement, which could
adversely affect their respective businesses;
|
|
|
|
Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement;
|
|
|
|
Because the lack of a public market for shares of Alpines capital stock makes it difficult to evaluate the fairness of the merger, Alpines stockholders may receive consideration in the merger that is less
than the fair market value of the shares of Alpines capital stock and/or Nivalis may pay more than the fair market value of the shares of Alpines capital stock; and
|
|
|
|
If the conditions to the merger are not met, the merger will not occur.
|
These
risks and other risks are discussed in greater detail under the section entitled Risk Factors in this proxy statement/prospectus/information statement. Nivalis and Alpine both encourage you to read and consider all of these risks
carefully.
Regulatory Approvals
(see page 129)
In the United States, Nivalis must comply with applicable federal and state securities laws and the rules and regulations of
The NASDAQ Global Market (NASDAQ) in connection with the issuance of shares of Nivalis common stock and the filing of this proxy statement/prospectus/information statement with the SEC. As of the date hereof, the registration
statement of which this proxy statement/prospectus/information statement is a part has not become effective.
NASDAQ Stock Market Listing
(see page 129)
Prior to consummation of the merger, Nivalis intends to file an initial listing application with NASDAQ pursuant to NASDAQ
Stock Market LLC reverse merger rules. If such application is accepted, Nivalis anticipates that Nivalis common stock will be listed on The NASDAQ Global Market following the closing of the merger under the trading symbol
ALPN.
Anticipated Accounting Treatment
(see page 130)
The merger will be treated by Nivalis as a reverse merger under the acquisition method of accounting in accordance with
accounting principles generally accepted in the United States. For accounting purposes, Alpine is considered to be acquiring Nivalis in the merger.
Appraisal Rights
(see page 130)
Holders of Nivalis common stock are not entitled to appraisal rights in connection with the merger. Alpines
stockholders are entitled to appraisal rights in connection with the merger under Delaware law. For more information about such rights, see the provisions of Section 262 of the General Corporation Law of the State of Delaware (DGCL)
attached hereto as
Annex C
, and the section entitled The MergerAppraisal Rights in this proxy statement/prospectus/information statement.
16
Comparison of Stockholder Rights
(see page 273)
Both Nivalis and Alpine are incorporated under the laws of the State of Delaware and, accordingly, the rights of the
stockholders of each are currently, and will continue to be, governed by the DGCL. If the merger is completed, Alpines stockholders will become stockholders of Nivalis, and their rights will be governed by the DGCL, Nivalis amended and
restated bylaws and, Nivalis amended and restated certificate of incorporation, as amended by the amendments set forth in
Annex D
and
Annex E
, assuming Proposal Nos. 2 and 3 are approved. The rights of Nivalis stockholders
contained in Nivalis amended and restated certificate of incorporation and Nivalis amended and restated bylaws differ from the rights of Alpines stockholders under Alpines amended and restated certificate of incorporation and
Alpines bylaws, as more fully described under the section entitled Comparison of Rights of Holders of Nivalis Stock and Alpine Stock in this proxy statement/prospectus/information statement.
17
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL DATA
The following
tables present summary historical financial data for Nivalis and Alpine, summary unaudited pro forma condensed financial data for Nivalis and Alpine, and comparative historical and unaudited pro forma per share data for Nivalis and Alpine.
Selected Historical Financial Data of Nivalis
The selected financial data as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 are derived
from the Nivalis audited financial statements prepared using accounting principles generally accepted in the United States, which are included in this proxy statement/prospectus/information statement. The selected financial data as of
December 31, 2014, 2013, and 2012 and for the years ended December 31, 2013 and 2012 are derived from the Nivalis audited financial statements, which are not included in this proxy statement/prospectus/information statement. The statement
of operations data for the three months ended March 31, 2017 and 2016, as well as the balance sheet data as of March 31, 2017, are derived from the Nivalis unaudited condensed financial statements included in this proxy
statement/prospectus/information statement. The financial data should be read in conjunction with Nivalis Managements Discussion and Analysis of Financial Condition and Results of Operations and Nivalis financial statements
and related notes appearing elsewhere in this proxy statement/prospectus/information statement. These historical results are not necessarily indicative of results to be expected in any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
Three Months Ended
March 31,
|
|
Statement of Operations Data:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands, except per share data)
|
|
|
(unaudited)
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
23,316
|
|
|
|
16,054
|
|
|
|
12,200
|
|
|
|
13,136
|
|
|
|
7,100
|
|
|
|
2,758
|
|
|
|
5,567
|
|
General and administrative
|
|
|
8,586
|
|
|
|
6,844
|
|
|
|
2,287
|
|
|
|
2,141
|
|
|
|
1,930
|
|
|
|
2,781
|
|
|
|
2,367
|
|
Restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(31,902
|
)
|
|
|
(22,898
|
)
|
|
|
(14,487
|
)
|
|
|
(15,277
|
)
|
|
|
(9,030
|
)
|
|
|
(9,025
|
)
|
|
|
(7,934
|
)
|
Interest and other income, net
|
|
|
439
|
|
|
|
80
|
|
|
|
296
|
|
|
|
10
|
|
|
|
151
|
|
|
|
109
|
|
|
|
96
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
(845
|
)
|
|
|
(931
|
)
|
|
|
(694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(31,463
|
)
|
|
|
(22,818
|
)
|
|
|
(15,036
|
)
|
|
|
(16,198
|
)
|
|
|
(9,573
|
)
|
|
|
(8,916
|
)
|
|
|
(7,838
|
)
|
Gain on extinguishment of convertible debt as a capital transaction
|
|
|
|
|
|
|
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
$
|
(31,463
|
)
|
|
$
|
(22,818
|
)
|
|
$
|
(14,658
|
)
|
|
$
|
(16,198
|
)
|
|
$
|
(9,573
|
)
|
|
$
|
(8,916
|
)
|
|
$
|
(7,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingbasic and diluted
|
|
|
15,492
|
|
|
|
9,371
|
|
|
|
723
|
|
|
|
155
|
|
|
|
137
|
|
|
|
15,644
|
|
|
|
15,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholdersbasic and diluted
|
|
$
|
(2.03
|
)
|
|
$
|
(2.43
|
)
|
|
$
|
(20.27
|
)
|
|
$
|
(104.50
|
)
|
|
$
|
(69.88
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Balance Sheet Data:
|
|
As of December 31,
|
|
|
As of
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
(unaudited)
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
61,035
|
|
|
$
|
87,254
|
|
|
$
|
27,812
|
|
|
$
|
1,098
|
|
|
$
|
4,705
|
|
|
$
|
52,674
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
|
2,500
|
|
|
|
|
|
Working capital, net
|
|
|
55,164
|
|
|
|
83,267
|
|
|
|
26,027
|
|
|
|
(2,209
|
)
|
|
|
5,050
|
|
|
|
49,148
|
|
Total assets
|
|
|
61,935
|
|
|
|
87,909
|
|
|
|
28,543
|
|
|
|
4,134
|
|
|
|
8,012
|
|
|
|
53,009
|
|
Total liabilities
|
|
|
6,499
|
|
|
|
4,419
|
|
|
|
2,415
|
|
|
|
17,629
|
|
|
|
5,406
|
|
|
|
3,789
|
|
Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
41,880
|
|
|
|
77,793
|
|
|
|
77,793
|
|
|
|
|
|
Accumulated deficit
|
|
|
(180,300
|
)
|
|
|
(148,837
|
)
|
|
|
(126,019
|
)
|
|
|
(110,983
|
)
|
|
|
(94,785
|
)
|
|
|
(189,216
|
)
|
Total stockholders equity (deficit)
|
|
|
55,436
|
|
|
|
83,490
|
|
|
|
(15,752
|
)
|
|
|
(91,288
|
)
|
|
|
(75,188
|
)
|
|
|
49,220
|
|
19
Selected Historical Financial Data of Alpine
The selected financial data as of December 31, 2016 and 2015 and for the years ended December 31, 2016 and 2015 are derived from Alpines
audited financial statements prepared using accounting principles generally accepted in the United States, which are included in this proxy statement/prospectus/information statement. The statement of operations data for the three months ended March
31, 2017 and 2016, as well as the balance sheet data as of March 31, 2017, are derived from the Alpine unaudited condensed financial statements included in this proxy statement/prospectus/information statement. In the opinion of management, the
unaudited financial statements reflect all adjustments, which include normal recurring adjustments, necessary to state fairly Alpines results of operations and financial position. These historical results are not necessarily indicative of
results to be expected in any future period. The selected financial data should be read in conjunction with Alpines financial statements and the related notes to those statements included in this proxy statement/prospectus/information
statement and Alpine Managements Discussion and Analysis of Financial Condition and Results of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands, except share and per share data)
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration revenue
|
|
$
|
2,950
|
|
|
$
|
492
|
|
|
$
|
737
|
|
|
$
|
737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,950
|
|
|
|
492
|
|
|
|
737
|
|
|
|
737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2,989
|
|
|
|
422
|
|
|
|
1,858
|
|
|
|
421
|
|
General and administrative
|
|
|
1,149
|
|
|
|
441
|
|
|
|
873
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,138
|
|
|
|
863
|
|
|
|
2,731
|
|
|
|
641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(1,188
|
)
|
|
|
(371
|
)
|
|
|
(1,994
|
)
|
|
|
96
|
|
Other income
|
|
|
22
|
|
|
|
2
|
|
|
|
5
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
(1,166
|
)
|
|
|
(369
|
)
|
|
|
(1,989
|
)
|
|
|
100
|
|
Income tax expense
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) attributable to common stockholders
|
|
$
|
(1,232
|
)
|
|
$
|
(369
|
)
|
|
$
|
(1,989
|
)
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share attributable to common stockholders
|
|
$
|
(1.08
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(1.61
|
)
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share attributable to common stockholders
|
|
$
|
(1.08
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(1.61
|
)
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute basic net income (loss) per share attributable to common
stockholders
|
|
|
1,136,066
|
|
|
|
1,000,000
|
|
|
|
1,238,090
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute diluted net income (loss) per share attributable to common
stockholders
|
|
|
1,136,066
|
|
|
|
1,000,000
|
|
|
|
1,238,090
|
|
|
|
3,950,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
March 31,
2017
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(in thousands)
|
|
Selected Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,819
|
|
|
$
|
5,423
|
|
|
$
|
13,568
|
|
Deferred revenue
|
|
|
2,008
|
|
|
|
4,958
|
|
|
|
1,271
|
|
Working capital, net
|
|
|
9,451
|
|
|
|
2,260
|
|
|
|
11,484
|
|
Total assets
|
|
|
12,595
|
|
|
|
5,439
|
|
|
|
14,519
|
|
Convertible preferred stock
|
|
|
11,535
|
|
|
|
610
|
|
|
|
15,535
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
144
|
|
|
|
17
|
|
|
|
217
|
|
Accumulated deficit
|
|
|
(1,601
|
)
|
|
|
(369
|
)
|
|
|
(3,590
|
)
|
Total stockholders deficit
|
|
|
(1,457
|
)
|
|
|
(352
|
)
|
|
|
(3,373
|
)
|
21
Selected Unaudited Pro Forma Condensed Combined Financial Data of
Nivalis and Alpine
The following information does not give effect to the proposed one-for-four Reverse Stock Split of Nivalis common stock
described in Nivalis Proposal No. 2.
The following selected unaudited pro forma condensed combined financial data was
prepared using the acquisition method of accounting under U.S. GAAP. For accounting purposes, Alpine is considered to be acquiring Nivalis in the merger. The Nivalis and Alpine unaudited pro forma combined balance sheet data assume that the merger
took place on March 31, 2017, and combines the Nivalis and Alpine historical balance sheets at March 31, 2017. The Nivalis and Alpine unaudited pro forma condensed combined statements of operations data assume that the merger took place as
of January 1, 2016, and combines the historical results of Nivalis and Alpine for the three months ended March 31, 2017 and the year ended December 31, 2016.
The selected unaudited pro forma condensed combined financial data are presented for illustrative purposes only and are not necessarily
indicative of the combined financial position or results of operations of future periods or the results that actually would have been realized had the entities been a single entity during these periods. The selected unaudited pro forma condensed
combined financial data as of and for the three months ended March 31, 2017, and for the year ended December 31, 2016 are derived from the unaudited pro forma condensed combined financial information and should be read in conjunction with that
information. For more information, please see the section entitled Unaudited Pro Forma Condensed Combined Financial Information in this proxy statement/prospectus/information statement.
The unaudited pro forma condensed combined financial information assumes that, at the Effective Time, each share of Alpines capital
stock will be converted into the right to receive shares of Nivalis common stock such that, immediately following the Effective Time, Nivalis current stockholders, optionholders, and warrantholders are expected to own, or hold rights to
acquire, approximately 26% of the Fully-Diluted Common Stock of Nivalis, and Alpines current stockholders, optionholders and warrantholders are expected to own, or hold rights to acquire, approximately 74% of the Fully-Diluted Common Stock of
Nivalis, and is subject to adjustment to account for the occurrence of certain events discussed elsewhere in this proxy statement/prospectus/information statement, including the additional investments in Alpine of $16.7 million in April 2017 and
approximately $17.0 million immediately prior to the consummation of the merger, as contemplated by the Subscription Agreement.
22
|
|
|
|
|
|
|
|
|
|
|
For the
Year Ended
December 31,
2016
|
|
|
For the
Three Months
Ended March 31,
2017
|
|
|
|
(in thousands, except per share
data)
|
|
Unaudited Pro Forma Condensed Combined Statements of Operations Data:
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
2,950
|
|
|
$
|
737
|
|
Research and development expenses
|
|
|
26,305
|
|
|
|
4,616
|
|
General and administrative expenses
|
|
|
9,735
|
|
|
|
3,426
|
|
Restructuring charges
|
|
|
|
|
|
|
3,486
|
|
Loss from operations
|
|
|
(33,090
|
)
|
|
|
(10,791
|
)
|
Net loss
|
|
|
(32,695
|
)
|
|
|
(10,677
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.59
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
As of
March 31,
2017
|
|
|
|
(in thousands)
|
|
Unaudited Pro Forma Condensed Combined Balance Sheet Data:
|
|
|
|
|
Cash, cash equivalents and marketable securities
|
|
$
|
99,909
|
|
Working capital, net
|
|
|
88,367
|
|
Total assets
|
|
|
102,260
|
|
Accumulated deficit
|
|
|
(5,516
|
)
|
Total stockholders equity
|
|
|
58,243
|
|
23
Comparative Historical and Unaudited Pro Forma Per Share Data
The information below reflects the historical net loss and book value per share of Nivalis common stock and the historical net loss
and book value per share of Alpine common stock in comparison with the unaudited pro forma net loss and book value per share after giving effect to the proposed merger of Nivalis with Alpine on a pro forma basis. The unaudited pro forma net loss and
book value per share does not give effect to the proposed one-for-four reverse stock split of Nivalis common stock.
You should read the
tables below in conjunction with the audited financial statements of Nivalis included in this proxy statement/prospectus/information statement and the audited financial statements of Alpine included in this proxy statement/prospectus/information
statement and the related notes and the unaudited pro forma condensed combined financial information and notes related to such financial statements included elsewhere in this proxy statement/prospectus/information statement.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2016
|
|
|
Three Months
Ended March 31,
2017
|
|
Nivalis Historical Per Common Share Data:
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(2.03
|
)
|
|
$
|
(0.57
|
)
|
Book value per share
|
|
$
|
3.56
|
|
|
$
|
3.14
|
|
Alpine Historical Per Common Share Data:
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(1.08
|
)
|
|
$
|
(1.61
|
)
|
Book value per share
|
|
|
n/a
|
|
|
|
n/a
|
|
Combined Organization Per Common Share Data:
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.59
|
)
|
|
$
|
(0.19
|
)
|
Book value per share
|
|
|
n/a
|
|
|
$
|
1.05
|
|
24
RISK FACTORS
The combined organization will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be
beyond its control. In addition to the other information contained in this proxy statement/prospectus/information statement, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In
addition, you should read and consider the risks associated with Nivalis business because these risks may also affect the combined organization these risks can be found under the heading Risk Factors Risks Related to
Nivalis in this proxy statement/prospectus/information statement and in Nivalis Annual Report on Form
10-K,
as updated by subsequent Quarterly Reports on Form
10-Q,
and other documents Nivalis has filed with the SEC and incorporated by reference into this proxy statement/prospectus/information statement. You should also read and consider the other information in
this proxy statement/prospectus/information statement and the other documents incorporated by reference into this proxy statement/prospectus/information statement. Please see the section entitled Where You Can Find More Information in
this proxy statement/prospectus/information statement.
Risks Related to the Merger
The exchange ratio is not adjustable based on the market price of Nivalis common stock, so the merger consideration at the closing may have a greater or
lesser value than at the time the Merger Agreement was signed.
The Merger Agreement has set the exchange ratio for the Alpine
capital stock, and the exchange ratio is based on the outstanding capital stock of Alpine and the outstanding common stock of Nivalis, in each case immediately prior to the closing of the merger as described under the heading The
MergerMerger Consideration. Any changes in the market price of Nivalis common stock before the completion of the merger will not affect the number of shares of Nivalis common stock issuable to Alpines stockholders pursuant to
the Merger Agreement. Therefore, if before the completion of the merger the market price of Nivalis common stock declines from the market price on the date of the Merger Agreement, then Alpines stockholders could receive merger
consideration with substantially lower value than the value of such merger consideration on the date of the Merger Agreement. Similarly, if before the completion of the merger the market price of Nivalis common stock increases from the market
price of Nivalis common stock on the date of the Merger Agreement, then Alpines stockholders could receive merger consideration with substantially greater value than the value of such merger consideration on the date of the Merger
Agreement. The Merger Agreement does not include a price-based termination right. Because the exchange ratio does not adjust as a result of changes in the market price of Nivalis common stock, for each one percentage point change in the market
price of Nivalis common stock, there is a corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration payable to Alpines stockholders pursuant to the Merger Agreement.
Failure to complete the merger may result in Nivalis and Alpine paying a termination fee or expenses to the other party and could significantly harm the
market price of Nivalis common stock and negatively affect the future business and operations of each company.
If the merger
is not completed and the Merger Agreement is terminated under certain circumstances, Nivalis or Alpine may be required to pay the other party a termination fee of $2.5 million or reimburse the transaction expenses of the other party, up to a
maximum of $1.0 million. Even if a termination fee is not payable or transaction expenses are not reimbursable in connection with a termination of the Merger Agreement, each of Nivalis and Alpine will have incurred significant fees and
expenses, such as legal and accounting fees which Nivalis and Alpine estimate will total approximately $1.3 million and $1.4 million, respectively, which must be paid whether or not the merger is completed. Further, if the merger is not
completed, it could significantly harm the market price of Nivalis common stock.
In addition, if the Merger Agreement is terminated
and the board of directors of Nivalis or Alpine determines to seek another business combination, there can be no assurance that either Nivalis or Alpine will be able to find a partner and close an alternative transaction on terms that are as
favorable or more favorable than the terms set forth in the Merger Agreement.
25
The merger may be completed even though certain events occur prior to the closing that materially and
adversely affect Nivalis or Alpine.
The Merger Agreement provides that either Nivalis or Alpine can refuse to complete the merger
if there is a material adverse change affecting the other party between April 18, 2017, the date of the Merger Agreement, and the closing of the merger. However, certain types of changes do not permit either party to refuse to complete the
merger, even if such change could be said to have a material adverse effect on Nivalis or Alpine, including:
|
|
|
any effect resulting from the announcement or pendency of the merger or any related transactions;
|
|
|
|
the taking of any action, or the failure to take any action, by either Nivalis or Alpine required to comply with the terms of the Merger Agreement;
|
|
|
|
any natural disaster or any act or threat of terrorism or war anywhere in the world, any armed hostilities or terrorist activities anywhere in the world, any threat or escalation or armed hostilities or terrorist
activities anywhere in the world, or any governmental or other response or reaction to any of the foregoing;
|
|
|
|
general economic or political conditions or conditions generally affecting the industries in which Alpine or Nivalis, as applicable, operates;
|
|
|
|
any rejection by a governmental body of a registration or filing by Nivalis or Alpine relating to certain intellectual property rights of Nivalis or Alpine;
|
|
|
|
any change in accounting requirements or principles or any change in applicable laws, rules, or regulations or the interpretation thereof;
|
|
|
|
with respect to Nivalis, any change in the stock price or trading volume of Nivalis excluding any underlying effect that may have caused such change;
|
|
|
|
with respect to Nivalis, the termination, sublease, or assignment of Nivalis facility lease, or failure to do the foregoing;
|
|
|
|
with respect to Nivalis, continued losses from operations or decreases in cash balances of Nivalis not materially inconsistent with kind and degree of losses from operations and decreases in cash balances which have
occurred between December 31, 2016 and April 18, 2017;
|
|
|
|
with respect to Nivalis, the winding down of Nivalis operations not materially inconsistent with the kind and degree of winding down activities which have occurred between December 31, 2016 and April 18,
2017; and
|
|
|
|
with respect to Alpine, any change in the cash position of Alpine resulting from operations in the ordinary course of business.
|
If adverse changes occur and Nivalis and Alpine still complete the merger, the market price of the combined organizations common stock
may suffer. This in turn may reduce the value of the merger to the stockholders of Nivalis, Alpine or both.
Some Nivalis and Alpine officers and
directors have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests.
Certain officers and directors of Nivalis and Alpine participate in arrangements that provide them with interests in the merger that are
different from yours, including, among others, the continued service as an officer or director of the combined organization, severance benefits, the acceleration of stock option vesting, continued indemnification and the potential ability to sell an
increased number of shares of common stock of the combined organization in accordance with Rule 144 under the Securities Act of 1933, as amended (Securities Act).
For example, Nivalis has entered into certain employment and severance benefits agreements with certain of its executive officers that may
result in the receipt by such executive officers of cash severance payments and other benefits in the event of a covered termination of employment of each executive officers employment. The
26
closing of the merger will also result in the acceleration of vesting of options to purchase shares of Nivalis common stock held by Nivalis executive officers and directors, whether
or not there is a covered termination of such officers employment. For more information concerning the treatment of Nivalis stock options in connection with the merger, see the section entitled The Merger AgreementTreatment
of Nivalis Stock Options in this proxy statement/prospectus/information statement. In addition, and for example, certain of Alpines directors and executive officers have options, subject to vesting, to purchase shares of Alpines
common stock which, at the closing of the merger, shall be converted into and become options to purchase shares of Nivalis common stock, certain of Alpines directors and executive officers are expected to become directors and executive
officers of Nivalis upon the closing of the merger, and all of Alpines directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement. These interests,
among others, may influence the officers and directors of Nivalis and Alpine to support or approve the merger. For more information concerning the interests of Nivalis and Alpines executive officers and directors, see the sections
entitled The MergerInterests of Nivalis Directors and Executive Officers in the Merger and The MergerInterests of Alpine Directors and Executive Officers in the Merger in this
proxy statement/prospectus/information statement.
The market price of Nivalis common stock following the merger may decline as a result
of the merger.
The market price of Nivalis common stock may decline as a result of the merger for a number of reasons including if:
|
|
|
investors react negatively to the prospects of the combined organizations product candidates, business and financial condition following the merger;
|
|
|
|
the effect of the merger on the combined organizations business and prospects is not consistent with the expectations of financial or industry analysts; or
|
|
|
|
the combined organization does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts.
|
Nivalis and Alpine stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection
with the merger.
If the combined organization is unable to realize the strategic and financial benefits currently anticipated from
the merger, Nivalis and Alpines stockholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving the expected commensurate benefit, or only receiving part of the
commensurate benefit to the extent the combined organization is able to realize only part of the expected strategic and financial benefits currently anticipated from the merger.
During the pendency of the merger, Nivalis and Alpine may not be able to enter into a business combination with another party at a favorable price
because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.
Covenants in the Merger
Agreement impede the ability of Nivalis and Alpine to make acquisitions, subject to certain exceptions relating to fiduciary duties, as set forth below, or to complete other transactions that are not in the ordinary course of business pending
completion of the merger. As a result, if the merger is not completed, the parties may be at a disadvantage to their competitors during such period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from
soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets, or other business combination outside the ordinary course of business with any third party, subject to certain exceptions
relating to fiduciary duties, as set forth below. Any such transactions could be favorable to such partys stockholders.
27
Certain provisions of the Merger Agreement may discourage third parties from submitting alternative
takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
The terms
of the Merger Agreement prohibit each of Nivalis and Alpine from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances when such partys board of directors
determines in good faith that an unsolicited alternative takeover proposal is or is reasonably likely to lead to a superior takeover proposal and that failure to cooperate with the proponent of the proposal would be reasonably likely to be
inconsistent with the boards fiduciary duties. Moreover, even if a party receives what the partys board of directors determines is a superior proposal, the Merger Agreement does not permit either party to terminate the Merger Agreement
to enter into a superior proposal.
Because the lack of a public market for Alpines capital stock makes it difficult to evaluate the value of
Alpines capital stock, the stockholders of Alpine may receive shares of Nivalis common stock in the merger that have a value that is less than, or greater than, the fair market value of Alpines capital stock.
The outstanding capital stock of Alpine is privately held and is not traded in any public market. The lack of a public market makes it
extremely difficult to determine the fair market value of Alpine. Because the percentage of Nivalis common stock to be issued to Alpines stockholders was determined based on negotiations between the parties, it is possible that the value
of Nivalis common stock to be received by Alpines stockholders will be less than the fair market value of Alpine, or Nivalis may pay more than the aggregate fair market value for Alpine.
If the conditions to the merger are not met, the merger will not occur.
Even if the merger is approved by the stockholders of Nivalis and Alpine, specified conditions must be satisfied or waived to complete the
merger. These conditions are set forth in the Merger Agreement and described in the section entitled The Merger AgreementConditions to the Completion of the Merger in this proxy statement/prospectus/information statement. Nivalis
and Alpine cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the merger will not occur or will be delayed, and Nivalis and Alpine each may lose some or all of the intended
benefits of the merger.
Risks Related to Nivalis
Risks Related to Nivalis Capital Requirements, Finances and Operations
Nivalis is a clinical-stage company with no drug products approved for commercial sale, Nivalis has incurred net losses since Nivalis inception,
Nivalis anticipates that it will continue to incur significant losses for the foreseeable future, and Nivalis has had a limited operating history that may make it difficult for investors to evaluate the potential success of its business.
Nivalis is a clinical-stage pharmaceutical company and has not generated sustainable revenue from operations or been profitable
since its inception in 2007, and it may never achieve profitability. Nivalis has devoted its resources to discovering and developing proprietary product candidates, but such product candidates cannot be marketed until clinical development and
governmental approvals have been obtained. None of its product candidates have been approved for sale by any regulatory agency or are available for commercial sale and each will require significant additional capital to advance their development
toward regulatory approval for commercial sale.
Nivalis has incurred significant net losses in each year since its inception, including
net losses of $8.9 million for the three months ended March 31, 2017 and $31.5 million, $22.8 million, and $15.0 million for the years ended December 31, 2016, 2015, and 2014, respectively. As of March 31, 2017,
Nivalis had an accumulated deficit of $189.2 million. Nivalis expects to continue to incur operating expenses and anticipates that it will continue to have losses in the foreseeable future.
28
Nivalis future funding requirements, both near- and long-term, will depend on many factors,
including, but not limited to:
|
|
|
the ability to successfully consummate the merger or, if the merger is not completed, another strategic transaction involving Nivalis;
|
|
|
|
the timing, complexity and costs required for completion of the merger, or, if the merger is not completed, any transaction that may result from a further review of strategic alternatives;
|
|
|
|
personnel-related expenses, including salaries, benefits, stock-based compensation expense and other compensation costs related to implementing Nivalis restructuring plan;
|
|
|
|
the costs associated with archiving records related to Nivalis research and development, and general and administrative activities;
|
|
|
|
the costs of storing drug substance and drug product in compliance with cGMP requirements;
|
|
|
|
the costs of preparing, filing, and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;
|
|
|
|
the extent to which Nivalis may elect to resume drug research and development activities in the future, if at all; and
|
|
|
|
costs that may be incurred in responding to disruptive actions by activist stockholders.
|
Nivalis losses and expected future losses have had and will continue to have an adverse effect on its stockholders equity and
working capital. Further, because of uncertainties relating to the outcome of the merger and the risks and uncertainties inherent in the biotechnology industry, Nivalis is unable to predict the extent of any future losses or whether it will become
profitable.
There is no assurance that the proposed merger between Nivalis and Alpine will be completed in a timely manner or at all. If the merger
with Alpine is not consummated, Nivalis business could suffer materially and its stock price could decline.
The consummation
of the proposed merger between Nivalis and Alpine is subject to a number of closing conditions, including approval by Nivalis and Alpines stockholders and other customary closing conditions. The parties are targeting a closing of the
transaction in the third quarter of 2017, however, there can be no assurance that the proposed merger will be consummated within their desired timeframe, or at all.
If the proposed merger between Nivalis and Alpine is not consummated, Nivalis may be subject to a number of material risks, and its business
and stock price could be adversely affected, as follows:
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Nivalis has incurred and expects to continue to incur significant expenses related to the proposed merger with Alpine, even if the merger is not consummated;
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Nivalis could be obligated to pay Alpine a $2.5 million termination fee or up to $1.0 million in expense reimbursements in connection with the termination of the Merger Agreement, depending on the reason for
the termination; and
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The market price of Nivalis common stock may decline to the extent that the current market price reflects a market assumption that the proposed merger will be completed.
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If the merger is not completed, Nivalis may be unsuccessful in completing an alternative transaction on terms that are as favorable as the terms of the
proposed transaction with Alpine, or at all, and Nivalis may be unable to reestablish a viable operating business.
To date,
Nivalis has not generated any revenue from product sales, and its assets currently consist primarily of cash, cash equivalents and marketable securities, its patent portfolio, Nivalis listing on NASDAQ and the
29
Merger Agreement with Alpine. While Nivalis has entered into the Merger Agreement with Alpine, the consummation of the merger with Alpine may be delayed or may not occur at all. If the merger is
not completed, Nivalis board of directors may elect to pursue an alternative strategic transaction similar to the proposed merger with Alpine. Attempting to complete an alternative transaction will be costly and time consuming. If the merger
with Alpine is not completed and Nivalis board of directors determines to pursue an alternative transaction, the terms of any such alternative transaction may not be as favorable to Nivalis and its stockholders as the terms of the proposed
merger with Alpine, and Nivalis can make no assurances that such an alternative transaction would occur at all. Further, if the merger with Alpine is not completed, given the failure of the two Phase 2 trials of cavosonstat to achieve their primary
endpoints, the discontinuation of Nivalis research and development efforts commencing in January 2017 and the cost to engage in further development activities, it is unlikely that Nivalis would be able to obtain the funding required to
recommence its drug development activities.
If the merger is not completed, Nivalis board of directors may decide to pursue a dissolution and
liquidation of Nivalis. In such an event, the amount of cash available for distribution to its stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and
contingent liabilities.
There can be no assurance that the merger will be completed. If the merger is not completed, Nivalis
board of directors may decide to pursue a dissolution and liquidation of Nivalis. In such an event, the amount of cash available for distribution to its stockholders will depend heavily on the timing of such decision, as with the passage of time the
amount of cash available for distribution will be reduced as Nivalis continues to fund its operations. In addition, if Nivalis board of directors were to approve and recommend, and its stockholders were to approve, a dissolution and
liquidation of Nivalis, Nivalis would be required under Delaware corporate law to pay its outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to
its stockholders. As a result of this requirement, a portion of Nivalis assets may need to be reserved pending the resolution of such obligations. In addition, Nivalis may be subject to litigation or other claims related to a dissolution and
liquidation of Nivalis. If a dissolution and liquidation were pursued, Nivalis board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve.
Accordingly, holders of Nivalis common stock could lose all or a significant portion of their investment in the event of Nivalis liquidation, dissolution or winding up.
There is substantial doubt as to Nivalis ability to continue as a going concern if the merger is not completed.
Nivalis has had recurring losses from operations since inception and will likely not generate revenue for the foreseeable future. Nivalis
believes that its existing cash, cash equivalents and marketable securities and interest thereon will be sufficient to fund its projected operating requirements under its current operating plan. However, if the merger is not completed and
Nivalis operating plans change and its projected operating requirements increase, Nivalis may be unable to continue as a going concern. In this event, the perception that Nivalis may not be able to continue as a going concern may have an
adverse impact on its business due to concerns about its ability to meet its future contractual obligations. Further, if Nivalis is unable to continue as a going concern, Nivalis may have to liquidate its assets, and the values it receives for its
assets in liquidation and dissolution could be significantly lower than the values reflected in its financial statements and an investor could lose all or part of its investment in Nivalis.
Although Nivalis has ceased all further development of cavosonstat and its other potential product candidates, if it were to resume research and
development activities, it would require substantial additional funding. Raising additional capital may cause dilution to its existing stockholders, restrict its operations or require it to relinquish rights to its technologies or to a product
candidate.
Nivalis currently does not have any committed external source of funds and does not expect to generate any revenue in
the foreseeable future. Nivalis believes that its existing cash, cash equivalents and marketable
30
securities and interest thereon will be sufficient to fund its projected operating requirements under its current operating plan. Nivalis has based its estimates on assumptions that may prove to
be wrong, and it may use its available capital resources sooner than it currently expects if its operating plans change. If the merger is not completed and Nivalis current operating plans change and it determines to pursue further research and
development activities, it will require substantial additional funding to operate, and would expect to finance these cash needs through a combination of equity offerings, debt financings, government or other third-party funding and licensing or
collaboration arrangements.
To the extent that Nivalis raises additional capital through the sale of equity or convertible debt, the
ownership interests of its stockholders will be diluted. In addition, the terms of any equity or convertible debt it agrees to issue may include liquidation or other preferences that adversely affect the rights of Nivalis stockholders.
Convertible debt financing, if available, may involve agreements that include covenants limiting or restricting Nivalis ability to take specific actions, such as incurring additional debt, making capital expenditures, and declaring dividends,
and may impose limitations on its ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact its ability to conduct its business.
Additional funds may not be available when Nivalis needs them on terms that are acceptable to Nivalis, or at all. If adequate funds are not
available to Nivalis on a timely basis, it may be required to curtail or cease its operations or it may have to relinquish rights to its technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that
may not be favorable to Nivalis.
If the merger is not completed, raising additional funding through debt or equity financing is likely to be
difficult, could be dilutive and may cause the market price of Nivalis common stock to decline further.
To the extent that
Nivalis raises additional capital through the sale of equity or convertible debt securities, the issuance of those securities could result in substantial dilution for Nivalis current stockholders and the terms may include liquidation or other
preferences that adversely affect the rights of its current stockholders. Furthermore, the issuance of additional securities, whether equity or debt, by Nivalis, or the possibility of such issuance, may cause the market price of its common stock to
decline further and existing stockholders may not agree with its financing plans or the terms of such financings.
The issuance of shares of
Nivalis common stock to Alpines stockholders in the pending merger will dilute substantially the voting power of Nivalis current stockholders.
If the pending merger is completed, each outstanding share of Alpine capital stock will be converted into the right to receive approximately
1.9878 shares of Nivalis common stock, subject to adjustment to account for the Nivalis Reverse Stock Split. Immediately following the merger, Nivalis stockholders, optionholders and warrantholders are expected to own, or hold rights to
acquire, approximately 26% of the Fully-Diluted Common Stock of Nivalis, and Alpines stockholders, optionholders and warrantholders are expected to own, or hold rights to acquire, approximately 74% of the Fully-Diluted Common Stock of Nivalis.
Accordingly, the issuance of shares of Nivalis common stock to Alpines stockholders in the merger will reduce significantly the relative voting power of each share of Nivalis common stock held by its current stockholders.
Consequently, Nivalis stockholders as a group will have significantly less influence over the management and polices of the combined organization after the merger than prior to the merger.
Nivalis has incurred and will continue to incur significant transaction costs in connection with the merger.
Nivalis has incurred and will continue to incur significant transaction costs in connection with the merger. Nivalis estimates that it will
incur aggregate direct transaction costs of approximately $2.9 million associated with the merger and approximately $100,000 for its portion of shared transaction expenses, as well as additional costs associated with the commencement of the combined
organizations operation as a public company, which cannot be estimated accurately at this time.
31
If Nivalis fails to continue to meet all applicable NASDAQ requirements and NASDAQ determines to delist
Nivalis common stock, the delisting could adversely affect the value of the merger, market liquidity of Nivalis common stock and the market price of its common stock could decrease.
Nivalis common stock is listed on NASDAQ. In order to maintain the listing, Nivalis must meet minimum financial and other requirements,
including requirements for a minimum amount of capital, a minimum price per share and continued business operations so that it is not characterized as a public shell company. If Nivalis is unable to comply with NASDAQs listing
standards, NASDAQ may determine to delist its common stock from NASDAQ. If its common stock is delisted for any reason, it could reduce the value of its common stock and its liquidity. Delisting would prevent Nivalis from satisfying a closing
condition for the merger, and, in such event, Alpine may elect not to consummate the merger. If the merger is not completed and Nivalis chooses to reestablish a viable operating business, delisting could adversely affect Nivalis ability to
obtain financing for the continuation of Nivalis operations or use its common stock in another strategic transaction. In addition, the combined organization must submit a new application for listing on NASDAQ pursuant to the reverse merger
rules, and the combined organization will need to meet NASDAQs minimum listing requirements conditions.
Nivalis inability to utilize
its net operating loss carryforwards before they expire may adversely affect its results of operations and financial condition.
In
general, a corporation that undergoes an ownership change is subject to limitations on its ability to utilize its
pre-change
net operating loss carryforwards (NOLs), to offset future
taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders, generally stockholders beneficially owning five percent or more of Nivalis common stock, applying certain look-through and
aggregation rules, increases by more than 50 percentage points over such stockholders lowest percentage ownership during the testing period, generally three years. Nivalis may have experienced ownership changes in the past and may experience
ownership changes in the future. In addition, the closing of the merger may result in an ownership change. Limitations imposed on Nivalis ability to utilize NOLs as a result of ownership changes could cause it to pay U.S. federal and state
income taxes earlier than it would otherwise be required if such limitations were not in effect and could cause such NOLs to expire unused.
Development and Regulatory Risks Related to Nivalis Business
Cavosonstat did not achieve its primary endpoint in two Phase 2 trials
with CF patients, and Nivalis previous findings from preclinical studies in other potential disease areas may not be predictive of a benefit for cavosonstat or any other of Nivalis GSNOR inhibitors.
Nivalis has ceased all research and development activities for cavosonstat and all of its GSNOR inhibitors and it currently has no plans to
pursue such development itself as it pursues closing of the merger. If, however, Nivalis operating plans change, and, whether or not it is successful in completing the merger, it resumes further development of cavosonstat or Nivalis
other GSNOR inhibitors, these development activities may not result in drugs that are approved by regulatory authorities. Regulatory agencies, including the FDA, ultimately must approve any product candidate before it can be promoted, marketed or
commercially distributed. Cavosonstat and any other potential product candidate Nivalis may develop will be subject to extensive and rigorous review and regulation by governmental authorities. Nivalis has never obtained approval for or
commercialized a product candidate, and its portfolio of GSNOR inhibitors outside of CF is at an early stage of development and unproven. The timing of the drug development process is lengthy and can be unpredictable and may include post-marketing
studies and surveillance. Any such development of Nivalis GSNOR inhibitors would require the expenditure of additional resources beyond Nivalis existing cash, cash equivalents or marketable securities. Of the large number of drugs in
development for approval in the U.S., only a small percentage successfully complete the regulatory approval process and are commercialized. The success of any of Nivalis potential product candidates depends on, among other things:
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Nivalis ability to complete clinical trials and other product research and development activities;
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whether clinical trials demonstrate statistically significant and clinically meaningful efficacy not outweighed by safety issues;
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meeting FDA and other regulatory agencies requirements to obtain approval for a product candidate; and
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ensuring that the manufacturing processes and facilities of the third parties with which Nivalis contracts to manufacture a product candidate are in compliance with all relevant regulatory requirements, including those
of the FDA.
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If Nivalis were to resume development of one or more of its drug product candidates and is not successful with
respect to one or more of these factors either in a timely manner or at all, significant delays in obtaining regulatory approval, including, but not limited to, denial of a new drug application (NDA), could result. Nivalis has never
applied for, and has never received, regulatory approval for a drug. If Nivalis were to resume development of one or more of its drug product candidates and is unable to successfully complete the clinical development of a product candidate and meet
other related regulatory requirements, it will be unable to obtain approval of an NDA from the FDA. It is possible that, even if Nivalis successfully completes clinical development, the FDA may refuse to accept Nivalis NDA for substantive
review or may conclude after review of Nivalis data that Nivalis application is insufficient. If the FDA does not accept or approve Nivalis NDA, it may require that Nivalis conducts additional clinical, nonclinical or manufacturing
studies or analyses and submit that data to it before it will reconsider Nivalis application. Depending on the extent of these or any other FDA requirements, approval of any NDA or application that Nivalis submits may be delayed by several
years, or may require Nivalis to expend more resources than Nivalis has available. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve Nivalis NDA.
In addition, the regulatory agencies may not complete their review processes in a timely manner, or additional delays may result if a
potential drug candidate is brought before an FDA advisory committee, which could recommend restrictions on approval or recommend
non-approval
of the product candidate. In addition, delays or rejections could
result based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical studies and the review process. As a result, Nivalis
cannot predict when, if at all, it will receive regulatory approval of any product candidate if Nivalis were to resume development of one or more of its drug product candidates.
Any delay in obtaining, or an inability to obtain, regulatory approvals would prevent Nivalis from commercializing a product candidate,
generating revenue and achieving and sustaining profitability. If any of these outcomes occur, it could have a material adverse effect on Nivalis business and could potentially cause it to cease operations. These factors could materially harm
Nivalis business, and the value of its common stock would likely decline.
The regulatory approval processes of the FDA, the European
Medicines Agency (EMA), and comparable foreign regulatory authorities are lengthy, time-consuming and inherently unpredictable.
Nivalis is not permitted to market any of its potential product candidates in the U.S. or outside the U.S. until it receives approval of an NDA
from the FDA or approval of a marketing application from the comparable regulatory authority in other countries. Should Nivalis determine to resume development of any of its GSNOR inhibitors, prior to submitting an NDA to the FDA for approval,
Nivalis will need to complete its preclinical studies in the applicable indication, as well as all necessary clinical trials. Successfully initiating and completing clinical programs and obtaining approval of an NDA is a complex, lengthy, expensive
and uncertain process, and FDA and other comparable foreign regulatory authorities may delay, limit or deny approval of a potential product candidate for many reasons, including, among others:
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the results of Nivalis clinical trials may not meet the level of statistically significant and clinically meaningful efficacy with an acceptable safety profile as required by FDA, or other comparable regulatory
authorities in other countries, for marketing approval;
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the FDA or other comparable regulatory authorities in other countries may disagree with the number, design, size, conduct or implementation of Nivalis clinical trials;
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the FDA or other comparable regulatory authorities may find the data from preclinical studies and clinical trials insufficient to demonstrate that the potential clinical and other benefits outweigh its safety risks;
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the FDA or other comparable regulatory authorities in other countries may disagree with Nivalis interpretation of data from its preclinical studies and clinical trials;
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the FDA or other comparable regulatory authorities in other countries may not accept data generated at one or more of Nivalis clinical trial sites;
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if Nivalis NDAs or similar applications, if and when submitted, are reviewed by FDA or other comparable regulatory authorities, as applicable, the regulatory authorities may have difficulties scheduling the
necessary review meetings in a timely manner, may recommend against approval of Nivalis application or may recommend that the FDA or other comparable regulatory authorities, as applicable, require, as a condition of approval, additional
preclinical studies or clinical trials, limitations on approved labeling or distribution and restrictions on use of Nivalis clinical trial sites;
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the FDA may determine that Nivalis NDAs, if and when submitted, must follow a different regulatory pathway than Nivalis has attempted, and there may be potentially extended standards, timelines, and/or costs in
order to pursue approval;
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the FDA may require development of a Risk Evaluation and Mitigation Strategy as a condition of approval or post-approval, and other comparable regulatory authorities may grant only conditional approval or impose
specific obligations as a condition for marketing authorization, or may require Nivalis to conduct post-authorization safety studies;
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the FDA or other comparable regulatory authorities may determine that the manufacturing processes or facilities of third-party manufacturers with which Nivalis contracts are not in compliance with all relevant
regulatory requirements, including cGMP requirements; or
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the FDA or other comparable regulatory authorities may change their approval policies or adopt new regulations.
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Any of these factors, many of which are beyond Nivalis control, could jeopardize Nivalis ability to obtain regulatory approval for
and successfully market any of its potential product candidates, which would have a material adverse effect on Nivalis business and prospects.
If Nivalis were to resume research and development activities on its potential product candidates, Nivalis would depend on the successful completion of
clinical trials for any potential product candidate. The positive clinical results, if any, obtained by Nivalis in future clinical trials may not be repeated in later-stage clinical trials.
Before obtaining regulatory approval for the sale of a potential product candidate, extensive clinical trials are required to demonstrate
safety and efficacy in humans. Nivalis has not completed the clinical trials necessary to support an application for approval to market cavosonstat or any other potential product candidate. Successful completion of such clinical trials is a
prerequisite to submitting an NDA to the FDA and, consequently, the ultimate approval and commercial marketing of any of Nivalis potential product candidates. A failure of one or more clinical trials can occur at any stage of testing. Further,
the outcome of preclinical testing and early clinical trials may not be predictive of the success of later preclinical testing or clinical trials, and interim results of a clinical trial do not necessarily predict final results. For example, despite
positive preclinical and early stage clinical results, cavosonstat did not achieve the primary endpoint in two recently completed Phase 2 clinical trials in CF that were announced in November 2016 and February 2017, respectively. Moreover,
preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed
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their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for their products.
Should Nivalis choose to resume development of any of its potential candidates, Nivalis may experience a number of unforeseen events during,
or as a result of, any future clinical trials that may be conducted on any of its potential product candidates that could adversely affect the completion of those clinical trials, including:
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regulators, and/or institutional review boards or other reviewing bodies may not authorize Nivalis or its investigators to commence a clinical trial, or to conduct or continue a clinical trial at a prospective or
specific trial site;
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clinical trials of a potential product candidate may produce negative or inconclusive results, and Nivalis may decide, or regulators may require Nivalis, to conduct additional clinical trials or abandon product
development programs;
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the number of subjects required for clinical trials of a potential product candidate may be larger than anticipated, enrollment in these clinical trials may be insufficient or slower than anticipated or subjects may
drop out of these clinical trials at a higher rate than anticipated;
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third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to Nivalis in a timely manner, or at all;
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clinical trials of a potential product candidate may be suspended or terminated for various reasons, including a finding that the subjects are being exposed to unacceptable health risks;
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regulators, institutional review boards or data monitoring committees may require or recommend that Nivalis or its investigators suspend or terminate clinical research for various reasons, including safety signals or
noncompliance with regulatory requirements;
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the cost of clinical trials of a potential product candidate may be greater than anticipated;
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the supply or quality of a potential product candidate or other materials necessary to conduct clinical trials of a product candidate may be insufficient or inadequate; and
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a potential product candidate may have undesirable side effects or other unexpected characteristics.
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Negative or inconclusive results of any future clinical trials of Nivalis potential product candidates could mandate repeated or
additional clinical studies. Despite the safety results reported in earlier clinical trials for cavosonstat, Nivalis does not know whether any other clinical trials it may conduct will demonstrate adequate efficacy and safety to result in regulatory
approval to market cavosonstat in any other indications or any other potential product candidate. If later stage clinical trials do not produce favorable results, Nivalis ability to obtain regulatory approval for a potential product candidate
may be adversely impacted.
Should Nivalis resume research and development activities, delays in clinical trials are common and have many causes,
and any delay could have a material adverse effect on Nivalis business, such as increased costs and delays in Nivalis ability to obtain regulatory approval and commence product sales. In this event, Nivalis may be required to suspend,
repeat or terminate its clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the trials are not well designed.
Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. Clinical
trials must be conducted in accordance with FDA regulations or other applicable foreign government regulations, and are subject to oversight by the FDA or other foreign regulatory authorities and institutional review boards at the medical
institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with product candidates produced under cGMP and may require large numbers of test subjects.
If Nivalis resumes research and development activities relating to its GSNOR inhibitors, Nivalis may experience delays in clinical trials at
any stage of development and testing of any such potential product
35
candidate. Events which may result in a delay or unsuccessful completion of clinical trials for any of Nivalis GSNOR inhibitors include:
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inability to secure a collaborative partner to undertake future development of any of Nivalis GSNOR inhibitors and raise funding necessary to initiate or continue a trial;
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delays in obtaining regulatory approval to commence a trial;
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delays in reaching agreement with FDA or regulatory authorities in other countries on final trial design;
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imposition of a clinical hold based on the submission of results of clinical and preclinical studies or following an inspection of Nivalis clinical trial operations or trial sites by the FDA or other regulatory
authorities;
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delays in reaching agreement on acceptable terms with prospective contract research organizations (CROs) and clinical trial sites;
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delays in obtaining required institutional review board approval at each site;
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delays in recruiting and retaining suitable subjects to participate in a trial;
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delays in having subjects complete participation in a trial or return for post-treatment follow-up;
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delays caused by subjects dropping out of a trial due to side effects or otherwise;
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clinical sites dropping out of a trial to the detriment of enrollment;
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study personnel may administer the wrong version of a potential product candidate or assign study therapy to the wrong treatment group, resulting in disqualification of subjects from data analysis;
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study personnel may not perform in accordance with good clinical practices;
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a potential product candidate may have unforeseen adverse side effects;
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time required to add new clinical sites; and
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delays by Nivalis contract manufacturers to produce and deliver sufficient supply of clinical trial materials.
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If initiation or completion of any of Nivalis clinical trials are delayed for any of the above reasons, Nivalis development may be
arrested, development costs may increase, the approval process could be delayed, any periods during which Nivalis may have the exclusive right to commercialize a potential product candidate may be reduced and Nivalis competitors may have more
time to bring products to market before Nivalis does or otherwise delay Nivalis. Any of these events could impair Nivalis ability to generate revenue from product sales and impair its ability to generate regulatory and commercialization
milestones and royalties, all of which could have a material adverse effect on Nivalis business.
Nivalis potential product candidates
may cause adverse events or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.
If Nivalis were to resume research and development activities relating to its GSNOR inhibitors, undesirable adverse events caused by the
potential product candidates could cause Nivalis or regulatory authorities to interrupt, delay, halt or terminate clinical trials and could result in the denial of regulatory approval by the FDA or other comparable foreign regulatory authorities for
any or all targeted indications. It is possible that during the course of the clinical development of a potential product candidate, results of Nivalis clinical trials could reveal an unacceptable severity and prevalence of adverse events. In
addition, Nivalis remaining preclinical testing may produce inconclusive or negative safety results, which may require it to conduct additional preclinical testing or to abandon a potential product candidate. Also, a potential product
candidate may have unfavorable pharmacology or toxicity characteristics, or cause undesirable side effects.
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Undesirable adverse events caused by a potential product candidate could affect patient
recruitment or the ability of enrolled patients to complete a clinical trial or result in potential product liability claims. In addition, adverse events that occur in Nivalis trials as a consequence of the serious disease that is being
studied may negatively affect the profile of the potential product candidate. The FDA or other regulatory authorities may determine that additional safety testing is required for a potential product candidate, which would cause a delay in
Nivalis clinical development of such product candidate.
Additionally, if any potential product candidate receives marketing
approval, and Nivalis or others later identify undesirable adverse events caused by such products, a number of potentially significant negative consequences could result, including:
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regulatory authorities may withdraw approval of the potential product candidate or impose restrictions on their distribution in the form of a modified risk evaluation and mitigation strategy;
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regulatory authorities may require additional labeling, such as warnings or contraindications;
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Nivalis may be required to change the way the product is administered or to conduct additional clinical studies;
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Nivalis could be sued and held liable for harm caused to patients; and
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Nivalis reputation may suffer.
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Any of these events could prevent Nivalis from achieving
or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm Nivalis business, results of operations and prospects. Any such events would increase Nivalis costs and could delay or
prevent Nivalis ability to commercialize its product candidates should Nivalis resume development activities, which could adversely impact Nivalis business, financial condition and results of operations.
Cavosonstat and any other potential product candidate based on Nivalis GSNOR inhibitor portfolio are based on a novel technology, which may raise
development issues Nivalis may not anticipate or be able to resolve, and regulatory issues that could delay or prevent approval.
Cavosonstat and any other potential product candidate based on Nivalis GSNOR inhibitor technology platform are based on a novel
technology, and there can be no assurance that unforeseen development problems related to the novel technology will not arise in the future and cause significant delays should Nivalis determine to resume research and development activities relating
to its GSNOR inhibitors. In this event, Nivalis may be unable to resolve any such unforeseen problems.
Regulatory approval of novel
product candidates can be more expensive and take longer than other, more well-known or extensively studied pharmaceutical product candidates due to Nivalis and regulatory agencies lack of experience with them. There are no GSNOR
inhibitors that Nivalis knows of in clinical development and none have been approved to date. Should Nivalis resume research and development activities relating to its GSNOR inhibitors, the novelty of Nivalis platform may lengthen the
regulatory review process, require Nivalis to conduct additional studies or clinical trials, increase Nivalis development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of
cavosonstat or any other potential product candidate based on its GSNOR inhibitor technology platform or lead to significant post-approval limitations or restrictions. For example, the FDA could require additional studies or characterization that
may be difficult or impossible to perform.
Even if Nivalis obtains regulatory approval for a potential product candidate, Nivalis will still face
extensive ongoing regulatory requirements.
If Nivalis were to resume research and development activities relating to its GSNOR
inhibitors, even if Nivalis obtains regulatory approval in the U.S., the FDA may still impose significant future restrictions on the
37
indicated uses or marketing of a potential product candidate, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance, including Phase 4
clinical trials. Should Nivalis obtain regulatory approval, it will be subject to ongoing FDA requirements governing the labeling, manufacturing, packaging, storage, distribution, safety surveillance, advertising, promotion, record-keeping and
reporting of safety and other post-market information. The holder of an approved NDA is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the NDA. The holder of an approved NDA must also submit
new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in
addition to other potentially applicable federal and state laws.
In addition, manufacturers of drug products and their facilities are
subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMPs, and adherence to commitments made in the NDA. If Nivalis or a regulatory agency discover previously
unknown problems with a product, such as quality issues or adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product
or the manufacturing facility, including necessitating recall or withdrawal of the product from the market or suspension of manufacturing.
If Nivalis fails to comply with applicable ongoing regulatory requirements following approval of a product candidate, a regulatory agency may:
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issue an untitled or warning letter asserting that Nivalis is in violation of the law;
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seek an injunction or impose civil or criminal penalties or monetary fines;
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suspend or withdraw regulatory approval;
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suspend any ongoing clinical trials;
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refuse to approve a pending NDA or supplements to an NDA submitted by Nivalis; or
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demand recall and/or seize product.
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Any government investigation of alleged violations of law
could require Nivalis to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit the commercialization of any potential product candidate and inhibit
Nivalis ability to generate revenue.
The approval of a potential product candidate in any given market does not ensure approval in any other
market.
If Nivalis were to resume research and development activities relating to its GSNOR inhibitors, in order to market any
product candidate, Nivalis must establish and comply with numerous and varying regulatory requirements on a
country-by-country
basis regarding safety and efficacy.
Approval in the U.S. by the FDA or by a regulatory agency in another country does not ensure approval by the regulatory authorities in other countries or jurisdictions or ensure approval for the same conditions of use. In addition, clinical trials
conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve
additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for Nivalis and require additional preclinical studies or clinical trials which could
be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of Nivalis product candidates in those countries. Nivalis does not have any product candidates approved
for sale in any jurisdiction, including international markets, and Nivalis does not have experience in obtaining regulatory approval in international markets. If Nivalis fails to
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comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, Nivalis target
market will be reduced and its ability to realize the full market potential of its product candidates will be unrealized.
Risks Related to Nivalis Reliance on Third Parties
If Nivalis attempts to form strategic alliances or collaborations in the future with third parties for the development and commercialization of any of
its product candidates, Nivalis may not be successful in establishing these alliances or collaborations.
Nivalis may seek to form
strategic alliances or collaborations for the development and potential commercialization of its product candidates. Nivalis may not be successful in entering into any such transaction on favorable terms or at all. Nivalis potential product
candidates may be considered to be too early in development for a collaborative effort or may be perceived as being too risky or without sufficient market potential or otherwise as insufficient for clinical, market or other reasons. If Nivalis were
successful in entering into a strategic alliance or collaboration, its ability to generate revenue from the alliance or collaboration will depend on its collaborators abilities to establish the safety and efficacy of its product candidates, to
obtain regulatory approvals and to achieve market acceptance. Strategic alliances and collaborations involving Nivalis product candidates pose many risks to Nivalis, including:
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strategic alliances and collaborations may not lead to development of product candidates or commercialization of products in the most efficient manner or at all;
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collaborators have significant discretion in determining the amount and timing of efforts and resources that they will apply to these alliances
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collaborators may interpret clinical trial or
non-clinical
study results differently than Nivalis does, may pursue further development and commercialization of Nivalis
product candidates for indications that Nivalis does not believe are optimal, may not pursue further development and commercialization of Nivalis product candidates at all or may elect not to continue or renew research and development programs
based on nonclinical or clinical trial results, changes in their strategic focus or available funding, or external factors such as an acquisition that diverts resources or creates competing priorities;
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collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new
formulation of a product candidate for clinical testing;
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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with Nivalis products or product candidates if the collaborators believe that competitive products
are more likely to be successfully developed or can be commercialized under terms that are more economically attractive;
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collaborators with marketing and distribution rights to one or more products may not commit enough resources to their marketing and distribution;
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collaborators may not properly maintain or defend Nivalis intellectual property rights or may use Nivalis proprietary information in such a way as to invite litigation that could jeopardize or invalidate the
proprietary information or expose Nivalis to potential litigation;
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disputes may arise between Nivalis and collaborators that result in the delay or termination of the research, development or commercialization of Nivalis product candidates, that result in costly litigation or
arbitration that diverts management attention and resources or that, if resolved unfavorably to Nivalis, result in adverse financial consequences for Nivalis under the terms of the applicable agreements; and
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strategic alliances and collaborations may be terminated, either in their entirety or as to particular product candidates or programs, which may result in a need for a reallocation of internal funds or additional
capital to pursue further development of the applicable product candidates.
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Nivalis employees, consultants or CROs may engage in misconduct or other improper activities, including
noncompliance with regulatory standards and requirements, which could have a material adverse effect on Nivalis business.
Nivalis is exposed to the risk of fraud or other misconduct by its employees, consultants and other third parties, such as principal
investigators, CROs and vendors, if any. Misconduct by these parties could include intentional, reckless or negligent conduct, and/or failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing
standards Nivalis has established, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to Nivalis. In particular, sales, marketing and
business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of
pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct by these parties could also involve the improper use of information obtained in the course of clinical trials,
which could result in regulatory sanctions and serious harm to Nivalis reputation. Nivalis has adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter misconduct, and the precautions Nivalis takes to
detect and prevent misconduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting Nivalis from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws
or regulations. If any such actions are instituted against Nivalis, and Nivalis is not successful in defending itself or asserting its rights, those actions could have a significant impact on Nivalis business and results of operations,
including the imposition of significant fines or other sanctions.
Intellectual Property Risks Related to Nivalis
Business
It is difficult and expensive to protect Nivalis intellectual property rights and Nivalis cannot ensure that the protections used
will prevent third parties from competing against Nivalis.
If Nivalis were to resume research and development activities relating
to its GSNOR inhibitors, Nivalis success will depend, in part, on its ability to obtain and maintain intellectual property rights, both in the U.S. and other countries, successfully defend this intellectual property against third-party
challenges and successfully enforce this intellectual property to prevent third-party infringement. Nivalis relies upon a combination of patents, trade secret protection and confidentiality agreements.
Nivalis ability to protect any of its product candidates and technologies from unauthorized or infringing use by third parties depends
in substantial part on its ability to obtain and maintain valid and enforceable patents in both the U.S. and other countries. Patent matters in the biotechnology and pharmaceutical industries can be highly uncertain and involve complex legal and
factual questions. Changes in either the patent laws, implementing regulations or in interpretations of patent laws may diminish the value of Nivalis patent rights.
There can be no assurance that Nivalis will discover or develop patentable products or processes or that patents will issue from any pending
patent applications owned or licensed by Nivalis or any patent applications Nivalis may own or license in the future, or if issued, that the breadth of such patent coverage will be sufficient. Nivalis cannot guarantee that claims of issued patents
owned or licensed to Nivalis, either now or in the future, are or will be held valid or enforceable by the courts or, even if unchallenged, will provide Nivalis with exclusivity or commercial value for its product candidates or technology or any
significant protection against competitive products or prevent others from designing around Nivalis claims. Further, if Nivalis encounters delays in regulatory approvals, the period of time during which Nivalis could market its product
candidates under patent protection could be reduced. Nivalis patent rights also depend on Nivalis compliance with technology and patent licenses upon which Nivalis patent rights are based and upon the validity of assignments of
patent rights from consultants and other inventors that were, or are, not employed by Nivalis.
Patent applications are generally
maintained in confidence until publication. In the U.S., for example, patent applications are maintained in secrecy for up to 18 months after their filing. Similarly, publication of discoveries
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in scientific or patent literature often lag behind actual discoveries. Consequently, Nivalis cannot be certain that it was the first to invent, or the first to file patent applications on its
product candidates. There is also no assurance that all of the potentially relevant prior art relating to Nivalis patents and patent applications has been found, which could be used by a third party to challenge the validity of Nivalis
patents or prevent a patent from issuing from a pending patent application.
In addition, even if patents do successfully issue, third
parties may challenge any patent Nivalis owns or licenses through adversarial proceedings in the issuing offices, which could result in the invalidation or unenforceability of some or all of the relevant patent claims. If a third party asserts a
substantial new question of patentability against any claim of a U.S. patent Nivalis owns or licenses, the USPTO may grant a request for reexamination, which may result in a loss of scope of some claims or a loss of the entire patent. The adoption
of the Leahy-Smith America Invents Act (the Leahy-Smith Act) has established additional opportunities for third parties to invalidate U.S. patent claims, including
inter partes
review and post-grant review, on the basis of a lower
legal standards than reexamination and additional grounds.
Nivalis will incur significant ongoing expenses in maintaining its patent
portfolio. Should Nivalis lack the funds to maintain its patent portfolio or to enforce its rights against infringers, Nivalis could be adversely impacted. Even if claims of infringement are without merit, any such action could divert the time and
attention of management and impair Nivalis ability to access additional capital and/or cost Nivalis significant funds to defend.
Nivalis may
not be able to protect its intellectual property rights throughout the world.
Filing, prosecuting and defending patents on all of
Nivalis product candidates throughout the world would be prohibitively expensive. Competitors may manufacture and sell Nivalis potential products in those foreign countries where Nivalis has not filed for patent protection or where
patent protection may be unavailable, not obtainable or ultimately not enforceable. Nivalis competitors might conduct research and development activities in countries where Nivalis does not have patent rights and then use the information
learned from such activities to develop competitive products for sale in Nivalis major commercial markets and, further, may be able to export otherwise infringing products to territories where Nivalis has patent protection but where
enforcement is not as strong as that in the U.S. These products may compete with Nivalis products in jurisdictions where Nivalis does not have any issued patents and Nivalis patent claims or other intellectual property rights may not be
effective or sufficient to prevent them from so competing.
Nivalis patent portfolio includes patents and patent applications in
countries outside of the U.S., including Europe, Canada, Japan and Australia. The scope of coverage provided by these patents varies from country to country. Moreover, the laws of some foreign jurisdictions do not provide intellectual property
rights to the same extent as in the U.S. and many companies have encountered significant difficulties in obtaining such rights in foreign jurisdictions. Outside of the U.S., patents Nivalis owns or licenses may become subject to patent opposition in
the European Patent Office or similar proceedings, which may result in loss of scope of some claims or loss of the entire patent. Participation in adversarial proceedings is very complex, expensive, and may divert Nivalis managements
attention from the core business and may result in unfavorable outcomes that could adversely affect Nivalis ability to prevent third parties from competing with Nivalis.
Many companies have also encountered significant problems in protecting and defending intellectual property rights in certain foreign
jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which could make it
difficult for Nivalis to stop the infringement of its patents or marketing of competing products in violation of Nivalis proprietary rights generally. For example, an April 2014 report from the Office of the United States Trade Representative
identified a number of countries, including India and China, where challenges to the procurement and enforcement of patent rights have been reported. Several countries, including India and China, have been listed in the report every year since 1989.
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If Nivalis encounters difficulties in protecting Nivalis intellectual property rights in foreign jurisdictions, the value of Nivalis proprietary technology could be substantially
harmed. Proceedings to enforce Nivalis patent rights in certain foreign jurisdictions could result in substantial cost and divert Nivalis efforts and attention from other aspects of Nivalis business.
Intellectual property rights do not necessarily address all potential threats to Nivalis competitive advantage.
The degree of future protection afforded by Nivalis intellectual property rights is uncertain because intellectual property rights have
limitations, and may not adequately protect Nivalis business, or permit Nivalis to maintain its competitive advantage. The following examples are illustrative:
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Others may be able to make compounds that are similar to Nivalis product candidates but that are not covered by the claims of the patents that Nivalis owns or has exclusively licensed;
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Nivalis or its licensors or strategic collaborators might not have been the first to make the inventions covered by the issued patent or pending patent application that Nivalis owns or has exclusively licensed;
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Nivalis or its licensors or strategic collaborators might not have been the first to file patent applications covering certain of Nivalis inventions;
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Others may independently develop similar or alternative technologies or duplicate any of Nivalis technologies without infringing Nivalis intellectual property rights;
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It is possible that Nivalis pending patent applications will not lead to issued patents;
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Issued patents that Nivalis owns or has exclusively licensed may not provide Nivalis with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by competitors;
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Nivalis competitors might conduct research and development activities in countries where Nivalis does not have patent rights and then use the information learned from such activities to develop competitive
products for sale in Nivalis major commercial markets;
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Nivalis may not develop additional proprietary technologies that are patentable; and
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The patents of others may have an adverse effect on Nivalis business.
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Should any of
these events occur, they could significantly harm Nivalis business, results of operations and prospects.
Recent patent reform legislation
could increase the uncertainties and costs surrounding the prosecution of Nivalis patent applications and the enforcement or defense of Nivalis issued patents.
On September 16, 2011, the Leahy-Smith Act was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S.
patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of Nivalis
business, its current and pending patent portfolio and future intellectual property strategy. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of Nivalis patent
applications and the enforcement or defense of Nivalis issued patents, all of which could have a material adverse effect on Nivalis business and financial condition.
Obtaining and maintaining Nivalis patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and Nivalis patent protection could be reduced or eliminated for
non-compliance
with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the U.S. Patent and Trademark Office (USPTO), the European
Patent Office (EPO), and other foreign patent agencies in several stages over the
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lifetime of the patent. The USPTO and various foreign national or international patent agencies require compliance with a number of procedural, documentary, fee payment and other similar
provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in
abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
Non-compliance
events that could result in abandonment or lapse of
patent rights include, but are not limited to, failure to timely file national and regional stage patent applications based on Nivalis international patent application, failure to respond to official actions within prescribed time limits,
non-payment
of fees and failure to properly legalize and submit formal documents. If Nivalis or its licensors fail to maintain the patents and patent applications covering Nivalis product candidates,
Nivalis competitors might be able to enter the market, which would have a material adverse effect on Nivalis business.
Some of
Nivalis intellectual property is licensed to it by a third party. If Nivalis fails to comply with its obligations in the agreement under which it licenses intellectual property rights from that third party, or otherwise experience disruptions
to Nivalis business relationships with its licensor, Nivalis could lose license rights that are important to its business.
Nivalis has a license under certain patents and/or
know-how
to develop and commercialize certain of its
potential product candidates. Nivalis existing license agreements impose, and Nivalis expects that any future license agreements will impose on Nivalis, various obligations. If Nivalis fails to comply with its obligations under these
agreements, the licensor may have the right to terminate the license. If any of Nivalis licenses are terminated and Nivalis is not able to negotiate other agreements for use of the intellectual property protections underlying these product
candidates, Nivalis would not be able to manufacture and market these potential products, which would adversely affect its business prospects and financial condition.
The patent protection and patent prosecution for some of Nivalis potential product candidates is dependent or may be dependent in the future on
third parties.
While Nivalis normally seeks and gains the right to fully prosecute the patents relating to its potential product
candidates, there may be times when platform technology patents or product-specific patents that relate to its potential product candidates are controlled by Nivalis licensors. In addition, Nivalis licensors and/or licensees may have
back-up
rights to prosecute patent applications in the event that Nivalis does not do so or chooses not to do so, and Nivalis licensees may have the right to assume patent prosecution rights after certain
milestones are reached. If any of Nivalis licensing partners fail to appropriately prosecute and maintain patent protection for patents covering any of Nivalis potential product candidates, Nivalis ability to develop and
commercialize those potential product candidates may be adversely affected and Nivalis may not be able to prevent competitors from making, using and selling competing products.
Nivalis may be subject to litigation alleging that Nivalis is infringing the intellectual property rights of third parties or litigation or other
adversarial proceedings seeking to invalidate its patents or other proprietary rights, and Nivalis may need to resort to litigation to protect or enforce its patents or other proprietary rights, all of which will be costly to defend or pursue and
uncertain in outcome and may prevent or delay any future development and commercialization efforts or otherwise affect its business.
Nivalis success also will depend, in part, on refraining from infringing patents or otherwise violating intellectual property owned or
controlled by others. Numerous patents and pending applications are owned by third parties in the fields in which Nivalis may develop product candidates, both in the U.S. and elsewhere. It is difficult for industry participants, including Nivalis,
to identify all third-party patent rights that may be relevant to any of its potential product candidates because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the
meaning of patent claims. Moreover, because some patent applications are maintained in secrecy until the patents publish, Nivalis cannot be certain that third parties have not filed patent applications that cover Nivalis potential product
candidates and
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technologies. Pharmaceutical companies, biotechnology companies, universities, research institutions and others may have filed patent applications or have received, or may obtain, issued patents
in the U.S. or elsewhere relating to aspects of Nivalis technology, including its potential product candidates, processes for manufacture or methods of use, including combination therapy. It is uncertain whether the issuance of any third-party
patents will require Nivalis to alter its potential product candidates or processes, obtain licenses, or cease certain activities.
If
patents issued to third parties contain blocking, dominating or conflicting claims and such claims are ultimately determined to be valid, Nivalis may be required to obtain licenses to these patents or to develop or obtain alternative
non-infringing
technology and cease practicing those activities, including potentially manufacturing or selling any products deemed to infringe those patents. If any licenses are required, there can be no assurance
that Nivalis will be able to obtain any such licenses on commercially favorable terms, if at all, and if these licenses are not obtained, Nivalis might be prevented from pursuing the development and commercialization of certain of its potential
product candidates. Even if a license can be obtained on acceptable terms, the rights may be
non-exclusive,
which could give Nivalis competitors access to the same technology or intellectual property
rights licensed to Nivalis. Nivalis failure to obtain a license to any technology that it may require to commercialize its potential product candidates on favorable terms may have a material adverse impact on its business, financial condition
and results of operations.
Nivalis may be exposed to, or threatened with, future litigation by third parties having patent or other
intellectual property rights alleging that Nivalis technologies, including its potential product candidates, processes for manufacture or methods of use, including combination therapy, or other proprietary technologies infringe their
intellectual property rights. Parties making claims against Nivalis may obtain injunctive or other equitable relief, which could effectively block Nivalis ability to further develop and commercialize one or more of its potential product
candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from the business. In the event of a successful infringement or other
intellectual property claim against Nivalis, it may have to pay substantial damages, including treble damages and attorneys fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign Nivalis
affected products, which may be impossible or require substantial time and monetary expenditure. Nivalis cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Parties
making successful claims against Nivalis may obtain injunctive or other equitable relief, which could effectively block Nivalis ability to further develop and commercialize one or more of its potential product candidates. Nivalis cannot
provide any assurances that third-party patents do not exist which might be enforced against Nivalis products or potential product candidates, resulting in either an injunction prohibiting Nivalis sales, or, with respect to Nivalis
sales, an obligation on Nivalis part to pay royalties and/or other forms of compensation to third parties.
Litigation, which could
result in substantial costs to Nivalis (even if determined in Nivalis favor), may also be necessary to enforce any patents issued or licensed to Nivalis. The cost to Nivalis in initiating any litigation or other proceeding relating to patent
or other proprietary rights, even if resolved in Nivalis favor, could be substantial, and litigation would divert managements attention. Some of Nivalis competitors may be able to sustain the costs of complex patent litigation more
effectively than Nivalis can because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could delay Nivalis research and development efforts and
limit its ability to continue its operations.
If Nivalis were to initiate legal proceedings against a third party to enforce a patent
covering one of its potential product candidates or its technology, the defendant could counterclaim that its patent is invalid or unenforceable. In patent litigation in the U.S. and in most European countries, defendant counterclaims alleging
invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or
non-enablement.
Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading
statement, during prosecution. The
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outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, Nivalis cannot be certain that
there is no invalidating prior art, of which Nivalis and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, Nivalis would lose at least part, and perhaps all,
of the patent protection on one or more of its products or certain aspects of its platform technology. Such a loss of patent protection could have a material adverse impact on Nivalis business. Patents and other intellectual property rights
also will not protect Nivalis technology if competitors design around its protected technology without legally infringing its patents or other intellectual property rights.
In addition, if a third party has filed patent applications in the U.S. prior to March 16, 2013 that claim technology also claimed by
Nivalis, Nivalis may have to participate in interference proceedings in the USPTO to determine priority of invention. Such proceedings can be lengthy, are costly to defend and involve complex questions of law and fact the outcomes of which are
difficult to predict. Moreover, Nivalis may have to participate in adversarial proceedings in the USPTO or foreign patent offices. An adverse decision relating to Nivalis patent rights could require it to cease using such technology, any of
which could have a material adverse effect on its business, financial condition and results of operations. If initiated, adversarial proceedings could result in substantial costs to Nivalis, even if the eventual outcome is favorable to Nivalis.
If Nivalis is not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of its technology and products
could be significantly diminished.
Nivalis also relies on trade secrets to protect technology, especially where patent protection
is not believed to be appropriate or obtainable or where patents have not issued. Nivalis attempts to protect its proprietary technology and processes, in part, with confidentiality agreements and assignment of invention agreements with its
employees and confidentiality agreements with its consultants and certain contractors. There can be no assurance that these agreements will not be breached, that Nivalis would have adequate remedies for any breach, or that its trade secrets will not
otherwise become known or be independently discovered by competitors. Nivalis may fail in certain circumstances to obtain the necessary confidentiality agreements, or their scope or term may not be sufficiently broad to protect Nivalis
interests.
If Nivalis trade secrets or other intellectual property become known to its competitors, it could result in a material
adverse effect on the business, financial condition and results of operations. To the extent that Nivalis or its consultants or research collaborators use intellectual property owned by others in work for Nivalis, disputes may also arise as to the
rights to related or resulting
know-how
and inventions.
Nivalis may be subject to claims that it or its
employees or consultants have wrongfully used or disclosed alleged trade secrets of its employees or consultants former employers or their clients. These claims may be costly to defend and if Nivalis does not successfully do so, Nivalis
may be required to pay monetary damages and may lose valuable intellectual property rights or personnel.
Many of Nivalis
current or former employees were previously employed at universities or biotechnology or pharmaceutical companies, including Nivalis competitors or potential competitors. Although no claims against Nivalis are currently pending, Nivalis may be
subject to claims that these employees or Nivalis have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If Nivalis
fails in defending such claims, in addition to paying monetary damages, it may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could compromise Nivalis ability to commercialize,
or prevent it from commercializing, its product candidates, which could severely harm the business. Even if Nivalis is successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
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Risks Related to Nivalis Industry
Following its recent workforce reduction, Nivalis will not have resources or the required expertise to develop any of its potential product candidates,
which may impair their value.
Because of the specialized scientific nature of the business and the unique properties of the GSNOR
inhibitor platform, Nivalis ability to develop and commercialize any of its potential product candidates is highly dependent upon Nivalis ability to attract and retain qualified scientific and technical personnel, consultants and
advisors. Nivalis recent workforce reduction resulted in the departure of Mr. Jon Congleton, the CEO, Dr. David Rodman, the CMO, Dr. Steven Shoemaker, the Vice President of Clinical Research and Development, and Dr. Sherif
Gabriel, the Vice President of Research and Discovery. Additionally, the workforce reduction resulted in the elimination of all of Nivalis research and development staff. The loss of their services will significantly delay or prevent any
resumption of the research and development of the GSNOR inhibitors should Nivalis choose to resume those activities in the future.
Should
Nivalis need to recruit additional personnel in order to resume research and development activities, it will need to hire additional qualified scientific personnel to perform research and development, as well as personnel with expertise in clinical
testing, government regulation, manufacturing, marketing and sales, which may strain Nivalis existing managerial, operational, regulatory compliance, financial and other resources. Nivalis also relies on consultants and advisors to assist in
formulating its research and development strategy and adhering to complex regulatory requirements. Nivalis faces competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities and other research
institutions. There can be no assurance that Nivalis will be able to attract and retain such individuals in the future, on acceptable terms, if at all. Additionally, Nivalis operations are in Colorado, which may make attracting and retaining
qualified scientific and technical personnel from outside of Colorado difficult. The failure to attract and retain qualified personnel, consultants and advisors could delay or prevent Nivalis ability to commercialize any of its potential
product candidates based on the GSNOR inhibitor portfolio, which could have a material adverse effect on the business, financial condition and results of operations.
If research and development activities resume, Nivalis is exposed to potential product liability or similar claims, and insurance against these claims
may not be available at a reasonable rate in the future or at all.
Drug development involves potential liability risks that are
inherent in the testing, manufacturing and marketing of human therapeutic products. Clinical trials involve the testing of product candidates on human subjects or volunteers under a research plan, and carry a risk of liability for personal injury or
death to patients due to unforeseen adverse side effects, improper administration of the product candidate, or other factors. Many of these patients are already seriously ill and are therefore particularly vulnerable to further illness or death.
Nivalis currently carries clinical trial liability insurance in the amount of $10.0 million in the aggregate, but there can be no
assurance that it will be able to maintain such insurance if it were to resume drug development activities or that the amount of such insurance will be adequate to cover claims. Nivalis could be materially and adversely affected if it were required
to pay damages or incur defense costs in connection with a claim outside the scope of indemnity or insurance coverage, if the indemnity is not performed or enforced in accordance with its terms, or if its liability exceeds the amount of applicable
insurance. In addition, there can be no assurance that insurance will continue to be available on terms acceptable to Nivalis, if at all, or that if obtained, the insurance coverage will be sufficient to cover any potential claims or liabilities.
Similar risks would exist upon the commercialization or marketing of any products by Nivalis or its collaborators.
Regardless of their
merit or eventual outcome, product liability claims may result in:
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decreased demand for any products that may eventually be approved;
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injury to Nivalis reputation and significant negative media attention;
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withdrawal of clinical trial participants;
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distraction of management; and
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substantial monetary awards to plaintiffs.
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Should any of these events occur, it could have a
material adverse effect on Nivalis business and financial condition.
Nivalis may become involved in securities class action litigation that
could divert managements attention and adversely affect the business and could subject Nivalis to significant liabilities.
The stock markets have from time to time experienced significant price and volume fluctuations that have affected the market prices for the
common stock of pharmaceutical companies. These broad market fluctuations as well a broad range of other factors, including the realization of any of the risks described in this Risk Factors section of this proxy
statement/prospectus/information statement and the consummation of any transaction resulting from Nivalis review of various strategic alternatives, may cause the market price of Nivalis common stock to decline. In the past, securities
class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for Nivalis because biotechnology and pharmaceutical companies generally experience
significant stock price volatility. Nivalis may become involved in this type of litigation in the future. Litigation typically is expensive and diverts managements attention and resources, which could adversely affect the business. Any adverse
determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that Nivalis make significant payments.
Risks Related to Ownership of Nivalis Common Stock
Nivalis stock price is likely to be volatile and an active, liquid and orderly trading market may not develop for its common stock. As a result,
stockholders may not be able to resell shares at or above their purchase price.
Prior to its initial public offering, which was
completed in June 2015, there was no public market for shares of Nivalis common stock. Although Nivalis common stock is listed on NASDAQ, an active trading market for its common stock may not develop or, if it develops, may not be
sustained. The lack of an active market may impair the ability of its stockholders to sell their shares at the time they wish to sell them or at a price that they consider reasonable, which may reduce the fair market value of their shares. Further,
an inactive market may also impair Nivalis ability to raise capital by selling its common stock should it determine additional funding is required.
The market price of Nivalis common stock may fluctuate substantially as a result of many factors, some of which are beyond its control.
For example, shares of Nivalis common stock have traded as high as $20.43 and as low as $2.00 in the twenty-three month period following the effective date of Nivalis IPO. These fluctuations could cause an investor to lose all or part of
the value of his, her or its investment in Nivalis common stock. Factors that could cause fluctuations in the market price of Nivalis common stock include the following:
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the announcement of the merger or another strategic transaction;
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the development status of Nivalis potential product candidates;
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the results of preclinical studies and clinical trials;
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results of operations that vary from those of Nivalis competitors and the expectations of securities analysts and investors;
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changes in expectations as to Nivalis future financial performance, including financial estimates by securities analysts and investors;
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Nivalis announcement of significant contracts, acquisitions, or capital commitments;
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announcements by Nivalis competitors of competing products or other initiatives;
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announcements by third parties of significant claims or proceedings against Nivalis;
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regulatory and reimbursement developments in the U.S. and abroad;
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lack of an active, liquid or orderly market in Nivalis common stock;
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future sales of Nivalis common stock or of debt securities;
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additions or departures of key personnel; and
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general domestic and international economic conditions unrelated to Nivalis performance.
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In addition, the stock market in general has experienced significant price and volume fluctuations that have often been unrelated or
disproportionate to operating performance of individual companies. These broad market factors may adversely affect the market price of Nivalis common stock, regardless of Nivalis operating performance. In the past, following periods of
volatility in the market price of a companys securities, securities class action litigation has often been instituted. A securities class action suit against Nivalis could result in significant liabilities and, regardless of the outcome, could
result in substantial costs and the diversion of managements attention and resources.
Nivalis common stock may be delisted from NASDAQ
if Nivalis is unable to maintain compliance with NASDAQs continued listing standards.
NASDAQ imposes, among other
requirements, continued listing standards including minimum bid and public float requirements. The price of Nivalis common stock must trade at or above $1.00 to comply with NASDAQs minimum bid requirement for continued listing on NASDAQ.
If Nivalis common stock trades at bid prices of less than $1.00 for a period in excess of 30 consecutive business days, NASDAQ could send a deficiency notice to Nivalis for not remaining in compliance with the minimum bid listing standards.
Nivalis common stock has never traded below $1.00. However, if the closing bid price of Nivalis common stock fails to meet NASDAQs minimum closing bid price requirement, or if Nivalis otherwise fails to meet any other applicable
requirements of NASDAQ and Nivalis is unable to regain compliance, NASDAQ may make a determination to delist Nivalis common stock. Any delisting of Nivalis common stock could adversely affect the market liquidity of Nivalis common
stock and the market price of Nivalis common stock could decrease. Furthermore, if Nivalis common stock were delisted it could adversely affect Nivalis ability to obtain financing for the continuation of its operations and/or
result in the loss of confidence by investors, customers, suppliers and employees.
Nivalis principal stockholders have a controlling
influence over Nivalis business affairs and may make business decisions with which stockholders disagree and which may adversely affect the value of their investment.
Nivalis principal stockholders, which consist of entities affiliated with Deerfield Management Company, L.P., the Estate of Arnold
H. Snider, III, and BVF Partners L.P., and certain of their affiliates, beneficially own or control, directly or indirectly, approximately 46% of the outstanding shares of Nivalis common stock. As a result, if some of these persons or entities
act together, they will have the ability to exercise significant influence over matters submitted to the stockholders for approval, including the election and removal of directors, amendments to the certificate of incorporation and bylaws and the
approval of any strategic transaction requiring the approval of the stockholders, including the approval of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the merger and the issuance of shares of
Nivalis common stock to Alpines stockholders in the merger. These actions may be taken even if they are opposed by other stockholders. This concentration of ownership may also have the effect of delaying or preventing a change of control
of Nivalis or discouraging others from making tender offers for Nivalis shares, which could prevent Nivalis stockholders from receiving a premium for their shares. Some of these persons or entities who make up Nivalis principal
stockholders may have interests different from other stockholders.
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Future sales, or the perception of future sales, of a substantial amount of Nivalis common stock
could depress the trading price of Nivalis common stock.
As of April 18, 2017, Nivalis has 200,000,000 shares of common
stock authorized and 15,656,251 shares of common stock outstanding. Of these shares, the 6,325,000 shares sold during Nivalis IPO are freely tradable and, without giving effect to the purchase of shares by entities affiliated with certain of
Nivalis existing stockholders, approximately 5.6 million shares are freely tradable under Rule 144 under the Securities Act by
non-affiliates,
and approximately 3.6 million shares are
eligible for resale pursuant to Rule 144 under the Securities Act, subject to the volume, manner of sale, holding period and other limitations of Rule 144. In addition, Nivalis has registered on a registration statement on Form
S-3
that has been declared effective, (i) the sale of up to $125,000,000 in the aggregate of an indeterminate number of shares of common stock and preferred stock, an indeterminate principal amount of debt
securities and an indeterminate number of warrants and (ii) the resale of up to 3,732,412 shares of common stock that are freely tradable by selling stockholders pursuant to a base prospectus that forms a part of the registration statement. The
registration statement also registers the offering, issuance and sale of common stock having up to a maximum aggregate offering price of $20,000,000 that Nivalis may issue and sell in an
at-the-market
offering under a sales agreement Nivalis entered into with Cowen and Company, LLC on July 5, 2016 pursuant to a sales agreement prospectus that forms a part of the registration statement.
As of March 31, 2017, approximately $19.8 million in shares of common stock remain for sale under the sales agreement.
If
Nivalis or Nivalis stockholders sell substantial amounts of shares of Nivalis common stock in the public market or if the market perceives that these sales could occur, the market price of shares of Nivalis common stock could
decline. These sales may make it more difficult for Nivalis to sell equity or equity-related securities in the future at a time and price that Nivalis deems appropriate, or to use equity as consideration for future acquisitions.
The JOBS Act allows Nivalis to postpone the date by which it must comply with certain laws and regulations intended to protect investors and to reduce
the amount of information it provides in Nivalis reports filed with the SEC. Nivalis cannot be certain if this reduced disclosure will make Nivalis common stock less attractive to investors.
The JOBS Act is intended to reduce the regulatory burden on emerging growth companies. As defined in the JOBS Act, Nivalis
qualifies as an emerging growth company and could remain an emerging growth company until as late as December 31, 2020. For so long as Nivalis is an emerging growth company, it will, among other things:
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not be required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley;
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not be required to hold a nonbinding advisory stockholder vote on executive compensation pursuant to Section 14A of the Exchange Act;
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not be required to seek stockholder approval of any golden parachute payments not previously approved pursuant to Section 14A of the Exchange Act;
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be exempt from any rule adopted by the Public Company Accounting Oversight Board, requiring mandatory audit firm rotation or a supplemental auditor discussion and analysis; and
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be subject to reduced disclosure obligations regarding executive compensation in Nivalis periodic reports and proxy statements.
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Nivalis has irrevocably elected not to avail itself of an extended transition period under the JOBS Act that permits an emerging growth
company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. As a result, Nivalis will adopt new or revised accounting standards on the relevant dates on which adoption of such
standards is required for other companies.
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Furthermore, if Nivalis takes advantage of some or all of the reduced disclosure requirements
above, investors may find Nivalis common stock less attractive, which may result in a less active trading market for Nivalis common stock and greater stock price volatility.
Nivalis first became subject to rules and regulations established by the SEC and the Public Company Accounting Oversight Board (PCAOB)
regarding Nivalis internal control over financial reporting in the fiscal year ended December 31, 2016. If Nivalis internal controls are not determined to be effective, it may adversely affect investor confidence in Nivalis and, as
a result, the market price of Nivalis common stock and a stockholders investment in Nivalis common stock.
As a
public reporting company, Nivalis is subject to the rules and regulations established from time to time by the SEC and the PCAOB. These rules and regulations require, among other things, that Nivalis establish and periodically evaluate procedures
with respect to its internal controls over financial reporting. Reporting obligations as a public company place a considerable strain on Nivalis financial and management systems, processes and controls, as well as on Nivalis personnel,
particularly following Nivalis reduction in force, which resulted in approximately five employees remaining with Nivalis after March 31, 2017.
In addition, as a public company Nivalis is required to document and test its internal control over financial reporting pursuant to
Section 404 of Sarbanes-Oxley so that its management can certify as to the effectiveness of its internal control over financial reporting. Maintaining and monitoring these internal controls may be more difficult with fewer resources available
to perform the necessary documentation and testing, and Nivalis internal controls may be found to be deficient. Likewise, Nivalis independent registered public accounting firm will be required to provide an attestation report on the
effectiveness of Nivalis internal control over financial reporting at such time as Nivalis ceases to be an emerging growth company, as defined in the JOBS Act, although, as described in the preceding risk factor, Nivalis could
potentially qualify as an emerging growth company until December 31, 2020. At such time, Nivalis independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level
at which Nivalis controls are documented, designed or operating.
If Nivalis senior management is unable to conclude that it has
effective internal control over financial reporting, or to certify the effectiveness of such controls, or if Nivalis independent registered public accounting firm cannot render an unqualified opinion on managements assessment and the
effectiveness of Nivalis internal control over financial reporting, or if material weaknesses in Nivalis internal controls are identified, Nivalis could be subject to regulatory scrutiny and a loss of public confidence, which could have
a material adverse effect on the business and stock price. In addition, if Nivalis does not maintain adequate financial and management personnel, processes and controls, Nivalis may not be able to manage its business effectively or accurately report
its financial performance on a timely basis, which could cause a decline in Nivalis common stock price and adversely affect the results of operations and financial condition.
Nivalis disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Nivalis disclosure controls and procedures are designed to reasonably ensure that information required to be disclosed by Nivalis in
reports it files or submits under the Exchange Act is accumulated and communicated to management and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Nivalis believes that any
disclosure controls and procedures as well as internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are and will be met. These
inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in Nivalis control system, misstatements due to error or fraud may occur and not be detected.
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Nivalis expects to continue to incur significant costs as a result of operating as a public company, and
the remaining management team will be required to devote substantial time to compliance efforts.
Nivalis will continue to incur
significant legal, accounting, insurance and other expenses as a result of being a public company. The Dodd-Frank Act and Sarbanes-Oxley as well as related rules implemented by the SEC and The NASDAQ Global Market, have imposed corporate governance
requirements on public companies. In addition, rules that the SEC is implementing or is required to implement pursuant to the Dodd-Frank Act are expected to require additional changes. Nivalis expects that compliance with these and other similar
laws, rules and regulations, including compliance with Section 404 of Sarbanes-Oxley, will substantially increase Nivalis expenses, including its legal and accounting costs, and make some activities more time-consuming and costly.
Although the JOBS Act may for a limited period of time somewhat lessen the cost of complying with these additional regulatory and other requirements, Nivalis nonetheless expects to incur significant legal, accounting, insurance and certain other
expenses in the future, which will negatively impact the business, results of operations and financial condition.
Anti-takeover provisions in
Nivalis charter documents could discourage, delay or prevent a change in control of Nivalis and may affect the trading price of Nivalis common stock.
Nivalis corporate documents and the General Corporation Law of the State of Delaware (DGCL) contain provisions that may
enable Nivalis board of directors to resist a change in control of Nivalis even if a change in control were to be considered favorable by Nivalis stockholders. These provisions:
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stagger the terms of Nivalis board of directors and require 66 and 2/3% stockholder voting to remove directors, who may only be removed for cause;
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authorize Nivalis board of directors to issue blank check preferred stock and to determine the rights and preferences of those shares, which may be senior to Nivalis common stock, without prior
stockholder approval;
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establish advance notice requirements for nominating directors and proposing matters to be voted on by stockholders at stockholders meetings;
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prohibit Nivalis stockholders from calling a special meeting and prohibit stockholders from acting by written consent;
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require 66 and 2/3% stockholder voting to effect certain amendments to Nivalis certificate of incorporation and bylaws; and
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prohibit cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates.
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These provisions could discourage, delay or prevent a transaction involving a change in control of Nivalis. These provisions could also
discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and cause Nivalis to take other corporate actions Nivalis stockholders desire.
Claims for indemnification by Nivalis directors and officers may reduce Nivalis available funds to satisfy successful third-party claims
against Nivalis and may reduce the amount of available cash.
Nivalis amended and restated certificate of incorporation
provides that Nivalis will indemnify its directors to the fullest extent permitted by Delaware law.
In addition, as permitted by
Section 145 of the DGCL, Nivalis amended and restated bylaws and Nivalis indemnification agreements that it has entered into with its directors and officers provide that:
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Nivalis will indemnify its directors and officers for serving Nivalis in those capacities or for serving other
business enterprises at Nivalis request, to the fullest extent permitted by Delaware law. Delaware
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law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal proceeding, had no reasonable cause to believe such persons conduct was unlawful.
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Nivalis may, in its discretion, indemnify other employees and agents in those circumstances where indemnification is permitted by applicable law.
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Nivalis is required to advance expenses, as incurred, to its directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is
ultimately determined that such person is not entitled to indemnification.
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Nivalis will not be obligated pursuant to its amended and restated bylaws to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless the proceeding was
authorized in the specific case by Nivalis board of directors or such indemnification is required to be made pursuant to Nivalis amended and restated bylaws.
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The rights conferred in Nivalis amended and restated bylaws are not exclusive, and Nivalis is authorized to enter into indemnification agreements with Nivalis directors, officers, employees and agents and to
obtain insurance to indemnify such persons.
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Nivalis may not retroactively amend its amended and restated bylaw provisions to reduce its indemnification obligations to Nivalis directors or officers.
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As a result, if Nivalis is required to indemnify one or more of its directors or officers, it may reduce its available funds to satisfy
successful third-party claims against it, may reduce the amount of available cash and may have a material adverse effect on the business and financial condition.
Nivalis amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive
forum for certain types of actions and proceedings that may be initiated by Nivalis stockholders, which could limit Nivalis stockholders ability to obtain a favorable judicial forum for disputes with Nivalis or Nivalis
directors, officers, employees or agents.
Nivalis amended and restated certificate of incorporation provides that, unless
Nivalis consents in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on Nivalis behalf, any action asserting a claim of breach
of a fiduciary duty owed by any of Nivalis directors, officers, employees or agents to Nivalis or Nivalis stockholders, any action asserting a claim arising pursuant to any provision of the DGCL, Nivalis amended and restated
certificate of incorporation or Nivalis amended and restated bylaws or any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to the Court of Chancery having personal jurisdiction over the
indispensable parties named as defendants therein and the claim not being one which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery or for which the Court of Chancery does not have subject matter
jurisdiction. Any person purchasing or otherwise acquiring any interest in any shares of Nivalis common stock shall be deemed to have notice of and to have consented to this provision of Nivalis amended and restated certificate of
incorporation. This choice of forum provision may limit Nivalis stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with Nivalis or Nivalis directors, officers, employees or agents, which
may discourage such lawsuits against Nivalis and Nivalis directors, officers, employees and agents even though an action, if successful, might benefit Nivalis stockholders. Stockholders who do bring a claim in the Court of Chancery could
face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The Court of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder
considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to Nivalis than to Nivalis stockholders. Alternatively, if a court were to find this provision of
Nivalis amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of
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the specified types of actions or proceedings, Nivalis may incur additional costs associated with resolving such matters in other jurisdictions, which could have a material adverse effect on
Nivalis business, financial condition or results of operations.
Nivalis does not expect to pay any dividends on its common stock for the
foreseeable future.
Nivalis currently expects to retain all future earnings, if any, for future operations and expansion, and has
no current plans to pay any cash dividends to holders of Nivalis common stock for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of Nivalis board of directors and will
depend on, among other things, Nivalis results of operations, financial condition, cash requirements, contractual restrictions and other factors that Nivalis board of directors may deem relevant. As a result, stockholders may not receive
any return on an investment in Nivalis common stock unless stockholders sell Nivalis common stock for a price greater than that which they paid for it.
Risks Related to Alpine
Alpine will need to raise substantial additional funds to advance development of its therapeutic candidates, and it cannot guarantee it will have
sufficient funds available in the future to develop and commercialize its current or future therapeutic candidates.
Alpine will
need to raise substantial additional funds to expand Alpines development, regulatory, manufacturing, marketing, and sales capabilities or contract with other organizations to provide these capabilities to Alpine. Alpine has used substantial
funds to develop its therapeutic candidates and will require significant funds to conduct further research and development, preclinical testing, and clinical trials of its therapeutic candidates, to seek regulatory approvals for its therapeutic
candidates, and to manufacture and market products, if any are approved for commercial sale. As of March 31, 2017, Alpine had $13.6 million in cash and cash equivalents. Based on Alpines current operating plan, and assuming
consummation of the merger, Alpine believes its available cash and cash equivalents, will be sufficient to fund its planned level of operations for at least the next 12 months. Alpines future capital requirements and the period for which it
expects its existing resources to support its operations may vary significantly from what it expects. Alpines monthly spending levels vary based on new and ongoing development and corporate activities. Because the length of time and activities
associated with successful development of Alpines therapeutic candidates are highly uncertain, Alpine is unable to estimate the actual funds it will require for development and any approved marketing and commercialization activities. To
execute Alpines business plan, Alpine will need, among other things:
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to obtain the human and financial resources necessary to develop, test, obtain regulatory approval for, manufacture, and market Alpines therapeutic candidates;
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to build and maintain a strong intellectual property portfolio and avoid infringing intellectual property of third parties;
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to establish and maintain successful licenses, collaborations, and alliances;
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to satisfy the requirements of clinical trial protocols, including patient enrollment;
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to establish and demonstrate the clinical efficacy and safety of Alpines therapeutic candidates;
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to obtain regulatory approvals;
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to manage Alpines spending as costs and expenses increase due to preclinical studies, clinical trials, regulatory approvals, manufacturing
scale-up,
and commercialization;
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to obtain additional capital to support and expand Alpines operations; and
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to market Alpines products to achieve acceptance and use by the medical community in general.
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If Alpine is unable to obtain necessary funding on a timely basis or on acceptable terms, Alpine may have to delay, reduce, or terminate its
research and development programs, preclinical studies, or clinical trials, if any,
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limit strategic opportunities, or undergo reductions in Alpines workforce or other corporate restructuring activities. Alpine also could be required to seek funds through arrangements with
collaborators or others requiring Alpine to relinquish rights to some of its technologies or therapeutic candidates Alpine would otherwise pursue on its own. Alpine does not expect to realize revenue from product sales, milestone payments, or
royalties in the foreseeable future, if at all. Alpines revenue sources are, and will remain, extremely limited unless and until Alpines therapeutic candidates are clinically tested, approved for commercialization, and successfully
marketed.
To date, Alpine has financed its operations primarily through the sale of equity securities and payments received under
Alpines license and research agreement with Kite. Alpine will be required to seek additional funding in the future and intends to do so through a combination of public or private equity offerings, debt financings, credit and loan facilities,
research collaborations, and license agreements. Alpines ability to raise additional funds from these or other sources will depend on financial, economic, and other factors, many of which are beyond its control. Additional funds may not be
available to Alpine on acceptable terms or at all.
If Alpine raises additional funds by issuing equity securities, its stockholders will
suffer dilution, and the terms of any financing may adversely affect the rights of its stockholders. In addition, as a condition to providing additional funds to Alpine, future investors may demand, and may be granted, rights superior to those of
existing stockholders. Debt financing, if available, may involve restrictive covenants limiting Alpines flexibility in conducting future business activities, and, in the event of a liquidation or insolvency, debt holders would be repaid before
holders of equity securities receive any distribution of corporate assets. Alpines failure to raise capital or enter into such other arrangements within a reasonable timeframe would have a negative impact on its financial condition, and Alpine
may have to delay, reduce, or terminate its research and development programs, preclinical or clinical trials, or undergo reductions in its workforce or other corporate restructuring activities.
Alpine is a biopharmaceutical company with a history of losses, expects to continue to incur significant losses for the foreseeable future, and may
never achieve or maintain profitability.
Alpine is a biopharmaceutical company with a limited operating history, focused on the
discovery and development of treatments based on protein-based immunotherapies. Since Alpines inception in 2014, Alpine has devoted its resources to developing novel protein-based immunotherapies using Alpines proprietary vIgD platform
technology. Alpine has had significant operating losses since inception. As of March 31, 2017, Alpine had an accumulated deficit of $3.6 million. For the three months ended March 31, 2017 and for the years ended December 31, 2016 and
2015, Alpines net loss was $2.0 million, $1.2 million, and $0.4 million, respectively. Substantially all of Alpines losses have resulted from expenses incurred in connection with Alpines research programs and from general and
administrative costs associated with Alpines operations. Alpines technologies and therapeutic candidates are in early stages of development, and Alpine is subject to the risks of failure inherent in the development of therapeutic
candidates based on novel technologies.
To date, Alpine has generated revenue primarily from the receipt of research funding and upfront
payments under Alpines license and research agreement with Kite. Alpine has not generated, and does not expect to generate, any revenue from product sales for the foreseeable future, and Alpine expects to continue to incur significant
operating losses for the foreseeable future due to the cost of research and development, preclinical studies, clinical trials, and the regulatory approval process for therapeutic candidates. The amount of future losses is uncertain. Alpines
ability to achieve profitability, if ever, will depend on, among other things, Alpines or Alpines existing collaborators, or any future collaborators, successfully developing therapeutic candidates, obtaining regulatory approvals to
market and commercialize therapeutic candidates, manufacturing any approved products on commercially reasonable terms, establishing a sales and marketing organization or suitable third party alternatives for any approved product, and raising
sufficient funds to finance business activities. If Alpine or Alpines existing collaborators, or any future collaborators, are unable to develop and commercialize one or more of Alpines therapeutic candidates or if sales revenue from any
therapeutic candidate receiving approval is insufficient, Alpine will not achieve profitability, which could have a material adverse effect on Alpines business, financial condition, results of operations, and prospects.
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Alpines approach to the discovery and development of innovative therapeutic treatments based on
Alpines technology is unproven and may not result in marketable products.
Alpine plans to develop novel protein-based
immunotherapies using its proprietary vIgD platform technology for the treatment of cancer and inflammatory diseases. The potential to create therapies capable of working within an immune synapse, forcing a synapse to occur, or preventing a synapse
from occurring is an important, novel attribute of Alpines vIgD platform. However, the scientific research forming the basis of Alpines efforts to develop therapeutic candidates based on Alpines vIgD platform is relatively new.
Further, the scientific evidence to support the feasibility of developing therapeutic treatments based on Alpines vIgD platform is both preliminary and limited.
Relatively few therapeutic candidates based on immunoglobulin superfamily (IgSF) domains have been tested in animals or humans,
and a number of clinical trials conducted by other companies using IgSF domains technologies have not been successful. Alpine may discover the therapeutic candidates Alpine develops using its vIgD platform do not possess certain properties required
for the therapeutic to be effective, such as the ability to remain stable in the human body for the period of time required for the therapeutic to reach the target tissue or the ability to cross the cell wall and enter into cells within the target
tissue for effective delivery. Alpine currently has only limited data, and no conclusive evidence, to suggest it can introduce these necessary therapeutic properties into vIgDs. Alpine may spend substantial funds attempting to introduce these
properties and may never succeed in doing so. In addition, vIgDs may demonstrate different chemical and pharmacological properties in patients than they do in laboratory studies. Even if Alpines programs, such as the
ALPN-101
program, have successful results in animal studies, they may not demonstrate the same chemical and pharmacological properties in humans and may interact with human biological systems in unforeseen,
ineffective, or harmful ways. For example, in the context of immunotherapies, in a Phase I clinical trial of TeGenero AGs product candidate TGN1412, healthy volunteer subjects receiving the product candidate experienced cytokine release
syndrome resulting in acute renal failure and acute respiratory distress syndrome requiring interventions such as dialysis and critical care support. Following this experience, regulatory agencies now ask for evaluation of immunomodulatory
antibodies with a number of
in vitro
assays with human cells. While Alpine is currently performing
in vitro
proof of concept studies for several of its vIgDs, the risk profile in humans has yet to be assessed. As a result of all this,
Alpine may never succeed in developing a marketable therapeutic, Alpine may not become profitable and the value of Alpine will decline.
Further, the FDA has relatively limited experience with vIgDs. No regulatory authority has granted approval to any person or entity, including
Alpine, to market and commercialize therapeutics using vIgDs, which may increase the complexity, uncertainty, and length of the regulatory approval process for Alpines therapeutic candidates. Alpine and its current collaborators, or any future
collaborators, may never receive approval to market and commercialize any therapeutic candidate. Even if Alpine or a collaborator obtains regulatory approval, the approval may be for disease indications or patient populations not as broad as Alpine
intended or desired or may require labeling, including significant use or distribution restrictions or safety warnings. Alpine or a collaborator may be required to perform additional or unanticipated clinical trials to obtain approval or be subject
to post-marketing testing requirements to maintain regulatory approval. If therapeutic candidates Alpine develops using Alpines vIgD platform prove to be ineffective, unsafe or commercially unviable, Alpines entire platform and pipeline
would have little, if any, value, which could have a material adverse effect on Alpines business, financial condition, results of operations, and prospects.
The market may not be receptive to Alpines therapeutic products based on a novel therapeutic modality, and Alpine may not generate any future
revenue from the sale or licensing of therapeutic products.
Even if approval is obtained for a therapeutic candidate, Alpine may
not generate or sustain revenue from sales of the therapeutic product due to factors such as whether the therapeutic product can be sold at a competitive price and otherwise accepted in the market, and therefore any revenue from sales of the
therapeutic product may not offset the cost of development. The therapeutic candidates Alpine is developing are based on
55
new technologies and therapeutic approaches. Market participants with significant influence over acceptance of new treatments, such as physicians and third-party payors, may not adopt a treatment
based on Alpines vIgDs, and Alpine may not be able to convince the medical community and third-party payors to accept and use, or to provide favorable coverage or reimbursement for, any therapeutic products developed by Alpine or Alpines
existing collaborator or any future collaborators. Market acceptance of Alpines therapeutic products will depend on, among other factors:
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the timing of Alpines receipt of any marketing and commercialization approvals;
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the terms of any approvals and the countries in which approvals are obtained;
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the safety and efficacy of Alpines therapeutic products;
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the prevalence and severity of any adverse side effects associated with Alpines therapeutic products;
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the prevalence and severity of any adverse side effects associated with therapeutics of the same type or class as Alpines therapeutic products;
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limitations or warnings contained in any labeling approved by the FDA or other regulatory authority;
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relative convenience and ease of administration of Alpines therapeutic products;
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the willingness of patients to accept any new methods of administration;
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the success of Alpines physician education programs;
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the availability of adequate government and third-party payor coverage and reimbursement;
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the pricing of Alpines products, particularly as compared to alternative treatments;
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Alpines ability to compliantly market and sell Alpines products; and
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availability of alternative effective treatments for the disease indications Alpines therapeutic products are intended to treat and the relative risks, benefits, and costs of those treatments.
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With Alpines focus on protein engineering wild-type IgSFs, these risks may increase to the extent this field becomes more competitive or
less favored in the commercial marketplace. Additional risks apply in relation to any disease indications Alpine pursues which are classified as rare diseases and allow for orphan drug designation by regulatory agencies in major commercial markets,
such as the U.S., EU and Japan. Because of the small patient population for a rare disease, if pricing is not approved or accepted in the market at an appropriate level for an approved therapeutic product with orphan drug designation, such drug may
not generate enough revenue to offset costs of development, manufacturing, marketing, and commercialization despite any benefits received from the orphan drug designation, such as market exclusivity, assistance in clinical trial design, or a
reduction in user fees or tax credits related to development expense. Market size is also a variable in disease indications not classified as rare. Alpines estimates regarding potential market size for any rare indication may be materially
different from what Alpine discovers to exist at the time Alpine commences commercialization, if any, for a therapeutic product, which could result in significant changes in Alpines business plan and have a material adverse effect on
Alpines business, financial condition, results of operations, and prospects.
If a therapeutic product with orphan drug designation
subsequently receives the first FDA approval for the indication for which it has such designation, the therapeutic product is entitled to orphan product exclusivity, which means the FDA may not approve any other applications to market the same
therapeutic product for the same indication, except in very limited circumstances, for seven years. Orphan drug exclusivity, however, could also block the approval of one of Alpines therapeutic products for seven years if a competitor obtains
approval of the same therapeutic product as defined by the FDA or if Alpines therapeutic product is determined to be within the same class as the competitors therapeutic product for the same indication or disease.
As in the U.S., Alpine may apply for designation of a therapeutic product as an orphan drug for the treatment of a specific indication in the
EU before the application for marketing authorization is made. Sponsors of orphan drugs in the EU can enjoy economic and marketing benefits, including up to ten years of market exclusivity for the approved indication unless another applicant can
show its therapeutic product is safer, more
56
effective, or otherwise clinically superior to the orphan-designated therapeutic product. The respective orphan designation and exclusivity frameworks in the U.S. and in the EU are subject to
change, and any such changes may affect Alpines ability to obtain EU or U.S. orphan designations in the future.
Alpines therapeutic
candidates are in early stages of development and may fail in development or suffer delays that materially and adversely affect their commercial viability.
Alpine has no products on the market and all of Alpines therapeutic candidates are in early stages of development. Alpines ability
to achieve and sustain profitability depends on obtaining regulatory approvals, Institutional Review Board (IRB) approval to conduct clinical trials at particular sites, and successfully commercializing Alpines therapeutic
candidates, either alone or with third parties, such as its collaborator Kite. Before obtaining regulatory approval for the commercial distribution of Alpines therapeutic candidates, Alpine or a collaborator must conduct extensive preclinical
tests and clinical trials to demonstrate the safety and efficacy in humans of Alpines therapeutic candidates. Preclinical testing and clinical trials are expensive, difficult to design and implement, can take many years to complete, and are
uncertain as to outcome. The start or end of a clinical study is often delayed or halted due to changing regulatory requirements, manufacturing challenges, required clinical trial administrative actions, slower than anticipated patient enrollment,
changing standards of care, availability or prevalence of use of a comparative therapeutic or required prior therapy, clinical outcomes, or financial constraints. For instance, delays or difficulties in patient enrollment or difficulties in
retaining trial participants can result in increased costs, longer development times, or termination of a clinical trial. Clinical trials of a new therapeutic candidate require the enrollment of a sufficient number of patients, including patients
who are suffering from the disease the therapeutic candidate is intended to treat and who meet other eligibility criteria. Rates of patient enrollment are affected by many factors, including the size of the patient population, the eligibility
criteria for the clinical trial, the age and condition of the patients, the stage and severity of disease, the nature of the protocol, the proximity of patients to clinical sites, and the availability of effective treatments for the relevant
disease.
A therapeutic candidate can unexpectedly fail at any stage of preclinical and clinical development. The historical failure rate
for therapeutic candidates is high due to scientific feasibility, safety, efficacy, changing standards of medical care, and other variables. The novelty of Alpines platform may mean that Alpines failure rates are higher than historical
norms. The results from preclinical testing or early clinical trials of a therapeutic candidate may not predict the outcome of later phase clinical trials of the therapeutic candidate, particularly in immuno-oncology and inflammatory disorders.
Alpine, the FDA, an IRB, an independent ethics committee, or other applicable regulatory authorities may suspend clinical trials of a therapeutic candidate at any time for various reasons, including a belief that subjects participating in such
trials are being exposed to unacceptable health risks or adverse side effects. Similarly, an IRB or ethics committee may suspend a clinical trial at a particular trial site. Alpine may not have the financial resources to continue development of, or
to enter into collaborations for, a therapeutic candidate if Alpine experiences any problems or other unforeseen events delaying or preventing regulatory approval of, or Alpines ability to commercialize, therapeutic candidates, including:
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negative or inconclusive results from Alpines clinical trials, or the clinical trials of others for therapeutic candidates similar to Alpine, leading to a decision or requirement to conduct additional preclinical
testing or clinical trials or abandon a program;
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serious and unexpected drug-related side effects experienced by participants in Alpines clinical trials or by individuals using therapeutics similar to Alpines therapeutic candidates;
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serious drug-related side effects experienced in the past by individuals using therapeutics similar to Alpines therapeutic candidates;
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delays in submitting Investigational New Drug (IND) applications or clinical trial applications (CTAs), or comparable foreign applications or delays or failure in obtaining the necessary
approvals from regulators or IRBs to commence a clinical trial, or a suspension or termination of a clinical trial once commenced;
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conditions imposed by the FDA or comparable foreign authorities, such as the European Medicines Agency (EMA), regarding the scope or design of Alpines clinical trials;
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delays in enrolling research subjects in clinical trials;
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high
drop-out
rates of research subjects;
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inadequate supply or quality of therapeutic product or therapeutic candidate components, or materials or other supplies necessary for the conduct of Alpines clinical trials, including those owned, manufactured or
provided by companies other than Alpine;
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greater than anticipated clinical trial costs, including the cost of any approved drugs used in combination with Alpines therapeutic candidates;
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poor effectiveness of Alpines therapeutic candidates during clinical trials;
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unfavorable FDA or other regulatory agency inspection and review of a clinical trial site;
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failure of Alpines third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all;
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delays and changes in regulatory requirements, policy, and guidelines, including the imposition of additional regulatory oversight around clinical testing generally or with respect to Alpines technology in
particular; or
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varying interpretations of data by the FDA and similar foreign regulatory agencies.
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Product development
involves a lengthy and expensive process with an uncertain outcome, and results of earlier
pre-clinical
and clinical trials may not be predictive of future clinical trial results.
Clinical testing is expensive and generally takes many years to complete, and the outcome is inherently uncertain. Failure can occur at any
time during the clinical trial process. The results of
pre-clinical
trials and early clinical trials of Alpines product candidates may not be predictive of the results of larger, later-stage controlled
clinical trials. Product candidates that have shown promising results in early-stage clinical trials may still suffer significant setbacks in subsequent clinical trials. Alpine has conducted no clinical trials to date. Alpine will have to conduct
trials in its proposed indications to verify the results obtained to date and to support any regulatory submissions for further clinical development. A number of companies in the biopharmaceutical industry have suffered significant setbacks in
advanced clinical trials due to lack of efficacy or adverse safety profiles despite promising results in earlier, smaller clinical trials. Moreover, clinical data are often susceptible to varying interpretations and analyses. Alpine does not know
whether Phase 1, Phase 2, Phase 3, or other clinical trials Alpine may conduct will demonstrate consistent or adequate efficacy and safety with respect to the proposed indication for use sufficient to receive regulatory approval or
market its therapeutic candidates.
To date, Alpines revenue has been primarily derived from Alpines license and research agreement with
Kite, and Alpine is dependent on Kite for the successful development of therapeutic candidates in the collaboration.
In October
2015, Alpine entered into an exclusive, worldwide license and research agreement with Kite to research, develop, and commercialize engineered autologous T cell therapies incorporating two programs from Alpines technology. Under the terms of
the license and research agreement, Alpine will conduct initial research to deliver two program TIPs with certain
pre-defined
characteristics. Kite will then conduct further research on the program TIPs with
the goal of demonstrating
proof-of-concept.
If successful, Kite would further engineer the program TIPs into certain CAR-T and TCR product candidates potentially
enhancing anti-tumor response. Pursuant to the license and research agreement, Kite paid Alpine a $5.0 million upfront payment. Kite also paid $0.5 million in additional payments to support Alpines research. Alpine will be
potentially eligible to receive up to $530.0 million in total milestone payments upon the successful completion of research, clinical, and regulatory milestones relating to both program TIPs. At Kites option, a portion of the milestone
payments may be paid in shares of Kites common stock. Alpine will also potentially be eligible to receive a low single digit royalty for
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sales on a licensed
product-by-licensed
product and
country-by-country
basis, until the later of (i) the date on which the licensed product is no longer covered by certain intellectual property rights, and
(ii) the expiration of a defined term beginning on the first commercial sale of the licensed product.
Continued success of
Alpines collaboration with Kite, and its realization of the milestone and royalty payments under the agreement, depends entirely upon the efforts of Kite. Kite has sole discretion in determining and directing the efforts and resources,
including the ability to discontinue all efforts and resources, it applies to the development and, if approval is obtained, commercialization and marketing of the therapeutic candidates covered by the collaboration. Kite may not be effective in
obtaining approvals for the therapeutic candidates developed under the collaboration arrangement or marketing or arranging for necessary supply, manufacturing, or distribution relationships for any approved products. Kite may change its strategic
focus or pursue alternative technologies in a manner resulting in reduced, delayed, or no revenue to Alpine. Kite has a variety of marketed products and its own corporate objectives and strategies may not be consistent with Alpines best
interests. If Kite fails to develop, obtain regulatory approval for, or ultimately commercialize any therapeutic candidate under the Alpine collaboration or if Kite terminates the Alpine collaboration, Alpines business, financial condition,
results of operations, and prospects could be materially and adversely affected. In addition, any dispute or litigation proceedings Alpine may have with Kite in the future could delay development programs, create uncertainty as to ownership of
intellectual property rights, distract management from other business activities and generate substantial expense.
If Alpine is unable to
secure intellectual property rights to programs covered under the license and research agreement, Kite may terminate the agreement and Alpines business, financial condition, results of operations, and prospects could be materially and
adversely affected. In addition, any dispute or litigation proceedings Alpine may have with Kite related to intellectual property rights or other aspects of the agreement or the relationship could delay development programs, create uncertainty as to
ownership of intellectual property rights, may distract management from other business activities and generate substantial expense.
If third
parties on which Alpine depends to conduct its preclinical studies, or any future clinical trials, do not perform as expected, fail to satisfy regulatory or legal requirements, or miss expected deadlines, Alpines development program could be
delayed, which may result in materially adverse effects on Alpines business, financial condition, results of operations and prospects.
Alpine relies in part on third party clinical investigators, contract research organizations (CROs), clinical data management
organizations, and consultants to design, conduct, supervise, and monitor preclinical studies of Alpines therapeutic candidates and may do the same for any clinical trials. Because Alpine relies on third parties to conduct preclinical studies
or clinical trials, Alpine has less control over the timing, quality, compliance, and other aspects of preclinical studies and clinical trials than Alpine would if Alpine conducted all preclinical studies and clinical trials on its own. These
investigators, CROs and consultants are not Alpines employees and Alpine has limited control over the amount of time and resources they dedicate to Alpines programs. These third parties may have contractual relationships with other
entities, some of which may be Alpines competitors, which may draw time and resources from Alpines programs. The third parties with which Alpine contracts might not be diligent, careful, compliant, or timely in conducting Alpines
preclinical studies or clinical trials, resulting in the preclinical studies or clinical trials being delayed or unsuccessful.
If Alpine
cannot contract with acceptable third parties on commercially reasonable terms, or at all, or if these third parties do not carry out their expected duties, satisfy legal and regulatory requirements for the conduct of preclinical studies or clinical
trials, or meet expected deadlines, Alpines clinical development programs could be delayed and otherwise adversely affected. In all events, Alpine is responsible for ensuring each of its preclinical studies and clinical trials is conducted in
accordance with the general investigational plan and protocols for the trial. The FDA and certain foreign regulatory authorities, such as the EMA, require preclinical studies to be conducted in accordance with applicable Good Laboratory Practices
(GLPs) and clinical trials to be conducted in accordance with applicable FDA regulations and Good Clinical Practices (GCPs), including requirements for conducting, recording, and reporting the results of preclinical studies
and clinical trials to assure
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data and reported results are credible and accurate and the rights, integrity, and confidentiality of clinical trial participants are protected. Alpines reliance on third parties Alpine
does not control and does not relieve Alpine of these responsibilities and requirements. Any such event could have a material adverse effect on Alpines business, financial condition, results of operations, and prospects.
Because Alpine relies on third party manufacturing and supply partners, Alpines supply of clinical trial materials may become limited or
interrupted or may not be of satisfactory quantity or quality.
Alpine has established
in-house
recombinant protein generation capabilities for producing sufficient protein materials to enable a portion of its current preclinical studies. Alpine relies on third party supply and manufacturing
partners to supply the materials, components, and manufacturing services for a portion of preclinical studies and its clinical trial drug supplies. Alpine does not own manufacturing facilities or supply sources for such components and materials for
clinical trial supplies and its current manufacturing facilities are insufficient to supply sources for such components and materials for all of its preclinical studies. Certain raw materials necessary for the manufacture of Alpines
therapeutic products, such as cell lines, are available from a single or limited number of source suppliers on a purchase order basis. There can be no assurance that Alpines supply of research and development, preclinical study, and clinical
trial drugs and other materials will not be limited, interrupted, restricted in certain geographic regions, or of satisfactory quality or quantity, or continue to be available at acceptable prices. In particular, any replacement of Alpines
therapeutic substance manufacturer could require significant effort and expertise and could result in significant delay of Alpines preclinical or clinical activities because there may be a limited number of qualified replacements.
The manufacturing process for a therapeutic candidate is subject to FDA and foreign regulatory authority review. Suppliers and manufacturers
must meet applicable manufacturing requirements and undergo rigorous facility and process validation tests required by regulatory authorities in order to comply with regulatory standards, such as cGMPs. In the event any of Alpines suppliers or
manufacturers fails to comply with such requirements or to perform its obligations to Alpine in relation to quality, timing, or otherwise, or if Alpines supply of components or other materials becomes limited or interrupted for other reasons,
Alpine may experience shortages resulting in delayed shipments, supply constraints, and/or stock-outs of Alpines products, be forced to manufacture the materials itself, for which Alpine currently does not have the capabilities or resources,
or enter into an agreement with another third party, which Alpine may not be able to do on reasonable terms, if at all. In some cases, the technical skills or technology required to manufacture Alpines therapeutic candidates may be unique or
proprietary to the original manufacturer and Alpine may have difficulty, or there may be contractual and intellectual property restrictions prohibiting Alpine from, transferring such skills or technology to another third party and a feasible
alternative may not exist. These factors may increase Alpines reliance on such manufacturer or require Alpine to obtain a license from such manufacturer in order to have another third party manufacture Alpines therapeutic candidates. If
Alpine is required to change manufacturers for any reason, Alpine will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations. The delays associated
with the verification of a new manufacturer could negatively affect Alpines ability to develop therapeutic candidates in a timely manner or within budget or at all.
Alpine expects to continue to rely on third party manufacturers if Alpine receives regulatory approval for any therapeutic candidate. To the
extent Alpine has existing, or enters into future, manufacturing arrangements with third parties, Alpine will depend on these third parties to perform their obligations in a timely manner consistent with contractual and regulatory requirements,
including those related to quality control and assurance. If Alpine is unable to obtain or maintain third-party manufacturing for therapeutic candidates, or to do so on commercially reasonable terms, Alpine may not be able to develop and
commercialize Alpines therapeutic candidates successfully. Alpines or a third partys failure to execute on Alpines manufacturing requirements could adversely affect Alpines business in a number of ways, including as a
result of:
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an inability to initiate or continue preclinical studies or clinical trials of therapeutic candidates under development;
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delay in submitting regulatory applications, or receiving regulatory approvals, for therapeutic candidates;
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the loss of the cooperation of a collaborator;
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subjecting manufacturing facilities of Alpines therapeutic candidates to additional inspections by regulatory authorities;
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requirements to cease distribution or to recall batches of Alpines therapeutic candidates; and
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in the event of approval to market and commercialize a therapeutic candidate, an inability to meet commercial demands for Alpines products.
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Alpine may not successfully engage in strategic transactions, including any additional collaborations Alpine seeks, which could adversely affect
Alpines ability to develop and commercialize therapeutic candidates, impact Alpines cash position, increase Alpines expenses, and present significant distractions to Alpines management.
From time to time, Alpine may consider strategic transactions, such as collaborations, acquisitions of companies, asset purchases, and
out-
or
in-licensing
of therapeutic candidates or technologies. In particular, in addition to Alpines current arrangements with Kite, Alpine intends to evaluate and, if
strategically attractive, seek to enter into additional collaborations, including with major biotechnology or pharmaceutical companies. The competition for collaborative partners is intense, and the negotiation process is time-consuming and complex.
Any new collaboration may be on suboptimal terms for Alpine, and Alpine may be unable to maintain any new or existing collaboration if, for example, development or approval of a therapeutic candidate is delayed, sales of an approved therapeutic
candidate do not meet expectations, or the collaborator terminates the collaboration. Any such collaboration, or other strategic transaction, may require Alpine to incur
non-recurring
or other charges,
increase Alpines near- and long-term expenditures and pose significant integration or implementation challenges or disrupt Alpines management or business.
These transactions would entail numerous operational and financial risks, including:
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exposure to unknown liabilities;
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disruption of Alpines business and diversion of Alpines managements time and attention in order to manage a collaboration or develop acquired therapeutic candidates, or technologies;
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incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs;
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higher than expected collaboration, acquisition, or integration costs;
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write-downs of assets or goodwill, or incurrent impairment charges or increased amortization expenses; and
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difficulty and cost in facilitating the collaboration or combining the operations and personnel of any acquired business or impairment of relationships with key suppliers, manufacturers, or customers of any acquired
business due to changes in management and ownership and the inability to retain key employees of any acquired business.
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Accordingly, although there can be no assurance Alpine will undertake or successfully complete any transactions of the nature described above,
any transactions Alpine does complete may be subject to the foregoing or other risks and have a material adverse effect on Alpines business, results of operations, financial condition, and prospects. Conversely, any failure to enter any
collaboration or other strategic transaction that would be beneficial to Alpine could delay the development and potential commercialization of Alpines therapeutic candidates and have a negative impact on the competitiveness of any therapeutic
candidate reaching market.
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Alpine faces competition from entities that have developed or may develop therapeutic candidates for
Alpines target disease indications, including companies developing novel treatments and technology platforms based on modalities and technology similar to Alpine. If these companies develop technologies or therapeutic candidates more rapidly
than Alpine does, or their technologies, including delivery technologies, are more effective, Alpines ability to develop and successfully commercialize therapeutic candidates may be adversely affected.
The development and commercialization of therapeutic candidates is highly competitive. Alpine believes a significant number of products are
currently under development, and may become commercially available in the future, for the treatment of conditions for which Alpine may try to develop therapeutic candidates. There are also competitors to Alpines proprietary therapeutic
candidates currently in development, some of which may become commercially available before Alpines therapeutic candidates.
Alpine
competes with a variety of multinational pharmaceutical companies and specialized biotechnology companies, as well as with technologies being developed at universities and other research institutions. Alpines competitors have developed, are
developing or may develop therapeutic candidates and processes competitive with Alpines therapeutic candidates. Competitive therapeutic treatments include those already approved and accepted by the medical community and any new treatments
entering or about to enter the market. Alpine is aware of multiple companies developing therapies with the same target as Alpines lead program (ICOSL/CD28) as well as companies building novel platforms to generate multi-specific antibody or
non-antibody-based
targeting proteins. While it is still premature for Alpine to determine which indications may be targeted by its lead program, potential competitors to Alpines lead program include:
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an
anti-ICOSL/B7RP-1
monoclonal antibody being developed by Amgen, Inc. (may be referred to as AMG557 or MEDI5872);
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an anti-ICOS monoclonal antibody being developed by MedImmune, Inc. (MEDI570);
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an anti-ICOS agonist monoclonal antibody being developed by GlaxoSmithKline plc (GSK 3359609);
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an anti-CD28 monoclonal antibody fragment being developed by OSE ImmunoTherapeutics SA and Johnson & Johnson Inc. (FR104);
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a
CTLA-4
selective for CD86 fusion protein being developed by Astellas Pharma Inc. (ASP 2408/09);
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a CD28 superagonist monoclonal antibody being developed by TheraMab LLC (TAB08); and
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an anti-CD28 pegylated monoclonal domain antibody being developed by Bristol-Myers Squibb
(BMS-931699).
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Platforms potentially competitive with Alpines vIgD platform include:
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Nanobody® (Ablynx NV): Platform technology of single-domain, heavy-chain antibody fragments derived from camelidae (e.g., camels and llamas);
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DART® (Macrogenics Inc): Dual-Affinity Re-Targeting and Trident technology platforms bind multiple targets with a single molecule; Anticalin® (Pieris Pharmaceuticals Inc): Engineered proteins derived from
natural lipocalins found in blood plasma; Targeted Immunomodulation
(Compass Therapeutics LLC): Antibody discovery targeting the tumor-immune synapse;
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Harpoon Therapeutics Inc: Trispecific antigen-binding proteins;
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Various bispecific antibody platforms (e.g., Amgen Inc (BiTE®approved), Roche AG (RG7828), Zymeworks Inc (Azymetric
), Xencor Inc (XmAb Bispecific));
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Five Prime Therapeutics: Proprietary protein library and rapid protein production and testing platform; and
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Regeneron: VEGF Trap and VelociSuite® antibody technology platforms.
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Additionally, there are a number of other therapies for inflammatory diseases or cancer approved
or in development that are also competitive with Alpines lead program and other programs in development. Many of the other therapies include other types of immunotherapies with different targets than Alpines programs. Other potentially
competitive therapies work in ways distinct from Alpines development programs.
Many of Alpines competitors have significantly
greater financial, technical, manufacturing, marketing, sales, and supply resources or experience than Alpine has. If Alpine successfully obtains approval for any therapeutic candidate, Alpine will face competition based on many different factors,
including safety and effectiveness, ease with which Alpines products can be administered and the extent to which patients accept relatively new routes of administration, timing and scope of regulatory approvals, availability and cost of
manufacturing, marketing, and sales capabilities, price, reimbursement coverage, and patent position of Alpines products. Competing products could present superior treatment alternatives, including by being more effective, safer, less
expensive, or marketed and sold more effectively than any products Alpine may develop. Competitive products may make any products Alpine develops obsolete or noncompetitive before Alpine recovers the expense of developing and commercializing
Alpines therapeutic candidates. Competitors could also recruit Alpines employees, which could negatively impact Alpines ability to execute Alpines business plan.
Any inability to attract and retain qualified key management and technical personnel would impair Alpines ability to implement Alpine business
plan.
Alpines success largely depends on the continued service of key management and other specialized personnel, including
Mitchell H. Gold, M.D., Alpines Executive Chairman and Chief Executive Officer, Jay R. Venkatesan, M.D., Alpines President and a member of Alpines board of directors, Stanford Peng, M.D., Ph.D., Alpines Executive Vice
President of Research and Development and Chief Medical Officer, Ryan Swanson, Alpines Vice President of Immunology, Michael Kornacker, Ph.D., Alpines Vice President of Protein Engineering and Paul Rickey, Alpines Senior Vice
President and Chief Financial Officer.
The loss of one or more members of Alpines management team or other key employees or
advisors could delay Alpines research and development programs and materially harm Alpines business, financial condition, results of operations, and prospects. The relationships Alpines key managers have cultivated within
Alpines industry make Alpine particularly dependent upon their continued employment with Alpine. Alpine is dependent on the continued service of its technical personnel because of the highly technical nature of Alpines therapeutic
candidates and technologies, and the specialized nature of the regulatory approval process. Because Alpines management team and key employees are not obligated to provide Alpine with continued service, they could terminate their employment
with Alpine at any time without penalty. Alpine does not maintain key person life insurance policies on any of Alpines management team members or key employees. Alpines future success will depend in large part on Alpines continued
ability to attract and retain other highly qualified scientific, technical, and management personnel, as well as personnel with expertise in clinical testing, manufacturing, governmental regulation, and commercialization. Alpine faces competition
for personnel from other companies, universities, public and private research institutions, government entities, and other organizations, including significant competition in the Seattle employment market.
If Alpines therapeutic candidates advance into clinical trials, Alpine may experience difficulties in managing its growth and expanding its
operations.
Alpine has limited experience in therapeutic development and very limited experience with clinical trials of
therapeutic candidates. As its therapeutic candidates enter and advance through preclinical studies and any clinical trials, Alpine will need to expand its development, regulatory, and manufacturing capabilities or contract with other organizations
to provide these capabilities for it. In the future, Alpine expects to have to manage additional relationships with collaborators or partners, suppliers, and other organizations. Alpines ability to manage its operations and future growth will
require Alpine to continue to improve its operational, financial, and
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management controls, reporting systems, and procedures. Alpine may not be able to implement improvements to its management information and control systems in an efficient or timely manner and may
discover deficiencies in existing systems and controls.
If any of Alpines therapeutic candidates are approved for marketing and
commercialization and Alpine is unable to develop sales, marketing and distribution capabilities on its own or enter into agreements with third parties to perform these functions on acceptable terms, Alpine may be unable to successfully
commercialize any such future products.
Alpine currently has no sales, marketing, or distribution capabilities or experience. If
any of Alpines therapeutic candidates are approved, Alpine will need to develop internal sales, marketing, and distribution capabilities to commercialize such products, which may be expensive and time-consuming, or enter into collaborations
with third parties to perform these services. If Alpine decides to market its products directly, Alpine will need to commit significant financial, legal, and managerial resources to develop a marketing and sales force with technical expertise and
supporting distribution, administration, and compliance capabilities. If Alpine relies on third parties with such capabilities to market Alpines approved products, or decides to
co-promote
products with
collaborators, Alpine will need to establish and maintain marketing and distribution arrangements with third parties, and there can be no assurance Alpine will be able to enter into such arrangements on acceptable, compliant terms or at all. In
entering into third-party marketing or distribution arrangements, any revenue Alpine receives will depend upon the efforts of the third parties and there can be no assurance such third parties will establish adequate sales and distribution
capabilities or be successful in gaining market acceptance of any approved therapeutic. If Alpine is not successful in commercializing any therapeutic approved in the future, either on its own or through third parties, Alpines business,
financial condition, results of operations, and prospects could be materially and adversely affected.
If Alpine fails to comply with U.S. and
foreign regulatory requirements, regulatory authorities could limit or withdraw any marketing or commercialization approvals Alpine may receive and subject Alpine to other penalties that could materially harm Alpines business.
Alpine, its therapeutic candidates, its suppliers, and its contract manufacturers, distributors, and contract testing laboratories are subject
to extensive regulation by governmental authorities in the EU, the U.S., and other countries, with the regulations differing from country to country.
Even if Alpine receives marketing and commercialization approval of a therapeutic candidate, Alpine and its third-party service providers will
be subject to continuing regulatory requirements, including a broad array of regulations related to establishment registration and product listing, manufacturing processes, risk management measures, quality and pharmacovigilance systems,
post-approval clinical studies, labeling, advertising and promotional activities, record keeping, distribution, adverse event reporting, import and export of pharmaceutical products, pricing, sales, and marketing, and fraud and abuse requirements.
Any product promotion and advertising will also be subject to regulatory requirements and continuing regulatory review.
Alpine is
required to submit safety and other post market information and reports, and is subject to continuing regulatory review, including in relation to adverse patient experiences with the product and clinical results that are reported after a product is
made commercially available, both in the U.S. and in any foreign jurisdiction in which Alpine seeks regulatory approval. The FDA and certain foreign regulatory authorities, such as the EMA, have significant post-market authority, including the
authority to require labeling changes based on new safety information and to require post-market studies or clinical trials to evaluate safety risks related to the use of a product or to require withdrawal of the product from the market.
The FDA also has the authority to require a Risk Evaluation and Mitigation Strategies (REMS) plan either before or after approval,
which may impose further requirements or restrictions on the distribution or use of an approved therapeutic. The EMA now routinely requires risk management plans (RMPs) as part of the marketing authorization application process, and such
plans must be continually modified and updated
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throughout the lifetime of the product as new information becomes available. In addition, the relevant governmental authority of any EU member state can request an RMP whenever there is a concern
about the risk/benefit balance of the product.
The manufacturers and manufacturing facilities Alpine uses to make a future product, if
any, will also be subject to periodic review and inspection by the FDA and other regulatory agencies, including for continued compliance with cGMP requirements. The discovery of any new or previously unknown problems with Alpines third-party
manufacturers, manufacturing processes or facilities may result in restrictions on the product, manufacturers or facilities, including withdrawal of the product from the market. If Alpine relies on third-party manufacturers, Alpine will not have
control over compliance with applicable rules and regulations by such manufacturers.
If Alpine or Alpines collaborators,
manufacturers, or service providers fail to comply with applicable continuing regulatory requirements in the U.S. or foreign jurisdictions in which Alpine seeks to market its products, Alpine may be subject to, among other things, fines, warning and
untitled letters, clinical holds, delay or refusal by the FDA or foreign regulatory authorities to approve pending applications or supplements to approved applications, suspension, refusal to renew or withdrawal of regulatory approval, product
recalls, seizures, or administrative detention of products, refusal to permit the import or export of products, operating restrictions, inability to participate in government programs including Medicare and Medicaid, and total or partial suspension
of production or distribution, injunction, restitution, disgorgement, debarment, civil penalties, and criminal prosecution.
Price controls imposed
in foreign markets may adversely affect Alpines future profitability.
In most countries, the pricing of prescription drugs is subject to governmental control. In these countries, pricing negotiations with
governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of
cost containment measures. Political, economic, and regulatory developments may further complicate pricing and reimbursement negotiations, and pricing negotiations may continue after reimbursement has been obtained.
Reference pricing used by various EU member states and parallel distribution, or arbitrage between
low-priced
and high-priced member states, can further reduce prices. In some countries, Alpine or Alpines collaborators may be required to conduct a clinical trial or other studies comparing the
cost-effectiveness of Alpines vIgD therapeutic candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or authorities may lead to further pressure
on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of any product candidate approved for marketing is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory
levels, Alpines business, financial condition, results of operations, or prospects could be adversely affected.
Alpines business
entails a significant risk of product liability and Alpines ability to obtain sufficient insurance coverage could harm Alpines business, financial condition, results of operations, or prospects.
Alpines business exposes it to significant product liability risks inherent in the development, testing, manufacturing, and marketing of
therapeutic treatments. Product liability claims could delay or prevent completion of Alpines development programs. If Alpine succeeds in marketing products, such claims could result in an investigation by certain regulatory authorities, such
as FDA or foreign regulatory authorities, of the safety and effectiveness of Alpines products, Alpines manufacturing processes and facilities, or Alpines marketing programs and potentially a recall of Alpines products or more
serious enforcement action, limitations on the approved indications for which they may be used, or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome, liability claims may also result in decreased demand for
Alpines products, injury to Alpines reputation, costs to defend the related litigation, a diversion of managements time and Alpines
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resources, substantial monetary awards to trial participants or patients, and a decline in Alpines valuation. Alpine currently has product liability insurance it believes is appropriate for
its stage of development and may need to obtain higher levels of product liability insurance prior to marketing any of its therapeutic candidates. Any insurance Alpine has or may obtain may not provide sufficient coverage against potential
liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, Alpine may be unable to obtain sufficient insurance at a reasonable cost to protect Alpine against losses caused by product
liability claims with a potentially material adverse effect on Alpines business.
Alpines employees may engage in misconduct or other
improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on Alpines business.
Alpine is exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include, but is not limited to:
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intentional failures to comply with FDA or U.S. health care laws and regulations, or applicable laws, regulations, guidance, or codes of conduct set by foreign governmental authorities or self-regulatory industry
organizations;
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a provision of inaccurate information to any governmental authorities such as FDA;
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noncompliance with manufacturing standards Alpine may establish;
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noncompliance with federal and state healthcare fraud and abuse laws and regulations; and
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a failure to report financial information or data accurately or a failure to disclose unauthorized activities to Alpine.
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In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws, regulations, guidance and
codes of conduct intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws, regulations, guidances, and codes of conduct may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales
commission, customer incentive program, health care professional, and other business arrangements.
Employee misconduct could also involve
the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions, including debarment or disqualification of those employees from participation in FDA regulated activities and serious harm to
Alpines reputation. This could include violations of provisions of the U.S. federal Health Insurance Portability and Accountability Act (HIPAA), as amended by the Health Information Technology for Economic and Clinical Health Act
(HITECH), other U.S. federal and state law, and requirements of
non-U.S.
jurisdictions, including the European Union Data Protection Directive.
It is not always possible to identify and deter employee misconduct, and the precautions Alpine takes to detect and prevent this activity may
not be effective in controlling unknown or unmanaged risks or losses or in protecting Alpine from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws, regulations, guidance, or codes of
conduct. If any such actions are instituted against Alpine, and Alpine is not successful in defending itself or asserting its rights, those actions could have a significant impact on Alpines business, including the imposition of significant
fines, exclusion from government programs, or other sanctions.
Alpines business involves the use of hazardous materials and Alpine and its
third-party manufacturers must comply with environmental laws and regulations, which may be expensive and restrict how it conducts business.
Alpines third-party manufacturers activities and Alpines own activities involve the controlled storage, use and disposal of
hazardous and flammable materials, including the components of Alpines pharmaceutical
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product candidates, test samples and reagents, biological materials and other hazardous compounds. Alpine and its manufacturers are subject to federal, state, local and foreign laws and
regulations governing the use, generation, manufacture, storage, handling and disposal of these hazardous materials. Alpine currently carries no insurance specifically covering environmental claims relating to the use of hazardous materials.
Although Alpine believes that its safety procedures for handling and disposing of these materials and waste products comply with the standards prescribed by these laws and regulations, Alpine cannot eliminate the risk of accidental injury or
contamination from the use, storage, handling or disposal of hazardous materials. In the event of an accident, state or federal or other applicable authorities may curtail Alpines use of these materials and/or interrupt Alpines business
operations. In addition, if an accident or environmental discharge occurs, or if Alpine discovers contamination caused by prior operations, including by prior owners and operators of properties Alpine acquires, Alpine could be liable for cleanup
obligations, damages and fines. If such unexpected costs are substantial, this could significantly harm Alpines financial condition and results of operations.
Compliance with governmental regulations regarding the treatment of animals used in research could increase Alpines operating costs, which would
adversely affect the commercialization of Alpines technology.
The Animal Welfare Act (AWA) is the federal law
that covers the treatment of certain animals used in research. Currently, the AWA imposes a wide variety of specific regulations that govern the humane handling, care, treatment and transportation of certain animals by producers and users of
research animals, most notably relating to personnel, facilities, sanitation, cage size, and feeding, watering and shipping conditions. Third parties with whom Alpine contracts are subject to registration, inspections and reporting requirements
under the AWA. Furthermore, some states have their own regulations, including general anti-cruelty legislation, which establish certain standards in handling animals. Comparable rules, regulations, and or obligations exist in many foreign
jurisdictions. If Alpine or Alpines contractors fail to comply with regulations concerning the treatment of animals used in research, Alpine may be subject to fines and penalties and adverse publicity, and Alpines operations could be
adversely affected.
Alpines information technology systems could face serious disruptions adversely affecting Alpines business.
Alpines information technology and other internal infrastructure systems, including corporate firewalls, servers, leased
lines, and connection to the Internet, face the risk of systemic failure potentially disruptive to Alpines operations. A significant disruption in the availability of Alpines information technology and other internal infrastructure
systems could cause interruptions in Alpines collaborations with Alpines partners and delays in Alpines research and development work.
Alpines current operations are concentrated in one location and any events affecting this location may have material adverse consequences.
Alpines current operations are located in Alpines facilities situated in Seattle. Any unplanned event, such as flood,
fire, explosion, earthquake, extreme weather condition, medical epidemics, power shortage, power outage, telecommunication failure, or other natural or manmade accidents or incidents resulting in Alpine being unable to fully utilize the facilities,
may have a material adverse effect on Alpines ability to operate its business, particularly on a daily basis, and have significant negative consequences on Alpines financial and operating conditions. Loss of access to these facilities
may result in increased costs, delays in the development of Alpines therapeutic candidates, or interruption of Alpines business operations. As part of Alpines risk management policy, Alpine maintains insurance coverage at levels it
believes are appropriate for its business. However, in the event of an accident or incident at these facilities, Alpine cannot assure you the amounts of insurance will be sufficient to satisfy any damages and losses or that the insurance covers all
risks. If Alpines facilities are unable to operate because of an accident or incident or for any other reason, even for a short period of time, any or all of Alpines research and development programs may be harmed. Any business
interruption may have a material adverse effect on Alpines business, financial position, results of operations, and prospects.
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The investment of Alpines cash, cash equivalents, and fixed income in marketable securities is
subject to risks which may cause losses and affect the liquidity of these investments.
As of March 31, 2017, Alpine had
$13.6 million in cash and cash equivalents. Alpine expects to invest its excess cash in marketable securities. These investments are subject to general credit, liquidity, market and interest rate risks, including potential future impacts
similar to the impact of U.S.
sub-prime
mortgage defaults previously affecting various sectors of the financial markets and which caused credit and liquidity issues. Alpine may realize losses in the fair value
of these investments, an inability to access cash in these investments for a potentially meaningful period, or a complete loss of these investments, which would have a negative effect on Alpines financial statements.
In addition, should Alpines investments cease paying or reduce the amount of interest paid to Alpine, Alpines interest income
would suffer. The market risks associated with Alpines investment portfolio may have an adverse effect on Alpines results of operations, liquidity, and financial condition.
Changes in accounting rules and regulations, or interpretations thereof, could result in unfavorable accounting charges or require Alpine to change
Alpines compensation policies.
Accounting methods and policies for biopharmaceutical companies, including policies governing
revenue recognition, research and development and related expenses, and accounting for stock-based compensation, are subject to review, interpretation, and guidance from Alpines auditors and relevant accounting authorities, including the
Securities and Exchange Commission. Changes to accounting methods or policies, or interpretations thereof, may require Alpine to reclassify, restate, or otherwise change or revise Alpines financial statements, including those contained in this
proxy statement/prospectus/information statement.
Alpines business may be affected by litigation and government investigations.
Alpine may from time to time receive inquiries and subpoenas and other types of information requests from government authorities and others and
Alpine may become subject to claims and other actions related to Alpines business activities. While the ultimate outcome of investigations, inquiries, information requests, and legal proceedings is difficult to predict, defense of litigation
claims can be expensive, time-consuming and distracting, and adverse resolutions or settlements of those matters may result in, among other things, modification of Alpines business practices, costs, and significant payments, any of which could
have a material adverse effect on Alpines business, financial condition, results of operations, and prospects.
Alpine believes its
development programs and platform have a particular mechanism of action, but this mechanism of action has not been proven conclusively.
Alpines vIgD platform is novel and the underlying science is not exhaustively understood or conclusively proven. In particular, the
interaction of vIgDs with the immune synapse, the ability of vIgDs to slow, stop, restart, or accelerate immune responses, and the ability of vIgD domains to interact with multiple counterparties is still theoretical. Graphical representations of
proposed mechanisms of action of Alpines therapies, the size, actual or relative, of Alpines therapeutics, and how Alpines therapeutics might interface with other cells within the human body or inside the tumor microenvironment are
similarly theoretical and not yet conclusively proven. The lack of a proven mechanism of action may adversely affect Alpines ability to rise sufficient capital, complete preclinical studies, adequately manufacture drug substance, obtain
regulatory clearance for clinical trials, or interfere with Alpines ability to market its product to patients and physicians or achieve reimbursement from payors.
Because Alpine has no products currently in human clinical trials, any inability to present Alpines data in scientific journals or at scientific
conferences could adversely impact Alpines business and stock price.
Alpine may from time to time submit data related to its
research and development in peer-reviewed scientific publications or apply to present data related to its research and development at scientific or other
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conferences. Alpine has no control over whether these submissions or applications are accepted. Even if accepted for a conference, Alpine has no control over whether presentations at scientific
conferences will be accepted for oral presentation, poster presentation, or abstract publication only. Even when accepted for publication, Alpine has no control over the timing of the release of the publication. Rejection by publications, delays in
publication, rejection for presentation, or a less-preferred format for a presentation may adversely impact Alpines stock price, ability to raise capital, and business.
Alpines business may be affected by adverse scientific publications or editorial or discussant opinions.
Alpine may from time to time publish data related to its research and development in peer-reviewed scientific publications or present data
related to its research and development at scientific or other conferences. Editorials or discussants unrelated to Alpine may provide opinions on Alpines presented data unfavorable to Alpine. In addition, scientific publications or
presentations may be made which are critical of Alpines science or research or the field of immunotherapy in general. This may adversely affect Alpines ability to raise necessary capital, complete preclinical studies, adequately
manufacture drug substance, obtain regulatory clearance for clinical trials, or interfere with Alpines ability to market its product to patients and physicians or achieve reimbursement from payors.
Risks Related to Alpines Intellectual Property
If Alpine is not able to obtain and enforce patent protection for its technology, including therapeutic candidates, therapeutic products, and platform
technology, development of its therapeutic candidates and platform, and commercialization of its therapeutic products may be materially and adversely affected.
Alpines success depends in part on its ability to obtain and maintain patents and other forms of intellectual property rights, including
in-licenses of intellectual property rights of others, for Alpines technology, including platform and therapeutic candidates and products, methods used to manufacture Alpines therapeutic candidates and products and methods for treating
patients using Alpines therapeutic candidates and products, as well as its ability to preserve Alpines trade secrets, to prevent third parties from infringing upon Alpines proprietary rights and to operate without infringing upon
the proprietary rights of others. As of April 18, 2017, Alpines patent portfolio consists of over 11 pending patent applications. Alpine may not be able to apply for patents on certain aspects of Alpines technology, including
therapeutic candidates and products, in a timely fashion or at all. Any future patents Alpine obtains may not be sufficiently broad to prevent others from using Alpines technology or from developing competing therapeutics and technology. There
is no guarantee that any of Alpines pending patent applications will result in issued or granted patents, that any of Alpines issued or granted patents will not later be found to be invalid or unenforceable or that any issued or granted
patents will include claims that are sufficiently broad to cover Alpines technology, including therapeutic candidates and products, or to provide meaningful protection from Alpines competitors. Moreover, the patent position of
pharmaceutical and biotechnology companies can be highly uncertain because it involves complex legal and factual questions. Alpine will be able to protect Alpines proprietary rights from unauthorized use by third parties only to the extent
that Alpines current and future technology, including therapeutic candidates and products, are covered by valid and enforceable patents or are effectively maintained as trade secrets. If third parties disclose or misappropriate Alpines
proprietary rights, it may materially and adversely impact Alpines competitive position in the market.
The U.S. Patent and
Trademark Office (USPTO) and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which
noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than
would otherwise have been the case. The standards applied by the USPTO and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject
matter or the scope of claims allowable in biotechnology and pharmaceutical patents. As such, Alpine does not know the
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degree of future protection that it will have on its technology, including therapeutic candidates and products. While Alpine will endeavor to try to protect its technology, including therapeutic
candidates and products, with intellectual property rights such as patents, as appropriate, the process of obtaining patents is time-consuming, expensive and sometimes unpredictable, and Alpine can provide no assurances that its technology,
including therapeutic candidates and products, will be adequately protected in the future against unauthorized uses or competing claims by third parties.
In addition, recent and future changes to the patent laws and to the rules of the USPTO or other foreign patent offices may have a significant
impact on Alpines ability to protect its technology, including therapeutic candidates and products, and enforce its intellectual property rights. For example, the Leahy-Smith America Invents Act enacted in 2011 involves significant changes in
patent legislation. In addition, Alpine cannot assure you court rulings or interpretations of any court decision will not adversely impact Alpines patents or patent applications. In addition to increasing uncertainty with regard to
Alpines ability to obtain patents in the future, there also may be uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations
governing patents could change in unpredictable ways that would weaken Alpines ability to obtain new patents or to enforce Alpines existing patents and patents that Alpine might obtain in the future.
Once granted, patents may remain open to opposition, interference, re-examination, post-grant review, inter partes review, nullification or
derivation action in court or before patent offices or similar proceedings for a given period before or after allowance or grant, during which time third parties can raise objections against such initial grant. In the course of such proceedings,
which may continue for a protracted period of time, the patent owner may be compelled to limit the scope of the allowed or granted claims thus attacked, or may lose the allowed or granted claims altogether. Alpines patent risks include that:
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Others may, or may be able to, make, use or sell compounds that are the same as or similar to Alpines therapeutic candidates and products but that are not covered by the claims of the patents that Alpine owns or
licenses;
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Alpine or its licensors, collaborators or any future collaborators may not be the first to file patent applications covering certain aspects of Alpines technology, including therapeutic candidates and products;
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Others may independently develop similar or alternative technology or duplicate any of Alpines technology without infringing Alpines intellectual property rights;
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A third party may challenge Alpines patents and, if challenged, a court may not hold that Alpines patents are valid, enforceable and infringed;
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A third party may challenge Alpines patents in various patent offices and, if challenged, Alpine may be compelled to limit the scope of Alpines allowed or granted claims or lose the allowed or granted claims
altogether;
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Any issued patents that Alpine owns or has licensed may not provide Alpine with any competitive advantages, or may be challenged by third parties;
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Alpine may not develop additional proprietary technologies that are patentable;
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The patents of others could harm Alpines business; and
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Alpines competitors could conduct research and development activities in countries where Alpine does not or will not have enforceable patent rights and then use the information learned from such activities to
develop competitive products for sale in major commercial markets where Alpine does not or will not have enforceable patent rights.
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Alpine licenses patent rights from third-party owners or licensees. If such owners or licensees do not
properly or successfully obtain, maintain or enforce the patents underlying such licenses, or if they retain or license to others any competing rights, Alpines competitive position and business prospects may be materially and adversely
affected.
Alpine does, and will continue to, rely on intellectual property rights licensed from third parties to protect
Alpines technology, including platform technology, therapeutic candidates and products. Alpine is a party to a number of licenses that give Alpine rights to third-party intellectual property necessary or useful for Alpines business.
Alpine also may license additional third-party intellectual property in the future. Alpines success will depend in part on the ability of Alpines licensors to obtain, maintain and enforce patent protection for Alpines licensed
intellectual property, in particular those patents to which Alpine has secured exclusive rights. Alpines licensors may elect not to prosecute, or may be unsuccessful in prosecuting, the patent applications licensed to Alpine. Even if patents
issue or are granted, Alpines licensors may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents, or may pursue litigation less aggressively than Alpine would.
Further, substantially all of Alpines existing licenses are non-exclusive and Alpine may not be able to obtain exclusive rights in licenses obtained in the future, which would potentially allow third parties to develop competing products or
technology. Without protection for, or exclusive right to, the intellectual property Alpine licenses, other companies might be able to offer substantially identical products for sale, which could adversely affect Alpines competitive business
position and harm Alpines business prospects. In addition, Alpine may sublicense its rights under its third-party licenses to current or future collaborators or any future strategic partners. Any impairment of these sublicensed rights could
result in reduced revenue under or result in termination of an agreement by one or more of Alpines collaborators or any future strategic partners.
Alpine may be unable to protect its patent intellectual property rights throughout the world.
Obtaining a valid and enforceable issued or granted patent covering Alpines technology, including therapeutic candidates and products, in
the U.S. and worldwide can be extremely costly. In jurisdictions where Alpine has not obtained patent protection, competitors may use Alpines technology, including therapeutic candidates and products, to develop their own products, and
further, may commercialize such products in those jurisdictions and export otherwise infringing products to territories where Alpine has not obtained patent protection. In certain instances, a competitor may be able to export otherwise infringing
products in territories where Alpine will obtain patent protection. In jurisdictions outside the U.S. where Alpine will obtain patent protection, it may be more difficult to enforce a patent as compared to the U.S. Competitor products may compete
with Alpines future products in jurisdictions where Alpine does not or will not have issued or granted patents or where Alpines issued or granted patent claims or other intellectual property rights are not sufficient to prevent
competitor activities in these jurisdictions. The legal systems of certain countries, particularly certain developing countries, make it difficult to enforce patents and such countries may not recognize other types of intellectual property
protection, particularly that relating to biopharmaceuticals. This could make it difficult for Alpine to prevent the infringement of Alpines patents or marketing of competing products in violation of Alpines proprietary rights generally
in certain jurisdictions. Proceedings to enforce Alpines patent rights in foreign jurisdictions could result in substantial cost and divert Alpines efforts and attention from other aspects of its business.
Alpine generally files a provisional patent application first (a priority filing) at the USPTO. A U.S. utility application and international
application under the Patent Cooperation Treaty (PCT) are usually filed within twelve months after the priority filing. Based on the PCT filing, national and regional patent applications may be filed in various international
jurisdictions, such as the European Union, Japan, Australia and Canada. Alpine has so far not filed for patent protection in all national and regional jurisdictions where such protection may be available. In addition, Alpine may decide to abandon
national and regional patent applications before grant. Finally, the grant proceeding of each national or regional patent is an independent proceeding which may lead to situations in which applications might in some jurisdictions be refused by the
relevant registration authorities, while granted by others. It is also quite common that depending on the country, various scopes of patent protection may be granted on the same therapeutic candidate, product or technology.
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The laws of some jurisdictions do not protect intellectual property rights to the same extent as
the laws in the U.S., and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. If Alpine or Alpines licensors encounter difficulties in protecting, or are otherwise precluded
from effectively protecting, the intellectual property rights important for Alpines business in such jurisdictions, the value of these rights may be diminished and Alpine may face additional competition from others in those jurisdictions. Many
countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these
countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If Alpine or any of Alpines licensors are forced to grant a license to third parties with respect to any patents relevant to
Alpines business, Alpines competitive position in the relevant jurisdiction may be impaired and Alpines business and results of operations may be adversely affected.
Alpine or Alpines licensors, collaborators or any future strategic partners may become subject to third party claims or litigation alleging
infringement of patents or other proprietary rights or seeking to invalidate patents or other proprietary rights, and Alpine may need to resort to litigation to protect or enforce Alpines patents or other proprietary rights, all of which could
be costly, time consuming, delay or prevent the development of Alpines therapeutic candidates and commercialization of Alpines therapeutic products, or put Alpines patents and other proprietary rights at risk.
Alpine or Alpines licensors, licensees, collaborators or any future strategic partners may be subject to third-party claims for
infringement or misappropriation of patent or other proprietary rights. Alpine is generally obligated under Alpines license or collaboration agreements to indemnify and hold harmless Alpines licensors, licensees or collaborators for
damages arising from intellectual property infringement by Alpine. If Alpine or Alpines licensors, licensees, collaborators or any future strategic partners are found to infringe a third party patent or other intellectual property rights,
Alpine could be required to pay damages, potentially including treble damages, if Alpine is found to have willfully infringed. In addition, Alpine or its licensors, licensees, collaborators or any future strategic partners may choose to seek, or be
required to seek, a license from a third party, which may not be available on acceptable terms, if at all. Even if a license can be obtained on acceptable terms, the rights may be non-exclusive, which could give Alpines competitors access to
the same technology or intellectual property rights licensed to or from Alpine. If Alpine fails to obtain a required license, Alpine or Alpines licensee or collaborator, or any future licensee or collaborator, may be unable to effectively
market therapeutic products based on Alpines technology, which could limit Alpines ability to generate revenue or achieve profitability and possibly prevent Alpine from generating revenue sufficient to sustain Alpines operations.
In addition, Alpine may find it necessary to pursue claims or initiate lawsuits to protect or enforce Alpines patent or other intellectual property rights. The cost to Alpine in defending or initiating any litigation or other proceeding
relating to patent or other proprietary rights, even if resolved in Alpines favor, could be substantial, and litigation would divert Alpines managements attention. Some of Alpines competitors may be able to sustain the costs
of complex patent litigation more effectively than Alpine can because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could delay Alpines
research and development efforts and limit Alpines ability to continue Alpines operations.
Although Alpine does not believe
its technology infringes the intellectual property rights of others, Alpine is aware of one or more patents or patent applications that may relate to Alpines technology, and third parties may assert against Alpine claims alleging infringement
of their intellectual property rights regardless of whether their claims have merit. Infringement claims could harm Alpines reputation, may result in the expenditure of significant resources to defend and resolve such claims, and could require
Alpine to pay monetary damages if Alpine is found to have infringed the intellectual property rights of others.
If Alpine were to
initiate legal proceedings against a third party to enforce a patent covering Alpines technology, including therapeutic candidates and products, the defendant could counterclaim that Alpines patent is invalid or unenforceable. In patent
litigation in the U.S., defendant counterclaims alleging invalidity or
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unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, patent ineligibility, lack of novelty,
lack of written description, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading
statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, Alpine cannot be certain there is no invalidating
prior art, of which Alpine and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, Alpine would lose at least part, and perhaps all, of the patent protection on
Alpines technology, including therapeutic candidates and products. Such a loss of patent protection could have a material adverse impact on Alpines business. Patents and other intellectual property rights also will not protect
Alpines technology, including therapeutic candidates and products, if competitors design around Alpines protected technology, including therapeutic candidates and products, without legally infringing Alpines patents or other
intellectual property rights.
It is also possible that Alpine has failed to identify relevant third party patents or applications. For
example, patent applications in the U.S. and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent
applications covering Alpines technology, including therapeutic candidates and products, could have been filed by others without Alpines knowledge. Additionally, pending patent applications which have been published can, subject to
certain limitations, be later amended in a manner that could cover Alpines technology, including therapeutic candidates and products. Third party intellectual property right holders may also actively bring infringement claims against Alpine.
Alpine cannot guarantee it will be able to successfully settle or otherwise resolve such infringement claims. If Alpine is unable to successfully settle future claims on terms acceptable to Alpine, Alpine may be required to engage in or continue
costly, unpredictable, and time-consuming litigation and may be prevented from, or experience substantial delays in, marketing Alpines technology, including therapeutic candidates and products. If Alpine fails in any such dispute, in addition
to being forced to pay damages, Alpine may be temporarily or permanently prohibited from commercializing its technology, including a therapeutic product, that are held to be infringing. Alpine might, if possible, also be forced to redesign
therapeutic candidates or products so Alpine no longer infringes the third party intellectual property rights. Any of these events, even if Alpine were ultimately to prevail, could require Alpine to divert substantial financial and management
resources Alpine would otherwise be able to devote to its business.
If Alpine fails to comply with its obligations under any license,
collaboration, or other agreements, Alpine may be required to pay damages and could lose intellectual property rights necessary for developing and protecting its technology, including Alpines platform technology, therapeutic candidates, and
therapeutic products, or Alpine could lose certain rights to grant sublicenses, either of which could have a material adverse effect on Alpines results of operations and business prospects.
Alpines current licenses impose, and any future licenses Alpine enters into are likely to impose, various development, commercialization,
funding, milestone, royalty, diligence, sublicensing, insurance, patent prosecution and enforcement, and other obligations on Alpine. If Alpine breaches any of these obligations, or uses the intellectual property licensed to Alpine in an
unauthorized manner, Alpine may be required to pay damages and the licensor may have the right to terminate the license, which could result in Alpine being unable to develop, manufacture, and sell products covered by the licensed technology or
enable a competitor to gain access to the licensed technology. Moreover, Alpines licensors may own or control intellectual property that has not been licensed to Alpine and, as a result, Alpine may be subject to claims, regardless of their
merit, that Alpine is infringing or otherwise violating the licensors rights. In addition, while Alpine cannot currently determine the amount of the royalty obligations Alpine would be required to pay on future sales of licensed products, if
any, the amounts may be significant. The amount of Alpines future royalty obligations will depend on the technology and intellectual property Alpine uses in therapeutic products Alpine successfully develops and commercializes, if any.
Therefore, even if Alpine successfully develops and commercializes therapeutic products, Alpine may be unable to achieve or maintain profitability.
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If Alpine is unable to protect the confidentiality of Alpines trade secrets, Alpines business
and competitive position would be harmed.
In addition to seeking patent protection for certain aspects of Alpines
technology, including platform technology, therapeutic candidates and products, Alpine also considers trade secrets, including confidential and unpatented know-how, important to the maintenance of Alpines competitive position. Alpine protects
trade secrets and confidential and unpatented know-how, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to such knowledge, such as Alpines employees, corporate collaborators, outside
scientific collaborators, CROs, contract manufacturers, consultants, advisors, and other third parties. Alpine also enters into confidentiality and invention or patent assignment agreements with its employees and consultants obligating them to
maintain confidentiality and assign their inventions to Alpine. Despite these efforts, any of these parties may breach the agreements and disclose Alpines proprietary information, including Alpines trade secrets, and Alpine may not be
able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts in the
U.S. and certain foreign jurisdictions are less willing or unwilling to protect trade secrets. If any of Alpines trade secrets were to be lawfully obtained or independently developed by a competitor, Alpine would have no right to prevent them
from using that technology or information to compete with Alpine. If any of Alpines trade secrets were to be disclosed to or independently developed by a competitor, Alpines competitive position would be harmed.
Alpine is also subject both in the U.S. and outside the U.S. to various regulatory schemes regarding requests for the information Alpine
provides to regulatory authorities, which may include, in whole or in part, trade secrets or confidential commercial information. While Alpine is likely to be notified in advance of any disclosure of such information and would likely object to such
disclosure, there can be no assurance Alpines challenge to the request would be successful.
Alpine may be in the future, subject to claims
Alpine or its employees or consultants have wrongfully used or disclosed alleged trade secrets of Alpines employees or consultants former employers or their clients. These claims may be costly to defend and if Alpine does not
successfully do so, Alpine may be required to pay monetary damages, may be prohibited from using some of Alpines research and development, and may lose valuable intellectual property rights or personnel.
Many of Alpines employees were previously employed at universities or biotechnology or pharmaceutical companies, including Alpines
competitors or potential competitors. Alpine may receive correspondence from other companies alleging the improper use or disclosure, and has received, and may in the future receive, correspondence from other companies regarding the use or
disclosure, by certain of Alpines employees who have previously been employed elsewhere in Alpines industry, including with Alpines competitors, of their former employers trade secrets or other proprietary information.
Responding to these allegations can be costly and disruptive to Alpines business, even when the allegations are without merit, and can be a distraction to management. Alpine may be subject to claims in the future that employees of Alpine have,
or Alpine has, inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If Alpine fails in defending current or future claims,
in addition to paying monetary damages, Alpine may lose valuable intellectual property rights, personnel, or the ability to use some of Alpines research and development. A loss of intellectual property, key research personnel, or their work
product could hamper Alpines ability to commercialize, or prevent Alpine from commercializing, Alpines therapeutic candidates, which could severely harm Alpines business. Even if Alpine is successful in defending against these
claims, litigation could result in substantial costs and be a distraction to management.
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If Alpines trademarks and trade names are not adequately protected, then Alpine may not be able to
build name recognition in Alpines markets of interest and Alpines business may be materially and adversely affected.
Alpines trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other
marks. Any trademark litigation could be expensive. Alpine may not be able to protect Alpines rights to these trademarks and trade names or may be forced to stop using these names, which Alpine needs for name recognition by potential partners
or customers in Alpines markets of interest. If Alpine is unable to establish name recognition based on Alpines trademarks and trade names, Alpine may not be able to compete effectively and Alpines business may be materially and
adversely affected.
Third parties may independently develop similar or superior technology.
There can be no assurance others will not independently develop, or have not already developed, similar or more advanced technologies than
Alpines technology or that others will not design around, or have not already designed around, aspects of Alpines technology or Alpines trade secrets developed therefrom. If third parties develop technology similar or superior to
Alpines technology, or they successfully design around Alpines current or future technology, Alpines competitive position, business prospects, and results of operations could be materially and adversely affected.
Breaches of Alpines internal computer systems, or those of Alpines contractors or consultants, may place Alpines patents or
proprietary rights at risk.
The loss of preclinical data or data from any future clinical trial involving Alpines
technology, including therapeutic candidates and products, could result in delays in Alpines development and regulatory filing efforts and significantly increase Alpines costs. In addition, theft or other exposure of data may interfere
with Alpines ability to protect its intellectual property, trade secrets, and other information critical to Alpines operations. Alpine has experienced in the past, and may experience in the future, unauthorized intrusions into its
internal computer systems, including portions of its internal computer systems storing information related to its platform technology, therapeutic candidates and products, and Alpine can provide no assurances that certain sensitive and proprietary
information relating to one or more of Alpines therapeutic candidates or products has not been, or will not in the future be, compromised. Although Alpine has invested significant resources to enhance the security of its computer systems,
there can be no assurances Alpine will not experience additional unauthorized intrusions into its computer systems, or those of Alpines CROs and other contractors and consultants, that Alpine will successfully detect future unauthorized
intrusions in a timely manner, or that future unauthorized intrusions will not result in material adverse effects on Alpines financial condition, reputation, or business prospects. Payments related to the elimination of ransomware may
materially affect Alpines financial condition and results of operations.
Certain data breaches must also be reported to affected
individuals and the government, and in some cases to the media, under provisions of the U.S. federal Health Insurance Portability and Accountability Act (HIPAA), as amended by the Health Information Technology for Economic and Clinical
Health Act (HITECH), other U.S. federal and state law, and requirements of non-U.S. jurisdictions, including the European Union Data Protection Directive, and financial penalties may also apply.
Risks Related to Government Regulation
Alpine may be unable to obtain U.S. or foreign regulatory approval and, as a result, may be unable to commercialize its therapeutic candidates.
Alpines therapeutic candidates are subject to extensive governmental regulations relating to, among other things, research,
development, testing, manufacture, quality control, approval, labeling, packaging, promotion, storage, record-keeping, advertising, distribution, sampling, pricing, sales and marketing, safety, post-approval
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monitoring and reporting, and export and import of drugs. Rigorous preclinical testing and clinical trials and an extensive regulatory approval process are required to be successfully completed
in the U.S. and in many foreign jurisdictions before a new therapeutic can be marketed. Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain, and subject to unanticipated delays. It is possible that none of
the therapeutic candidates Alpine may develop will obtain the regulatory approvals necessary for Alpine or Alpines collaborators to begin selling them.
Alpine has very limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval
by the FDA as well as foreign regulatory authorities, such as the EMA. The time required to obtain FDA and foreign regulatory approvals is unpredictable but typically takes many years following the commencement of clinical trials, depending upon the
type, complexity, and novelty of the therapeutic candidate. The standards the FDA and its foreign counterparts use when regulating Alpine are not always applied predictably or uniformly and can change. Any analysis Alpine performs of data from
preclinical and clinical activities is subject to confirmation and interpretation by regulatory authorities, who could delay, limit, or prevent regulatory approval. Alpine may also encounter unexpected delays or increased costs due to new government
regulations, for example, from future legislation or administrative action, or from changes in the policy of FDA or foreign regulatory authorities during the period of product development, clinical trials, and regulatory review by the FDA or foreign
regulatory authorities. It is impossible to predict whether legislative changes will be enacted, or whether FDA or foreign laws, regulations, guidance, or interpretations will be changed, or what the impact of such changes, if any, may be.
Because the therapeutics Alpine is developing may represent a new class of therapeutics, the FDA and its foreign counterparts have not yet
established any definitive policies, practices, or guidelines in relation to these drugs. While Alpine believes the therapeutic candidates it is currently developing are regulated as new biological products under the Public Health Service Act
(PHSA), the FDA could decide to reclassify them, namely to regulate them or other products Alpine may develop as drugs under the Federal Food, Drug, and Cosmetic Act (FDCA). The lack of policies, practices, or guidelines may
hinder or slow review by the FDA or foreign regulatory authorities of any regulatory filings Alpine may submit. Moreover, the FDA or foreign regulatory authorities may respond to these submissions by defining requirements Alpine may not have
anticipated. Such responses could lead to significant delays in the clinical development of Alpines therapeutic candidates. In addition, because there may be approved treatments for some of the diseases for which Alpine may seek approval, in
order to receive regulatory approval, Alpine may need to demonstrate through clinical trials that the therapeutic candidates Alpine develops to treat these diseases, if any, are not only safe and effective, but safer or more effective than existing
products.
Any delay or failure in obtaining required approvals could have a material adverse effect on Alpines ability to generate
revenues from the particular therapeutic candidate for which Alpine is seeking approval. Furthermore, any regulatory approval to market a product may be subject to limitations on the approved uses for which Alpine may market the product or the
labeling or other restrictions. Regulatory authorities also may impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the therapeutic. In addition, the FDA has the authority to
require a REMS plan as part of a Biologics License Application (BLA) or New Drug Application (NDA) or after approval, which may impose further requirements or restrictions on the distribution or use of an approved drug or
biologic, such as limiting prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain
safe-use
criteria, and requiring
treated patients to enroll in a registry. These limitations and restrictions may limit the size of the market for the therapeutic and affect coverage and reimbursement by third-party payors.
Alpine is also subject to numerous foreign regulatory requirements governing, among other things, the conduct of clinical trials,
manufacturing, and marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval process varies among countries and may include all of the risks associated with FDA approval described above as well as risks
attributable to the satisfaction of local regulations in foreign
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jurisdictions. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval. Approval by the FDA does not ensure approval by regulatory authorities outside
the U.S. and vice versa.
If Alpine or Alpines existing or future collaborators, manufacturers, or service providers fail to comply with
healthcare laws and regulations, Alpine or such other parties could be subject to enforcement actions, which could adversely affect Alpines ability to develop, market, and sell Alpines therapeutics and may harm Alpines reputation.
Although Alpine does not currently have any products on the market, once Alpine begins commercializing its therapeutic candidates
Alpine will be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal, state, and foreign governments of the jurisdictions in which Alpine conducts its business. Healthcare providers, physicians, and
third-party payors play a primary role in the recommendation and prescription of any therapeutic candidates for which Alpine obtains marketing approval. Alpines future arrangements with third-party payors and customers may expose Alpine to
broadly applicable fraud and abuse and other healthcare laws and regulations constraining the business or financial arrangements and relationships through which Alpine markets, sells, and distributes the therapeutic candidates for which Alpine
obtains marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include the following:
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the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons from soliciting, receiving, offering, or providing remuneration, directly or indirectly, to induce either the referral of an
individual for a healthcare item or service, or the purchasing or ordering of an item or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare or Medicaid;
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the U.S. federal False Claims Act, which imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be
presented, to the federal government, false or fraudulent claims for payment or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government. In addition, the government may assert a claim including
items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
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HIPAA, All Payor Fraud Law, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing, or covering up a material fact
or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute
or specific intent to violate it in order to have committed a violation;
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HIPAA, HITECH, and its implementing regulations, which impose obligations on certain covered entity healthcare providers, health plans, and healthcare clearinghouses as well as their business associates performing
certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable health
information, and require notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information;
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the federal Physician Payment Sunshine Act and the implementing regulations, also referred to as Open
Payments, issued under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (ACA), which require manufacturers of pharmaceutical and biological drugs
reimbursable under Medicare, Medicaid, and Childrens Health Insurance Programs to report to the Department of Health and Human Services all consulting fees,
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travel reimbursements, research grants, and other payments, transfers of value or gifts made to physicians and teaching hospitals with limited exceptions; and
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analogous state laws and regulations, such as, state anti-kickback and false claims laws potentially applicable to sales or marketing arrangements and claims involving healthcare items or services reimbursed by
non-governmental
third-party payors, including private insurers; and some state laws require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures, and state laws governing
the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
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Ensuring Alpines future business arrangements with third-parties comply with applicable healthcare laws and regulations could involve
substantial costs. If Alpines operations are found to be in violation of any such requirements, Alpine may be subject to penalties, including civil or criminal penalties, monetary damages, the curtailment or restructuring of Alpines
operations, or exclusion from participation in government contracting, healthcare reimbursement, or other government programs, including Medicare and Medicaid, any of which could adversely affect Alpines financial results. Although effective
compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action against Alpine for an alleged or suspected violation could cause Alpine to incur
significant legal expenses and could divert Alpines managements attention from the operation of Alpines business, even if Alpines defense is successful. In addition, achieving and sustaining compliance with applicable laws
and regulations may be costly to Alpine in terms of money, time, and resources.
If Alpine or Alpines current or future
collaborators, manufacturers, or service providers fail to comply with applicable federal, state, or foreign laws or regulations, Alpine could be subject to enforcement actions, which could affect Alpines ability to develop, market, and sell
Alpines therapeutics successfully and could harm Alpines reputation and lead to reduced acceptance of Alpines therapeutics by the market. These enforcement actions include, among others:
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adverse regulatory inspection findings;
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warning or untitled letters;
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voluntary product recalls with public notification or medical product safety alerts to healthcare professionals;
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restrictions on, or prohibitions against, marketing Alpines therapeutics;
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restrictions on, or prohibitions against, importation or exportation of Alpines therapeutics;
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suspension of review or refusal to approve pending applications or supplements to approved applications;
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exclusion from participation in government-funded healthcare programs;
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exclusion from eligibility for the award of government contracts for Alpines therapeutics;
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suspension or withdrawal of therapeutic approvals;
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seizures or administrative detention of therapeutics;
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civil and criminal penalties and fines.
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Any therapeutics Alpine develops may become subject to unfavorable pricing regulations, third-party
coverage and reimbursement practices, or healthcare reform initiatives, thereby harming Alpines business.
The regulations
governing marketing approvals, pricing, coverage, and reimbursement for new drugs and biologics vary widely from country to country. Many countries require approval of the sale price of a drug before it can be marketed. In many countries, the
pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. Although
Alpine intends to monitor these regulations, Alpines programs are currently in the early stages of development and Alpine will not be able to assess the impact of price regulations for a number of years. As a result, Alpine might obtain
regulatory approval for a product in a particular country, but then be subject to price regulations delaying Alpines commercial launch of the product and negatively impacting the revenues Alpine is able to generate from the sale of the product
in that country.
Alpines ability to commercialize any therapeutics successfully also will depend in part on the extent to which
coverage and reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers, and other organizations. However, there may be significant delays in obtaining
coverage for newly-approved therapeutics. Moreover, eligibility for coverage does not necessarily signify that a therapeutic will be reimbursed in all cases or at a rate covering Alpines costs, including research, development, manufacture,
sale, and distribution costs. Also, interim payments for new therapeutics, if applicable, may be insufficient to cover Alpines costs and may not be made permanent. Thus, even if Alpine succeeds in bringing one or more therapeutics to the
market, these therapeutics may not be considered cost-effective, and the amount reimbursed for any therapeutics may be insufficient to allow Alpine to sell Alpines therapeutics on a competitive basis. Because Alpines programs are in the
early stages of development, Alpine is unable at this time to determine their cost effectiveness, coverage prospects, potential compendia listings, or the likely level or method of reimbursement, if covered. Increasingly, third-party payors who
reimburse patients or healthcare providers, such as government and private insurance plans, are seeking greater upfront discounts, additional rebates, and other concessions to reduce the prices for therapeutics. If the price Alpine is able to charge
for any therapeutics it develops, or the reimbursement provided for such products, is inadequate, Alpines return on investment could be adversely affected.
Alpine currently expects that certain therapeutics it develops may need to be administered under the supervision of a physician on an
outpatient basis. Under currently applicable U.S. law, certain drugs not usually self-administered (including injectable drugs) may be eligible for coverage under Medicare through Medicare Part B. Medicare Part B is part of original Medicare,
the federal health care program that provides health care benefits to the aged and disabled, and covers outpatient services and supplies, including certain pharmaceutical products that are medically necessary to treat a beneficiarys health
condition. Specifically, Medicare Part B coverage may be available for eligible beneficiaries when the following, among other requirements, have been satisfied:
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the product is reasonable and necessary for the diagnosis or treatment of the illness or injury for which the product is administered according to accepted standards of medical practice;
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the product is typically furnished incident to a physicians services;
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the indication for which the product will be used is included or approved for inclusion in certain Medicare-designated pharmaceutical compendia (when used for an off-label use); and
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the product has been approved by the FDA.
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Under current law, as a condition of receiving
Medicare Part B reimbursement (the Medicare program that generally covers physician-administered, outpatient drugs) for a manufacturers eligible drugs or biologicals, the manufacturer is required to participate in other government healthcare
programs, including the Medicaid Drug Rebate Program and the 340B Drug Pricing Program. The Medicaid Drug Rebate Program requires
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pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services as a condition for states to receive
federal matching funds for the manufacturers outpatient drugs furnished to Medicaid patients. Under the 340B Drug Pricing Program, the manufacturer must extend discounts to entities eligible to participate in the program. Average 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 U.S. Reimbursement rates under Medicare Part B would depend in part on whether the newly approved product would be eligible for a unique billing code. Self-administered, outpatient drugs are typically reimbursed by Medicare under
Medicare Part D, and drugs administered in an inpatient hospital setting are typically reimbursed under Medicare Part A under a bundled payment. It is difficult for Alpine to predict how Medicare coverage and reimbursement policies will be applied
to Alpines products in the future and coverage and reimbursement under different federal healthcare programs are not always consistent. Medicare reimbursement rates may also reflect budgetary constraints placed on the Medicare program.
Third-party payors often rely upon Medicare coverage policies and payment limitations in setting their own reimbursement rates. These coverage
policies and limitations may rely, in part, on compendia listings for approved therapeutics. Alpines inability to promptly obtain relevant compendia listings, coverage and adequate reimbursement from both government-funded and private payors
for new therapeutics Alpine develops and for which Alpine obtains regulatory approval could have a material adverse effect on Alpines operating results, Alpines ability to raise capital needed to commercialize products and Alpines
financial condition.
Alpine believes the efforts of governments and third-party payors to contain or reduce the cost of healthcare, and
legislative and regulatory proposals to broaden the availability of healthcare, will continue to affect the business and financial condition of pharmaceutical and biopharmaceutical companies. A number of legislative and regulatory changes in the
healthcare system in the U.S. and other major healthcare markets have been proposed, and such efforts have expanded substantially in recent years. These developments could, directly or indirectly, affect Alpines ability to sell Alpines
products, if approved, at a favorable price.
For example, in the U.S., in 2010, Congress passed the Patient Protection and Affordable
Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the ACA), a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of health spending, enhance remedies against
fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional policy reforms.
Among the provisions of the ACA addressing coverage and reimbursement of pharmaceutical products, of importance to Alpines potential
therapeutic candidates are the following:
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Increases to pharmaceutical manufacturer rebate liability under the Medicaid Drug Rebate Program due to an increase in the minimum basic Medicaid rebate on most branded prescription drugs and the application of Medicaid
rebate liability to drugs used in risk-based Medicaid managed care plans.
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The expansion of the 340B Drug Pricing Program to require discounts for covered outpatient drugs sold to certain childrens hospitals, critical access hospitals, freestanding cancer hospitals, rural
referral centers, and sole community hospitals.
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Requirements imposed on pharmaceutical companies to offer discounts on brand-name drugs to patients who fall within the Medicare Part D coverage gap, commonly referred to as the Donut Hole.
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Requirements imposed on pharmaceutical companies to pay an annual non-tax-deductible fee to the federal government based on each companys market share of prior year total sales of branded drugs to certain federal
healthcare programs, such as Medicare, Medicaid, Department of Veterans Affairs, and Department of Defense. Since Alpine currently expects Alpines branded pharmaceutical sales to constitute a small portion of the total federal healthcare
program pharmaceutical market, Alpine does not currently expect this annual assessment to have a material impact on Alpines financial condition.
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For therapeutic candidates classified as biologics, marketing approval for a follow-on biologic therapeutic may not become effective until 12 years after the date on which the reference innovator biologic therapeutic
was first licensed by the FDA, with a possible six-month extension for pediatric therapeutics. After this exclusivity ends, it may be possible for biosimilar manufacturers to enter the market, which is likely to reduce the pricing for such
therapeutics and could affect Alpines profitability if Alpines therapeutics are classified as biologics.
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Separately, pursuant to the health reform legislation and related initiatives, the Centers for Medicare and Medicaid Services
(CMS) are working with various healthcare providers to develop, refine, and implement Accountable Care Organizations (ACOs) and other innovative models of care for Medicare and Medicaid beneficiaries, including the Bundled
Payments for Care Improvement Initiative, the Comprehensive Primary Care Initiative, the Duals Demonstration, and other models. The continued development and expansion of ACOs and other innovative models of care will have an uncertain impact on any
future reimbursement Alpine may receive for approved therapeutics administered by such organizations.
In addition, in recent years, the
U.S. Congress has enacted various laws seeking to reduce the federal debt level and contain healthcare expenditures. For example, as a result of the Budget Control Act of 2011 and the Bipartisan Budget Act of 2015, an annual 2% reduction to Medicare
payments took effect on April 1, 2013 and has been extended through 2025. These across-the-board spending cuts could adversely affect Alpines future revenues, earnings, and cash flows.
The financial impact of U.S. healthcare reform legislation over the next few years will depend on a number of factors, including the policies
reflected in implementing regulations and guidance and changes in sales volumes for therapeutics affected by the legislation.
From time
to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing coverage, reimbursement, and marketing of products regulated by CMS or other government agencies. In addition to
new legislation, CMS coverage and reimbursement policies are often revised or interpreted in ways that may significantly affect Alpines business and its products. In particular, Alpine expects that the new Administration and Congress will seek
to modify, repeal, or otherwise invalidate all, or certain provisions of, the U.S. healthcare reform legislation. Since taking office, President Trump has continued to support the repeal of all or portions of the ACA. President Trump has also issued
an executive order in which he stated that it is his Administrations policy to seek the prompt repeal of the ACA and in which he directed executive departments and federal agencies to waive, defer, grant exemptions from, or delay the
implementation of the provisions of the ACA to the maximum extent permitted by law. There is still uncertainty with respect to the impact President Trumps Administration and Congress may have, if any, and any changes will likely take time to
unfold. Such reforms could have an adverse effect on anticipated revenues from therapeutic candidates that Alpine may successfully develop and for which Alpine may obtain regulatory approval and may affect Alpines overall financial condition
and ability to develop therapeutic candidates. However, Alpine cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on Alpine.
The healthcare industry is heavily regulated in the U.S. at the federal, state, and local levels, and Alpines failure to comply with applicable
requirements may subject Alpine to penalties and negatively affect Alpines financial condition.
As a healthcare company,
Alpines operations, clinical trial activities, and interactions with healthcare providers may be subject to extensive regulation in the U.S., particularly if Alpine receives FDA approval for any of its products in the future. For example, if
Alpine receives FDA approval for a therapeutic for which reimbursement is available under a federal healthcare program (e.g., Medicare, Medicaid), it would be subject to a variety of federal laws and regulations, including those prohibiting the
filing of false or improper claims for payment by federal healthcare programs (e.g. the federal False Claims Act), prohibiting unlawful inducements
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for the referral of business reimbursable by federal healthcare programs (e.g. the federal Anti-Kickback Statute), and requiring disclosure of certain payments or other transfers of value made to
U.S.-licensed physicians and teaching hospitals. Alpine is not able to predict how third parties will interpret these laws and apply applicable governmental guidance and may challenge Alpines practices and activities under one or more of these
laws. If Alpines past or present operations are found to be in violation of any of these laws, Alpine could be subject to civil and criminal penalties, which could hurt Alpines business, Alpines operations, and financial condition.
Similarly, HIPAA prohibits, among other offenses, knowingly and willfully executing a scheme to defraud any health care benefit program,
including private payors, or falsifying, concealing, or covering up a material fact or making any materially false, fictitious, or fraudulent statement in connection with the delivery of or payment for items or services under a health care benefit
program. To the extent that Alpine acts as a business associate to a healthcare provider engaging in electronic transactions, Alpine may also be subject to the privacy and security provisions of HIPAA, as amended by HITECH, which restricts the use
and disclosure of patient-identifiable health information, mandates the adoption of standards relating to the privacy and security of patient-identifiable health information, and requires the reporting of certain security breaches to healthcare
provider customers with respect to such information. Additionally, many states have enacted similar laws imposing more stringent requirements on entities like Alpine. Failure to comply with applicable laws and regulations could result in substantial
penalties and adversely affect Alpines financial condition and results of operations.
Alpines ability to obtain services,
reimbursement, or funding from the federal government may be impacted by possible reductions in federal spending.
The U.S. federal
budget remains in flux, which could, among other things, cut Medicare payments to providers. The Medicare program is frequently mentioned as a target for spending cuts. The full impact on Alpines business of any future cuts in Medicare or
other programs is uncertain. In addition, Alpine cannot predict any impact President Trumps administration and Congress may have on the federal budget. If federal spending is reduced, anticipated budgetary shortfalls may also impact the
ability of relevant agencies, such as the FDA or the National Institutes of Health, to continue to function at current levels. Amounts allocated to federal grants and contracts may be reduced or eliminated. These reductions may also impact the
ability of relevant agencies to timely review and approve drug research and development, manufacturing, and marketing activities, which may delay Alpines ability to develop, market, and sell any therapeutics Alpine may develop.
If any of Alpines therapeutic candidates receives marketing approval and Alpine or others later identify undesirable side effects caused by the
therapeutic candidate, Alpines ability to market and derive revenue from the therapeutic candidates could be compromised.
In
the event any of Alpines therapeutic candidates receive regulatory approval and Alpine or others identify undesirable side effects, adverse events, or other problems caused by one of Alpines therapeutics, any of the following adverse
events could occur, which could result in the loss of significant revenue to Alpine and materially and adversely affect Alpines results of operations and business:
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regulatory authorities may withdraw their approval of the product or seize the product;
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Alpine may need to recall the therapeutic or change the way the therapeutic is administered to patients;
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additional restrictions may be imposed on the marketing of the particular therapeutic or the manufacturing processes for the therapeutic or any component thereof;
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Alpine may not be able to secure or maintain adequate coverage and reimbursement for Alpines proprietary therapeutic candidates from government (including U.S. federal health care programs) and private payors;
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Alpine may lose or see adverse alterations to compendia listings or treatment protocols specified by accountable care organizations;
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Alpine may be subject to fines, restitution, or disgorgement of profits or revenues, injunctions, or the imposition of civil penalties or criminal prosecution;
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regulatory authorities may require the addition of labeling statements, such as a black box warning, or equivalent, or a contraindication;
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regulatory authorities may require Alpine to implement a REMS, or to conduct post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product;
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Alpine may be required to create a Medication Guide outlining the risks of such side effects for distribution to patients;
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Alpine could be sued and held liable for harm caused to patients;
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the therapeutic may become less competitive; and
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Alpines reputation may suffer.
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Significant developments stemming from the United Kingdoms
recent referendum on membership in the EU could have a material adverse effect on Alpine.
On June 23, 2016, the United
Kingdom held a referendum and voted in favor of leaving the EU. This referendum has created political and economic uncertainty, particularly in the United Kingdom and the EU, and this uncertainty may last for years. Any business Alpine conducts, now
and in the future, in the United Kingdom, the EU, and worldwide could be affected during this period of uncertainty, and perhaps longer, by the impact of the United Kingdoms referendum. There are many ways in which Alpines business could
be affected, only some of which Alpine can identify as of the date of this proxy statement/prospectus/information statement.
The
referendum, and the likely withdrawal of the United Kingdom from the EU it triggers, has caused and, along with events potentially occurring in the future as a consequence of the United Kingdoms withdrawal, including the possible breakup of
the United Kingdom, may continue to cause significant volatility in global financial markets, including in global currency and debt markets. This volatility could cause a slowdown in economic activity in the United Kingdom, Europe, or globally,
which could adversely affect Alpines operating results and growth prospects. In addition, Alpines business could be negatively affected by new trade agreements between the United Kingdom and other countries, including the U.S, and by the
possible imposition of trade or other regulatory barriers in the United Kingdom.
It is currently unknown how regulations affecting
clinical trials, the approval of Alpines future products, and the sale of these products will be affected by this referendum either in the United Kingdom or elsewhere in Europe.
These possible negative impacts, and others resulting from the United Kingdoms actual or threatened withdrawal from the EU, may
adversely affect Alpines operating results and growth prospects.
Risks Related to the Combined Organization
In determining whether you should approve the merger, the issuance of shares of Nivalis common stock and other matters related to the merger, as the case
may be, you should carefully read the following risk factors in addition to the risks described under Risk FactorsRisks Related to the Merger, Risk FactorsRisks Related to Nivalis and Risk FactorsRisks
Related to Alpine, which will also apply to the combined organization.
Nivalis stock price is expected to be volatile, and the
market price of its common stock may drop following the merger.
The market price of Nivalis common stock following the
merger could be subject to significant fluctuations following the merger. Market prices for securities of early-stage pharmaceutical, biotechnology, and other life
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sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of Nivalis common stock to fluctuate following the merger include:
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the ability of the combined organization to obtain regulatory approvals for product candidates, and delays or failures to obtain such approvals;
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the failure of any of the combined organizations product candidates, if approved, to achieve commercial success;
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issues in manufacturing the combined organizations approved products, if any, or product candidates;
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the results of current, and any future, preclinical or clinical trials of the combined organizations product candidates;
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the entry into, or termination of, key agreements, including key licensing or collaboration agreements;
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the initiation of material developments in, or conclusion of, litigation to enforce or defend any of the combined organizations intellectual property rights or defend against the intellectual property rights of
others;
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announcements by commercial partners or competitors of new commercial products, clinical progress (or the lack thereof), significant contracts, commercial relationships, or capital commitments;
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adverse publicity relating to the combined organizations markets, including with respect to other products and potential products in such markets;
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the introduction of technological innovations or new therapies competing with potential products of the combined organization;
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the loss of key employees;
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changes in estimates or recommendations by securities analysts, if any, who cover the combined organizations common stock;
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general and industry-specific economic conditions potentially affecting the combined organizations research and development expenditures;
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changes in the structure of health care payment systems;
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period-to-period
fluctuations in the combined organizations financial results;
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failure to meet or exceed financial and development projections the combined organization may provide to the public;
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failure to meet or exceed the financial and development projections of the investment community;
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the perception of the pharmaceutical industry by the public, legislators, regulators, and the investment community;
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adverse regulatory decisions;
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disputes or other developments relating to proprietary rights, including patents, litigation matters, and its ability to obtain patent protection for its technologies;
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sales of its common stock by the combined organization or its stockholders in the future;
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trading volume of its common stock; and
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period-to-period
fluctuations in the combined organizations financial results.
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Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of
individual companies or the biotechnology sector. These broad market fluctuations may also adversely affect the trading price of the combined organizations common stock.
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In the past, following periods of volatility in the market price of a companys securities,
stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm the
combined organizations profitability and reputation.
The combined organization will incur costs and demands upon management as a result of
complying with the laws and regulations affecting public companies.
The combined organization will incur significant legal,
accounting, and other expenses Alpine did not incur as a private company, including costs associated with public company reporting requirements. The combined organization will also incur costs associated with corporate governance requirements,
including requirements under the Sarbanes-Oxley Act, as well as new rules implemented by the SEC and The NASDAQ Stock Market LLC. These rules and regulations are expected to increase the combined organizations legal and financial compliance
costs and to make some activities more time-consuming and costly. For example, the combined organizations management team will consist of the executive officers of Alpine prior to the merger, some of whom may not have previously managed and
operated a public company. These executive officers and other personnel will need to devote substantial time to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations. These rules and
regulations may also make it difficult and expensive for the combined organization to obtain directors and officers liability insurance. As a result, it may be more difficult for the combined organization to attract and retain qualified individuals
to serve on the combined organizations board of directors or as executive officers of the combined organization, which may adversely affect investor confidence in the combined organization and could cause the combined organizations
business or stock price to suffer.
Anti-takeover provisions in the combined organization charter documents and under Delaware law could make an
acquisition of the combined organization more difficult and may prevent attempts by the combined organization stockholders to replace or remove the combined organization management.
Provisions in the combined organizations certificate of incorporation and bylaws may delay or prevent an acquisition or a change in
management. These provisions include a classified board of directors, a prohibition on actions by written consent of the combined organizations stockholders, and the ability of the board of directors to issue preferred stock without
stockholder approval. In addition, because the combined organization will be incorporated in Delaware, it is governed by the provisions of Section 203 of the DGCL, which prohibits stockholders owning in excess of 15% of the outstanding combined
organization voting stock from merging or combining with the combined organization. Although Nivalis and Alpine believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirers to
negotiate with the combined organizations 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 the combined
organizations stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing the members of management.
Nivalis and Alpine do not anticipate the combined organization will pay any cash dividends in the foreseeable future.
The current expectation is the combined organization will retain its future earnings to fund the development and growth of the combined
organizations business. As a result, capital appreciation, if any, of the common stock of the combined organization will be your sole source of gain, if any, for the foreseeable future.
Future sales of shares by existing stockholders could cause the combined organization stock price to decline.
If existing stockholders of Nivalis and Alpine sell, or indicate an intention to sell, substantial amounts of the combined organizations
common stock in the public market after the post-merger
lock-up
and other legal
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restrictions on resale discussed in this proxy statement/prospectus/information statement lapse, the trading price of the common stock of the combined organization could decline. Based on shares
outstanding as of May 12, 2017, upon completion of the merger, the combined organization is expected to have outstanding a total of approximately 13.9 million shares of common stock (after giving effect to the proposed Nivalis Reverse
Stock Split). Of these shares, only approximately 3.5 million shares of common stock will be freely tradable, without restriction, in the public market.
The
lock-up
agreements entered into between each of Nivalis and Alpine and certain of each
others securityholders provide that the shares subject to the
lock-up
restrictions will be released from such restrictions 180 days from the closing date. Based on shares outstanding as of May 12,
2017, up to an additional approximately 10.4 million shares of common stock (after giving effect to the proposed Nivalis Reverse Stock Split) will be eligible for sale in the public market, approximately 9.5 million of which will be held
by directors, executive officers of the combined organization, and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act, and various vesting agreements. In addition, approximately 1.2 million
shares of common stock subject to outstanding options of Alpine as of April 18, 2017, and approximately 0.5 million shares of common stock subject to outstanding options of Nivalis as of May 12, 2017 (in each case, after giving effect
to the proposed Nivalis Reverse Stock Split) will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the
lock-up
agreements and
Rules 144 and 701 under the Securities Act. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of the combined organization common stock could decline.
If the ownership of the combined organization common stock is highly concentrated, it may prevent you and other stockholders from influencing
significant corporate decisions and may result in conflicts of interest that could cause the combined organization stock price to decline.
Executive officers, directors of the combined organization, and their affiliates are expected to beneficially own or control approximately 70%
of the outstanding shares of the combined organization common stock following the completion of the merger (after giving effect to the exercise of all outstanding vested and unvested options and warrants). Accordingly, these executive officers,
directors, and their affiliates, acting as a group, will have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation, or sale of all or substantially
all of the combined organization assets or any other significant corporate transactions. These stockholders may also delay or prevent a change of control of the combined organization, even if such a change of control would benefit the other
stockholders of the combined organization. The significant concentration of stock ownership may adversely affect the trading price of the combined organizations common stock due to investors perception that conflicts of interest may
exist or arise.
An active trading market for the combined organizations common stock may not develop and its stockholders may not be able to
resell their shares of common stock for a profit, if at all.
Prior to the merger, there had been no public market for
Alpines common stock. An active trading market for the combined organizations shares of common stock may never develop or be sustained. If an active market for the combined organizations common stock does not develop or is not
sustained, it may be difficult for its stockholders to sell their shares at an attractive price or at all.
If equity research analysts do not
publish research or reports, or publish unfavorable research or reports, about the combined organization, its business or its market, its stock price and trading volume could decline.
The trading market for the combined organizations common stock will be influenced by the research and reports that equity research
analysts publish about it and its business. Equity research analysts may elect not to provide research coverage of the combined organizations common stock after the completion of this offering, and such lack of research coverage may adversely
affect the market price of its common stock. In the event it
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does have equity research analyst coverage, the combined organization will not have any control over the analysts or the content and opinions included in their reports. The price of the combined
organizations common stock could decline if one or more equity research analysts downgrade its stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of the combined organization or
fails to publish reports on it regularly, demand for its common stock could decrease, which in turn could cause its stock price or trading volume to decline.
The combined organization will have broad discretion in the use of proceeds from the
Pre-Closing
Financing and
may invest or spend the proceeds of the
Pre-Closing
Financing in ways with which you do not agree and in ways that may not increase the value of your investment.
The combined organization will have broad discretion over the use of proceeds from the
Pre-Closing
Financing. You may not agree with the combined organizations decisions, and its use of the proceeds may not yield any return on your investment. The combined organizations failure to apply the net proceeds of the
Pre-Closing
Financing effectively could compromise its ability to pursue its growth strategy and the combined organization might not be able to yield a significant return, if any, on its investment of these net
proceeds. You will not have the opportunity to influence the combined organizations decisions on how to use the net proceeds from the
Pre-Closing
Financing.
Nivalis
pre-merger
net operating loss carryforwards and certain other tax attributes may be subject to
limitations. The
pre-merger
net operating loss carryforwards and certain other tax attributes of Alpine and of the combined organization may also be subject to limitations as a result of ownership changes
resulting from the merger.
In general, a corporation that undergoes an ownership change is subject to limitations on
its ability to utilize its
pre-change
net operating loss carryforwards (NOLs) to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain
stockholders, generally stockholders beneficially owning five percent or more of a corporations common stock, applying certain look-through and aggregation rules, increases by more than 50 percentage points over such stockholders lowest
percentage ownership during the testing period, generally three years. Nivalis may have experienced ownership changes in the past and may experience ownership changes in the future. In addition, the closing of the merger may result in an ownership
change for Nivalis. It is possible that Alpines net operating loss carryforwards and certain other tax attributes may also be subject to limitation as a result of ownership changes in the past and/or the closing of the merger. Consequently,
even if the combined organization achieves profitability, it may not be able to utilize a material portion of Nivalis, Alpines or the combined organizations net operating loss carryforwards and certain other tax attributes, which
could have a material adverse effect on cash flow and results of operations.
If the combined organization fails to maintain proper and effective
internal controls, its ability to produce accurate financial statements on a timely basis could be impaired.
The combined
organization will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of The NASDAQ Stock Market LLC. The Sarbanes-Oxley Act requires, among other things, that the combined
organization maintain effective disclosure controls and procedures and internal control over financial reporting. The combined organization must perform system and process evaluation and testing of its internal control over financial reporting to
allow management to report on the effectiveness of its internal controls over financial reporting in its Annual Report on Form
10-K
filing for that year, as required by Section 404 of the Sarbanes-Oxley
Act. As a private company, Alpine has never been required to test its internal controls within a specified period. This will require that the combined organization incur substantial professional fees and internal costs to expand its accounting and
finance functions and that it expend significant management efforts. The combined organization may experience difficulty in meeting these reporting requirements in a timely manner.
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The combined organization may discover weaknesses in its system of internal financial and
accounting controls and procedures that could result in a material misstatement of its financial statements. The combined organizations internal control over financial reporting will not prevent or detect all errors and all fraud. An
internal control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the internal control systems objectives will be met. Because of the inherent limitations in all internal control
systems, no evaluation of internal controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all internal control issues and instances of fraud will be detected.
If the combined organization is not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if it is unable to
maintain proper and effective internal controls, the combined organization may not be able to produce timely and accurate financial statements. If that were to happen, the market price of its common stock could decline and it could be subject to
sanctions or investigations by The NASDAQ Stock Market LLC, the SEC, or other regulatory authorities.
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FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus/information statement and the documents incorporated by reference into this proxy statement/prospectus/information statement
contain forward-looking statements (including within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the United States Securities Act of 1933, as amended
(the Securities Act)) concerning Nivalis, Alpine, the proposed merger and other matters. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or
otherwise, based on current beliefs of the management of Nivalis, as well as assumptions made by, and information currently available to, management. Forward-looking statements generally include statements that are predictive in nature and depend
upon or refer to future events or conditions, and include words such as may, will, should, would, expect, plan, believe, intend, look
forward, and other similar expressions among others. Statements that are not historical facts are forward-looking statements. Forward-looking statements are based on current beliefs and assumptions that are subject to risks and uncertainties
and are not guarantees of future performance. Actual results could differ materially from those contained in any forward-looking statement as a result of various factors, including, without limitation: the risk that the conditions to the closing of
the merger are not satisfied, including the failure to timely or at all obtain stockholder approval for the merger; uncertainties as to the timing of the consummation of the merger and the ability of each of Nivalis and Alpine to consummate the
merger; risks related to Nivalis ability to correctly estimate its operating expenses and its expenses associated with the merger; risks related to the changes in market price of Nivalis common stock relative to the exchange ratio; the
ability of Nivalis or Alpine to protect their respective intellectual property rights; competitive responses to the merger; unexpected costs, charges or expenses resulting from the merger; potential adverse reactions or changes to business
relationships resulting from the announcement or completion of the merger; and legislative, regulatory, political and economic developments. The foregoing review of important factors that could cause actual events to differ from expectations should
not be construed as exhaustive and should be read in conjunction with statements that are included herein and elsewhere. Nivalis can give no assurance that the conditions to the merger will be satisfied. Except as required by applicable law, Nivalis
undertakes no obligation to revise or update any forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
For a discussion of the factors that may cause Nivalis, Alpine or the combined organizations actual results, performance or achievements to differ
materially from any future results, performance or achievements expressed or implied in such forward-looking statements, or for a discussion of risk associated with the ability of Nivalis and Alpine to complete the merger and the effect of the
merger on the business of Nivalis, Alpine and the combined organization, see the section entitled
Risk Factors
beginning on page 25.
Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports filed
with the SEC by Nivalis including the risk factors included in Nivalis most recent Annual Report on Form
10-K,
and Nivalis recent Quarterly Report on Form
10-Q
and Current Reports on Form
8-K
filed with the SEC. See the section entitled
Where You Can Find More Information
beginning on page 293.
If any of these risks or uncertainties materialize or any of these assumptions prove incorrect, the results of Nivalis, Alpine or the combined organization
could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement/prospectus/information statement are current only as of the date on which the statements were made. Nivalis and Alpine do not
undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.
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THE SPECIAL MEETING OF NIVALIS STOCKHOLDERS
Date, Time and Place
The Nivalis special meeting will be held on [●], 2017, at [●] commencing at [●] Mountain time. Nivalis is sending this proxy
statement/prospectus/information statement to its stockholders in connection with the solicitation of proxies by Nivalis board of directors for use at the Nivalis special meeting and any adjournments or postponements of the Nivalis special
meeting. This proxy statement/prospectus/information statement is first being furnished to Nivalis stockholders on or about [●], 2017.
Purpose of the Nivalis Special Meeting
The purpose of the Nivalis special meeting is:
1. To consider and vote upon a proposal to approve the Merger Agreement and the transactions contemplated thereby, including the merger and the
issuance of Nivalis common stock to Alpines stockholders in accordance with the Merger Agreement.
2. To approve an amendment
to the amended and restated certificate of incorporation of Nivalis to effect the Nivalis Reverse Stock Split, in the form attached as
Annex D
to this proxy statement/prospectus/information statement.
3. To approve the amendment to the amended and restated certificate of incorporation of Nivalis to effect the Nivalis Name Change in the form
attached as
Annex E
to this proxy statement/prospectus/information statement
4. To consider and vote upon an adjournment of the
Nivalis special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 and 2.
5. To transact such other business as may properly come before the Nivalis special meeting or any adjournment or postponement thereof.
Recommendation of Nivalis Board of Directors
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Nivalis board of directors has determined that the transactions contemplated by the Merger Agreement, including the merger and the issuance of shares of Nivalis common stock to Alpines stockholders
pursuant to the Merger Agreement are fair to, advisable and in the best interest of Nivalis and its stockholders and has approved and declared advisable the Merger Agreement and such transactions. Nivalis board of directors recommends that
Nivalis stockholders vote FOR Proposal No. 1 to approve the Merger Agreement and the transactions contemplated thereby, including the merger and the issuance of shares of Nivalis common stock to Alpines
stockholders.
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Nivalis board of directors has determined that the Nivalis Reverse Stock Split is fair to, advisable and in the best interest of Nivalis and its stockholders and has approved and declared advisable the Nivalis
Reverse Stock Split. Nivalis board of directors recommends that Nivalis stockholders vote FOR Proposal No. 2 to approve an amendment to the amended and restated certificate of incorporation of Nivalis effecting the
Nivalis Reverse Stock Split.
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Nivalis board of directors has determined that the Nivalis Name Change is fair to, advisable and in the best interest of Nivalis and its stockholders and has approved and declared advisable the Nivalis Name
Change. Nivalis board of directors recommends that Nivalis stockholders vote FOR Proposal No. 3 to approve an amendment to the amended and restated certificate of incorporation of Nivalis effecting the Nivalis Name
Change.
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Nivalis board of directors has determined and believes that adjourning the Nivalis special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 or 2 is
advisable to, and in the best interests of, Nivalis and its stockholders and has approved and adopted the proposal. Nivalis board of directors recommends that Nivalis stockholders vote FOR Proposal No. 4 to adjourn the
Nivalis special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 or 2.
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Record Date and Voting Power
Only holders of record of Nivalis common stock at the close of business on the record date, [●], 2017, are entitled to notice of,
and to vote at, the Nivalis special meeting. There were approximately [●] holders of record of Nivalis common stock at the close of business on the record date. At the close of business on the record date, [●] shares of
Nivalis common stock were issued and outstanding. Each share of Nivalis common stock entitles the holder thereof to one vote on each matter submitted for stockholder approval. See the section entitled Principal Stockholders of
Nivalis in this proxy statement/prospectus/information statement for information regarding persons known to Nivalis management to be the beneficial owners of more than 5% of the outstanding shares of Nivalis common stock.
Voting and Revocation of Proxies
The proxy accompanying this proxy statement/prospectus/information statement is solicited on behalf of Nivalis board of directors for use
at the Nivalis special meeting.
If you are a stockholder of record of Nivalis as of the record date referred to above, you may vote in
person at the Nivalis special meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the Nivalis special meeting, Nivalis urges you to vote by proxy to ensure your vote is counted. You may still attend the Nivalis
special meeting and vote in person if you have already voted by proxy. As a stockholder of record you may vote in any of the following ways:
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to vote in person, attend the Nivalis special meeting and Nivalis will provide you a ballot when you arrive.
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to vote using the proxy card, simply mark, sign and date your proxy card and return it promptly in the postage-paid envelope provided. If you return your signed proxy card to Nivalis before the Nivalis special meeting,
Nivalis will vote your shares as you direct on the proxy card.
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to vote by telephone or on the Internet, dial the number on the proxy card or voting instruction form or visit the website on the proxy card or voting instruction form to complete an electronic proxy card. You will be
asked to provide Nivalis number and control number from the enclosed proxy card. Your vote must be received by 11:59 p.m., Eastern time on [●] to be counted.
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If your shares of Nivalis common stock are held by your broker as your nominee, that is, in street name, the enclosed voting
instruction card is sent by the institution that holds your shares. Please follow the instructions included on that proxy card regarding how to instruct your broker to vote your shares of Nivalis common stock. If you do not give instructions
to your broker, your broker can vote your shares of Nivalis common stock with respect to discretionary items but not with respect to
non-discretionary
items. Discretionary items
are proposals considered routine under the rules of NASDAQ on which your broker may vote shares held in street name in the absence of your voting instructions. On
non-discretionary
items for which
you do not give your broker instructions, your shares of Nivalis common stock will be treated as broker
non-votes.
It is anticipated that Proposal Nos. 1, 2 and 3 will be
non-discretionary
items.
All properly executed proxies that are not revoked will be voted at the
Nivalis special meeting and at any adjournments or postponements of the Nivalis special meeting in accordance with the instructions contained in the proxy. If a holder of Nivalis common stock executes and returns a proxy and does not specify
otherwise, the
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shares represented by that proxy will be voted FOR Proposal No. 1 to approve the Merger Agreement and the transactions contemplated thereby, including the merger and the issuance
of shares of Nivalis common stock to Alpines stockholders pursuant to the Merger Agreement; FOR Proposal No. 2 to approve an amendment to the amended and restated certificate of incorporation of Nivalis effecting the
Nivalis Reverse Stock Split; FOR Proposal No. 3 to approve an amendment to the amended and restated certificate of incorporation of Nivalis to effect the Nivalis Name Change; and FOR Proposal No. 4 to approve the
adjournment of the Nivalis special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 or 2 in accordance with the recommendation of Nivalis board of directors.
Nivalis stockholders of record, other than those Nivalis stockholders who have executed support agreements, may change their vote
at any time before their proxy is voted at the Nivalis special meeting in one of three ways. First, a stockholder of record of Nivalis can send a written notice to the Secretary of Nivalis stating that the stockholder would like to revoke its proxy.
Second, a stockholder of record of Nivalis can submit new proxy instructions either on a new proxy card or by telephone or via the Internet. Third, a stockholder of record of Nivalis can attend the Nivalis special meeting and vote in person.
Attendance alone will not revoke a proxy. If a stockholder of Nivalis of record or a stockholder who owns shares of Nivalis common stock in street name has instructed a broker to vote its shares of Nivalis common stock, the
stockholder must follow directions received from its broker to change those instructions.
Required Vote
The presence, in person or represented by proxy, at the Nivalis special meeting of the holders of a majority of the shares of Nivalis
common stock outstanding and entitled to vote at the Nivalis special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker
non-votes
will be counted towards a quorum. Approval of
Proposal Nos. 1 and 4 requires the affirmative vote of the holders of a majority of the shares of Nivalis common stock having voting power present in person or represented by proxy at the Nivalis special meeting. Approval of Proposal Nos. 2
and 3 requires the affirmative vote of holders of a majority of Nivalis common stock having voting power outstanding on the record date for the Nivalis special meeting.
Votes will be counted by the inspector of election appointed for the Nivalis special meeting, who will separately count FOR and
AGAINST votes, abstentions and broker
non-votes.
Abstentions will be counted towards the vote total and will have the same effect as AGAINST votes for Proposal Nos. 2 and 3; abstentions
will have no effect on Proposal Nos. 1 and 4. Broker
non-votes
will have the same effect as AGAINST votes for Proposal Nos. 2 and 3. For Proposal Nos. 1 and 4, broker
non-votes
will have no effect and will not be counted towards the vote total, but will be used to determine whether a quorum is present at the Nivalis special meeting.
As of April 18, 2017, the directors and executive officers of Nivalis beneficially owned approximately 3% of the outstanding shares of Nivalis
common stock entitled to vote at the Nivalis special meeting. Each of the directors and executive officers, and certain other stockholders, of Nivalis have entered into support agreements, pursuant to which such director, executive officer or other
stockholder has agreed to be present (in person or by proxy) at the Nivalis special meeting to vote all shares of Nivalis common stock owned by him, her or it as of the record date (a) in favor of (i) the approval of the Merger
Agreement, (ii) the approval of the transactions contemplated therein, including the issuance of shares of Nivalis common stock pursuant to the Merger Agreement, (iii) the adoption of an amendment to Nivalis certificate of
incorporation to effect the Nivalis Reverse Stock Split, (iv) the adoption of an amendment to Nivalis certificate of incorporation to effect the Nivalis Name Change, (v) any proposal to adjourn or postpone the meeting to a later
date, if there are not sufficient votes for the approval of the Merger Agreement and the transactions contemplated therein, including the issuance of common stock pursuant to the Merger Agreement on the date on which such meeting is held, and
(vi) any other proposal included in the proxy statement in connection with, or related to, the consummation of the Merger for which Nivalis board of directors has recommended that the Nivalis stockholders vote in favor; and
(b) against any competing acquisition proposal with respect to Nivalis. As of April 18, 2017, Nivalis is not aware of any affiliate of Alpine owning any shares of Nivalis common stock entitled to vote at the Nivalis special meeting.
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Solicitation of Proxies
In addition to solicitation by mail, the directors, officers, employees and agents of Nivalis may solicit proxies from Nivalis
stockholders by personal interview, telephone, telegram or otherwise. Nivalis and Alpine will share equally the costs of printing and filing this proxy statement/prospectus/information statement and proxy card. Arrangements will also be made with
brokerage firms and other custodians, nominees and fiduciaries who are record holders of Nivalis common stock for the forwarding of solicitation materials to the beneficial owners of Nivalis common stock. Nivalis will reimburse these
brokers, custodians, nominees and fiduciaries for the reasonable
out-of-pocket
expenses they incur in connection with the forwarding of solicitation materials. Nivalis
has retained MacKenzie Partners as its proxy solicitor. Nivalis will pay the fees of MacKenzie Partners, which Nivalis expects to be approximately $10,000, plus reimbursement of out-of-pocket expenses.
Other Matters
As of the date of this proxy statement/prospectus/information statement, Nivalis board of directors does not know of any business to be
presented at the Nivalis special meeting other than as set forth in the notice accompanying this proxy statement/prospectus/information statement. If any other matters should properly come before the Nivalis special meeting, it is intended that the
shares represented by proxies will be voted with respect to such matters in accordance with the judgment of the persons voting the proxies.
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THE MERGER
This section and the section entitled The Merger Agreement in this proxy statement/prospectus/information statement describe
the material aspects of the merger, including the Merger Agreement. While Nivalis and Alpine believe that this description covers the material terms of the merger and the Merger Agreement, it may not contain all of the information that is important
to you. You should read carefully this entire proxy statement/prospectus/information statement for a more complete understanding of the merger and the Merger Agreement, including the Merger Agreement attached as Annex A, the opinion of Ladenburg
attached as Annex B, and the other documents to which you are referred herein. See the section entitled Where You Can Find More Information in this proxy statement/prospectus/information statement.
Background of the Merger
Historical Background for Nivalis
Nivalis board of directors and management regularly reviews Nivalis operating and strategic plans in an effort to enhance
stockholder value. This review involves, among other things, discussions of opportunities and risks associated with Nivalis product candidates, development programs, financial condition and market, as well as consideration of strategic
alternatives and options available to Nivalis. On November 22, 2016, members of Nivalis management at that time, including Mr. Jon Congleton, Ms. Janice Troha, Mr. R. Michael Carruthers, Dr. David Rodman,
Dr. Sherif Gabriel, and Dr. Steven Shoemaker, reviewed the results of Nivalis Phase 2 clinical trial of cavosonstat, a multi-center, randomized, double-blind, three-arm trial that enrolled 138 adult cystic fibrosis patients with two
copies of the F508del mutation being treated with Orkambi (the Clinical Trial). The results of the Clinical Trial indicated that the Clinical Trial had failed to achieve its primary endpoint of lung function improvement and a key
secondary endpoint of sweat chloride reduction. A second, smaller clinical trial of cavosonstat in CF patients with one copy of the F508del-CFTR mutation similarly failed to meet its primary endpoint of lung function improvement and a key secondary
endpoint of sweat chloride reduction, as Nivalis announced on February 23, 2017.
In response to these negative results, Nivalis
board of directors shortly thereafter initiated a process to identify and evaluate strategic alternatives available to Nivalis that ultimately resulted in the execution of the Merger Agreement with Alpine. The terms of the Merger Agreement are the
result of extensive arms-length negotiations among members of the Special Committee (as defined below), Nivalis management team, and the management team of Alpine along with their respective advisors and under the guidance of each
companys board of directors. From the beginning, Nivalis followed a careful process assisted by experienced outside financial, scientific and legal advisors to rigorously examine potential transactions and transaction candidates in a broad and
inclusive manner. The following is a summary of the background of the process undertaken by Nivalis, and the identification and evaluation of strategic alternatives and the negotiation of the Merger Agreement, including the circumstances surrounding
Nivalis decision to review strategic alternatives available to it.
On November 27 and 28, 2016, Nivalis board of
directors held telephonic meetings with members of Nivalis management and a representative of Gross Cutler Seiler Dupont LLC (GCSD), outside corporate counsel to Nivalis, to review the negative Clinical Trial results, the materials
intended for public release of the results, and the strategic implications of those results. Following the close of markets on November 28, 2016, Nivalis publicly announced that the Clinical Trial had failed to achieve its primary endpoint of
lung function improvement and a key secondary endpoint of sweat chloride reduction.
On November 30, 2016, Nivalis board of
directors, in executive session without members of management present, but with a representative of GCSD present, held a telephonic meeting and engaged in a detailed and substantive discussion of strategic alternatives available to Nivalis in light
of the negative Clinical Trial results. The board considered various strategic alternatives intended to maximize value for Nivalis stockholders, including continuation of the development of Nivalis products in other indications as well
as possible licensing opportunities or a sale or merger involving Nivalis. Following this call, on December 1, 2016, Howard Furst,
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M.D., Chairman of Nivalis board of directors, met with members of Nivalis management, and asked management to provide the board of directors with managements assessment of
strategic options and alternatives.
On December 9, 2016, Nivalis board of directors held a telephonic meeting which was
attended by members of Nivalis management and a representative of GCSD, during which members of Nivalis management presented to the members of Nivalis board of directors an alternative development plan for Nivalis GSNOR
inhibitors in a potential asthma indication. Members of Nivalis management also presented managements assessment of other strategic alternatives, including potential licensing opportunities or a sale or merger involving Nivalis, along
with an analysis of the costs of closing down two clinical trials that were ongoing at that time compared to the costs of carrying them to completion. Detailed discussions were held regarding the merits and risks associated with managements
proposed development plan, including market opportunities and risks, development risks, costs and resources required to conduct required research and development activities and to execute such a plan, and the expected timeline to proof-of-concept
and other events likely to result in value to Nivalis stockholders. Nivalis board of directors elected to continue the ongoing clinical trials to completion given that both trials were nearing completion and that all activities
associated with them would be completed in the first quarter of 2017.
On December 11, 2016, Nivalis board of directors held a
telephonic meeting that was also attended by a representative of GCSD to discuss further managements proposed plan for the development of Nivalis GSNOR inhibitors for asthma indications and other strategic alternatives available to
Nivalis. Following a discussion of the risks and potential benefits and opportunities of the proposed plan, Nivalis board of directors determined that the risks and uncertainties of pursuing such a development plan, including uncertainties
relating to the ability of Nivalis to raise the required funds on favorable terms, or at all, necessary to fund such further development, were too great in relation to the potential benefits. Accordingly, following extensive discussion,
Nivalis board of directors determined that it was in the best interest of Nivalis and its stockholders to pursue alternative strategic options, including a reverse merger involving Nivalis, in an effort to maximize stockholder value.
Nivalis board of directors then determined to establish a Special Committee of the board of directors (the Special Committee) to assist in the investigation and evaluation of such strategic options and to make recommendations to
Nivalis board of directors and management with respect to the day-to-day decisions as to process and strategy concerning an assessment of any potential strategic alternatives. Nivalis board of directors designated Messrs. Conway and
Sekhri and Dr. Loh as the members of the Special Committee. Nivalis board of directors also discussed the evaluation and retention of special legal counsel and financial advisors to advise and assist Nivalis in its exploration of a
potential strategic transaction, and the resources required to complete ongoing clinical trials, to preserve Nivalis assets, and to investigate, pursue and consummate a strategic transaction. Following discussion, Nivalis board of
directors determined that it was in the best interest of Nivalis and its stockholders for Nivalis to engage special legal counsel and a financial advisor to assist and advise Nivalis. Nivalis board of directors then authorized the Special
Committee and Nivalis management to interview and engage special counsel and a financial advisor to assist management with respect to the pursuit of a strategic transaction.
Between December 11 and December 13, 2016, members of the Special Committee contacted potential law firms to advise Nivalis on a
potential strategic transaction and discussed potential investment banking firms. On December 13, 2016, the Special Committee held a telephonic meeting with representatives of Latham & Watkins LLP (Latham &
Watkins) to discuss Latham & Watkins potential engagement as legal advisors to Nivalis. Following the Special Committees discussion of the qualifications, expertise, experience and reputation of Latham & Watkins,
the Special Committee engaged Latham & Watkins as Nivalis special outside counsel to assist and advise Nivalis with respect to a potential strategic transaction.
On December 19, 2016, Mr. Conway and Dr. Loh met with representatives from four investment banking firms in New York, New York,
to determine their suitability to act as Nivalis financial advisor with respect to the pursuit of a strategic transaction. On December 21, 2016, the Special Committee held a telephonic meeting to discuss the merits of the investment bank
candidates. After consideration of the relative qualifications and
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expertise of the candidates, including industry expertise and knowledge, access to potential transaction candidates, and recent transaction experience, the Special Committee narrowed the
candidates from four to two. Between December 21 and December 23, 2016, members of the Special Committee conducted further diligence on the two investment bank candidates. On December 23, 2016, the Special Committee held a telephonic
meeting to discuss the investment bank candidates and the results of the further diligence conducted by members of the Special Committee. In this meeting, the Special Committee approved the selection of Ladenburg as Nivalis financial advisor
for a potential strategic transaction, and the Special Committee appointed Mr. Conway as its chairman.
On January 2, 2017,
Nivalis board of directors held a telephonic meeting which was also attended by members of Nivalis management and a representative of GCSD. Mr. Conway provided the board of directors with an update regarding recent activities of the
Special Committee, including the engagement of Latham & Watkins and the process engaged in and discussions held with investment banking firms to assist and advise the Special Committee and the board through a potential strategic
transaction. Mr. Conway reviewed the proposed terms of the engagement letter with Ladenburg. Following discussion of the engagement letter and the qualifications and experience of Ladenburg, Nivalis board of directors approved the
engagement of Ladenburg on the terms set forth in its engagement letter presented to the board of directors and authorized management to execute and deliver the engagement letter to Ladenburg. Also at this meeting, Mr. Congleton reviewed plans
to streamline Nivalis operations and conserve its cash resources, including a proposed reduction in force, and the board of directors reviewed a proposed press release circulated to the participants prior to the meeting relating to the
determination to initiate a process to explore and evaluate a range of strategic alternatives, the establishment of the Special Committee and the retention of Ladenburg.
On January 3, 2017, Nivalis publicly announced the initiation of a process to explore and review a range of strategic alternatives
focused on maximizing stockholder value from its clinical assets and cash resources. Such strategic alternatives included, but were not limited to, the potential for an acquisition, merger, business combination or other strategic transaction.
Nivalis also announced that its board of directors had appointed a Special Committee to assist in the pursuit of such a transaction and that Nivalis had retained Ladenburg as its financial advisor. Nivalis further announced its intent to
streamline its operations in order to conserve capital.
On January 5, 2017, an organizational meeting was held by teleconference
with the Special Committee, members of Nivalis management team, representatives of Latham & Watkins, a representative of GCSD and representatives of Ladenburg in attendance. At this meeting, Ladenburg reviewed the process to be
undertaken to identify and evaluate potential strategic alternatives and parties that may be interested in pursuing a strategic transaction with Nivalis. The Special Committee discussed the anticipated timeline for contacting, and receiving and
evaluating proposals from, interested parties in connection with pursuing a strategic transaction, reviewed proposed selection criteria to be used in identifying and evaluating candidates, and reviewed a proposed bid letter prepared by Ladenburg to
be sent to interested parties. The Special Committee further established a standing weekly meeting schedule to ensure regular communication and coordination among the members of the Special Committee, Latham & Watkins, GCSD and Ladenburg.
Between January 5 and February 7, 2017, Ladenburg, with assistance from the Special Committee and members of Nivalis
management, conducted a process of identifying and evaluating potential parties to strategic combinations. In its outreach efforts, members of the board of directors and management, and representatives of Ladenburg, contacted a broad set of
companies that met certain criteria established by the Special Committee and that consisted of private companies actively considering an initial public offering, private companies not actively considering an initial public offering, private
companies that had failed in earlier attempts to complete an initial public offering but that had raised significant capital, publicly traded foreign companies seeking a NASDAQ listing and public companies in the United States seeking capital or
that were believed to have a strategic fit with Nivalis. As a result of this process, between January 5, 2017 and February 5, 2017, Ladenburg delivered bid process letters to a total of 127 companies and, in response thereto, Nivalis
received a total of 81 non-binding proposals.
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On January 6, 2017, Nivalis board of directors held a telephonic meeting that was also
attended by members of management and a representative of GCSD. Mr. Conway provided an update on the activities of the Special Committee, including the process of soliciting non-binding proposals and timing of key activities. Mr. Conway
also reviewed, and the board of directors discussed, the proposed selection criteria to be used in evaluating candidates. The board of directors engaged in a discussion of various alternative structures and potential valuation scenarios relating to
Nivalis GSNOR inhibitor assets.
On January 12, 2017, Nivalis publicly announced a reduction in workforce that would take place
between January 15 and March 31, 2017, and which would affect a total of 25 employees, including Nivalis President and Chief Executive Officer, Jon Congleton, and Nivalis Chief Medical Officer, David Rodman, M.D. As a result of
the reduction in workforce, as of March 31, 2017, Nivalis had five remaining employees, including two members of the management team, Mr. Carruthers, Chief Financial Officer and newly appointed Interim President, and Ms. Troha, Chief
Operating Officer.
On January 16, 2017, the Special Committee held a telephonic meeting that was attended by representatives of
Ladenburg, members of Nivalis management and a representative of GCSD to discuss the status of Ladenburgs outreach efforts, the deadline for receipt of non-binding proposals following delivery of bid process letters, and the plans for
reviewing such proposals. The Special Committee also discussed strategic alternatives relating to Nivalis GSNOR inhibitor platform, including the timing of any separate transaction involving these assets and expected valuation of such assets
in light of their early stage of development and failure in the CF indication.
On January 20, 2017, Nivalis board of directors
held a telephonic meeting attended by members of Nivalis management and a representative of GCSD. Mr. Conway gave an update on the activities of the Special Committee, including the status of Ladenburgs outreach efforts as well as
the process for reviewing and evaluating potential candidates and any eventual proposals, the criteria to be used in assessing such candidates, and the fact that outside experts may need to be engaged to assist in the evaluation of candidates. The
board of directors engaged in a detailed discussion of these topics, during which the board of directors agreed with the selection criteria established by the Special Committee. This criteria included an evaluation of each candidates financing
risk at closing; the candidates product pipeline; upcoming milestones with respect to the candidates product candidates likely to occur after a closing that may create greater value for stockholders; the experience and expertise of the
candidates management and scientific teams; the candidates investor base and capital structure; the candidates ability to maintain Nivalis NASDAQ listing and operate a public company after closing; the proposed relative
valuations of Nivalis and the candidate; and the candidates ability to effectively fund operations after a closing. Mr. Conway also updated the board of directors on the Special Committees discussions regarding potential strategies
or alternatives with respect to Nivalis GSNOR inhibitor portfolio, noting that the main emphasis of the Special Committee would be on obtaining maximum value for Nivalis stockholders in the primary strategic transaction, but that the bid
process letters that Ladenburg had delivered to potentially interested parties included a request for interested parties to indicate interest in Nivalis GSNOR portfolio. The board of directors then engaged in a discussion of potential
strategic alternatives for the GSNOR portfolio.
On January 25, 2017, the Special Committee held a telephonic meeting with members of
Nivalis management, representatives of Ladenburg and a representative of GCSD also present. At such meeting, the Special Committee discussed the status of Ladenburgs outreach efforts and the application of the criteria established by the
Special Committee that would be used to narrow down the list of potential candidates that had submitted or would submit non-binding indications of interest. The Special Committee also discussed limiting outreach efforts to companies in the
pharmaceutical and biotechnology industry in light of Nivalis board of directors and managements ability to evaluate and assess the products, and related operational, industry, regulatory, financial, market and other risks and
opportunities, of companies within such industries. The Special Committee also discussed with representatives of Ladenburg the process for receipt, review and response to non-binding indications of interest.
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Between January 27 and February 2, 2017, members of Nivalis management team held
teleconferences with, and provided detailed information to, four companies that expressed an interest in Nivalis GSNOR inhibitor portfolio (the Participating GSNOR Interested Parties) as part of the indications of interest such
parties submitted to Nivalis. Three of the Participating GSNOR Interested Parties indicated to representatives of Ladenburg that they were no longer interested in the GSNOR inhibitor portfolio after such parties had been notified by representatives
of Ladenburg that they were not selected to move forward with negotiations for a transaction involving Nivalis generally.
On
February 3, 2017, Nivalis board of directors held a telephonic meeting attended by members of Nivalis management and a representative of GCSD. Mr. Conway updated the board of directors on the status of, and next steps to be
taken in, the process of evaluating and selecting potential partners for a strategic transaction involving Nivalis, which would include an initial screening of candidates by Ladenburg and the Special Committee based on the selection criteria
approved by the Special Committee and review by the Special Committee of the non-binding indications of interest submitted by candidates. Mr. Conway further explained that the Special Committee would use such process to narrow the group of
interested parties to a reasonable number for further discussion and evaluation, including formal, in-person presentations to Nivalis board of directors by each such interested party.
On February 7 and 8, 2017, the Special Committee, along with members of Nivalis management team, Dr. Furst and representatives
of Ladenburg, met at Ladenburgs offices in New York, New York, to review and evaluate the non-binding proposals that had been received and to identify candidates, based on the selection criteria established by the Special Committee, that
should be invited to present their proposals to Nivalis board of directors. As a result of this process, the Special Committee identified ten companies (the Initial Final Candidates) to be extended an invitation to make
presentations to Nivalis board of directors, one of which was Alpine. Following the meeting, representatives of Ladenburg contacted representatives of each of the Initial Final Candidates and indicated to each such party that such party had
been selected to proceed in further discussions with Nivalis regarding a strategic transaction.
On February 9, 2017, Nivalis
board of directors held a telephonic meeting which was attended by members of Nivalis management and a representative of Ballard Spahr LLP (which law firm Nivalis retained when the representative of GCSD who had been Nivalis outside
corporate counsel joined Ballard Spahr LLP) (Ballard). Mr. Conway updated the board of directors with respect to the activities of the Special Committee, including a detailed review of the selection process used during the
February 7 and 8, 2017 meetings at Ladenburgs offices, and provided a summary of the Initial Final Candidates identified by the Special Committee.
On February 13 and 14, 2017, Nivalis board of directors, including each member of the Special Committee, members of Nivalis
management, and representatives of Ladenburg participated in ten separate in-person meetings with the management teams of each of the Initial Final Candidates. During such meetings, each Initial Final Candidate presented information about its
company and the terms of its non-binding proposal, and responded to questions from Nivalis board of directors, Nivalis management team and Ladenburg representatives. Following the conclusion of these meetings, on February 15, 2017,
Nivalis board of directors, including each member of the Special Committee, members of Nivalis management and representatives of Ladenburg, reviewed each presentation made by the Initial Final Candidates and discussed each non-binding
proposal received from the Initial Final Candidates. As a result of this review and discussion, Nivalis board of directors determined to select Alpine and three other companies (Company A, Company B and Company
C, respectively; and together with Alpine, the Finalist Candidates) to move forward in the process. At the direction of Nivalis board of directors, Ladenburg thereafter contacted each of the Finalist Candidates to notify them
of their selection to continue discussions with Nivalis concerning a potential strategic transaction.
Between February 14 and
March 17, 2017, the Special Committee, other members of Nivalis board of directors, and members of Nivalis management requested, reviewed and analyzed scientific and other information regarding the development activities, product
pipelines and businesses of the Finalist Candidates and
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advanced the negotiations with these companies regarding a potential strategic transaction. Nivalis also retained outside scientific experts during this period to conduct detailed scientific
diligence on the Finalist Candidates to further inform the Special Committees and board of directors determinations.
On
February 17, 2017, Nivalis board of directors held a telephonic meeting attended by members of management, a Ladenburg representative and a representative of Ballard. Mr. Conway provided an update on activities of the Special
Committee and reviewed with the board of directors the Finalist Candidates that were selected based on the proposed terms of a transaction received from each such party, including relative valuation proposals for Nivalis and such Finalist Candidate,
the expertise and qualifications of the management and scientific teams of such Finalist Candidate, the development products and pipeline of such Finalist Candidate, market opportunities and risks, development risks, preparedness for operating a
public company and other factors. The status of Nivalis diligence efforts with respect to each such Finalist Candidate and findings to date were also presented and reviewed. Ladenburg then provided a summary of the status and nature of the
discussions Ladenburg held with each of the Finalist Candidates since the February 13 and 14, 2017 meetings in New York, New York.
On February 22, 2017, the Special Committee held a telephonic meeting attended by members of Nivalis management, representatives of
Ladenburg and a representative of Ballard. Mr. Conway reviewed the key terms of the proposals from each of the Finalist Candidates resulting from negotiations with each of the Finalist Candidates, and the Special Committee engaged in a detailed
discussion of such terms and the status of negotiations and strategies with each Finalist Candidate. The Special Committee also reviewed the findings from scientific and regulatory diligence and considered and discussed the potential risks affecting
the ability of the Finalist Candidates to successfully and timely develop their respective products. The Special Committee further considered, with input from representatives of Ladenburg, the valuation ranges proposed by each of the Finalist
Candidates and discussed strategies to advance discussions with each Finalist Candidate. Following this discussion, the Special Committee requested that Ladenburg prepare draft term sheets summarizing the proposals and certain other material terms
of a transaction with each of the Finalist Candidates, including Alpine.
Between February 24 and February 28, 2017,
representatives of Ballard and Latham & Watkins prepared draft non-binding term sheets to be delivered to each of the Finalist Candidates outlining the material terms of a proposed transaction with each such Finalist Candidate. During the
same period, Nivalis management and members of the Special Committee conducted further due diligence of each Finalist Candidate. On February 27, 2017, Nivalis management, Mr. Conway, as chairman of the Special Committee,
representatives of Ladenburg and a representative of Ballard held a telephonic meeting during which the results of the due diligence review conducted to date on the Finalist Candidates and input from the other members of the Special Committee
received by Mr. Conway were discussed. As a result of such additional due diligence and discussions, Mr. Conway consulted with each of the other members of the Special Committee and the Special Committee members determined that it would
not be in Nivalis best interest to pursue a transaction with Company C. The Special Committee directed Ladenburg to communicate to Company C that Nivalis would not be pursuing further discussions with such party. Following such determination
and dismissal of Company C, the Special Committee determined to provide a draft non-binding term sheet to each of Alpine, Company A and Company B outlining, in each case, the terms of a proposed strategic transaction involving such company and
Nivalis.
On February 27, 2017, representatives of Ladenburg provided draft non-binding term sheets to each of Alpine, Company A and
Company B summarizing the material proposed terms of a potential transaction with each such company, including the form of the transaction, the respective valuations of Nivalis and each such company, the ability of Nivalis to enter into a separate
transaction prior to a closing involving a sale or license of its GSNOR inhibitor portfolio, the composition of the board of directors following a closing, conditions to execution of a definitive agreement, conditions to the closing of a
transaction, certain deal protection provisions, the parties obligations to deliver lock-up agreements, payment of fees and expenses, and confidentiality provisions.
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On February 28, 2017, at the Special Committees direction, Ladenburg informed Company
C that Nivalis would not be pursuing further discussions with Company C.
Between February 28, 2017 and March 3, 2017,
Mr. Conway, as chair of the Special Committee, and members of Nivalis management engaged in due diligence discussions with the remaining Finalist Candidates and engaged in negotiations with each such Finalist Candidate of the terms set
forth in the draft non-binding term sheets, in each case with input from representatives of Ladenburg, Latham & Watkins and Ballard.
On March 2, 2017, Alpine provided a revised draft of the non-binding term sheet reflecting Alpines counterproposals to the
respective valuations of Nivalis and Alpine, the composition of the board of directors following the closing of a potential transaction to include an independent representative, the treatment of a sale of the GSNOR inhibitor portfolio prior to a
closing, the duration of an exclusivity agreement with Alpine and the size of a break-up fee in the event a definitive agreement is terminated under certain circumstances.
On March 3, 2017, Nivalis board of directors held a telephonic meeting attended by members of Nivalis management,
representatives from Ladenburg and a representative of Ballard. At such meeting, Mr. Conway updated the board of directors of Nivalis on the status of the Special Committees diligence of, and negotiations with, the Finalist Candidates,
including with respect to the dismissal of Company C, and recent discussions with the remaining Finalist Candidates, including Nivalis engagement of outside scientific experts to assist it in further diligence of the transaction candidates.
Mr. Conway advised the board of directors that, based on the Special Committees assessment of the strengths and weaknesses of the remaining Finalist Candidates following further due diligence activities and review of the material terms of
the transactions proposed by the remaining Finalist Candidates, it was the recommendation of the Special Committee that the potential transaction candidates be narrowed to Alpine and Company B and that the process with Company A be slowed but remain
active only to the extent negotiations with Alpine and Company B did not proceed favorably. Ladenburg then reviewed with the board of directors recent discussions held by members of Nivalis management and the Special Committee with
representatives of each of Alpine and Company B and reviewed the key terms of the proposals submitted by each of Alpine and Company B, including the respective valuation proposals therein. The board of directors engaged in considerable discussion
with input from Ladenburg and members of Nivalis management regarding the merits of pursuing a strategic transaction with either Alpine or Company B, and the proposed terms presented by each of Alpine and Company B. Following this detailed
discussion, the board of directors agreed with the Special Committees recommendation that further diligence and negotiations should proceed with Alpine and Company B.
Also on March 3, 2017, separate teleconferences were held with each of Alpine and Company B to discuss various issues arising from
Nivalis diligence efforts and to further negotiate the open terms of a potential transaction with each respective party. Participating in the calls from Nivalis were members of Nivalis management, Mr. Conway, as chairman of the
Special Committee, representatives of Ladenburg and representatives of Ballard. Participating from Alpine and Company B were members of their respective management teams and members of their respective boards of directors and representatives of
their respective legal counsels.
On March 3, 2017, a teleconference with Alpine and members of Nivalis management was held.
During such teleconference the parties discussed the respective valuations of Alpine and Nivalis, including the underlying valuation assumptions relating to the net cash of each company at the closing of a potential transaction and a concurrent
financing of Alpine, the scope of an exclusivity agreement with Alpine and the size of a break-up fee to be reflected in a definitive agreement for the potential transaction. Alpine sent a revised term sheet to representatives of Ladenburg
reflecting a revised equity valuation of Alpine, and Ladenburg circulated the revised term sheet to members of Nivalis management and Mr. Conway as chairman of the Special Committee.
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On March 3, 2017, members of Nivalis management team participated in a teleconference
with Company B. On such teleconference the parties discussed the valuation of Company B, including the underlying valuation assumptions relating to the net cash of each company at a closing.
On March 4, 2017, representatives of Ladenburg held a teleconference with members of Alpines management and discussed Alpines
revised valuation proposal and other terms reflected in the term sheet provided by Alpine on March 3, 2017.
On March 6, 2017,
Alpine, Company A and Company B each circulated a revised term sheet to representatives of Ladenburg, who shared the term sheets with members of Nivalis management team and Mr. Conway as chairman of the Special Committee.
On March 8, 2017, Mr. Conway circulated to the members of the Special Committee a summary setting forth the original proposed terms
and the counterproposals received from Alpine and Company B with respect to valuation and other key terms reflected in the term sheets being negotiated with Alpine and Company B as well as a list of potential scientific experts for the Special
Committee to consider retaining to assist in further due diligence of Alpine and Company B. The members of the Special Committee provided Mr. Conway with feedback on Nivalis counterproposals to Alpine regarding the respective valuations
of Nivalis and Alpine, which included an assumed $17.0 million concurrent financing of Alpine, the ability of Nivalis to sell or license its GSNOR inhibitor portfolio prior to the closing of a potential transaction, the duration of an exclusivity
agreement with Alpine and the size of a break-up fee payable in the event a definitive agreement is terminated under certain circumstances. The members of the Special Committee also provided Mr. Conway with feedback on Nivalis
counterproposals to Company B relating to the respective valuations of Nivalis and Company B.
Also on March 8, 2017,
Mr. Conway, as chair of the Special Committee, and members of Nivalis management participated in a telephonic meeting with representatives of Ladenburg to discuss the status of diligence efforts and to receive and provide input on
Nivalis ongoing term sheet negotiations with Alpine and Company B. Ladenburg provided advice and feedback on the proposed valuations and other terms proposed by each party.
Between March 8 and March 16, 2017, members of Nivalis management and the Special Committee held multiple teleconferences with
the representatives of Alpine and Company B to conduct further diligence on each of the two companies and continued to negotiate the non-binding term sheets summarizing the terms of a proposed transaction with each of such companies. Nivalis
external scientific experts also completed their scientific diligence on Alpine and Company B, one of whom prepared a written report that was circulated to the Special Committee and the board of directors. During this period, Nivalis
management and Mr. Conway, as chair of the Special Committee, with the advice and assistance of Ladenburg, Latham & Watkins and Ballard, continued to negotiate the valuation and other key open terms of the non-binding term sheets with
Alpine and Company B as well as the terms of an exclusivity agreement that Alpine had proposed. The members of the Special Committee further determined during this time period not to proceed as actively with negotiations with Company A given
significant capitalization complexities with Company A as well as concerns relating to its status as a foreign entity.
On March 13,
2017, representatives of Sidley Austin LLP, special outside counsel to Alpine (Sidley), delivered to representatives of Latham & Watkins an initial draft of an exclusivity agreement providing for a period of exclusive
negotiation between Alpine and Nivalis, which Latham & Watkins circulated to Nivalis management team and Mr. Conway.
On March 13 and March 14, 2017, representatives of Ladenburg worked with Nivalis management team, with input from members of
the Special Committee and advice from Latham & Watkins and Ballard, to revise the term sheet with Alpine to reflect Nivalis counterproposals on valuation and adjustments to the calculation of the exchange ratio based on each
companys net cash at closing of a potential transaction, the requirement that
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Alpine complete a financing of $17.0 million concurrent with a closing of a transaction and the size of the break-up fee payable in the event the definitive agreement is terminated under
certain circumstances. Representatives of Ladenburg circulated this revised term sheet to Alpines management on March 15, 2017.
On March 15, 2017, the Special Committee held a telephonic meeting which was attended by members of Nivalis management,
representatives of Latham & Watkins, a representative of Ballard and representatives from Ladenburg. Nivalis management circulated to the Special Committee in advance of the meeting copies of the current drafts of the term sheets with
Alpine and Company B as well as the draft exclusivity agreement provided by Sidley. The Special Committee discussed findings from Nivalis continued diligence efforts and the status of term sheet negotiations with each of Alpine and Company B.
The Special Committee also discussed the terms of the exclusivity agreement proposed by Alpine to be entered into should Alpine be chosen as the candidate with whom Nivalis would pursue a strategic transaction. The Special Committee received advice
from Latham & Watkins with respect to the terms of the proposed exclusivity agreement as well as the Special Committees and the board of directors fiduciary duties with respect to entering into such an exclusivity agreement. The
Special Committee discussed the relative merits of Alpine and Company B and of their respective proposals and, after discussion, determined to recommend to the board of directors that Nivalis enter into an exclusivity agreement with Alpine and
pursue a strategic transaction with Alpine. In making this decision, the Special Committee considered the greater experience of the Alpine management and scientific teams and preparedness to operate a public company, Alpines sophisticated
investor base, Alpines cash position, including the financing of approximately $17.0 million to be completed immediately prior to a closing of a potential transaction with Alpine, Alpines unique discovery capabilities and the
potential of its product pipeline, and key upcoming development milestones of Alpine with the potential to create stockholder value.
On
March 16, 2017, representatives of Ladenburg received a revised draft of the non-binding term sheet from Alpine reflecting Alpines counterproposals to the draft circulated on March 15, 2017 to Alpines management. Also on
March 16, 2017, representatives of Ladenburg notified Company A that Nivalis did not desire to continue discussions with Company A.
On March 17, 2017, representatives of Ladenburg held a teleconference with members of Alpines management team to discuss
Alpines counterproposals relating to the duration of the exclusivity period, the size of the break-up fee and matters relating to adjustments to the calculation of the exchange ratio.
On March 17, 2017, Nivalis board of directors held a telephonic meeting which was attended by members of Nivalis management,
representatives from Ladenburg, a representative of Ballard and Nivalis external scientific experts. During this meeting, the scientific experts presented their conclusions and recommendations to the board of directors resulting from the
diligence conducted to date by them on Alpine and Company B. Nivalis management also provided an overview of due diligence conducted by management on Alpine and Company B, and managements resulting recommendations. The board of directors
engaged in a detailed discussion regarding the relative merits and risks of pursuing a strategic transaction with each of the two companies, including development and market risks and opportunities, and the expertise and capabilities of the
management and scientific teams of Alpine and Company B.
Also on March 17, 2017, representatives of Ladenburg delivered to
representatives of Sidley a revised draft of the exclusivity agreement.
On March 18, 2017, Nivalis board of directors held a
telephonic meeting which was attended by members of management, representatives of Ladenburg and a representative of Ballard to continue its discussions of the merits of pursuing a strategic transaction with either of Alpine or Company B on the
terms set forth in their respective term sheets. The board discussed the terms of a transaction with Alpine as reflected in the non-binding term sheet negotiated with Alpine and the terms, including duration and certain exceptions, of the proposed
exclusivity agreement with Alpine, drafts of which had been circulated to the board of directors in advance of the meeting. The board members participated in a discussion of these considerations, including the potential benefits
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and the potential risks and uncertainties associated with each of the potential strategic transactions. They also discussed the proposed economic terms Nivalis existing security holders
could expect in the potential strategic transactions with Alpine or Company B, including the relative value assigned to the shares that would be held by the existing Nivalis stockholders based on the respective valuation assigned to Alpine in the
private financing Alpine agreed to pursue in connection with the closing of the potential strategic transaction. A discussion ensued regarding the ability of these potential strategic transactions to enhance value for Nivalis stockholders,
including a discussion of the market potential of the respective products, services and technologies being offered by Alpine and Company B, respectively. Following such discussion, Mr. Conway noted the determination by the Special Committee
that it was in the best interests of Nivalis and its stockholders to continue negotiations with Alpine and that it was the Special Committees recommendation to the board of directors that Nivalis enter into the exclusivity agreement with
Alpine and proceed to negotiate a definitive agreement with Alpine on the terms set forth in the non-binding term sheet. The board of directors, after consideration of the merits of Alpine and Company B, the risks and opportunities associated with
their respective potential product candidates and pipelines, strengths and weaknesses of their respective management and scientific teams, the rigorous process undertaken by the Special Committee with the assistance of Ladenburg, Latham &
Watkins and Ballard, including the evaluation of over 80 companies for a potential strategic transaction, as well as other factors the board of directors deemed significant, approved execution of the exclusivity agreement with Alpine and directed
Nivalis management and representatives of Ladenburg, Latham & Watkins and Ballard to proceed with negotiations of a definitive agreement for a strategic transaction with Alpine and further directed Ladenburg to communicate to Company
B that Nivalis had determined not to pursue further discussions with Company B.
Also on March, 18, 2017, representatives of Sidley
delivered to representatives of Latham & Watkins a revised draft of the exclusivity agreement.
On March 19, 2017,
representatives of Latham & Watkins delivered to representatives of Sidley a revised draft of the exclusivity agreement.
On
March 20, 2017, at the direction of Nivalis board of directors, representatives of Ladenburg communicated to representatives of Company B that Nivalis would not be pursuing further discussions with Company B with respect to a strategic
transaction involving Nivalis.
Also on March 20, 2017, Alpine and Nivalis executed the exclusivity agreement pursuant to which
Nivalis agreed to negotiate with Alpine on an exclusive basis until April 20, 2017.
Between March 20, 2017 and the signing of
the Merger Agreement on April 18, 2017, Nivalis and Alpine provided due diligence materials requested by the other party through access to electronic data rooms and the parties, with assistance of legal counsel, completed certain additional due
diligence activities. During this time, the parties also negotiated the terms of the Merger Agreement as well as the Support Agreements and Lock-Up Agreements to be entered into by the respective directors, executive officers and certain significant
stockholders of Nivalis and Alpine. Mr. Conway, as chair of the Special Committee, and Nivalis management consulted regularly and worked closely with representatives of Ladenburg, Latham & Watkins and Ballard during the course of
the negotiations. The Special Committee continued to meet weekly with representatives of Ladenburg to discuss the progress of the negotiations and, in consultation with representatives of Ladenburg, Latham & Watkins and Ballard, continued
to provide feedback to Nivalis management on the significant terms of the definitive agreement. The Special Committee also provided detailed, bi-weekly (or as circumstances dictated, more frequent) updates to Nivalis board of directors
on the progress of the negotiations and discussions regarding key terms of the proposed transaction.
On March 21, 2017, members of
Nivalis management team, members of Alpines management team, and representatives of each of Latham & Watkins, Sidley, Ladenburg, and Ascent Law Partners LLP, counsel to Alpine (Ascent), participated in a telephonic
meeting to discuss the transaction generally and a timeline for consummation of the transaction.
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On March 23, 2017, representatives of Latham & Watkins delivered an initial draft
of the Merger Agreement to representatives of Sidley.
On March 29, 2017, members of Nivalis management team held a
teleconference with management of the remaining GSNOR Interested Party and discussed the potential terms of a transaction. Following this teleconference, on March 31, 2017, members of Nivalis management team provided such GSNOR Interested
Party with additional information regarding the GSNOR inhibitor portfolio. Management expressed concerns regarding the ability of this GSNOR Interested Party to consummate a transaction because it lacked funding, scientific expertise and development
capabilities to advance development of the portfolio.
On March 29, 2017, members of Nivalis management, members of
Alpines management and representatives of each of Latham & Watkins, Sidley, Ascent, and Ladenburg, participated in a telephonic meeting to discuss the parties progress with respect to negotiation of the draft Merger Agreement,
diligence related matters, and the timeline of the execution of a definitive Merger Agreement and the consummation of the transaction.
On
March 30, 2017, representatives of Sidley delivered a revised draft of the Merger Agreement to representatives of Latham & Watkins.
On March 31, 2017, Nivalis board of directors held a telephonic meeting attended by members of Nivalis management and a
representative of Ballard. At this meeting, Mr. Conway updated the board of directors with respect to the status of Nivalis continued due diligence activities and the negotiation of the terms of a draft Merger Agreement to be entered into
with Alpine. Nivalis board of directors then discussed the material terms of the draft Merger Agreement under negotiation and the anticipated timeline of negotiation and drafting of the Merger Agreement. Mr. Conway also updated the board
of directors of Nivalis on the status of negotiations with a fifth company that had previously indicated potential interest in Nivalis GSNOR inhibitor assets to Mr. Conway through a mutual contact. Mr. Conway noted, however, that
discussions with such party had ended relatively quickly as the party did not express an interest in moving forward in light of the fact that the party was not able to recruit successfully the scientific expertise required to advance development of
these assets.
On April 3 and 4, 2017, members of Nivalis management and Mr. Conway, as chair of the Special Committee,
visited Alpines corporate headquarters and met with members of Alpines management team and scientists to conduct further diligence and discuss certain matters pertaining to the transaction. An external scientific expert retained by
Nivalis also joined the meeting by phone on April 4, 2017 to conduct a competitive assessment of Alpines technology.
On
April 4, 2017, representatives of Latham & Watkins and representatives of Sidley and Ascent participated in a telephonic meeting to discuss outstanding issues under the Merger Agreement.
On April 7, 2017, the Special Committee held a telephonic meeting which was attended by members of Nivalis management and
representatives of Ladenburg, Latham & Watkins and Ballard to discuss the recent due diligence meeting at Alpines headquarters, noting that the findings from such visit were positive. The Special Committee also reviewed and discussed the
results of the scientific experts competitive assessment as outlined in his written report that was circulated to the Special Committee and the other board members prior to such meeting. The Special Committee also discussed with
representatives of Ladenburg the fairness opinion to be delivered by Ladenburg in connection with the execution of the Merger Agreement. Representatives of Ladenburg noted that a discounted cash flow (DCF) analysis is often utilized in
the valuation of companies in connection with the determination of the fairness of a transaction from a financial point of view to stockholders, but that a DCF analysis for early, pre-clinical stage companies is often not a valid indicator of value,
however, due to significant variability in the assumptions used in a DCF analysis for companies at an early stage such as Alpine where revenue is speculative and will not be generated for a significant number of years in the future. The Ladenburg
representative also pointed out that Alpine had not developed projections that are required for a DCF
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analysis and any such projections would be highly speculative. Following a substantive discussion of the benefits and disadvantages of conducting a DCF analysis in connection with
Ladenburgs fairness determination, and consideration of the highly speculative nature of such an analysis in this context, practices in comparable transactions and other factors, the Special Committee determined that a DCF analysis would not
provide an accurate valuation methodology in connection with the fairness determination.
On April 8, 2017, representatives of
Latham & Watkins delivered a revised draft of the Merger Agreement to representatives of Sidley.
On April 12, 2017,
representatives of Sidley delivered a revised draft of the Merger Agreement to representatives of Latham & Watkins.
On
April 13, 2017, representatives of Latham & Watkins and representatives of Sidley and Ascent participated in a telephonic meeting to discuss outstanding issues under the Merger Agreement.
On April 14, 2017, representatives of Latham & Watkins delivered a revised draft of the Merger Agreement to representatives of
Sidley.
Later on April 14, 2017, Nivalis board of directors held a telephonic meeting with members of management and
representatives of each of Ladenburg, Latham & Watkins and Ballard. At this meeting, Mr. Conway updated Nivalis board of directors on the continued due diligence activities, including the recent visit to Alpines corporate
headquarters, and Ms. Troha reviewed the results of the scientific experts competitive assessment as outlined in his written report that had previously been circulated to the board. Mr. Conway also updated the board on the status of
negotiations of the Merger Agreement and reviewed the material terms and open issues under discussion. Mr. Conway summarized for the board again the process undertaken by the Special Committee and Nivalis leading to the determination to select
Alpine and the steps taken by the Special Committee to ensure a thorough review and consideration of the terms of the Merger Agreement, including retention of Ladenburg and Latham & Watkins and retention of outside scientific experts to
review and evaluate Alpine and the other transaction candidates. Also at this meeting, representatives of Latham & Watkins gave a presentation to the board concerning its fiduciary duties under Delaware law in connection with the proposed
transaction and as applied to certain provisions in the Merger Agreement. The board asked questions of the representatives of Latham & Watkins during this presentation which were responded to. Representatives of Latham & Watkins
then provided a detailed review of the terms of the Merger Agreement negotiated with Alpine (a copy of which had been circulated to the board in advance of the meeting along with a summary of the material terms of the Merger Agreement), including
the provisions governing the exchange ratio and other economic terms; the closing cash requirements of the parties, the financing of Alpine required to be consummated contemporaneously with the closing pursuant to the Subscription Agreement, and
other conditions to the closing; the treatment of stock options and warrants of each party; the terms of the no-shop provisions and exceptions to those provisions in the event of certain superior offers; the requirement that
Nivalis board of directors recommend the approval of the Merger Agreement and the transactions contemplated thereby to Nivalis stockholders and the conditions under which a change in the recommendation of Nivalis board of directors
would be permitted; and certain covenants of the parties applicable to the period commencing upon execution of the Merger Agreement and ending on the earlier of the Effective Time and the termination of the Merger Agreement. Latham &
Watkins also reviewed with Nivalis board of directors the terms of the Support Agreements and Lock-Up Agreements. Following this discussion, Mr. Conway reviewed the process undertaken by the Special Committee and Nivalis for a potential
sale or license of Nivalis GSNOR inhibitor portfolio. Mr. Conway noted that there had not been significant interest expressed for such assets in light of the failure of two clinical trials in CF, the very early-stage nature of the assets
in other indications, such as asthma and inflammatory bowel disease, and the likely significant capital requirements necessary to conduct further development of such assets. After these presentations and discussions, representatives of Ladenburg
presented its financial analysis of the proposed transaction, which included a summary of the proposed transaction and a discussion of the exchange ratio, and reviewed its draft fairness opinion, both of which had been circulated to the board in
advance of the meeting.
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Members of Nivalis board of directors asked questions of the representatives of Latham & Watkins and Ladenburg during and following their presentations, and engaged in a discussion
of the terms of the Merger Agreement and related transaction documents.
During the period of April 14, 2017 through April 16,
2017, members of Nivalis management and Mr. Conway, as chair of the Special Committee, negotiated certain additional terms of the Merger Agreement and the Support Agreements and Lock-Up Agreements to be entered into with two of
Nivalis large stockholders with the assistance of Latham & Watkins and Ladenburg.
On April 16, 2017, representatives
of Sidley delivered a revised draft of the Merger Agreement to representatives of Latham & Watkins.
On April 17, 2017,
Nivalis board of directors held a telephonic meeting which was attended by members of management, representatives of Ladenburg, representatives of Latham & Watkins, and representatives of Ballard. At this meeting, representatives of
Latham & Watkins presented the revised terms of the Merger Agreement that had been further negotiated since the boards April 14, 2017 meeting (as reflected in a marked copy of the Merger Agreement and updated summary of the terms
of the Merger Agreement that had been circulated to the board in advance of the meeting), including the addition of closing conditions relating to the requirement for Sidley to deliver a tax opinion at or prior to the closing of the transaction and
modifications to the termination and expense reimbursement rights of the parties. Representatives of Latham & Watkins also reviewed certain revisions to the Support Agreement to be entered into by certain significant stockholders of
Nivalis. Nivalis board of directors then engaged in a discussion of the revised terms of the Merger Agreement and the other transaction documents and asked questions of the representatives of Latham & Watkins regarding the Merger
Agreement, which were answered during Latham & Watkins presentation. Representatives of Ladenburg then reviewed its final valuation analysis and fairness opinion as circulated to the board in advance of the meeting. Ladenburg then
delivered its oral opinion (subsequently confirmed in writing and attached hereto as Annex B) to the effect that, as of the date of the execution of the Merger Agreement, and based upon and subject to the considerations, limitations and other
matters set forth in its written opinion attached hereto as Annex B, that the exchange ratio was fair, from a financial point of view, to Nivalis stockholders. During the presentations, members of Nivalis board of directors asked
questions and discussed the revised terms of the Merger Agreement and Ladenburgs financial analysis and fairness opinion. After these presentations and discussions, Nivalis board of directors unanimously (i) determined that the
Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement, including the issuance of common stock to Alpines stockholders and the Nivalis Reverse Stock Split, if deemed necessary or advisable, were advisable
and in the best interests of Nivalis stockholders; (ii) approved the Merger Agreement, the Support Agreements, the merger and the transactions contemplated thereby in accordance with Delaware law; (iii) approved and declared
advisable the Merger Agreement and the transactions contemplated thereby; (iv) approved an amendment to Nivalis certificate of incorporation to effect the Nivalis Name Change and, if determined necessary by Nivalis and Alpine, effect the
Nivalis Reverse Stock Split; and (v) resolved to recommend that Nivalis stockholders vote to approve the Merger Agreement and the transactions contemplated therein, including the issuance of shares of Nivalis common stock in the
merger.
Following this meeting, certain terms of the Support Agreement to be entered into between Alpine and one of Nivalis
stockholders (the Revised Support Agreement) were revised to provide certain exceptions to the transfer restrictions therein.
On April 18, 2017, following finalization of the Revised Support Agreement, the Merger Agreement and related documents were executed and
delivered by Nivalis, Alpine and the other applicable parties. Following execution of the Merger Agreement, Nivalis and Alpine issued a joint press release announcing the execution of the Merger Agreement and the related documents following the
close of trading of Nivalis common stock on April 18, 2017.
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Historical Background for Alpine
In January 2015, Alpine entered into a Series Seed Stock Purchase Agreement, as amended, with certain investors which provided for $1.25
million in equity financing and was funded in multiple closings over the course of 2015 and early 2016 (the Series Seed Financing). The proceeds from the Series Seed Financing were used to finance Alpines research and development
efforts and for general operating capital purposes.
In October 2015, Alpine signed a collaboration agreement with Kite providing Kite
with access to two of Alpines TIP programs for use in Kites CAR-T and TCR programs. Alpine received $5.5 million in
up-front
cash payments from Kite and is eligible to receive up to
$530.0 million in developmental, clinical, and regulatory milestones in addition to royalties on any products containing Alpines TIPs. Alpine used the proceeds from the up-front payments to finance its research and development efforts and for
general operating capital purposes.
In June 2016, Alpine entered into a Series A Preferred Stock Purchase Agreement (the Series A
SPA) with certain investors which provided for up to $48.0 million in equity financing to be funded in three potential tranches subject to certain milestones and other conditions (the Series A Financing). Approximately $10.33
million of Series A-1 Preferred Stock was sold by Alpine in the initial closing of the Series A Financing, which initial closing occurred on June 10, 2016. The proceeds from the initial closing of the Series A Financing were used to finance
Alpines research and development efforts and for general operating capital purposes.
In addition to the Series A Financing, in
December 2016, Alpine entered into a Loan and Security Agreement with a financial institution (the Loan Agreement) which provided Alpine with the ability to borrow up to $5.0 million, subject to certain terms and conditions as set forth
more fully in the Loan Agreement, for purposes of funding Alpines research and development efforts and for general operating capital purposes. Alpine had not requested any term loan advances at March 31, 2017 or December 31, 2016.
Alpines executive management team and board of directors continually and periodically reviews a broad range of options to enhance
stockholder value, including debt and/or equity financings, mergers and acquisitions, and monetization of existing research and development programs. On or about January 16, 2017, Alpine received a letter from Ladenburg. The letter described
the potential for a strategic transaction involving Nivalis and invited Alpine to submit a non-binding proposal regarding such potential transaction.
On or about February 3, 2017, representatives of Alpine submitted to representatives of Ladenburg a response to Ladenburgs letter,
outlining the terms of a potential transaction between Alpine and Nivalis. Alpines February 3, 2017 letter set forth a proposal of high level terms for a potential merger transaction and discussed some of the strategic benefits Alpine
could provide in such a combination with Nivalis.
On or about February 13, 2017, representatives of Alpine visited Ladenburg and
certain members of Nivalis management team in New York, New York. At this meeting, representatives of Alpine provided a more detailed presentation, including a discussion of Alpines underlying technology and research and development
efforts to date, Alpines financing efforts, current cash projections and other financial information, management team and other personnel, board of directors and scientific advisory team, and certain of Alpines strategic business
relationships and collaboration opportunities. The parties also further discussed the economic and other terms of a potential merger transaction.
On March 20, 2017, following several formal and informal discussions by Alpines board of directors and Alpines management
team regarding the terms of a potential merger transaction between Nivalis and Alpine, with the support of Alpines board of directors, management and Alpines existing investors, Alpine entered into a letter agreement with Nivalis
containing certain limited exclusivity provisions to allow the parties an opportunity to conduct further due diligence and to attempt to negotiate a definitive agreement related to a potential merger transaction. As a requirement imposed by Nivalis
to the potential merger transaction, certain existing Alpine investors demonstrated interest in a private financing in Alpine immediately prior to the closing
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of the potential merger transaction, which when combined with the approximately $44.0 million in cash resources of Nivalis, would provide Alpine with approximately $90.0 million of funds
available to enable Alpine to pursue the combined organizations business objectives post-merger.
In late March and early April of
2017, as Alpine performed due diligence on the potential merger transaction and was working to negotiate the terms of the definitive Merger Agreement, Alpine management continued to keep Alpines board of directors informed, both through formal
and informal communications, regarding the status of negotiations on the potential merger transaction. On Alpines telephonic board of directors call on March 29, 2017, Alpines board of directors authorized Alpine management to incur
certain legal, accounting and other expenses related to the potential merger transaction.
On April 14, April 16 and
April 18, 2017, Alpines board of directors held a series of telephonic meetings with Alpines legal advisors. The directors acknowledged and discussed that they had met and discussed on numerous occasions, both formally and
informally, the potential merits and risks to Alpine and its stockholders of the merger and the $17.0 million financing to be consummated immediately prior to the closing of the merger as contemplated by the Subscription Agreement (the
Pre-Closing Financing), the chronology of events leading to the proposals to approve the merger and the Pre-Closing Financing, the negotiations with the investors in such Pre-Closing Financing and with Nivalis with respect to the merger,
and the terms and conditions of such Pre-Closing Financing and the merger. The directors also acknowledged that prior to the signing of the definitive Merger Agreement, certain investors of Alpine would also complete a Second Tranche Put Closing (as
defined and set forth in the Series A SPA) related to Alpines Series A Financing, whereby such investors would, in the aggregate, purchase approximately $20.67 million of Series A-1 Preferred Stock in Alpine upon the terms set forth in the
Series A SPA. Alpines legal counsel summarized the terms and conditions of the proposed merger and the Pre-Closing Financing, reviewed with the directors their fiduciary duties in the context of the consideration and approval of the
Pre-Closing Financing and the merger and answered each directors questions. After discussion, Alpines board of directors (i) authorized and approved the Pre-Closing Financing contemplated by the Subscription Agreement,
(ii) approved and adopted the Subscription Agreement, (iii) determined that the merger and the transactions contemplated by the Merger Agreement were fair to, advisable and in the best interests of Alpine and its stockholders,
(iv) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, (v) resolved to recommend that the stockholders of Alpine execute a written consent to approve and adopt the Merger Agreement and thereby
approve the transactions contemplated thereby and (vi) approved certain other related matters.
Nivalis Reasons for the
Merger
Nivalis board of directors considered the following factors in reaching its conclusion to approve the Merger Agreement
and the transactions contemplated thereby and to recommend that Nivalis stockholders approve the Merger Agreement, and thereby approve the merger and the other transactions contemplated by the Merger Agreement, including the issuance of shares
of Nivalis common stock in the merger, all of which Nivalis board of directors viewed as supporting its decision to approve the business combination with Alpine:
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Based in part on the scientific diligence and analysis of Alpines product pipeline, its therapeutic discovery capabilities, the potential market opportunity for its products and the expertise of its scientific
team, which was conducted over several weeks by Nivalis management and by independent consultants retained by Nivalis with expertise in the field and reviewed with Nivalis board of directors, Nivalis board of directors believes that
Alpines platform and potential product candidates have the potential to meet unmet medical needs and address a sizable market opportunity, thereby creating value for the stockholders of the combined organization and an opportunity for
Nivalis stockholders to participate in the potential growth of the combined organization.
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Nivalis board of directors also reviewed its assessment of Alpines drug discovery capabilities and
technologies with Nivalis management and the scientific experts retained by Nivalis. Based in part on this analysis, Nivalis board of directors believes that Alpine has the potential to discover and develop new therapies using its
therapeutic discovery expertise that would broaden Alpines pipeline, which in
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turn may reduce the risk to the combined organization and its stockholders that one or more of its product candidates is not commercialized.
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Nivalis board of directors considered the strength of the balance sheet and sufficiency of the expected cash resources of the combined organization, including that Alpine has commitments from its existing major
investors, pursuant to the executed Subscription Agreement, for $17.0 million to fund the combined organizations operations. Combined with the $44.0 million in cash resources expected to be held by Nivalis at the time of the closing
of the transaction and Alpines cash on hand, the combined organization is expected to have approximately $90.0 million in cash and cash equivalents at the closing of the transaction, which Nivalis and Alpine currently believe is
sufficient to enable Alpine to advance up to three product candidates into clinical development.
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Nivalis board of directors also reviewed with Nivalis management the current operating plans of Alpine to confirm the likelihood that the combined organization would possess sufficient financial resources to
allow the management team to focus on implementing Alpines business plan and growing Alpines business, without the need for near-term fundraising. Nivalis board of directors also considered the ability of Alpine to take advantage
of the potential benefits resulting from becoming a public reporting company listed on NASDAQ should it be required to raise additional equity or debt in the future.
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Nivalis board of directors considered the financial analyses of Ladenburg, including its opinion to Nivalis board of directors as to the fairness to Nivalis stockholders, from a financial point of view
and as of the date of the opinion, of the exchange ratio for the conversion of shares of Alpines capital stock into shares of Nivalis common stock, as more fully described below under the caption The MergerOpinion of the
Nivalis Financial Advisor.
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Nivalis board of directors considered the strength of Alpines management and scientific team, and their expertise in the biotechnology industry and the fields of immuno-oncology and inflammation, as well as
the fact that the board of directors following the completion of the merger will include representatives of Nivalis who have public company leadership experience.
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Nivalis board of directors concluded that the merger would provide Nivalis existing stockholders with a significant opportunity to participate in the potential increase in value of the combined organization
following the merger.
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Nivalis board of directors also reviewed various factors impacting the financial condition, results of
operations and prospects for Nivalis, including:
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the strategic alternatives to the merger, including potential transactions that could have resulted from discussions that Nivalis management conducted with other potential merger partners;
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the consequences of negative results from the cavosonstat clinical trials, and the likelihood that the resulting circumstances for Nivalis would not change for the benefit of Nivalis stockholders in the
foreseeable future on a stand-alone basis;
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the loss of the operational capabilities of Nivalis, and the risks associated with continuing to operate Nivalis on a stand-alone basis, including the need to rebuild infrastructure and management and raise substantial
funds to continue its operations;
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the risks associated with, and the limited value and high costs of, liquidating Nivalis and thereafter distributing the remaining proceeds to Nivalis stockholders; and
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Nivalis potential inability to maintain its NASDAQ listing without completing the merger.
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Nivalis
board of directors also reviewed the terms and conditions of the Merger Agreement and associated transactions, as well as the safeguards and protective provisions included therein intended to mitigate risks, including:
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that the exchange ratio used to establish the number of shares of Nivalis common stock to be issued to
Alpines stockholders in the merger is not subject to adjustment based on trading prices or closing cash
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balances, and thus the relative percentage ownership of Nivalis stockholders and Alpines stockholders immediately following the completion of the merger is fixed;
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the planned
Pre-Closing
Financing, the limited number and nature of conditions to the obligation of the investors in Alpine to consummate the
Pre-Closing
Financing and the ability of Nivalis to specifically enforce the obligations of the investors under the Subscription Agreement to complete the Pre-Closing Financing if all of such conditions to the
completion of the investment contemplated by the Subscription Agreement have been satisfied;
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the limited number and nature of the conditions to Alpines obligation to consummate the merger and the limited risk of
non-satisfaction
of such conditions as well as the
likelihood that the merger will be consummated on a timely basis;
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the respective rights of, and limitations on, Nivalis and Alpine under the Merger Agreement to consider certain unsolicited acquisition proposals under certain circumstances should Nivalis or Alpine receive a superior
offer (as defined in the section titled The Merger AgreementNo Solicitation below);
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the reasonableness of the potential termination fee of $2.5 million and related reimbursement of certain transaction expenses of up to $1.0 million, which could become payable by either Nivalis or Alpine to
the other party if the Merger Agreement is terminated in certain circumstances;
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the support agreements, pursuant to which certain directors, officers and stockholders of Alpine and Nivalis, respectively, have agreed, solely in their capacity as stockholders of Alpine and Nivalis, respectively, to
vote all of their shares of Alpine capital stock or Nivalis common stock in favor of the adoption or approval, respectively, of the Merger Agreement;
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the agreement of Alpine to provide a written consent of its stockholders necessary to adopt the Merger Agreement thereby approving the merger and related transactions within five business days of the registration
statement on Form
S-4,
of which this proxy statement/prospectus/information statement is a part, becoming effective; and
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the belief that the terms of the Merger Agreement, including the parties representations, warranties and covenants, and the conditions to their respective obligations, are reasonable under the circumstances.
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In the course of its deliberations, Nivalis board of directors also considered a variety of risks and other countervailing factors
related to entering into the merger, including:
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the $2.5 million termination fee or up to $1.0 million in related expense reimbursement obligations payable by Nivalis to Alpine upon the occurrence of certain events and the potential effect of such fees in
deterring other potential acquirers from proposing an alternative transaction that may be more advantageous to Nivalis stockholders;
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|
the substantial expenses to be incurred in connection with the merger;
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|
the possible volatility, at least in the short term, of the trading price of Nivalis common stock resulting from the announcement of the merger;
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the risk that the merger might not be consummated in a timely manner or at all and the potential adverse effect of the public announcement of the merger or of the delay or failure to complete the merger on the
reputation of Nivalis;
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|
the likely detrimental effect on Nivalis cash position, stock price and ability to initiate another process and to successfully complete an alternative transaction should the merger not be completed;
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the risk to Nivalis business, operations and financial results in the event that the merger is not consummated;
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the likelihood of disruptive stockholder litigation following announcement of the merger;
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the unproven, development-stage nature of Alpines product candidates, which may not be successfully developed into products marketed and sold;
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the strategic direction of the combined organization following the completion of the merger, which will be determined by a board of directors initially comprised of a majority of the directors designated by Alpine;
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the fact that the merger could result in substantial limits on the utilization of Nivalis NOLs; and
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various other risks associated with the combined organization and the merger, including those described in the section entitled Risk Factors in this proxy statement/prospectus/information statement.
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The foregoing information and factors considered by Nivalis board of directors are not intended to be exhaustive but
are believed to include all of the material factors considered by Nivalis board of directors. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, Nivalis
board of directors did not find it useful to attempt, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of Nivalis board of directors
may have given different weight to different factors. Nivalis board of directors conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, Nivalis management team, members of
the Special Committee and the legal and financial advisors of Nivalis, and considered the factors overall to be favorable to, and to support, its determination.
Alpine Reasons for the Merger
In the course of reaching its decision to approve the merger, Alpines board of directors consulted with Alpines senior management,
financial and tax advisors and legal counsel, reviewed a significant amount of information and considered a number of factors, including, among others:
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the potential increased access to sources of capital and a broader range of investors to support the clinical development of its therapeutic candidates following consummation of the transaction compared to if Alpine
continued to operate as a privately held company;
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the potential to provide its current stockholders with greater liquidity by owning stock in a public company;
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the boards belief that no alternatives to the merger were reasonably likely to create greater value for Alpines stockholders, after reviewing the various financing and other strategic options to enhance
stockholder value that were considered by Alpines board of directors;
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the cash resources of the combined organization, which are expected to be approximately $90.0 million at the closing of the merger, which would provide Alpine with significant operating capital to pursue the clinical
development of its therapeutic candidates and mitigate the need for additional financing in the near term;
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the business, history and credibility of Nivalis and its affiliates, and its financial resources;
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the availability of appraisal rights under the DGCL to holders of Alpines capital stock who comply with the required procedures under the DGCL, which allow such holders to seek appraisal of the fair value of their
shares of Alpine capital stock as determined by the Delaware Court of Chancery;
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the expectation that the merger with Nivalis would be a more time- and cost-effective means to access capital than other options considered by Alpines board of directors, including additional private financings or
an initial public offering;
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the value to the principal investors under the Subscription Agreement of the consummation of the merger as a condition to their investment;
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the terms and conditions of the Merger Agreement, including, without limitation, the following:
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the determination that the expected relative percentage ownership of Nivalis stockholders and Alpines stockholders in the combined organization was appropriate based, in the judgment of the Alpines
board of directors, on the board of directors assessment of the approximate valuations of Nivalis (including the value of the net cash Nivalis is expected to provide to the combined organization) and Alpine (including the value of the net cash
Alpine is expected to provide to the combined organization);
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the expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes;
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the limited number and nature of the conditions of the obligation of Nivalis to consummate the merger;
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|
|
|
the rights of Alpine under the Merger Agreement to consider certain unsolicited acquisition proposals under certain circumstances should Alpine receive a superior proposal;
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the conclusion of Alpines board of directors that the potential termination fee of $2.5 million, or in some situations the reimbursement of certain transaction expenses incurred in connection with the merger of up
to $1.0 million, payable by Nivalis or Alpine to the other party, and the circumstances when such fee may be payable, were reasonable; and
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the belief that the other terms of the Merger Agreement, including the parties representations, warranties and covenants, and the conditions to their respective obligations, were reasonable in light of the entire
transaction;
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the fact that shares of Nivalis common stock issued to Alpines stockholders will be registered on a Form S-4 registration statement and will become freely tradable for Alpines stockholders who are not
affiliates of Alpine and who are not parties to lock-up agreements;
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the support agreements, pursuant to which certain directors, officers and stockholders of Alpine and Nivalis, respectively, have agreed, solely in their capacity as stockholders of Alpine and Nivalis, respectively, to
vote all of their shares of Alpine capital stock or Nivalis common stock in favor of the adoption or approval, respectively, of the Merger Agreement;
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the ability to obtain a NASDAQ listing and the fact that Nivalis will change its name to Alpine Immune Sciences, Inc. upon the closing of the merger;
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the fact that the proposed merger may enable certain stockholders of Nivalis and Alpine to increase the value of their current shareholding; and
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the likelihood that the merger will be consummated on a timely basis.
|
Alpines board of
directors also considered a number of uncertainties and risks in its deliberations concerning the merger and the other transactions contemplated by the Merger Agreement, including the following:
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|
|
the possibility that the merger might not be completed and the potential adverse effect of the public announcement of the merger on the reputation of Alpine and the ability of Alpine to obtain financing in the future in
the event the merger is not completed;
|
|
|
|
the exchange ratio used to establish the number of shares of Nivalis common stock to be issued to Alpines stockholders in the merger is fixed, and thus the relative percentage ownership of Nivalis
stockholders and Alpines stockholders in the combined organization immediately following the completion of the merger is similarly fixed;
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|
|
|
the termination fee of $2.5 million, or in some situations the reimbursement of certain transaction expenses
incurred in connection with the merger of up to $1.0 million, payable by Alpine to Nivalis upon the occurrence of certain events, and the potential effect of such termination fee in deterring other
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potential acquirers from proposing an alternative transaction that may be more advantageous to Alpines stockholders;
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the risk that the merger might not be consummated in a timely manner or at all;
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|
the expenses to be incurred in connection with the merger and related administrative challenges associated with combining the companies;
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the additional expenses and obligations to which Alpines business will be subject following the merger that Alpine has not previously been subject to, and the operational changes to Alpines business, in each
case that may result from being a public company;
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the fact that the representations and warranties in the Merger Agreement do not survive the closing of the merger and the potential risk of liabilities that may arise post-closing; and
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various other risks associated with the combined organization and the merger, including the risks described in the section entitled Risk Factors in this proxy statement/prospectus/information statement.
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Opinion of the Nivalis Financial Advisor
Pursuant to an engagement letter dated January 3, 2017, Nivalis retained Ladenburg to act as a financial advisor in connection with the
merger and the transactions contemplated by the Merger Agreement and to render an opinion to Nivalis board of directors as to the fairness, from a financial point of view, of the exchange ratio to Nivalis stockholders. On April 17,
2017, Ladenburg rendered its oral opinion, subsequently confirmed by delivery of a written opinion dated April 17, 2017 (the Opinion), to Nivalis board of directors, that, as of the date of such Opinion, and based upon the
various assumptions, qualifications and limitations set forth therein, the exchange ratio was fair, from a financial point of view, to Nivalis stockholders.
The full text of the written Opinion of Ladenburg, dated April 17, 2017, is attached as Annex B to this proxy statement and is
incorporated by reference. Nivalis encourages Nivalis stockholders to read the Opinion in its entirety for the assumptions made, procedures followed, other matters considered and limits of the review by Ladenburg. The summary of the Opinion
set forth herein is qualified by reference to the full text of such Opinion. Ladenburg provided its Opinion for the sole benefit and use of Nivalis board of directors in its consideration of the merger and the other transactions contemplated
by the Merger Agreement. Ladenburgs Opinion is not a recommendation to any stockholder as to how to vote with respect to the proposed merger or the transactions contemplated by the Merger Agreement or to take any other action in
connection with the merger or otherwise.
In connection with its Opinion, Ladenburg took into account an assessment of general
economic, market and financial conditions as well as its experience in connection with similar transactions and securities valuations generally and, among other things:
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reviewed a draft dated April 17, 2017 of the Merger Agreement, which was the most recent draft made available to Ladenburg prior to delivery of its Opinion;
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reviewed and analyzed certain publicly available financial and other information for each of Nivalis and Alpine, respectively, including equity research, and certain other relevant financial and operating data furnished
to Ladenburg by the management of each of Nivalis and Alpine, respectively;
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|
reviewed and analyzed certain relevant historical financial and operating data concerning Alpine furnished to Ladenburg by the management of Alpine;
|
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|
discussed with certain members Nivalis management the historical and current business operations, financial condition and prospects of Nivalis;
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reviewed and analyzed certain operating results of Alpine as compared to operating results and the reported price and trading histories of certain publicly traded companies that Ladenburg deemed relevant;
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reviewed and analyzed certain financial terms of the Merger Agreement as compared to the publicly available financial terms of certain selected business combinations that Ladenburg deemed relevant;
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reviewed and analyzed certain financial terms of completed initial public offerings for certain companies that Ladenburg deemed relevant;
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reviewed certain pro forma financial effects of the merger;
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|
reviewed and analyzed such other information and such other factors, and conducted such other financial studies, analyses and investigations, as Ladenburg deemed relevant for the purposes of the Opinion; and
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took into account Ladenburgs experience in other transactions, as well as Ladenburgs experience in securities valuations and Ladenburgs general knowledge of the industries in which Nivalis and Alpine
operate.
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In conducting its review and arriving at its Opinion, Ladenburg, with the consent of Nivalis, assumed and relied,
without independent investigation, upon the accuracy and completeness of all financial and other information provided to Ladenburg by Nivalis and Alpine, or which is publicly available or was otherwise reviewed by Ladenburg. Ladenburg did not
undertake any responsibility for the accuracy, completeness or reasonableness of, or independent verification of, such information. Ladenburg relied upon, without independent verifications, the assessment of management of Nivalis and Alpine as to
the viability of, and risks associated with, the future products and services of Alpine (including without limitation, the development, testing and marketing of such products and services, the receipt of all necessary governmental and other
regulatory approvals for the development, testing and marketing thereof, and the life and enforceability of all relevant patents and other intellectual and other property rights associated with such products and services). In addition, Ladenburg did
not conduct, or assume any obligation to conduct, any physical inspection of the properties or facilities of Nivalis or Alpine.
With
respect to the financial forecasts supplied to Ladenburg by Nivalis regarding Alpine, Ladenburg assumed, with Nivalis consent, that they were reasonably prepared on the basis reflecting the best currently available estimates and judgments of
the managements of Nivalis and Alpine, as applicable, as to the future operating and financial performance of Nivalis and Alpine, as applicable, and that they provided a reasonable basis upon which Ladenburg could form its opinion. Ladenburg
assumed, with Nivalis consent, that the only material asset of Nivalis is its net cash, that no other assets of Nivalis, including, without limitation, any net operating losses of Nivalis, have any material value and that Nivalis does not, and
does not intend to, engage in any activity that may result in the generation of any revenue. Furthermore, Ladenburg assumed, with Nivalis consent, that there will be no further adjustments to the exchange ratio between the date of the Merger
Agreement and the date the final exchange ratio is determined. Ladenburg expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting its Opinion of which Ladenburg becomes aware after the
date of its Opinion. Ladenburg assumed there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of Nivalis or Alpine since the date of the last financial statements made available
to them. Ladenburg did not make or obtain any independent evaluations, valuations or appraisals of the assets or liabilities of Nivalis or Alpine, nor was Ladenburg furnished with such materials. Further, as Nivalis board of directors was
aware, Alpines management did not provide Ladenburg with, and Ladenburg did not otherwise have access to, financial forecasts regarding Alpines business, other than certain expense forecasts for the remaining portion of 2017, and,
accordingly, Ladenburg did not perform either a discounted cash flow analysis or any multiples-based analyses with respect to Alpine. In addition, Ladenburg did not evaluate the solvency or fair value of Nivalis or Alpine under any state or federal
laws relating to bankruptcy, insolvency or similar matters. Ladenburgs Opinion did not address any legal, tax or accounting matters related to the Merger Agreement or the merger, as to which Ladenburg has assumed that
114
Nivalis and Nivalis board of directors received such advice from legal, tax and accounting advisors as each has determined appropriate. Ladenburgs Opinion addressed only the fairness
of the exchange ratio, from a financial point of view, to Nivalis stockholders. Ladenburg expressed no view as to any other aspect or implication of the merger or any other agreement, arrangement or understanding entered into in connection
with the merger. Ladenburgs Opinion was necessarily based upon economic and market conditions and other circumstances as they existed and could be evaluated by Ladenburg on the date of its Opinion. It should be understood that although
subsequent developments may affect Ladenburgs Opinion, Ladenburg does not have any obligation to update, revise or reaffirm its Opinion and Ladenburg has expressly disclaimed any responsibility to do so.
Ladenburg did not consider any potential legislative or regulatory changes currently being considered or recently enacted by the United States
or any foreign government, or any domestic or foreign regulatory body, or any changes in accounting methods or generally accepted accounting principles that may be adopted by the SEC, the Financial Accounting Standards Board, or any similar foreign
regulatory body or board.
For purposes of rendering its Opinion, Ladenburg assumed, in all respects material to its analysis, that the
representations and warranties of each party contained in the Merger Agreement are true and correct, that each party will perform all of the standards of the covenants and agreements required to be performed by it under the Merger Agreement and that
all conditions to the consummation of the merger will be satisfied without waiver thereof. Ladenburg assumed that the final form of the Merger Agreement was substantially similar to the last draft reviewed by Ladenburg. Ladenburg also assumed that
all governmental, regulatory and other consents and approvals contemplated by the Merger Agreement will be obtained and that in the course of obtaining any of those consents no restrictions will be imposed or waivers made that would have an adverse
effect on the contemplated benefits of the merger. Ladenburg assumed that the merger will be consummated in a manner that complies with the applicable provisions of the Securities Act, the Exchange Act, and all other applicable federal and state
statutes, rules and regulations.
Ladenburgs Opinion was intended for the benefit and use of Nivalis board of directors in its
consideration of the financial terms of the merger and may not be used for any other purpose or reproduced, disseminated, quoted or referred to at any time, in any manner or for any purpose without Ladenburgs prior written consent.
Ladenburgs Opinion did not constitute a recommendation to Nivalis board of directors on whether or not to approve the merger or to any stockholder or any other person as to how to vote with respect to the merger or to take any other
action in connection with the merger or otherwise. Ladenburgs Opinion did not address Nivalis underlying business decision to proceed with the merger or the relative merits of the merger compared to other alternatives available to
Nivalis. Ladenburg expressed no opinion as to the prices or ranges of prices at which shares of securities of any person, including Nivalis, will trade at any time, including following the announcement or consummation of the merger. Ladenburg was
not requested to opine as to, and Ladenburgs Opinion does not in any manner address, the amount or nature of compensation to any of the officers, directors or employees of any party to the merger, or any class of such persons, relative to the
compensation to be paid to the securityholders of Alpine in connection with the merger or with respect to the fairness of any such compensation.
The following is a summary of the principal financial analyses performed by Ladenburg to arrive at its Opinion. Some of the summaries of
financial analyses include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data set forth in the tables without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or
incomplete view of the financial analyses. Ladenburg performed certain procedures, including each of the financial analyses described below, and reviewed with Nivalis management the assumptions on which such analyses were based and other
factors, including the historical and projected financial results of Nivalis and Alpine.
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Transaction Overview
Based upon the exchange ratio in the Merger Agreement, Ladenburg assumed Nivalis would issue to Alpines stockholders and cause to become
issuable to Alpines optionholders and warrantholders approximately 11.2 million shares of Nivalis common stock (as adjusted for the potential Nivalis Reverse Stock Split) and that Nivalis stockholders, optionholders and
warrantholders will own, or hold rights to acquire, approximately 26% of the Fully-Diluted Common Stock of Nivalis post-merger.
Implied Equity Value
Ladenburg estimated an implied equity value for Alpine of approximately $142.3 million, which was calculated by multiplying
11,229,209 (the number of shares of Nivalis common stock expected to be issued to Alpines stockholders or to become issuable to Alpines optionholders and warrantholders based on the exchange ratio, assuming the occurrence of the
Nivalis Reverse Stock Split) by $12.67 (the implied per share price of Nivalis common stock following the Nivalis Reverse Stock Split).
Implied
Total Enterprise Value
Ladenburg calculated an implied total enterprise value for Alpine of approximately $101.1 million by
subtracting an assumed Alpine Net Cash balance of approximately $41.2 million (based on Alpines projected indebtedness, cash and cash equivalents at July 31, 2017, the assumed closing date of the Merger for purposes of the Opinion),
from the implied equity value of approximately $142.3 million.
Analysis of Selected Initial Public Offering Transactions
Ladenburg reviewed the initial public offerings (IPOs) of twelve companies which completed an IPO since 2015 and whose lead
products at the time of its IPO were in the immuno-oncology space. The implied total enterprise value at IPO is defined as the
pre-money
equity value plus indebtedness, liquidation value of preferred stock and
non-controlling
interest, minus cash and cash equivalents at the time of its IPO. Although the companies referred to below were used for comparison purposes, none of these companies are directly comparable to
Alpine. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but instead involves complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of
the selected companies below.
These companies, which are referred to as the Selected Oncology IPO Companies were:
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Adaptimmune Therapeutics
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As indicated in the following table, the Selected Oncology IPO Companies had implied total
enterprise values between $65 million and $1,716 million, with a median of $292 million and an interquartile range of $158 million to $730 million. Using the 25
th
percentile and the 75
th
percentile of the implied total enterprise values, Ladenburg then calculated a range of implied total equity values for Alpine (by subtracting an estimated
$5.0 million in debt at closing and adding an estimated $46.2 million in net cash as closing), which was $200.0 million to $771 million. This compares to Alpines total equity value as per the Merger Agreement of
approximately $142.3 million.
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Date of IPO Announcement
|
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Company Name
|
|
Enterprise Value ($MM)
|
|
3/8/17
|
|
BeyondSpring
|
|
|
$ 367
|
|
1/26/17
|
|
Jounce Therapeutics
|
|
|
125
|
|
1/25/17
|
|
AnaptysBio
|
|
|
164
|
|
6/29/16
|
|
Syros Pharmaceuticals
|
|
|
172
|
|
5/18/16
|
|
Merus
|
|
|
65
|
|
3/22/16
|
|
Corvus Pharmaceuticals
|
|
|
141
|
|
2/2/16
|
|
BeiGene
|
|
|
477
|
|
10/7/15
|
|
CytomX Therapeutics
|
|
|
216
|
|
7/27/15
|
|
NantKwest
|
|
|
1,716
|
|
5/5/15
|
|
Adaptimmune Therapeutics
|
|
|
719
|
|
4/14/15
|
|
Aduro Biotech
|
|
|
764
|
|
3/24/15
|
|
Cellectis
|
|
|
1,108
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Analysis of Selected Publicly Traded Companies
Ladenburg reviewed selected financial data of fourteen publicly traded companies in the biopharmaceutical industry which were in early stages
of development and were focused on the immuno-oncology space (the Selected Publicly Traded Early Stage Immuno-oncology Companies). Although the companies referred to below were used for comparison purposes, none of those companies are
directly comparable to Alpine. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but instead involves complex considerations and judgments concerning differences in historical and projected financial and
operating characteristics of the selected companies below. The total enterprise values are based on closing stock prices on April 13, 2017. The Selected Publicly Traded Early Stage Immuno-oncology Companies were:
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|
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Adaptimmune Therapeutics plc
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|
|
Bellicum Pharmaceuticals, Inc.
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|
|
Calithera Biosciences, Inc.
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|
|
CytomX Therapeutics, Inc.
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|
Fate Therapeutics, Inc.
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|
|
|
Five Prime Therapeutics, Inc.
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|
Jounce Therapeutics, Inc.
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Leap Therapeutics, Inc.
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Trillium Therapeutics Inc.
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As indicated in the following table, the fourteen Selected Publicly Traded Early Stage
Immuno-oncology Companies had implied total enterprise values between $35 million and $528 million, with a median implied total enterprise value of $287 million and an interquartile range of $161 million to $397 million.
Using the 25
th
percentile and the 75
th
percentile of the implied total enterprise values, Ladenburg then calculated a range of implied total
equity values for Alpine (by subtracting an estimated $5.0 million in debt at closing and adding an estimated $46.2 million in net cash at closing), which was $202 million to $438 million. This compares to Alpines total
equity value as per the Merger Agreement of approximately $142.3 million.
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Company Name
|
|
Enterprise Value ($MM)
|
|
Adaptimmune Therapeutics plc
|
|
$
|
204
|
|
Agenus Inc.
|
|
|
396
|
|
AnaptysBio, Inc.
|
|
|
398
|
|
Bellicum Pharmaceuticals, Inc.
|
|
|
174
|
|
Calithera Biosciences, Inc.
|
|
|
246
|
|
Cellectis S.A.
|
|
|
510
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|
Compugen Ltd.
|
|
|
157
|
|
CytomX Therapeutics, Inc.
|
|
|
391
|
|
Fate Therapeutics, Inc.
|
|
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92
|
|
Five Prime Therapeutics, Inc.
|
|
|
528
|
|
Jounce Therapeutics, Inc.
|
|
|
435
|
|
Leap Therapeutics, Inc.
|
|
|
52
|
|
Merus B.V.
|
|
|
327
|
|
Trillium Therapeutics Inc.
|
|
|
35
|
|
Analysis of Selected Precedent Transactions
Ladenburg reviewed the financial terms, to the extent the information was publicly available, of twelve merger transactions of companies that
operated in the oncology space and were in early to
mid-stages
of clinical development (the Selected Early to
Mid-stage
Oncology Precedent Transactions).
Although the precedent transactions referred to below were used for comparison purposes, none of the target companies are directly comparable to Alpine. Accordingly, an analysis of the results of such a comparison is not purely mathematical, but
instead involves complex considerations and judgments concerning differences in historical and projected financial and operating characteristics of the companies involved and other factors that could affect the merger value of such companies and
Alpine to which they are being compared. Ladenburg reviewed the implied total enterprise values of the target company or business (including downstream milestone payments). These transactions, including the month and year each were announced, as
follows:
Selected Early to
Mid-stage
Oncology Precedent Transactions
|
|
|
|
|
|
|
|
|
Month and
Year Announced
|
|
Target Company
|
|
Acquirer
|
|
Enterprise Value ($MM)
|
|
January 2017
|
|
Tolero Pharmaceuticals
|
|
Sumitomo Dainippon
|
|
|
$780
|
|
November 2016
|
|
Kolltan Pharmaceuticals
|
|
Celldex Therapeutics
|
|
|
235
|
|
September 2016
|
|
EngMab AG
|
|
Celgene
|
|
|
600
|
|
July 2016
|
|
Cormorant Pharmaceuticals
|
|
Bristol-Myers Squibb
|
|
|
520
|
|
January 2016
|
|
Fluorinov Pharma
|
|
Trillium Therapeutics
|
|
|
37
|
|
January 2016
|
|
Tensha Therapeutics
|
|
Roche
|
|
|
535
|
|
December 2015
|
|
PhosImmune
|
|
Agenus
|
|
|
45
|
|
December 2015
|
|
Diffusion Pharmaceuticals
|
|
RestorGenex
|
|
|
103
|
|
October 2015
|
|
Quanticel Pharmaceuticals
|
|
Celgene
|
|
|
485
|
|
October 2015
|
|
Admune Therapeutics
|
|
Novartis
|
|
|
258
|
|
July 2015
|
|
cCAM Biotherapeutics
|
|
Merck
|
|
|
605
|
|
April 2015
|
|
Flexus Biosciences
|
|
Bristol-Myers Squibb
|
|
|
1,250
|
|
118
As indicated in the above table, the twelve Selected Early to
Mid-stage
Oncology Precedent Transactions target companies had implied total enterprise values between $37 million and $1,250 million, with a median total enterprise value of $503 million and an
interquartile range of $202 million to $601 million. Using the 25
th
percentile and the 75
th
percentile of the implied total
enterprise values, Ladenburg then calculated a range of implied total equity values for Alpine (by subtracting an estimated $5.0 million in debt at closing and adding an estimated $46.2 million in net cash at closing), which was
$243 million to $643 million. This compares to Alpines total equity value as per the Merger Agreement of approximately $142.3 million.
The summary set forth above does not purport to be a complete description of all the analyses performed by Ladenburg. The preparation of a
fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. Ladenburg did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor.
Accordingly, notwithstanding the separate factors summarized above, Ladenburg believes, and advised Nivalis board of directors, that its analyses must be considered as a whole and that selecting portions of its analyses and the factors
considered by it, without considering all analyses and factors, could create an incomplete view of the process underlying its Opinion. In performing its analyses, Ladenburg made numerous assumptions with respect to industry performance, business and
economic conditions and other matters, many of which are beyond the control of Nivalis and Alpine. These analyses performed by Ladenburg are not necessarily indicative of actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. In addition, analyses relating to the value of businesses do not purport to be appraisals or to reflect the prices at which businesses or securities may actually be sold. Accordingly, such analyses and
estimates are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors. None of Nivalis, Alpine, Ladenburg or any other person assumes responsibility if future
results are materially different from those projected. The analyses supplied by Ladenburg and its Opinion were among several factors taken into consideration by Nivalis board of directors in making its decision to enter into the Merger
Agreement and should not be considered as determinative of such decision.
Ladenburg was selected by Nivalis board of directors to
render an opinion to Nivalis board of directors because Ladenburg is a nationally recognized investment banking firm and because, as part of its investment banking business, Ladenburg is continually engaged in the valuation of businesses and
their securities in connection with mergers, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In addition, in the ordinary course of its
business, Ladenburg and its affiliates may trade the equity securities of Nivalis for its own account and for the accounts of their customers, and, accordingly, may at any time hold a long or short position in such securities. In the three years
preceding the date hereof, Ladenburg has not had a relationship with Nivalis and has not received any fees from Nivalis, other than the
up-front
retainer fee and a fee for its Opinion which was delivered on
April 17, 2017. In the three years preceding the date hereof, Ladenburg has not had a relationship with Alpine and has not received any fees from Alpine. Ladenburg and its affiliates may in the future seek to provide investment banking or
financial advisory services to Nivalis and Alpine and/or certain of their respective affiliates and expect to receive fees for the rendering of these services.
The issuance of Ladenburgs Opinion was reviewed and approved by a fairness opinion committee of Ladenburg.
Pursuant to the engagement letter between Ladenburg and Nivalis, if the Merger is consummated, Ladenburg will be entitled to receive a
transaction fee of $950,000 payable in cash. Nivalis has also paid a fee of $250,000 to Ladenburg in cash for rendering its Opinion. Additionally, Nivalis has agreed to reimburse Ladenburg for its
out-of-pocket
expenses and has agreed to indemnify Ladenburg against certain liabilities, including liabilities under the federal securities laws. The terms of the fee arrangement with Ladenburg, which are
customary in transactions of this nature, were negotiated at arms length between Nivalis and Ladenburg, and
119
Nivalis board of directors was aware of the arrangement, including the fact that a portion of the fee payable to Ladenburg is contingent upon the completion of the merger.
Interests of the Nivalis Directors and Executive Officers in the Merger
In considering the recommendation of Nivalis board of directors with respect to issuing shares of Nivalis common stock as
contemplated by the Merger Agreement and the other matters to be acted upon by Nivalis stockholders at the Nivalis special meeting, Nivalis stockholders should be aware that certain members of Nivalis board of directors and certain
of Nivalis executive officers have interests in the merger that may be different from, or in addition to, the interests of Nivalis stockholders. These interests relate to or arise from, among other things:
|
|
|
severance benefits and retention bonuses to which certain of Nivalis executive officers would become entitled in the event of a change of control of Nivalis and/or his or her covered termination of employment
within specified periods of time relative to the consummation of the merger; and
|
|
|
|
the agreement that certain of Nivalis directors will continue to serve on the board of directors of the combined organization following the consummation of the merger.
|
The board of directors of each of Nivalis and Alpine was aware of these potential conflicts of interest and considered them, among other
matters, in reaching their respective decisions to approve the Merger Agreement and the merger, and to recommend, as applicable, that Nivalis stockholders approve the proposals to be presented to Nivalis stockholders for consideration at
the Nivalis special meeting as contemplated by this proxy statement/prospectus/information statement, and that Alpines stockholders sign and return the written consent as contemplated by this proxy statement/prospectus/information statement.
Ownership Interests
As of
April 18, 2017, Nivalis directors and executive officers beneficially owned, in the aggregate, approximately 3% of the outstanding shares of Nivalis common stock. An additional 24% of the outstanding shares of Nivalis common stock
are beneficially owned by an investment advisory firm with which one of Nivalis directors is affiliated. The affirmative vote of the holders of a majority of the outstanding shares of Nivalis common stock having voting power present in
person or represented by proxy at the Nivalis special meeting is required for approval of Proposal Nos. 1 and 4. The affirmative vote of the holders of a majority of shares of Nivalis common stock having voting power outstanding on the record
date for the Nivalis special meeting is required for approval of Proposal Nos. 2 and 3. Certain of Nivalis officers and directors, and their affiliates, have also entered into support agreements in connection with the merger. For a more
detailed discussion of the support agreements see the section entitled Agreements Related to the MergerSupport Agreements and Written Consents in this proxy statement/prospectus/information statement.
Treatment of Nivalis Options
Under the Merger Agreement, as of immediately prior to the Effective Time, the vesting of all outstanding options to purchase shares of
Nivalis common stock will accelerate in full immediately prior to the time of closing, including those held by Nivalis executive officers and directors. The number of shares of Nivalis common stock underlying such options and the
exercise price of such options will be adjusted appropriately to reflect the Nivalis Reverse Stock Split.
For an estimate of the amounts
that would be payable, net of exercise price, to each of Nivalis named executive officers if the named executive officer exercised his or her unvested options and immediately sold the common stock of Nivalis acquired upon exercise, see the
section entitled
Quantification of Payments and Benefits to Nivalis Named Executive Officers
of this proxy statement/prospectus/information statement. Nivalis estimates that the aggregate amount that would be payable,
net of exercise price, to Nivalis current executive officers as a group and Nivalis current
non-employee
directors as a group if they exercised their Nivalis options,
120
whether vested or unvested, and immediately sold the common stock of Nivalis acquired upon exercise is $20,800 and $0, respectively. The amounts above are determined using a per share Nivalis
stock price of $2.262 and the other assumptions set forth in footnote 2 of the table under the section entitled
Quantification of Payments and Benefits to Nivalis Named Executive Officers
of this proxy
statement/prospectus/information statement.
Employment Agreements with Nivalis Executive Officers
Employment Agreements with Nivalis Current Executive Officers
Nivalis has entered into employment agreements with each of Nivalis executive officers (the Executive Agreements). Each
Executive Agreement provides for a base salary and standard benefits, including, severance benefits in the event such executive officer experiences a qualifying termination of employment. Nivalis and Alpine have agreed to honor the commitments under
each Executive Agreement. Pursuant to the Executive Agreements, if the executive officers employment is terminated by Nivalis without cause or by the executive officer for good reason (as such terms are defined in the applicable Executive
Agreement and subject to the terms and conditions therein), the executive officer will be entitled to (1) continued payment of the executive officers base salary for a period of 12 months following such termination of employment,
(2) payment of the COBRA premiums for the executive officer and any covered dependents for up to 12 months, and (3) accelerated vesting of all of his or her stock options. Nivalis obligation to provide its executive officers with
severance benefits is conditioned on the executive officer signing and not revoking a general release of claims against Nivalis and its affiliates. The executive officers are also subject to standard post-termination
non-solicitation,
confidentiality and
non-competition
restrictive covenants.
For an estimate of the value of the payments and benefits described above under each of the Executive Agreements that would be payable to
Nivalis named executive officers, see the section entitled
Quantification of Payments and Benefits to Nivalis Named Executive Officers
of this proxy statement/prospectus/information statement.
Separation Agreement with Jon Congleton
The employment of Jon Congleton as Nivalis President and Chief Executive Officer terminated in January 2017. In connection with the
termination of his employment, Mr. Congleton entered into a Separation Agreement and General Release with Nivalis that provides for the continued payment of his base salary for a period of 18 months, payment of COBRA premiums for him and
his covered dependents for up to 12 months and accelerated vesting of all outstanding stock options, in exchange for his general release of claims against Nivalis and his continuing compliance with certain
non-solicitation,
non-competition
and confidentiality restrictive covenants. All options held by Mr. Congelton expired unexercised on April 15, 2017. The Separation
Agreement and General Release also provides for the lump sum payment of the remaining cash severance payments and COBRA premium reimbursement payments payable to Mr. Congelton (and reimbursement of any taxes payable by Mr. Congleton arising from the
lump sum payment of the remaining COBRA premium reimbursement payments) upon a change in control, which would include the merger.
Separation Agreement
with David Rodman, M.D.
The employment of David Rodman, M.D. as Nivalis Chief Medical Officer terminated in January 2017. In
connection with the termination of his employment, Dr. Rodman entered into a Separation Agreement and General Release with Nivalis that provides for the continued payment of his base salary for a period of 12 months, payment of COBRA premiums
for him and his covered dependents for up to 12 months, 12 months accelerated vesting of his Nivalis restricted stock units and accelerated vesting of all outstanding stock options, in exchange for his general release of claims against Nivalis and
his continuing to comply with certain
non-solicitation,
non-competition
and confidentiality restrictive covenants. All options held by Dr. Rodman expired
unexercised on April 15, 2017. The Separation Agreement and General Release also provides for the lump sum payment of the remaining cash severance payments and COBRA premium reimbursement payments payable to Dr. Rodman (and reimbursement of any
taxes payable by Dr. Rodman arising from the lump sum
121
payment of the remaining COBRA premium reimbursement payments) upon a change in control, which would include the merger.
Retention Bonus Agreements
In
January 2017, Nivalis entered into a retention bonus letter agreement (each a Retention Agreement) with each of Mr. Carruthers and Ms. Troha, which provides for a cash retention bonus of $100,000 and the grant of an option to
purchase 200,000 shares of Nivalis common stock. The cash retention bonuses are payable and the options vest on the closing of a change in control (which will include the merger), provided Mr. Carruthers and Ms. Troha remain employed
in good standing through the payment date and they execute a general release of claims in favor of Nivalis. The retention bonuses will not be offset by or reduce any other payment or benefit payable to Mr. Carruthers and Ms. Troha by
Nivalis.
For an estimate of the value of the payments and benefits described above under the Retention Agreements to each of
Nivalis named executive officers, see the section entitled
Quantification of Payments and Benefits to Nivalis Named Executive Officers
listed below.
Quantification of Payments and Benefits to Nivalis Named Executive Officers
In accordance with Item 402(t) of Regulation
S-K
of the Securities Act, which requires disclosure of
information about compensation for Nivalis Chief Executive Officer and the two most highly compensated officers as of the end of its last fiscal year, who are referred to as the named executive officers, that is based on or otherwise related
to the merger, the table below sets forth the amount of payments and benefits that each of Nivalis named executive officers may receive in connection with the merger, assuming that the merger was consummated and such executive officer
experienced a qualifying termination on April 25, 2017. The amounts below were determined using a per share price of Nivalis common stock of $2.262, which represents the average closing trading price of Nivalis common stock over the
first five business days following the first public announcement of the transaction. As a result of the foregoing assumptions, the actual amounts, if any, to be received by a named executive officer may materially differ from the amounts set forth
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Cash
($)
|
|
|
Equity Awards
($)(2)
|
|
|
Perquisites/
Benefits ($)(3)
|
|
|
Total
($)
|
|
R. Michael Carruthers
|
|
|
457,000
|
(1)
|
|
|
10,400
|
|
|
|
28,028
|
|
|
|
495,428
|
|
Janice Troha
|
|
|
483,835
|
(1)
|
|
|
10,400
|
|
|
|
44,276
|
|
|
|
538,511
|
|
Jon Congleton (4)
|
|
|
675,000
|
|
|
|
0
|
|
|
|
35,226
|
|
|
|
710,226
|
|
David Rodman, M.D. (5)
|
|
|
450,000
|
|
|
|
0
|
|
|
|
34,180
|
|
|
|
484,180
|
|
|
(1)
|
Amount represents the aggregate amount of the cash severance payments that each of Mr. Carruthers and Ms. Troha is eligible to receive under his or her Executive Agreement, as well as the amount of their
retention bonuses under his or her Retention Agreement.
|
Unless Nivalis board of directors elects to make such payments
in a lump sum, cash severance would be payable in substantially equal installments over 12 months following a qualifying termination of employment, as described above in the section entitled
Employment Agreements with Nivalis
Executive Officers
, where Mr. Carruthers or Ms. Troha is terminated without cause or resigns for good reason (each as defined in the applicable Executive Agreement), provided that the named executive officer executes and fails to
revoke a general release of claims against Nivalis and its affiliates. The aggregate severance amount constitutes 12 months of Mr. Carrutherss and Ms. Trohas respective base salary.
Under the Retention Agreements, upon the closing of the merger, each of Mr. Carruthers and Ms. Troha will be entitled to a lump sum
cash payment equal to $100,000, less applicable withholdings and deductions. Payment of these retention bonuses pursuant to the Retention Agreements would be based on a single trigger, the closing of the merger, subject to the executive
officer remaining
122
employed with Nivalis in good standing through the closing of the merger and executing a general release of claims in favor of Nivalis.
The following table quantifies each separate form of cash compensation included in the aggregate total reported in the column.
|
|
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|
|
|
|
|
|
Name
|
|
Base Salary
Component of
Severance
($)
|
|
|
Retention
Bonus
($)
|
|
R. Michael Carruthers
|
|
|
357,000
|
|
|
|
100,000
|
|
Janice Troha
|
|
|
383,835
|
|
|
|
100,000
|
|
|
(2)
|
Pursuant to the terms and conditions of the Executive Agreements and Retention Agreements, each of Mr. Carruthers and Ms. Troha would be entitled to full accelerated vesting of his or her outstanding options
to purchase Nivalis common stock upon a qualifying termination as described in footnote (1) above and, with respect to the options granted in connection with the Retention Agreements, upon the closing of the merger. In addition, pursuant
to the terms of the Merger Agreement and as described in the section entitled
Treatment of Nivalis Options
of this proxy statement/prospectus/information statement, each of Mr. Carrutherss and
Ms. Trohas options to purchase shares of Nivalis common stock outstanding immediately prior to the closing of the transaction will vest in full.
|
The value of the unvested and accelerated options to purchase shares of Nivalis common stock is the positive difference between an
assumed value of $2.262 per share (which was the average closing trading price of Nivalis common stock over the first five business days following the public announcement of the transaction) and the exercise price of the option, multiplied by
the number of unvested shares subject to the option as of April 25, 2017, consistent with the methodology applied under SEC Regulation
M-A
Item 1011(b) and Regulation
S-K
Item 402(t)(2). The amounts in this column for the unvested and accelerated Nivalis options do not reflect any taxes payable by Mr. Carruthers and Ms. Troha.
|
(3)
|
Under the Executive Agreements, upon a qualifying termination of employment as described in footnote (1) above, each of Messrs. Congelton and Carruthers, Dr. Rodman and Ms. Troha is entitled to a monthly
payment equal to the cost of any COBRA continuation coverage elected by the named executive officer to the same extent Nivalis paid for such benefits prior to the named executive officers termination for up to 12 months.
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|
(4)
|
Mr. Congletons employment with Nivalis terminated in January 2017. Consistent with the terms of Mr. Congeltons employment agreement with Nivalis, Mr. Congleton entered into a Separation Agreement
and General Release with Nivalis in connection with the termination of his employment that provides for the continued payment of his base salary for a period of 18 months, the full amount of which is represented in the cash severance column above
even though he has already been paid $150,000, and payment of his COBRA premiums for up to 12 months, the full amount of which is represented in the perquisites/benefits column above even though he has already received $6,266 in COBRA payments.
Mr. Congleton does not currently hold any outstanding options to purchase shares of Nivalis common stock. Upon the closing of the merger, Mr. Congleton will be entitled to receive a lump sum payment equal to the amount of the remaining
cash severance and COBRA premium reimbursement amounts payable to him plus an amount equal to the taxes, if any payable by Mr. Congleton arising from the payment in full of the COBRA premium reimbursements.
|
|
(5)
|
Dr. Rodmans employment with Nivalis terminated in January 2017. Consistent with the terms of
Dr. Rodmans employment agreement with Nivalis, Dr. Rodman entered into a Separation Agreement and General Release with Nivalis in connection with the termination of his employment that provides for the continued payment of his base
salary for a period of 12 months, the full amount of which is represented in the cash severance column above even though he has already been paid $150,000, and payment of his COBRA premiums for up to 12 months, the full amount of which is
represented in the
|
123
|
perquisites/benefits column above even though he has already received $10,925 in COBRA payments. Dr. Rodman does not currently hold any outstanding options to purchase Nivalis common
stock. Upon the closing of the merger, Dr. Rodman will be entitled to receive a lump sum payment equal to the amount of the remaining cash severance and COBRA premium reimbursement amounts payable to him plus an amount equal to the taxes, if any
payable by Dr. Rodman arising from the payment in full of the COBRA premium reimbursements.
|
Director Compensation
Robert Conway and Paul Sekhri, who are currently directors of Nivalis, will continue to serve as
non-employee
directors following the consummation of the merger. In connection with their continued service, they will continue to receive certain compensation pursuant to the Nivalis director compensation
guidelines, which consists of annual retainer fees and equity compensation in the form of stock option grants. The annual retainer for
non-employee
directors is $35,000, with an additional annual retainer of
$25,000 for the Chairman. Annual retainers for Nivalis board of directors committee membership are as follows:
|
|
|
|
|
Audit Committee Chairperson
|
|
$
|
15,000
|
|
Audit Committee member
|
|
$
|
7,500
|
|
Compensation Committee Chairperson
|
|
$
|
10,000
|
|
Compensation Committee member
|
|
$
|
5,000
|
|
Nominating and Corporate Governance Committee Chairperson
|
|
$
|
7,500
|
|
Nominating and Corporate Governance Committee member
|
|
$
|
3,750
|
|
All retainer fees are paid on a quarterly basis in arrears.
Non-employee
directors also are granted an initial stock option upon appointment or election to Nivalis board of directors to purchase 11,475 shares of Nivalis common stock and are granted annual
stock options each year to purchase 7,650 shares of Nivalis common stock. For fiscal 2016, non-employee directors received an additional annual stock option grant to purchase 4,650 shares of Nivalis common stock, and Ms. Smith as a newly
appointed director received an additional initial stock option grant to purchase, 6,975 shares of Nivalis common stock, to account for significant volatility in the trading price of Nivalis common stock. All options have an exercise
price equal to the closing price of Nivalis common stock as reported by NASDAQ Stock Market on the date of grant. The initial stock option grants vest in 36 equal monthly installments over a three-year period from the grant date, and the
annual stock option grants vest in 12 equal monthly installments over a
12-month
period from the grant date. On a change in control of Nivalis, all outstanding, unvested options held by
non-employee
directors vest in full. For an estimate of the value of the accelerated vesting of Nivalis options held by Nivalis current directors, see the section entitled
Treatment of Nivalis
Options
of this proxy statement/prospectus/information statement.
Interests of the Alpine Directors and Executive
Officers in the Merger
In considering the recommendation of Alpines board of directors with respect to adopting the Merger
Agreement, Alpines stockholders should be aware that certain members of Alpines board of directors and certain executive officers of Alpine may have interests in the merger that may be different from, or in addition to, the interests of
Alpines stockholders. Each of Nivalis board of directors and Alpines board of directors was aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve
the Merger Agreement and the merger, and to recommend, as applicable, that Nivalis stockholders approve the proposals to be presented to Nivalis stockholders for consideration at the Nivalis special meeting as contemplated by this proxy
statement/prospectus/information statement, and that Alpines stockholders sign and return the written consent as contemplated by this proxy statement/prospectus/information statement.
Ownership Interests
Certain of
Alpines directors and executive officers or entities affiliated with them currently hold shares of Alpines capital stock, which such shares of capital stock will be converted into shares of Nivalis common stock
124
at the Effective Time. In addition, certain of Alpines directors and executive officers or entities affiliated with them will acquire additional shares of Alpines common stock prior
to the closing of the merger by purchasing such shares pursuant to the Subscription Agreement. The table below sets forth the ownership of Alpines capital stock as of April 18, 2017 by Alpines directors and executive officers and
their anticipated ownership of Alpine common stock immediately prior to the closing of the merger following their purchase of shares of common stock pursuant to the Subscription Agreement.
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|
|
|
|
|
|
|
Directors and Named Executive Officers
|
|
Number of
Shares of
Capital
Stock as of
April 18,
2017
|
|
|
Number of Shares
of Capital Stock
Immediately
Prior to the
Closing of the
Merger
|
|
Mitchell H. Gold, M.D. (1)
|
|
|
7,332,106
|
|
|
|
7,852,151
|
|
Jay Venkatesan, M.D. (2)
|
|
|
7,253,981
|
|
|
|
7,774,026
|
|
Peter Thompson M.D. (3)
|
|
|
5,338,078
|
|
|
|
6,638,190
|
|
James N. Topper, M.D., Ph.D. (4)
|
|
|
3,558,719
|
|
|
|
4,425,460
|
|
Stanford Peng, M.D. Ph.D.
|
|
|
|
|
|
|
|
|
Paul Rickey
|
|
|
|
|
|
|
|
|
|
(1)
|
Consists of 46,875 shares of common stock held directly by Dr. Gold, 150,000 shares of common stock held in trust for the benefit of Dr. Golds children, 5,000,000 shares of Series Seed Preferred stock
held directly by Alpine Immunosciences, L.P. and 2,135,231 shares of Series
A-1
Preferred Stock held directly by Alpine Immunosciences, L.P. Alpine Immunosciences, L.P. will purchase 520,045 shares of common
stock pursuant to the Subscription Agreement prior to the closing of the merger. Alpine BioVentures GP, LLC is the general partner of Alpine Immunosciences, L.P. Dr. Gold and Dr. Venkatesan are the Managing Partners of Alpine BioVentures GP,
LLC. Each of Dr. Gold and Dr. Venkatesan is also a limited partner of Alpine Immunosciences, L.P. By virtue of such relationships, Dr. Gold and Dr. Venkatesan may be deemed to have voting and investment power with respect to the shares held by
Alpine Immunosciences, L.P. and as a result may be deemed to have beneficial ownership of such shares. Each of Dr. Gold and Dr. Venkatesan disclaims beneficial ownership of the shares of Alpine held by Alpine Immunosciences, L.P., except to the
extent of his pecuniary interest therein, if any.
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(2)
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Consists of 43,750 shares of common stock held directly by Dr. Venkatesan, 75,000 shares of common stock held in trust for the benefit of Dr. Venkatesans children, 5,000,000 shares of Series Seed
Preferred stock held directly by Alpine Immunosciences, L.P. and 2,135,231 shares of Series
A-1
Preferred Stock held directly by Alpine Immunosciences, L.P. Alpine Immunosciences, L.P. will purchase 520,045
shares of common stock pursuant to the Subscription Agreement prior to the closing of the merger. Please see footnote 1 regarding Dr. Venkatesans voting and investment power over the shares held by Alpine Immunosciences, L.P. Each of Dr.
Gold and Dr. Venkatesan disclaims beneficial ownership of the shares of Alpine held by Alpine Immunosciences, L.P., except to the extent of his pecuniary interest therein, if any.
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(3)
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Consists of 5,338,078 shares of Alpines Series
A-1
Preferred Stock. OrbiMed Private Investments VI, LP will purchase 1,300,112 shares of common stock pursuant to
the Subscription Agreement prior to the closing of the merger. OrbiMed Capital GP VI LLC (GP VI) is the general partner of OPI VI. OrbiMed Advisors LLC (OrbiMed Advisors) is the managing member of GP VI.
Samuel D. Isaly is the managing member of and owner of a controlling interest in OrbiMed Advisors. By virtue of such relationships, GP VI, OrbiMed Advisors and Mr. Isaly may be deemed to have voting and investment power with respect to the
shares held by OrbiMed Private Investments VI, LP and as a result may be deemed to have beneficial ownership of such shares. Dr. Thompson, an employee of OrbiMed Advisors, is a member of Alpines board of directors. Each of GP VI, OrbiMed
Advisors, Mr. Isaly and Dr. Thompson disclaims beneficial ownership of the shares held by OrbiMed Private Investments VI, LP, except to the extent of its or his pecuniary interest therein, if any.
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(4)
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Consists of 3,558,719 shares of Alpines Series
A-1
Preferred Stock held directly by Frazier Life Sciences VIII, L.P. Frazier Life Sciences VIII, L.P. will purchase 866,741
shares of common stock pursuant to the Subscription Agreement prior to the closing of the merger. FHM Life Sciences VIII, LP is the general partner of Frazier Life Sciences VIII, L.P. and FHM Life Sciences VIII, LLC is the general partner
of FHM Life Sciences VIII, LP. Dr. Topper and Patrick J. Heron are the sole members of FHM Life Sciences VIII, LLC and therefore share voting and investment power over the shares held by Frazier Life Sciences VIII, L.P. Dr. Topper and
Mr. Heron disclaim beneficial ownership of the shares of Alpine held by Frazier Life Sciences VIII, L.P. except to the extent of their pecuniary interests in such shares, if any.
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Treatment of Alpine Options and Warrants
Under the Merger Agreement, at the Effective Time, each outstanding and unexercised option or warrant to purchase shares of Alpines
capital stock as of immediately prior to the Effective Time, whether or not vested, shall be converted into and become an option or warrant, as applicable, to purchase shares of Nivalis common stock, in accordance with the terms and conditions
of such Alpine option or warrant, as applicable, immediately prior to the Effective Time. Certain of Alpines directors and executive officers currently hold options, subject to vesting, to purchase shares of Alpines common stock. The
table below sets forth certain information with respect to such options.
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Optionholder Name
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Grant Date
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Expiration Date
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Exercise
Price
($)
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Number of
Shares of
Common
Stock
Underlying
Option as of
April 18,
2017
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Number of
Vested Shares
of Common
Stock
Underlying
Option as of
April 18, 2017
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Mitchell H. Gold, M.D.
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December 16, 2015
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December 15, 2025
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0.22
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103,125
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4,688
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Jay Venkatesan, M.D.
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December 16, 2015
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December 15, 2025
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0.22
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181,250
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6,250
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Stanford Peng, M.D. Ph.D.
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September 22, 2016
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September 21, 2026
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0.32
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325,000
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0
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Mitchell H. Gold, M.D.
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March 14, 2017
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March 13, 2027
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0.32
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605,000
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0
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Stanford Peng, M.D. Ph.D.
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March 14, 2017
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March 13, 2027
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0.32
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75,000
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0
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Mitchell H. Gold, M.D.
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April 12, 2017
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April 11, 2027
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2.49
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420,439
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0
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Paul Rickey
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April 12, 2017
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April 11, 2027
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2.49
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150,000
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0
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Management Following the Merger
As described elsewhere in this proxy statement/prospectus/information statement, including in the section captioned Management Following
the Merger, certain of Alpines directors and executive officers are expected to become the directors and executive officers of Nivalis upon the closing of the merger.
Indemnification and Insurance
Under the Merger Agreement, from the Effective Time through the sixth anniversary of the date on which the Effective Time occurs, Nivalis and
Alpine, as the surviving corporation in the merger, shall indemnify and hold harmless each person who is or has served as a director or officer of Alpine against all claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs
and expenses, including attorneys fees and disbursements, incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that
such person is or was a director or officer of Alpine, to the fullest extent permitted under the DGCL for directors or officers of Delaware corporations. In addition, each such director and officer, or former director and officer, is entitled to
advancement of expenses incurred in the defense of any such claim, action, suit, proceeding or investigation.
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Under the Merger Agreement, the provisions of Nivalis amended and restated certificate of
incorporation and amended and restated bylaws with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers of Nivalis shall not be amended, modified or repealed for a period of six years from
the Effective Time in a manner that would adversely affect the rights thereunder of individuals who, at or prior to the Effective Time, were officers or directors of Nivalis. The certificate of incorporation and bylaws of Alpine, as the surviving
corporation in the merger, shall contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of former and present directors and officers that are presently set forth in the certificate of
incorporation and bylaws of Nivalis.
The Merger Agreement also provides that Nivalis shall maintain directors and officers
liability insurance policies commencing at the closing time of the merger, on commercially available terms and conditions with coverage limits customary for U.S. public companies similar situated to Nivalis.
Limitations of Liability and Indemnification
In addition to the indemnification obligations required by the amended and restated certificate of incorporation and amended and restated
bylaws of Nivalis, Nivalis has entered into indemnification agreements with each of its directors and officers. These agreements provide for the indemnification of Nivalis directors and executive officers for all reasonable expenses and
liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were agents of Nivalis. Nivalis believes that these amended and restated certificate of incorporation provisions, amended
and restated bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers.
Alpine Stock Options and Warrants
As of April 18, 2017, an aggregate of 2,374,914 shares of Alpine common stock were
issuable upon the exercise of outstanding stock options under Alpines Amended and Restated 2015 Stock Plan at a weighted average exercise price of $0.89 per share. At the Effective Time, each Alpine option that is outstanding and
unexercised immediately prior to the Effective Time under Alpines Amended and Restated 2015 Stock Plan, whether or not vested, will be converted into and become an option to purchase shares of Nivalis common stock, and Nivalis will
assume Alpines 2015 Amended and Restated Plan and each such Alpine option in accordance with the terms of Alpines Amended and Restated 2015 Plan and the terms of the stock option agreement by which such Alpine option is evidenced.
As of April 18, 2017, an aggregate of 25,000 shares of Alpines common stock were issuable upon the exercise of outstanding warrants
at an exercise price of $2.49 per share and an aggregate of 31,139 shares of Alpines preferred stock were issuable upon the exercise of outstanding warrants at an exercise price of $2.81 per share. At the Effective Time, each Alpine warrant
that is outstanding and unexercised will become a warrant to purchase shares of Nivalis common stock and Nivalis will assume each Alpine warrant in accordance with its terms.
Form of the Merger
The Merger Agreement provides that at the Effective Time, Merger Sub will be merged with and into Alpine. Upon the consummation of the merger,
Alpine will continue as the surviving corporation and will be a wholly owned subsidiary of Nivalis.
After completion of the merger,
assuming Proposal No. 3 is approved by Nivalis stockholders at the Nivalis special meeting, Nivalis will be renamed Alpine Immune Sciences, Inc. and expects to trade on NASDAQ under the symbol ALPN.
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Merger Consideration
At the Effective Time:
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each share of Alpine capital stock outstanding immediately prior to the Effective Time will automatically be converted into the right to receive a number of shares of Nivalis common stock equal to the exchange
ratio, subject to adjustment to account for the Nivalis Reverse Stock Split;
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each option to purchase shares of Alpines common stock outstanding and unexercised immediately prior to the Effective Time will be assumed by Nivalis and will become an option, subject to vesting, to purchase
shares of Nivalis common stock with the number of shares of Nivalis common stock underlying such options and the exercise prices for such options adjusted to reflect the exchange ratio and the Nivalis Reverse Stock Split; and
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each warrant to purchase shares of Alpines capital stock outstanding and not terminated or exercised as of immediately prior to the Effective Time will be assumed by Nivalis and will become a warrant to purchase
shares of Nivalis common stock with the number of shares of Nivalis common stock underlying such options and the exercise prices for such options adjusted to reflect the exchange ratio and the Nivalis Reverse Stock Split.
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Immediately after the merger, based on the exchange ratio, it is expected that Alpines existing stockholders,
optionholders and warrantholders will own, or hold rights to acquire, approximately 74% of the Fully-Diluted Common Stock of Nivalis with Nivalis existing stockholders, optionholders and warrantholders owning, or holding rights to acquire,
approximately 26% of the Fully-Diluted Common Stock of Nivalis.
The Merger Agreement does not include a price-based termination right,
and there will be no adjustment to the total number of shares of Nivalis common stock that Alpines stockholders will be entitled to receive for changes in the market price of Nivalis common stock. Accordingly, the market value of
the shares of Nivalis common stock issued pursuant to the merger will depend on the market value of the shares of Nivalis common stock at the time the merger closes, and could vary significantly from the market value on the date of this
proxy statement/prospectus/information statement.
No fractional shares of Nivalis common stock will be issuable to Alpines
stockholders pursuant to the merger. Instead, each stockholder of Alpine who would otherwise be entitled to receive a fraction of a share of Nivalis common stock, after aggregating all fractional shares of Nivalis common stock issuable
to such stockholder, will be entitled to receive in cash the dollar amount, rounded to the nearest whole cent, without interest, determined by multiplying such fraction by the volume weighted average closing trading price of a share of Nivalis
common stock as quoted on NASDAQ for the five trading days ending the trading day immediately prior to the date upon which the merger becomes effective.
The Merger Agreement provides that, at the Effective Time, Nivalis will deposit with an exchange agent acceptable to Nivalis and Alpine
evidence of book-entry shares representing the shares of Nivalis common stock issuable to Alpines stockholders and a sufficient amount of cash to make payments in lieu of fractional shares.
The Merger Agreement provides that, promptly after the Effective Time, the exchange agent will mail to each record holder of Alpine capital
stock immediately prior to the Effective Time a letter of transmittal and instructions for surrendering and exchanging Alpine stock certificates held by such record holder in exchange for book-entry shares of Nivalis common stock. Upon
surrender of an Alpine stock certificate for exchange to the exchange agent, together with a duly signed letter of transmittal and such other documents as the exchange agent or Nivalis may reasonably require, the Alpine stock certificate surrendered
will be cancelled and the holder of such Alpine stock certificate will be entitled to receive the following:
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book-entry shares representing the number of whole shares of Nivalis common stock that such holder has the right to receive pursuant to the provisions of the Merger Agreement, and
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cash in lieu of any fractional share of Nivalis common stock.
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128
From and after the Effective Time, until it is surrendered, each certificate that previously
evidenced shares of Alpine common stock or shares of Alpines preferred stock will be deemed to represent only the right to receive book-entry shares of Nivalis common stock, and cash in lieu of any fractional share of Nivalis
common stock.
If any Alpine stock certificate has been lost, stolen or destroyed, Nivalis may, in its discretion, and as a condition
precedent to the delivery of any book-entry shares of Nivalis common stock, require the owner of such lost, stolen or destroyed certificate to provide an affidavit claiming such certificate has been lost, stolen or destroyed and post a bond
indemnifying Nivalis against any claim suffered by Nivalis related to the lost, stolen or destroyed certificate or any shares of Nivalis common stock issued in exchange for such certificate as Nivalis may reasonably request.
Nivalis will not pay dividends or other distributions on any shares of Nivalis common stock to be issued in exchange for shares of
Alpines capital stock represented by any unsurrendered Alpine stock certificate until such Alpine stock certificate is surrendered as provided in the Merger Agreement.
Effective Time of the Merger
The Merger Agreement requires the parties to consummate the merger as promptly as practicable (and in any event within two business days) after
all of the conditions to the consummation of the merger contained in the Merger Agreement are satisfied or waived, including the adoption of the Merger Agreement by Alpines stockholders and the approval by Nivalis stockholders of the
issuance of Nivalis common stock, the amendment to the amended and restated certificate of incorporation of Nivalis effecting the Nivalis Reverse Stock Split and the amendment to the amended and restated certificate of incorporation of Nivalis
effecting the Nivalis Name Change. The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware or at such later time as is agreed by Nivalis and Alpine and specified in the
certificate of merger. Neither Nivalis nor Alpine can predict the exact timing of the consummation of the merger.
Regulatory Approvals
In the United States, Nivalis must comply with applicable federal and state securities laws and the rules and regulations of The NASDAQ Capital
Market in connection with the issuance of shares of Nivalis common stock and the filing of this proxy statement/prospectus/information statement with the SEC.
Tax Treatment of the Merger
Nivalis and Alpine intend for the merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the Code). Each of Nivalis and Alpine will use its reasonable best efforts to cause the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, and not to permit or cause any
affiliate or any subsidiary of Nivalis or Alpine to, take any action or cause any action to be taken which would reasonably be expected to prevent the merger from qualifying as a reorganization under Section 368(a) of the Code. Alpine will use
its reasonable best efforts to obtain an opinion of Sidley or another firm of national reputation to the effect that the merger will be treated, for U.S. federal income tax purposes, as a reorganization within the meaning of Section 368(a) of
the Code. Completion of the merger is conditioned upon receipt of such opinion. Because a tax opinion represents the legal judgment of counsel rendering the opinion and is not binding on the Internal Revenue Service, state tax authorities, or the
courts, Alpine stockholders should consult their own tax advisors as to the tax consequences to them of their participation in the merger with respect to their Alpine stock.
NASDAQ Stock Market Listing
Nivalis common stock currently is listed on NASDAQ under the symbol NVLS. Nivalis has agreed to use commercially reasonable
efforts to maintain its existing listing on NASDAQ, and to obtain approval for
129
listing on NASDAQ of the shares of Nivalis common stock that Alpines stockholders will be entitled to receive pursuant to the merger. In addition, under the Merger Agreement, each
partys obligation to complete the merger is subject to the satisfaction or waiver by each of the parties, at or prior to the merger, of various conditions, including that the existing shares of Nivalis common stock must have been
continually listed on NASDAQ, and Nivalis must have caused the shares of Nivalis common stock to be issued in the merger to be approved for listing on NASDAQ as of the closing of the merger.
Prior to consummation of the merger, Nivalis intends to file an initial listing application with NASDAQ pursuant to NASDAQ reverse
merger rules. If such application is accepted, Nivalis anticipates that the shares of Nivalis common stock will be listed on NASDAQ following the closing of the merger under the trading symbol ALPN.
Anticipated Accounting Treatment
The merger will be treated by Nivalis as a reverse merger under the acquisition method of accounting in accordance with U.S. generally accepted
accounting principles (U.S. GAAP). For accounting purposes, Alpine is considered to be acquiring Nivalis in this transaction. The transaction will be accounted for under the acquisition method of accounting under existing U.S. GAAP,
which are subject to change and interpretation. Under the acquisition method of accounting, management of Nivalis and Alpine have made a preliminary estimated purchase price calculated as described in Note 3 to the Notes to the Unaudited Pro
Forma Condensed Combined Financial Information. The net tangible and intangible assets acquired and liabilities assumed in connection with the transaction are at their estimated acquisition date fair values. The acquisition method of accounting is
dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. A final determination of these estimated fair values, which cannot be made prior
to the completion of the transaction, will be based on the actual net tangible and intangible assets of Nivalis that exist as of the date of completion of the transaction.
Appraisal Rights
Delaware Law
If the merger is
completed, Alpines stockholders who do not deliver a written consent approving the merger are entitled to appraisal rights under Section 262 of the DGCL (Section 262),
provided
that they comply with the conditions
established by Section 262. Holders of Nivalis common stock are not entitled to appraisal rights under Delaware law in connection with the merger.
The discussion below is not a complete summary regarding the appraisal rights of Alpines stockholders under Delaware law and is
qualified in its entirety by reference to the text of the relevant provisions of Delaware law, which are attached to this proxy statement/prospectus/information statement as
Annex C
. Stockholders intending to exercise appraisal rights should
carefully review
Annex C
. Failure to follow precisely any of the statutory procedures set forth in
Annex C
may result in a termination or waiver of these rights. This summary does not constitute legal or other advice, nor does it
constitute a recommendation that Alpines stockholders exercise their appraisal rights under Delaware law.
Under Section 262,
where a merger is adopted by stockholders by written consent in lieu of a meeting of stockholders pursuant to Section 228 of the DGCL, either the constituent corporation, before the effective date of the merger, or the surviving corporation,
within 10 days after the effective date of the merger, must notify each stockholder of the constituent corporation entitled to appraisal rights of the approval of the merger, the effective date of the merger and that appraisal rights are available.
If the merger is completed, within 10 days after the effective date of the merger Alpine will notify its stockholders that the merger has
been approved, the effective date of the merger and that appraisal rights are
130
available to any stockholder who has not approved the merger. Holders of shares of Alpine capital stock who desire to exercise their appraisal rights must deliver a written demand for appraisal
to Alpine within 20 days after the date of mailing of that notice, and the stockholder must not have delivered a written consent approving the merger. A demand for appraisal must reasonably inform Alpine of the identity of the stockholder and that
such stockholder intends thereby to demand appraisal of the shares of Alpine capital stock held by such stockholder. Failure to deliver a written consent approving the merger will not in and of itself constitute a written demand for appraisal
satisfying the requirements of Section 262. All demands for appraisal should be addressed to Alpine Immune Sciences, Inc., 201 Elliott Avenue West, Suite 230, Seattle, Washington 98119, Attention: Corporate Secretary, and should be executed by,
or on behalf of, the record holder of shares of Alpine capital stock. ALL DEMANDS MUST BE RECEIVED BY ALPINE WITHIN TWENTY (20) DAYS AFTER THE DATE ALPINE MAILS A NOTICE TO ITS STOCKHOLDERS NOTIFYING THEM THAT THE MERGER HAS BEEN APPROVED, THE
EFFECTIVE DATE OF THE MERGER AND THAT APPRAISAL RIGHTS ARE AVAILABLE TO ANY STOCKHOLDER WHO HAS NOT APPROVED THE MERGER.
If a holder of
shares of Alpines capital stock fails to deliver a written demand for appraisal within the time period specified above, such holder will be entitled to receive the merger consideration for such holders shares of Alpine capital stock as
provided for in the Merger Agreement, but you will have no appraisal rights with respect to your shares of Alpines capital stock.
To be effective, a demand for appraisal by a holder of shares of Alpines capital stock must be made by, or in the name of, the
registered stockholder, fully and correctly, as the stockholders name appears on the stockholders stock certificate(s). Beneficial owners who do not also hold the shares of record may not directly make appraisal demands to Alpine. The
beneficial owner must, in these cases, have the registered owner, such as a broker, bank or other custodian, submit the required demand in respect of those shares. If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian
or custodian, execution of a demand for appraisal should be made by or for the fiduciary; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint
owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, who holds shares as a custodian for others, may exercise the record owners right of appraisal with respect to the shares held
for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the
demand will be presumed to cover all shares held in the name of the record owner. In addition, the stockholder must continuously hold the shares of record from the date of making the demand through the Effective Time.
If a holder of shares of Alpines capital stock holds shares of Alpines capital stock in a brokerage account or in other custodian
form and such holder wishes to exercise appraisal rights, such holder should consult with such holders bank, broker or other custodian to determine the appropriate procedures for the making of a demand for appraisal by the custodian.
At any time within 60 days after the Effective Time, any stockholder who has demanded an appraisal, but has neither commenced an appraisal
proceeding or joined an appraisal proceeding as a named party, has the right to withdraw such stockholders demand and accept the terms of the merger by delivering a written withdrawal to Alpine. If, following a demand for appraisal, a holder
of shares of Alpines capital stock who has demanded an appraisal has withdrawn such holders demand for appraisal in accordance with Section 262, such holders will have the right to receive the merger consideration for such
holders shares of Alpine capital stock.
Within 120 days after the Effective Time, any stockholder who has delivered a demand for
appraisal in accordance with Section 262 will, upon written request to the surviving corporation, be entitled to receive a written statement setting forth the aggregate number of shares not voted in favor of the Merger Agreement and
131
with respect to which demands for appraisal rights have been received and the aggregate number of holders of such shares. This written statement will be mailed to the requesting stockholder
within ten days after the stockholders written request is received by the surviving corporation or within ten days after expiration of the period for delivery of demands for appraisal, whichever is later. Within 120 days after the Effective
Time, either the surviving corporation or any stockholder who has delivered a demand for appraisal in accordance with Section 262 may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares
held by all such stockholders. Upon the filing of the petition by a stockholder, service of a copy of the petition must be made upon the surviving corporation. The surviving corporation has no obligation to file a petition in the Delaware Court of
Chancery in the event there are dissenting stockholders, and Alpine, which is expected to be the surviving corporation, has no present intent to file a petition in the Delaware Court of Chancery. Accordingly, the failure of a stockholder to file a
petition within the period specified could nullify the stockholders previously written demand for appraisal.
If a petition for
appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated, within 20 days after receiving service of a copy of the petition, to provide the
Delaware Court of Chancery with a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached by the
surviving corporation. After notice to dissenting stockholders who demanded appraisal of their shares, the Delaware Court of Chancery is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with
Section 262 and who have become entitled to the appraisal rights provided thereby. The Delaware Court of Chancery may require the stockholders who have demanded appraisal for their shares to submit their stock certificates to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder. If immediately before the
merger the shares of the class or series of stock as to which appraisal rights are available were listed on a national securities exchange, the Delaware Court of Chancery will dismiss the proceedings as to all holders of such shares who are
otherwise entitled to appraisal rights unless (1) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of the class or series eligible for appraisal, (2) the value of the consideration provided in the
merger for such total number of shares exceeds $1.0 million or (3) the merger was approved pursuant to Sections 253 or 267 of the DGCL.
After determination of the stockholders entitled to appraisal of their shares, the Delaware Court of Chancery will appraise the fair
value of the shares owned by those stockholders. This value will be exclusive of any element of value arising from the accomplishment or expectation of the merger, but may include a fair rate of interest, if any, upon the amount determined to
be the fair value. At any time before the entry of judgment in the proceedings, the surviving corporation may pay to each shareowner entitled to appraisal an amount in cash, in which case interest shall accrue thereafter only upon the sum of
(1) the difference, if any, between the amount paid and the fair value of the shares as determined by the Delaware Court of Chancery, and (2) interest theretofore accrued, unless paid at that time. When the value is determined, the
Delaware Court of Chancery will direct the payment of the value, with interest thereon accrued during the pendency of the proceeding, if the Delaware Court of Chancery so determines, to the stockholders entitled to receive the same, upon surrender
by the holders of the certificates representing those shares.
In determining fair value, and, if applicable, a fair rate of interest, the
Delaware Court of Chancery is required to take into account all relevant factors. In
Weinberger v. UOP, Inc.
, the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding,
stating that proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court should be considered, and that fair price obviously requires
consideration of all relevant factors involving the value of a company.
Section 262 provides that fair value is to be
exclusive of any element of value arising from the accomplishment or expectation of the merger. In
Cede
& Co. v. Technicolor, Inc.
, the Delaware Supreme Court
132
stated that this exclusion is a narrow exclusion [that] does not encompass known elements of value, but which rather applies only to the speculative elements of value arising from
such accomplishment or expectation. In
Weinberger
, the Delaware Supreme Court construed Section 262 to mean that elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the
date of the merger and not the product of speculation, may be considered.
Holders of shares of Alpines capital stock should
be aware that the fair value of such holders shares as determined under Section 262 could be more than, the same as, or less than the value that such holder is entitled to receive under the terms of the Merger Agreement.
Costs of the appraisal proceeding may be imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding
by the Delaware Court of Chancery as the Court deems equitable in the circumstances. Upon the application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. In the absence of such a determination of
assessment, each party bears its own expenses. Any stockholder who had demanded appraisal rights will not, after the Effective Time, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other
distribution with respect to those shares, other than with respect to payment as of a record date prior to the Effective Time; however, if no petition for appraisal is filed within 120 days after the Effective Time, or if the stockholder delivers a
written withdrawal of his or her demand for appraisal and an acceptance of the terms of the merger within 60 days after the Effective Time, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive
the merger consideration for shares of his or her Alpine capital stock pursuant to the Merger Agreement. Any withdrawal of a demand for appraisal made more than 60 days after the Effective Time may only be made with the written approval of the
surviving corporation. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the court.
Failure to follow the steps required by Section 262 for perfecting appraisal rights may result in the loss of appraisal rights. In view
of the complexity of Section 262, stockholders who may wish to dissent from the merger and pursue appraisal rights should consult their legal advisors.
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THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement. A copy of the Merger Agreement is attached as Annex A to this
proxy statement/prospectus/information statement and is incorporated by reference into this proxy statement/prospectus/information statement. The Merger Agreement has been attached to this proxy statement/prospectus/information statement to provide
you with information regarding its terms. It is not intended to provide any other factual information about Nivalis, Alpine or Merger Sub. The following description does not purport to be complete and is qualified in its entirety by reference to the
Merger Agreement. You should refer to the full text of the Merger Agreement for details of the merger and the terms and conditions of the Merger Agreement.
The Merger Agreement contains representations and warranties that Nivalis and Merger Sub, on the one hand, and Alpine, on the other hand,
have made to one another as of specific dates. These representations and warranties have been made for the benefit of the other parties to the Merger Agreement and may be intended not as statements of fact but rather as a way of allocating the risk
to one of the parties if those statements prove to be incorrect. In addition, the assertions embodied in the representations and warranties are qualified by information in confidential disclosure schedules exchanged by the parties in connection with
signing the Merger Agreement. While Nivalis and Alpine do not believe that these disclosure schedules contain information required to be publicly disclosed under the applicable securities laws, other than information that has already been so
disclosed, the disclosure schedules do contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the attached Merger Agreement. Accordingly, you should not rely on the representations and
warranties as current characterizations of factual information about Nivalis or Alpine, because they were made as of specific dates, may be intended merely as a risk allocation mechanism between Nivalis, Merger Sub and Alpine and are modified by the
disclosure schedules.
General
Under the Merger Agreement, at the Effective Time, Merger Sub will merge with and into Alpine, with Alpine surviving as a wholly owned
subsidiary of Nivalis.
Merger Consideration
At the Effective Time, each share of Alpines capital stock outstanding immediately prior to the Effective Time (excluding shares of
Alpines capital stock held as treasury stock or held by Alpine, Merger Sub or any subsidiary of Alpine, and shares held by Alpine stockholders who have exercised and perfected appraisal rights) will automatically be converted into the right to
receive a number of shares of Nivalis common stock equal to the exchange ratio.
The Merger Agreement does not include a price-based
termination right and there will be no adjustment to the total number of shares of Nivalis common stock that Alpines stockholders, optionholders and warrantholders will be entitled to receive for changes in the market price of
Nivalis common stock. Accordingly, the market value of the shares of Nivalis common stock issued pursuant to the merger will depend on the market value of the shares of Nivalis common stock at the time the merger closes, and could
vary significantly from the market value on the date of this proxy statement/prospectus/information statement.
No fractional shares of
Nivalis common stock will be issuable to Alpines stockholders pursuant to the Merger Agreement. Instead, each stockholder of Alpine who would otherwise be entitled to receive a fraction of a share of Nivalis common stock, after
aggregating all fractional shares of Nivalis common stock issuable to such stockholder, will be entitled to receive in cash the dollar amount, rounded to the nearest whole cent, without interest, determined by multiplying such fraction by the
volume weighted average closing trading price of a share of Nivalis common stock on NASDAQ for the five trading days ending the trading day immediately prior to the date upon which the merger becomes effective.
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The Merger Agreement provides that, at the Effective Time, Nivalis will deposit with an exchange
agent acceptable to Nivalis and Alpine evidence of book-entry shares representing Nivalis common stock issuable to Alpines stockholders and a sufficient amount of cash to make payments in lieu of fractional shares.
The Merger Agreement provides that, promptly after the Effective Time, the exchange agent will mail to each record holder of Alpines
capital stock immediately prior to the Effective Time a letter of transmittal and instructions for surrendering and exchanging stock certificates representing shares of Alpines capital stock held by such record holder in exchange for
book-entry shares of Nivalis common stock. Upon surrender of a stock certificate representing shares of Alpines capital stock for exchange to the exchange agent, together with a duly signed letter of transmittal and such other documents
as the exchange agent or Nivalis may reasonably require, the stock certificate surrendered will be cancelled and the holder of such stock certificate will be entitled to receive the following:
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book-entry shares representing the number of whole shares of Nivalis common stock that such holder has the right to receive pursuant to the provisions of the Merger Agreement; and
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cash in lieu of any fractional share of Nivalis common stock.
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At the Effective Time,
all holders of certificates representing shares of Alpines capital stock that were outstanding immediately prior to the Effective Time will cease to have any rights as stockholders of Alpine. In addition, no transfer of Alpines capital
stock after the Effective Time will be registered on the stock transfer books of Alpine.
If any stock certificate representing shares of
Alpines capital stock has been lost, stolen or destroyed, Nivalis may, in its discretion, and as a condition to the delivery of any book-entry shares of Nivalis common stock, require the owner of such lost, stolen or destroyed
certificate to deliver an affidavit claiming such certificate has been lost, stolen or destroyed and post a bond indemnifying Nivalis against any claim suffered by Nivalis related to the lost, stolen or destroyed certificate or any of Nivalis
common stock issued in exchange for such certificate as Nivalis may reasonably request.
From and after the Effective Time, until it is
surrendered, each certificate that previously evidenced shares Alpines capital stock will be deemed to represent only the right to receive book-entry shares of Nivalis common stock and cash in lieu of any fractional share of
Nivalis common stock. Nivalis will not pay dividends or other distributions on any shares of Nivalis common stock to be issued in exchange for any unsurrendered stock certificate representing shares of Alpine until the stock certificate
is surrendered as provided in the Merger Agreement.
Treatment of Nivalis Stock Options
Prior to the closing of the merger, Nivalis board of directors will adopt appropriate resolutions and take all other actions necessary
and appropriate to provide that the vesting of each unexpired and unexercised option to purchase shares of Nivalis common stock will be accelerated in full effective as of immediately prior to the Effective Time. The number of shares of
Nivalis common stock underlying such options and the exercise prices for such options will be appropriately adjusted to reflect the Nivalis Reverse Stock Split.
Treatment of Alpines Stock Options and Warrants
At the Effective Time:
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each option to purchase shares of Alpines capital stock outstanding and unexercised immediately prior to
the Effective Time under the Alpine Amended and Restated 2015 Stock Plan, whether or not vested, will be converted into an option to purchase shares of Nivalis common stock. Nivalis will assume the Alpine Amended and Restated 2015 Stock Plan.
From and after the Effective Time, each Alpine option assumed by Nivalis may be exercised for such number of shares of Nivalis common stock as is
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determined by multiplying the number of shares of Alpines common stock subject to the option by the exchange ratio and rounding that result down to the nearest whole number of shares of
Nivalis common stock. The per share exercise price of the converted option will be determined by dividing the existing exercise price of the option by the exchange ratio and rounding that result up to the nearest whole cent. Any restrictions
on the exercise of any Alpine option assumed by Nivalis will continue following the conversion and the term, exercisability, vesting schedules and other provisions of assumed Alpine options will generally remain unchanged; provided, that any Alpine
options assumed by Nivalis may be subject to adjustment to reflect changes in Nivalis capitalization after the Effective Time and that Nivalis board of directors will succeed to the authority of Alpines board of directors with
respect to each assumed Alpine option; and
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each warrant to purchase shares of Alpine capital stock outstanding and unexercised immediately prior to the Effective Time will be assumed by Nivalis and will become a warrant to purchase that number of shares of
Nivalis common stock equal to the product obtained by multiplying (i) the number of shares of Alpines common stock, or the number of shares of Alpines common stock issuable upon conversion of the shares of Alpines
preferred stock issuable upon exercise of the Alpine warrant, as applicable, that were subject to such warrant immediately prior to the Effective Time by (ii) the exchange ratio. The per share exercise price for Nivalis common stock
issuable upon exercise of each Alpine warrant assumed by Nivalis shall be determined by dividing (a) the per share exercise price of the Alpine common stock or preferred stock subject to such Alpine warrant, as in effect immediately prior to
the Effective Time, by (b) the exchange ratio. Any restriction on any Alpine warrant assumed by Nivalis shall continue in full force and effect and the terms and other provisions of such Alpine warrant shall otherwise remain unchanged.
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Directors and Officers of Nivalis Following the Merger
Pursuant to the Merger Agreement, each of the directors and officers of Nivalis who will not continue as directors or officers of Nivalis or
the combined organization following the consummation of the merger, shall resign immediately prior to the Effective Time. In connection with the merger, Nivalis board of directors will be expanded to include a total seven directors. Pursuant
to the terms of the Merger Agreement, four of such directors will be designated by Alpine, two of such directors will be designated by Nivalis, and one director will be an independent designee approved by a majority of the other directors. It is
anticipated that Robert Conway and Paul Sekhri will remain as directors of Nivalis following the closing of the merger and that all other Nivalis directors will resign as of the Effective Time. Messrs. Conway and Sekhri shall appoint
Mitchell H. Gold, M.D., Peter Thompson, M.D., James N. Topper, M.D., Ph.D., and Jay Venkatesan, M.D., to Nivalis board of directors to fill the resulting vacancies. Immediately following the consummation of the merger, it is
anticipated that the size of the board of directors will be increased to seven and that one person unaffiliated with Nivalis and Alpine, pursuant to the Merger Agreement, will be designated by a majority of the other directors to serve on the board
of directors. It is anticipated that Nivalis executive officers upon the closing of the merger will be Mitchell H. Gold, M.D., Chief Executive Officer and Chairman, Jay Venkatesan, M.D., President and Director, Stanford Peng, M.D.,
Ph.D., Executive Vice President of Research and Development and Chief Medical Officer and Paul Rickey, Senior Vice President and Chief Financial Officer.
Amended and Restated Certificate of Incorporation and Amendment to the Amended and Restated Certificate of Incorporation of
Nivalis
Stockholders of record of Nivalis common stock on the record date for the Nivalis special meeting will also be asked to
approve an amendment to the amended and restated certificate of incorporation of Nivalis to effect the Nivalis Reverse Stock Split and the Nivalis Name Change, in each case, upon consummation of the merger, each of which requires the affirmative
vote of holders of shares representing a majority of all shares of Nivalis common stock outstanding on the record date for the Nivalis special meeting.
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Conditions to the Completion of the Merger
Each partys obligation to complete the merger is subject to the satisfaction or waiver by each of the parties, at or prior to the merger,
of various conditions, which include the following:
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the registration statement on
Form S-4,
of which this proxy statement/prospectus/information statement is a part, must have been declared effective by the SEC in accordance
with the Securities Act and must not be subject to any stop order or proceeding, or any proceeding threatened by the SEC, seeking a stop order that has not been withdrawn;
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there must not have been issued, and remain in effect, any temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the merger or any of the other transactions
contemplated by the Merger Agreement by any court of competent jurisdiction or other governmental entity of competent jurisdiction, and no law, statute, rule, regulation, ruling or decree shall be in effect which has the effect of making the
consummation of the merger or any of the other transactions contemplated by the Merger Agreement illegal;
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the holders of a majority of the outstanding shares of Alpines common stock and preferred stock, voting together as one class, and the holders of a majority of the outstanding shares of Alpines preferred
stock, voting as a separate class, must have adopted and approved the merger, and the holders of a majority of the outstanding shares of Nivalis common stock having voting power present in person or represented by proxy at the Nivalis special
meeting must have approved the Merger Agreement and the transactions contemplated thereby, including the merger and the issuance of Nivalis common stock in the merger; and
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the existing shares of Nivalis common stock must have been continually listed on NASDAQ through the closing of the merger, and Nivalis must have caused the shares of Nivalis common stock to be issued in the
merger to be approved for listing on NASDAQ (subject to official notice of issuance) as of the closing of the merger.
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In
addition, each partys obligation to complete the merger is subject to the satisfaction or waiver by that party of the following additional conditions:
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the representations and warranties regarding certain matters related to organization, authority, vote required and financial advisors of the other party in the Merger Agreement must be true and correct on the date of
the Merger Agreement and on the closing date of the merger with the same force and effect as if made on the date on which the merger is to be completed or, if such representations and warranties address matters as of a particular date, then as of
that particular date;
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the representations and warranties regarding capitalization matters of the other party in the Merger Agreement must be true and correct on the date of the Merger Agreement and on the closing date of the merger with the
same force and effect as if made on the date on which the merger is to be completed or, if such representations and warranties address matters as of a particular date, then as of that particular date, except for such inaccuracies which are de
minimis, individually or in the aggregate;
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the remaining representations and warranties of the other party in the Merger Agreement must be true and correct on the date of the Merger Agreement and on the closing date of the merger with the same force and effect
as if made on the date on which the merger is to be completed or, if such representations and warranties address matters as of a particular date, then as of that particular date, except in each case, or in the aggregate, where the failure to be so
true and correct would not reasonably be expected to have a Company Material Adverse Effect or Nautilus Material Adverse Effect (each as defined in the Merger Agreement), as applicable (without giving effect to any references therein to any Company
Material Adverse Effect or Nautilus Material Adverse Effect, as applicable, or other materiality qualifications);
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the other party to the Merger Agreement must have performed or complied with in all material respects all of such partys agreements and covenants required to be performed or complied with by it under the Merger
Agreement at or prior to the Effective Time;
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the other party must have delivered certain certificates and other documents required under the Merger Agreement for the closing of the merger; and
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the party must have received from the other party
lock-up
agreements executed by certain stockholders of such party and each person who shall be elected or appointed as an
executive officer or director of such party immediately following the closing.
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In addition, the obligation of Nivalis and
Merger Sub to complete the merger is further subject to the satisfaction or waiver of the following conditions:
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there shall have been no effect, change, event, circumstance, or development that (considered together with all other effects, changes, events, circumstances, or developments that have occurred prior to the applicable
date of determination) has or would reasonably be expected to have a material adverse effect on the business, financial condition, assets, liabilities or results of operations of Alpine or its subsidiaries, taken as a whole (a Company Material
Adverse Effect);
provided
that effects, changes, events, circumstances or developments resulting from the following shall not be taken into account for purposes of determining whether a Company Material Adverse Effect shall have
occurred:
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any rejection by a governmental body of a registration or filing by Alpine relating to intellectual property owned, licensed or controlled by Alpine;
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the announcement or pendency of the Merger Agreement or the transactions contemplated thereby;
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the taking of any action, or the failure to take any action, by Alpine that is required to comply with the terms of the Merger Agreement;
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any natural disaster or any act or threat of terrorism or war anywhere in the world, any armed hostilities or terrorist activities anywhere in the world, any threat or escalation or armed hostilities or terrorist
activities anywhere in the world or any governmental or other response or reaction to any of the foregoing;
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any change in generally accepted accounting principles or any change in applicable laws, rules or regulations or the interpretation thereof;
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general economic or political conditions or conditions generally affecting the industries in which Alpine and its subsidiaries operate; or
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any change in the cash position of Alpine or its subsidiaries which results from operations in the ordinary course of business;
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certain agreements between Alpine and its stockholders must have been terminated;
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the
Pre-Closing
Financing must have been consummated and Alpine must have received the proceeds from such financing pursuant to the terms and conditions set forth in the
Subscription Agreement; and
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Nivalis must have received a certificate, including supporting documentation, information and calculations, certifying that Alpines net cash (including marketable securities) is not less than $38.0 million as
of the date of the closing of the merger.
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In addition, the obligation of Alpine to complete the merger is further subject
to the satisfaction or waiver of the following conditions:
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the principal executive officer or the principal financial officer of Nivalis shall have provided, with respect to any document filed with the SEC on or after April 18, 2017, any necessary certification required
under Rule
13a-14
under the Securities Exchange Act of 1934, as amended;
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there shall have been no effect, change, event, circumstance, or development that (considered together with all
other effects, changes, circumstances, or developments that have occurred prior to the
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applicable date of determination) has or would reasonably be expected to have a material adverse effect on the business, financial condition, assets, liabilities or results of operations of
Nivalis and its subsidiaries, taken as a whole (a Nautilus Material Adverse Effect);
provided
, that effects, changes, events, circumstances or developments resulting from the following shall not be taken into account for purposes
of determining whether a Nautilus Material Adverse Effect shall have occurred:
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any rejection by a governmental body of a registration or filing by Nivalis relating to intellectual property owned, licensed or controlled by Nivalis;
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the termination, sublease or assignment of Nivalis facility lease, or failure to do the foregoing;
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the announcement or pendency of the Merger Agreement or the transactions contemplated thereby;
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any change in the stock price or trading volume of Nivalis common stock;
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the taking of any action, or the failure to take any action, by Nivalis that is required to comply with the terms of the Merger Agreement;
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any natural disaster or any act or threat of terrorism or war anywhere in the world, any armed hostilities or terrorist activities anywhere in the world, any threat or escalation or armed hostilities or terrorist
activities anywhere in the world or any governmental or other response or reaction to any of the foregoing;
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any change in generally accepted accounting principles or any change in applicable laws, rules or regulations or the interpretation thereof;
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general economic or political conditions or conditions generally affecting the industries in which Nivalis operates;
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continued losses from operations or decreases in cash balances of Nivalis not materially inconsistent with kind and degree of losses from operations and decreases in cash balances which have occurred between
December 31, 2016 and the date of the Merger Agreement; or
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the winding down of Nivalis operations not materially inconsistent with the kind and degree of winding down activities which have occurred between December 31, 2016 and the date of the Merger Agreement; and
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Alpine must have received the opinion of Sidley or another firm of national reputation, addressed to Alpine and dated as of the closing date of the merger, to the effect that the merger will be treated, for U.S. federal
income tax purposes, as a reorganization within the meaning of Section 368(a) of the Code.
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Alpine must have received a certificate, including supporting documentation, information and calculations, certifying that Nivalis net cash (including marketable securities) is not less than $38.0 million as of
the date of the closing of the merger.
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Representations and Warranties
The Merger Agreement contains customary representations and warranties of Nivalis and Alpine for a transaction of this type relating to, among
other things:
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corporate organization and power, and similar corporate matters;
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authority to enter into the Merger Agreement and the related agreements;
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votes required for completion of the merger and approval of the proposals that will come before the Nivalis special meeting and that will be the subject of Alpines stockholder written consent;
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except as otherwise specifically disclosed pursuant to in the Merger Agreement, the fact that the consummation of the merger would not contravene or require the consent of any third party;
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financial statements and with respect to Nivalis, documents filed with the SEC and the accuracy of information contained in those documents;
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material changes or events;
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real property and leaseholds;
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the validity of material contracts to which the parties or their subsidiaries are a party and any violation, default or breach to such contracts;
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regulatory compliance, permits and restrictions;
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legal proceedings and orders;
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employee and labor matters and benefit plans;
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any brokerage or finders fee or other fee or commission in connection with the merger;
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with respect to Alpine, disclosures related to the Subscription Agreement;
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transactions with affiliates;
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with respect to Nivalis, the valid issuance in the merger of Nivalis common stock and the opinion of Ladenburg; and
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the inapplicability of Section 203 of the DGCL.
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The representations and warranties are,
in many respects, qualified by materiality and knowledge, and will not survive the merger, but their accuracy forms the basis of one of the conditions to the obligations of Nivalis and Alpine to complete the merger.
No Solicitation
Each of Nivalis and Alpine agreed that during the period commencing on the date of the Merger Agreement and ending on the earlier of the
consummation of the Merger or the termination of the Merger Agreement, except as described below, Nivalis and Alpine and any of their respective subsidiaries will not, nor will either party or any of its subsidiaries authorize any of the directors,
officers, employees, agents, attorneys, accountants, investment bankers, advisors or representatives retained by it or any of its subsidiaries to, directly or indirectly:
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solicit, initiate or knowingly encourage, induce or facilitate the communication, making, submission or announcement of, any acquisition proposal or acquisition inquiry;
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furnish any
non-public
information with respect to it to any person in connection with or in response to an acquisition proposal or acquisition inquiry;
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engage in discussions or negotiations with any person with respect to any acquisition proposal or acquisition inquiry;
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approve, endorse or recommend an acquisition proposal;
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execute or enter into any letter of intent or similar document or any contract contemplating or otherwise relating to an acquisition transaction; or
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publicly propose to do any of the above.
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An acquisition inquiry means an inquiry,
indication of interest or request for information (other than an inquiry, indication of interest or request for information made or submitted by Alpine, on the one hand, or Nivalis, on the other hand, to the other party) that would reasonably be
expected to lead to an acquisition proposal.
An acquisition proposal means any offer or proposal, whether written or oral
(other than an offer or proposal made or submitted by or on behalf of Alpine or any of its affiliates, on the one hand, or by or on behalf of Nivalis or any of its affiliates, on the other hand, to the other party) contemplating or otherwise
relating to any acquisition transaction.
An acquisition transaction means any transaction or series of related
transactions involving:
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any merger, consolidation, amalgamation, share exchange, business combination, issuance or acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or similar transaction: (i) in
which Nivalis, Alpine or Merger Sub is a constituent entity, (ii) in which any individual, entity, governmental entity, or group, as defined under applicable securities laws, directly or indirectly acquires beneficial or record
ownership of securities representing more than 20% of the outstanding securities of any class of voting securities of Nivalis, Alpine or Merger Sub or any of their respective subsidiaries or (iii) in which Nivalis, Alpine or Merger Sub or any
of their respective subsidiaries issues securities representing more than 20% of the outstanding securities of any class of voting securities of such party or any of its subsidiaries (
provided
that the
Pre-Closing
Financing and certain other financing transactions to be completed by Alpine prior to the closing of the merger shall not be considered acquisition transactions); or
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any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 20% or more of the consolidated book value or the fair market value of the
assets of Nivalis, Alpine or Merger Sub and their respective subsidiaries, as applicable, taken as a whole.
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Notwithstanding
the foregoing, before obtaining the applicable approvals of the stockholders of Nivalis or Alpine required to consummate the merger, as applicable, each party may furnish
non-public
information regarding such
party and its subsidiaries to, and may enter into discussions or negotiations with, any third party in response to a bona fide written acquisition proposal made or received after the date of the Merger Agreement, which such partys board of
directors determines in good faith, after consultation with such partys outside financial advisors and outside legal counsel, constitutes or is reasonably likely to result in a superior offer, as defined below, if:
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neither such party nor any representative of such party has breached the solicitation provisions of the Merger Agreement described above;
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such partys board of directors concludes in good faith, based on the advice of outside legal counsel, that the failure to take such action is reasonably likely to be inconsistent with the fiduciary duties of such
board of directors under applicable legal requirements;
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such party gives the other party at least two business days prior written notice of the identity of the third party and of that partys intention to furnish information to, or enter into discussions or
negotiations with, such third party before furnishing any information or entering into discussions or negotiations with such third party;
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such party receives from the third party an executed confidentiality agreement containing provisions at least as favorable to such party as those contained in the confidentiality agreement between Nivalis and Alpine;
and
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substantially contemporaneously with the furnishing of any
non-public
information to a third party, such party furnishes the same
non-public
information to the other party to the extent not previously furnished.
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A
superior offer means an unsolicited, bona fide written acquisition proposal (with all references to 20% in the definition of acquisition transaction being treated as references to greater than 50% for these purposes) that (a) was
not obtained or made as a direct or indirect result of a breach, or violation, of the Merger Agreement, and (b) is on terms and conditions that the board of directors of the party receiving the offer determines in good faith, based on such
matters that it deems relevant, as well as any written offer by the other party to the Merger Agreement to amend the terms of the Merger Agreement, and following consultation with outside legal counsel and outside financial advisors, if any, are
more favorable, from a financial point of view, to that partys stockholders than the terms of the merger. An acquisition proposal will not be considered a superior offer if any financing required to consummate the transaction contemplated by
such acquisition proposal is not reasonably capable of being obtained by such third party.
The Merger Agreement also provides that each
party will promptly advise the other of the status and terms of, and keep the other party reasonably informed with respect to, any acquisition proposal or any inquiry, indication of interest or request for information that would reasonably be
expected to lead to an acquisition proposal or any material change or proposed material change to that acquisition proposal or inquiry, indication of interest or request for information that would reasonably be expected to lead to an acquisition
proposal.
Meetings of Stockholders
Nivalis is obligated under the Merger Agreement to call, give notice of and hold the Nivalis special meeting for the purposes of considering
the approval of the Merger Agreement and the transactions contemplated thereby, including the merger and the issuance of shares of Nivalis common stock to Alpines stockholders in the merger.
Alpine is obligated under the Merger Agreement to obtain written consents of its stockholders sufficient to adopt the Merger Agreement thereby
approving the merger and related transactions within five business days following the registration statement on Form
S-4,
of which this proxy statement/prospectus/information statement is a part, being
declared effective by the SEC.
Covenants; Conduct of Business Pending the Merger
Nivalis has agreed that, except as permitted by the Merger Agreement, as required by law, or unless Alpine shall have provided written consent,
during the period commencing on the date of the Merger Agreement and continuing until the earlier to occur of the closing of the merger and the termination of the Merger Agreement, Nivalis will conduct its business and operations in the ordinary
course consistent with past practices and in compliance with all applicable laws, regulations and certain contracts, and to take other agreed-upon actions. Nivalis has also agreed that, subject to certain limited exceptions, without the consent of
Alpine, it will not, during the period commencing on the date of the Merger Agreement and continuing until the earlier to occur of the closing of the merger and the termination of the Merger Agreement:
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declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock; or repurchase, redeem or otherwise reacquire any shares of capital stock or other securities
(except for shares of common stock from terminated employees, directors or consultants of Nivalis);
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sell, issue, grant, pledge or otherwise dispose of or encumber or authorize any of the foregoing with respect to: any capital stock or other security (except for Nivalis common stock issued upon the valid exercise
of outstanding options or warrants to purchase shares of Nivalis common stock); any option, warrant or right to acquire any capital stock or any other security of Nivalis; or any instrument convertible into or exchangeable for any capital
stock or other security of Nivalis;
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except as required to give effect to anything in contemplation of the closing of the merger, amend the certificate of incorporation, bylaws or other charter or organizational documents of Nivalis, or effect or become a
party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction except as related to the proposed transactions under the Merger
Agreement;
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form any subsidiary or acquire any equity interest or other interest in any other entity or enter into any joint venture with any other entity;
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lend money to any person; incur or guarantee any indebtedness for borrowed money; guarantee any debt securities of others; or make any capital expenditure or commitment in excess of the amounts set forth in
Nivalis operating budget delivered to Alpine concurrently with the Merger Agreement;
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other than as required by law or the terms of a Nivalis employee plan in effect as of the date of the Merger Agreement, adopt, establish or enter into any Nivalis employee plan; cause or permit any Nivalis employee plan
to be amended; other than in the ordinary course of business, pay any bonus or make any profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to,
any of its employees, directors or consultants; increase the severance or change of control benefits offered to any current or new employees, directors or consultants; or hire any new employees, consultants or independent contractors other than in
connection with the cessation of research and development activities by Nivalis;
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enter into any material transaction other than in connection with the wind-down of research and development activities by Nivalis;
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acquire any material asset or sell, lease or otherwise irrevocably dispose of any of its assets or properties, or grant any encumbrance with respect to such assets or properties, except in the ordinary course of
business consistent with past practices;
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make, change or revoke any material tax election; file any material amendment to any tax return; settle or compromise any material tax liability, or adopt or change any material accounting method in respect of taxes;
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enter into, materially amend or terminate certain material contracts other than in connection with or as necessary to affect the wind-down of research and development activities by Nivalis;
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make any expenditures or incur any liabilities in amounts that exceed the limitations set forth in Nivalis operating budget delivered to Alpine concurrently with the execution of the Merger Agreement in an amount
that exceeds, in the aggregate, $500,000; or
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agree, resolve or commit to do any of the foregoing.
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Alpine has agreed that, except
as permitted by the Merger Agreement, as required by law, or unless Nivalis shall have provided written consent, during the period commencing on the date of the Merger Agreement and continuing until the earlier to occur of the closing of the merger
and the termination of the Merger Agreement, Alpine will conduct its business and operations in the ordinary course consistent with past practices and in compliance with all applicable laws, regulations and certain contracts, and to take other
agreed-upon actions. Alpine has also agreed that, subject to certain limited exceptions, without the consent of Nivalis, it will not, during the period commencing on the date of the Merger Agreement and continuing until the earlier to occur of the
closing of the merger and the termination of the Merger Agreement:
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declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock of Alpine; or repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities of Alpine (except for shares of common stock from terminated employees, directors or consultants of Alpine);
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except as required to give effect to anything in contemplation of the closing of the merger, amend the certificate of incorporation, bylaws or other charter or organizational documents of Alpine or its subsidiaries, or
effect or become a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction except as related to the proposed transactions under
the Merger Agreement;
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sell, issue, grant, pledge or otherwise dispose of or encumber or authorize any of the foregoing actions with respect to: any capital stock or other security of Alpine (except for shares of Alpine common stock issued
upon the valid exercise of Alpine options or warrants and shares of Alpine capital stock issued in connection with the
Pre-Closing
Financing and certain other financing transactions to be completed by Alpine
prior to the closing of the merger); any option, warrant or right to acquire any capital stock or any other security of Alpine, other than option grants to employees and service providers in the ordinary course of business in accordance with past
practices; or any instrument convertible into or exchangeable for any capital stock or other security of Alpine or its subsidiaries other than shares Alpines capital stock issued in connection with the
Pre-Closing
Financing;
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form any subsidiary or acquire any equity interest or other interest in any other entity or enter into a joint venture with any other entity;
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lend money to any person; incur or guarantee any indebtedness for borrowed money, other than in the ordinary course of business in accordance with past practices; guarantee any debt securities of others; or make any
capital expenditure or commitment in excess of the amounts set forth in Alpines operating budget delivered to Nivalis concurrently with the Merger Agreement;
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other than as required by applicable law or in the ordinary course of business in accordance with past practices: adopt, establish or enter into any employee plan; cause or permit any employee plan to be amended; pay
any bonus or make any profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its directors, officers or employees, other than grants of
options to employees and service providers in the ordinary course of business in accordance with past practices; or increase the severance or change of control benefits offered to any current or new employees, directors or consultants;
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enter into any material transaction outside the ordinary course of business in accordance with past practices, except in accordance with Alpines operating budget delivered to Nivalis concurrently with the Merger
Agreement;
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acquire any material asset or sell, lease or otherwise irrevocably dispose of any of its assets or properties, or grant any encumbrance with respect to such assets or properties, except in the ordinary course of
business in accordance with past practices and except in accordance with Alpines operating budget delivered to Nivalis concurrently with the Merger Agreement;
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sell, assign, transfer, license, sublicense or otherwise dispose of any material Alpine intellectual property rights (other than (i) pursuant to
non-exclusive
licenses in the
ordinary course of business in accordance with past practices and (ii) in accordance with Alpines operating budget delivered to Nivalis concurrently with the Merger Agreement);
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other than in connection with the
Pre-Closing
Financing or in accordance with Alpines operating budget delivered to Nivalis concurrently with the Merger Agreement, enter
into, materially amend or terminate certain material contracts;
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make, change or revoke any material tax election; file any material amendment to any tax return; settle or compromise any material tax liability, or adopt or change any material accounting method in respect of taxes;
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make any expenditures or incur any liabilities in amounts that exceed the limitations set forth in Alpines operating budget delivered to Nivalis concurrently with the execution of the Merger Agreement in an amount
that exceeds, in the aggregate, $500,000; or
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agree, resolve or commit to do any of the foregoing.
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Other Agreements
Each of Nivalis and Alpine has agreed to use its commercially reasonable efforts to cause to be taken all actions necessary to consummate the
merger and the other transactions contemplated by the Merger Agreement. In connection therewith, each party has agreed to:
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file or otherwise submit all applications and notices required to be filed in connection with the merger and the other transactions contemplated by the Merger Agreement;
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use commercially reasonable efforts to obtain each consent reasonably required to be obtained in connection with the merger and the other transactions contemplated by the Merger Agreement;
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use commercially reasonable efforts to lift any injunction prohibiting, or any other legal bar to, the merger or the other transactions contemplated by the Merger Agreement; and
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use commercially reasonable efforts to satisfy the conditions precedent to the consummation of the transactions contemplated by the Merger Agreement.
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Pursuant to the Merger Agreement, Nivalis and Alpine have further agreed that:
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Nivalis will use its commercially reasonable efforts to (A) maintain the listing of its common stock on NASDAQ until the closing of the merger and to obtain approval for listing of the combined organization on
NASDAQ and (B) to the extent required by the rules and regulations of NASDAQ, to (i) prepare and submit to NASDAQ a notification form for the listing of the shares of Nivalis common stock to be issued in connection with the merger
and (ii) to cause such shares to be approved for listing (subject to official notice of issuance); and (c) to the extent required by NASDAQ Marketplace Rule 5110, to file an initial listing application for Nivalis common stock on
NASDAQ and to cause such listing application to be conditionally approved prior to the Effective Time;
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for a period of six years after the closing of the merger, Nivalis will indemnify each of the directors and officers of Nivalis and Alpine to the fullest extent permitted under the DGCL and will maintain directors
and officers liability insurance for the directors and officers of Nivalis and Alpine; and
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Nivalis shall maintain directors and officers liability insurance policies commencing at the closing of the merger, on commercially reasonable terms and conditions and with coverage limits customary for U.S.
public companies similarly situated to Nivalis.
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Termination
The Merger Agreement may be terminated at any time before the completion of the merger, whether before or after the required stockholder
approvals to complete the merger have been obtained, as set forth below:
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by mutual written consent of Nivalis and Alpine;
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by either Nivalis or Alpine if the merger shall not have been consummated by October 18, 2017 (the Outside Date);
provided
,
however
, that this right to terminate the Merger Agreement will
not be available to any party whose action or failure to act has been a principal cause of the failure of the merger to occur on or before the Outside Date and such action or failure to act constitutes a breach of the Merger Agreement; and
provided
,
further
, that the Outside Date shall be extended by sixty days upon request of either party if a request for additional information has been made by any government authority, or in the event that the SEC has not declared
effective the registration statement on Form
S-4,
of which this proxy statement/prospectus/information statement is a part, by such date;
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by either Nivalis or Alpine if a court of competent jurisdiction or governmental entity has issued a final and nonappealable order, decree or ruling or taken any other action that permanently restrains, enjoins or
otherwise prohibits the merger or any of the other transactions contemplated by the Merger Agreement;
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by Nivalis if the written consent of Alpines stockholders necessary to adopt the Merger Agreement and approve the merger and related matters has not been obtained within five business days of the registration
statement on Form
S-4,
of which this proxy statement/prospectus/information statement is a part, becoming effective;
provided
that this right to terminate the Merger Agreement will not be available to
Nivalis once Alpine obtains such stockholder approval;
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by either Nivalis or Alpine if the Nivalis special meeting shall have been held and completed and Nivalis stockholders shall have taken a final vote and shall not have approved the Merger Agreement or any of the
transactions contemplated thereby, including the merger and the issuance of Nivalis common stock to Alpines stockholders in the merger;
provided
, that Nivalis may not terminate the Merger Agreement pursuant to this provision if
the failure to obtain the approval of Nivalis stockholders was caused by the action or failure to act of Nivalis and such action or failure to act constitutes a material breach by Nivalis of the Merger Agreement;
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by Alpine, at any time prior to the approval by Nivalis stockholders of the proposals to be considered at the Nivalis special meeting, if any of the following circumstances shall occur (each of the following, a
Nivalis triggering event):
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Nivalis board of directors fails to recommend that the stockholders of Nivalis vote to approve the merger and the issuance of Nivalis common stock to Alpines stockholders in connection with the Merger
or withdraws or modifies its recommendation in a manner adverse to Alpine;
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Nivalis fails to include in this proxy statement/prospectus/information statement such recommendation;
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Nivalis board of directors approves, endorses or recommends any acquisition proposal;
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Nivalis enters into any letter of intent or similar document or any contract relating to any acquisition proposal, other than a confidentiality agreement permitted pursuant to the Merger Agreement; or
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Nivalis or any director, officer or agent of Nivalis willfully and intentionally breaches the no solicitation provisions or the provisions regarding the Nivalis special meeting meeting set forth in the Merger Agreement;
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by Nivalis, at any time prior to the adoption of the Merger Agreement by Alpines stockholders, if any of the following circumstances shall occur (each an Alpine triggering event):
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Alpines board of directors fails to recommend that Alpines stockholders vote to adopt the Merger Agreement, thereby approving the merger, or withdraws or modifies its recommendation in a manner adverse to
Nivalis;
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Alpines board of directors approves, endorses or recommends any acquisition proposal;
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Alpine enters into any letter of intent or similar document or any contract relating to any acquisition proposal, other than a confidentiality agreement permitted pursuant to the Merger Agreement; or
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Alpine or any director, officer or agent of Alpine willfully and intentionally breaches the no solicitation provisions or the provisions regarding written consent of Alpines stockholders set forth in the Merger
Agreement;
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by Nivalis or Alpine if the other party has breached any of its representations, warranties, covenants or
agreements contained in the Merger Agreement or if any representation or warranty of the other party has become inaccurate, in either case such that the conditions to the closing of the merger would not be satisfied as of time of such breach or
inaccuracy, but if such breach or inaccuracy is curable, then the Merger Agreement will not terminate pursuant to this provision as a result of a particular breach or inaccuracy until the earlier of the expiration of a
30-day
period after delivery of written notice of such
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breach or inaccuracy and the breaching party ceasing to exercise commercially reasonable efforts to cure such breach, if such breach has not been cured;
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by Nivalis, at any time, if all closing conditions under the Merger Agreement have been satisfied or waived by Nivalis other than the closing condition related to the
Pre-Closing
Financing, Nivalis has provided written notice to Alpine that it is prepared to consummate the closing of the merger upon the consummation of the Pre-Closing Financing and Alpine has not obtained the
Pre-Closing
Financing within ten days of receipt of such notice;
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by Alpine, at any time, if all closing conditions under the Merger Agreement have been satisfied or waived by Alpine, except for the condition related to the delivery by Nivalis of a closing certificate indicating that
its net cash as of the closing of the merger is not less than $38.0 million, Alpine has provided written notice to Nivalis that it is prepared to consummate the closing of the merger upon the satisfaction of such condition and Nivalis has not
satisfied such condition within ten days of such notice; or
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by Nivalis, at any time, if all closing conditions under the Merger Agreement have been satisfied or waived by Nivalis, except for the condition related to the delivery by Alpine of a closing certificate indicating that
its net cash as of the closing of the merger is not less than $38.0 million, Nivalis has provided written notice to Alpine that it is prepared to consummate the closing of the merger upon the satisfaction of such condition and Alpine has not
satisfied such condition within ten days of such notice.
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Termination Fee
Fee payable by Nivalis
Nivalis
must pay Alpine a termination fee of $2.5 million if:
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the Merger Agreement is terminated by either Nivalis or Alpine if (a) the Nivalis special meeting shall have been held and completed, (b) Nivalis stockholders shall have not approved the Merger Agreement
or the transactions contemplated by the Merger Agreement, including the issuance of shares of Nivalis common stock to Alpines stockholders in the merger, (c) at any time after the date of Merger Agreement and prior to the Nivalis
special meeting an acquisition proposal with respect to Nivalis was publicly announced, disclosed or otherwise communicated to the board of directors of Nivalis, and (d) within 12 months after the date of such termination, Nivalis enters into a
definitive agreement for or consummates an acquisition transaction; or
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the Merger Agreement is terminated by Alpine at any time prior to the approval of the Merger Agreement and the transactions contemplated therein by Nivalis stockholders upon the occurrence of a Nivalis triggering
event.
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Nivalis must reimburse Alpine for expenses incurred by Alpine in connection with the termination of the Merger
Agreement and the transactions contemplated thereby, up to a maximum of $1.0 million, if:
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the Merger Agreement is terminated by either Nivalis or Alpine if (a) the Nivalis special meeting shall have been held and completed, (b) Nivalis stockholders shall have not approved the Merger Agreement
or the transactions contemplated by the Merger Agreement, including the issuance of shares of Nivalis common stock to Alpines stockholders in the merger;
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the Merger Agreement is terminated by Alpine because Nivalis or Merger Sub has breached any of its representations, warranties, covenants or agreements contained in the Merger Agreement or if any representation or
warranty of Nivalis or Merger Sub has become inaccurate, in either case such that the conditions to the closing of the merger would not be satisfied as of the time of such breach or inaccuracy, subject to a 30 day cure period; or
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in the event of a failure by Alpine to consummate the transactions described in the Merger Agreement solely as a result of a Nautilus Material Adverse Effect, as defined in the section entitled The Merger
Agreement Conditions to the Completion of the Merger.
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Fee payable by Alpine
Alpine must pay Nivalis a termination fee of $2.5 million if:
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the Merger Agreement is terminated by Nivalis if (a) the required approval of Alpines stockholders has not been obtained within five business days of the registration statement on Form
S-4,
of which this proxy statement/prospectus/information statement is a part, being declared effective by the U.S. Securities and Exchange Commission, (b) at any time after the date of the Merger Agreement and
prior to obtaining the approval of Alpines stockholders, an acquisition proposal with respect to Alpine was publicly announced, disclosed or otherwise communicated to the board of directors of Alpine and (c) within 12 months after the
date of such termination, Alpine enters into a definitive agreement for or consummates an acquisition transaction;
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the Merger Agreement is terminated by Nivalis at any time prior to the adoption of the Merger Agreement, and approval of the merger and the other transactions contemplated by the Merger Agreement, by Alpines
stockholders upon the occurrence of an Alpine triggering event; or
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the Merger Agreement is terminated by Nivalis after (a) satisfaction or waiver of all closing conditions under the Merger Agreement other than the closing condition related to the
Pre-Closing
Financing, (b) Nivalis has provided written notice to Alpine that it is prepared to consummate the closing of the merger upon the consummation of the Pre-Closing Financing and (c) Alpine
has not consummated the
Pre-Closing
Financing within ten days of receipt of such notice.
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Alpine must reimburse Nivalis for expenses incurred by Nivalis in connection with the termination of the Merger Agreement and the transactions
contemplated thereby, up to a maximum of $1.0 million, if:
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the Merger Agreement is terminated by Nivalis because Alpine has breached any of its representations, warranties, covenants or agreements contained in the Merger Agreement or if any representation or warranty of Alpine
has become inaccurate, in either case such that the conditions to the closing of the merger would not be satisfied as of the time of such breach or inaccuracy, subject to a 30-day cure period;
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in the event of a failure by Nivalis to consummate the transactions described in the Merger Agreement solely as a result of the occurrence of a Company Material Adverse Effect, as defined above in the section entitled
The Merger Agreement Conditions to the Completion of the Merger.
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Amendment
The Merger Agreement may be amended by the parties at any time if such amendment is in writing and is signed by each party to the Merger
Agreement, except that after the Merger Agreement has been adopted and approved by the stockholders of Nivalis or Alpine, no amendment which by law requires further approval by the stockholders of Nivalis or Alpine, as the case may be, shall be made
without such further approval.
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AGREEMENTS RELATED TO THE MERGER
Subscription Agreement
On April 18, 2017, contemporaneously with the execution and delivery of the Merger Agreement, Alpine entered into the Subscription
Agreement with certain current stockholders of Alpine pursuant to which Alpine agreed to sell, and the stockholders party thereto agreed to purchase, an aggregate of 2,686,898 shares of Alpines common stock at a purchase price of $6.327 per
share immediately prior to the closing of the merger for an aggregate purchase price of approximately $17.0 million. The merger is conditioned upon the closing of the
Pre-Closing
Financing.
The Subscription Agreement contains representations and warranties of Alpine comparable to the representations and warranties of Alpine set
forth in Alpines prior stock financings. The Subscription Agreement also contains customary representations and warranties of the stockholder parties thereto.
Each stockholders obligation to purchase shares of Alpines common stock from Alpine pursuant to the Subscription Agreement is
subject to the satisfaction or waiver of certain conditions, including:
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Alpines representations and warranties in the Subscription Agreement being true and correct in all respects as of the closing date for the Pre-Closing Financing, subject to certain exceptions;
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Alpine having performed, satisfied and complied in all material respects with all agreements, obligations and conditions required to be performed or complied with by it;
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Alpines chief executive officer having delivered a certificate stating that certain conditions specific in the Subscription Agreement have been fulfilled;
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Alpine having delivered a certificate from the Secretary of State of the State of Delaware and a certificate from the Secretary of State of the State of Washington with respect to the good standing of Alpine, dated as
of no more than three days before the closing date of the Pre-Closing Financing;
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Alpine having delivered a certificate of the Secretary of Alpine certifying the second amended and restated certificate of incorporation of Alpine, the bylaws of Alpine and certain resolutions of Alpines board of
directors and Alpines stockholders;
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the satisfaction or waiver of each of the conditions to the consummation of the merger set forth in the Merger Agreement (other than the condition regarding the Pre-Closing Financing and any other condition to be
satisfied at the closing of the merger), and the willingness and readiness of the parties to the Merger Agreement to consummate the merger immediately after the closing of the Pre-Closing Financing on the terms and conditions set forth in the Merger
Agreement (
provided
that no condition to Alpines obligation to consummate the merger may be waived by Alpine without the prior written consent of the stockholders party to the Subscription Agreement unless such waiver, in the reasonable
and good faith determination of such stockholders would not reasonably be expected to be adverse to the interests of any stockholder in more than a de minimis manner or would not reasonably be expected to have more than a de minimis adverse effect
on the value of such stockholders investment in the shares to be purchased pursuant to the Subscription Agreement (including for this purpose on the shares of Nivalis common stock issued or issuable in the merger in exchange therefor),
in which event, such prior written consent of such stockholders shall not be required for such waiver of condition);
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the Subscription Agreement having not been terminated as to such stockholder;
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the SEC having declared effective the registration statement of which this proxy statement/prospectus/information statement is a part and no stop order suspending the effectiveness of the registration statement of which
this proxy statement/prospectus/information statement is a part having been issued and remaining pending;
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the affirmative vote of (i) the holders of a majority of the shares of Alpines common stock and
Alpines preferred stock, voting together as a single class and (ii) a majority of the shares of Alpines
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preferred stock, voting together as a single class, in each case outstanding on the record date and entitled to vote thereon, voting to adopt and approve the Merger Agreement and approve the
merger and the other transactions contemplated by the Merger Agreement; and
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the Merger Agreement having not been amended without the prior written consent of the stockholders party to the Subscription Agreement, unless such amendment, in the reasonable and good faith determination of such
stockholders (such consent not to be unreasonably withheld, conditioned or delayed), would not reasonably be expected to be adverse to the interests of any such stockholder in more than a de minimis manner or that would not reasonably be expected to
have more than a de minimis adverse effect on the value of such stockholders investment in the shares purchased pursuant to the Subscription Agreement (including for this purpose on the shares of Nivalis common stock issued or issuable
in the merger in exchange therefore), in which event, such prior written consent of the stockholders shall not be required for such amendment.
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Alpines obligation to sell shares of Alpine common stock to each stockholder pursuant to the Subscription Agreement is subject to the
satisfaction or waiver of certain conditions, including:
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the representations and warranties made by such stockholder being true and correct in all material respects as of the closing date of the Pre-Closing Financing;
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such stockholder having performed and complied in all material respects with all covenants, agreements, obligations and conditions required to be performed or complied with by such stockholder;
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Alpine being satisfied that the offer and sale of the shares shall be qualified or exempt from registration or qualification under all applicable federal and state securities laws (including receipt by Alpine of all
necessary blue sky law permits and qualifications required by any state, if any);
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The satisfaction or waiver of each of the conditions to the consummation of the merger set forth in the Merger Agreement (other than the condition regarding the closing of the Pre-Closing Financing and any other
condition to be satisfied at the closing of the merger) and the willingness and readiness of the parties to the Merger Agreement to consummate the merger immediately after the closing of the Pre-Closing Financing on the terms and conditions set
forth in the Merger Agreement;
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the Subscription Agreement having not been terminated as to such stockholder; and
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the SEC having declared effective the registration statement of which this proxy statement/prospectus/information statement is a part and no stop order suspending the effectiveness of the registration statement of which
this proxy statement/prospectus/information statement is a part having been issued and remaining pending.
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The
representations and warranties contained in the Subscription Agreement will survive the closing of the Pre-Closing Financing for a period of one year and shall in no way be affected by any investigation or knowledge of the subject matter thereof
made by or on behalf of the stockholders party to the Subscription Agreement or Alpine,
provided
,
however
, that such representations and warranties need only be true and correct as of the closing of the Pre-Closing Financing.
The Subscription Agreement may be amended and the observance of any term therein waived (either generally or in a particular instance and
either retroactively or prospectively), only with the written consent of Alpine, Nivalis (which such consent shall not be unreasonably withheld, conditioned or delayed) and each of the stockholders party thereto.
The Subscription Agreement may be terminated and the sale and purchase of the shares abandoned (i) (a) at any time prior to the closing
of the Pre-Closing Financing and prior to the termination of the Merger Agreement, by mutual written consent of Alpine and Nivalis, and (b) at any time prior to the closing of the Pre-Closing Financing and following the termination of the
Merger Agreement, by either Alpine or any stockholder party to
150
the Subscription Agreement (with respect to itself only), or (ii) at any time, by either Alpine or any stockholder party thereto (with respect to itself only) upon written notice to the
other parties thereto if and only if consummation of the transactions contemplated thereby would violate any nonappealable order, degree or judgment of any governmental authority having competent jurisdiction. The right to terminate the Subscription
Agreement shall not be available to any stockholder party thereto whose failure to comply with its obligations therein has been the cause of or resulted in the failure of the closing of the Pre-Closing Financing to occur on or before such
termination.
Nivalis is an express third-party beneficiary of the termination provisions of the Subscription Agreement and is entitled to
specifically enforce such provisions. In addition, upon the satisfaction or waiver of the closing conditions to the Subscription Agreement, Nivalis shall be an express third-party beneficiary of the Subscription Agreement and shall be entitled to
specifically enforce its terms, including the obligations of the parties to sell and purchase the shares of Alpine common stock pursuant to the terms thereof.
Support Agreements and Written Consent
In order to induce Nivalis to enter into the Merger Agreement, certain stockholders of Alpine are parties to a support agreement with Nivalis
pursuant to which, among other things, each stockholder has agreed, solely in its capacity as a stockholder of Alpine, to vote all of its shares of Alpines capital stock (subject to the Alpine Support Agreement Cutback) in favor of the
adoption of the Merger Agreement, the approval of the transactions contemplated thereby, including the merger and the approval of any other matter necessary to consummate the transactions contemplated by the Merger Agreement that are considered and
voted upon by Alpines stockholders and against any acquisition proposal. These stockholders of Alpine have also granted Nivalis an irrevocable proxy to vote their respective Alpines capital stock in accordance with the support
agreements. Alpines stockholders may vote their shares of Alpine capital stock on all other matters not referred to in such proxy.
The parties to the support agreements with Nivalis are:
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Alpine Immunosciences, L.P.
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OrbiMed Private Investments VI, LP
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Frazier Life Sciences VIII, L.P.
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The stockholders of Alpine that are party to a support agreement with
Nivalis owned an aggregate of 315,625 shares of Alpines common stock and 16,032,028 shares of Alpine preferred stock, representing approximately 94% of the outstanding shares of Alpine capital stock on an as converted to common stock basis, in
each case as of April 18, 2017. These stockholders include Alpines executive officers and directors, as well as certain other stockholders owning a significant portion of Alpines outstanding capital stock. Following the
effectiveness of the registration statement of which this proxy statement/prospectus/information statement is a part and pursuant to the Merger Agreement, stockholders of Alpine holding a sufficient number of shares to adopt the Merger Agreement and
approve the merger and related transactions will (subject to the Alpine Support Agreement Cutback) execute written consents providing for such adoption and approval. Therefore, holders of the number of shares of Alpines capital stock required
to adopt the Merger Agreement and approve the merger and related transactions are (subject to the Alpine Support Agreement Cutback) contractually obligated to adopt the Merger Agreement are expected to adopt the Merger Agreement via written consent.
Under these support agreements, subject to certain exceptions, such stockholders have also agreed not to sell or transfer shares of
Alpines capital stock and securities held by them, or any voting rights with respect thereto, until the earlier of the termination of the Merger Agreement or the completion of the merger, subject to certain
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exceptions. To the extent that any such sale or transfer is permitted pursuant to the exceptions included in the support agreement, each person to which any shares of Alpines capital stock
or securities are so sold or transferred must agree in writing to be bound by the terms and provisions of the support agreement.
In
addition, in order to induce Alpine to enter into the Merger Agreement, certain of Nivalis stockholders have entered into support agreements with Alpine pursuant to which, among other things, each such stockholder has agreed, solely in his,
her or its capacity as a stockholder of Nivalis, to vote all of his, her or its shares of Nivalis common stock in favor of approval of the Merger Agreement, the approval of the transactions contemplated thereby, including the merger and the
issuance of Nivalis common stock, the adoption of an amendment to amended and restated certificate of incorporation of Nivalis to effect the Nivalis Reverse Stock Split, the adoption of an amendment to the amended and restated certificate of
incorporation of Nivalis to effect the Nivalis Name Change, the approval of any proposal to adjourn or postpone the Nivalis special meeting to a later date, if there are not sufficient votes to approve the proposals for the merger and the issuance
of Nivalis common stock in the merger pursuant to the Merger Agreement on the date on which Nivalis special meeting is held, and any other proposal included in proxy statement, which is part of this proxy statement/prospectus/information
statement, in connection with, or related to, the consummation of the merger for which Nivalis board of directors has recommended that Nivalis stockholders vote in favor, and against any acquisition proposal. These stockholders of
Nivalis have also granted Alpine an irrevocable proxy to vote their respective shares in accordance with the support agreements. Nivalis stockholders may vote their shares of Nivalis common stock on all other matters not referred to in
such proxy.
The parties to the support agreements with Alpine are:
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The Estate of Arnold S. Snider, III
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Deerfield Special Situations Fund, L.P.
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Deerfield Private Design Fund, L.P.
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Deerfield Private Design International, L.P.
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Deerfield Private Design Fund II., L.P.
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Deerfield Private Design International II, L.P.
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As of April 18, 2017, the stockholders of Nivalis that are party to a
support agreement owned an aggregate of 5,367,209 shares of Nivalis common stock representing approximately 34% of the outstanding shares of Nivalis common stock. These stockholders include Nivalis executive officers and directors
and certain other stockholders of Nivalis holding a significant portion of Nivalis outstanding common stock.
Under these support
agreements, subject to certain exceptions, such stockholders also have agreed not to sell or transfer their shares of Nivalis common stock and securities held by them until the earlier of the termination of the Merger Agreement or the
completion of the merger, subject to certain exceptions. To the extent that any
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such sale or transfer is permitted pursuant to the exceptions included in the support agreements, each person to which any shares of Nivalis common stock or securities are so sold or
transferred must agree in writing to be bound by the terms and provisions of the support agreement, subject to certain further exceptions with respect to certain stockholders of Nivalis.
Lock-up
Agreements
As a condition to the closing of the merger, certain stockholders of each of Nivalis and Alpine and their affiliates, each as listed below,
have entered into
lock-up
agreements, pursuant to which such parties have agreed not to, except in limited circumstances, offer, pledge, sell, contract to sell, transfer or dispose of, directly or indirectly,
engage in swap or similar transactions with respect to, or make any demand for or exercise any right with respect to, any shares of Nivalis common stock or any security convertible into or exercisable or exchangeable for Nivalis common
stock, including, as applicable, shares received in the merger and issuable upon exercise of certain warrants and options, during the period commencing at the Effective Time and continuing until the date that is 180 days from the Effective Time.
As of April 18, 2017, Nivalis stockholders who have committed to execute
lock-up
agreements
beneficially owned in the aggregate approximately 24% of the outstanding common stock of Nivalis.
Alpines stockholders who have
committed to execute
lock-up
agreements as of April 18, 2017 beneficially owned in the aggregate approximately 94% of the outstanding shares of Alpines capital stock on an as if converted into common
stock basis.
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MATTERS BEING SUBMITTED TO A VOTE OF NIVALIS STOCKHOLDERS
Proposal No. 1: Approval of the Merger and the Issuance of Common Stock in the Merger
At the Nivalis special meeting, Nivalis stockholders will be asked to approve the Merger Agreement and the transactions contemplated
thereby, including the merger and the issuance of Nivalis common stock to Alpines stockholders pursuant to the Merger Agreement. Immediately following the merger, it is expected that Alpines current stockholders, warrantholders and
optionholders will own, or hold rights to acquire, approximately 74% of the Fully-Diluted Common Stock of Nivalis, with current Nivalis stockholders, optionholders and warrantholders owning, or holding rights to acquire, approximately 26% of
the Fully-Diluted Common Stock of Nivalis.
The terms of, reasons for and other aspects of the Merger Agreement, the merger and the
issuance of Nivalis common stock pursuant to the Merger Agreement are described in detail in the other sections in this proxy statement/prospectus/information statement.
Required Vote
The affirmative
vote of the holders of a majority of the shares of Nivalis common stock having voting power present in person or represented by proxy at the Nivalis special meeting is required for approval of Proposal No. 1.
NIVALIS BOARD OF DIRECTORS RECOMMENDS THAT NIVALIS STOCKHOLDERS VOTE FOR PROPOSAL NO. 1 TO APPROVE THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER AND THE ISSUANCE OF NIVALIS COMMON STOCK PURSUANT TO THE MERGER AGREEMENT.
Proposal No. 2: Approval of an Amendment to the Amended and Restated Certificate of Incorporation of Nivalis Effecting the
Nivalis Reverse Stock Split
General
At the Nivalis special meeting, Nivalis stockholders will be asked to approve an amendment to the amended and restated certificate of
incorporation of Nivalis effecting the Nivalis Reverse Stock Split. Upon the effectiveness of the amendment to the amended and restated certificate of incorporation of Nivalis effecting the Nivalis Reverse Stock Split, or the split effective time,
the issued shares of Nivalis common stock immediately prior to the split effective time will be reclassified into a smaller number of shares such that a stockholder of Nivalis will own one new share of Nivalis common stock for each four
shares of issued common stock held by that stockholder immediately prior to the split effective time.
If Proposal No. 2 is approved,
the Nivalis Reverse Stock Split would become effective in connection with the closing of the merger. Nivalis board of directors may effect only one reverse stock split in connection with this Proposal No. 2. Nivalis board of
directors decision will be based on a number of factors, including market conditions, existing and expected trading prices for Nivalis common stock and the listing requirements of NASDAQ.
The form of the amendment to the amended and restated certificate of incorporation of Nivalis to effect the Nivalis Reverse Stock Split, as
more fully described below, will effect the Nivalis Reverse Stock Split but will not change the number of authorized shares of common stock or preferred stock, or the par value of Nivalis common stock or preferred stock.
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Purpose
Nivalis board of directors approved the proposal approving the amendment to the amended and restated certificate of incorporation of
Nivalis effecting the Nivalis Reverse Stock Split for the following reasons:
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Nivalis board of directors believes effecting the Nivalis Reverse Stock Split may be an effective means of avoiding a delisting of Nivalis common stock from NASDAQ in the future;
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Nivalis board of directors believes that the Nivalis Reverse Stock Split will result in a number of authorized but unissued shares of Nivalis common stock sufficient for the issuance of shares of
Nivalis common stock to Alpines stockholders pursuant to the Merger Agreement; and
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Nivalis board of directors believes a higher stock price may help generate investor interest in Nivalis and help Nivalis attract and retain employees.
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If the Nivalis Reverse Stock Split successfully increases the per share price of Nivalis common stock, Nivalis board of directors
believes this increase may increase trading volume in Nivalis common stock and facilitate future financings by Nivalis.
NASDAQ Requirements
for Listing on NASDAQ
Nivalis common stock is quoted on NASDAQ under the symbol NVLS. Nivalis intends to file an
initial listing application with NASDAQ to seek listing on NASDAQ upon the closing of the merger.
According to NASDAQ rules, an issuer
must, in a case such as this, apply for initial inclusion following a transaction whereby the issuer combines with a
non-NASDAQ
entity, resulting in a change of control of the issuer and potentially allowing
the
non-NASDAQ
entity to obtain a NASDAQ listing. Accordingly, the listing standards of NASDAQ will require Nivalis to have, among other things, a $4.00 per share minimum bid price upon the closing of the
merger. Therefore, the Nivalis Reverse Stock Split may be necessary in order to consummate the merger.
One of the effects of the Nivalis
Reverse Stock Split will be to effectively increase the proportion of authorized shares which are unissued relative to those which are issued. This could result in Nivalis management being able to issue more shares without further stockholder
approval. For example, before the Nivalis Reverse Stock Split, Nivalis authorized but unissued shares immediately prior to the closing of the merger would be approximately 184.3 million compared to shares issued of approximately
15.7 million. If Nivalis effects the Nivalis Reverse Stock Split using a 1:4 ratio, its authorized but unissued shares immediately prior to the closing of the merger would be approximately 196.1 million compared to shares issued of
approximately 3.9 million. Nivalis currently has no plans to issue shares, other than in connection with the merger, and to satisfy obligations under the Nivalis warrants and employee stock options from time to time as these warrants and
options are exercised. The Nivalis Reverse Stock Split will not affect the number of authorized shares of Nivalis common stock which will continue to be authorized pursuant to the certificate of incorporation of Nivalis.
Potential Increased Investor Interest
On May 18, 2017, Nivalis common stock closed at $2.31 per share. An investment in Nivalis common stock may not appeal to brokerage
firms that are reluctant to recommend lower priced securities to their clients. Investors may also be dissuaded from purchasing lower priced stocks because the brokerage commissions, as a percentage of the total transaction, tend to be higher for
such stocks. Moreover, the analysts at many brokerage firms do not monitor the trading activity or otherwise provide coverage of lower priced stocks. Also, Nivalis board of directors believes that most investment funds are reluctant to invest
in lower priced stocks.
There are risks associated with the Nivalis Reverse Stock Split, including that the Nivalis Reverse Stock Split
may not result in an increase in the per share price of Nivalis common stock.
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Nivalis cannot predict whether the Nivalis Reverse Stock Split will increase the market price for
Nivalis common stock. The history of similar stock split combinations for companies in like circumstances is varied. There is no assurance that:
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the market price per share of Nivalis common stock after the Nivalis Reverse Stock Split will rise in proportion to the reduction in the number of shares of Nivalis common stock outstanding before the
Nivalis Reverse Stock Split;
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the Nivalis Reverse Stock Split will result in a per share price that will attract brokers and investors who do not trade in lower priced stocks;
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the Nivalis Reverse Stock Split will result in a per share price that will increase the ability of Nivalis to attract and retain employees; or
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the market price per share will either exceed or remain in excess of the $1.00 minimum bid price as required by NASDAQ Stock Market LLC for continued listing, or that Nivalis will otherwise meet the requirements of
NASDAQ Stock Market LLC for inclusion for trading on NASDAQ, including the $4.00 minimum bid price upon the closing of the merger.
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The market price of Nivalis common stock will also be based on performance of Nivalis and other factors, some of which are unrelated to
the number of shares outstanding. If the reverse stock split is effected and the market price of Nivalis common stock declines, the percentage decline as an absolute number and as a percentage of the overall market capitalization of Nivalis
may be greater than would occur in the absence of a reverse stock split. Furthermore, the liquidity of Nivalis common stock could be adversely affected by the reduced number of shares that would be outstanding after the reverse stock split.
Principal Effects of the Reverse Stock Split
The amendment to the amended and restated certificate of incorporation of Nivalis effecting the Nivalis Reverse Stock Split is set forth in
Annex
D
to this proxy statement/prospectus/information statement.
The Nivalis Reverse Stock Split will be effected
simultaneously for all outstanding shares of Nivalis common stock. The Nivalis Reverse Stock Split will affect all of Nivalis stockholders uniformly and will not affect any stockholders percentage ownership interest in Nivalis,
except to the extent that the Nivalis Reverse Stock Split results in any of Nivalis stockholders owning a fractional share. Shares of Nivalis common stock issued pursuant to the Nivalis Reverse Stock Split will remain fully paid and
nonassessable. The Nivalis Reverse Stock Split does not affect the total proportionate ownership of Nivalis following the merger. The Nivalis Reverse Stock Split will not affect Nivalis continuing to be subject to the periodic reporting requirements
of the Securities Exchange Act of 1934, as amended (the Exchange Act).
Procedure for Effecting the Nivalis Reverse Stock Split and
Exchange of Stock Certificates
If Nivalis stockholders approve the amendment to the amended and restated certificate of
incorporation of Nivalis effecting the Nivalis Reverse Stock Split, and if Nivalis board of directors still believes that a reverse stock split is in the best interests of Nivalis and its stockholders, Nivalis will file the amendment to the
amended and restated certificate of incorporation with the Secretary of State of the State of Delaware at such time as Nivalis board of directors has determined to be the appropriate split effective time. Nivalis board of directors may
delay effecting the reverse stock split without resoliciting stockholder approval. Beginning at the split effective time, each certificate representing
pre-split
shares will be deemed for all corporate
purposes to evidence ownership of post-split shares.
As soon as practicable after the split effective time, Nivalis stockholders
will be notified that the Nivalis Reverse Stock Split has been effected. Nivalis expects that the Nivalis transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates. Holders of
pre-split
shares will be asked to
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surrender to the exchange agent certificates representing
pre-split
shares held in certificated form in exchange for certificates representing post-split
shares in accordance with the procedures to be set forth in a letter of transmittal to be sent by Nivalis. In the event that the Nivalis Name Change under Proposal No. 3 is approved by Nivalis stockholders, the certificates reflecting the
post-split shares will also reflect the Nivalis Name Change. No new certificates will be issued to a stockholder until such stockholder has surrendered such stockholders outstanding certificate(s) together with the properly completed and
executed letter of transmittal to the exchange agent. Any
pre-split
shares submitted for transfer, whether pursuant to a sale or other disposition, or otherwise, will automatically be exchanged for post-split
shares.
Stockholders should not destroy any stock certificate(s) and should not submit any certificate(s) unless and until requested to do so.
Fractional Shares
No fractional
shares will be issued in connection with the Nivalis Reverse Stock Split. Stockholders of record who otherwise would be entitled to receive fractional shares because they hold a number of
pre-split
shares not
evenly divisible by the number of
pre-split
shares for which each post-split share is to be reclassified, will be entitled, upon surrender to the exchange agent of certificates representing such shares, to a
cash payment in lieu thereof at a price equal to the fraction to which the stockholder would otherwise be entitled multiplied by the closing price of the common stock on NASDAQ on the date immediately preceding the split effective time. The
ownership of a fractional interest will not give the holder thereof any voting, dividend, or other rights except to receive payment therefor as described herein.
By approving the amendment to the amended and restated certificate of incorporation of Nivalis effecting the Nivalis Reverse Stock Split,
stockholders will be approving the combination of four shares of Nivalis common stock into one share of Nivalis common stock.
Stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders reside, where Nivalis is domiciled,
and where the funds will be deposited, sums due for fractional interests that are not timely claimed after the effective date of the split may be required to be paid to the designated agent for each such jurisdiction, unless correspondence has been
received by Nivalis or the exchange agent concerning ownership of such funds within the time permitted in such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds will have to seek to obtain them directly from the state
to which they were paid.
Potential Anti-Takeover Effect
Although the increased proportion of unissued authorized shares to issued shares could, under certain circumstances, have an anti-takeover
effect, for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change in the composition of Nivalis board of directors or contemplating a tender offer or other transaction for the combination
of Nivalis with another company, the Nivalis Reverse Stock Split proposal is not being proposed in response to any effort of which Nivalis is aware to accumulate shares of Nivalis common stock or obtain control of Nivalis, other than in
connection with the merger, nor is it part of a plan by management to recommend a series of similar amendments to Nivalis board of directors and stockholders. Other than the proposals being submitted to Nivalis stockholders for their
consideration at the Nivalis special meeting, Nivalis board of directors does not currently contemplate recommending the adoption of any other actions that could be construed to affect the ability of third parties to take over or change
control of Nivalis. For more information, please see the section entitled Risk FactorsRisks Related to the Common Stock of Nivalis, and Description of Nivalis Capital StockAnti-Takeover Effects of Provisions of
Nivalis Charter Documents and Anti-Takeover Effects of Delaware Law.
Material U.S. Federal Income Tax Consequences of the
Reverse Stock Split
The following discussion is a summary of the material U.S. federal income tax consequences of the reverse
stock split to U.S. Holders (as defined below) of Nivalis common stock, but does not purport to be a complete
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analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This
discussion is based on the Internal Revenue Code of 1986, as amended (the Code), U.S. Treasury regulations promulgated thereunder (the Treasury Regulations), judicial decisions, and published rulings and administrative
pronouncements of the U.S. Internal Revenue Service (the IRS), in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be
applied retroactively in a manner that could adversely affect a holder of Nivalis common stock. We have not sought and will not seek an opinion of counsel or any rulings from the IRS regarding the matters discussed below. There can be no assurance
the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the reverse stock split.
This discussion is limited to holders who hold their Nivalis common stock as a capital asset within the meaning of
Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to the particular circumstances of a Nivalis stockholder, including the impact of the
Medicare contribution tax on net investment income. In addition, it does not address consequences relevant to holders of Nivalis common stock that are subject to special rules, including, without limitation:
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persons who are not U.S. Holders (as defined below);
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persons subject to the alternative minimum tax;
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U.S. Holders (as defined below) whose functional currency is not the U.S. dollar;
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persons holding Nivalis common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment;
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banks, insurance companies and other financial institutions;
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real estate investment trusts or regulated investment companies;
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brokers, dealers or traders in securities;
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S corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein);
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tax-exempt organizations or governmental organizations;
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persons deemed to sell Nivalis common stock under the constructive sale provisions of the Code;
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persons who hold or receive Nivalis common stock pursuant to the exercise of any employee stock options or otherwise as compensation; and
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tax-qualified retirement plans.
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For purposes of this discussion, a U.S. Holder is
a beneficial owner of Nivalis common stock that, for U.S. federal income tax purposes, is or is treated as:
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an individual who is a citizen or resident of the United States;
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a corporation created or organized under the laws of the United States, any state thereof or the District of Columbia;
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an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
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a trust that (1) is subject to the primary supervision of a U.S. court and all substantial decisions of which are subject to the control of one or more United States persons (within the meaning of
Section 7701(a)(30) of the Code) or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.
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If an entity treated as a partnership for U.S. federal income tax purposes holds Nivalis common stock, the tax treatment of a partner in the
partnership will depend on the status of the partner, the activities of the
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partnership and certain determinations made at the partner level. Accordingly, partnerships holding Nivalis common stock and the partners in such partnerships should consult their tax advisors
regarding the U.S. federal income tax consequences to them.
In addition, the following discussion does not address the tax consequences
of the reverse stock split under state, local and foreign tax laws. Furthermore, the following discussion does not address any tax consequences of transactions effectuated before, after or at the same time as the reverse stock split, whether or not
they are in connection with the reverse stock split.
HOLDERS OF NIVALIS COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT ARISING UNDER OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY
STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Tax Consequences of the Reverse Stock Split
The reverse stock split should constitute a recapitalization for U.S. federal income tax purposes. As a result, a U.S. Holder of
Nivalis common stock generally should not recognize gain or loss upon the reverse stock split, except with respect to cash received in lieu of a fractional share of Nivalis common stock, as discussed below. A U.S. Holders aggregate tax basis
in the shares of Nivalis common stock received pursuant to the reverse stock split should equal the aggregate tax basis of the shares of the Nivalis common stock surrendered (excluding any portion of such basis that is allocated to any fractional
share of Nivalis common stock), and such U.S. Holders holding period in the shares of Nivalis common stock received should include the holding period in the shares of Nivalis common stock surrendered. Treasury Regulations provide detailed
rules for allocating the tax basis and holding period of the shares of Nivalis common stock surrendered to the shares of Nivalis common stock received in a recapitalization pursuant to the reverse stock split. U.S. Holders of shares of Nivalis
common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.
Cash in Lieu of Fractional Shares
A U.S.
Holder of Nivalis common stock that receives cash in lieu of a fractional share of Nivalis common stock pursuant to the reverse stock split should recognize capital gain or loss in an amount equal to the difference between the amount of cash
received and the U.S. Holders tax basis in the shares of Nivalis common stock surrendered that is allocated to such fractional share of Nivalis common stock. Such capital gain or loss should be long-term capital gain or loss if the U.S.
Holders holding period for Nivalis common stock surrendered exceeded one year at the effective time of the reverse stock split.
Information
Reporting and Backup Withholding
Payments of cash made in lieu of a fractional share of Nivalis common stock may, under certain
circumstances, be subject to information reporting and backup withholding. To avoid backup withholding, each holder of Nivalis common stock that does not otherwise establish an exemption should furnish its taxpayer identification number and comply
with the applicable certification procedures.
Backup withholding is not an additional tax. Any amounts withheld will be allowed as a
credit against the holders U.S. federal income tax liability and may entitle such holder to a refund, provided the required information is timely furnished to the IRS. Holders of Nivalis common stock should consult their tax advisors regarding
their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.
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Vote Required; Recommendation of Board of Directors
The affirmative vote of holders of a majority of the shares of Nivalis common stock having voting power outstanding on the record date
for the Nivalis special meeting is required to approve the amendment to the amended and restated certificate of incorporation of Nivalis effecting the Nivalis Reverse Stock Split.
NIVALIS BOARD OF DIRECTORS RECOMMENDS THAT NIVALIS STOCKHOLDERS VOTE FOR PROPOSAL NO. 2 TO APPROVE THE AMENDMENT TO
THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NIVALIS EFFECTING THE NIVALIS REVERSE STOCK SPLIT.
Proposal
No. 3: Approval of Nivalis Name Change
At the Nivalis special meeting, Nivalis stockholders will be asked to approve the
amendment to the amended and restated certificate of incorporation of Nivalis to effect the Nivalis Name Change. The primary reason for the corporate name change is that management believes this will allow for brand recognition of Alpines
products and programs following the consummation of the merger. Nivalis management believes that the current name will no longer accurately reflect the business of Nivalis and the mission of Nivalis subsequent to the consummation of the
merger.
The affirmative vote of holders of a majority of the shares of Nivalis common stock having voting power outstanding on the
record date for the Nivalis special meeting is required to approve the amendment to the amended and restated certificate of incorporation to effect the Nivalis Name Change.
NIVALIS BOARD OF DIRECTORS RECOMMENDS THAT NIVALIS STOCKHOLDERS VOTE FOR PROPOSAL NO. 3 TO APPROVE THE NIVALIS NAME
CHANGE.
Proposal No. 4: Approval of Possible Adjournment of the Nivalis special meeting
If Nivalis fails to receive a sufficient number of votes to approve Proposal Nos. 1 or 2, Nivalis may propose to adjourn the Nivalis special
meeting, for a period of not more than 30 days, for the purpose of soliciting additional proxies to approve Proposal Nos. 1 or 2. Nivalis currently does not intend to propose adjournment at the Nivalis special meeting if there are sufficient votes
to approve Proposal Nos. 1 or 2. The affirmative vote of the holders of a majority of the shares of Nivalis common stock having voting power present in person or represented by proxy at the Nivalis Special Meeting is required to approve the
adjournment of the Nivalis Special Meeting for the purpose of soliciting additional proxies to approve Proposal Nos. 1 or 2.
NIVALIS BOARD OF DIRECTORS RECOMMENDS THAT NIVALIS STOCKHOLDERS VOTE FOR PROPOSAL NO. 4 TO ADJOURN THE SPECIAL
MEETING, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF PROPOSAL NOS. 1 OR 2. EACH OF PROPOSAL 1 AND 2 ARE CONDITIONED UPON EACH OTHER AND THE APPROVAL OF EACH SUCH PROPOSAL IS REQUIRED TO CONSUMMATE THE
MERGER.
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NIVALIS BUSINESS
Overview
Nivalis is a pharmaceutical company that has historically been focused on the discovery and development of product candidates for patients with
cystic fibrosis (CF). Nivalis GSNOR inhibitors selectively target an enzyme known as S-nitrosoglutathione reductase, which it refers to as GSNOR. GSNOR regulates levels of an endogenous protein known as S-nitrosoglutathione or
GSNO. Depleted levels of GSNO have been associated with CF, asthma, inflammatory bowel diseases and certain cardiovascular diseases. GSNO modifies the function of certain CFTR chaperone proteins, and thereby improves the stability of F508del-CFTR.
Nivalis preclinical studies have previously shown that its lead product candidate, cavosonstat, is a selective and reversible inhibitor of GSNOR, that GSNOR inhibition increased GSNO levels, and that the stabilizing effect of cavosonstat
significantly increased and prolonged CFTR activity when added to other CFTR modulators. The goal of Nivalis CFTR stabilizing therapy was, therefore, to increase and prolong CFTR activity through GSNOR inhibition when cavosonstat was
administered along with other CFTR modulators, thereby increasing chloride transport. In other models of inflammatory lung and bowel disease, cavosonstat also demonstrated positive anti-inflammatory effects.
In November 2016, Nivalis announced that a Phase 2 clinical trial of cavosonstat had failed to achieve its primary endpoint of lung function
improvement and a key secondary endpoint of sweat chloride reduction. The clinical trial was conducted in 138 adult CF patients with two copies of the F508del-CFTR mutation who were being treated with lumacaftor/ivacaftor or Orkambi and was designed
to assess the efficacy and safety of cavosonstat in a triple therapy with lumacaftor/ivacaftor or Orkambi. In February 2017, Nivalis announced that a second Phase 2 clinical trial of cavosonstat in 19 adult CF patients with one copy of the
F508del-CFTR mutation and a second gating mutation had also failed to achieve its primary endpoint of lung function improvement and a key secondary endpoint of sweat chloride reduction.
Following the failure of Nivalis first and larger Phase 2 clinical trial in CF patients, Nivalis announced on January 3, 2017, the
initiation of a process to explore and review a range of strategic alternatives focused on maximizing stockholder value from its clinical assets and cash resources and its intent to streamline its operations in order to conserve capital. As part of
this process, Nivalis engaged Ladenburg in January 2017, to act as Nivalis financial advisor in its investigation and evaluation of various strategic alternatives and appointed a Special Committee of Nivalis board of directors to
investigate and evaluate strategic alternatives. Nivalis board of directors also approved a workforce reduction that took place between January 15 and March 31, 2017, affecting a total of 25 employees, including Nivalis former
President and Chief Executive Officer, and its former Chief Medical Officer, each of whose employment was terminated effective January 15, 2017. Nivalis currently has five employees, including R. Michael Carruthers, its Interim President and
Chief Financial Officer, and Janice Troha, its Chief Operating Officer. Nivalis has completed all activity and reporting obligations regarding its clinical trials and ceased all research and development activities. Nivalis currently does not have
any drugs that are commercially available and none of its drug candidates have obtained the approval of the U.S. Food and Drug Administration (FDA), or any similar foreign regulatory authority.
After conducting a diligent and extensive process of evaluating strategic alternatives for Nivalis and identifying and reviewing potential
candidates for a strategic acquisition or other transaction, which included the receipt of more than 80 non-binding proposals from interested parties and careful evaluation and consideration of those proposals, and following extensive negotiation
with Alpine, on April 18, 2017, Nivalis, Merger Sub and Alpine entered into the Merger Agreement. Pursuant to the Merger Agreement, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger
Agreement, at the Effective Time Merger Sub will merge with and into Alpine, with Alpine continuing as a wholly owned subsidiary of Nivalis and the surviving corporation of the merger. If the merger is completed, the business of Nivalis will become
the business of Alpine as described on page 169 under the caption Alpine Business. If the merger is not completed, Nivalis
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will reconsider its strategic alternatives and may pursue one of the following courses of action, which Nivalis currently believes are the most likely alternatives if the merger with Alpine is
not completed:
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Pursue another strategic transaction similar to the merger
. Nivalis may resume its process of evaluating other companies interested in pursuing a strategic transaction with Nivalis and, if a candidate is
identified, focus its attention on negotiating and completing such a transaction with such candidate.
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Dissolve and liquidate its assets
. If Nivalis is unable, or does not believe that it is able, to find a suitable candidate for another strategic transaction, Nivalis may dissolve and liquidate its assets. In the
event of dissolution, Nivalis would be required to pay all of its debts and contractual obligations and to set aside certain reserves for potential future claims. If Nivalis dissolves and liquidates its assets, there can be no assurance as to the
amount or timing of available cash that will remain for distribution to Nivalis stockholders after paying Nivalis debts and other obligations and setting aside funds for its reserves.
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GSNOR Inhibitor Portfolio
Based on years of focused research in the GSNOR area, and notwithstanding the failure of cavosonstat to achieve the primary endpoint within a
Phase 2 trial in CF, Nivalis continues to believe that compounds that interact specifically with the GSNOR enzyme may have the potential to achieve positive medical effects by modulating its activity in the body. GSNOR regulates levels of GSNO.
Depleted levels of GSNO have been associated with CF, asthma, inflammatory bowel diseases and certain cardiovascular diseases. Cavosonstat and other GSNOR inhibitor drug candidates in Nivalis portfolio may have benefit in other clinical
indications, such as inflammatory lung and bowel diseases, and certain cardiovascular diseases. Cavosonstat is the furthest advanced in development of the product candidates in Nivalis portfolio. In addition to the clinical safety profile,
chronic toxicology testing for six months in rats and nine months in dogs has also been completed for cavosonstat, along with a six-month carcinogenicity trial in RASh transgenic mice.
Nivalis has built a patent portfolio covering the structure or therapeutic use of small molecules designed to selectively inhibit GSNOR
activity. Nivalis owns exclusive rights to cavosonstat in the U.S. and all other major markets, including U.S. composition of matter patent protection until at least 2031. Nivalis does not have current plans to continue development of any of its
GSNOR inhibitor drugs itself.
Nivalis Business Strategy
Nivalis strategy is currently focused on completing the merger with Alpine and taking measures to conserve its existing assets to
maximize stockholder value from its GSNOR inhibitor portfolio and cash resources. As part of these efforts, Nivalis has completed a workforce reduction and ceased its research and development activities to reduce overall cash burn and facilitate the
pursuit and completion of a strategic transaction.
Clinical Development of Cavosonstat to Date
Nivalis filed an investigational new drug application (IND), for the commencement of clinical trials of cavosonstat with the FDA on
December 30, 2013. To date, Nivalis has completed dose escalation and drug-drug interaction trials in healthy subjects, a pharmacokinetic trial in CF patients, a Phase 1b clinical trial that assessed safety and tolerability in CF patients
who were homozygous for F508del, a Phase 2 clinical trial to assess efficacy and safety in that same patient population, and a Phase 2 trial in CF patients who were heterozygous for F508del-CFTR and a second gating mutation. The latter Phase 2 trial
was completed in the first quarter of 2017. Cavosonstat was well-tolerated in those trials with no dose-limiting safety findings when administered up to 800 mg twice daily in healthy subjects and 400 mg twice daily in CF patients. Nivalis has
completed two Phase 2 and five Phase 1 studies of cavosonstat as further described below. Cavosonstat has exhibited linear plasma level
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exposures with increases in dose resulting in proportional increases in both maximum plasma levels ( C
max
) and area under the
curve (AUC), for plasma concentration versus time in healthy subjects and CF patients. There has been no significant systemic drug accumulation detected following up to 12 weeks of administration. To date, there have been no significant
human safety issues detected nor have there been any dose-limiting toxicities observed, and the accumulated preclinical and clinical safety data provide support for the continued study of cavosonstat in other potential indications.
In 2015, Nivalis completed a Phase 1b clinical trial to evaluate the safety and tolerability of cavosonstat in adult CF patients
homozygous for F508del. This trial met its stated objectives by demonstrating no dose-limiting toxicities of cavosonstat and informing dose selection for Nivalis Phase 2 clinical trial. The Phase 1b trial was a randomized,
double-blind,
placebo-controlled,
parallel group trial with three doses of cavosonstat, at 50 mg, 100 mg and 200 mg, administered twice daily. These doses and a placebo
were administered over 28 days in a total of 51 patients. The independent data safety monitoring board concluded that there were no dose-limiting toxicities observed with cavosonstat. Nivalis reported the top line results from this trial in
September 2015 and presented the results at the North American Cystic Fibrosis Conference in October 2015. The data showed a trend toward a reduction in sweat chloride at the highest dose tested which was statistically significant using a within
group comparison. The lack of dose-limiting toxicity and a potential sweat chloride signal supported the inclusion of a higher dose in the Phase 2 trials.
Nivalis first clinical trial of cavosonstat was a Phase 1, multiple ascending dose, safety and pharmacokinetic trial in healthy
subjects. Cavosonstat was well tolerated with no
dose-limiting
toxicities noted up to 500 mg per day. In this trial, four cohorts each with six healthy subjects received
14-day
dosing at 10 mg, 50 mg, 250 mg and 500 mg per day and two cohorts each with six healthy subjects received single doses of 50 mg and 250 mg.
Nivalis second Phase 1 trial of cavosonstat was an
open-label
trial to assess
pharmacokinetics in CF patients homozygous for the F508del mutation. Six CF patients were dosed with 50 mg of cavosonstat twice daily for 14 days. The AUC in the CF patients was 97% of that in healthy subjects from Nivalis first
Phase 1 trial. The trial showed that no dosing adjustments would be required for CF patients.
Nivalis third Phase 1 trial was
the trial described above in F508del homozygous patients.
Nivalis fourth Phase 1 trial was a drug-drug interaction study using
Rifampin as a surrogate for lumacaftor/ivacaftor because of its similar drug metabolizing properties. The drug-drug interaction trial was conducted in preparation for dose selection for Phase 2 and no adjustment of the cavosonstat dose was required
on the basis of the results of this trial.
Nivalis fifth Phase 1 trial was designed to assess the maximum tolerated dose of
cavosonstat in order to provide dosing flexibility should the Phase 2 trial have suggested that a higher dose was warranted. A total of 32 healthy subjects were included and the maximum dose tested was 800mg twice daily. No significant dose-limiting
toxicities were observed in the trial.
In late 2016, Nivalis completed the Phase 2 clinical trial of cavosonstat in 138 CF patients who
had two copies of the F508del mutation and were receiving treatment with Orkambi. This three arm, double-blind, randomized, placebo-controlled, parallel group study evaluated the efficacy and safety of two doses of cavosonstat administered with
Orkambi, compared to placebo administered with Orkambi. The primary endpoint of the study was the change from baseline to week 12 in absolute percent predicted forced expiratory volume in one second or ppFEV
1
from baseline to week 12. Statistical significance within each active dose group and for each dose group compared to placebo was not achieved for the primary and key secondary endpoints.
In the first quarter of 2017, Nivalis completed a Phase 2, proof-of-concept study to further evaluate the effect of cavosonstat in patients
who have one copy of the F508del-CFTR mutation and a second mutation that
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results in a gating defect in the CFTR protein. The study was designed to evaluate the efficacy and safety of cavosonstat in adult patients who have these mutations and who were being treated
with Kalydeco. Nineteen adult CF patients were enrolled, 15 on cavosonstat and 4 on placebo. There were no dose-limiting toxicities and cavosonstat was well tolerated in the trial. Cavosonstat, when added to Kalydeco therapy. The trial,
however, did not demonstrate benefit in absolute change in percent predicted FEV
1,
the trials primary endpoint, or in sweat chloride reduction at 8 weeks.
Preclinical Safety Studies
Nivalis had previously conducted repeat
oral-dose,
28- and
90-day
toxicity studies of cavosonstat in mice, rats and dogs in support of up to 12 weeks of treatment in Phase 2 clinical trials. In 2016, Nivalis also completed chronic toxicity studies of six months
duration in rats and nine months duration in dogs. These species are routinely selected for toxicology testing and were deemed appropriate for small molecule inhibitors of GSNOR. All three species exhibited toxicities that were generally mild
and occurred at higher exposures than intended in humans. The toxicology data generated thus far suggest the kidney, liver and possibly bone marrow may be target organs. Completion of the chronic toxicity studies provides support for human clinical
trials of long-term duration. Additionally, a carcinogenicity study of six months duration was completed in transgenic mice and cavosonstat showed no carcinogenic effects of cavosonstat.
Other GSNOR Inhibitors
Nivalis operations have focused on discovery and development of its portfolio of GSNOR inhibitors, including cavosonstat and N6022. N6022
was the first product candidate to emerge from Nivalis GSNOR inhibitor portfolio, and was optimized for inhaled delivery with low oral bioavailability. Nivalis advanced N6022 into the clinic in an intravenous formulation to explore safety,
tolerability and pharmacological attributes of this novel class of compounds. N6022 paved the way for cavosonstat by establishing initial safety of the class in healthy subjects and patients with CF. In order to provide translational evidence of
GSNORs role in lung disease, Nivalis initially explored the effects of N6022 in patients with mild asthma. N6022 demonstrated a significant effect on the airways, as measured by airway hyper-reactivity thus confirming the beneficial effects of
N6022 observed in Nivalis preclinical studies of asthma. Because an oral dosage form is preferable in CF, a systemic disease that is not confined to the lung, Nivalis elected to discontinue further development of N6022 in the chronic
management of CF. Currently, Nivalis does not plan to pursue development of N6022 in an inhaled or intravenous dosage form for other potential indications.
Nivalis GSNOR inhibitor portfolio includes other compounds with differing chemical structures and properties suitable for oral, inhaled,
injectable and topical administration. Although Nivalis is not pursuing further development itself, preclinical evidence supports a potential role for these compounds in indications such as inflammatory lung and bowel diseases and certain
cardiovascular disorders.
Manufacturing and Supply
Nivalis does not currently own or operate manufacturing facilities for the production of drug substance or drug product. Nivalis has terminated
its existing contracts for the production of cavosonstat and has established contracts for the storage of existing supplies of drug substance and drug product, and for destruction of those supplies should that be required.
Competition
Nivalis has no current plans to further develop or commercialize its portfolio of GSNOR inhibitors. However, to the extent a potential
strategic transaction results in the further development of the candidates in its portfolio, potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions,
government agencies and research
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institutions. The pharmaceutical industry is highly competitive and subject to rapid and significant technological change. Key competitive factors are likely to be efficacy, safety and
tolerability profile, convenience of dosing, price and reimbursement. Many of these potential competitors have substantial financial, technical and human resources and significant experience in the discovery and development of product candidates,
obtaining FDA and other regulatory approvals of products and the commercialization of those products. Further, mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a
small number of competitors. Accordingly, competitors may be more successful in obtaining FDA approval for therapies and achieving widespread market acceptance. Competitors products may also be more effective, or more effectively marketed and
sold, than any product candidate that may be commercialized and may render Nivalis therapies obsolete or
non-competitive
before development and commercialization expenses can be recovered.
Intellectual Property
Nivalis believes that it has a strong patent portfolio and substantial
know-how
relating to cavosonstat
and Nivalis other product candidates. Nivalis patent portfolio, described more fully below, includes claims directed to CFTR modulator compounds, pharmaceutical compositions comprising such compounds and methods of making and using the
same. As of March 31, 2017, Nivalis is the owner of record of 32 issued U.S. patents and 216 issued
non-U.S.
patents. Nivalis continues to pursue an additional nine U.S. patent applications, including two
provisional U.S. applications, five international patent applications, and 28
non-U.S.
patent applications in over ten foreign countries. Nivalis is the licensee of four issued U.S. patents and seven issued
non-U.S.
patents.
Nivalis strives to protect the proprietary technology that Nivalis believes is
important to its business, including its product candidates and processes, and will continue to devote resources to do so through the closing of the merger. Nivalis has sought patent protection in the U.S. and internationally for its products, their
methods of use and processes of manufacture and any other technology to which Nivalis has rights, where available and when appropriate. Nivalis also relies on trade secrets that may be important to the development of its business.
Nivalis cannot be sure that patents will be granted with respect to any of its pending patent applications or with respect to any patent
applications Nivalis may own or license in the future, nor can Nivalis be sure that any of its existing patents will be useful in protecting Nivalis technology.
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in
which Nivalis has filed, the patent term is 20 years from the date of filing the non-provisional priority application. In the U.S., a patents term may be lengthened by patent term adjustment, which compensates a patentee for administrative
delays by the U.S. Patent and Trademark Office in granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier-filed patent.
The term of a U.S. patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term
restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is
related to the length of time the drug is under regulatory review. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug
may be extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug.
The patent portfolios for Nivalis proprietary technology and Nivalis two most advanced product candidates are summarized below.
Cavosonstat (N91115)
The patent portfolio for cavosonstat includes wholly owned patents and patent applications directed to GSNOR inhibitors, including cavosonstat
and other compounds, pharmaceutical compositions comprising such
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compounds, methods of making such pharmaceutical compositions and methods of using such compounds and pharmaceutical compositions. Specific for Nivalis cavosonstat product candidate,
Nivalis has six issued U.S. patents, pending U.S. patent applications, and corresponding foreign national or regional counterpart issued patents and/or patent applications pending in Europe, Japan and other countries. Nivalis U.S. patents are
expected to expire in 2031, excluding any additional term that may be available due to a patent term extension. Patents, if issued, based on pending U.S. and foreign patent applications are expected to expire in 2031, excluding any additional term
that may be available due to patent term adjustments or patent term extensions. Nivalis also has a pending international application directed to combination therapies. Patents, if issued, based on this pending international patent application, are
expected to expire in 2035, excluding any additional term that may be available due to patent term adjustments or patent term extensions. Nivalis has four additional pending international patent applications directed to various cavosonstat related
inventions. Patents, if issued, based on these pending international patent applications, are expected to expire in 2036, excluding any additional term that may be available due to patent term adjustments or patent term extensions. Nivalis also has
two pending U.S. provisional patent applications directed to various cavosonstat related inventions. Patents, if issued, based on future patent applications filed claiming priority to these pending U.S. provisional patent applications, are expected
to expire in 2037, excluding any additional term that may be available due to patent term adjustments or patent term extensions.
N6022
The patent
portfolio for N6022 includes wholly owned patents and patent applications directed to GSNOR inhibitors, including N6022 and other compounds, pharmaceutical compositions comprising such compounds, methods of making such pharmaceutical compositions
and methods of using such compounds and pharmaceutical compositions. Specific for Nivalis N6022 product candidate, Nivalis has six issued U.S. patents, pending U.S. patent applications and corresponding foreign national or regional counterpart
issued patents and/or patent applications pending in Europe, Japan, and other foreign countries. The six issued U.S. patents are expected to expire in 2029, excluding any additional term that may be available due to patent term extension. Patents,
if issued, based on pending U.S. and foreign patent applications are expected to expire in 2029 excluding any additional term that may be available due to patent term adjustments or extensions.
Trade Secrets
In
addition to patents, Nivalis relies on trade secrets and
know-how
to protect its proprietary technology and processes. Trade secrets and
know-how
can be difficult to
protect. Nivalis seeks to protect its proprietary technology and processes, in part, by confidentiality agreements and invention assignment agreements with its employees, consultants, scientific advisors, contractors and commercial partners. These
agreements are designed to protect Nivalis proprietary information and, in the case of the invention assignment agreements, to grant Nivalis ownership of technologies that are developed through a relationship with a third party. Nivalis also
seeks to preserve the integrity and confidentiality of its data and trade secrets by maintaining physical security of its premises and physical and electronic security of its information technology systems. While Nivalis has confidence in these
individuals, organizations and systems, agreements or security measures may be breached, and Nivalis may not have adequate remedies for any breach. In addition, Nivalis trade secrets may otherwise become known or be independently discovered by
competitors. To the extent that Nivalis contractors use intellectual property owned by others in their work for Nivalis, disputes may arise as to the rights in related or resulting
know-how
and
inventions.
Regulatory Matters
Government authorities in the U.S. at the federal, state and local levels, and in other countries, extensively regulate, among other things,
the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing, export and import of new drugs.
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A number of different regulatory agencies may be involved, depending on the product at issue, and
the type and stage of activity. These include the FDA, the Drug Enforcement Administration, the Centers for Medicare and Medicaid Services, other federal agencies, state boards of pharmacy, state controlled substance agencies and more.
U.S. Government Regulation
Drug Development
Process
In the U.S., the FDA is a primary regulator of drugs under the Federal Food, Drug, and Cosmetic Act and implementing
regulations. The process of obtaining regulatory approvals and other compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with
applicable requirements at any time during the drug development process, approval process, or after approval, may subject Nivalis to adverse consequences and administrative or judicial sanctions, any of which could have a material adverse effect on
Nivalis. These sanctions could include refusal to approve pending applications; withdrawal or restriction of an approval; imposition of a clinical hold or other limitation on research; warning letters; product seizures; total or partial suspension
of development, production, or distribution; or injunctions, fines, disgorgement, or civil or criminal payments or penalties.
The process
required before a drug may be marketed in the U.S. generally involves the following:
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completion of preclinical laboratory tests, animal trials and formulation trials conducted according to Good Laboratory Practices, animal welfare laws and other applicable regulations;
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submission to the FDA of an IND, which must become effective before clinical trials (trials in human subjects) in the U.S. may begin, obtaining similar authorizations in other jurisdictions where clinical research will
be conducted and maintaining these authorizations on a continuing basis throughout the time that trials are performed and new data are collected;
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performance of adequate and
well-controlled
clinical trials according to Good Clinical Practices to demonstrate whether a proposed drug is safe and effective for its intended use;
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preparation and submission to the FDA of a marketing authorization application, such as a new drug application (NDA), and submitting similar marketing authorization applications in other jurisdictions where
commercialization will be pursued;
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satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product will be produced to assess compliance with cGMP to assure that the facilities, methods and controls are
adequate to preserve the products identity, strength, quality and purity; and
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FDA review and approval of the NDA or other marketing authorization application.
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The
development, testing and approval process requires substantial time, effort and financial resources, as well as bearing inherent risk that individual products will not exhibit relevant safety, effectiveness, or quality characteristics. Nivalis
cannot be certain that any approvals for its product candidates will be granted on a timely basis, or with the specific terms that Nivalis desires, if at all.
Foreign Regulation
In addition to
regulations in the U.S., Nivalis is subject to a variety of foreign regulations governing clinical trials, and governing any future distribution and commercial sales, if any, of Nivalis products. Whether or not FDA approval is obtained for a
drug candidate, the comparable regulatory authorities of foreign countries or economic areas, such as the European Union, must approve commencement of clinical trials or market products in those countries or areas. The approval process and
requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.
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Under European Union regulatory systems, a company may submit marketing authorization
applications either under a centralized or decentralized procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended to treat AIDS, cancer, neurodegenerative disorders, or diabetes
and optional for those medicines that are highly innovative, provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for approval by one or more
concerned member states based on an assessment of an application performed by one-member state, known as the reference member state. Under the decentralized approval procedure, an applicant submits an application, or dossier,
and related materials to the reference member state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. Within
90 days of receiving the reference member states assessment report, each concerned member state must decide whether or not to approve the assessment report and related materials. If a member state does not recognize the marketing
authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.
Employees
As of the date of this filing, Nivalis has five
full-time
employees. None of
Nivalis employees are represented by a labor union or covered by a collective bargaining agreements.
Facilities
Nivalis corporate headquarters was located in Boulder, Colorado, where it leased approximately 15,000 square feet of office and
laboratory space. In order to preserve its cash resources as a result of its shift in strategic focus to pursue a strategic transaction, Nivalis exercised its right to terminate the lease for this space and paid the required termination fee. The
lease terminated effective April 30, 2017.
Legal Proceedings
Nivalis is currently not party to any legal proceedings.
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ALPINE BUSINESS
Overview
Alpine is focused on discovering and developing innovative, protein-based immunotherapies targeting the immune synapse to treat cancer,
inflammatory disorders, and other diseases. Alpines proprietary scientific platform uses a process known as directed evolution to create therapeutics potentially capable of modulating human immune system proteins.
In Alpines
pre-clinical
studies, its platform has proven capable of identifying novel molecules,
including single domains capable of modulating multiple targets. Alpine believes therapeutics generated by its platform have the potential to provide benefit in a broad range of immune system disorders. Alpine has chosen to focus its initial efforts
in select areas with unmet medical needs in oncology and inflammatory disease.
The human immune system is a complex system evolved to
protect humans from external infections and harmful mutations of internal cells. The Immunoglobulin Superfamily (abbreviated IgSF) is the name given to the largest family of adhesion, costimulatory (activating), and inhibitory (blocking)
proteins found on the surface of immunological, neurological, and other human cell types. Alpines scientific approach and platform are based upon IgSF protein units (referred to as domains). Alpine believes this protein family is
particularly valuable compared to protein-based therapeutics such as antibodies because many IgSF proteins evolved to bind multiple binding partners (counterstructures).
Alpines scientific and venture capital founders have significant industry experience developing therapies targeting the immune system.
They started Alpine with the idea native IgSF proteins could be engineered to potentially become the active component of therapeutics for cancer, inflammatory conditions, and infectious diseases. Alpines scientists build upon the complexity of
native IgSF domains and their ability to form and operate within the immune synapse, engineering innovative new properties to create what Alpine believes will be effective new therapies.
The scientific discoveries resulting from Alpines
pre-clinical
studies have become Alpines
vIgD platform and Alpine believes the vIgD platform represents a novel approach to targeting the immune system. Alpines scientists create vIgDs through directed evolutionan iterative scientific engineering process purposefully conducted
to evolve a protein towards a particular therapeutic function. The potential to create therapies capable of working within a formed synapse, forcing a synapse to occur, or preventing a synapse from occurring is an important, novel
attribute of Alpines vIgD platform.
In cancer, the immune system is often suppressed by signals within the tumor microenvironment.
Alpines vIgD technology seeks to activate the immune system by delivering an activating signal, blocking an inhibitory signal, or both. The potential of vIgDs to modulate multiple inhibitory and/or activating pathways simultaneously for the
treatment of cancer is a powerful and novel attribute of Alpines vIgD platform.
In inflammatory conditions, the immune system has
become overactive and mistakenly attacks healthy cells. Alpines vIgD technology is potentially capable of delivering an inhibitory signal, blocking an activating signal, or bothpotentially diminishing the severity of inflammatory
conditions.
Alpines vIgD platform creates a variety of molecules with broad potential applicability across diseases. vIgD molecules
can be formatted in many different ways, including standard Fc fusion proteins, localized Fc fusion proteins, and monoclonal antibody fusion proteins as well as formulated as a TIP or as a Secreted Immunomodulatory Protein (SIP).
The ability to utilize different formats potentially broadens future applications of the vIgD platform in addition to potentially conferring useful therapeutic properties.
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Alpine expects to request regulatory approval to begin human clinical trials of
ALPN-101,
Alpines dual ICOS/CD28 antagonist program, in the second-half of 2018. Alpine expects the target indications for the
ALPN-101
program will be inflammatory
disorders.
In addition to advancing programs internally, Alpine continues to seek partners who can bring therapeutic expertise,
development, and commercialization capabilities and funding allowing Alpine to maximize the potential of its vIgD platform.
In October
2015, Alpine signed a research and license agreement with Kite granting Kite an exclusive license to two of Alpines TIP programs for use in Kites ECT programs. Alpine received $5.5 million in
up-front
cash and is eligible to receive up to $530.0 million in developmental, clinical, and regulatory milestone payments in addition to royalties on any products containing Alpines TIPs. In the
collaboration, Alpine provides the TIPs and performs
in vitro
testing, while Kite is responsible for
in vivo
testing, manufacturing, clinical trials and commercialization of any resulting therapies.
Immunology Background
Alpines therapies are being evaluated for their potential to target immune system disorders. These include oncology (cancer), infectious
disease, and inflammatory diseasealthough Alpines primary focus is inflammation and oncology. Based on preclinical data generated to date by Alpine, it believes vIgDs have the potential to provide therapeutic benefit in a broad range of
immune system disorders. Alpine has chosen to focus its initial efforts on select therapeutic areas with unmet medical needs in oncology and inflammatory disease.
The human immune system is a complex system evolved to protect the host from external infection and harmful mutations of natural cells. At the
most basic level, this system has evolved to detect antigens. Antigens are essentially anything causing the immune system to try and mount an immune response. Antigens vary from pathogens like a virus, mutated cells like those involved in causing
cancer, or even otherwise healthy cells. In special situations such as transplanted organs or cells from a bone marrow transplant, the body sees antigens from these otherwise normal cells as
non-self.
The immune system determines if an antigen is harmful, and then acts
accordinglyactivating to destroy cells displaying the target antigen or inhibiting the immune system from doing anything if the target antigen is judged not harmful. The immune system has a memory for antigens, so it can mount an activating or
inhibitory response more quickly if a
previously-seen
antigen is encountered again.
The basic
actors within the immune system are as follows:
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Antigen presenting cells (APCs) responsible for gathering antigens and presenting them to the immune system.
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T cells armed to destroy cells the immune system has decided are harmfulincluding pathogens, cancer cells, and transplanted cells.
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B cells capable of recognizing foreign antigens and secreting antibodies to facilitate removal of the identified antigens.
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Regulatory T cells and suppressive myeloid cells which inhibit the immune system from responding, preventing the immune system from attacking healthy cells.
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Importantly, the APCs in the immune system gather antigens to determine whether they are harmful or not. If the antigens are judged harmful by
the immune system, cytotoxic (effector) cells are activated to get rid of the harmful cells. If the antigens are judged not harmful by the immune system, regulatory cells inhibit the immune system to ensure no normal healthy cells are killed.
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Activation and inhibition can be thought of like applying the gas or pressing the brake in an
automobile. When viewed through the lens of activation (costimulation) and inhibition, Alpines scientists work to develop therapies seeking to do one of four things:
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Deliver an activating signal (press on the gas) to get a stronger immune response
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Block an inhibitory signal (release the brake) to get a stronger immune response
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Deliver an inhibitory signal (press on the brake) to slow down an existing immune response
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Block an activating signal (release the gas) to slow down an existing immune response
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The
above can also be expressed in more precise scientific terminology this way:
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Agonize a costimulatory receptor to press on the gas
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Antagonize an inhibitory receptor to release the brake
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Agonize an inhibitory receptor to press on the brake
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Antagonize a costimulatory receptor to release the gas
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For infectious disease or cancer,
patients need a stronger immune response so Alpine seeks to develop therapies delivering an activating signal, blocking an inhibitory signal, or both. If a patient has an inflammatory disease or has received a transplant, Alpine seeks to develop
therapies delivering an inhibitory signal, blocking an activating signal, or both.
IgSF Proteins Defined
The Immunoglobulin Superfamily (abbreviated IgSF) is the name given to the largest family of adhesion, costimulatory (activating),
and inhibitory proteins found on the surface of immunological, neurological, and other human cell types. Structurally predicted to number over 400 proteins, these cell surface and soluble molecules are broadly involved with recognition of antigens,
assisting in the formation of the immune synapse, and performing costimulatory,
co-inhibitory,
and cytokine receptor signaling functions.
Figure 1 below shows several IgSF protein types ranging from a CD1 protein with a single V domain to the IgM protein which has a
variety of V and C domains (referred to in scientific literature as IgC and IgV domains). This family of proteins underpin Alpines technology because Alpines scientific approach and
platform are based upon IgSF domains, specifically Alpines focus on engineering these IgC and IgV domains for therapeutic benefit.
Figure 1
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IgSF proteins like those in Figure 1 have evolved to play a primary role in the immune system of
higher order species. This is reflected in the central components of the adaptive immune systemsuch as antibodies, MHC molecules, T cell receptors (TCRs), and B cell receptorsall being composed of IgSF domains. Other critical
IgSF components of T cell responses include the TCR
co-receptors,
CD4 and CD8.
Current
therapeutic advances in oncology block inhibitory IgSF domains such as
PD-1
and
CTLA-4.
The next generation of these checkpoint inhibitor therapeutics target
IgSF domains such as TIGIT,
LAG-3,
TIM-3,
and BTLA. Critical costimulatory ligands of the B7 family are all IgSF proteins, as are their activating receptors CD28, ICOS,
CD226, TMIGD2, and NKp30. IgSF domains participate in the most critical aspects of adaptive immunity. Figure 2 below shows a subset of the over 400 identified IgSF proteins and where they are typically found on tumor cells and immune system cells.
Figure 2
Figure 2 illustrates how some IgSFs appear on multiple cell types. For example, CD28 (and its counterstructures, CD80 and CD86) and ICOS (and
its ligand binding partner or counterstructure ICOSL) show up on CD4 helper T cells, myeloid/myeloid-derived suppressor cells, CD4 T
REG
regulatory cells, and CD8 T cells. A vIgD
targeting ICOS and CD28, to continue the example, could therefore potentially have activity across a number of these cell types.
Previous
utilizations of IgSF domains as therapeutic products have been limited by the generally low affinities of native, unmodified IgSFs (also referred to as
wild-type
IgSFs) have for their various
counterstructures. Alpine believes its expertise in protein engineering and immunological function enables novel therapeutic mechanisms of action not previously appreciated by the biopharmaceutical industry.
Specifically, Alpine scientists apply directed evolution via Alpines vIgD platform to strategically engineer single IgSF domains to
potentially bind to multiple IgSF counterstructures. The ability to potentially bind
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multiple counterstructures with varying affinity has resulted in increased functional activity in Alpines early
pre-clinical
discovery work and
potentially represents the discovery of novel biology by using Alpines vIgD platform.
While the IgSF family also includes
antibodies and monoclonal antibodies are commonly used as therapeutics by the biotechnology industry, Alpine is interested instead in the native,
non-antibody,
IgSF proteins secreted or expressed on the
surface of human cells. Alpine believes these members of the IgSF family are particularly valuable in terms of therapeutic potential compared to antibodies because IgSF proteins have often evolved to bind multiple counterstructures.
Even though Alpines
non-antibody
vIgDs possess novel functional activity not associated with
antibody reagents, as related family members Alpine believes vIgDs will share many of the beneficial biochemical properties making antibodies attractive therapeutic molecules, such as stability, manufacturability, and flexible formattingwhile
retaining novel vIgD platform benefits and potentially enabling new opportunities to target human disease.
Immune Synapse Defined
The immune synapse is a temporary, dynamic interaction at the core of the immune systems response to antigens. When the synapse is
created between two cells (like an APC and a T cell, or a tumor cell and a T cell), adhesion molecules hold cell membranes in tight formation to enable sufficient antigen presentation and/or receptor signaling. When this exchange works well, the
body is adequately defended against a wide range of pathologiesincluding cancer and infectious diseases. When the exchange malfunctions, harmful cells are not destroyed or normal/healthy cells are mistakenly attacked.
The immune synapse is very small and often exists for just minutes. While intact, cells forming the synapse exchange a wide variety of
information. Environmental cues, ligand/receptor expression ratios, and specific receptor orientations come together in a dynamic fashion to determine whether a T cell is going to respond to a given antigen or recognize it as harmless. Importantly,
IgSF proteins are the principal players in the immune synapseanother reason Alpine chose to focus on IgSF proteins.
Some of
Alpines research is targeted to these critical moments of T cell activation where Alpines proprietary vIgD platform can be used to modulate the spatial arrangement and signaling of multiple targets in the immune synapse. Other research
projects seek to develop Alpines ability to force synapses to occur, or prevent them from occurring, based upon the desired therapeutic outcome. This flexibility to work within a formed immune synapse, force an immune synapse to occur, or
prevent an immune synapse from occurring is an important, novel attribute of Alpines vIgD platform.
Inflammatory Disease
Inflammatory diseases like Type I diabetes, systemic lupus erythematosus (lupus), graft versus host disease (GvHD),
inflammatory myositis (for example, polymyositis and dermatomyositis), Sjögrens syndrome, and inflammatory bowel disease are a result of the immune system targeting the bodys healthy tissues by mistake. There are more than 80 known
types of inflammatory diseases, many of which are severely debilitating and/or life threatening. A related condition is when a transplant patients body attacks the newly transplanted organ or, in the case of stem cell transplants, the newly
transplanted cells attack the patients body.
These are all immune system disorders caused by the immune system having too much
activation and/or too little inhibition. Alpines therapeutic goal with inflammatory diseases is to press on the brake by delivering an inhibitory signal or release the gas by blocking an activating signal. Alpine believes one novel aspect of
its vIgD platform is the potential ability to create a single
vIgD-based
therapeutic capable of doing both. Alpine does not currently have a therapeutic targeting inflammatory diseases in human clinical trials
or on the market. However, based upon evidence from preclinical studies to date, Alpine believes its vIgD platform has the potential to produce therapeutics targeting inflammatory diseases.
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Substantial progress has been made over the last decade in developing disease modifying therapies
to slow or stop disease progression in multiple inflammatory indications. Inhibitors of the
pro-inflammatory
cytokine TNF
a
, as well as approved drugs like abatacept
and belatacept, have led to disease reductions and improvements in quality of life for patients with a variety of inflammatory disorders including rheumatoid arthritis, psoriasis, ulcerative colitis, Crohns disease, and others. However, as
discussed below, Alpine believes there remain significant unmet medical needs despite this scientific progress.
Two recent new drug
approvals by the United States Food and Drug Administration (FDA) highlight developments of therapies towards
disease-specific
targets: Roche Holdings AGs ocrelizumab for both relapsing
remitting multiple sclerosis and primary progressive multiple sclerosis and Eli Lillys ixekizumab for plaque psoriasis. Due to the high cost of the biologic therapies ($15,000$65,000+ per year) used to treat autoimmune disease and the
relatively high prevalence rates (3%9%), QuintilesIMS (formerly known as IMS Health) estimates specialty drug spending in the U.S. for 2015 totaled approximately $30 billion, more than doubling from 2011 as seen in Figure 3.
Figure 3
Challenges in Inflammatory Disease
Alpine believes there remains a large unmet need for improved efficacy in the treatment of inflammatory diseases. For example, in rheumatoid
arthritis, where arguably the greatest advances in treating inflammatory disease have been made, patients frequently cycle through different biologic therapies and a recent meta-analysis found just over half of patients on
anti-TNF
a
therapies achieved at least a twenty percent improvement in disease activity.
1
The need for novel therapies is particularly acute for patients with chronic diseases such as lupus, for which only one new drug has been
approved by the FDA in the last 50 years. Belimumab, a monoclonal antibody inhibiting
B-cell
activating factor, was approved in 2011 by the FDA despite concerns the therapy resulted only in modest improvement
for lupus patients. Belimumab demonstrated a reduction in corticosteroid usage and an acceptable safety profile, but was not approved for use in severe active lupus nephritis or severe active central nervous system lupus. Despite its relatively
modest efficacy, belimumab is forecast to generate peak sales of
1
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Lloyd,
et al, Rheumatology (Oxford)
, v 45 n 112, December 2010, pp 2313-21.
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nearly $600 million (Source: Evaluate Ltd. 2017) suggesting meaningful demand for novel therapies for treating lupus.
Graft versus host disease (GvHD), with a mortality rate of 75% or more, is an inflammatory disease which has been particularly
challenging for development of new therapies and where there exists a substantial unmet need. Over the last two decades, a multitude of therapies including stem cell transplant,
IL-2
antagonists, antithymocyte
globulin, anti-CD52,
anti-TNF
therapies, and others have been studied. Despite these efforts, there are no approved therapies for the treatment for GvHD. Roughly speaking, up to 50% of bone marrow transplant
patients develop GvHD, or up to about 10,000 patients a year in the U.S.
IgSF proteins play meaningful roles in most inflammatory
diseases. Modulating multiple specific IgSF targets could potentially help patients regardless of underlying pathology, potentially addressing these and other unmet patient needs.
How Alpine is Different
Alpine
currently plans to develop therapeutics for inflammatory diseases by focusing on key activating and inhibitory IgSFs driving aberrant immune reactions. For these diseases, Alpines scientists plan on using the vIgD platform to potentially
create therapies intended to affect the immune synapse (usually by preventing its formation) and/or interacting directly with the IgSF proteins causing immune system reactions to healthy tissues. Alpine does not currently have a therapeutic
targeting inflammatory diseases in human clinical trials or on the market. However, based upon evidence from its preclinical studies to date, Alpine believes its vIgD platform has the potential to produce therapeutics targeting inflammatory
diseases.
Although some signaling between cells occurs between singular ligand and receptor pairs, there are an increasing number of
examples where signaling between cells involves multi-protein complexes consisting of three or more proteins recognized in cytokine, adhesion, inhibitory, and other signaling pathways. IgSF domains are exquisitely evolved for such complex
interactions. IgSF domains such as CD80 have recently been demonstrated to have multiple counterstructures. Alpine has observed that some bind each other in a
non-competitive
fashion. For example, CD80 can
bind
CTLA-4
and
PD-L1
at the same time. Alpines
next-generation
therapies target multi-protein complexes and could
potentially facilitate transformative patient care by forcing complexes consisting of the desired protein combinations.
Alpines
vIgD platform is flexible enough to be able to take combined approaches, like blocking costimulatory proteins ICOS and CD28. When formatted properly, the resulting domain could potentially work in the immune synapseor potentially prevent an
immune synapse from formingthereby potentially simultaneously decreasing the activating signal and sparing the inhibitory signal, ideally reducing or eliminating symptoms of inflammatory disease.
Oncology
Cancer is broadly
defined as normal human cells growing in an uncontrolled fashion and capable of spreading this aberrant activity elsewhere in the body. Fundamentally, cancer is a failure of the immune system to recognize transformed, harmful cells. Tumors develop
because cancer cells learn to evade the immune system or dampen immune system activity to such a low level the tumor grows despite an otherwise healthy immune system.
Traditional cancer treatments have focused on directly killing tumor cells through the use of toxic chemicals like chemotherapy or other
approaches like irradiating cells. The 2010 FDA approval of
sipuleucel-T
marked a meaningful change in how tumors are treated.
Sipuleucel-T
represented the FDAs
first approval of an active cancer immunotherapy. It was designed to help a patients immune system attack prostate cancer cells. Brought to FDA approval by one of the founders of Alpine, the approval of
sipuleucel-T
energized the field to focus more closely on how to make use of the immune system to treat cancer.
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The subsequent discovery and development of other first-generation therapies targeting
checkpoint inhibitors resulted in
FDA-approved
therapies providing meaningful efficacy for a subset of cancer patients. Checkpoint inhibitors are responsible for inhibiting an immune response
(pressing the brake), so scientists looked to reverse this behavior.
The first drug approved in this therapeutic class was ipilimumab, an
antibody blocking inhibitory signals from an IgSF protein called
CTLA-4.
In 2014, two antibodies blocking the inhibitory IgSF protein
PD-1pembrolizumab
and
nivolumabwere approved in multiple indications. Antagonists of the IgSF protein
PD-L1
followed (atezolizumab, avelumab, and durvalumab).
In addition to modulators of these IgSF proteins, several other immunotherapies for cancer are either approved or in development including
adoptive T cell therapies
(CAR-T,
TCR and autologous T cells called TILs), cancer vaccines, and oncolytic viruses.
Risk-adjusted
sales projections from a 2015 Jefferies report forecasts over $25 billion in sales
by 2025 for approved
PD-1/L1
therapies alone (Figure 4).
Figure 4
As noted in more detail below, Alpine believes there is a significant unmet medical need for cancer patients for whom existing therapies fail
to help or who relapse after initial success on these existing therapies.
Challenges in Oncology
While checkpoint inhibitors have meaningfully changed cancer treatment, their benefit is only observed in a minority of patients and response
rates vary substantially by tumor type, disease stage, and therapeutic, among
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other factors. For example, observed response rates for
PD-1
inhibitors in melanoma and
non-small
cell lung cancer
are among the highest and range from 20%40%possibly due to the higher mutational burden frequently found in these tumors. In contrast, response rates of checkpoint inhibitors in ovarian cancers are lower, with clinical data to date
demonstrating a 10%15% response rate. Therapies designed to stimulate the immune system to attack tumors often have their effect diminished by a tumors evolved ability to generate redundant inhibitory signals to shut down productive
immune responses before the tumor can be cleared.
One of Alpines goals is to potentially raise the tail of the survival
curve for cancer patients while potentially minimizing further adverse events. In Figure 5, the arrows represent this concept of lifting the tailachieving a higher percentage of patients with durable relief from their cancer
diagnosis.
Adapted from:
Cell
, v161, n2. April, 2015.
Figure 5
While the field of cancer
immunotherapy advanced significantly starting with the approval of
sipuleucel-T,
no single immunotherapy is capable of creating a durable anti-tumor response in more than a third of cancer patientsand
some types of cancer continue to be resistant to any immunological approach. The field is looking towards the
so-called
tumor microenvironment for clues as to why current drugs do not provide
long-term benefit for patients.
Tumors exist in an environment comprised of cancerous cells, normal tissue, and immune cells. Research
into this tumor microenvironment (TME) has dramatically accelerated over the past decade. Alpine believes an imbalance in the immune synapse of costimulatory and inhibitory receptor signaling within the TME likely contributes to cancer
growth.
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Figure 6 represents the tumor immune cycle. If all seven steps happen, the bodys immune
system is usually able to handle the cancer and reduce a tumors size or at least prevent it from growing larger. Tumors are composed of different types of cells, occur in different microenvironments, and utilize different mechanisms to obtain
nutrients and evade the immune system. Alpine believes an effective
anti-tumor
response is one using the most powerful arms of an immune response in the setting in which the tumor has established itself.
Chen & Mellman,
Immunity
, 2013.
Figure 6
Cancer immunotherapies
typically fail to restore the tumor immune cycle in four ways:
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Inadequate number of tumor-specific T cells
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Insufficient trafficking and penetration of tumor by T cells
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Too strong inhibition of activated anti-cancer T cells
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Too little activation of anti-cancer T cells
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Alpine currently plans to develop cancer
therapies to potentially address one or more of these four failures by potentially addressing one or more of the seven steps in the tumor immune cycle.
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How Alpine is Different
Multiple approved cancer therapies function through their interaction with IgSF proteins. All are antibodies designed to block inhibitory IgSFs
or eliminate cells expressing these inhibitory IgSFs. There are two ways to achieve a stronger immune response, and Alpines current strategy is to work on both ways:
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Deliver an activating signal (press on the gas) to get a stronger immune response
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Block an inhibitory signal (release the brake) to get a stronger immune response
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Alpines vIgD platform is potentially capable of engineering
wild-type
IgSF proteins for
therapeutic benefit. For example, Alpines vIgD platform potentially creates novel IgSF mutants capable of antagonizing (blocking) an inhibitory receptor while agonizing (delivering) an activating signal (or both), boosting the immune
systems response to cancer cells. Alpine intends to evaluate whether these therapeutics will work in patients where there is too much inhibition or too little activation in the TME. Therapies of this type are intended to potentially solve the
last two problems of malfunctioning tumor immunity cycles.
Alpine is also developing molecules intended to force synapses to form,
delivering activating signals, blocking inhibitory signals, or both. Alpine intends to evaluate whether these types of therapies could potentially work in situations where there are insufficient T cells in the TME, potentially addressing the first
two problems of malfunctioning tumor immunity cycles.
Alpines early research suggests working with IgSF proteins engineered through
the vIgD platform potentially creates a more powerful immune system response compared to unmodified, wild-type IgSF proteins. Alpine does not currently have a therapeutic targeting cancer in human clinical trials or on the market. However, based
upon evidence from its preclinical studies to date, Alpine believes its vIgD platform has the potential to produce therapeutics targeting cancer.
Alpines vIgD Platform
Alpines vIgD platform is potentially capable of engineering native IgSF proteins for use as
therapeutics. For example, vIgDs can be engineered with potentially improved binding to single or multiple protein partners. A core potential advantage of Alpines platform is a vIgDs ability to potentially bind one partner and lose
binding to anotherpotentially increasing selectivity for novel therapeutic outcomes. These protein engineering efforts may also potentially uncover binding to previously under-appreciated protein partners with the potential to positively
impact therapeutic efficacy.
Directed Evolution
Alpines founding scientists recognize how evolution resulted in a finely-tuned and delicately balanced human immune system in general and
the important role of complex protein interactions of IgSF proteins in particular. When they
co-founded
Alpine, their aim was to leverage their expertise in protein engineering and their understanding of the
immune system. Alpine seeks to engineer or evolve natural, unmodified
(wild-type)
IgSFs in a manner conferring a therapeutic benefit when administered to patients.
Alpines scientists utilize yeast display protein library strategies to identify variants of
wild-type
IgSFs with desired binding characteristics. The power of yeast library approaches derives from the fact libraries can contain up to 10^9 protein variants with either random or rationally
targeted amino acid mutations at any desired frequency per variant. At this level of protein diversity, it is usually possible to find at least a small fraction of variants with desired binding profiles. Thus, this technology can potentially provide
Alpine with protein variants of interest Alpine can later optimize to potentially achieve the desired biology. Alpine calls this process directed evolution and its purpose is to potentially alter the domains on wild-type IgSF proteins to
achieve a desired therapeutic goal. Alpine calls these altered domains vIgDs and the entire process Alpines vIgD platform.
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Alpine believes the key advantages to its approach are that it:
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potentially applies broadly since many critical immuno-regulatory proteins are composed of IgSF members;
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potentially facilitates rapid and precise selection of desired binding properties; and
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potentially eliminates unstable proteins because Alpines yeast display platform biases recovery of
affinity-modified
proteins towards a well-folded,
non-aggregated,
and stable subset of proteins;
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Figure 7 shows Alpines work flow.
Alpine starts with a wild-type IgSF protein and then enters a recursive cycle of library generation and yeast display. Flow cytometry is used to sort for yeast clones displaying variants with desired binding characteristics. Biologic and biophysical
assays of purified proteins assess biological function and manufacturing characteristics. The end product is an optimized vIgD. Each cycle in the box represents a single generation. Additional cycles can be carried out by building next generation
libraries from the output of prior libraries. In general, each cycle generates multiple output molecules and additional cyclesor generationsbased on these output molecules result in further optimization.
Figure 7
Alpine believes a key skill in Alpines directed evolution approach is Alpines ability to construct productive libraries. When the
structure of the wild-type IgSF protein is available, potential predictions can be made regarding the optimal amino acid alterations necessary to obtain the desired binding profile. Alpine uses these predictions to create a rationally
designed library featuring mutations introduced in specific regions of the target IgSF protein. When such information is not available, mutations can be randomly introduced into the target protein at any desired average number of mutations per
variant creating a random library. When Alpines scientists apply these library design, either approach can yield useful candidate proteins.
The vIgD platform is generally able to improve upon native IgSF activity regardless of whether natural binding affinity is weak or strong.
When starting affinity is very weak, techniques employed by Alpine scientists have accomplished several thousand fold increases in binding affinity with sometimes as few as two library generation cycles. Even when starting affinity is very high,
Alpines vIgD platform can still improve binding affinities. The same general strategies can be used when the desired therapeutic profile requires
reduced
affinity compared to the
wild-type
IgSF.
Alpine scientists rely on results from
in vitro
analyses using actual human immune cells to guide outputs from the vIgD platform.
Upon the completion of one generation of the directed evolution process described above, the identified proteins are reformatted from display on yeast to soluble Fc fusion proteins and then tested
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in vitro
with human immune cells. Candidates for further discovery research are identified by their desired immune system activity compared to the activity of the wild-type IgSF protein.
Those engineered vIgD proteins most strongly outperforming
wild-type
IgSFs may then be potentially used as the basis for second- or even third-generation directed evolution cycles.
Discovering New Biology
Alpine
believes the advantages of the vIgD platform allow Alpine to identify new biology. Alpines lead program is an example of this where a single ICOSL domain, normally only antagonizing ICOS, is able to antagonize both ICOS and CD28. Alpine has
replicated this type of novel biology in other programs directed to currently undisclosed targets.
In its preclinical animal models,
Alpine often finds its engineered vIgDs can outperform the relevant
wild-type
IgSF protein when the vIgD differs from the wild-type IgSF by only
2-6
mutations. Based on
in silico
analyses and analogous
FDA-approved
therapies, Alpine does not believe its vIgDs to be unusually susceptible to immunogenic effects causing adverse events or loss of drug activity.
Highly Productive
Alpine believes
its vIgD platform is highly productive. A single library run through the directed evolution process can potentially create domains useful in oncology and inflammatory conditions. While this potential advantage is not universal for every IgSF target,
Alpines experience is most of its successful vIgD discovery campaigns result in domains applicable in a broad variety of therapeutic protein designs and indications. Alpine believes this is a novel attribute given most other platforms require
each molecule to be painstakingly
purpose-built
for each intended therapeutic area.
Alpine
believes the productivity extends to
in vivo
work as well. When undertaking directed evolution campaigns, Alpine is often able to select proteins for cross-species reactivity. Though not true for all domains, the majority of Alpines
discovery programs thus far have been cross-reactive with one or more other species. The ability to have domains cross-reactive with mice and other species can reduce costs for
in vivo
testing and potentially speeds the entire
in vivo
phase of Alpines development programs.
Potential vIgD Formats
Alpine believes its vIgD platform is highly flexible. In many cases, a single affinity-maturation campaign can result in potential multiple
domains suitable for use in the selected formats appearing in Figure 8.
Figure 8
Which format is chosen depends upon the therapeutic application of the vIgD, the desired product profile, and/or the needs of Alpines
current and future partners. Figure 8 is not a complete listing as some formats in Alpines discovery program remain undisclosed.
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vIgD-Fc
The
vIgD-Fc
fusion protein is the simplest format, where one or more extracellular domains of a native
IgSF protein are engineered via the vIgD platform and attached to an Fc backbone. Combining vIgD domains with antibody Fc domains to make Fc fusion proteins allows better expression, facilitates purification, and improves pharmacokinetic (dosing)
properties. Fc fusion proteins are a standard format in the industry, with examples such as etanercept, abatacept, and belatacept. In most of Alpines early programs, the Fc backbone is effectorless. In certain situations, the Fc backbone can
be designed to have effector function, potentially capable of depleting problematic cell populations. Shown in Figure 9 is an example of Alpines lead
ALPN-101
program which, Alpine believes, may
potentially be a treatment for use in inflammatory diseases based on preclinical data demonstrated to date. The
vIgD-Fc
design can be used for oncology or inflammation, however, depending on the formatting
used.
Figure 9
A
vIgD-Fc
could potentially be administered intravenously or subcutaneously. Even though a
vIgD-Fc
generally makes use of only a single domain type, Alpine believes the novel biology of some of its discovered engineered proteins means they can potentially bind one or more targets of interest.
Multi-Checkpoint Inhibitor
Figure 10
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Multiple domains can be combined or stacked together on an Fc backbone to create a
multi-checkpoint
inhibitor vIgD as shown in Figure 10. With the potential to make use of novel biology discovered in Alpines labs, even an Fc fusion with two domains can potentially affect three, four, or more
IgSF targets.
Unlike most other approaches trying to target multiple checkpoints, Alpines vIgDs are not traditional antibody
constructs or large and unwieldy scaffolds. In general, all of Alpines vIgDseven Alpines multi-checkpoint inhibitorsutilize domains appearing very much like the native IgSF proteins.
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V-mAb
Figure 11
Alpines
V-mAb
technology potentially allows targeting of an Alpine vIgD into the tumor
microenvironment. A
V-mAb
is a vIgD joined with a monoclonal antibody (as depicted in Figure 11) recognizing a validated target. Alpines
V-mAbs
use the
targeting antibody to localize the construct to the TME and potentially deliver a specific,
locally-active
immuno-modulator.
Tumors thrive in environments of immune suppression. Immune cells have often been recruited to the TME, but are not responding correctly. In
many cases, the T cells are recognizing antigen in the form of MHC peptide, but this signal is not supported by required costimulatory activity. In these cases, T cells could benefit from tumor or APC expression of costimulatory ligands such as
CD80, CD86, or ICOSL. This strategy will potentially invigorate tumor immune responses in a
tumor-specific
context, which could potentially be safer than activating T cells with systemic costimulatory
agonists.
From a manufacturing standpoint,
V-mAbs
may potentially have advantages compared to
other types of therapies like antibody-drug conjugates or ADCs. ADCs typically join a targeting monoclonal antibody with a cytotoxic drug. Alpines
V-mAbs
are potentially different from the complex
four-step
manufacturing process (mAb, linker, drug, and conjugation) necessary for ADCs and do not contain toxic chemicals potentially harmful to bystander cells.
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Localized vIgD
Figure 12
Alpine believes, based on preclinical data, several of the novel molecules it has discovered allow for similar domains to be formatted either
specifically for inflammatory disease or directed towards applications in oncology. The difference is whether the vIgD is localized to the tumor cell or only binds the immune cell directly.
A Localized vIgD like the type shown in Figure 12 contains two parts: A tissue- or
tumor-specific
IgSF and an IgSF engineered to boost the immune system. This construct is intended to allow powerful immune stimulation to be localized to the TME.
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TIP Program
Figure 13
Engineered Cellular Therapies (ECTs) in the form of
CAR-T
cells, engineered TCR human T
cells, and engineered tumor-infiltrating lymphocytes (TILs) have captured the attention of the scientific community and patients. The first
CAR-T
products could potentially be approved by the FDA
later in 2017, ushering in a new era of cancer immunotherapy. Once approved, these types of therapies are expected to reach over $1 billion in sales according to several analysts, making them as important commercially to the biotechnology
industry as they are clinically for patients.
Alpines Transmembrane Immunomodulatory Protein (TIP) program (depicted in
Figure 13) was created to potentially improve ECTs. The cytotoxicity, cytokine production, and survival of ECTs can potentially benefit from costimulatory signaling. Alpine created extracellular domains engineered to potentially bind multiple
powerful activating receptors on the surface of the T cell. By expressing costimulatory TIPs on
CAR-Ts
or
TCR-engineered
T cells, a
TIP-enabled
product could potentially increase the activity of both infused
CAR-T/TCR
cells and endogenous T cells present in the tumor environmentpotentially
causing enhanced and/or more persistent responses to tumors via enhanced costimulatory (activating) signaling.
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Figure 14
Figure 14 shows how incorporation of the TIP potentially improves
CAR-T
proliferation. In preclinical
studies, Alpines scientists transduced human primary T cells with a
CD19 CAR-T
(CD19 + CD3/4-1BBz)
with and without a 2nd generation TIP. These
engineered T cells were then cultured with CD19+ Nalm/6 tumor cells to facilitate measurement of proliferation. In both CD4+ and CD8+ T cell cultures, Alpines TIP improved the ability of the engineered T cells to proliferate in the presence of
the target tumor line. Impressively, the TIPs activity improves upon the
CD3/4-1BBz
signaling domain contained in the baseline
CAR-T
not containing a TIP.
With the recent development of
so-called
CAR-T
REG
products designed to work in autoimmune indications, Alpines domains formatted as TIPs are potentially capable of working in both oncology and autoimmune disease. While Alpine is not
currently planning to develop
CAR-T,
TCR, TIL, or
CAR-T
REG
products on its own, it continues partnering
discussions with a number of companies developing ECTs.
In October of 2015, Kite and Alpine entered into a research and license agreement
pursuant to which Alpine granted Kite an exclusive license to two of its TIP programs, which Kite plans to further engineer into CAR and TCR product candidates.
SIP Program
The Alpine vIgD
platform is not restricted to transmembrane proteins expressed on the surface of engineered cell therapies in the TIP format. Infused
CAR-T
or modified TCR T cellsor even oncolytic virusescan also
be potentially modified to express Secreted Immunomodulatory Proteins or SIPs.
Potential applications include secretion of
SIPs into the extracellular space to antagonize inhibitory receptor activity, which often restricts T cell responses in the tumor environment. Cellular therapies can be engineered to express therapeutic molecules in the tumor environment, such as
secreted cytokines or modulators of both inhibitory and activating receptors. The potential result could be ECTs or oncolytic viruses capable of carrying their own localized signals to modify the immune synapse with no need for combination use with
expensive checkpoint monoclonal antibodies.
Alpine believes SIPs are a promising approach to antagonize inhibitory receptors because of a
SIPs small size as well as the demonstrated ability of T cells to express SIPs compared to monoclonal antibodies or antibody fragments.
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Collaboration with Kite Pharma
On October 26, 2015, Kite and Alpine entered into an exclusive, worldwide license and research agreement to research, develop, and
commercialize autologous ECTs incorporating two programs from Alpines TIP technology.
Overview
Under the terms of the license and research agreement with Kite, Alpine will conduct initial research to deliver two program TIPs with certain
pre-defined
characteristics. Kite will then conduct further research on the program TIPs with the goal of demonstrating
proof-of-concept.
If successful, Kite would further engineer the program TIPs into certain
CAR-T
and TCR product candidates to
potentially enhance
anti-tumor
response.
Pursuant to the terms of the license and research
agreement, Alpine is responsible for conducting a research plan to deliver TIPs to two specified IgSF targets. Kite is responsible for integrating the TIPs into their ECT constructs. Kite is also responsible for performing
in vitro
and
in
vivo
studies of resulting TIP/ECT therapeutics, manufacturing, and clinical trials.
Financial Terms
Under the terms of the collaboration, Kite paid Alpine a $5.0 million upfront payment plus $0.5 million in additional payments to
support Alpines research. These amounts became
non-refundable
upon completion of a milestone in March 2016. In addition, Alpine remains eligible to receive up to $530.0 million in total milestone
payments based on the successful completion of
pre-specified
research, clinical and regulatory milestones relating to both program TIPs. At Kites option, a portion of the milestones may be paid in shares
of Kites common stock. Alpine will also be eligible to receive a low, single-digit royalty for sales on a licensed
product-by-licensed
product and
country-by-country
basis, until the later of (1) the date on which the licensed product is no longer covered by certain intellectual property rights, and (2) a
defined term from the first commercial sale of the licensed product. Kite may terminate the agreement with prior written notice after a defined research term. Either Kite or Alpine may also terminate the agreement upon certain insolvency events of
the other party, or with written notice upon material breach by the other party, if such breach has not been cured within a defined period of receiving such notice.
Exclusivity
Kite has worldwide
exclusive use of TIPs engineered to target two IgSF proteins chosen by Kite. The license exclusivity is limited to these targets used as ECTs. Alpine retains the right to develop or outlicense these two target families outside of ECTs as well as the
right to develop or license any other IgSF targets for use in ECTs.
Intellectual property related to Kite transaction
Alpine and Kite will each solely own any inventions, and patents claiming those inventions, generated and invented solely by Alpine or Kite,
respectively, subject to the exclusive licenses granted by Alpine to Kite. Alpine and Kite will each jointly own any inventions, and patents claiming those inventions, generated or invented by both parties pursuant to the activities conducted under
the license and research agreement, subject to the exclusive licenses granted by Alpine to Kite.
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Alpines Strategy
Alpines goal is to potentially create modern therapies targeting the immune synapse, using Alpines directed-evolution based discovery platform to
treat patients with serious conditions such as cancer and inflammatory diseases. To achieve its goals, Alpine intends to:
Aggressively move
Alpines lead program
ALPN-101
for the treatment of inflammatory diseases to clinical trials.
ALPN-101
is Alpines lead program comprising an ICOS/CD28 dual antagonist domain fused to an
effectorless Fc backbone. The
ALPN-101
program is based on the discovery, using Alpines directed evolution platform, of a single domain with increased binding affinity for both ICOS and CD28.
Alpines
first-generation
vIgDs in this class have demonstrated activity
in vitro
and
in vivo
, and second- and
third-generation
ICOS/CD28 vIgDs see
improved potency. Manufacturing efforts have begun,
IND-enabling
in vivo
work will begin shortly, and Alpine intends to apply for clearance to begin clinical trials in the second half of 2018. The
ALPN-101
program may be targeted to treat inflammatory diseases such as systemic lupus erythematosus, graft-versus-host disease (GvHD), inflammatory myositis (e.g., polymyositis, dermatomyositis),
Sjögrens syndrome, and/or arthritis. To date, Alpine has not chosen an indication for its
ALPN-101
program.
Advance Alpines multi-checkpoint inhibitor program.
Alpine is currently performing
in vitro
proof of concept studies for a number of multi-checkpoint inhibitors for the treatment of
cancer. These potential therapeutics leverage novel attributes of the vIgD platform, combining directed evolution domains for synergistic therapeutic benefit. Some domains may modulate single IgSF counterstructures while other domains may leverage
novel biology uncovered by Alpines platform and modulate multiple counterstructures. A related multi-target program is in development for inflammatory disease.
Develop Alpines
V-mAb
program.
The
V-mAb
program combines a tumor-targeted monoclonal antibody (mAb) with an engineered
domain from Alpines vIgD platform. Alpine has chosen clinically-validated, commercialized monoclonal antibodies for proof of concept work and are performing
in vitro
proof of concept studies. Alpine is investigating whether using the
targeting capability of the mAb to deliver the T cell activating properties of the vIgD to the tumor microenvironment will create a potent, localized immunological response with potentially reduced systemic side effects.
Maximize value of Alpines pipeline and platform via partnering activities.
Alpine believes the vIgD platform is highly productive, with affinity maturation campaigns often resulting in hundreds of potential hits.
Alpine has found from its current
pre-clinical
studies that later generations from Alpines directed evolution process often produce dozens of domains with desirable biologic activity. Additionally,
Alpine has found from its current
pre-clinical
studies some of Alpines discovery campaigns result in domains with potential uses in cancer, inflammatory, and infectious disease depending on the specific
mutations obtained and/or formats used. Alpine believes this potentially provides significant opportunity for partnering discussions. Alpines first such collaboration with Kite involved two targets for use in ECTs and provided Alpine
$5.5 million in cash plus $530.0 million in potential developmental, clinical, and regulatory milestone payments. While difficult to predict the timing of such partnerships or whether Alpine will be successful in its efforts to enter into
further collaborations, Alpine is in discussions with multiple potential partners ranging from small biotechnology firms to large pharmaceutical companies.
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Product Pipeline
Figure 15
Lead Program
ALPN-101:
Dual Antagonist ICOS/CD28
vIgD-Fc
Alpines lead program is comprised of a novel single domain binding both ICOS and CD28 at higher affinity than
wild-type
molecules. This construct is fused to an effectorless Fc backbone and is potentially intended for the treatment of certain inflammatory conditions.
Cluster of Differentiation 28 (CD28) is expressed on the surface of nearly all CD4+ T cells and most CD8+ T cells. CD28 provides a
costimulatory signal necessary for T cell activation and survival. It is believed to be the most potent T cell costimulatory receptor of the immune system. The known ligands for CD28 are CD80 and CD86, present on antigen presenting cells. If an
antigen is presented without CD28 signaling, the T cell remains unresponsive. CD28 functions akin to a rheostatthe more CD28 signaling occurring, the faster and stronger the subsequent immune response.
Inducible T cell Costimulator (ICOS) is part of the CD28 family of molecules, including
PD-1,
CD28, and
CTLA-4.
Unlike CD28, ICOS is not expressed on naïve T cells. ICOS is costimulatory, with differentiated function from CD28 including B cell helper
capacity.
Alpine believes the
ALPN-101
program will potentially antagonize both CD28 and ICOS to
potentially dampen an overactive immune response. Through multiple generations of directed evolution using the vIgD platform, Alpine believes it has potentially created a powerful dual antagonist with significantly increased binding affinity for
both ICOS and CD28 and capable of modulating both targets with a single domain.
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Figure 15
Figure 15 is a graphical representation of the
ALPN-101
program and its potential activity in humans.
The left side of Figure 15 represents how the interaction typically works to activate T cells when they interact with antigen-presenting
cells (APCs). CD80/CD86 binds to CD28 and ICOSL binds to ICOS, resulting in an activating costimulatory signal boosting T cell activity (pressing on the gas). In the case of autoimmune disease and inflammation, this is unwanted activity.
The right side of Figure 15 shows the goal of the
ALPN-101
programspecifically, to block the
ability of CD80/CD86 and ICOSL to bind their respective receptors. Put more simply, the
ALPN-101
program seeks to block activating signals (releases the gas pedal). When these powerful CD28 and ICOS
costimulatory signals are blocked, Alpine believes unwanted immune system activity may be reduced to potentially help patients with inflammatory conditions. Alpine believes the versatility of this therapeutic will allow Alpine to affect a number of
different inflammatory diseases, potentially targeting different sets of refractory patient populations.
Notably, Alpines
ALPN-101
program is not a bispecific antibody construct. A traditional bispecific would be constructed of one domain binding ICOS and one domain binding CD28. Instead, the
ALPN-101
program makes use of a novel single domain engineered by Alpine scientists using the vIgD platform.
Alpine believes this single ICOSL vIgD domain modulates both CD28 and ICOS with significantly higher affinity than
wild-type
ICOSL. Molecules in the
ALPN-101
program are comprised of two of these domains
side-by-side
atop an effectorless Fc backbone. The resulting therapeutic molecule has been shown in preclinical studies to bind both CD28 and ICOS with potentially
higher affinity than
wild-type
ICOSL, and will potentially be able to block the individual receptors in a manner normally requiring two antibodies.
Supporting Data
Alpine has
performed a number of
pre-clinical
experiments demonstrating Alpines
ALPN-101
program is active in both
in vitro
(lab bench) and
in vivo
(animal)
models.
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Novel Biology
The preclinical data shown in Figure 16 suggest the novel biology of the dual ICOS/CD28 antagonist at the core of the
ALPN-101
program. Alpine scientists were able, using just two iterations of directed evolution with the vIgD platform, to create a single domain with higher affinity to ICOS and significantly improved affinity
towards CD28 compared to wild-type ICOSL.
Figure 16
The results shown in Figure 16 represent population-level data (i.e. not individual vIgD domains) from first-generation ICOS/CD28 vIgD
selections still in yeast. Alpine scientists have identified improved dual binders with increased functional activity in subsequent directed evolution generations using the vIgD platform.
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Superior Inhibition in Mixed Lymphocyte Reaction Assay
In a test of multiple generations of ICOS/CD28 dual antagonists (Figure 17), Alpine measured the ability of its candidates to suppress
interferon gamma
(IFN-
g
) compared to
wild-type
ICOS-Fc
and belatacept,
an
FDA-approved
anti-CTLA-4-Ig
drug designed to reduce immune system activity. The mixed-lymphocyte reaction (or MLR)
assay used in this test is an
in vitro
assay using real human immune system cells. The MLR assay helps gauge the relative immune activity of Alpines early discovery candidates.
Dual ICOS/CD28 Antagonist vlgDs
Reduce
T Cell Activation to Undetectable Levels in Human MLR
Figure 17
IFN-
g
is a cytokine broadly used in the field of
immunology as a marker for
in vitro
studies to predict whether a therapeutic approach will result in increased or decreased immune activity. Higher
IFN-
g
indicates strong immune activity and lower
IFN-
g
indicates reduced immune activity.
As depicted in Figure 17, most of Alpines ICOS/CD28 domains shown reduced
IFN-
g
below detectable levels, likely indicating a meaningful suppression of immune activity even at low doses. In this assay, first-, second-, and third-generation Alpine ICOS/CD28 domains perform better than
wild-type
ICOSL-Fc
and belatacept.
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The results represented in Figure 18 are derived from
in vivo
data generated in the
ALPN-101
program. This experiment is a mouse model of Graft versus Host Disease (GvHD), a damaging and even potentially fatal inflammatory disease most often brought about during stem cell and/or bone
marrow transplant treatments for cancer or other serious diseases. In this GvHD experiment, the
FDA-approved
drug belatacept is used as a comparison since it is approved for immunosuppression in renal
transplantation and has published data for the treatment of GvHD.
Figure 18
In this mouse model of GvHD, the first-generation ICOSL vIgD significantly reduced disease activity as measured by a standardized disease
activity index. It also significantly protected mice from weight loss compared to controls. The ICOSL vIgD used here was generally comparable to belatacept in both measures despite being a first generation molecule.
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DTH Model
Figure 19 shows the results from a delayed-type hypersensitivity (DTH) model of inflammation. In this model, inflammation is
induced in the animals ear and the resulting swelling is measured. The goal of this study was to show whether the test therapeutic reduces or prevents swelling compared to controls.
As seen in Figure 19, both first- and second-generation ICOSL vIgDs showed statistically-significant reduced swelling compared to controls.
The
FDA-approved
drug abatacept was used here as a comparator.
Figure 19
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Arthritis Model
Figure 20 shows data from an
in vivo
collagen-induced arthritis model. This model is designed to test a drugs ability to reduce
the kinds of inflammatory signals associated with rheumatoid arthritis and other types of arthritic inflammatory conditions. In this experiment, Alpine scientists compared a first-generation ICOSL vIgD with abatacept, a drug approved by the FDA to
treat rheumatoid arthritis. Mice were dosed 3x/week starting once the model disease condition was established. The goal was to measure the progression of arthritis by standardized clinical scoring methods.
Figure 20
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Figure 21
The results of the pilot (preliminary) study shown in Figure 20 show a first-generation ICOSL vIgD is comparable to
FDA-approved
abatacept in its ability to significantly delay the onset of arthritis compared to placebo. Figure 21 shows results from the same pilot study where the first-generation ICOSL vIgD significantly reduces
the severity of disease compared to placebo.
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In Figure 22 below, photos from the same pilot experiment are shown. On the left, the paw from an
untreated control mouse shows swelling in the digits, main portion of the paw, and extending up the leg. On the right, the paw from a mouse treated with a first-generation ICOSL vIgD shows swelling in only one digit and limited/no swelling in the
main paw and leg areas.
Figure 22
Summary of
ALPN-101
Program Preclinical Data
Using first-generation ICOS/CD28 dual antagonist vIgDs, Alpines scientists have demonstrated in preclinical studies the
ALPN-101
program:
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Decreases T cell proliferation and cytokine production in human MLR.
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Improves the disease activity index and prevents weight loss relative to placebo in an
in vivo
animal GvHD model with comparable activity to belatacept, an
FDA-approved
drug for immunosuppression in renal transplantation with data in GvHD.
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Demonstrates statistically-significant reduction in swelling compared to control in the DTH model of inflammation with at least comparable activity to abatacept.
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Reduces disease severity and delays onset time relative to placebo in a pilot
in vivo
arthritis model with at least comparable activity to abatacept, an
FDA-approved
drug
for rheumatoid arthritis
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Clinical Plans
Alpine is in the process of designing the first human clinical trials for the
ALPN-101
program. While
subject to change, the initial clinical effort will likely involve a Phase I study in healthy volunteers. Cohorts of healthy volunteers will be given single or multiple doses of
ALPN-101
to determine safety
and pharmacokinetic/pharmacodynamic activity (measures of how
ALPN-101
behaves in a patients bloodstream and tissues). Biomarkers of immune system activity will also be collected.
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Active Discovery Programs
Alpine has several active discovery programs on undisclosed targets as indicated in Figure 23.
Figure 23
Manufacturing
Alpine has established
in-house
recombinant protein generation capabilities
for producing sufficient protein material to enable Alpines directed evolution vIgD platform process, validate new scientific discoveries, and enable Alpines discovery
in vivo
programs as currently contemplated. Having protein
production capabilities
in-house
allows more rapid progression from yeast libraries to
in vivo
study results.
To date, generating Alpines most promising leads including its lead program
ALPN-101
has been accomplished through standard protein production and purification methods. As noted above, Alpine believes one advantage of the vIgD platform is selection outputs are generally manufacturable. Because the directed evolution process
itself requires some level of protein production, second and third generation maturation campaigns usually select for proteins readily expressed with stable biochemical properties. Alpine produces its vIgDs in mammalian cell lines using both HEK293
and CHO cell expression systems in Alpines
in-house
protein production processes.
Alpine
has not yet manufactured any of its proteins at commercial scale. Abatacept is a wild-type IgSF protein commercially approved for multiple indications with no publicly-reported manufacturing difficulties. Belatacept is an IgSF protein with two
mutations, likewise approved in multiple countries. Alpine believes these two examples are potentially similar (in manufacturing terms) to Alpines vIgD products.
Alpine has chosen a U.S.-based contract drug substance manufacturer for Alpines initial clinical trial supplies of
ALPN-101.
This manufacturer has two manufacturing plants and more than 400 employees in the United States. It has done similar work successfully for over 150 clients and its management and senior staff have worked
on dozens of approved therapies. Its particular expertise is in protein analytics and it has the capability to meet rapid timelines encompassing the development of production cell-lines to manufacturing of clinical trial quantities of the
biopharmaceutical product.
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Competition
Alpine participates in the highly competitive sector of biotechnology and pharmaceuticals and in the subsector of immune modulation. This
subsector has undergone tremendous technological advancement over the last decade due to advancements in understanding the role of the immune system across multiple therapeutic areas, including oncology and inflammatory disease. While Alpine
believes its novel technology platform, discovery programs, knowledge, experience, and scientific resources offer competitive advantages, Alpine faces competition from major pharmaceutical and biotechnology companies, academic institutions,
governmental agencies, public and private research institutions, and others. Any products Alpine successfully develops and commercializes will face competition from currently approved therapies and new therapies potentially available in the future.
The availability of reimbursement from government and other third-party payors will also significantly affect the pricing and
competitiveness of Alpines products. Alpines competitors also may obtain FDA or other regulatory approval for their products more rapidly than Alpine may obtain approval for its products, which could result in its competitors
establishing a strong market position before Alpine is able to enter the market.
Many of the companies against which Alpine may compete
have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved products than Alpine does. Smaller or
early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with Alpine in recruiting and retaining qualified scientific and
management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, Alpines programs.
Specifically, Alpines competitors include companies developing therapies with the same target as its
ALPN-101
program (ICOSL/CD28) as well as companies building novel platforms to generate multi-specific antibody or
non-antibody-based
targeting proteins.
ICOSL/CD28 Competitors
The
competitors listed below have programs targeting either ICOS or CD28 (or one of their counterstructures). To Alpines knowledge, there are currently no competitors with a single molecule targeting ICOS and CD28 simultaneously.
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an
anti-ICOSL/B7RP-1
monoclonal antibody being developed by Amgen, Inc. (may be referred to as AMG557 or MEDI5872);
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an anti-ICOS monoclonal antibody being developed by MedImmune, Inc. (MEDI570);
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an anti-ICOS agonist monoclonal antibody being developed by GlaxoSmithKline plc (GSK 3359609);
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an anti-CD28 monoclonal antibody fragment being developed by OSE ImmunoTherapeutics SA and Johnson & Johnson Inc. (FR104);
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a
CTLA-4
selective for CD86 fusion protein being developed by Astellas Pharma Inc. (ASP 2408/09);
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a CD28 superagonist monoclonal antibody being developed by TheraMab LLC (TAB08); and
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an anti-CD28 pegylated monoclonal domain antibody being developed by Bristol-Myers Squibb
(BMS-931699).
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Novel Platform Competitors
Platforms potentially competitive with Alpines vIgD platform include:
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Nanobody
®
(Ablynx NV): Platform technology of single-domain, heavy-chain antibody fragments derived from camelidae (e.g., camels and llamas);
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DART
®
(Macrogenics Inc): Dual-Affinity
Re-Targeting
and Trident technology platforms bind multiple targets with a single
molecule; Anticalin
®
(Pieris Pharmaceuticals Inc): Engineered proteins derived from natural lipocalins found in blood plasma; Targeted Immunomodulation (Compass Therapeutics LLC):
Antibody discovery targeting the tumor-immune synapse;
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Harpoon Therapeutics Inc: Trispecific antigen-binding proteins;
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Various bispecific antibody platforms (e.g., Amgen Inc (BiTE
®
approved), Roche AG (RG7828), Zymeworks Inc (Azymetric), Xencor Inc (XmAb Bispecific));
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Five Prime Therapeutics: Proprietary protein library and rapid protein production and testing platform; and
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Regeneron: VEGF Trap and VelociSuite
®
antibody technology platforms.
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Intellectual Property
The vIgD platform and substantially all Alpines intellectual property have been developed by Alpine. Alpine has licensed various
intellectual property and trade secret materials on a
non-exclusive
basis. To date, such
non-exclusive
in-licenses
are solely
related to commercially-available cell lines involved in the manufacture of Alpines vIgD programs. To date, no other intellectual property related to Alpines vIgD platform has been
in-licensed
from
other sources. Alpine owns all patent intellectual property rights to its proprietary vIgD platform and all current development programs. Two TIP programs are exclusively licensed to Kite.
Alpines initial patent application is at the platform level, directed to the vIgD platform itself. Alpines second patent
application is directed to the TIP program. Both patent applications have published publicly, but have not yet issued. Alpine has filed patent applications directed to the SIP program as well as directed to target domains under development. To date,
none of Alpines patent applications have been issued as patents.
As Alpine continues the development of its vIgD platform and
individual domains, Alpine intends to identify and carry out additional means to protect its intellectual property.
Although Alpine does
not believe its technology infringes the intellectual property rights of others, Alpine is aware of one or more patents or patent applications that may relate to Alpines technology, and third parties may assert against Alpine claims alleging
infringement of their intellectual property rights regardless of whether their claims have merit. Infringement claims could harm Alpines reputation, may result in the expenditure of significant resources to defend and resolve such claims, and
could require Alpine to pay monetary damages if Alpine is found to have infringed the intellectual property rights of others.
Government Regulation
The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome
requirements on the clinical development, manufacture, marketing, and distribution of therapeutic candidates. These agencies and other federal, state, and local entities regulate research and development activities and the testing, manufacture,
quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion, and export and import of therapeutic candidates and products.
In the U.S., the FDA regulates drugs, medical devices, and biologic products under the Federal Food, Drug, and Cosmetic Act, or FFDCA, its
implementing regulations and other laws, including, in the case of biologics, the Public Health Service Act. Alpines potential therapeutic candidates and products will be subject to regulation by the FDA as biologics. Biologics require the
submission of a Biologics License Application (BLA) and approval by the FDA before being marketed in the U.S. None of Alpines therapeutic candidates have been approved by the FDA for marketing in the U.S., and Alpine currently has
no BLAs pending. If Alpine
201
fails to comply with applicable FDA or other requirements at any time during the product development process, clinical testing, the approval process, or after approval, Alpine may become subject
to administrative or judicial sanctions. These sanctions could include the FDAs refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, warning letters, product recalls, product seizures, total or
partial suspension of production or distribution, injunctions, fines, civil penalties, or criminal prosecution. Any FDA enforcement action could have a material adverse effect on Alpine. The process required by the FDA before biologic therapeutic
candidates may be marketed in the U.S. generally involves the following:
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completion of extensive preclinical laboratory tests, preclinical animal studies, and formulation studies all performed in accordance with the FDAs current good laboratory practice (cGLP), regulations;
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submission to the FDA of an IND application which must become effective before human clinical trials in the U.S. may begin;
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performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug candidate for each proposed indication;
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submission to the FDA of a BLA;
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satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with cGMP regulations; and
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FDA review and approval of the BLA prior to any commercial marketing, sale, or shipment of the therapeutic product.
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The testing and approval process requires substantial time, effort, and financial resources, and Alpine cannot be certain any approvals for
its therapeutic candidates will be granted on a timely basis, if at all.
Once a therapeutic candidate is identified for development, it
enters the preclinical testing stage. Preclinical studies include laboratory evaluations of protein chemistry, formulation, and stability, as well as studies to evaluate toxicity in animals. The results of the preclinical studies, together with
manufacturing information and analytical data, are submitted to the FDA as part of an IND application. Currently, the IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the
30-day
time period, raises concerns or questions about the conduct of the clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND
sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Submission of an IND may result in the FDA not allowing the clinical trials to commence or not allowing the clinical trials to commence on the terms
originally specified in the IND. A separate submission to an existing IND must also be made for each successive clinical trial conducted during drug development, and the FDA must grant permission, either explicitly or implicitly by not objecting,
before each clinical trial can begin. Alpine has not yet commenced clinical trials for any of its current therapeutic candidates.
Clinical trials involve the administration of the therapeutic candidate to human subjects under the supervision of qualified investigators.
Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be used. Each protocol must be submitted to the FDA
as part of the IND. An independent institutional review board (IRB), for each medical center proposing to conduct a clinical trial must also review and approve a plan for any clinical trial before it can begin at that center and the IRB
must monitor the clinical trial until it is completed. The FDA, an IRB, or the sponsor may suspend or discontinue a clinical trial at any time on various grounds, including a finding the subjects are being exposed to an unacceptable health risk.
Clinical testing also must satisfy extensive Good Clinical Practice requirements, including the requirements for informed consent.
All
clinical research performed in the U.S. in support of a BLA must be authorized in advance by the FDA under the IND regulations and procedures described above. However, a sponsor who wishes to conduct a clinical
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trial outside the U.S. may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit
data from the clinical trial to the FDA in support of a BLA so long as the clinical trial is conducted in compliance with an international guideline for the ethical conduct of clinical research known as the Declaration of Helsinki and/or the laws
and regulations of the country or countries in which the clinical trial is performed, whichever provides the greater protection to the participants in the clinical trial.
Clinical Trials
For purposes of BLA submission
and approval, clinical trials are typically conducted in three sequential phases, which may overlap or be combined.
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Phase I clinical trials are initially conducted in a limited population of subjects to test the therapeutic candidate for safety, dose tolerance, absorption, metabolism, distribution, and excretion in healthy humans or,
on occasion, in patients with severe problems or life-threatening diseases to gain an early indication of its effectiveness.
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Phase II clinical trials are generally conducted in a limited patient population to evaluate preliminarily the efficacy of the therapeutic candidate for specific targeted indications in patients with the disease or
condition under study; evaluate dosage tolerance and appropriate dosage; and identify possible adverse effects and safety risks.
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Phase III clinical trials are commonly definitive efficacy studies of the experimental medication. Phase III trials are typically conducted when Phase II clinical trials demonstrate a dose range of the therapeutic
candidate is effective and has an acceptable safety profile. Phase III clinical trials are generally undertaken with large numbers of patients, such as groups of several hundred to several thousand, to provide substantial evidence of clinical
efficacy and to further test for safety in an expanded patient population at multiple, geographically-dispersed clinical trial sites.
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In some cases, the FDA may condition approval of a BLA on the sponsors agreement to conduct additional post-approval clinical trials to
further assess the biologics safety and effectiveness after BLA approval. Such post-approval clinical trials are typically referred to as Phase IV clinical trials.
Concurrent with clinical trials, companies usually complete additional animal trials and must also develop additional information about the
chemistry and physical characteristics of the biologic and finalize a process for manufacturing the biologic in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality
batches of the therapeutic candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, and purity of the final biologic product. Additionally, appropriate packaging must be selected and
tested and stability studies must be conducted to demonstrate the therapeutic candidate does not undergo unacceptable deterioration over its shelf life.
Biologics License Applications
The results of preclinical studies and of the clinical trials, together with other detailed information, including extensive manufacturing
information and information on the chemistry, pharmacology, clinical pharmacology, and the clinical effects of the biologic, are submitted to the FDA in the form of a BLA requesting approval to market the biologic for one or more specified
indications. The FDA reviews a BLA to determine, among other things, whether a biologic is safe, pure, and potent and whether the facility in which the biological product is manufactured, processed, packed, or held meets standards designed to assure
the biological product continues to be safe, pure, and potent.
Once a BLA has been accepted for filing, by law the FDA will review the
application and respond to the applicant but the review process may be significantly delayed by FDAs requests for additional information or
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clarification. Under the Prescription Drug User Fee Act, the FDA evaluates a standard original BLA submission within the first 60 days of its receipt to determine if it is sufficiently complete
to conduct a full review, and the FDA has a goal of responding to the submission within ten months of the 60-day filing date, but this timeframe is often extended. The FDA may refer the application to an advisory committee for review, evaluation,
and/or recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. The FDA may deny approval of a BLA if the applicable
statutory and regulatory criteria are not satisfied, or for any reason, or it may require additional clinical data. Even if such data are submitted, the FDA may ultimately decide the BLA does not satisfy the criteria for approval. Data from clinical
trials are not always conclusive and the FDA may interpret data differently than Alpine interprets data. Once the FDA approves a BLA, or supplement thereto, the FDA may withdraw the approval if ongoing regulatory requirements are not met or if
safety problems are identified after the biologic reaches the market. Where a withdrawal may not be appropriate, the FDA still may seize existing inventory of such biologic or require a recall of any biologic already on the market. In addition, the
FDA may require testing, including Phase IV clinical trials and surveillance programs to monitor the effect of approved biologics which have been commercialized. The FDA has the authority to prevent or limit further marketing of a biologic based on
the results of these post-marketing programs.
A sponsor may also seek approval of its therapeutic candidates under programs designed to
accelerate FDA review and approval of BLAs. For instance, a sponsor may seek FDA designation of a therapeutic candidate as a fast track product. Fast track products are those products intended for the treatment of a serious or
life-threatening disease or condition and which demonstrate the potential to address unmet medical needs for such diseases or conditions. If fast track designation is obtained, the FDA may initiate review of sections of a BLA before the application
is complete. This rolling review is available if the applicant provides, and the FDA approves, a schedule for the remaining information. In some cases, a fast track product may be approved on the basis of either a surrogate endpoint that
is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other
clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments, under the FDAs accelerated approval program. Approvals of this kind typically include
requirements for appropriate post-approval confirmatory clinical trials to validate the surrogate endpoint or otherwise confirm the effect of the clinical endpoint.
In addition, the Food and Drug Administration Safety and Innovation Act, (FDASIA) which was enacted and signed into law in 2012,
established a new category of drugs referred to as breakthrough therapies that may be subject to accelerated approval. A sponsor may seek FDA designation of a drug candidate as a breakthrough therapy if the drug is intended,
alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates the drug may demonstrate substantial improvement over existing therapies on one or more
clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
Therapeutic candidates
may also be eligible for priority review, or review within a six-month timeframe from the 60-day filing date, if a sponsor provides sufficient clinical data demonstrating its therapeutic candidate provides a significant improvement
compared to marketed products. Even if a therapeutic candidate qualifies for one or more of these programs, the FDA may later decide the therapeutic candidate no longer meets the conditions for qualification or that the time period for FDA review or
approval will be lengthened. When appropriate, Alpine intends to seek fast track designation and/or accelerated approval for its biologics. Alpine cannot predict whether any of its therapeutic candidates will obtain a fast track and/or accelerated
approval designation and, if so, whether such designation will be maintained or rescinded by FDA, or the ultimate impact, if any, of the fast track or the accelerated approval process on the timing or likelihood of FDA approval of any of
Alpines proposed biologics.
Biologics may be marketed only for the FDA approved indications and in accordance with the provisions
of the approved labeling. Further, if there are any modifications to the biologic, including changes in indications,
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labeling, or manufacturing processes, equipment, or facilities, the applicant may be required to submit and obtain FDA approval of a new BLA or BLA supplement, which may require Alpine to develop
additional data or conduct additional preclinical studies and clinical trials.
Before approving an application, the FDA will inspect the
facility or the facilities at which the biologic product is manufactured, and will not approve the product unless cGMP compliance is satisfactory. The FDA may also inspect the sites at which the clinical trials were conducted to assess their
compliance, and will not approve the biologic unless compliance with Good Clinical Practice requirements is satisfactory.
The testing and
approval processes require substantial time, effort, and financial resources, and each may take several years to complete. The FDA may not grant approval on a timely basis, or at all. Even if Alpine believes a clinical trial has demonstrated safety
and efficacy of one of its therapeutic candidates for the treatment of a disease, the results may not be satisfactory to the FDA. Preclinical and clinical data may be interpreted by the FDA in different ways, which could delay, limit, or prevent
regulatory approval. Alpine may encounter difficulties or unanticipated costs in its efforts to secure necessary governmental approvals which could delay or preclude Alpine from marketing its therapeutic candidates. The FDA may limit the indications
for use or place other conditions on any approvals restricting the commercial application of the products. After approval, certain changes to the approved biologic, such as adding new indications, change in personnel, manufacturing changes, or
additional labeling claims, are subject to further FDA review and approval. Depending on the nature of the change proposed, a BLA supplementwhich may require additional studies to evaluate the effect of such change on the identity, strength,
quality, purity, or potency of the product as they may relate to the safety or effectiveness of the productmust be filed and approved before the change may be implemented. As with new BLAs, the review process for BLA supplements may be delayed
by the FDA through requests for additional information or clarification.
Alpine believes any of its therapeutic products approved as a
biological product under a BLA might qualify for a
12-year
period of exclusivity currently permitted by the Biologics Price Competition and Innovation Act (BPCIA). Specifically, the BPCIA
established an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The new abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the
possible designation of a biosimilar as interchangeable based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be submitted by an applicant until four years after the date
the reference product was first licensed and cannot be approved by the FDA until 12 years after the original branded product was first licensed under a BLA. There is a risk the U.S. Congress could amend the BPCIA to significantly shorten this
exclusivity period or the FDA will not consider Alpines therapeutic candidates to be reference products for competing products, potentially creating the opportunity for competition sooner than anticipated. Moreover, the extent to which a
biosimilar, once approved, will be substituted for any one of Alpines reference products in a way similar to traditional generic substitution for
non-biological
products is not yet clear, and will depend
on a number of marketplace and regulatory factors that are still developing. The BPCIA is complex and is only beginning to be interpreted and implemented by the FDA and the courts. As a result, its ultimate impact, implementation, and meaning is
subject to uncertainty. While it is uncertain when any such processes may be fully adopted by the FDA, any such processes operating to limit the scope or length of exclusivity afforded by the BPCIA could have a material adverse effect on the future
commercial prospects for Alpines biological products. In addition, foreign regulatory authorities may also provide for exclusivity periods for approved biological products or for abbreviated pathways for follow on biological products. For
example, biological products in Europe may be eligible for a
10-year
period of exclusivity.
Under
the Orphan Drug Act, the FDA may grant orphan drug designation to therapeutic candidates intended to treat a rare disease or condition, which is generally a disease or condition affecting fewer than 200,000 individuals in the U.S. or more than
200,000 individuals in the U.S. and for which there is no reasonable expectation the cost of developing and making available in the U.S. a therapeutic candidate for this type of disease or condition will be recovered from sales in the U.S. for that
therapeutic candidate. Orphan drug
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designation must be requested before submitting a marketing application for the therapeutic for that particular rare disease or condition. After the FDA grants orphan drug designation, the
identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The FDA may revoke
orphan drug designation, and if it does, it will publicize the drug is no longer designated as an orphan drug. If a therapeutic candidate with orphan drug designation subsequently receives the first FDA approval for the disease for which it has such
designation, the therapeutic candidate is entitled to orphan product exclusivity, which means the FDA may not approve any other applications to market the same therapeutic candidate for the same indication, except in very limited circumstances, for
seven years. Orphan drug exclusivity, however, could also block the approval of one of Alpines therapeutic candidates for seven years if a competitor obtains approval of the same therapeutic candidate as defined by the FDA or if Alpines
therapeutic candidate is determined to be contained within the competitors therapeutic candidate for the same indication or disease.
Under the Best Pharmaceuticals for Children Act, certain therapeutic candidates may obtain an additional six months of exclusivity if the
sponsor submits information requested in writing by the FDA, referred to as a Written Request, relating to the use of the active moiety of the therapeutic candidate in children. The FDA may not issue a Written Request for studies on
unapproved or approved indications where it determines information relating to the use of a therapeutic candidate in a pediatric population, or part of the pediatric population, may not produce health benefits in that population. In addition, the
Pediatric Research Equity Act (PREA), requires a sponsor to conduct pediatric studies for most therapeutic candidates and biologics, for a new active ingredient, new indication, new dosage form, new dosing regimen, or new route of
administration. Under PREA, original NDAs, BLAs and supplements thereto must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must assess the safety and effectiveness of the therapeutic
candidate for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the therapeutic candidate is safe and effective. The sponsor or the FDA may request a
deferral of pediatric studies for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding the drug or biologic is ready for approval for use in adults before pediatric studies are complete or
additional safety or effectiveness data needs to be collected before the pediatric studies begin. The FDA must send a noncompliance letter to any sponsor failing to submit the required assessment, keep a deferral current, or fails to submit a
request for approval of a pediatric formulation.
Other Regulatory Requirements
Any biologics manufactured or distributed by Alpine or its collaborators pursuant to FDA approvals would be subject to continuing regulation by
the FDA, including recordkeeping requirements and reporting of adverse experiences associated with the product. Manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are
subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMPs, which impose certain procedural and documentation requirements upon Alpine and third-party
manufacturers. Failure to comply with the statutory and regulatory requirements can subject a manufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing, seizure of product, injunctive action or
possible civil penalties. Alpine cannot be certain it or its present or future third-party manufacturers or suppliers will be able to comply with the cGMP regulations and other ongoing FDA regulatory requirements. If Alpine or its present or future
third-party manufacturers or suppliers are not able to comply with these requirements, the FDA may halt Alpines clinical trials, require Alpine to recall a drug from distribution, or withdraw approval of the BLA for the therapeutic product.
The FDA closely regulates the post-approval marketing and promotion of biologics, including standards and regulations for
direct-to-consumer
advertising,
off-label
promotion, industry-sponsored scientific and educational activities, and promotional
activities involving the Internet. A company can make only those claims relating to safety and efficacy approved by the FDA. Failure to comply with these requirements can result in adverse
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publicity, warning letters, corrective advertising, and potential civil and criminal penalties. Physicians may prescribe legally available biologics for uses not described in the products
labeling and different from those tested by Alpine and approved by the FDA. Such
off-label
uses are common across medical specialties. Physicians may believe such
off-label
uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, impose stringent
restrictions on manufacturers communications regarding
off-label
use.
Healthcare Reform
In March 2010, Congress passed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act
(collectively, the ACA), a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of health spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and
health insurance industries, impose new taxes and fees on the health industry, and impose additional policy reforms. The ACA contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes,
and fraud and abuse, impacting existing government healthcare programs and resulting in the development of new programs, including Medicare payment for performance initiatives, and improvements to the physician quality reporting system and feedback
program. The Affordable Care Act also does, among other things, the following:
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Increases pharmaceutical manufacturer rebate liability under the Medicaid Drug Rebate Program due to an increase in the minimum basic Medicaid rebate on most branded prescription drugs, and the application of Medicaid
rebate liability to drugs used in risk-based Medicaid managed care plans.
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Expands the 340B Drug Pricing Program to require discounts for covered outpatient drugs sold to certain childrens hospitals, critical access hospitals, freestanding cancer hospitals, rural referral
centers, and sole community hospital.
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Requires pharmaceutical companies to offer discounts on brand-name drugs to patients who fall within the Medicare Part D coverage gap, commonly referred to as the Donut Hole.
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Requires pharmaceutical companies to pay an annual
non-tax-deductible
fee to the federal government based on each companys market
share of prior year total sales of branded drugs to certain federal healthcare programs, such as Medicare, Medicaid, Department of Veterans Affairs, and Department of Defense.
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Establishes the Independent Payment Advisory Board, which, since 2014, has had authority to recommend certain changes to the Medicare program to reduce expenditures by the program when spending exceeds a certain growth
rate and such changes could result in reduced payments for prescription drugs. Under certain circumstances, these recommendations will become law unless Congress enacts legislation achieving the same or greater Medicare cost savings. However,
as of early 2017, the President has yet to nominate anyone to serve on the board.
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Establishes the Patient-Centered Outcomes Research Institute to identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. The research conducted by the
Patient-Centered Outcomes Research Institute may affect the market for certain pharmaceutical products.
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Establishes The Center for Medicare and Medicaid Innovation within the Centers for Medicare and Medicaid Services (CMS) to test innovative payment and service delivery models to lower Medicare and Medicaid
spending, potentially including prescription drug spending. Funding has been allocated to support the mission of the Center for Medicare and Medicaid Innovation from 2011 to 2019.
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From time to time, legislation is drafted, introduced, and passed in Congress that could significantly change the statutory provisions
governing the sale, marketing, coverage, and reimbursement of products regulated by the CMS or other government agencies. In addition to new legislation, CMS regulations and policies are often revised or interpreted by the agency in ways
significantly affecting Alpines business and its products.
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In particular, Alpine expects the new Administration and Congress will seek to modify, repeal, or
otherwise invalidate all, or certain provisions of, the U.S. healthcare reform legislation. Since taking office, President Trump has continued to support the repeal of all or portions of the ACA. President Trump has also issued an executive order in
which he stated it is his Administrations policy to seek the prompt repeal of the ACA and directed executive departments and federal agencies to waive, defer, grant exemptions from, or delay the implementation of the provisions of the ACA to
the maximum extent permitted by law. There is still uncertainty with respect to the impact President Trumps Administration and Congress may have, if any, and any changes will likely take time to unfold. Such reforms could have an adverse
effect on anticipated revenues from therapeutic candidates Alpine may successfully develop and for which Alpine may obtain regulatory approval and may affect Alpines overall financial condition and ability to develop therapeutic candidates.
However, Alpine cannot predict the ultimate content, timing, or effect of any healthcare reform legislation or the impact of potential legislation on Alpine.
Furthermore, political, economic, and regulatory influences are subjecting the health care industry in the U.S. to fundamental change.
Initiatives to reduce the federal budget and debt and to reform health care coverage are increasing cost-containment efforts. Alpine anticipates federal agencies, Congress, state legislatures, and the private sector will continue to review and
assess alternative health care benefits, controls on health care spending, and other fundamental changes to the healthcare delivery system. Any proposed or actual changes could limit coverage for or the amounts federal and state governments will pay
for health care products and services, which could also result in reduced demand for Alpines products or additional pricing pressures, and limit or eliminate Alpines spending on development projects and affect Alpines ultimate
profitability.
Third-Party Payor Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any products for which Alpine may obtain regulatory approval. In
the U.S., sales of any products for which Alpine may receive regulatory approval for commercial sale will depend in part on the availability of coverage and reimbursement from third-party payors. Third-party payors include government authorities
such as Medicare, Medicaid, TRICARE, and the Veterans Administration, managed care providers, private health insurers and other organizations.
The Medicaid Drug Rebate Program, which is part of the federal Medicaid program, a program for financially needy patients, among others,
requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services as a condition for states to receive federal matching funds for the
manufacturers outpatient drugs furnished to Medicaid patients.
In order for a pharmaceutical product to receive federal
reimbursement under Medicare Part B, part of the federal Medicare program covering outpatient items and services for the aged and disabled, and Medicaid programs or to be sold directly to U.S. government agencies, the manufacturer must extend
discounts to entities eligible to participate in the 340B drug pricing program, a federal program requiring manufacturers to provide discounts to certain
safety-net
providers. The required 340B discount on a
given product is calculated based upon certain Medicaid Drug Rebate Program metrics reported by the manufacturer.
The process for
determining whether a payor will provide coverage for a product is typically separate from the process for setting the reimbursement rate a payor will pay for the product. Third-party payors may limit coverage to specific products on an approved
list or formulary which might not include all of the
FDA-approved
products for a particular indication. Also, third-party payors may refuse to include a particular branded product on their formularies or
otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available. However, under Medicare Part DMedicares outpatient prescription drug benefitthere are protections in place
to ensure coverage and reimbursement for oncology products and all Part D prescription drug plans are required to cover substantially all anti-cancer agents. Furthermore, a payors decision to provide coverage for a product does not imply an
adequate reimbursement rate will be available. Adequate third-party reimbursement may not be available to enable Alpine to maintain price levels sufficient to realize an appropriate return on Alpines investment in product development.
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Third-party payors are increasingly challenging the price and examining the medical necessity and
cost- effectiveness of medical products and services, in addition to their safety and efficacy. In order to obtain coverage and reimbursement for any product approved for sale, Alpine may need to pursue compendia listings or conduct expensive
pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of any products, in addition to the costs required to obtain regulatory approvals. Alpines drug candidates may not be considered medically necessary
or cost-effective. If third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover an approved product as a benefit under their plans or, if they do, the level of payment may not be
sufficient to allow a company to sell its products at a profit.
Other Healthcare Laws and Regulations
If Alpine obtains regulatory approval of its products, it may be subject to various federal and state laws targeting fraud and abuse in the
healthcare industry. These laws may impact, among other things, Alpines proposed sales and marketing strategies. In addition, Alpine may be subject to patient privacy regulation by both the federal government and the states in which Alpine
conducts its business. The laws affecting Alpines ability to operate include, but are not limited to:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering, or paying remuneration (a term interpreted broadly to include anything of
value, including, for example, gifts, discounts, and credits), directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order, or recommendation of, an item or
service reimbursable under a federal health care program, such as the Medicare and Medicaid programs;
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federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment to
Medicare, Medicaid, or other third-party payors that are false or fraudulent, or making a false statement or record material to payment of a false claim or avoiding, decreasing, or concealing an obligation to pay money owed to the federal
government;
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provisions of the federal HIPAA, which created new federal criminal statutes, referred to as the HIPAA All-Payor Fraud Prohibition, prohibiting knowingly and willfully executing a scheme to defraud any health care
benefit program and making false statements relating to health care matters;
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provisions of HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, which imposes certain requirements relating to the privacy, security, and
transmission of individually identifiable health information;
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the federal transparency laws, including the federal Physician Payment Sunshine Act, which was part of the Affordable Care Act, requiring manufacturers of certain drugs and biologics to track and disclose payments and
other transfers of value they make to U.S. physicians and teaching hospitals, as well as physician ownership and investment interests in the manufacturer, and that such information is subsequently made publicly available in a searchable format on a
CMS website; and
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, state
transparency reporting and compliance laws, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus
complicating compliance efforts.
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The ACA broadened the reach of the fraud and abuse laws by, among other things, amending
the intent requirement of the federal Anti-Kickback Statute and the applicable criminal healthcare fraud statutes contained within 42 U.S.C.
§ 1320a-7b.
Pursuant to the statutory amendment, a person
or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition,
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the ACA provides the government may assert a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes
of the civil False Claims Act or the civil monetary penalties statute. Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any
source, not only the Medicare and Medicaid programs.
Employees
As of March 31, 2017, Alpine had 31 full-time employees and 27 of Alpines employees are engaged in research and development
activities. None of Alpines employees are represented by labor unions or covered by collective bargaining agreements. Alpine considers its relationship with its employees to be good.
Facilities
Alpine leases a facility containing its research and development, laboratory, and office space, which consists of approximately 11,158 square
feet located at 201 Elliott Avenue West, Seattle, Washington. Alpines lease expires on December 31, 2019.
Legal
Proceedings
Alpine is currently not party to any legal proceedings.
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NIVALIS MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be read together with the section entitled
Selected Historical Financial Data of Nivalis in this proxy statement/prospectus/information statement and the consolidated financial statements of Nivalis and accompanying notes appearing elsewhere in this proxy
statement/prospectus/information statement. This discussion of the Nivalis financial condition and results of operations contains certain statements that are not strictly historical and are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 and involve a high degree of risk and uncertainty. Actual results may differ materially from those projected in the forward-looking statements due to other risks and uncertainties that exist in
the Nivalis operations, development efforts and business environment, including those set forth in the section entitled Risk Factors Risks Related to Nivalis in this proxy statement/prospectus/information statement, the other
risks and uncertainties described in the section entitled Risk Factors in this proxy statement/prospectus/information statement and the other risks and uncertainties described elsewhere in this proxy statement/prospectus/information
statement. All forward-looking statements included in this proxy statement/prospectus/information statement are based on information available to Nivalis as of the date hereof, and Nivalis assumes no obligation to update any such forward-looking
statement.
Overview
Nivalis is a pharmaceutical company that has historically been focused on the discovery and development of product candidates for patients with
cystic fibrosis, or CF. In November 2016, Nivalis announced that a Phase 2 clinical trial of cavosonstat had failed to achieve its primary endpoint of lung function improvement and a key secondary endpoint of sweat chloride reduction. In February
2017, Nivalis announced that a second Phase 2 clinical trial of cavosonstat had also failed to achieve its primary endpoint of lung function improvement and a key secondary endpoint of sweat chloride reduction. Nivalis currently does not have any
drugs that are commercially available and none of Nivalis drug candidates have obtained the approval of the FDA or any similar foreign regulatory authority.
Strategic Process
Following the
failure of the Phase 2 clinical trial in CF patients to meet its primary endpoint in November 2016, Nivalis announced on January 3, 2017 the initiation of a process to explore and review a range of strategic alternatives focused on maximizing
stockholder value from its clinical assets and cash resources and its intent to streamline its operations in order to conserve capital. Nivalis also announced that it had engaged a financial and strategic advisor, Ladenburg, to advise it on
strategic alternatives and appointed a Special Committee of its board of directors to investigate and evaluate strategic alternatives. In January 2017, Nivalis board of directors also approved a workforce reduction that took place between
January 15 and March 31, 2017, that affected a total of 25 employees, including Nivalis former President and Chief Executive Officer, and its former Chief Medical Officer, each of whose employment was terminated effective
January 15, 2017. As of the date hereof, Nivalis has five full-time employees and all research and development activities have ceased.
Merger
Agreement
After conducting a diligent and extensive process of evaluating strategic alternatives for Nivalis and identifying and
reviewing potential candidates for a strategic acquisition or other transaction, which included the receipt of more than 80 non-binding proposals from interested parties and careful evaluation and consideration of those proposals, and following
extensive negotiation with Alpine, on April 18, 2017, Nivalis, Merger Sub and Alpine entered into the Merger Agreement. Pursuant to the Merger Agreement, among other matters, and subject to the satisfaction or waiver of the conditions set forth
in the Merger Agreement, Merger Sub will merge with and into Alpine, with Alpine continuing as a wholly owned subsidiary of Nivalis and the surviving corporation of the merger.
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The merger is intended to qualify for federal income tax purposes as a reorganization under the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.
Subject to the terms and conditions of the
Merger Agreement, at the Effective Time, each outstanding share of Alpines capital stock will be converted into the right to receive shares of Nivalis common stock (subject to the payment of cash in lieu of fractional shares and after
giving effect to the Nivalis Reverse Stock Split if determined necessary or appropriate by Nivalis, Alpine and Merger Sub) such that, immediately following the effective time of the merger, preexisting Nivalis stockholders, optionholders and
warrantholders are expected to own, or hold rights to acquire, approximately 26% of the Fully-Diluted Common Stock of Nivalis, and preexisting stockholders, optionholders and warrantholders of Alpine are expected to own, or hold rights to acquire,
approximately 74% of the Fully-Diluted Common Stock of Nivalis.
Prior to the execution and delivery of the Merger Agreement, and as a
condition of the willingness of Nivalis to enter into the Merger Agreement, certain existing stockholders of Alpine have entered into agreements with Alpine pursuant to which such stockholders have agreed, subject to the terms and conditions of such
agreements, to purchase prior to the consummation of the merger shares of Alpines capital stock for an aggregate purchase price of approximately $17.0 million. The consummation of the transactions contemplated by such agreements is conditioned
upon the satisfaction or waiver of the conditions set forth in the Merger Agreement.
Consummation of the Merger is subject to certain
closing conditions, including, among other things, approval by the stockholders of Nivalis and Alpine, and satisfaction of minimum net cash thresholds by each of Nivalis and Alpine. In accordance with the terms of the Merger Agreement,
(i) certain executive officers, directors and stockholders of Alpine (solely in their respective capacities as Alpines stockholders) have entered into support agreements with Nivalis to vote all of their shares of Alpines capital
stock in favor of adoption of the Merger Agreement and (ii) certain executive officers, directors and stockholders of Nivalis (solely in their respective capacities as Nivalis stockholders) have entered into support agreements with Alpine
to vote all of their shares of Nivalis common stock in favor of approval of the Merger Agreement.
The Merger Agreement contains
certain termination rights for both Nivalis and Alpine, and further provides that, upon termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee of $2.5 million, or in
some circumstances reimburse the other partys expenses up to a maximum of $1.0 million.
At the Effective Time, the board of
directors of Nivalis is expected to consist of seven members, four of whom will be designated by Alpine, two of whom will be designated by Nivalis and one of whom will be an independent director designated by a majority of the other members of the
board of directors.
Nivalis future funding requirements, both near- and long-term, will depend on many factors, including, but not
limited to:
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the ability to successfully consummate the merger or, if the merger is not completed, another strategic transaction involving the company;
|
|
|
|
the timing, complexity and costs required for completion of the merger, or, if the merger is not completed, any transaction that may result from a further review of strategic alternatives;
|
|
|
|
personnel-related expenses, including salaries, benefits, stock-based compensation expense and other compensation costs related to implementing Nivalis restructuring plan;
|
|
|
|
the costs associated with archiving company records related to the companys research and development, and general and administrative activities;
|
|
|
|
the costs of storing drug substance and drug product in compliance with cGMP requirements;
|
212
|
|
|
the costs of preparing, filing, and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;
|
|
|
|
the extent to which Nivalis may elect to resume drug research and development activities in the future, if at all; and
|
|
|
|
costs that may be incurred in responding to disruptive actions by activist stockholders.
|
Financial Operations Overview
Revenue
To date, Nivalis has not generated any revenue and may never do so. Nivalis determined to cease further development of cavosonstat and its
other GSNOR inhibitors while Nivalis identified and evaluated strategic alternatives and pursues the merger with Alpine, and, therefore, does not anticipate generating revenue itself from its potential product candidates or otherwise.
Research and Development Expense
Research and development expense consists of costs incurred for the development of Nivalis product candidates, which include:
|
|
|
direct program expenses, which are costs incurred for contract research organizations, or CROs, clinical investigators, clinical consultants and clinical sites that will conduct preclinical studies and clinical trials
as well as costs associated with acquiring, developing and manufacturing preclinical and clinical supplies;
|
|
|
|
employee-related expenses, including salaries, benefits, stock-based compensation expense and other compensation costs;
|
|
|
|
costs associated with regulatory filings; and
|
|
|
|
costs of laboratory supplies, facilities, depreciation, travel and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other operating costs related to
research and development.
|
Research and development costs are expensed as incurred. Product candidates in later stages of
clinical development generally have higher development costs than those in earlier stages of clinical development primarily due to the increased size and duration of later-stage clinical trials.
213
Below is a summary of Nivalis research and development expenses by categories of costs for
the periods presented. The other expenses category includes travel, lab and office supplies, clinical trial management software license fees, business insurance and other miscellaneous expenses.
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Direct program expenses
|
|
|
|
|
|
|
|
|
Cavosonstat for cystic fibrosis
|
|
$
|
177
|
|
|
$
|
3,478
|
|
Personnel and other expenses
|
|
|
|
|
|
|
|
|
Salaries, benefits and stock-based compensation
|
|
|
1,975
|
|
|
|
1,480
|
|
Consulting and outsourced services
|
|
|
169
|
|
|
|
89
|
|
Facilities and depreciation
|
|
|
84
|
|
|
|
81
|
|
Other expenses
|
|
|
353
|
|
|
|
439
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
2,758
|
|
|
$
|
5,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Direct program expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cavosonstat for cystic fibrosis
|
|
$
|
13,498
|
|
|
$
|
9,254
|
|
|
$
|
4,248
|
|
N6022 for cystic fibrosis
|
|
|
|
|
|
|
|
|
|
|
1,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total direct program expenses
|
|
|
13,498
|
|
|
|
9,254
|
|
|
|
5,870
|
|
|
|
|
|
Personnel and other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, benefits and stock-based compensation
|
|
|
6,834
|
|
|
|
4,931
|
|
|
|
4,973
|
|
Consulting and outsourced services
|
|
|
1,026
|
|
|
|
352
|
|
|
|
418
|
|
Facilities and depreciation
|
|
|
340
|
|
|
|
266
|
|
|
|
284
|
|
Other expenses
|
|
|
1,618
|
|
|
|
1,251
|
|
|
|
655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
23,316
|
|
|
$
|
16,054
|
|
|
$
|
12,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of Nivalis research and development expenses for the three months ended March 31, 2017 and 2016
and for the years ended December 31, 2016, 2015 and 2014 relate to the development of cavosonstat and, to a lesser extent, N6022 during the year ended December 31, 2014. Nivalis has expended an aggregate of approximately $30.4 million for
direct program expenses related to cavosonstat from inception through March 31, 2017. Nivalis anticipates that overall research and development costs will decrease significantly for the foreseeable future as compared to prior periods due to the
near-term conclusion of its currently planned program expenses and its workforce reduction that occurred during the first quarter of 2017 resulting from its determination to cease further development of cavosonstat and its other GSNOR inhibitors and
to seek to conserve cash resources while Nivalis pursues and completes the merger. Nivalis has not incurred, nor does it expect to incur, significant cancellation charges with its vendors during the wind-down of research and development activities.
General and Administrative Expense
General and administrative expense consists principally of salaries and related costs not included in research and development expenses,
including stock-based compensation for personnel in executive, finance, business development and information technology functions, facility costs and professional fees for legal, patent review, consulting and accounting services.
214
Nivalis anticipates that overall general and administrative costs will decrease during the
remainder of 2017 compared with prior periods due to lower personnel-related costs and stock-based compensation due to the workforce reduction. Partially offsetting these decreases will be increased legal and financial advisory costs in connection
with pursuing and completing the merger or another potential strategic transaction involving the company.
Interest and Other Income, Net
Interest and other income, net for the three months ended March 31, 2017 and 2016 and for the years ended December 31,
2016 and 2015 consists of interest earned on marketable securities and money market funds. For the year ended December 31, 2014, interest and other income, net consists of the gain on the change in the fair value of preferred stock warrant
liabilities. On September 23, 2014, all outstanding shares of preferred stock converted into shares of common stock in connection with a recapitalization of the company; when this conversion occurred, warrants exercisable for shares of
Nivalis preferred stock automatically adjusted to become exercisable for shares of common stock, and therefore changes in the fair value of preferred stock warrant liabilities no longer impacted interest and other income, net.
Interest Expense
Nivalis had
no interest expense for the three months ended March 31, 2017 and 2016 and the years ended December 31, 2016 and 2015. Interest expense for the year ended December 31, 2014, consists primarily of interest accrued on Nivalis
previously outstanding convertible debt and interest paid on its previously outstanding Loan and Security Agreement with Horizon Technology Finance dated February 18, 2011, or the Horizon Loan. Nivalis repaid all outstanding principal and
interest under the Horizon Loan in full in July 2014 and all principal and accrued interest under Nivalis convertible debt converted into equity in September 2014. Also included in interest expense is the amortization of the discount on the
Horizon Loan and convertible debt during 2014.
Results of Operations
Comparison of the Three Months Ended March 31, 2017 and 2016
Research and Development Expenses.
Research and development expenses for the three months ended March 31, 2017 and 2016 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Research and development expenses
|
|
$
|
2,758
|
|
|
$
|
5,567
|
|
Decrease from prior period
|
|
$
|
(2,809
|
)
|
|
|
|
|
% change from prior period
|
|
|
(50.5
|
)%
|
|
|
|
|
The decrease in research and development expenses for the three months ended March 31, 2017, compared to
the same period in the prior year was the result of winding down all research and development activities during the first quarter of 2017. During the first quarter of the prior year Nivalis incurred approximately $2.5 million in expenses for
cavosonstat Phase 2 clinical trials in CF and approximately $800,000 in expenses for clinical drug manufacturing and long-term toxicology studies. Salaries and benefit expenses decreased by approximately $400,000 during the first quarter of 2017
compared to the prior year due to the workforce reduction. Partially offsetting these decreases were increased stock-based compensation expenses of $1.1 million related to the accelerated vesting of options and restricted stock units
(RSUs) held by employees affected by the restructuring plan and workforce reduction.
215
General and Administrative Expenses.
General and administrative expenses for the
three months ended March 31, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
General and administrative expenses
|
|
$
|
2,781
|
|
|
$
|
2,367
|
|
Increase from prior period
|
|
$
|
414
|
|
|
|
|
|
% change from prior period
|
|
|
17.5
|
%
|
|
|
|
|
The increase in general and administrative expenses for the three months ended March 31, 2017, compared
to the same period in the prior year was primarily due to stock-based compensation expense of $1.0 million related to the accelerated vesting of options held by employees affected by the restructuring plan and workforce reduction. During this same
period, marketing and patent expenses combined decreased by approximately $470,000 due to the wind-down in drug-development activities, while legal expenses increased by approximately $200,000 in support of Nivalis pursuit of a potential
strategic transaction involving the company. Salaries and benefit expenses decreased by approximately $135,000 during the first quarter of 2017 compared to the prior year due to the workforce reduction.
Restructuring charges.
Restructuring charges were approximately $3.5 million for the three months ended March 31, 2017.
Nivalis did not have any restructuring charges during the prior year. In November 2016, Nivalis announced that Nivalis Phase 2 trial, evaluating the efficacy and safety of cavosonstat in adult patients with CF, had failed to demonstrate a
benefit in its primary endpoint. On January 3, 2017, Nivalis announced that its board of directors had initiated a process to explore and review a range of strategic alternatives. At that time, Nivalis engaged a financial advisor and
established a Special Committee of the Board of Directors to explore strategic alternatives.
In January 2017, Nivalis committed to a
restructuring plan that consisted primarily of a workforce reduction of 25 positions, to a total of five remaining positions in order to conserve cash while Nivalis continued to evaluate strategic alternatives. Nivalis entered into severance and
release agreements with employees affected by the workforce reduction and retention agreements with key employees if these employees remained with Nivalis until terminated by the company without cause prior to such date. All employees affected by
the workforce reduction received either a lump-sum severance payment or monthly severance payments per the terms of their employment agreements with Nivalis. Certain of these employees also received retention bonus payments that were expensed upon
payment and separation from Nivalis during the first quarter of 2017. In accordance with ASC 420, Exit and Disposal Cost Obligations, Nivalis is recognizing the restructuring liabilities related to the five remaining positions over the
employees anticipated service period, which is expected to be the first three quarters of 2017.
216
Accrued restructuring charges for the three months ended March 31, 2017, in connection with
the workforce reduction, comprised principally of monthly or one-time severance payments, retention bonuses and benefits continuation costs, were approximately $3.5 million of which approximately $1.2 million was paid during the first quarter of
2017. As of March 31, 2017, approximately $2.3 million was accrued in remaining restructuring-related payments expected to be paid in the second and third quarters of 2017.
Interest Income.
Interest income for the three months ended March 31, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Interest income
|
|
$
|
109
|
|
|
$
|
96
|
|
Increase from prior period
|
|
$
|
13
|
|
|
|
|
|
% change from prior period
|
|
|
13.5
|
%
|
|
|
|
|
The increase in interest income during 2017 over the prior years three-month period was due to higher
investment interest rates earned on Nivalis cash equivalents and marketable securities.
Comparison of the Years Ended December 31, 2016,
2015 and 2014
Research and Development Expenses.
Research and development expenses for the years
ended December 31, 2016, 2015 and 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Research and development expenses
|
|
$
|
23,316
|
|
|
$
|
16,054
|
|
|
$
|
12,200
|
|
Increase from prior period
|
|
$
|
7,262
|
|
|
$
|
3,854
|
|
|
|
|
|
% change from prior period
|
|
|
45.2
|
%
|
|
|
31.6
|
%
|
|
|
|
|
Fiscal 2016 as compared to Fiscal 2015
The increase in research and development expenses
for the year ended December 31, 2016 compared to the prior year was primarily due to $5.7 million of cavosonstat clinical trial expenses for the Phase 2 trial in patients with CF that was initiated in November 2015 and reached 100% patient
enrollment as planned in early July 2016. A second Phase 2 trial in patients with CF initiated in March 2016 added $1.7 million of clinical trial expenses for the year, while $1.2 million was expended on a Phase 1 Multiple Ascending Dose trial
initiated and completed in the fourth quarter of 2016. By comparison, during the prior year, Nivalis incurred $3.5 million of clinical trial expenses for Nivalis Phase 1b trial that was completed in September 2015. Personnel and other expenses
increased by $3 million during the year ended December 31, 2016, compared to the same period of the prior year. These increases were primarily the result of increased staff and related salaries, benefits and stock-based compensation expense.
Fiscal 2015 as compared to Fiscal 2014
The increase in research and development expenses for the year ended
December 31, 2015 compared to the prior year was primarily due to an increase in direct program expenses of $3.4 million and increased personnel and other expenses of $470,000, combined. The increase in direct program expenses for cavosonstat
was largely driven by clinical trial expenses increasing by $3.0 million during the comparable periods due to the Phase 1b trial that was initiated during the first quarter of fiscal 2015 and completed in September 2015, the Phase 1a drug-drug
interaction trial completed during the third quarter of fiscal 2015 and the Phase 2 triple therapy trial that was initiated during the fourth quarter of fiscal 2015. During fiscal 2014, two smaller Phase 1 safety trials were in process and completed
by the end of that year. The remaining increase in direct program expenses for fiscal 2015 for cavosonstat of approximately $2.0 million was attributed to the production of cavosonstat for clinical trials and initiation of long-term toxicology
studies.
217
Partially offsetting these increases were decreased clinical trial expenses for N6022 of $1.6 million during the comparable periods as the Phase 1b trial of N6022 in patients with CF was
completed in April 2014. The combined increase in personnel and other expenses during fiscal 2015 compared to the prior year was primarily attributable to increased travel to support the clinical trials and overall increases in insurance.
General and Administrative Expenses.
General and administrative expenses for the years ended
December 31, 2016, 2015 and 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
General and administrative expenses
|
|
$
|
8,586
|
|
|
$
|
6,844
|
|
|
$
|
2,287
|
|
Increase from prior period
|
|
$
|
1,742
|
|
|
$
|
4,557
|
|
|
|
|
|
% change from prior period
|
|
|
25.5
|
%
|
|
|
199.3
|
%
|
|
|
|
|
Fiscal 2016 as compared to Fiscal 2015
The increase in general and administrative expenses
for the year ended December 31, 2016 compared to the prior year was partially due to increased expenses related to patent and marketing expenses as well as operating on a full-year basis as a publicly-traded company, including increased
investor relations expenses. These expense categories on a combined basis increased by $564,000 during the year ended December 31, 2016, compared with the prior year. Additionally, stock-based compensation expense increased by $1.0 million
during the year ended December 31, 2016, compared with the prior year, primarily due to stock options granted in September 2015 and September 2016.
Fiscal 2015 as compared to Fiscal 2014
The increase in general and administrative expenses for the year ended
December 31, 2015, compared to the prior year was primarily due to increased expenses related to becoming and operating as a publicly-traded company, including increased salary expense, employee benefits and stock-based compensation expense
tied to a revised employee incentive plan and the hiring of a new CEO and CFO during the early part of 2015. Additionally, audit fees, legal support costs, patent expenses, travel costs and various marketing and investor relations expenses increased
by approximately $2.5 million during fiscal 2015, compared to the prior year.
Interest and Other Income, Net
Interest income for the years ended December 31, 2016, 2015 and 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Interest and other income, net
|
|
$
|
439
|
|
|
$
|
80
|
|
|
$
|
296
|
|
Increase (decrease) from prior period
|
|
$
|
359
|
|
|
$
|
(216
|
)
|
|
|
|
|
Fiscal 2016 as compared to Fiscal 2015
The increase in interest income during 2016 over the
prior year period was due to higher investment interest rates earned on a higher average cash and marketable securities balance following the completion of Nivalis initial public offering during June 2015.
Fiscal 2015 as compared to Fiscal 2014
The decrease in interest and other income, net for the year ended December 31,
2015, compared to the prior year was primarily due to approximately $266,000 recorded as a gain during fiscal 2014 due to the change in the fair value of preferred stock warrant liabilities that were adjusted to fair market value. These preferred
stock warrant liabilities were reclassified as a component of equity during September 2014. Therefore, no similar mark-to-market adjustment was recorded during 2015. During fiscal 2015, approximately $80,000 was earned as interest on marketable
securities.
Interest Expense
There was no interest expense for the year ended December 31, 2016 or 2015 due to full repayment of the Horizon Loan in July 2014 and
conversion of the convertible debt in September 2014 compared to the prior year
218
in which interest was paid on the outstanding Horizon Loan and interest accrued on the convertible debt outstanding.
Liquidity and Capital Resources
Since inception, Nivalis has funded its operations primarily through the proceeds from its initial public offering in June 2015 as well as
private placements of equity and convertible debt prior to the initial public offering. As of March 31, 2017, Nivalis had cash, cash equivalents and marketable securities of approximately $52.7 million and no debt.
The following table sets forth the primary uses of cash for the three months ended March 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Net cash used in operating activities
|
|
$
|
(8,436
|
)
|
|
$
|
(7,011
|
)
|
Net cash used in investing activities
|
|
|
(2,838
|
)
|
|
|
(1,950
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
$
|
(11,274
|
)
|
|
$
|
(8,961
|
)
|
|
|
|
|
|
|
|
|
|
The following table sets forth the primary sources and uses of cash for years ended December 31, 2016,
2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Net cash used in operating activities
|
|
$
|
(26,259
|
)
|
|
$
|
(19,207
|
)
|
|
$
|
(14,448
|
)
|
Net cash provided by (used in) investing activities
|
|
|
25,305
|
|
|
|
(62,448
|
)
|
|
|
(4
|
)
|
Net cash provided by financing activities
|
|
|
166
|
|
|
|
78,834
|
|
|
|
41,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(788
|
)
|
|
$
|
(2,821
|
)
|
|
$
|
26,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
Three months ended March 31, 2017, as compared to three months ended March 31, 2016
. During the first three months of fiscal
2017, Nivalis net loss of $8.9 million included noncash charges of $2.7 million, primarily associated with stock-based compensation. During this same period, Nivalis net operating liabilities, excluding cash, cash equivalents and
marketable securities, decreased by $2.2 million and, when combined with the adjustment for noncash charges, decreased its net cash used in operating activities to $8.4 million. Net operating liabilities decreased primarily because of lower accounts
payable and accrued direct program expenses of $3.2 million and decreases in accrued employee benefits of $1.8 million. Slightly offsetting these decreases were increases in accrued restructuring charges of $2.3 million and decreases in prepaid
expenses of $462,000. Decreases in accounts payable and accrued direct program expenses were directly related to the wind-down of all research and development operations and related payments of vendor obligations. Accrued employee benefits decreased
due to payment of annual employee performance bonuses during January 2017. Accrued restructuring charges increased by $2.3 million specifically related to the accounting for severance payments, retention bonuses and benefit continuation costs for
employees affected by the workforce reduction.
During the first quarter of fiscal 2016, Nivalis net loss of $7.8 million included
noncash charges of $737,000, primarily associated with stock-based compensation. During this same period, Nivalis net operating liabilities, excluding cash, cash equivalents and marketable securities, increased by $90,000 and thus decreased
219
Nivalis net cash used in operating activities to $7.0 million. Net operating liabilities increased primarily because of higher accounts payable and accrued direct program expenses of $1.3
million, decreases in accrued employee benefits of $963,000, decreases in accrued other liabilities of $134,000 and increases in prepaid expenses of $69,000. Increases in accounts payable and accrued direct program expenses were directly related to
research and development costs for Nivalis Phase 2 clinical trial that initiated in November 2015. Accrued employee benefit costs decreased due to payment of employee performance bonuses during February 2016.
Fiscal 2016 as compared to Fiscal 2015
During the year ended December 31, 2016, Nivalis net loss of $31.5
million included noncash charges of $3.4 million, primarily associated with stock-based compensation. During this same period, Nivalis net operating liabilities, excluding cash, cash equivalents and marketable securities, increased by $1.8
million from the prior year period, and thus decreased its net cash used in operating activities to $26.3 million. The increase in net operating liabilities is primarily related to higher accrued direct program expenses, accounts payable, and
accrued employee benefits of $2.2 million, slightly offset by decreases in accrued other liabilities of $142,000 and increases in prepaid expenses of $282,000. Increases in accrued direct program expenses and accounts payable were directly related
to research and development costs for Nivalis two Phase 2 clinical trials and a Phase 1 multiple ascending dose trial that were completed or near completion at the end of 2016. Prepaid expenses increased due to the timing of various direct
program expense prepayments.
Fiscal 2015 as compared to Fiscal 2014
During the year ended December 31, 2015,
Nivalis net loss of $22.8 million included noncash charges of $1.4 million, primarily associated with stock based compensation. During this same period, Nivalis net operating liabilities, excluding cash, cash equivalents and marketable
securities, increased by approximately $2.2 million and thus decreased its net cash used in operating activities to $19.2 million. Net operating liabilities increased primarily because of higher accrued employee benefits of $1.5 million,
increases in accounts payable and accrued direct program expenses of $376,000, increases in other liabilities of $163,000 and decreases in prepaid expenses of $198,000. Accrued employee benefit costs increased due to implementation of the 2015
employee incentive plan that was initiated at the beginning of the year. Increases in accounts payable and accrued direct program expenses were directly related to research and development costs for Nivalis Phase 1b clinical trial that
completed in September 2015 along with the initiation of the Phase 2 clinical trial during the fourth quarter of 2015.
During fiscal
2014, Nivalis net loss of $15.0 million included noncash charges of $570,000. During the same period, Nivalis net operating liabilities, excluding cash, cash equivalents and marketable securities, increased by $18,000, largely the result
of increased accounts payable and accrued direct program expenses that were offset by decreased employee benefits and increased prepaid expenses.
Investing Activities
The net cash
used in investing activities for the three months ended March 31, 2017 and 2016 was primarily related to net purchases of marketable securities.
Fiscal 2016 as compared to Fiscal 2015
The net cash provided by investing activities of $25.3 million for
the year ended December 31, 2016 was primarily related to proceeds from maturities and sales of marketable securities exceeding Nivalis purchases of replacement securities during the period.
Fiscal 2015 as compared to Fiscal 2014
The net cash used in investing activities of $62.4 million for the year ended
December 31, 2015 was primarily related to the net purchase of marketable securities.
Financing Activities
Fiscal 2016 as compared to Fiscal 2015
The cash provided by financing activities for the year ended December 31, 2016
was primarily related to the exercise of stock options and shares issued under the employee stock purchase plan.
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Fiscal 2015 as compared to Fiscal 2014
The cash provided by financing
activities for the year ended December 31, 2015 resulted from $78.8 million of net proceeds for the sale of common stock in Nivalis initial public offering that closed during June 2015. The cash provided by financing activities for the
year ended December 31, 2014 was primarily driven by the receipt of $29.9 million in net proceeds from the sale of convertible preferred stock, receipt of $11.9 million in net proceeds from the issuance of convertible debt and $2.5 million from
the release of restricted cash associated with the full repayment of the Horizon Loan. These sources of cash were partially offset by the full repayment of $3.1 million outstanding on the Horizon Loan.
Funding Requirements
Based on
Nivalis current operating plan, and expectations regarding significantly lower operating expenses following the discontinuation of a substantial portion of its research and development activities and the subsequent restructurings in the first
quarter of 2017, Nivalis expects its $52.7 million in cash, cash equivalents, and marketable securities as of March 31, 2017 will be sufficient to fund operations for at least the next twelve months. This estimate assumes no additional funding
from equity financings or debt and is subject to numerous risks and uncertainties. Nivalis present and future funding requirements will depend on many factors, including but not limited to:
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its ability to successfully consummate the merger or, if the merger is not completed, another strategic transaction involving the company;
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the timing, complexity and costs required for completion of the merger, or, if the merger is not completed, any transaction that may result from a further review of strategic alternatives;
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personnel-related expenses, including salaries, benefits, stock-based compensation expense and other compensation costs related to implementing Nivalis restructuring plan;
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the costs associated with archiving company records related to its research and development, and general and administrative activities;
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the costs of storing drug substance and drug product in compliance with cGMP requirements;
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the costs of preparing, filing, and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;
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the extent to which Nivalis may elect to resume drug development activities in the future, if at all; and
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costs that may be incurred in responding to disruptive actions by activist shareholders.
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For
more information as to the risks associated with Nivalis future funding requirements see the risk factors under the section entitled Risk Factors Risks Relating to Nivalis elsewhere in this proxy
statement/prospectus/information statement.
Critical Accounting Policies and Significant Judgments and Estimates
There were no changes to the critical accounting policies of Nivalis since it filed its Quarterly Report on Form 10-Q for the quarter ended
March 31, 2017 with the SEC. For a description of its critical accounting policies, please refer to such Quarterly Report on Form 10-Q as well as Nivalis Annual Report on Form 10-K filed with the SEC for the fiscal year ended
December 31, 2016.
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Contractual Obligations and Commitments
The following table summarizes Nivalis contractual obligations at March 31, 2017:
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Payments due by period
(in thousands)
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Total
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Less than
1 year
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1-3 years
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3-5 years
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More than
5 years
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Purchase obligations
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$
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107
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$
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107
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$
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$
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$
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Operating leases
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25
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25
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Total obligations
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$
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132
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$
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132
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$
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0
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$
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$
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The following table summarizes Nivalis contractual obligations at
December 31, 2016:
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Payments due by period
(in thousands)
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Total
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Less than
1 year
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1-3 years
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3-5 years
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More than
5 years
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Purchase obligations
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$
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1,678
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$
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1,678
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$
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0
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$
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$
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Operating leases
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375
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|
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295
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|
|
80
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Total obligations
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$
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2,053
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$
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1,973
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$
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80
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$
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$
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Nivalis has historically entered into contracts with third parties to provide future services, which included
research and development, clinical development support and testing services. Nivalis also had an operating lease obligation for office and laboratory space, which originally expired on March 31, 2018. On February 9, 2017, Nivalis elected
to exercise Nivalis right to terminate the lease earlier than its original term, with an effective termination date of April 30, 2017, and paid the required $25,000 termination fee to the landlord. As a result, approximately $241,000 of
future operating lease obligations listed in the above table as of December 31, 2016 will not be paid.
Related Party
Transactions
At various points during fiscal year 2014, Nivalis issued an aggregate of $12.0 million of convertible debt to
certain existing investors. The loans and all accrued interest were converted in full on September 23, 2014 to Series 1 convertible preferred stock.
Off-Balance Sheet Arrangements
Nivalis did not have during the periods presented, and Nivalis does not currently have, any off-balance sheet activities, as defined in
Item 303(a)(4) of Regulation S-K.
Tax Loss Carryforwards
As of December 31, 2016, Nivalis had federal income loss carryforwards, state income loss carryforwards, research and development credits
and orphan drug credits of $75.7 million, $83.0 million, $2.0 million and $7.3 million, respectively that begin to expire in 2032 for both federal and state purposes. The utilization of the federal net operating loss carryforwards and credits
may be subject to limitations under the rules regarding a change in stock ownership as determined by the Internal Revenue Code and state laws. Section 382 of the Internal Revenue Code of 1986, as amended, imposes annual limitations on the
utilization of net operating loss, or NOL, carryforwards, other tax carryforwards, tax credits, and certain built-in losses upon an ownership change as defined by that section. In general terms, an ownership change may result from transactions that
increase the aggregate ownership of certain stockholders in Nivalis common stock by more than 50 percentage points over a
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three year testing period, or a Section 382 Ownership Change. If Nivalis has undergone a Section 382 Ownership Change, an annual limitation would be imposed on certain tax attributes of
Nivalis, including NOL and capital loss carryforwards, and certain other losses and credits. Such a Section 382 Ownership Change may occur as a result of the completion of the merger. As of March 31, 2017, Nivalis has not performed a
formal study to determine whether there are Section
382 limitations that apply and such limitations could be significant.
JOBS Act
Nivalis qualifies as an emerging growth company pursuant to the provisions of the JOBS Act. For as long as Nivalis is an
emerging growth company, Nivalis may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited
to, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, reduced disclosure
obligations relating to the presentation of financial statements in Managements Discussion and Analysis of Financial Condition and Results of Operations, exemptions from the requirements of holding advisory say-on-pay votes on
executive compensation and stockholder advisory votes on golden parachute compensation.
In addition, an emerging growth company can delay
its adoption of certain accounting standards until those standards would otherwise apply to private companies. However, Nivalis has chosen to opt out of such extended transition period, and as a result, Nivalis plans to comply with any
new or revised accounting standards on the relevant dates on which non-emerging growth companies must adopt such standards. Section 107 of the JOBS Act provides that its decision to opt out of the extended transition period for complying with
new or revised accounting standards is irrevocable.
Recent Accounting Pronouncements
Refer to Nivalis discussion of recently adopted accounting pronouncements and other recent accounting pronouncements in Note 3
Summary of Significant Accounting Policies to the accompanying unaudited financial statements of Nivalis for the three months ended March 31, 2017 and Note 3 Summary of Significant Accounting Policies to the accompanying audited
financial statements of Nivalis for the fiscal year ended December 31, 2016 included elsewhere in this proxy statement/prospectus/information statement.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Nivalis is exposed to market risk related to changes in interest rates. As of March 31, 2017, Nivalis had cash, cash equivalents and
marketable securities of $52.7 million, consisting of deposits with commercial banks in checking, interest-bearing and demand money market accounts, reverse repurchase agreements, corporate debt securities, U.S. treasury securities and obligations
of U.S. government agencies. The primary objectives of Nivalis investment policy are to preserve principal and maintain proper liquidity to meet operating needs.
Nivalis investment policy specifies credit quality standards for its investments and limits the amount of credit exposure to any single
issue, issuer or type of investment. Nivalis primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because its investments are in short-term
securities. Due to the short-term duration of Nivalis investment portfolio and the low risk profile of its investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of its
portfolio.
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ALPINE MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of Alpines financial condition and results of operations together with the
Selected Historical Financial Data of Alpine and Alpines financial statements and accompanying notes thereto included elsewhere in this proxy statement/prospectus/information statement. Some of the information contained in this
discussion and analysis or set forth elsewhere in this proxy statement/prospectus/information statement, including information with respect to Alpines plans and strategy for its business and related financing, includes forward-looking
statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the Risk Factors section of this proxy statement/prospectus/information statement, Alpines actual results could
differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
Alpine is a development-stage specialty pharmaceutical company focused on discovering and developing protein-based
immunotherapies targeting the immune synapse to treat cancer, inflammatory disorders, and other diseases. Alpines proprietary Variant Immunoglobulin Domain
(vIgD
) scientific platform uses a process known as directed evolution to create therapeutics potentially capable of modulating human immune system proteins.
Alpines goal is to create modern therapies targeting the immune synapse, using Alpines directed-evolution based discovery platform
to potentially treat patients with serious conditions such as cancer and inflammatory diseases. To achieve Alpines goal, Alpine currently plans to:
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move Alpines lead program ALPN-101 for the treatment of inflammatory diseases to clinical trials;
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advance Alpines multi-checkpoint inhibitor program;
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develop Alpines V-mAb program; and
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maximize the value of Alpines pipeline and platform via partnering activities.
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Alpines operations to date have been limited to business planning, raising capital, developing Alpines platform technology,
identifying potential immunotherapy candidates, and other research and development. To date, Alpine has financed operations primarily through private placements of convertible preferred stock and funds received from a license and research agreement.
Alpine does not have any products approved for sale and has not generated any product sales. Since inception and through March 31, 2017, Alpine has raised an aggregate of $21.0 million to fund operations, of which $5.5 million was through a
license and research agreement and $15.5 million was from the sale of convertible preferred stock. As of March 31, 2017, Alpine had cash and cash equivalents totaling $13.6 million.
Since inception, Alpine has incurred operating losses. Alpine incurred a net loss of $1.2 million for the year ended December 31, 2016 and
$0.4 million for the year ended December 31, 2015. Alpine recorded a net loss of $2.0 million for the three months ended March 31, 2017 and net income of $0.1 million for the three months ended March 31, 2016. As of March 31, 2017, Alpine had
an accumulated deficit of $3.6 million. Alpine expects to continue incurring significant expenses and operating losses for at least the next several years as it:
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initiates and completes clinical trials for product candidates, including ALPN-101, a dual ICOS/CD28 antagonist program targeting inflammatory disorders;
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contracts to manufacture product candidates;
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advances research and development related activities to expand the product pipeline;
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maintains, expands and protects the intellectual property portfolio;
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hires additional staff, including clinical, scientific, and management personnel; and
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adds operational and finance personnel to support product development efforts and, if the merger is approved, to support operating as a public company.
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Alpine does not expect to generate significant revenue unless and until it successfully completes development of, obtains marketing approval
for and commercializes product candidates, either alone or in collaboration with third parties. Alpine expects these activities will take several years and its success in these efforts is subject to significant uncertainty. Accordingly, Alpine
expects it will need to raise additional capital prior to the regulatory approval and commercialization of any of its product candidates. Until such time, if ever, that Alpine generates substantial product revenues, Alpine expects to finance its
operations through public or private equity or debt financings, collaborations or licenses, capital lease transactions or other available financing transactions. However, Alpine may be unable to raise additional funds through these or other means
when needed.
Pending Merger Agreement
On April 18, 2017, Alpine, Merger Sub and Nivalis entered into a Merger Agreement pursuant to which, among other matters, and subject to
the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Alpine, with Alpine continuing as a wholly owned subsidiary of Nivalis and the surviving corporation of the merger.
On April 18, 2017, prior to execution and delivery of the Merger Agreement, and as contemplated by the Merger Agreement, certain holders of
Alpines Series A-1 Preferred Stock agreed, subject to the terms and conditions of the Series A Preferred Stock Purchase Agreement dated June 10, 2016, to purchase an aggregate total of 5,931,198 shares of Alpines Series A-1
Preferred Stock for an aggregate total of $16.7 million.
The merger is intended to qualify for federal income tax purposes as a
reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended. Subject to the terms and conditions of the Merger Agreement, at the closing of the merger, each outstanding share of Alpine common stock
will be converted into the right to receive shares of Nivalis common stock (subject to the payment of cash in lieu of fractional shares and after giving effect to a reverse stock split of Nivalis common stock if determined necessary or appropriate
by Alpine, Nivalis and Merger Sub) such that, immediately following the Effective Time, preexisting Nivalis stockholders, optionholders and warrantholders are expected to own, or hold rights to acquire, approximately 26% of the Fully-Diluted Common
Stock of Nivalis, and preexisting Alpine stockholders, optionholders and warrantholders are expected to own, or hold rights to acquire, approximately 74% of the Fully-Diluted Common Stock of Nivalis.
Contemporaneously with the execution and delivery of the Merger Agreement, and as a condition of the willingness of Nivalis to enter into the
Merger Agreement, certain existing stockholders of Alpine have entered into the Subscription Agreement with Alpine, pursuant to which such stockholders have agreed, subject to the terms and conditions of such Subscription Agreement, to purchase
immediately prior to the closing of the merger shares of Alpines capital stock for an aggregate purchase price of approximately $17.0 million. The consummation of the transactions contemplated by the Subscription Agreement is conditioned upon
the satisfaction or waiver of the conditions set forth in the Merger Agreement.
Consummation of the merger is subject to certain closing
conditions, including, among other things, approval by the stockholders of Nivalis and Alpine, and satisfaction of minimum net cash thresholds by each of Nivalis and Alpine. In accordance with the terms of the Merger Agreement, (i) certain
executive officers, directors and stockholders of Alpine (solely in their respective capacities as Alpine stockholders) have entered
225
into a support agreement with Nivalis to vote their shares of Alpine capital stock in favor of adoption of the Merger Agreement (the Alpine Support Agreement), subject to the terms of
such support agreement and (ii) certain executive officers, directors and stockholders of Nivalis (solely in their respective capacities as Nivalis stockholders) have entered into support agreements with Alpine to vote, subject to the terms of
such support agreements, all of their shares of Nivalis common stock in favor of approval of the Merger Agreement (the Nivalis Support Agreements, and together with the Alpine Support Agreements, the Support Agreements). The
Support Agreements include covenants with respect to the voting of such shares in favor of approving the transactions contemplated by the Merger Agreement and against any competing acquisition proposals and, other than the Nivalis Support Agreement
delivered by The Estate of Arnold H. Snider, III, place certain restrictions on the transfer of the shares of Nivalis and Alpine held by the respective signatories thereto. The Support Agreements to be executed by certain stockholders of Nivalis
affiliated with Deerfield Management Company, L.P. contain certain exceptions to the restrictions on transfer of the shares of Nivalis held by the respective signatories thereto.
The Merger Agreement contains certain termination rights for both Nivalis and Alpine, and further provides that, upon termination of the
Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee of $2.5 million, or in some circumstances reimburse the other partys expenses up to a maximum of $1.0 million. At the
Effective Time, the board of directors of Nivalis is expected to consist of six members, four of whom will be designated by Alpine and two of whom will be designated by Nivalis. In addition, it is anticipated that Nivalis board of directors
will appoint a seventh member following the close of the merger who is unaffiliated with either Nivalis or Alpine and who will be designated by the consent of a majority of the other members of Nivalis board of directors.
Financial Overview
Revenue
Collaboration and Licensing Revenue
Alpine derives all of its revenue from a license and research agreement. In October 2015, Alpine entered into a License and Research
Agreement (the Collaboration) with Kite Pharma, Inc., a Delaware corporation (Kite) providing Kite with access to two TIP programs for use in Kites ECT programs. Alpine received $5.5 million in up-front cash and is
eligible to receive up to $530.0 million in developmental, clinical, and regulatory milestones in addition to royalties on any products containing Alpines TIPs. In the collaboration, Alpine provides the TIPs and performs
in vitro
testing, while Kite is responsible for
in vivo
testing, manufacturing, and clinical trials. Kite will receive an exclusive, worldwide license to research, develop and commercialize engineered autologous T cell therapies incorporating two TIP
programs coming from Alpines platform.
Alpine has recognized $4.2 million in revenue from inception through March 31, 2017
related to the Collaboration. Alpine may generate revenue in the future from milestone payments made pursuant to the Kite Collaboration, or from payments from future license or collaboration agreements, product sales or government contracts and
grants. Alpine expects that any revenue it generates will fluctuate from quarter to quarter.
Research and Development Expenses
Alpine focuses its resources on research and development activities, including the conduct of preclinical studies and product development and
expenses such costs as they are incurred. Alpines research and development expenses consist of:
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employee-related expenses, including salaries, benefits, taxes, travel and stock-based compensation expense for personnel in research and development functions;
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expenses related to process development and production of product candidates paid to contract manufacturing organizations (CMOs);
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costs associated with preclinical activities and regulatory operations, including the cost of acquiring, developing and manufacturing research material; and
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allocation of facilities, depreciation and amortization of laboratory equipment and other expenses.
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From inception through March 31, 2017, Alpine has incurred $5.3 million in research and development expenses. Alpine plans to increase
its research and development activities for the foreseeable future as it continues to develop its platform and product candidates.
The
successful development of Alpines platform and product candidates is highly uncertain. At this time, Alpine cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to finish developing any of its product
candidates or the period in which material net cash, if any, from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing therapeutics, including the uncertainty of:
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the scope, rate of progress, expense and results of planned clinical trials that Alpine may conduct;
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the scope, rate of progress and expense of process development;
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preclinical and other research activities; and
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the timing of regulatory approvals.
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General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for employees in executive, business development and
finance functions. Other significant general and administrative expenses include professional fees for accounting and legal services, expenses associated with obtaining and maintaining patents and other intellectual property and allocation of
facilities costs.
From inception through March 31, 2017, Alpine has incurred $2.5 million in general and administrative expenses.
Alpine expects that general and administrative expenses will increase as it expands infrastructure to support operating as a public company. These increases will likely include increased costs for director and officer liability insurance, costs
related to the hiring of additional personnel and increased fees for directors, outside consultants, lawyers and accountants. Alpine expects to incur significant costs to comply with corporate governance, internal controls and similar requirements
applicable to public companies.
Interest Income
Interest income consists of interest earned on Alpines cash and cash equivalents. Alpine expects its interest income to increase
following the completion of the merger as it invests the net proceeds from the financing contemplated by the Subscription Agreement, pending their use in operations.
Income Tax Expense
Alpine had
federal taxable income in 2016, due to acceleration of its deferred revenue balance under Rev. Proc. 2004-34. Consequently, Alpine has recorded current federal and state income tax payable for the year ended December 31, 2016.
Critical Accounting Policies and Significant Judgments and Estimates
Alpines management discussion and analysis of its financial condition and results of operations is based on its financial statements,
which were prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP). The preparation of these financial statements requires Alpine to make estimates
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and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported
revenues and expenses during the reporting periods. Alpine evaluates these estimates and judgments on an ongoing basis. Alpine bases its estimates on historical experience and on various other factors that it believes are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Alpines actual results may differ from these estimates under different
assumptions or conditions.
While Alpines significant accounting policies are more fully described in Note 2 to its financial
statements appearing at the end of this proxy statement/prospectus/information statement, Alpine believes that the following accounting policies are the most critical to fully understanding and evaluating its financial condition and results of
operations.
Revenue Recognition
Alpine recognizes revenue when each of the following four criteria is met: (i) persuasive evidence of an arrangement exists;
(ii) products are delivered or as services are rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured.
Alpine recognizes revenue under its collaboration with Kite in accordance with the guidelines on multiple elements or deliverables that may
include (i) grants of licenses, or options to obtain licenses, to intellectual property, (ii) research and development services, and/or (iii) manufacturing or supply services. Payments typically received under these arrangements
include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; amounts due upon the achievement of specified objectives; and/or royalties on future product sales.
The evaluation of multiple-element arrangements requires management to make judgments about (i) the identification of deliverables,
(ii) whether such deliverables are separable from other aspects of the contractual relationship, (iii) the estimated selling price of each deliverable, and (iv) the expected period of performance for each deliverable. To determine the
units of accounting under a multiple-element arrangement, management evaluates certain separation criteria, including whether the deliverables have stand-alone value, based on the relevant facts and circumstances for each arrangement. Management
then estimates the selling price for each unit of accounting and allocates the arrangement consideration to each unit using the relative selling price method. The allocated consideration for each unit of accounting is recognized based on the method
most appropriate for that unit of account and in accordance with the revenue recognition criteria detailed above. If there are deliverables in an arrangement that are not separable from other aspects of the contractual relationship, they are treated
as a combined unit of accounting, with the allocated revenue for the combined unit recognized in a manner consistent with the revenue recognition criteria applicable to the final deliverable in the combined unit. Payments received prior to
satisfying the relevant revenue recognition criteria are recorded as deferred revenue in the accompanying balance sheets and recognized as revenue when the related revenue recognition criteria are met. The $5.5 million upfront payment was treated as
one unit of accounting and is being recognized straight-line based on managements estimated rate to complete the research term of the agreement.
The Collaboration Agreement provides for non-refundable milestone payments. Alpine recognizes revenue that is contingent upon the achievement
of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is considered substantive when the consideration payable to Alpine for such milestone (i) is consistent with Alpines performance
necessary to achieve the milestone or the increase in value to the collaboration resulting from Alpines performance, (ii) relates solely to Alpines past performance and (iii) is reasonable relative to all of the other
deliverables and payments within the arrangement. In making this assessment, Alpine considers all facts and circumstances relevant to the arrangement, including factors such as the scientific, regulatory, commercial and other risks that must be
overcome to achieve the milestone, the level of effort and investment required to achieve the milestone and whether any portion of the milestone consideration is related to future performance or deliverables.
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Alpine will periodically review the estimated performance periods under the
Collaborationwhich provides for non-refundable upfront payments and fees. Alpine will adjust the periods over which revenue should be recognized when appropriate to reflect changes in assumptions relating to the estimated performance periods.
Alpine could accelerate revenue recognition in the event of early termination of programs or if Alpines expectations change. Alternatively, Alpine could decelerate revenue recognition if programs are extended or delayed. While such changes to
Alpines estimates have no impact on Alpines reported cash flows, the timing of revenue recorded in future periods could be materially impacted.
Research and Development
Research
and development costs are expensed as incurred. Research and development costs include payroll and personnel expense, consulting costs, external contract research and development expenses, raw materials, drug product manufacturing costs and
allocated overhead including depreciation and amortization, rent and utilities. Research and development costs that are paid in advance of performance are recorded as a prepaid expense and amortized over the service period as the services are
provided.
Stock-Based Compensation
Alpine accounts for all stock-based compensation granted to employees and non-employees using a fair value method. Stock-based compensation
awarded to employees and non-employees is measured at the grant date fair value for stock option grants. Alpine uses the Black-Scholes option pricing model to estimate the fair value of stock options at the grant date. Stock-based compensation to
employees is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis. Stock-based compensation awarded to non-employees is revalued over its vesting period using a Black-Sholes option pricing
model. For performance-based awards where the vesting of the options may be accelerated upon the achievement of certain milestones, vesting and the related stock-based compensation is recognized as an expense when it is probable the milestone will
be met. Alpine recognizes forfeiture of awards as they occur rather than estimating the expected forfeiture rate.
When awards are
modified, Alpine compares the fair value of the affected award measured immediately prior to modification to its value after modification. To the extent that the fair value of the modified award exceeds the original award, the incremental fair value
of the modified award is recognized as compensation on the date of modification for vested awards, and over the remaining vesting period for unvested awards.
Common Stock Fair Value
The per share estimated fair value of common stock represents the determination by Alpines board of directors of the fair value of its
common stock as of the date of grant, taking into consideration various objective and subjective factors, including those discussed below. Alpine computed the per share estimated fair value for stock option grants based on the Black-Scholes option
valuation model.
Historically, Alpine has granted stock options at exercise prices equal to the estimated fair value of its common stock.
Due to the absence of an active market for its common stock, the fair value for purposes of determining the exercise price for stock option grants was determined by Alpines board of directors, with the assistance and upon the recommendation of
management, in good faith based on a number of objective and subjective factors including:
|
|
|
the prices of Alpines convertible preferred stock sold to or exchanged between outside investors in arms length transactions, and the rights, preferences and privileges of the convertible preferred stock as
compared to those of its common stock, including the liquidation preferences of the convertible preferred stock;
|
229
|
|
|
Alpines results of operations, financial position and the status of research and development efforts;
|
|
|
|
the composition of, and changes to, Alpines management team and board of directors;
|
|
|
|
the likelihood of achieving a liquidity event for the holders of Alpines common stock and stock options, such as an initial public offering, given prevailing market conditions, or a strategic merger or sale of
Alpine;
|
|
|
|
the lack of liquidity of Alpines common stock as a private company;
|
|
|
|
the material risks related to Alpines business;
|
|
|
|
achievement of enterprise milestones, including results of development programs and entering into or terminating collaboration and license agreements;
|
|
|
|
external market conditions affecting the life sciences and biotechnology industry sectors; and
|
|
|
|
valuations prepared in accordance with methodologies outlined in the American Institute of Certified Public Accountants Practice Aid,
Valuation of Privately-Held-Company Equity Securities Issued as Compensation
(the Practice Aid).
|
There are significant judgments and estimates inherent in the determination of these
valuations. These judgments and estimates include assumptions regarding Alpines future performance, including the successful completion of future clinical trials and the time to liquidity, as well as the determination of the appropriate
valuation methods at each valuation date. If Alpine had made different assumptions, its valuation could have been different. The foregoing valuation methodologies are not the only methodologies available, and they will not be used to value the
combined organizations common stock if the merger is completed. Accordingly, stockholders and investors should not place undue reliance on the foregoing valuation methodologies as an indicator of the combined organizations future stock
price.
Results of Operations
Comparison of Three Months Ended March 31, 2017 and 2016
The following table summarizes Alpines results of operations for the three months ended March 31, 2017 and 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
Increase/
(Decrease)
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(unaudited)
|
|
|
|
|
Revenues
|
|
$
|
737
|
|
|
$
|
737
|
|
|
$
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,858
|
|
|
|
421
|
|
|
|
1,437
|
|
General and administrative
|
|
|
873
|
|
|
|
220
|
|
|
|
653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,731
|
|
|
|
641
|
|
|
|
2,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(1,994
|
)
|
|
|
96
|
|
|
|
(2,090
|
)
|
Interest income
|
|
|
5
|
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
(1,989
|
)
|
|
$
|
100
|
|
|
$
|
(2,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The $0.7 million in total revenues for each period was attributable to the collaboration with Kite. Alpine recognizes the Collaboration revenue
on a straight-line basis starting from the inception of the agreement through the estimated period over which Alpine expects to perform the research and development services.
230
Research and Development Expenses
The $1.4 million increase in research and development expenses was primarily attributable to an increase of $0.9 million in personnel-related
expenses as a result of growth in headcount to support ongoing discovery and development programs, $0.4 million in direct laboratory and support costs and an increase of $0.1 million in allocated overhead for facility and equipment.
General and Administrative Expenses
The $0.7 million increase in general and administrative expenses was primarily attributable to the $0.5 million increase in
professional service fees to support Alpines preparations for the potential merger, a $0.1 million increase in personnel-related expenses primarily related to an increase in administrative headcount, and a $0.1 million increase in
facility costs to support the growth and expansion of its business.
Comparison of the Fiscal Years Ended December 31, 2016 and 2015
The following table summarizes Alpines results of operations for the fiscal years ended December 31, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
Increase/
(Decrease)
|
|
|
|
2016
|
|
|
2015
|
|
|
Revenues
|
|
$
|
2,950
|
|
|
$
|
492
|
|
|
$
|
2,458
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2,989
|
|
|
|
422
|
|
|
|
2,567
|
|
General and administrative
|
|
|
1,149
|
|
|
|
441
|
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,138
|
|
|
|
863
|
|
|
|
3,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,188
|
)
|
|
|
(371
|
)
|
|
|
(817
|
)
|
Interest income
|
|
|
22
|
|
|
|
2
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
|
(1,166
|
)
|
|
|
(369
|
)
|
|
|
(797
|
)
|
Income tax expense
|
|
|
(66
|
)
|
|
|
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(1,232
|
)
|
|
$
|
(369
|
)
|
|
$
|
(863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The $2.5 million increase was attributable to a full year of revenue recognized under the collaboration with Kite as opposed to only three
months in 2015 as the agreement was entered into in October 2015.
Research and Development Expenses
The $2.6 million increase was primarily attributable to an increase of $1.6 million in personnel-related expenses as a result of growth in
headcount to support ongoing research and development programs, $0.7 million in direct laboratory and support costs and an increase of $0.3 million in allocated overhead for facility and equipment.
General and Administrative Expenses
The $0.7 million increase was primarily attributable to the $0.3 million increase in professional service fees to support Alpines growth
in headcount to support ongoing operations, a $0.3 million increase in personnel-related expenses, primarily related to an increase in administrative headcount to support the growth and expansion of Alpines business and $0.1 million increase
for facility costs.
231
Income Tax Expense
Alpine had a net loss before tax of $1.2 million and $0.4 million for 2016 and 2015, respectively. Alpine had taxable income of $0.4
million in 2016 due to acceleration of its deferred revenue balance under Rev. Proc. 2004-34. Consequently, Alpine recorded current federal and state income tax payable for the year-ended December 31, 2016 of $0.1 million.
Liquidity and Capital Resources
Alpine has incurred a cumulative loss and cumulative negative cash flow from operations since its inception on December 30
, 2014 and, as of March 31, 2017, Alpine had an accumulated deficit of $3.6 million. As of March 31, 2017, it had cash and cash equivalents of $13.6 million. Alpine has raised gross proceeds
of $15.5 million from preferred stock financings as of March 31, 2017, and has entered into additional financing arrangements, as disclosed in more detail below.
Currently, Alpines funds are held in checking accounts and highly liquid money market funds in the United States. To date, it has
financed its operations primarily through private placements of its preferred stock and funding received from the Collaboration. Alpine anticipates that it will continue to incur losses and that such losses will increase for the foreseeable future.
Alpine expects that its research and development and general and administrative expenses will continue to increase and, as a result, Alpine will need additional capital to fund its operations, which it may raise through a combination of equity
offerings, debt financings, third-party funding, and other collaborations and strategic alliances.
Financing Agreement
In April, 2017, prior to execution and delivery of the Merger Agreement, and as contemplated by the Merger Agreement, certain holders of
Alpines Series A-1 convertible preferred stock purchased an aggregate total of 5,931,198 shares of Alpines Series A-1 convertible preferred stock for an aggregate total of $16.7 million in proceeds. In addition,
contemporaneously with the execution and delivery of the Merger Agreement, and as a condition of the willingness of Nivalis to enter into the Merger Agreement, certain existing stockholders of Alpine entered into the Subscription Agreement with
Alpine to purchase additional shares of Alpines capital stock for an aggregate purchase price of $17.0 million, to take place immediately prior to the closing of the proposed merger.
Long-Term Financing
Alpine has an
agreement with a financial institution that enables Alpine to request up to $5.0 million in term loan advances of not less than $0.5 million each. Up to $4.0 million can be drawn down prior to July 1, 2017. The remaining
$1.0 million can only be drawn down upon achieving certain milestones and expires on December 31, 2017. Interest accrues at a floating per annum rate equal to the Prime Rate minus one and three-quarters of one percent. There is no
commitment fee, however a final payment fee of 7.5% on any term loan advance must be made upon the repayment of such term loan advance.
Each term loan advance has an interest-only period that expires on July 1, 2018, at which point Alpine will make thirty consecutive equal
monthly payments of principal (each in an amount that would fully amortize any outstanding term loan advances), plus accrued interest.
Alpine had not requested any term loan advances at December 31, 2016 or March 31, 2017.
Plan of Operations and Future Funding Requirements
To date, Alpine has not generated any product sales. Alpine does not know when, or if, it will generate revenue from product sales. Alpine will
not generate significant revenue from product sales unless and until it obtains regulatory approval and commercializes one of its current or future product candidates. Alpine
232
anticipates that it will continue to generate losses for the foreseeable future, and it expects the losses to increase as it continues the development of, and seeks regulatory approvals for, its
product candidates, and begins to commercialize any approved products. Alpine is subject to risks in the development of its products, and Alpine may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that
may adversely affect its business, including, but not limited to, those discussed in the section titled Risk FactorsRisks Related to Alpine included elsewhere in this proxy statement/prospectus/information statement. Upon the
closing of the merger, Alpine expects to incur additional costs associated with operating as a public company.
Alpine believes that the
net proceeds from the Subscription Agreement and its other funding arrangements, its existing cash, and, to the extent the merger is completed, the existing cash of Nivalis, will be sufficient to fund its projected operating requirements through at
least the next 12 months. Alpine may require additional capital for the further development of its existing product candidates and may also need to raise additional funds sooner than anticipated to pursue other development activities related to
additional product candidates.
Unless and until Alpine can generate and maintain sufficient revenues from its products to achieve a
positive operating cash flow, it expects to finance cash needs through public or private equity or debt offerings or non-dilutive financings such as collaboration agreements or research grants. Additional capital may not be available to Alpine on
reasonable terms, if at all. If Alpine is unable to raise additional capital in sufficient amounts or on terms acceptable to it, it may have to significantly delay, scale back or discontinue the development or commercialization of one or more of its
product candidates. If Alpine raises additional funds through the issuance of additional debt or equity securities, it could result in increased fixed payment obligations or in dilution to its existing stockholders, respectively. Any securities that
it may issue in the future may also have rights senior to those of its common stock. If Alpine incurs indebtedness, it could also become subject to covenants that would restrict its operations and potentially impair its competitiveness, such as
limitations on its ability to incur additional debt, limitations on its ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact its ability to conduct its business. Any of these
events could significantly harm Alpines business, financial condition, results of operations and potential prospects.
Alpines
forecast of the period of time through which its financial resources will be adequate to support its operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary materially. Alpine has based this
estimate on assumptions that may prove to be wrong, and it could utilize its available capital resources sooner than it currently expects. Alpines future funding requirements, both near and long-term, will depend on many factors, including,
but not limited to:
|
|
|
the initiation, progress, timing, costs and results of clinical trials for its product candidates;
|
|
|
|
the outcome, timing and cost of regulatory approvals by the FDA and European regulatory authorities, including the potential for these agencies to require that it perform studies in addition to those that it currently
has planned;
|
|
|
|
the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
|
|
|
|
its need to expand its research and development activities;
|
|
|
|
its need and ability to hire additional personnel;
|
|
|
|
its need to implement additional infrastructure and internal systems;
|
|
|
|
its need to add personnel and financial and management information systems to support its product development and potential future commercialization efforts, and to enable it to operate as a public company; and
|
|
|
|
the cost of establishing sales, marketing and distribution capabilities for any products for which it may receive regulatory approval.
|
233
If Alpine cannot expand its operations or otherwise capitalize on its business opportunities
because it lacks sufficient capital, its business, financial condition and results of operations could be materially adversely affected.
Cash Flows
The following is a summary of cash flows for the years ended December 31, 2016 and 2015 and the three months ended
March 31, 2017 and 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(3,797
|
)
|
|
$
|
4,820
|
|
|
$
|
(2,164
|
)
|
|
$
|
(448
|
)
|
Net cash used in investing activities
|
|
|
(782
|
)
|
|
|
(7
|
)
|
|
|
(108
|
)
|
|
|
(151
|
)
|
Net cash provided by financing activities
|
|
|
10,975
|
|
|
|
610
|
|
|
|
4,021
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating Activities
Net cash used in operating activities was $3.8 million for the year ended December 31, 2016, compared to net cash provided by operating
activities of $4.8 million for the year ended December 31, 2015. The increase in cash used in operating activities from 2015 to 2016 was primarily due to an increase in research and development personnel-related expenses as a result of growth to
support product development. For the year ended December 31, 2015, cash provided by the Collaboration was $5.5 million and was offset by $0.9 million in operating expenses.
Net cash used in operating activities was $2.2 million for the three months ended March 31, 2017, compared to $0.4 million for three months
ended March 31, 2016. The increase in cash used in operating activities was primarily due to ongoing pre-clinical costs to support platform development and increases in personnel-related expenses as a result of growth to support product development.
Net Cash Used in Investing Activities
Net cash used in investing activities was $0.8 million for the year ended December 31, 2016 and was negligible for the year ended December 31,
2015. Net cash used in investing activities for the year ended December 31, 2016 primarily related to the purchase of property and equipment to build out Alpines laboratory at its current Seattle facility that it moved into in 2016.
Net cash used in investing activities was $0.1 million during the three months ended March 31, 2017, compared to $0.2 million during the three
months ended March 31, 2016. Net cash used in investing activities for both periods presented primarily related to the purchase of property and equipment to build out Alpines laboratory at its current Seattle facility that it moved into in
2016.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $11.0 million for the year ended December 31, 2016, compared to $0.6 million for the year ended
December 31, 2015. Net cash provided by financing activities for the periods presented primarily related to the sale of convertible preferred stock. In 2016, Alpine sold shares of Series Seed convertible preferred stock for proceeds of $0.6 million
and shares of Series A-1 convertible preferred stock for net proceeds of $10.3 million. In 2015, Alpine sold shares of Series Seed convertible preferred stock for proceeds of $0.6 million.
Net cash provided by financing activities was $4.0 million for the period ended March 31, 2017 from proceeds from the sale of Series A-1
convertible preferred stock.
234
Contractual Obligations and Commitments
The following table summarizes Alpines contractual obligations at December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Total
|
|
|
Less than
1 Year
|
|
|
1 to 3
Years
|
|
|
3 to 5
Years
|
|
|
More Than
5 Years
|
|
Operating leases
|
|
$
|
1,647
|
|
|
$
|
533
|
|
|
$
|
1,114
|
|
|
$
|
|
|
|
$
|
|
|
Operating leases
Operating leases represent future minimum lease payments under non-cancelable operating leases in effect as of December 31, 2016,
including the remaining lease payments for Alpines headquarters in Seattle. The minimum lease payments above do not include real estate taxes or other leasehold-related charges.
Off-Balance Sheet Arrangements
As of December 31, 2015, and 2016, Alpine did not have any off-balance sheet arrangements.
235
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Alpine is exposed to certain market risks arising from transactions in the normal course of business. Such risk is principally
associated with interest rates.
236
MANAGEMENT FOLLOWING THE MERGER
Executive Officers and Directors
Resignation of Current Executive Officers of Nivalis
Pursuant to the Merger Agreement, all of the current executive officers of Nivalis will resign immediately prior to the completion of the
merger.
Executive Officers and Directors of the Combined Organization Following the Merger
Nivalis board of directors is currently composed of six directors. Following the merger, Nivalis board of directors will be
increased to seven directors. Pursuant to the Merger Agreement, all of the current directors of Nivalis, other than two designees selected by Nivalis to remain on Nivalis board of directors, shall resign from Nivalis board of directors
at or prior to the Effective Time. The two directors designated by Nivalis will then elect, effective as of the Effective Time, four designees selected by Alpine, each to serve as members of Nivalis board of directors. Following the
consummation of the merger, it is anticipated that Nivalis board of directors will have one vacancy which will be reserved for one designee that is unaffiliated with either Nivalis or Alpine and who will be designated by the consent of a
majority of the other members of Nivalis board of directors.
Following the merger, the management team of Nivalis is expected to be
composed of the current management team of Alpine. The following table lists, as of as of May 1, 2017, the names, ages and positions of the individuals who are expected to serve as executive officers and directors of Nivalis upon completion of
the merger:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
|
Position(s)
|
Executive Officers
|
|
|
|
|
|
|
Mitchell H. Gold, M.D.
|
|
|
50
|
|
|
Executive Chairman; and Chief Executive Officer
|
Jay Venkatesan, M.D.
|
|
|
45
|
|
|
President; and Director
|
Stanford Peng M.D., Ph.D.
|
|
|
46
|
|
|
Executive Vice President of Research and Development; and Chief Medical Officer
|
Paul Rickey
|
|
|
38
|
|
|
Senior Vice President; and Chief Financial Officer
|
|
|
|
Non-Employee Directors
|
|
|
|
|
|
|
Peter Thompson, M.D.
|
|
|
58
|
|
|
Director
|
James N. Topper, M.D., Ph.D.
|
|
|
55
|
|
|
Director
|
Paul Sekhri
|
|
|
59
|
|
|
Director
|
Robert Conway
|
|
|
63
|
|
|
Director
|
Executive Officers
Mitchell H. Gold, M.D.
has served as Alpines Chief Executive Officer since June 2016 and has served as Executive Chairman and as a
member of Alpines board of directors since January 2015. Prior to co-founding Alpine, Dr. Gold was Chairman and Founder of Alpine Biosciences, a privately-held biotech company, from 2012 to 2014. From 2001 to 2012, Dr. Gold served in
a variety of roles with Dendreon Corporation (which has since been acquired by Valeant Pharmaceuticals International, Inc. through an asset purchase agreement), including President, Chief Executive Officer, and Chairman of the board of directors.
Earlier in his career, Dr. Gold served as Vice President of Business Development at Data Critical from 2000 to 2001. From 1995 to 2000, Dr. Gold was President and Chief Executive Officer of Elixis Corporation. Dr. Gold is currently a
Managing Partner at Alpine BioVentures. Dr. Gold holds an M.D. from Rush Medical College of Rush University Medical Center and a B.S. in Biology from the University of Wisconsin.
237
Nivalis believes that Dr. Gold possesses specific attributes that qualify him to serve as a
member of Nivalis board of directors, including more than 20 years of experience in senior executive management roles with both early stage and public biopharmaceutical companies.
Jay Venkatesan, M.D.
served as Alpines Chief Executive Officer from November 2015 to June 2016 before transitioning to
Alpines President in June 2016. Dr. Venkatesan has served as a member of Alpines board of directors since November 2015. Prior to joining Alpine, Dr. Venkatesan was the Executive Vice President and General Manager of
Oncothyreon, Inc. (now Cascadian Therapeutics) from August 2014 to May 2015 following Oncothyreons acquisition of Alpine Biosciences, where he served as co-founder and Chief Executive Officer. Previously, Dr. Venkatesan was the Founder,
Portfolio Manager, and Managing Director of Ayer Capital Management, a global healthcare equity fund from 2008 to 2013. Prior to that, he was a Director at Brookside Capital Partners from 2002 to 2007. Earlier in his career, Dr. Venkatesan was
involved in healthcare investing at Partricof & Co. Ventures from 1995 to 1996 and consulting at McKinsey & Company from 1993 to 1995. Dr. Venkatesan is currently a Managing Partner at Alpine BioVentures. In addition,
Dr. Venkatesan currently serves on the board of directors of Lion Biotechnologies (NASDAQ: LBIO), Transplant Genomics, CellBioTherapy, and Exicure Therapeutics. Dr. Venkatesan received an M.D. from the University of Pennsylvania School of
Medicine, an M.B.A. from the Wharton School of the University of Pennsylvania, and a B.A. in Chemistry from Williams College.
Nivalis
believes that Dr. Venkatesan possesses specific attributes that qualify him to serve as a member of Nivalis board of directors, including his experience on the boards of and in management positions with biopharmaceutical companies,
including publicly-traded companies.
Stanford Peng, M.D., Ph.D.
has served as Alpines Executive Vice President of Research
and Development and Chief Medical Officer since September 2016. Prior to joining Alpine, Dr. Peng was Chief Medical Officer and head of clinical development at Stemcentrx, providing strategic oversight of the companys clinical and
translational programs from 2015 to 2016. Previously, Dr. Peng was Executive Medical Director at Seattle Genetics where he developed multiple programs for antibody-drug conjugates from 2014 to 2015. Earlier in his career, he directed
translational research and auto-immune related clinical trials as head of the Rheumatology Clinical Research Unit at the Benaroya Research Institute from 2009 to 2014 and served as Senior Director, Clinical Research and Exploratory Development at
Roche from 2005 to 2008. Between 2009 and 2014, Dr. Peng also served as Member Physician at Virginia Mason Medical Center. Dr. Peng served as an Assistant Professor at the Washington University School of Medicine from 2002 to 2005. From 2008 to
2009, Dr. Peng served as Senior Director at ARYx Therapeutics, Inc. (NASDAQ: ARYX). Dr. Peng received an M.D. and Ph.D. in biology from the Yale University School of Medicine and a B.A. in music and B.S. in biological sciences from Stanford
University.
Paul Rickey
has served as Alpines Senior Vice President and Chief Financial Officer since April 2017.
Mr. Rickey is an experienced executive who has spent nearly 16 years guiding financial strategy in the life sciences and technology industries. Prior to his joining Alpine in 2017, Mr. Rickey served as Chief Financial Officer of Sound
Pharmaceuticals, overseeing finance, accounting and human resources. Before joining Sound Pharmaceuticals in 2016, Mr. Rickey was Vice President of Finance and Administration of Immune Design Corp., (NASDAQ:IMDZ) a publicly traded biotechnology
company, where he helped complete the companys private offerings, initial public offering, and follow-on financing, and also oversaw the corporate development, accounting and human resource functions. Before joining Immune Design in 2009,
Mr. Rickey was Corporate Controller of Northstar Neuroscience, a publicly-traded medical device company, where he managed the companys finance and accounting groups following Northstars initial public offering. Prior to his role at
Northstar Neuroscience, Mr. Rickey was the accounting manager for Mobliss, Inc., a mobile technology company that was sold to Index Corp., of Japan. Mr. Rickey started his finance career at Ernst & Young LLP. Mr. Rickey
graduated from the University of Washington with a B.A. and Masters in Professional Accounting and is a Certified Public Accountant.
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Non-Employee Directors
Peter Thompson, M.D.
has served as a member of Alpines board of directors since June 2016. Dr. Thompson currently serves as a
Private Equity Partner for OrbiMed Advisors LLC, an investment firm focused on the healthcare sector, where he has also served as Venture Partner since joining in September 2010. Dr. Thompson is a co-founder of and has served as a member of the
board of directors of Corvus Pharmaceuticals, Inc. (NASDAQ: CRVS) since December 2014. Dr. Thompson has also served as a director of Adaptimmune Therapeutics plc (NASDAQ: ADAP), a biopharmaceutical company, since 2014 and also currently serves
on the boards of directors of several private companies. Dr. Thompson is a board-certified internist and oncologist and has served as Affiliate Professor of Neurosurgery at the University of Washington since 2010. Dr. Thompson co-founded
and served as the Chief Executive Officer of Trubion Pharmaceuticals, Inc., a biopharmaceutical company, from 2002 to 2009. Dr. Thompson previously held executive positions at Chiron Corporation and Becton Dickinson, and served on the faculty of the
National Cancer Institute following his medical staff fellowship there. Dr. Thompson holds a Sc. B. in Molecular Biology and Mathematics from Brown University and an M.D. from Brown University Medical School.
Nivalis believes that Dr. Thompsons venture capital and management experience in the pharmaceuticals industry provides him with the
qualifications and skills necessary to serve as a member of Nivalis board of directors.
James N. Topper, M.D., Ph.D.
has
served as a member of Alpines board of directors since June 2016. Dr. Topper has been a partner with Frazier Healthcare Partners since August 2003, serving as General Partner since 2005. Before joining Frazier Healthcare Partners, Dr.
Topper served as head of the Cardiovascular Research and Development Division of Millennium Pharmaceuticals, Inc. and ran Millennium San Francisco (formerly COR Therapeutics, Inc.) from 2002 to 2003. Before the merger of COR and Millennium in 2002,
Dr. Topper served as the Vice President of Biology at COR from 1999 to 2002. Dr. Topper currently serves as a member of the board of directors of AnaptysBio, Inc. (NASDAQ: ANAB) and has served on numerous other boards of directors, including
Sierra Oncology, Inc. (formerly ProNai) (NASDAQ: SRRA), Amicus Therapeutics, Inc. (NASDAQ: FOLD), Portola Pharmaceuticals, Inc. (NASDAQ: PTLA), and La Jolla Pharmaceutical Company (NASDAQ: LJPC). Dr. Topper received his M.D. and Ph.D. in biophysics
from Stanford University and his B.S. in biology from the University of Michigan.
Nivalis believes that Dr. Toppers experience
overseeing Frazier Healthcare Partners investments in biotechnology, his experience in senior-management positions, and his significant knowledge of industry, medical and scientific matters, provide Dr. Topper with the qualifications and
skills to serve on Nivalis board of directors.
Paul Sekhri
has served as a member of Nivalis board of directors since
February 2016. Mr. Sekhri is the President and CEO of Lycera Corp., a position he has held since February 2015. Prior to this position, he served as Senior Vice President, Integrated Care for Sanofi from April 2014 through January 2015, and as
Group Executive Vice President, Global Business Development and Chief Strategy Officer for Teva Pharmaceutical Industries, Ltd. from March 2013 to March 2014. Prior to joining Teva, Mr. Sekhri spent five years from January 2009 to February
2013, as Operating Partner and Head of the Biotechnology Operating Group at TPG Biotech, the life sciences venture capital arm of TPG Capital. From 2004 to 2009 Mr. Sekhri was Founder, President, and Chief Executive Officer of Cerimon
Pharmaceuticals, Inc. Prior to founding Cerimon, Mr. Sekhri was President and Chief Business Officer of ARIAD Pharmaceuticals, Inc. Previously, Mr. Sekhri spent four years at Novartis, as Senior Vice President, and Head of Global Search
and Evaluation, Business Development and Licensing for Novartis Pharma AG.
Mr. Sekhri has been a director on more than 20 private and
public company boards, and is currently a member of the board of directors of Veeva Systems Inc. and Enumeral Biomedical Holdings, Inc. (NASDAQ: ENUM) Mr. Sekhri is also the Chairman of the Board of Pharming N.V., Petra Pharma, and Topas
Therapeutics GmbH. Additionally, he serves on several non-profit boards including the BioExec Institute, Inc., the TB Alliance, Young Concert Artists, Inc., The English Concert in America (TECA), and the Caramoor Center for Music and the Arts.
Mr. Sekhri also served as a Member of the Board of Trustees of Carnegie Hall from 2010 to
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2012, where he is now an active member of their Patrons Council. Nivalis board of directors believes that Mr. Sekhris extensive experience in operational and strategic drug
development and his outstanding reputation and expertise in the biomedical community give him the qualifications and skills to serve as a director on Nivalis board of directors.
Robert Conway
has served as a member of Nivalis board of directors since April 2015. From 1999 to 2012, Mr. Conway served as
the Chief Executive Officer and member of the board of directors of Array BioPharma (NASDAQ: ARRY), a publicly traded biopharmaceutical company. Prior to joining Array, Mr. Conway was the Chief Operating Officer and Executive Vice President of
Hill Top Research, from 1996 to 1999. From 1979 until 1996, Mr. Conway held various executive positions for Corning Inc. (NYSE: GLW), including Corporate Vice President and General Manager of Corning Hazleton, a contract research organization.
Since 2013, Mr. Conway has served on the board of directors of ARCA BioPharma (NASDAQ: ABIO), a publicly traded biopharmaceutical company, and was elected Chairman in June 2014. From 2004 to 2013, Mr. Conway served on the boards of
directors of PRA International (NASDAQ: PRAH), which was a public company for a portion of his tenure there, and Bracket Corp., a private company. Mr. Conway serves as the Chairman of Wall Family Enterprise, a leading library and educational
supplies company. In addition, Mr. Conway is a member of the Strategic Advisory Committee of Genstar Capital. Mr. Conway received a B.S. in accounting from Marquette University in 1976. Nivalis board of directors believes that
Mr. Conways experience and expertise in the pharmaceutical industry, pharmaceutical development and clinical trials, and corporate finance, governance, accounting and public company compliance give him the qualifications and skills to
serve as a director on Nivalis board of directors.
Composition of the Board of Directors
Nivalis board of directors is currently comprised of six directors divided into three staggered classes, each class serving three-year
terms. The staggered structure of Nivalis board of directors will remain in place following completion of the merger. At the most recent annual meeting of Nivalis stockholders held in 2017, Class II directors were elected. As a
result, the term of the Class II directors of the combined organization will expire upon the election and qualification of successor directors at the annual meeting of stockholders in 2020, with the terms of the Class III directors and Class I
directors expiring upon the election and qualification of successor directors at the annual meetings of stockholders to be held in 2018 and 2019, respectively.
The director classes for Nivalis are currently as follows:
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Class I directors: Paul Sekhri and John Moore;
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Class II directors: Howard Furst, M.D. and Evan Loh, M.D.; and
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Class III directors: Robert Conway and Cynthia Smith.
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Pursuant to the Merger Agreement, each
of the directors and officers of Nivalis who will not continue as directors or officers of Nivalis or the surviving corporation following the consummation of the merger shall resign immediately prior to the Effective Time. In connection with the
merger, Nivalis board of directors will be expanded to include a total of seven directors. Pursuant to the terms of the Merger Agreement, four of such directors will be designated by Alpine, two of such directors will be designated by Nivalis,
and one director will be an independent designee approved by a majority of the other directors. Effective as of the Effective Time, it is anticipated that Robert Conway and Paul Sekhri will remain on Nivalis board of directors. Then, Robert
Conway and Paul Sekhri will elect Mitchell H. Gold, M.D., Peter Thompson, M.D., James N. Topper, M.D., Ph.D., and Jay Venkatesan, M.D., to Nivalis board of directors. It is anticipated that these directors will be appointed to the three
staggered director classes of the combined organizations board of directors as follows:
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Class I directors (expiring in 2019): Peter Thompson, M.D. and Paul Sekhri;
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Class II directors (expiring in 2020): Mitchell H. Gold, M.D. and Jay Venkatesan, M.D.; and
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Class III directors (expiring in 2018): Robert Conway and James N. Topper, M.D., Ph.D.
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Following the merger, it is anticipated that Nivalis board of directors will increase the
size of the board of directors to seven and appoint an independent designee approved by a majority of the other directors to fill the resulting vacancy.
The division of Nivalis board of directors into three classes with staggered three-year terms may delay or prevent a change of
management or a change of control of Nivalis, or, following the completion of the merger, the combined organization.
Nivalis
Nominating and Governance Committee is responsible for reviewing the board of directors, on an annual basis. In evaluating the suitability of individual candidates (both new candidates and current members), the Nominating and Corporate Governance
Committee and the board of directors of the combined organization may take into account many factors, including the following:
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diversity of personal and professional background, perspective, experience, age, gender, ethnicity and country of citizenship;
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personal and professional integrity and ethical values;
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experience in one or more fields of business, professional, governmental, scientific or educational endeavors, and a general appreciation of major issues facing public companies similar in scope and size to Nivalis;
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experience relevant to Nivalis industry or social policy concerns;
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relevant academic expertise or other proficiency in an area of Nivalis operations;
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objective and mature business judgment and expertise; and
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any other relevant qualifications, attributes or skills.
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There are no family relationships
among any of Nivalis current directors and executive officers, and there are no family relationships among any of the combined organizations proposed directors and executive officers.
Committees of the Board of Directors
Nivalis board of directors currently has, and after completion of the merger Nivalis board of directors will continue to have, an
Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.
Audit Committee
The responsibilities of the Audit Committee include, but are not limited to, the following:
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meeting with Nivalis independent auditors, Nivalis management team and such other personnel as it deems appropriate to conduct and assist with certain audit committee functions;
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overseeing Nivalis accounting and financial reporting processes and audits of its financial statements;
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deciding whether to appoint, retain or terminate Nivalis independent auditors, including the sole authority to approve all audit engagement fees and terms and to pre-approve all audit and permitted non-audit and
tax services to be provided by the independent auditors;
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reviewing and discussing with management and Nivalis independent auditors the financial statements of Nivalis, including certain disclosures, addressing any issues encountered in the course of the audit work, and
evaluating the performance of Nivalis independent auditors;
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discussing with management Nivalis earnings press releases, financial information and any earnings guidance provided to analysts and ratings agencies;
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discussing with Nivalis and the internal auditors (if any) Nivalis disclosure controls, internal accounting and financial controls and accounting policies and practices;
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establishing procedures for the receipt, retention and treatment of complaints received by Nivalis regarding certain accounting or audit matters;
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establishing policies governing the hiring by Nivalis of any current or former employee of Nivalis independent auditors;
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reviewing Nivalis compliance with applicable laws and regulations and to review and oversee Nivalis policies and procedures designed to promote and monitor regulatory compliance;
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reviewing, approving and overseeing transactions between Nivalis and any related person and any other potential conflict of interest situation;
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administering Nivalis Whistleblower and Non-Retaliation Policy and responding to and resolving related complaints or concerns;
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overseeing portions of Nivalis Code of Business Conduct and Ethics as designated by the board of directors of Nivalis; and
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providing Nivalis board of directors with the results of its monitoring and recommendations derived from its responsibilities.
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The Audit Committee of the combined organization is expected to retain these duties and responsibilities following completion of the merger.
Nivalis management has the primary responsibility for its financial statements and the reporting process including its system of
internal accounting and financial controls.
Nivalis Audit Committee currently consists of Robert Conway, Evan Loh, and John Moore
with Mr. Conway serving as the Chair of the Audit Committee. Nivalis board of directors has determined that Robert Conway is an audit committee financial expert as defined in the SEC rules. Nivalis board of directors
made a qualitative assessment of Mr. Conways level of knowledge and experience based on several factors, including his prior experience, business acumen and independence.
Following completion of the merger, the members of the Audit Committee are expected to be Robert Conway, Paul Sekhri, and James N. Topper,
M.D., Ph.D. Robert Conway is expected to be the Chair of the Audit Committee and its financial expert under the rules of the SEC. Nivalis board of directors has concluded that the composition of the Audit Committee meets the requirements for
independence under the rules and regulations of The NASDAQ Stock Market LLC and SEC. Nivalis and Alpine believe that, after completion of the merger, the functioning of the Audit Committee will comply with the applicable requirements of the rules
and regulations of The NASDAQ Stock Market LLC and SEC.
Compensation Committee
The responsibilities of the Compensation Committee include, but are not limited to, the following:
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setting Nivalis compensation strategy and policies for Nivalis executive officers and directors;
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reviewing and approving Nivalis corporate goals and objectives relative to the compensation of Nivalis executive officers and evaluating the executive officers performance in light of those goals
and objectives;
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reviewing and making recommendations to Nivalis board of directors regarding the base salary, the annual and long-term incentive opportunity and level and related goals and any supplemental benefits or
prerequisites for Nivalis executive officers;
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reviewing and making recommendations to Nivalis board of directors regarding compensation plans for directors, executive officers and other officers;
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granting equity awards under Nivalis equity-based compensation plans, with limited authority to delegate such functions;
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reviewing and discussing certain risk incentives related to incentive compensation granted to Nivalis executive officers;
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overseeing and assisting in the production of select portions of Nivalis proxy statements and annual reports related to compensation; and
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reviewing director and committee member compensation.
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The Compensation Committee of the
combined organization is expected to retain these duties and responsibilities following completion of the merger.
Nivalis
Compensation Committee currently consists of Evan Loh, M.D., John Moore and Paul Sekhri. John Moore currently serves as the Chair of Nivalis Compensation Committee.
Compensation Committee Interlocks and Insider Participation
Following completion of the merger, Nivalis Compensation Committee is expected to consist of James N. Topper, M.D., Ph.D, Peter
Thompson, M.D. and Paul Sekhri. James N. Topper, M.D., Ph.D is expected be the Chair of the Compensation Committee. Each member of the Compensation Committee is expected to be an outside director as that term is defined in
Section 162(m) of the Code, a non-employee director within the meaning of Rule 16b-3 of the rules promulgated under the Exchange Act and independent within the meaning of the independent director guidelines of The NASDAQ Stock
Market LLC. None of the proposed executive officers of the combined organization serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers who is proposed to serve on the combined
organizations board of directors or Compensation Committee following the merger.
Nominating and Corporate Governance Committee
The responsibilities of the Nominating and Corporate Governance Committee relating to the nomination of directors include, but are not limited
to, the following:
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making recommendations to Nivalis board of directors regarding the qualifications, qualities, skills, expertise, characteristics, experience and other criteria required for members of Nivalis board of
directors;
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identifying, evaluating and recommending individuals as members of Nivalis board of directors; and
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making recommendations to Nivalis board of directors regarding the members of Nivalis board of directors to serve as committee members and chairpersons of each of Nivalis committees of Nivalis
board of directors.
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The Nominating and Corporate Governance Committee selects as candidates for appointment or nomination
to the board of directors individuals of high personal and professional integrity and ability who can contribute to the board of directors effectiveness in serving the interests of Nivalis stockholders. Director nominees are expected to
have considerable management experience that would be relevant to Nivalis current and expected future business directions, a track record of accomplishment and a commitment to ethical business practices. The Nominating and Corporate Governance
Committee also considers diversity in professional experience and skill sets in identifying nominees for director. Nivalis board of directors, along with the Nominating and Corporate Governance Committee, utilizes its own resources to identify
qualified candidates that meet these criteria to join
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Nivalis board of directors and may, in the future, use an executive recruiting firm to assist in the identification and evaluation of such qualified candidates. For these services, an
executive recruiting firm may be paid a fee.
The Nominating and Corporate Governance Committee has not established a procedure for
considering nominees for directors nominated by Nivalis stockholders. Nivalis board of directors and Nominating and Corporate Governance Committee believe that they can identify appropriate candidates to Nivalis board of directors.
Stockholders may nominate candidates for director in accordance with the advance notice and other procedures contained in the amended and
restated bylaws of Nivalis.
The responsibilities of the Nominating and Corporate Governance Committee relating to corporate governance
include, but are not limited to, the following:
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developing and recommending to Nivalis board of directors the governance principles applicable to Nivalis;
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overseeing compliance with Nivalis Corporate Governance Guidelines and recommending proposed changes, if appropriate;
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reviewing and assessing the effectiveness of Nivalis compliance programs;
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considering and making recommendations regarding resignation offered by a member of Nivalis board of directors;
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identify and make recommendations regarding the selection and approval of vacancies on Nivalis board of directors;
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developing and recommending independence standards applicable to Nivalis board of directors; and
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overseeing orientation and continuing education for Nivalis board of directors;
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Additional responsibilities of the Nominating and Corporate Governance Committee include, but are not limited to, the following:
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developing, administering and overseeing an annual performance review of Nivalis board of directors; and
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working with other committees of Nivalis board of directors to ensure effective and consistent processes for annual committee performance evaluations.
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The Nominating and Corporate Governance Committee of the combined organization is expected to retain these duties and responsibilities
following completion of the merger.
The Nominating and Corporate Governance Committee currently consists of Howard Furst, M.D.,
John Moore, Paul Sekhri and Cynthia Smith. Dr. Furst currently serves as the Chair of the Nominating and Corporate Governance Committee.
Following completion of the merger, the members of the Nominating and Corporate Governance Committee are expected to be to be Peter Thompson,
M.D., Robert Conway, and Paul Sekhri. Peter Thompson, M.D. is expected be the chairman of the Nominating and Corporate Governance Committee. Nivalis board of directors has determined that each member of the Nominating and Corporate Governance
Committee is independent within the meaning of the independent director guidelines of The NASDAQ Stock Market LLC.
Nivalis board of
directors may from time to time establish other committees.
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Director Compensation
For the fiscal year ended December 31, 2016, Alpine did not have a director compensation policy in place, nor did any non-employee
director receive any compensation for serving on Alpines board of directors. This policy did not change in 2017. Alpine has historically provided reimbursement for reasonable out-of-pocket expenses incurred for attending meetings of the Alpine
board of directors.
Following completion of the merger, it is expected that the combined organization will provide compensation to
non-employee directors that is consistent with Nivalis current practices, however, these director compensation policies may be re-evaluated by the combined organization and the compensation committee following completion of the merger and may
be subject to change. Non-employee directors are expected to receive an annual retainer fee and equity compensation in the form of a stock option grant.
Based on Nivalis existing director compensation policies, the annual retainer for non-employee directors is expected to be $35,000, with
an additional annual retainer in the expected amount of $25,000 for the Chairman. Annual retainers for committee membership are expected to be as follows:
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Audit Committee Chairperson
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$
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15,000
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Audit Committee member
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$
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7,500
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Compensation Committee Chairperson
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$
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10,000
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Compensation Committee member
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$
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5,000
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Nominating and Corporate Governance Committee Chairperson
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$
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7,500
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Nominating and Corporate Governance Committee member
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$
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3,750
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All retainer fees are expected to be paid on a quarterly basis in arrears. Non-employee directors are also
expected to receive an initial stock option grant upon appointment or election to the combined organizations board of directors, in an amount to be determined by the combined organizations compensation committee. All options are expected
to have an exercise price equal to the closing price of Nivalis common stock as reported by NASDAQ on the date of grant subject to vesting in 36 equal monthly installments over a three-year period from the grant date for initial option grants,
or in 12 equal monthly installments over a 12-month period from the grant date for annual stock option grants, subject to further evaluation by the combined organizations compensation committee. On a change in control of Nivalis (following the
merger), all outstanding, unvested options held by non-employee directors are expected to vest in full.
Executive
Compensation Discussion and Analysis
Overview
Alpine seeks to have a compensation program that supports a team ethic among its management, fairly rewards executives for corporate
performance and that provides incentives for executives to meet or exceed short- and long-term goals. Historically, the primary components of the Alpine compensation program have been base salary, milestone-based bonus potential and stock option
awards. In addition, Alpine provides its executive officers with other benefits that are available generally to all salaried employees.
In 2017 and in prior years, Alpines board of directors has been responsible for evaluating the compensation of executive officers and
final approval of such compensation. After completion of the merger, the compensation committee of the combined organizations board of directors is expected to approve all compensation for the combined organizations executive officers,
including the Chief Executive Officer. For additional information regarding the combined organizations compensation committee, please see the section entitled Management Following the MergerCommittees of the Board of
DirectorsCompensation Committee in this proxy statement/prospectus/information statement.
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Objectives and Principles of Alpines Executive Compensation
The principal objectives of Alpines compensation and benefits programs for executive officers are to attract and retain senior executive
management, to motivate their performance toward defined corporate goals, and to align their long-term interests with those of Alpines stockholders. As of December 31, 2016, Alpines named executive officers were: Mitchell H. Gold,
M.D., Executive Chairman and Chief Executive Officer; Jay Venkatesan, M.D., President; and Stanford Peng M.D., Ph.D., Executive Vice President of Research and Development and Chief Medical Officer.
Alpine believes that executive compensation should be linked to company performance. The Alpine compensation program is designed so that a
significant portion of the potential compensation of all executive officers is contingent on the achievement of Alpines business objectives. Alpine expects its executive leadership to manage the combined organization toward achievement of
annual goals while at the same time positioning it to achieve longer term strategic objectives. Thus, in structuring the compensation of its executives, Alpine seeks to incentivize both short and long-term performance. Short term elements of
incentive compensation consist of incentive bonuses under milestone-based cash bonus commitments with payouts based primarily on achieving performance objectives. Long-term compensation elements have historically been limited to stock options with
multi-year vesting designed to retain executives and align their long-term interests with those of Alpines stockholders.
Alpine
believes that hiring and retaining well-performing executives is important to its ongoing success. Historically, Alpines board of directors has benchmarked executive compensation against salary surveys. While review of market surveys has been
considered helpful, Alpines board of directors has historically placed substantially greater weight on internal considerations than on position-specific pay differences found in the market.
The determination of Alpines board of directors as to the appropriate use and weight of each component of executive compensation has
been historically subjective, based on its view of the relative importance of each component in meeting Alpines overall objectives and factors relevant to the individual executive.
As a publicly held company, the combined organization may engage the services of a compensation consultant and may rely upon surveys to assist
in further aligning the combined organizations compensation philosophy with ongoing corporate objectives. In order to attract and retain key executives, the combined organizations compensation committee may be required to modify
individual executive compensation levels to remain competitive in the market for such positions.
Compensation Process
Historically, Alpines executive compensation was determined by Alpines board of directors after a review of various factors,
including such executives contribution to Alpines overall objectives and performance, such executives relative internal parity among Alpines executive officers, the need to retain executives in the future and the industry
experience of such executive officer, with such compensation reviewed by Alpines board of directors on at least an annual basis. Going forward, the combined organizations compensation committee is expected to set compensation strategy
and policies for executive officers and is expected to make recommendations to the combined organizations board of directors regarding compensation for executive officers after consultation with other independent directors.
Elements of Executive Compensation
Historically, Alpines executive officers have been compensated by three main elements: base salary, milestone-based cash bonus potential
and stock option awards. The following is a discussion of each element.
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Base Salary
Alpines board of directors believes that Alpines executive management base salaries are in line with levels appropriate for the
life science industry in the Seattle, Washington, area, a market which they determined to be increasingly competitive for companies seeking qualified executives with life sciences industry experience.
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Name and Position(s)
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Base Salary
as of
December 31,
2016
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Mitchell H. Gold, M.D.
, Executive Chairman and Chief Executive Officer (1)
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$
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120,000
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Jay Venkatesan, M.D.
, President
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$
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120,000
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Stanford Peng M.D., Ph.D.
, Executive Vice President of Research and Development and Chief
Medical Officer
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$
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375,000
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(1)
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As further described below, pursuant to the terms of that certain Employment Agreement by and between Alpine and Dr. Gold dated March 14, 2017, Dr. Golds base salary was increased from $120,000 to
$300,000 per year effective as of January 20, 2017.
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Base Salary Decisions Occurring After the End of 2016
With a focus on retaining key development and executive staff, in March 2017, Alpines board of directors reviewed the base salaries of
Alpines executive team in light of general market conditions in the Seattle, Washington, area life science industry. Alpines board of directors concluded that competition for executive talent remained strong as a result of the solid
economic performance of the industry and the Seattle, Washington, region overall, the continued large number of competing firms seeking public and venture capital, and strong demand for specialized skills and senior staff required to manage life
science companies. To keep base salaries of existing executives competitive given these underlying demands, Alpines board of directors approved a raise in base salary for Alpines CEO, Dr. Gold, to $300,000 per year, effective
January 2017. Variances in compensation among executive officers related principally to the conclusion of Alpines board of directors about appropriate base salary levels in light of competitive factors for each position. Alpines board of
directors determined that an increase was appropriate for Dr. Gold because of his unique skill set and role in strategic decision-making, corporate development and his contribution to Alpines financing efforts to date.
In April 2017, Paul Rickey joined Alpines executive team as Senior Vice President and Chief Financial Officer with an annual base salary
of $275,000.
Milestone-Based Cash Bonuses
Historically, Alpines board of directors has retained the discretion to award cash bonuses to executive officers from time to time with
bonus targets established by Alpines board of directors. Following the merger, Alpine anticipates that the compensation committee of the combined organization will establish policies regarding the award of milestone-based cash bonuses.
Pursuant to Mr. Rickeys employment agreement, Mr. Rickey is currently eligible to receive a one (1) time cash bonus in
the amount of $50,000 payable upon completion of the merger. No other cash bonus commitments have been made to Alpines named executive officers.
Stock Option Awards
Historically, Alpine
has believed that stock and option awards are an effective means of aligning the interests of all employees, executives and stockholders, rewarding executives for achieving success over the long
247
term and providing an incentive for personnel to remain with Alpine through an extended time period. Alpine grants stock options to new executives and employees upon the commencement of their
employment and historically has tied additional option grants, if any, to the timing of important milestone events and based upon overall corporate performance, individual performance and the employees existing option grants and equity
holdings, including factors such as the total percentage of Alpines capital stock represented by those option grants and holdings and the extent to which these grants and holdings were then vested.
In March and April of 2017, prior to signing the Merger Agreement, Alpines board of directors considered the equity ownership of
Alpines executive officers relative to the performance of each of Alpines executive officers, and the desire of Alpines board of directors to adequately retain and motivate such executive officers going forward and determined to
make additional stock option grants to certain of Alpines executive officers. The size of the individual option grants was determined principally on Alpines board of directors views concerning appropriate equity ownership for
various executive officers as compared to the outstanding Alpine capitalization. In the cases of Dr. Gold and Dr. Peng, these option grants were already contemplated in the employment agreements that had been entered into with
Dr. Gold and Dr. Peng, respectively, which were negotiated prior to the commencement of any substantive discussion with Nivalis.
Generally, the option grants vest, subject to the grantees continued employment as follows: one-fourth of the option vests on the one
year anniversary of such options vesting commencement date, and the remainder vests in thirty-six equal monthly installments over a total of 36 months following the one year anniversary of the options vesting commencement date. The
vesting commencement dates are often tied to an employees start date, the date of grant, or some other relevant date or milestone.
Pursuant to the Merger Agreement, Nivalis will assume outstanding Alpine options, which will be converted into options to purchase Nivalis
common stock and any restrictions on the exercise of any Alpine option assumed by Nivalis will continue following the merger, and the term, exercisability, vesting schedules, acceleration terms and other provisions of assumed Alpine options will
generally remain unchanged; provided, that any Alpine options assumed by Nivalis may be subject to adjustment to reflect changes in Nivalis capitalization after the Effective Time and that Nivalis board of directors will succeed to the
authority of Alpines board of directors with respect to each assumed Alpine option.
The table below sets forth, as of May 1,
2017, information with respect to options held by each of the executive officers and directors of Alpine as of such date:
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Name and Position(s)
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Number of
Shares of
Common
Stock
Subject to
Options
(vested and
unvested)
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Mitchell H. Gold, M.D.
, Executive Chairman and Chief Executive Officer
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1,128,564
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Jay Venkatesan, M.D.
, President
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181,250
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Stanford Peng M.D., Ph.D.
, Executive Vice President of Research and Development and Chief
Medical Officer
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400,000
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Paul Rickey
, Senior Vice President and Chief Financial Officer
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|
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150,000
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Nonqualified Deferred Compensation
Pursuant to the terms of that certain Alpine Salary Deferment Agreement dated May 1, 2015, Dr. Gold agreed to defer payment of $70,000 in
salary in 2015. Similarly, pursuant to the terms of that certain Alpine
248
Salary Deferment Agreement dated August 1, 2015, Dr. Venkatesan agreed to defer payment of $40,000 in salary in 2015. Please see the footnotes to the Summary Compensation Table contained in this
proxy statement/prospectus/information statement under the section titled Management Following the Merger-Summary Compensation Table for more information.
The Alpine board of directors has not adopted a formal deferred compensation plan and has no plan for the combined organization to adopt a
formal deferred compensation plan. The compensation committee of the combined organization may elect to provide officers and other employees of the combined organization with non-qualified defined contribution or deferred compensation benefits if
the compensation committee determines that doing so is in the best interests of the combined organization.
Employment and Severance Agreements
Alpine has entered into employment agreements with each of Dr. Gold. Dr. Peng and Mr. Rickey which provide for,
amongst other things, potential severance obligations of Alpine payable to such executive officer upon certain events. In addition, Alpine has entered into employment agreements with two of its founders, Ryan Swanson and Michael Kornacker, neither
of whom is a named executive officer of Alpine, which also provide for, amongst other things, potential severance obligations of Alpine payable to Mr. Swanson or Mr. Kornacker upon certain events. Each of the above-referenced agreements
provide for specified payments and benefits if the officers employment is terminated without cause, or if the officers employment is terminated for good reason, as further described therein. These agreements are summarized and the
benefits potentially payable under these agreements are more fully described below in the section entitled Potential Payments Upon Termination or Change in Control.
As part of its review of executive compensation, severance provisions and change of control provisions for executive officers, the
compensation committee of the combined organizations board of directors will reevaluate these agreements following the merger and the combined organizations board of directors may make changes to executive compensation in the future
based upon this input.
Other Benefits
Executive officers of Alpine are eligible to participate in all of Alpines employee benefit plans, such as medical, dental, and vision
insurance and the WTIA 401(k) Plan adopted by Alpine which is maintained by Washington Technology Industry Association, in each case on the same basis as other employees of Alpine, subject to applicable law. The WTIA 401(k) Plan is a Multiple
Employer Plan.
Alpine also provides vacation and other paid holidays to all employees, including Alpines executive officers.
Following the merger, it is anticipated that these benefits provided to executive officers will continue under the combined organization,
subject to the review and oversight of the compensation committee of the combined organizations board of directors.
Accounting and Tax
Considerations
Section 162(m) of the Code places a limit of $1,000,000 on the amount of compensation that a public company
may deduct as a business expense in any year with respect to such companys chief executive officer and certain other named executive officers. This deduction limitation did not apply to Alpine in 2016. Additionally, under applicable tax
guidance, the deduction limitation generally will not apply to compensation paid pursuant to any plan or agreement of Alpine that existed before the closing of the merger. In addition, compensation provided by newly-public companies through the
first stockholder meeting to elect directors after the close of the third calendar year following the year in which the initial public offering occurs, or earlier upon the occurrence of certain events (
e.g.
, a material modification of the
plan or agreement under which the compensation is granted), will generally not be included for purposes of the Code Section 162(m) limit.
249
The compensation committee of the combined organizations board of directors intends to
maximize deductibility of compensation under Code Section 162(m) to the extent practicable while maintaining a competitive, performance-based compensation program. However, the compensation committee of the combined organizations
board of directors reserves the right to award compensation which it deems to be in the combined organizations best interest and in the best interest of its stockholders, but which may not be fully tax deductible under Code
Section 162(m).
Summary Compensation Table
The following table provides information regarding the named executive officers of Alpine as of December 31, 2016. For the management of
the combined organization after the closing of the merger, see Management Following the MergerExecutive Officers and DirectorsExecutive Officers and Directors of the Combined Organization Following the Merger. These
individuals are referred to elsewhere in this proxy statement/prospectus /information statement as the named executive officers of Alpine.
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Name and Position(s)
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Year
|
|
|
Salary
($)
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|
Option
Awards(1)
($)
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Total
($)
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|
Mitchell H. Gold, M.D.
, Executive Chairman and Chief Executive Officer
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2016
|
|
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120,000
|
|
|
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1,439
|
|
|
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121,439
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|
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2015
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|
|
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80,000
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(2)
|
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59,806
|
|
|
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139,806
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Jay Venkatesan, M.D.
, President
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2016
|
|
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|
120,000
|
|
|
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2,120
|
|
|
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122,120
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|
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2015
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|
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50,000
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(3)
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|
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60,598
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110,598
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Stanford Peng M.D., Ph.D.
, Executive Vice President of Research and Development and Chief
Medical Officer (4)
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2016
|
|
|
|
121,154
|
|
|
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60,408
|
|
|
|
181,562
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(1)
|
Amounts in this column reflect the aggregate grant date fair value of stock options granted during the covered year computed in accordance with the provisions of FASB ASC Topic 718. The assumptions used to calculate the
amounts for fiscal years 2016 and 2015 are discussed in the section of this proxy statement/prospectus/information statement entitled Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical
Accounting Policies and Significant Judgments and EstimatesStock-Based Compensation.
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(2)
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Includes deferred compensation of $70,000 earned in 2015, amounts outstanding and payable to employee are $70,000 and $37,000 for 2015 and 2016, respectively.
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(3)
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Includes deferred compensation of $40,000 earned in 2015, amounts outstanding and payable to employee are $40,000 and $23,500 for 2015 and 2016, respectively.
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(4)
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Dr. Peng commenced employment with Alpine on August 14, 2016. Dr. Peng receives an annual base salary in the amount of $375,000, however, Dr. Pengs salary for 2016 was pro-rated based upon his
start date of August 14, 2016.
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Grants of Plan-Based Awards
The following table presents the outstanding equity awards held by each of the named executive officers as of December 31, 2016.
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Name and Position(s)
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Number of
securities
underlying
unexercised
options
exercisable
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Number of
securities
underlying
unexercised
options
unexercisable
|
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Option
Exercise
price
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Option
Expiration Date
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Mitchell H. Gold, M.D.,
Executive Chairman and Chief Executive Officer
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32,813
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|
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117,187
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(1)
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$
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0.22
|
|
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Dec. 15, 2025
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Jay Venkatesan, M.D.,
President
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25,000
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|
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200,000
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(2)
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$
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0.22
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|
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Dec. 15, 2025
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Stanford Peng M.D., Ph.D.,
Executive Vice President of Research and Development and Chief
Medical Officer
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|
|
0
|
|
|
|
325,000
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(3)
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$
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0.32
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|
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Sept. 21, 2026
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(1)
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These options are part of a single option grant exercisable for up to 300,000 shares of Alpines common stock which vests 50% on May 16, 2016, then 1/32nd per month thereafter.
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(2)
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These options are part of a single option grant exercisable for up to 300,000 shares of Alpines common stock which vests 25% on May 25, 2016, then 1/36th per month after August 1, 2016.
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(3)
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These options are part of a single option grant exercisable for up to 325,000 shares of Alpines common stock which vests 25% on September 22, 2017, then 1/36th per month thereafter.
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Potential Payments Upon Termination or Change in Control
Pursuant to employment agreements with Dr. Gold, Dr. Peng and Mr. Rickey, upon the termination of such executive officers
employment by Alpine without cause (as such term is defined below), or upon termination of such executive officers employment by the executive for good reason (as such term is defined below), such executive will receive
(i) in the case of Dr. Peng and Mr. Rickey, his base salary then in effect for 3 months subsequent to the date of such termination, and (ii) continuation of benefits for 3 months subsequent to the date of such
termination. In addition, upon such event the vesting of certain options held by the executive officer will be accelerated, such that all options that would have vested through the vesting date that occurs 12 months after such termination of
employment will be immediately vested and exercisable. Under Alpines employment agreements with Dr. Gold, Dr. Peng and Mr. Rickey, cause means that such executive has (A) engaged in gross negligence, gross
incompetence or willful misconduct in the performance of the duties required of him the employment agreement; (B) refused without proper reason to perform the reasonable and lawful duties and reasonable and lawful responsibilities required of
him under the employment agreement causing material injury to Alpine or its affiliates (monetarily or otherwise), and failed to cure such breach (in the event that such breach is capable of being cured) within thirty (30) days following written
receipt of notice from Alpine setting forth in reasonable detail the nature of such breach; (C) materially breached any provision of such executives employment agreement and failed to cure such breach (in the event that such breach is
capable of being cured) within thirty (30) days following receipt of notice from Alpine setting forth in reasonable detail the nature of such breach; (D) willfully engaged in conduct that is materially injurious to Alpine or its affiliates
(monetarily or otherwise); (E) committed an act of fraud, embezzlement or willful breach of fiduciary duty to Alpine or an affiliate (including the unauthorized disclosure of confidential or proprietary material information of Alpine or an
affiliate); or (F) been convicted of (or pleaded no contest to) a crime involving fraud, dishonesty or moral turpitude or any felony. Under Alpines employment agreements with Dr. Gold, Dr. Peng and Mr. Rickey, good
reason means termination in connection with or based upon, without such executives consent, (A) a material diminution in such executives base salary, other than in connection with an across the board salary reduction or
deferral that applies proportionately to all employees of Alpine in conjunction with a capital shortfall; (B) a material diminution in such executives responsibilities, duties or authority, including a diminution in executives job
title or reporting relationship; or (C) a material breach by Alpine of any material provision of such executives employment agreement.
251
Pursuant to employment agreements with Dr. Gold, Dr. Peng and Mr. Rickey in the
event of a change of control (as defined below), if: (1) such executive is terminated without cause by Alpine or the successor corporation or a parent or subsidiary of such successor corporation of Alpine within the ninety
(90) day period prior to the consummation of the change of control transaction or within twelve (12) months following consummation of the change of control transaction; or (2) such executive terminates his employment or consulting
relationship with Alpine or the successor corporation, each as applicable, for good reason within the ninety (90) day period prior to the consummation of the change of control transaction or within twelve (12) months following consummation
of the transaction, then certain option grants held by such employee or any cancelled, assumed, or substituted option grants held by such executive in lieu thereof shall, at the time of such executives termination, become fully accelerated and
fully vested immediately prior to the effective date of termination. Under Alpines employment agreements with Dr. Gold, Dr. Peng and Mr. Rickey, change of control means a sale of all or substantially all of
Alpines assets, or any stock sale, merger, or consolidation of Alpine with or into another corporation or business entity other than a stock sale, merger, or consolidation in which the holders of more than fifty percent (50%) of the
shares of capital stock of Alpine outstanding immediately prior to such transaction continue to hold (either by the voting securities remaining outstanding or by their being converted into voting securities of the surviving entity) more than fifty
percent (50%) of the total voting power represented by the voting securities of Alpine, or such surviving entity, outstanding immediately after such transaction; provided, however, that a bona fide equity financing by Alpine will not be deemed
to be a change of control.
Alpines employment agreements with Dr. Gold, Dr. Peng and Mr. Rickey set forth such
executives base salary, bonus opportunity (if any) and right to receive certain broad-based employee benefits. Additionally, Alpines employment agreements with Dr. Gold, Dr. Peng and Mr. Rickey provide that during
employment and for twelve (12) months following any termination of employment, such executive shall be subject to a non-solicitation of Alpines employees and certain restrictions on competition; provided, however, that in the event that
such executive officers employment with is terminated by Alpine without cause or if such executive resigns for good reason, then the twelve (12) month periods referenced above is reduced to six (6) months.
No executive of Alpine is entitled to receive any cash payment upon a change of control without a termination event; provided, however, that
Mr. Rickey is entitled to a one (1)-time cash bonus in the amount of $50,000 payable upon completion of the merger. The table below provides an estimate of the value of the compensation that would have been due to each of Alpines named
executive officers (other than Mr. Rickey, who was not hired until April 2017) upon a termination without cause, a termination for good reason, or a termination following a change of control, assuming the termination or change of control was
effective on December 31, 2016, under the agreements described above. The actual amounts to be paid can only be determined at the time of an actual termination of employment or change in control event, as applicable.
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Name and Position(s)
|
|
Cash
Severance
|
|
|
Value of
Benefit
Continuation
|
|
|
Value of
Outstanding
Options
|
|
|
Aggregate
Distributions
|
|
Mitchell H. Gold, M.D.,
Executive Chairman and Chief Executive Officer
|
|
$
|
0
|
|
|
$
|
5,297
|
|
|
$
|
22,271
|
|
|
$
|
27,568
|
|
Stanford Peng M.D., Ph.D.,
Executive Vice President of Research and Development and Chief
Medical Officer
|
|
$
|
93,750
|
|
|
$
|
5,297
|
|
|
$
|
16,602
|
|
|
$
|
115,649
|
|
Rule 10b5-1 Sales Plans
The combined organizations directors and executive officers may adopt written plans, known as
Rule 10b5-1
plans, in which they will contract with a broker to buy or sell shares of Nivalis common stock on a periodic basis. Under a Rule 10b5-1 plan a broker executes trades pursuant to
parameters established by the director or officer when entering into the plan, without further direction from them. The director or officer may amend or terminate the plan in some circumstances. The combined organizations directors and
executive
252
officers may also buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information. Any purchase or sales by the combined
organizations directors and executive officers, including pursuant to a 10b5-1 plan, will be subject to the terms of any lock-up agreements entered into by such directors and executive officers.
Employment Benefits Plan
N30 Pharmaceuticals, Inc. 2012 Stock Incentive Plan
The N30 Pharmaceuticals, Inc. 2012 Stock Incentive Plan (the 2012 Plan) was adopted by Nivalis board of directors and
approved by Nivalis stockholders in August 2012 prior to Nivalis corporate name change from N30 Pharmaceuticals, Inc. to Nivalis. No further grants may be made under the 2012 Plan as of the closing of Nivalis initial public
offering in June 2015, although all outstanding grants under the 2012 Plan will continue to be governed by the terms of the 2012 Plan. Any shares subject to awards granted under the 2012 Plan that would for any reason subsequently return to the
share reserve of the 2012 Plan under its terms will not return to the share reserve of the 2012 Plan.
Nivalis Therapeutics, Inc. 2015 Equity
Incentive Plan
The Nivalis Therapeutics, Inc. 2015 Equity Incentive Plan (the 2015 Plan), effective with Nivalis
initial public offering in June 2015, was adopted by Nivalis board of directors and approved by Nivalis stockholders in May 2015. The 2015 Plan was intended to serve as a replacement equity incentive program for the 2012 Plan.
Share Reserve
. In connection with the approval of the 2015 Plan, Nivalis authorized an aggregate of 1,081,700 shares of
Nivalis common stock for issuance under the 2015 plan. In addition, the number of shares of common stock reserved for issuance under the 2015 Plan will increase automatically on January 1 of each calendar year, from January 1, 2016
through January 1, 2025, by a number of shares equal to:
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|
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5.0% of the total number of shares of Nivalis common stock issued and outstanding on December 31 of the preceding calendar year; or
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|
A lesser number of shares of Nivalis common stock approved by Nivalis board of directors on or prior to December 31 of the preceding calendar year.
|
The number of shares of Nivalis common stock reserved for issuance under the 2015 Plan will be adjusted to reflect the Nivalis Reverse
Stock Split assuming the merger is completed.
Equity Awards
. The 2015 Plan provides for the granting of incentive and nonqualified
stock options, stock appreciation rights, restricted stock units, performance-based awards and other stock-based awards to its employees, directors and consultants. Stock options granted generally vest over either a one-year or three-year period for
grants to members of Nivalis board of directors, and over a four-year period for employee grants, and expire 10 years from the date of grant.
Eligibility
. Awards may be granted under the 2015 Plan to Nivalis employees, directors, non-employee directors or consultants who
have been selected by Nivalis compensation committee. While Nivalis may only grant incentive stock options to employees, it may grant all other awards to any eligible participant.
Administration
. The 2015 Plan will be administered by Nivalis compensation committee. Nivalis compensation committee will
act as the plan administrator and will have all the powers and authorities necessary or advisable in the administration of the 2015 Plan, including, without limitation, the power and authority to determine which eligible individuals are to receive
awards under the 2015 Plan, the time or times when such awards are to be made, the type, number and vesting requirements of awards to be granted, the number of shares subject to each award and the terms, conditions, restrictions and performance
criteria relating to any award.
253
Nivalis compensation committee may also amend the terms of the 2015 Plan and any award made pursuant thereto, except that amendments to outstanding awards may not materially impair the
rights of a participant without the participants consent. Amendments to the 2015 Plan are subject to stockholder approval to the extent required by law, rule or regulation.
Change in Control
. In the event of a change in control, as defined in the 2015 Plan, unless otherwise provided in an applicable award
agreement, outstanding awards that are not assumed, substituted, or replaced with a cash incentive program will fully vest and be fully exercisable immediately prior to the change in control.
Nivalis Therapeutics, Inc. Employee Stock Purchase Plan
Nivalis board of directors adopted the Nivalis Therapeutics, Inc. Employee Stock Purchase Plan (the ESPP), which became
effective on the closing of Nivalis initial public offering in June 2015. A total of 231,800 shares of common stock were made available for sale under the ESPP in connection with the ESPPs approval. The number of shares of Nivalis
common stock reserved for issuance under the ESPP will be adjusted to reflect the Nivalis Reverse Stock Split assuming the merger is completed. The material features of the ESPP are outlined below:
Purpose
. The purpose of the ESPP is to provide a means by which employees of Nivalis (and any subsidiary of Nivalis designated by the
compensation committee of Nivalis board of directors to participate in the ESPP) may be given an opportunity to purchase shares of Nivalis common stock through payroll deductions.
Administration
. The compensation committee of Nivalis board of directors administers the ESPP and has the power to construe and
interpret the ESPP, the terms of any offering period and the terms of the options to purchase shares of Nivalis common stock pursuant to the ESPP during each offering period. The compensation committee has the power, subject to the provisions
of the ESPP, to establish offering periods, determine when and how options to purchase shares of Nivalis common stock will be granted and the provisions and terms of each offering period (which need not be identical), and determine whether any
subsidiary of Nivalis will be eligible to participate in the ESPP.
Nivalis board of directors may at any time exercise any and all
rights and duties of the compensation committee under the ESPP.
Offerings.
The ESPP is implemented by offerings of rights to all
eligible employees from time to time. The maximum length for an offering period is 27 months. Currently, under the ESPP, unless otherwise determined by the compensation committee, each offering shall be in successive six-month periods, from January
to June and July to December of each calendar year.
Eligibility.
Any employee of Nivalis or any subsidiary of Nivalis designated
by the compensation committee to participate in the ESPP, who customarily works at least 20 hours per week for more than 5 months per calendar year on the first day of an offering period shall be eligible to participate in the ESPP. The compensation
committee has the authority to exclude from participation in the ESPP any employee that is a highly compensated employee as defined in the Code.
No employee is eligible to participate in the ESPP if, immediately after the grant of purchase rights, such employee would own capital stock
possessing 5% or more of the total combined voting power or value of all classes of the capital stock of Nivalis or of any parent or subsidiary of Nivalis. In addition, no employee may purchase more than $25,000 worth of common stock (determined at
the fair market value of the shares at the time such rights are granted) under all employee stock purchase plans of Nivalis and its parent and subsidiary corporations in any calendar year.
Participation in the ESPP.
Eligible employees may become a participant in the ESPP by submitting to Nivalis, in accordance with the
enrollment procedures established by the compensation committee, an agreement
254
authorizing payroll deductions, which shall not exceed 15% of such employees base salary, bonuses and commissions paid by Nivalis or any subsidiary of Nivalis designated by the compensation
committee to participate in the ESPP during the offering period. Upon the termination of an offering period, each participant in such offering period shall automatically participate in the immediately following offering period at the same payroll
deduction percentage as in effect at the termination of the prior offering period, unless the participant delivers to Nivalis a new payroll deduction authorization, or unless such participant becomes ineligible for participation in the ESPP.
Purchase Price.
The purchase price per share at which shares of Nivalis common stock are sold in an offering under the ESPP shall
be 85% of the lesser of the fair market value of a share of common stock on:
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|
|
The first day of the offering; or
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|
The last day of the offering.
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Payment of Purchase Price; Payroll Deductions.
Under the
ESPP, the purchase price of shares is accumulated by payroll deductions over the offering period. A participant may decrease, but not increase, his or her payroll deduction only once during an offering period. All payroll deductions made on behalf
of a participant with respect to an offering period are credited to the participants account under the ESPP, which is established and maintained by Nivalis in the name of each participant.
Purchase of Stock.
In connection with offerings made under the ESPP, the compensation committee has determined that in no event shall a
participant be permitted to purchase more than 25,000 shares of common stock during each offering period. However, the compensation committee may increase or decrease, in its absolute discretion, the maximum number of shares of common stock that a
participant may purchase in future offering periods. If the compensation committee determines that the aggregate number of shares to be purchased upon exercise of rights granted in the offering would exceed the number of shares of common stock
available, the compensation committee shall make a pro rata allocation of available shares in a uniform and equitable manner. On the last day of the offering period, each participant shall automatically be deemed to have exercised his or her option
to purchase at the applicable per share purchase price the largest number of whole shares of common stock, which can be purchased with the amount in the participants account under the ESPP.
Withdrawal.
A participant may withdraw from a given offering by delivering to the compensation committee a written notice of withdrawal
from the ESPP. Such withdrawal must be given in such form and at such time prior to the last day of the then-current offering period as may be established by the compensation committee.
Upon any withdrawal from an offering by the employee, Nivalis will distribute to the employee his or her accumulated payroll deductions then
credited to the participants account under the ESPP in a lump-sum payment in cash, without interest, within 30 days after such election is received by the compensation committee, and such employees rights in the offering will be
automatically terminated. If a participant withdraws from the offering period, payroll deductions will not resume at the beginning of the succeeding offering period, unless the participant re-enrolls in the ESPP.
Termination of Eligibility.
Upon a participants ceasing to be an eligible employee for any reason, the participants rights
under any offering under the ESPP shall terminate immediately, and he or she shall be deemed to have elected to withdraw from the ESPP, and such participants plan account under the ESPP shall be paid to such participant, without interest,
within 30 days after such cessation of being an eligible employee.
Restrictions on Transfer.
Rights granted under the ESPP are not
transferable except by will or the applicable laws of descent and distribution. During the lifetime of the participant, such rights may only be exercised by the participant.
255
Adjustment Provisions.
Upon the consummation of certain transactions by Nivalis, such as a
dividend or other distribution (whether in the form of cash, common stock, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of
shares or other Nivalis securities, or other change in Nivalis structure affecting Nivalis common stock, Nivalis will equitably adjust the number of shares and class of common stock that may be delivered under the ESPP, the purchase
price and the number of shares of common stock covered by each outstanding option under the ESPP, and any purchase limits.
Effect of
Certain Corporate Transactions.
In the event of a merger, consolidation, acquisition of property or stock, separation, reorganization or other corporate event with respect to Nivalis, any right to purchase shares of Nivalis common stock
pursuant to the ESPP shall be assumed or substituted by the successor corporation or a parent or subsidiary of the successor corporation. If the successor corporation does not assume or substitute similar rights, any offering periods then in
progress shall be shortened by setting a new last day before the date of Nivalis proposed sale or merger on which the offering periods will end and the participants right to purchase shares of Nivalis common stock pursuant to the
ESPP will be exercised automatically on such date.
Duration, Amendment and Termination.
Nivalis board of directors may
amend, suspend or terminate the ESPP at any time for any reason. However, without approval of Nivalis stockholders given within 12 months before or after action taken by Nivalis board of directors, the ESPP may not be amended:
|
|
|
To increase the maximum number of shares of Nivalis common stock subject to the ESPP,
|
|
|
|
To change the designation or class of eligible employees, or
|
|
|
|
In any manner that would cause the ESPP to no longer be an employee stock purchase plan within the meaning of Section 423(b) of the Code.
|
If the ESPP is terminated, the compensation committee may elect to terminate all outstanding offering periods either immediately or, once
shares of common stock have been purchased, on the next last day of the offering period (which may be accelerated at the compensation committees discretion). If any offering period is terminated before its scheduled expiration, all amounts
that have not been used to purchase shares of Nivalis common stock will be returned to participants (without interest, except as otherwise required by law) as soon as administratively practicable.
Alpine Immune Sciences, Inc. Amended and Restated 2015 Stock Plan
Alpines board of directors amended and restated the previously adopted Alpine Immune Sciences, Inc. 2015 Stock Plan, effective on
June 9, 2016 (the Amended and Restated 2015 Plan). The Amended and Restated 2015 Plan will expire on January 23, 2025. Under the Amended and Restated 2015 Plan, Alpine may grant stock options, nonstatutory stock options, and stock
purchase rights. In March 2017 and April 2017, Alpines board of directors and Alpines stockholders approved an amendment to the Amended and Restated 2015 Plan to increase the number of shares of Alpines common stock available for
grant to 3,445,604 shares. Pursuant to the Merger Agreement, Nivalis will assume the Amended and Restated 2015 Plan upon the closing of the merger.
Alpines board of directors or a committee appointed by Alpines board of directors will administer the Amended and Restated 2015
Plan. In accordance with the provisions of the Amended and Restated 2015 Plan, Alpines board of directors or the committee to which administration has been delegated may determine the terms of options and other awards, select which
employees and consultants of Alpine shall be granted options and other awards, and construe and interpret the terms of the Amended and Restated 2015 Plan and the awards granted thereunder.
In the event of a sale of all or substantially all of Alpines assets, or a merger, consolidation, or other capital reorganization of
Alpine with or into another corporation or business entity, the agreement of the relevant
256
transaction may provide for one or more of the following actions pursuant to the Amended and Restated 2015 Plan, as to options that are exercisable as of the effective date of the transaction:
|
|
|
the continuation of such options by Alpine (if Alpine is the surviving entity);
|
|
|
|
the assumption of such options by the surviving corporation or its parent;
|
|
|
|
the substitution by the surviving corporation or its parent of new options for such options;
|
|
|
|
the cancellation of such options, in exchange for cash consideration equal to the excess of the fair market value of the shares subject to such options as of the effective date of the transaction over their exercise
price; or
|
|
|
|
the cancellation of such options without consideration.
|
Alpine 401(k) Plan
Alpine has adopted the WTIA 401(k) Multiple Employer Plan, maintained by Washington Technology Industry Association, which is a defined
contribution retirement plan in which all Alpine employees providing at least 20 hours of service a week are eligible to participate. The 401(k) Plan is intended to qualify under Section 401(k) of the Code so that contributions by employees to
the 401(k) Plan and income earned on contributions are not taxable to employees until withdrawn or distributed from the 401(k) Plan. Alpine does not currently match contributions under this 401(k) Plan.
Other Benefits
Alpine also
contributes to medical, dental and vision insurance plans for its employees.
257
RELATED PARTY TRANSACTIONS OF DIRECTORS AND EXECUTIVE OFFICERS OF
THE COMBINED ORGANIZATION
Described below are any transactions occurring since January 1, 2016 and any currently proposed
transactions to which either Nivalis or Alpine was a party and in which
|
|
|
the amounts involved exceeded or will exceed $120,000; and
|
|
|
|
a director, executive officer, holder of more than 5% of the outstanding capital stock of Nivalis or Alpine, or any member of such persons immediate family had or will have a direct or indirect material interest.
|
Nivalis Transactions
Indemnification Agreements
Nivalis has
entered into indemnification agreements with each of its directors and with each of its executive officers. Pursuant to the indemnification agreements, Nivalis has agreed to indemnify and hold harmless these directors and officers to the fullest
extent permitted by applicable law. The agreements generally cover expenses that a director or officer incurs or amounts that a director or officer becomes obligated to pay because of any proceeding to which he or she is made or threatened to be
made a party or participant by reason of his or her service as a current or former director, officer, employee or agent of Nivalis. The agreements also provide for the advancement of expenses to the directors and executive officers subject to
specified conditions. There are certain exceptions to Nivalis obligation to indemnify the directors and officers, including any intentional misconduct or act where the director or officer did not in good faith believe he or she was acting in
Nivalis best interests, with respect to short-swing profit claims under Section 16(b) of the 1934 Act and, with certain exceptions, with respect to proceedings that he or she initiates.
Employment Agreements
See The
MergerInterests of Nivalis Directors and Executive Officers in the Merger for a description of the terms of these agreements.
Policies and
Procedures with Respect to Related Party Transactions
Nivalis board of directors has adopted a written policy governing the
review and approval of related party transactions. The Audit Committee of Nivalis board of directors has the primary responsibility for reviewing and approving or disapproving related party transactions, as designated in the Audit Committee
charter. In addition, Nivalis Code of Business Conduct and Ethics requires that each of Nivalis employees and directors inform his or her superior or the chairman of the Audit Committee, respectively, of any material transaction or
relationship that comes to his or her attention that could reasonably be expected to create a conflict of interest. Further, at least annually, each director and executive officer will complete a detailed questionnaire that asks questions about any
business relationship that may give rise to a conflict of interest and all transactions in which Nivalis is involved and in which an executive officers, a director or a related person has a direct or indirect material interest.
Alpine Transactions
Affiliations with Principal Stockholders
Each of Dr. Jay Venkatesan and Dr. Mitchell H. Gold is an executive officer of Alpine, a member of Alpines board of
directors and, in their individual capacities, a limited partner of Alpine Immunosciences, L.P., Delaware limited partnership, which is a holder of more than 5% of Alpines outstanding capital stock. In addition, each of Dr. Jay Venkatesan
and Dr. Mitchell H. Gold, in their individual capacities, is a Managing Partner of Alpine BioVentures, GP, LLC, a Delaware limited liability company, which is the general partner of Alpine Immunosciences, L.P.
258
Dr. James N. Topper, M.D., Ph.D. is a member of Alpines board of directors and,
in his individual capacity, is a managing member of FHM Life Sciences VIII, LLC, a Delaware limited liability company. FHM Life Sciences VIII, LLC is the general partner of FHM Life Sciences VIII, LP, a Delaware limited partnership. FHM Life
Sciences VIII, LP is the general partner of Frazier Life Sciences VIII, L.P., a Delaware limited partnership, which is a holder of more than 5% of Alpines outstanding capital stock.
Dr. Peter Thompson M.D. is a member of Alpines board of directors and, in his individual capacity, is an employee of OrbiMed
Advisors LLC. OrbiMed Advisors LLC is the managing member of OrbiMed Capital GP VI LLC. OrbiMed Capital GP VI LLC is the general partner of OrbiMed Private Investments VI, LP, which is a holder of more than 5% of Alpines outstanding capital
stock.
Indemnification Agreements
In 2015, Alpine entered into an indemnification agreement with each of Dr. Jay Venkatesan and Dr. Mitchell H. Gold which
provides for the advancement of expenses under certain conditions and requires Alpine to indemnify such executive officer and director of Alpine to the fullest extent permitted by Delaware law.
In June 2016, Alpine entered into an indemnification agreement with each of Dr. James N. Topper, M.D., Ph.D. and Dr. Peter
Thompson M.D. which provides for the advancement of expenses under certain conditions and requires Alpine to indemnify such director of Alpine to the fullest extent permitted by Delaware law.
In April 2017, Alpine entered into an indemnification agreement with Paul Rickey which provides for the advancement of expenses under certain
conditions and requires Alpine to indemnify such executive officer of Alpine to the fullest extent permitted by Delaware law.
Series Seed Financing
Alpine Immunosciences, L.P., which is affiliated with Alpines executive officers and directors Dr. Jay Venkatesan and
Dr. Mitchell H. Gold as further described above, is a party to that certain Alpine Series Seed Preferred Stock Agreement dated January 23, 2015, as amended, pursuant to which Alpine Immunosciences, L.P. agreed to purchase an aggregate
total of 5,000,000 shares of Alpines Series Seed Preferred Stock, all at a purchase price per share of $0.25 per share, in a number of closings that occurred between January 27, 2015 and April 15, 2016. The table below sets forth the
number of shares of Alpine Series Seed Preferred Stock sold by Alpine between January 1, 2016 and April 15, 2016 pursuant to the terms of the Alpine Series Seed Preferred Stock Purchase Agreement dated January 23, 2015, as amended,
and the aggregate purchase price for such shares. No shares of Alpine Series Seed Preferred Stock were sold after April 15, 2016.
|
|
|
|
|
|
|
|
|
Name of Purchaser
|
|
Aggregate
Purchase
Price
|
|
|
Number of
Shares of Alpine Series
Seed Preferred Stock
|
|
Alpine Immunosciences, L.P.
|
|
$
|
640,000
|
|
|
|
2,560,000
|
|
Series A Financing
Each of Alpine Immunosciences, L.P., which is affiliated with Alpines executive officers and directors Dr. Jay Venkatesan and
Dr. Mitchell H. Gold as further described above, Frazier Life Sciences VIII, L.P., which is affiliated with Alpine director Dr. James N. Topper, M.D. as further described above, and OrbiMed Private Investments VI, LP, which is
affiliated with Alpines director Dr. Peter Thompson, M.D., is a party to that certain Alpine Series A Preferred Stock Purchase Agreement dated June 10, 2016, pursuant to which Alpine Immunosciences, L.P., Frazier Life Sciences VIII,
L.P. and OrbiMed Private Investments VI, LP agreed to purchase shares of Alpines Series
A-1
Preferred Stock, a portion of which was contingent upon certain
259
milestones, at a purchase price per share of $2.81. The table below sets forth the number of shares of Alpine Series
A-1
Preferred Stock sold by Alpine
since January 1, 2016 pursuant to the terms of the Alpine Series A Preferred Stock Purchase Agreement dated June 10, 2016 and the aggregate purchase price for such shares.
|
|
|
|
|
|
|
|
|
Name of Purchaser
|
|
Aggregate
Purchase
Price
|
|
|
Number of
Shares of Alpine Series
A-1
Preferred Stock
|
|
Alpine Immunosciences, L.P.
|
|
$
|
5,999,999.11
|
|
|
|
2,135,231
|
|
OrbiMed Private Investments VI, LP
|
|
$
|
14,999,999.18
|
|
|
|
5,338,078
|
|
Frazier Life Sciences VIIII, L.P.
|
|
$
|
10,000,000.39
|
|
|
|
3,558,719
|
|
Subscription Agreement
Each of Alpine Immunosciences, L.P., which is affiliated with Alpines executive officers and directors Dr. Jay Venkatesan and
Dr. Mitchell H. Gold as further described above, Frazier Life Sciences VIII, L.P., which is affiliated with Dr. James N. Topper, M.D. as further described above, and Orbimed Private Investments VI, LP, which is affiliated with
Dr. Peter Thompson, M.D., have agreed to purchase shares of Alpine common stock for an aggregate purchase price of $17.0 million, in conjunction with the
Pre-Closing
Financing. For more information
regarding the Subscription Agreement, please see the section entitled Agreements Related to the MergerSubscription Agreement in this proxy statement/prospectus/information statement. The table below sets forth the number of shares
of Alpine common stock they have agreed to purchase and the aggregate purchase price for such shares.
|
|
|
|
|
|
|
|
|
Name of Purchaser
|
|
Aggregate
Purchase
Price
|
|
|
Number of
Shares of Alpine
Common Stock
|
|
Alpine Immunosciences, L.P.
|
|
$
|
3,290,324.72
|
|
|
|
520,045
|
|
OrbiMed Private Investments VI, LP
|
|
$
|
8,225,808.62
|
|
|
|
1,300,112
|
|
Frazier Life Sciences VIIII, L.P.
|
|
$
|
5,483,870.31
|
|
|
|
866,741
|
|
Stock Transfer Agreements
Alpines executive officers and directors Dr. Jay Venkatesan and Dr. Mitchell H. Gold each transferred a number of shares
of Alpines common stock that were held in their individual capacities to trusts established for the benefit of their respective children, each pursuant to the terms of a Stock Transfer Agreement. Alpine is a party to such Stock Transfer
Agreements solely as a beneficiary of the representations and warranties contained therein.
Director and Executive Officer Compensation
For information regarding the compensation of Alpines directors and executive officers, please see the section entitled Management
Following the MergerExecutive Compensation Discussion and Analysis in this proxy statement/prospectus/information statement.
Policy for
Approval of Related Person Transactions
While Alpine does not have a formal written policy or procedure for the review, approval or
ratification of related party transactions, Alpines board of directors reviews and considers the interests of its directors, executive officers and principal stockholders in its review and consideration of transactions.
260
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following information does not give effect to the proposed one-for-four reverse stock split of Nivalis common stock described in Nivalis
Proposal No. 2.
The following unaudited pro forma condensed combined financial information was prepared using the acquisition
method of accounting under U.S. GAAP, and gives effect to the transaction between Nivalis and Alpine to be accounted for as a reverse acquisition, with Alpine being deemed the acquiring company for accounting purposes.
Alpine was determined to be the accounting acquirer based upon the terms of the Merger Agreement and other factors including: (i) Alpine
stockholders, optionholders and warrantholders are expected to own, or hold rights to acquire, approximately 74% of the Fully-Diluted Common Stock of Nivalis immediately following the closing of the transaction and (ii) directors appointed by
Alpine will hold a majority of board seats in the combined organization.
The following unaudited pro forma condensed combined financial
statements are based on Nivalis historical financial statements and Alpines historical financial statements, as adjusted to give effect to Nivalis acquisition of Alpine. The unaudited pro forma condensed combined statements of
operations for the three months ended March 31, 2017 and the year ended December 31, 2016 give effect to these transactions as if they had occurred on January 1, 2016. The unaudited pro forma condensed combined balance sheet as of
March 31, 2017 gives effect to these transactions as if they had occurred on March 31, 2017.
Because Alpine will be treated as
the accounting acquirer, Alpines assets and liabilities will be recorded at their precombination carrying amounts and the historical operations that are reflected in the unaudited pro forma financial information will be those of Alpine.
Nivaliss assets and liabilities will be measured and recognized at their fair values as of the transaction date, and combined with the assets, liabilities and results of operations of Alpine after the consummation of the transaction.
The unaudited pro forma condensed combined financial information is based on the assumptions and adjustments that are described in the
accompanying notes. The application of the acquisition method of accounting is dependent upon certain valuations and other studies that have yet to be completed. Accordingly, the pro forma adjustments are preliminary, subject to further revision as
additional information becomes available and additional analyses are performed, and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary estimates and
the final acquisition accounting, expected to be completed after the closing of the transaction, will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial information and the
combined organizations future results of operations and financial position. In addition, differences between the preliminary and final amounts will likely occur as a result of the amount of cash used for Nivalis operations, changes in
the fair value of Nivalis common stock and other changes in Nivalis assets and liabilities.
The unaudited pro forma condensed
combined financial information does not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the integration of the two companies.
The unaudited pro forma condensed combined financial information is preliminary and has been prepared for illustrative purposes only and is not necessarily indicative of the financial position or results of operations in future periods or the
results that actually would have been realized had Nivalis and Alpine been a combined organization during the specified periods. The actual results reported in periods following the transaction may differ significantly from those reflected in these
pro forma financial information presented herein for a number of reasons, including, but not limited to, differences between the assumptions used to prepare this pro forma financial information.
The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in
the accompanying notes, which should be read together with the pro forma condensed combined financial statements.
261
The unaudited pro forma condensed combined financial statements should be read together with
Nivalis and Alpines historical financial statements, which are included in this proxy statement/prospectus/information statement.
Pro Forma Condensed Combined Balance Sheet as of March 31, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpine
|
|
|
Nivalis
|
|
|
Pro Forma
Adjustments
|
|
|
Note 4
|
|
|
Pro
Forma
Combined
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,568
|
|
|
$
|
12,929
|
|
|
$
|
33,667
|
|
|
|
(e
|
)
|
|
$
|
60,164
|
|
Marketable securities
|
|
|
|
|
|
|
39,745
|
|
|
|
|
|
|
|
|
|
|
|
39,745
|
|
Prepaid expense and other current assets
|
|
|
170
|
|
|
|
263
|
|
|
|
(263
|
)
|
|
|
(b
|
)
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
13,738
|
|
|
|
52,937
|
|
|
|
33,404
|
|
|
|
|
|
|
|
100,079
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
781
|
|
|
|
72
|
|
|
|
(72
|
)
|
|
|
(b
|
)
|
|
|
781
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
1,400
|
|
|
|
(f
|
)
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
14,519
|
|
|
$
|
53,009
|
|
|
$
|
34,732
|
|
|
|
|
|
|
$
|
102,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities convertible preferred stock, and stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other accrued expenses
|
|
$
|
326
|
|
|
|
1,278
|
|
|
|
1,084
|
|
|
|
(b
|
)
|
|
|
6,713
|
|
|
|
|
|
|
|
|
|
|
|
|
4,025
|
|
|
|
(d
|
)
|
|
|
|
|
Accrued other liabilities
|
|
|
555
|
|
|
|
54
|
|
|
|
560
|
|
|
|
(b
|
)
|
|
|
1,169
|
|
Accrued direct program expenses
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
Accrued restructuring charges
|
|
|
|
|
|
|
2,251
|
|
|
|
|
|
|
|
|
|
|
|
2,251
|
|
Accrued employee benefits
|
|
|
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
Income taxes payable
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
Deferred revenue
|
|
|
1,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,271
|
|
Deferred rent, current portion
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,254
|
|
|
|
3,789
|
|
|
|
5,669
|
|
|
|
|
|
|
|
11,712
|
|
|
|
|
|
|
|
Deferred rent, long-term portion
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,357
|
|
|
|
3,789
|
|
|
|
5,669
|
|
|
|
|
|
|
|
11,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
15,535
|
|
|
|
|
|
|
|
16,667
|
|
|
|
(e
|
)
|
|
|
32,202
|
|
|
|
|
|
|
|
Stockholders (deficit) equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
16
|
|
|
|
56
|
|
|
|
(a
|
)
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
(b
|
)
|
|
|
|
|
Additional paid-in-capital
|
|
|
217
|
|
|
|
238,434
|
|
|
|
(56
|
)
|
|
|
(a
|
)
|
|
|
63,717
|
|
|
|
|
|
|
|
|
|
|
|
|
46,556
|
|
|
|
(b
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
|
|
|
(e
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(238,434
|
)
|
|
|
(b
|
)
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
(b
|
)
|
|
|
(14
|
)
|
Accumulated deficit
|
|
|
(3,590
|
)
|
|
|
(189,216
|
)
|
|
|
189,216
|
|
|
|
(b
|
)
|
|
|
(5,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
2,099
|
|
|
|
(b
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,025
|
)
|
|
|
(d
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(3,373
|
)
|
|
|
49,220
|
|
|
|
12,396
|
|
|
|
|
|
|
|
58,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities convertible preferred stock, and stockholders equity
|
|
$
|
14,519
|
|
|
$
|
53,009
|
|
|
$
|
34,732
|
|
|
|
|
|
|
$
|
102,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262
Pro Forma Condensed Combined Statement of OperationsThree
Months Ended March 31, 2017
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpine
|
|
|
Nivalis
|
|
|
Pro Forma
Adjustments
|
|
|
Note 4
|
|
|
Pro
Forma
Combined
|
|
Revenues:
|
|
$
|
737
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,858
|
|
|
|
2,758
|
|
|
|
|
|
|
|
|
|
|
|
4,616
|
|
General and administrative
|
|
|
873
|
|
|
|
2,781
|
|
|
|
(228
|
)
|
|
|
(c
|
)
|
|
|
3,426
|
|
Restructuring charges
|
|
|
|
|
|
|
3,486
|
|
|
|
|
|
|
|
|
|
|
|
3,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,731
|
|
|
|
9,025
|
|
|
|
(228
|
)
|
|
|
|
|
|
|
11,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,994
|
)
|
|
|
(9,025
|
)
|
|
|
228
|
|
|
|
|
|
|
|
(10,791
|
)
|
Interest income
|
|
|
5
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,989
|
)
|
|
$
|
(8,916
|
)
|
|
$
|
228
|
|
|
|
|
|
|
$
|
(10,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(1.61
|
)
|
|
$
|
(0.57
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
1,238
|
|
|
|
15,644
|
|
|
|
39,870
|
|
|
|
(g
|
)
|
|
|
55,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263
Pro Forma Condensed Combined Statement of OperationsYear
Ended December 31, 2016
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpine
|
|
|
Nivalis
|
|
|
Pro Forma
Adjustments
|
|
|
Note 4
|
|
|
Pro
Forma
Combined
|
|
Revenues:
|
|
$
|
2,950
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
2,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2,989
|
|
|
|
23,316
|
|
|
|
|
|
|
|
|
|
|
|
26,305
|
|
General and administrative
|
|
|
1,149
|
|
|
|
8,586
|
|
|
|
|
|
|
|
|
|
|
|
9,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,138
|
|
|
|
31,902
|
|
|
|
|
|
|
|
|
|
|
|
36,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,188
|
)
|
|
|
(31,902
|
)
|
|
|
|
|
|
|
|
|
|
|
(33,090
|
)
|
Interest income
|
|
|
22
|
|
|
|
439
|
|
|
|
|
|
|
|
|
|
|
|
461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,166
|
)
|
|
|
(31,463
|
)
|
|
|
|
|
|
|
|
|
|
|
(32,629
|
)
|
Income tax expense
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,232
|
)
|
|
$
|
(31,463
|
)
|
|
$
|
|
|
|
|
|
|
|
$
|
(32,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(1.08
|
)
|
|
$
|
(2.03
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
1,136
|
|
|
|
15,492
|
|
|
|
39,870
|
|
|
|
(g
|
)
|
|
|
55,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
264
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
Note 1Description of Transaction and Basis of Presentation
The unaudited pro forma condensed combined financial information was prepared in accordance with U.S. GAAP and pursuant to the rules and
regulations of SEC Regulation S-X, and present the pro forma financial position and results of operations of the combined companies based upon the historical data of Nivalis and Alpine.
For the purposes of the unaudited pro forma combined financial information, the accounting policies of Nivalis and Alpine are aligned with no
differences. Accordingly, no effect has been provided for the pro forma adjustments described in Note 4, Pro Forma Adjustments.
Description of Transaction
On
April 18, 2017, Nivalis, Merger Sub, and Alpine, entered into the Merger Agreement, pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge
with and into Alpine, with Alpine continuing as a wholly owned subsidiary of Nivalis and the surviving corporation of the merger.
Subject
to the terms and conditions of the Merger Agreement, at the closing of the merger, each outstanding share of Alpine common stock will be converted into the right to receive shares of Nivalis common stock (subject to the payment of cash in lieu
of fractional shares and after giving effect to a reverse stock split of Nivalis common stock if determined necessary or appropriate by Nivalis, Alpine and Merger Sub) such that, immediately following the Effective Time, preexisting Nivalis
stockholders, optionholders and warrantholders are expected to own, or hold rights to acquire, approximately 26% of the Fully-Diluted Common Stock of Nivalis, and preexisting Alpine stockholders, optionholders and warrantholders are expected to own,
or hold rights to acquire, approximately 74% of the Fully-Diluted Common Stock of Nivalis.
Contemporaneously with the execution and
delivery of the Merger Agreement, and as a condition of the willingness of Nivalis to enter into the Merger Agreement, certain existing stockholders of Alpine have entered into the Subscription Agreement with Alpine pursuant to which such
stockholders have agreed, subject to the terms and conditions of the Subscription Agreement, to purchase immediately prior to the closing of the merger shares of Alpines capital stock for an aggregate purchase price of approximately $17.0
million. The consummation of the transactions contemplated by such Subscription Agreement is conditioned upon the satisfaction or waiver of the conditions set forth in the Merger Agreement.
Basis of Presentation
Alpine has
preliminarily concluded that the transaction represents a business combination pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 805,
Business Combinations
. Alpine has not yet completed an external
valuation analysis of the fair market value of Nivalis assets to be acquired and liabilities to be assumed. Using the estimated total consideration for the transaction, Alpine has estimated the allocations to such assets and liabilities. This
preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma condensed combined balance sheet. The final purchase price allocation will be determined when Alpine has determined the final
consideration and completed the detailed valuations and other studies and necessary calculations. The final purchase price allocation could differ materially from the preliminary purchase price allocation used to prepare the pro forma adjustments.
The final purchase price allocation may include (i) changes in allocations to intangible assets and bargain purchase gain or goodwill based on the results of certain valuations and other studies that have yet to be completed, (ii) other
changes to assets and liabilities and (iii) changes to the ultimate purchase consideration.
265
Note 2Financing transactions
On April 18, 2017, prior to execution and delivery of the Merger Agreement, and as contemplated by the Merger Agreement, certain holders
of Alpines Series A-1 convertible preferred stock purchased 5.9 million shares of Series A-1 convertible preferred stock for an aggregate purchase price of $16.7 million. In addition, contemporaneously with the execution and delivery of
the Merger Agreement, and as a condition of the willingness of Nivalis to enter into the Merger Agreement, certain existing stockholders of Alpine entered into a Subscription Agreement with Alpine to purchase 2.7 million shares of Alpine common
stock for an aggregate purchase price of $17.0 million, to take place immediately prior to the closing of the proposed merger, subject to the terms of the Subscription Agreement.
Note 3Preliminary purchase price allocation
Alpine has performed a preliminary valuation analysis of the fair value of Nivalis assets and liabilities. The following table
summarizes the allocation of the preliminary purchase price as of the acquisition date (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,929
|
|
Marketable securities
|
|
|
39,745
|
|
Prepaid expense and other current assets
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
Accounts payable and other accrued expenses
|
|
|
(1,278
|
)
|
Accrued direct program expenses
|
|
|
(87
|
)
|
Accrued restructuring charges
|
|
|
(2,251
|
)
|
Accrued employee benefits
|
|
|
(119
|
)
|
Accrued other liabilities
|
|
|
(1,138
|
)
|
Bargain purchase gain
|
|
|
(2,099
|
)
(w)
|
Intangible assets
|
|
|
1,400
|
|
Deferred tax liability
|
|
|
(560
|
)
(x)
|
|
|
|
|
|
Total consideration
|
|
$
|
46,542
|
|
|
|
|
|
|
|
(w)
|
To reflect the bargain purchase gain recognized as a result of the transaction.
|
|
(x)
|
The deferred tax liability resulting from the increase in basis of Nivalis intangible assets, as applicable, for book purposes but not for tax purposes was calculated using a 40% effective tax rate.
|
Under the acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible
assets and assumed liabilities of Nivalis based on their estimated fair values as of the transaction closing date. The excess of the estimated fair values of net assets acquired over the acquisition consideration paid will be recorded as a bargain
purchase gain in the condensed combined statement of operations. The bargain purchase gain has not been reflected in the pro forma condensed combined statement of operations as it is directly attributable to the transaction and will not have a
continuing impact on the operating results of the combined organization.
266
The following table illustrates the effect of changes in Nivalis common stock price and the
resulting impact on the estimated total purchase price and estimated bargain purchase (gain) goodwill (in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in stock price
|
|
Stock price
|
|
|
Estimated
purchase price
|
|
|
Estimated
purchase (gain)
goodwill
|
|
Increase of 10%
|
|
$
|
3.21
|
|
|
$
|
50,288
|
|
|
$
|
1,647
|
|
Decrease of 10%
|
|
$
|
2.63
|
|
|
$
|
41,145
|
|
|
$
|
(7,496
|
)
|
Increase of 20%
|
|
$
|
3.50
|
|
|
$
|
54,859
|
|
|
$
|
6,218
|
|
Decrease of 20%
|
|
$
|
2.34
|
|
|
$
|
36,573
|
|
|
$
|
(12,068
|
)
|
Increase of 30%
|
|
$
|
3.80
|
|
|
$
|
59,431
|
|
|
$
|
10,790
|
|
Decrease of 30%
|
|
$
|
2.04
|
|
|
$
|
32,001
|
|
|
$
|
(16,640
|
)
|
Increase of 50%
|
|
$
|
4.38
|
|
|
$
|
68,574
|
|
|
$
|
19,933
|
|
Decrease of 50%
|
|
$
|
1.46
|
|
|
$
|
22,858
|
|
|
$
|
(25,783
|
)
|
Note 4Pro forma adjustments
The pro forma adjustments are based on preliminary estimates and assumptions that are subject to change. The following adjustments have been
reflected in the unaudited pro forma condensed combined financial information:
(a) Represents the issuance of 39.9 million shares of
Nivalis common stock upon close of the proposed merger. The effect of the issuance on common stock and additional paid-in capital is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-in Capital
|
|
Issuance of 39.9 million shares of Nivalis common stock
|
|
$
|
40
|
|
|
$
|
(40
|
)
|
Adjustments due to reverse merger
|
|
|
16
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56
|
|
|
$
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
(b) Represents the elimination of the historical equity of Nivalis and the initial allocation of the purchase
price to identified intangibles, fair value adjustments and goodwill, as follows (in thousands):
|
|
|
|
|
Total consideration
|
|
$
|
46,542
|
(y)
|
Accumulated other comprehensive loss
|
|
|
14
|
|
Common stock
|
|
|
(16
|
)
|
Additional paid-in capital
|
|
|
(238,434
|
)
|
Accumulated deficit
|
|
|
189,216
|
|
Assets:
|
|
|
|
|
Intangible assets
|
|
|
(1,400
|
)
|
Prepaid expense and other current assets
|
|
|
263
|
|
Property and equipment, net
|
|
|
72
|
|
Liabilities:
|
|
|
|
|
Accounts payable (change in control obligations)
|
|
|
1,084
|
(z)
|
Deferred tax liability
|
|
|
560
|
|
|
|
|
|
|
Bargain purchase gain
|
|
$
|
(2,099
|
)
|
|
|
|
|
|
|
(y)
|
Consideration of $46.5 million represents $45.7 million of market value ($2.92 per share as of March 31, 2017) or 15.7 million shares of Nivalis common stock and $0.8 million in the fair value of stock-based
compensation accounted for as a modification due to acceleration triggered by a change in control.
|
267
|
(z)
|
Represents the accrual of change of control obligations for Nivalis employees that will become due at the closing of the merger.
|
(c) Represents the elimination of estimated transaction costs of $0.2 million by Nivalis during the three months ended March 31, 2017.
Expenses incurred by Alpine for the three months ended March 31, 2017 were immaterial. These amounts have been eliminated on a pro forma basis, as they are not expected to have a continuing effect on the operating results of the combined
organization.
(d) Reflects an adjustment of approximately $4.0 million for the estimated transaction costs for both Alpine and Nivalis,
such as adviser fees, legal and accounting expenses and D&O related insurance that were not incurred as of March 31, 2017.
(e)
Reflects Alpines issuance of approximately 2.7 million shares of common stock for approximately $17.0 million, to take place immediately prior to closing of the proposed merger, and approximately 5.9 million Series A-1
preferred shares for approximately $16.7 million, completed on April 18, 2017.
(f) As required by FASB ASC 805, acquired
in-process research and development (IPR&D) through business combinations is accounted for as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts. Therefore, such
assets are not amortized but are tested for impairment at least annually (amounts in thousands):
|
|
|
|
|
|
|
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Estimated
Fair
Value
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Estimated
Useful Life
in Years
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Year Ended
December 31,
2016
Amortization
Expense
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Three Months Ended
March 31,
2017
Amortization
Expense
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In-process research and development
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$
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1,400
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Indefinite
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$
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$
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(g) Represents the increase in the weighted-average shares due to the issuance of 39.9 million shares of
common stock in connection with the merger. The table presents these pro forma adjustments as follows (in thousands):
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Year Ended
December 31, 2016
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Three Months Ended
March 31, 2017
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Weighted-Average Shares Outstanding
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15,492
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15,644
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Issuance of shares for Nivalis common stock pursuant to the merger
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39,870
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39,870
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55,362
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|
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55,514
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The 39.9 million shares of Nivalis common stock to be issued pursuant to the merger does not take into
account the 4.8 million shares of Nivalis common stock to be reserved for each option and warrant exercisable for shares of Alpine common stock or preferred stock or the effect of the Nivalis Reverse Stock Split.
268
DESCRIPTION OF NIVALIS CAPITAL STOCK
The following description of Nivalis capital stock is not complete and may not contain all the information you should consider before
investing in Nivalis capital stock. This description is summarized from, and qualified in its entirety by reference to, Nivalis amended and restated certificate of incorporation, which has been publicly filed with the SEC. See
Where You Can Find More Information; Incorporation by Reference.
Nivalis authorized capital stock consists of:
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200,000,000 shares of common stock, $0.001 par value, of which 15,656,251 shares have been issued and are outstanding as of May 18, 2017; and
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10,000,000 shares of preferred stock, $0.001 par value, of which no shares have been issued and are outstanding as of May 18, 2017.
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Common Stock
The holders of shares of
Nivalis common stock are entitled to one vote per share on all matters to be voted upon by Nivalis stockholders and there are no cumulative rights. Subject to preferences that may be applicable to any outstanding preferred stock, the
holders shares of Nivalis of common stock are entitled to receive ratably any dividends that may be declared from time to time by Nivalis board of directors out of funds legally available for that purpose. In the event of liquidation of
Nivalis, dissolution or winding up, the holders of shares of Nivalis common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock then outstanding.
Nivalis common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to Nivalis common stock. The outstanding shares of Nivalis common stock are
fully paid and
non-assessable,
and any shares of Nivalis common stock to be issued upon an offering pursuant to this proxy statement/prospectus/information statement and the related prospectus supplement
will be fully paid and nonassessable upon issuance.
Transfer Agent
The transfer agent and registrar for Nivalis common stock is American Stock Transfer & Trust Company, LLC. Its address is 6201
15th Avenue, Brooklyn, NY 11219.
Dividend
Nivalis has never paid cash dividends on its common stock. Moreover, Nivalis does not anticipate paying periodic cash dividends on its common
stock for the foreseeable future. Any future determination about the payment of dividends will be made at the discretion of Nivalis board of directors and will depend upon its earnings, if any, capital requirements, operating and financial
conditions and on such other factors as Nivalis board of directors deems relevant.
Preferred Stock
The following description of Nivalis preferred stock and the description of the terms of any particular series of Nivalis preferred
stock that Nivalis chooses to issue hereunder are not complete. These descriptions are qualified in their entirety by reference to Nivalis amended and restated certificate of incorporation and the certificate of designation, if and when
adopted by Nivalis board of directors, relating to that series. The rights, preferences, privileges and restrictions of the preferred stock of each series will be fixed by the certificate of designation relating to that series.
Nivalis currently has no shares of preferred stock outstanding. Nivalis board of directors has the authority, without further action by
the stockholders, to issue up to 10,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon the preferred stock. Any or all of these rights may be greater
than the rights of Nivalis common stock.
269
Nivalis board of directors, without stockholder approval, can issue preferred stock with
voting, conversion or other rights that could negatively affect the voting power and other rights of the holders of Nivalis common stock. Preferred stock could thus be issued quickly with terms calculated to delay or prevent a change in
control of Nivalis or make it more difficult to remove Nivalis management. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of Nivalis common stock.
Nivalis board of directors may specify the following characteristics of any preferred stock:
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the maximum number of shares;
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the designation of the shares;
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the annual dividend rate, if any, whether the dividend rate is fixed or variable, the date or dates on which dividends will accrue, the dividend payment dates, and whether dividends will be cumulative;
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the price and the terms and conditions for redemption, if any, including redemption at the option of Nivalis or at the option of the holders, including the time period for redemption, and any accumulated dividends or
premiums;
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the liquidation preference, if any, and any accumulated dividends upon the liquidation, dissolution or winding up of Nivalis affairs;
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any sinking fund or similar provision, and, if so, the terms and provisions relating to the purpose and operation of the fund;
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the terms and conditions, if any, for conversion or exchange of shares of any other class or classes of Nivalis capital stock or any series of any other class or classes, or of any other series of the same class,
or any other securities or assets, including the price or the rate of conversion or exchange and the method, if any, of adjustment;
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any or all other preferences and relative, participating, optional or other special rights, privileges or qualifications, limitations or restrictions.
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Any preferred stock issued will be fully paid and nonassessable upon issuance.
Anti-Takeover Effects of Provisions of Nivalis Charter Documents
Nivalis amended and restated certificate of incorporation provides for Nivalis board of directors to be divided into three classes
serving staggered terms. Approximately
one-third
of the board of directors will be elected each year. The provision for a classified board could prevent a party who acquires control of a majority of
Nivalis outstanding voting stock from obtaining control of Nivalis board of directors until the second annual stockholders meeting following the date the acquirer obtains the controlling stock interest. The classified board provision
could discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of Nivalis and could increase the likelihood that incumbent directors will retain their positions. Nivalis amended and restated
certificate of incorporation provides that directors may be removed with cause by the affirmative vote of the holders of a majority of the voting power of all of Nivalis outstanding stock or without cause by the affirmative vote of the holders
of at least 66 and 2/3% of the voting power of all of Nivalis outstanding stock.
Nivalis amended and restated certificate of
incorporation provides that certain amendments of Nivalis certificate of incorporation and amendments by the stockholders of Nivalis amended and restated bylaws require the approval of at least 66 and 2/3% of the voting power of all
outstanding stock of Nivalis. These provisions could discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of Nivalis and could delay changes in management.
270
Nivalis amended and restated bylaws establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of Nivalis stockholders, including proposed nominations of persons for election to Nivalis board of directors. At an annual meeting, stockholders may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the direction of Nivalis board of directors. Stockholders may also consider a proposal or nomination by a person who was a stockholder at the time of giving notice and
at the time of the meeting, who is entitled to vote at the meeting and who has complied with the notice requirements of Nivalis amended and restated bylaws in all respects. The amended and restated bylaws do not give Nivalis board of
directors the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting of Nivalis stockholders. However, Nivalis amended and restated bylaws
may have the effect of precluding the conduct of business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the
acquirers own slate of directors or otherwise attempting to obtain control of Nivalis.
Nivalis amended and restated bylaws
provide that a special meeting of Nivalis stockholders may be called only by the Secretary of Nivalis and at the direction of Nivalis board of directors by resolution adopted by a majority of Nivalis board of directors. Because
Nivalis stockholders do not have the right to call a special meeting, a stockholder could not force stockholder consideration of a proposal over the opposition of Nivalis board of directors by calling a special meeting of stockholders
prior to such time as a majority of Nivalis board of directors, the chairperson of Nivalis board of directors, the president or the chief executive officer believed the matter should be considered or until the next annual meeting
provided
that the requestor met the notice requirements. The restriction on the ability of stockholders to call a special meeting means that a proposal to replace Nivalis board of directors also could be delayed until the next annual
meeting.
Nivalis amended and restated bylaws do not allow Nivalis stockholders to act by written consent without a meeting.
Without the availability of stockholder action by written consent, a holder controlling a majority of Nivalis capital stock would not be able to amend Nivalis amended and restated bylaws or remove directors without holding a
stockholders meeting.
Anti-Takeover Effects of Delaware Law
Nivalis is subject to the provisions of Section 203 of the DGCL, or Section 203. Under Section 203, Nivalis would generally be
prohibited from engaging in any business combination with any interested stockholder for a period of three years following the time that this stockholder became an interested stockholder unless:
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prior to this time, Nivalis board of directors 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 Nivalis voting stock outstanding at the time the
transaction commenced, excluding shares owned by persons who are directors and also officers, and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer; or
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at or subsequent to such time, the business combination is approved by Nivalis board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote
of at least 66 and 2/3% of the outstanding voting stock that is not owned by the interested stockholder.
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Under
Section 203, a business combination includes:
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any merger or consolidation involving the corporation and the interested stockholder;
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271
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any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
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any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder, subject to limited exceptions;
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any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or
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the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
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In general, Section 203 defines an interested stockholder as an entity or person beneficially owning 15% or more of the outstanding
voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person.
The
provisions of Delaware law and Nivalis amended and restated certificate of incorporation and amended and restated bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also
inhibit temporary fluctuations in the market price of Nivalis common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in management. It is possible that
these provisions may make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
272
COMPARISON OF RIGHTS OF HOLDERS OF NIVALIS STOCK AND ALPINE STOCK
Both Nivalis and Alpine are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of
each are currently, and will continue to be, governed by the DGCL. If the merger is completed, Alpines stockholders will become stockholders of Nivalis, and their rights will be governed by the DGCL, the amended and restated bylaws of Nivalis
and, assuming Proposal Nos. 2 and 3 are approved by Nivalis stockholders at the Nivalis special meeting, the amended and restated certificate of incorporation of Nivalis as amended by the amendments thereto attached to this proxy
statement/prospectus/information statement as
Annex D
and
Annex E
, respectively.
The table below summarizes the
material differences between the current rights of Alpines stockholders under Alpines second amended and restated certificate of incorporation and bylaws and the rights of Nivalis stockholders, post-merger, under Nivalis
amended and restated certificate of incorporation and amended and restated bylaws, each as amended, as applicable, and as in effect immediately following the merger.
While Nivalis and Alpine believe that the summary tables cover the material differences between the rights of their respective stockholders
prior to the merger and the rights of Nivalis stockholders following the merger, these summary tables may not contain all of the information that is important to you. These summaries are not intended to be a complete discussion of the
respective rights of Nivalis and Alpines stockholders and are qualified in their entirety by reference to the DGCL and the various documents of Nivalis and Alpine that are referred to in the summaries. You should carefully read this
entire proxy statement/prospectus/information statement and the other documents referred to in this proxy statement/prospectus/information statement for a more complete understanding of the differences between being a stockholder of Nivalis or
Alpine before the merger and being a stockholder of Nivalis after the merger. Nivalis has filed copies of its current amended and restated certificate of incorporation and amended and restated bylaws with the SEC and will send copies of the
documents referred to in this proxy statement/prospectus/information statement to you upon your request. Alpine will also send copies of its documents referred to in this proxy statement/prospectus/information statement to you upon your request. See
the section entitled Where You Can Find More Information in this proxy statement/prospectus/information statement.
Current Alpine Rights Versus Nivalis Rights Post-Merger
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Provision
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Alpine
(Pre-Merger)
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Nivalis (Post-Merger)
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ELECTIONS; VOTING; PROCEDURAL MATTERS
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Authorized Capital Stock
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The second amended and restated certificate of incorporation of Alpine authorizes the issuance of up to 46,500,000 shares of common stock, $0.0001 par value per share, and 22,081,852 shares of preferred stock, $0.0001 par value per
share, 5,000,000 of which are designated as Series Seed Preferred Stock, 14,590,748 of which are designated as
Series A-1
Preferred Stock, and 2,491,104 of which are designated as
Series A-2
Preferred Stock.
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The amended and restated certificate of incorporation of Nivalis authorizes the issuance of up to 200,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per
share.
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Number of Directors
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The bylaws of Alpine sets the number of directors at not less
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The amended and restated certificate of incorporation of
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273
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Provision
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Alpine
(Pre-Merger)
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Nivalis (Post-Merger)
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than one nor more than seven, with the specific number to be set by resolution of the board of directors of Alpine. Currently, consistent with the amended and restated voting agreement of Alpine, the number of directors is set at
five; provided, however, that one seat is currently vacant.
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Nivalis currently provides that the number of directors that shall constitute the whole board of directors of Nivalis shall be fixed exclusively by one or more resolutions adopted from time to time by the board of
directors.
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Stockholder Nominations and Proposals
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The second amended and restated certificate of incorporation and bylaws of Alpine do not provide for procedures with respect to stockholder proposals or director nominations.
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The amended and restated bylaws of Nivalis provide that nominations of any person for election to the Nivalis board of directors may be made at an annual meeting or at a special meeting (but only if the election of directors is a
matter specified in the notice of meeting given by or at the direction of the person calling such special meeting) only (a) by or at the direction of the Nivalis board of directors, including by any committee or persons authorized to do so by
the board of directors of Nivalis or the amended and restated bylaws of Nivalis, or (b) by a stockholder of Nivalis present in person (A) who was a beneficial owner of shares of Nivalis both at the time of giving the notice of such meeting
and at the time of the meeting, (B) is entitled to vote at the meeting and (C) has complied with the notice and nomination provisions of the amended and restated bylaws of Nivalis.
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The amended and restated bylaws of Nivalis provide that in order for a stockholder to properly bring business before an annual meeting, the stockholder must be a stockholder present in person who (A)(1) was a beneficial owner
of shares of Nivalis at the time of giving the notice provided for in the amended and restated bylaws of Nivalis and at the time of the meeting, (2) is entitled to vote at the meeting and (3) has
complied
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274
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Provision
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Alpine
(Pre-Merger)
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Nivalis (Post-Merger)
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with the notice and proposal provisions of the amended and restated bylaws of Nivalis, or (B) properly made such proposal in accordance with
Rule 14a-8
under the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder. The amended and restated bylaws of Nivalis further provide that stockholders shall not be permitted to propose business to be brought before a special meeting of the
stockholders.
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Classified Board of Directors
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The second amended and restated certificate of incorporation of Alpine does not provide for the division of the board of directors into staggered classes.
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The amended and restated certificate of incorporation of Nivalis provides that the directors comprising the board of directors of Nivalis shall be divided into three staggered classes, with each class serving a three-year
term.
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Removal of Directors
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Directors may be removed, with or without cause, by the affirmative vote of the holders of the shares of the class or series of stock of Alpine (or different classes or series voting separately, or together as the case may be)
entitled to elect such director or directors.
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Under the amended and restated certificate of incorporation of Nivalis, a director may be removed from office only for cause at a meeting of stockholders called for that purpose, by the affirmative vote of the holders of at least 66
and 2/3% of the voting power of all the then outstanding shares of voting stock entitled to vote at an election of directors, voting together in a single class.
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Special Meeting of the Stockholders
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The bylaws of Alpine provide that special meetings of stockholders may be called at any time by the board of directors, the chairman of the board or the president. Further, a special meeting of the stockholders of Alpine may be
called by the stockholders Alpine holding not less than two percent of all the votes entitled to be cast on any issue proposed to be considered at such special meeting by a written demand for such meeting, describing the purpose or purposes for
which it is to be held.
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The amended and restated certificate of incorporation of Nivalis provides that a special meeting of the stockholders may be called by the secretary of Nivalis at the direction of the board of directors of Nivalis, pursuant to a
resolution adopted by a majority of the entire board of directors of Nivalis, but such special meetings may not be called by any other person or persons.
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Cumulative Voting
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The second amended and restated certificate of incorporation and
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The amended and restated certificate of incorporation of
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275
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Provision
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Alpine
(Pre-Merger)
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Nivalis (Post-Merger)
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bylaws of Alpine do not have a provision granting cumulative voting rights in the election of its directors.
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Nivalis provides that there shall be no cumulative voting in the election of its directors. The amended and restated bylaws of Nivalis provide that the stockholder members of the board of directors of Nivalis will be elected by a
plurality vote.
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Vacancies
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The second amended and restated certificate of incorporation and bylaws of Alpine provide that any vacancy on Alpines board of directors may be filled by a majority of the directors then in office, though less than a quorum,
or by the sole remaining director, and the directors so chosen shall hold office until the next annual election of Alpines board of directors and until their successors are duly elected, unless sooner displaced; provided, however, that where
such vacancy occurs among the directors elected by the holders of a class or series of stock or different classes or series voting separately or together, then the holders of shares of such class, or different classes or series voting separately or
together may override the action of Alpines board of directors to fill such vacancy.
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The amended and restated certificate of incorporation and amended and restated bylaws of Nivalis provide that any vacancy or newly created directorships on the board of directors of Nivalis will be filled only by the affirmative
vote of a majority of the directors in office, even though less than a quorum, or by a sole remaining director, unless the board of directors of Nivalis determines by resolution that any such vacancies or newly created directorships shall be filled
by the stockholders, except as otherwise provided by law.
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Voting Stock
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Under the second amended and restated certificate of incorporation of Alpine, the holders of common stock are entitled to one vote for each share of stock held by them and holders of preferred stock are entitled to one vote for each
share of common stock into which such share of preferred stock is convertible; provided, however, that (i) the holders of common stock shall be entitled to elect one director, (ii) for so long as at least ten percent of the shares of
Series Seed Preferred Stock originally issued by Alpine are outstanding
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Under the amended and restated certificate of incorporation and amended and restated bylaws of Nivalis, the holders of voting stock entitled to vote at any meeting of the stockholders shall be entitled to one vote in person or by
proxy for each share of capital stock held by such stockholder that has voting power upon the matter in question on each matter properly submitted to the stockholders at a meeting of the stockholders. The amended and restated bylaws of Nivalis
further provide that the stockholders shall be entitled to cast one vote in
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276
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Provision
|
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Alpine
(Pre-Merger)
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Nivalis (Post-Merger)
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(as may be adjusted), the holders of Series Seed Preferred stock shall be entitled to elect one director, and (iii) for so long as at least ten percent of the shares of Series A Preferred Stock originally issued by Alpine
are outstanding (as may be adjusted), the holders of Series A Preferred stock shall be entitled to elect two directors.
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person or by proxy for each share of voting stock held by them respectively as of the record date fixed by the board of directors of Nivalis, or if no record date is fixed by the board of directors of Nivalis, as of the close of
business on the day next preceding the day on which notice of a meeting of stockholders is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, or as is determined under the
DGCL.
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Stockholders Agreement; Voting Agreement
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Alpine does not have a stockholders agreement.
Alpine and the stockholders of Alpine have entered into that certain Alpine Amended and Restated Voting Agreement dated June 10, 2016, which provides,
among other things, that: (i) one director shall be designated by the holders of a majority of the shares of Alpines common stock; (ii) one director shall be designated by OrbiMed Private Investments VI, LP (for so long as OrbiMed
Private Investments VI, LP and its affiliated parties continues to hold at least 10% of the shares of Series A Preferred Stock of Alpine originally issued to OrbiMed Private Investments VI, LP); (iii) one director shall be designated by Frazier
Life Sciences VIII, L.P. (for so long as Frazier Life Sciences VIII, L.P. and its affiliated parties continues to hold at least 10% of the shares of Series A Preferred Stock of Alpine originally issued to Frazier Life Sciences VIII, L.P.); and
(iv) one director shall be an independent industry expert designated by the holders of at least 75% of the then outstanding shares of Series A Preferred Stock of Alpine. Under the Merger Agreement, Alpine has agreed to terminate the
Alpine
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Nivalis does not have a stockholders agreement or similar agreement with any of its stockholders in place.
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277
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Provision
|
|
Alpine
(Pre-Merger)
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Nivalis (Post-Merger)
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Amended and Restated Voting Agreement at or prior to the closing of the merger.
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Drag Along
|
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Under the Alpine Amended and Restated Voting Agreement dated June 10, 2016, as further described therein, if the holders of a majority of all then outstanding shares of Alpines preferred stock approve the sale of Alpine,
then each stockholder party to the Alpine Amended and Restated Voting Agreement is required to vote in favor of such transaction or sell their shares, as applicable.
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Nivalis does not have drag along terms in place.
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Stockholder Action by Written Consent
|
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The bylaws of Alpine provide that any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote on such
action were present and voted.
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The amended and restated certificate of incorporation and amended and restated bylaws of Nivalis specify that no action shall be taken by the stockholders except at an annual or special meeting of the stockholders and further
explicitly provides that no action shall be taken by the stockholders by written consent.
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Notice of Stockholder Meeting
|
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The bylaws of Alpine provide that notices of all meetings shall state the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. The bylaws of Alpine
provide that notice of each meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting.
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Under the amended and restated bylaws of Nivalis, written notice of each stockholder meeting must specify the place, date and hour of the meeting and, in the case of a special meeting, the purposes for which the meeting is called.
Notice shall be given not less than 10 nor more than 60 calendar days before the date of the meeting to each stockholder entitled to vote at such meeting.
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Conversion Rights and Protective Provisions
|
|
The second amended and restated certificate of incorporation of Alpine provides that each holder of shares of Alpine preferred stock shall have the right to convert such shares into shares of Alpine
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The amended and restated certificate of incorporation of Nivalis does not provide that holders of Nivalis stock shall have preemptive, conversion or other protective
rights.
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278
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Provision
|
|
Alpine
(Pre-Merger)
|
|
Nivalis (Post-Merger)
|
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common stock at any time in accordance with the second amended and restated certificate of incorporation of Alpine. In addition, upon the closing of the sale of shares of common stock in a firm-commitment underwritten public
offering resulting in at least $50 million of proceeds or the date and time, or occurrence of an event, specified by the holders of a majority of all then outstanding shares of Alpines preferred stock, all outstanding shares of Alpine
preferred stock shall be converted into shares of Alpine common stock.
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|
For so long as at least 20% of the shares of Alpines preferred stock originally issued remain outstanding, Alpine may not, without the consent of a majority of Alpines preferred stock then outstanding: (i) amend,
alter, repeal or change the rights, preferences or privileges of Alpines preferred stock (or series thereof); (ii) increase or decrease the total number of authorized or designated shares of Alpine common stock or preferred stock (or any
series thereof); (iii) create, authorize, designate or issue any new class or series of capital stock ranking on parity with or senior to the then outstanding shares of Alpine preferred stock in right of redemption, liquidation preference,
voting or dividends, or create, authorize, designate or issue any options, warrants, other rights or equity securities exercisable, convertible and/or exchangeable for such capital stock, or once authorized, designated or issued, increase the amount
of such authorized, designated or issued amounts; (iv) redeem, purchase or otherwise acquire (or pay into or set aside
|
|
|
279
|
|
|
|
|
Provision
|
|
Alpine
(Pre-Merger)
|
|
Nivalis (Post-Merger)
|
|
|
for a sinking fund for such purpose) any share or shares of common stock; provided, however, that this restriction shall not apply to the repurchase of shares of common stock from employees, officers, directors, consultants or other
persons performing services for Alpine or any subsidiary pursuant to agreements under which Alpine has the option to repurchase such shares upon the occurrence of certain events; (v) authorize or enter into an agreement for, nor consummate any
transaction or series of transactions, that is a liquidation event; (vi) undertake any act or enter into any agreement regarding a material asset transfer or an exclusive license of Alpines intellectual property assets out of the ordinary
course of business; (vii) amend, alter, repeal, or change any provision of the second amended and restated certificate of incorporation of Alpine, as may be amended, or of Alpines bylaws in any manner adverse to Alpines preferred
stock (or any series thereof); (viii) increase or decrease the authorized number of directors of Alpine; (ix) pay or declare any dividend on any shares of Alpine common stock or preferred stock, except as expressly provided in the second
amended and restated certificate of incorporation of Alpine; (x) undertake any act or enter into any agreement that could result in Alpine issuing its capital stock to acquire all or substantially all of the equity of another entity or all or
substantially all of the assets of another entity and the number of shares of Alpines capital stock so issued would exceed ten percent of the shares of Alpines capital stock immediately prior to such
|
|
|
280
|
|
|
|
|
Provision
|
|
Alpine
(Pre-Merger)
|
|
Nivalis (Post-Merger)
|
|
|
acquisition; or (xi) authorize, enter into or consummate any transaction in which any of Alpines directors are interested, unless such transaction has been approved by Alpines board of directors, including the
approval of a majority of the directors who are not interested in such transaction.
|
|
|
|
|
|
Right of First Refusal
|
|
The Alpine Right of First Refusal and
Co-Sale
Agreement entered into among Alpine and certain
stockholders dated June 10, 2016 provides that any holder of common stock that is a party to the Alpine Right of First Refusal and
Co-Sale
Agreement wishing to transfer any shares of common stock shall
first provide Alpine with the right to purchase such shares. In such an event, if Alpine does not elect to exercise its right of first refusal in full, OrbiMed Private Investments VI, LP, Alpine Immunosciences, L.P. and Frazier Life Sciences VIII,
L.P. have a secondary right of first refusal to purchase all or any portion of the shares of Alpine common stock which are proposed for sale or transfer by the holders of Alpine common stock that are a party to the Alpine Right of First Refusal and
Co-Sale
Agreement. Under the Merger Agreement, Alpine has agreed to terminate the Alpine Right of First Refusal and
Co-Sale
Agreement at or prior to the closing of the
merger.
All holders of Alpine common stock that are not bound by the Alpine Right of
First Refusal and
Co-Sale
Agreement are bound by either a common stock purchase agreement or an exercise notice and restricted stock purchase agreement that provides that if any such holder of Alpine common
stock wishes to transfer any shares
|
|
Nivalis does not have a right of first refusal in place.
|
281
|
|
|
|
|
Provision
|
|
Alpine
(Pre-Merger)
|
|
Nivalis (Post-Merger)
|
|
|
of stock shall first provide Alpine with the right to purchase such shares of Alpine common stock.
|
|
|
|
|
|
Right of
Co-Sale
|
|
As further described in the Alpine Right of First Refusal and
Co-Sale
Agreement, each of OrbiMed Private Investments VI, LP, Alpine Immunosciences, L.P. and Frazier Life Sciences VIII, L.P.
have a right of
co-sale
with respect to any common stock proposed to be transferred or sold by any holder of common stock that is a party to the Alpine Right of First Refusal and
Co-Sale
Agreement which is not earlier purchased by Alpine by exercise of its right of first refusal (as further described above) or by OrbiMed Private Investments VI, LP, Alpine Immunosciences, L.P. and
Frazier Life Sciences VIII, L.P by exercise of their secondary right of first refusal (as further described above).
|
|
Nivalis does not have a right of
co-sale
in place.
|
|
|
|
Pro Rata Rights
|
|
The Alpine Amended and Restated Investors Rights Agreement entered into among Alpine, Michael Kornacker, Ryan Swanson, OrbiMed Private Investments VI, LP, Alpine Immunosciences, L.P. and Frazier Life Sciences VIII, L.P. dated
June 10, 2016 provides each of the above-named stockholders with a right of first refusal to purchase his or its pro rata amount (as defined therein) of new securities which Alpine proposes to sell and issue after June 10, 2016, subject to
certain exceptions as further described therein. Under the Merger Agreement, Alpine has agreed to terminate the Alpine Amended and Restated Investors Rights Agreement at or prior to the closing of the merger.
|
|
Nivalis does not have a pro rata rights provision in place.
|
282
|
|
|
|
|
Provision
|
|
Alpine
(Pre-Merger)
|
|
Nivalis (Post-Merger)
|
|
Indemnification of Officers and Directors and Advancement of Expenses; Limitation on Personal Liability
|
|
|
|
Indemnification
|
|
The second amended and restated certificate of incorporation of Alpine provides that Alpine shall have the power to indemnify its directors and officers to the fullest extent permitted by applicable law. In addition, the bylaws of
Alpine provide that Alpine shall indemnify its officers, directors, agents and employees in the manner and to the full extent permitted by applicable law. Alpine has entered into a number of indemnification agreements with its officers and
directors.
|
|
The amended and restated certificate of incorporation of Nivalis provides that a director of Nivalis shall not be personally liable to Nivalis or its stockholders for monetary damages for breach of fiduciary duty as a director. The
amended and restated bylaws of Nivalis provide that Nivalis shall indemnify and hold harmless its directors and officers to the fullest extent permitted by applicable law, except that Nivalis will not be required to indemnify or hold harmless any
director or officer in connection with any proceeding initiated by such person unless the proceeding was authorized by the board of directors of Nivalis. Under the amended and restated bylaws of Nivalis, such rights shall not be exclusive of any
other rights acquired by directors and officers, including by agreement.
|
|
|
|
Advancement of Expenses
|
|
Alpines standard form of indemnification agreement used with certain of its officers and directors provides that Alpine shall pay the expenses incurred by a director or officer in defending any proceeding in advance of its
final disposition, provided, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts
advanced if it should be ultimately determined that such director or officer is not entitled to be indemnified.
|
|
The amended and restated bylaws of Nivalis provide that Nivalis will pay expenses to any director or officer prior to the final disposition of the proceeding, provided, however, that such advancements shall be made only upon receipt
of an undertaking by such director or officer to repay all amounts advanced if it should be ultimately determined that such director or officer is not entitled to indemnification under the amended and restated bylaws of Nivalis or
otherwise.
|
Dividends
|
|
|
|
Declaration and Payment of Dividends
|
|
The second amended and restated certificate of incorporation of Alpine provides that holders of preferred stock shall be entitled,
|
|
The amended and restated bylaws of Nivalis provide that, subject to any restrictions contained in the DGCL or the amended and
|
283
|
|
|
|
|
Provision
|
|
Alpine
(Pre-Merger)
|
|
Nivalis (Post-Merger)
|
|
|
if, when and as declared by the board of directors,
non-cumulative
cash dividends at the rate of six percent per annum of the original issue price for such shares.
|
|
restated certificate of incorporation of Nivalis, the board of directors of Nivalis is empowered to declare and pay dividends upon the shares of Nivalis capital stock. Dividends may be paid in cash, in property or in shares of
Nivalis capital stock.
|
|
Amendments to Certificate of Incorporation or Bylaws
|
|
|
|
General Provisions
|
|
For so long as at least 20% of the shares of Alpines preferred stock originally issued remain outstanding, the second amended and
restated certificate of incorporation of Alpine may not be amended in a manner that materially alters or changes the rights, preferences or privileges of the preferred stock so as to affect them adversely in a manner different than other classes
without the written consent or affirmative vote of a majority of the outstanding shares of preferred stock.
The bylaws of Alpine provide that the bylaws may be altered, amended or repealed by the stockholders of Alpine or by the board of directors of Alpine, when
such power is conferred upon the board of directors by Alpines then current certificate of incorporation.
|
|
The amended and restated certificate of incorporation of Nivalis may be amended in any manner otherwise permitted by law, with the exception that under the amended and restated certificate of incorporation of Nivalis,
Article VI (relating to the composition of and vacancies on the board of directors of Nivalis, election and removal of directors), Article VII (relating to the voting rights of stockholders and special meetings of stockholders),
Article VIII (relating to the limitation of liability of directors), Article IX (relating to the exclusive forum selection) and Article X (relating to the amendment of the certificate of incorporation) require the affirmative vote of
the holders of 66 and 2/3% of the voting power of the outstanding shares of voting stock entitled to vote generally in the election of directors, voting together as a single class.
|
284
PRINCIPAL STOCKHOLDERS OF NIVALIS
Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement do
not give effect to the Nivalis Reverse Stock Split.
The following table sets forth certain information with respect to the beneficial
ownership of Nivalis common stock as of April 18, 2017 (except where otherwise indicated) for:
|
|
|
each person, or group of affiliated persons, who are known by us to beneficially own more than 5% of the outstanding shares of Nivalis common stock;
|
|
|
|
each of Nivalis directors as of April 18, 2017;
|
|
|
|
each of Nivalis named executive officers, as identified in The MergerInterests of Nivalis Directors and Executive Officers in the MergerMaterial Severance Terms Pertaining to Named
Executive Officers; and
|
|
|
|
all of the current directors and executive officers of Nivalis as a group.
|
The number of
shares beneficially owned by each entity, person, director or executive officer is determined under 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 as to which the individual has the sole or shared voting power or investment power and also any shares that the individual has the right to acquire within 60 days of April 18, 2017, through the exercise of any
stock option or other right. Unless otherwise indicated, each person has sole investment and voting power, or shares such powers with his or her spouse, with respect to the shares set forth in the following table.
The percentage of ownership is based on 15,656,251 shares of common stock outstanding on April 18, 2017, adjusted as required by the rules
promulgated by the SEC to determine beneficial ownership. Nivalis does not know of any arrangements, including any pledge by any person of securities of Nivalis, the operation of which may at a subsequent date result in a change of control of
Nivalis. Unless otherwise noted, the address of each director and current and former executive officer of Nivalis is c/o Nivalis Therapeutics, Inc., PO Box 18387, Boulder, Colorado 80308.
|
|
|
|
|
|
|
|
|
|
|
Amount and
Nature of
Beneficial Ownership
|
|
|
Percentage of
Beneficial
Ownership
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
Deerfield Management(1)
|
|
|
3,732,412
|
|
|
|
23.8
|
%
|
Biotechnology Value Fund(2)
|
|
|
1,864,474
|
|
|
|
11.9
|
%
|
Estate of Arnold H. Snider, III(3)
|
|
|
1,557,228
|
|
|
|
9.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Amount and
Nature of
Beneficial Ownership
|
|
|
Percentage of
Beneficial
Ownership
|
|
Directors and Named Executive Officers
|
|
|
|
|
|
|
|
|
Robert Conway(4)
|
|
|
34,844
|
|
|
|
*
|
|
Howard Furst, M.D.(5)
|
|
|
24,525
|
|
|
|
*
|
|
Evan Loh, M.D.(6)
|
|
|
29,920
|
|
|
|
*
|
|
John Moore(7)
|
|
|
29,920
|
|
|
|
*
|
|
Paul Sekhri(8)
|
|
|
14,006
|
|
|
|
*
|
|
Cynthia Smith(9)
|
|
|
3,587
|
|
|
|
*
|
|
Janice Troha(10)
|
|
|
171,212
|
|
|
|
1.1
|
%
|
R. Michael Carruthers(11)
|
|
|
171,368
|
|
|
|
1.1
|
%
|
All current executive officers and directors as a group (8 persons)(12)
|
|
|
479,382
|
|
|
|
3.0
|
%
|
*
|
Beneficial ownership representing less than 1%.
|
285
(1)
|
Consists of 1,124,740 shares of common stock held by Deerfield Special Situations Fund, L.P., 402,062 shares held by Deerfield Private Design, L.P., 647,152 shares held by Deerfield Private Design International, L.P.,
726,242 shares held by Deerfield Private Design Fund II, L.P., and 832,216 shares held by Deerfield Private Design International II, L.P. Deerfield Mgmt, L.P. is the general partner of Deerfield Special Situations Fund, L.P., Deerfield Private
Design, L.P., Deerfield Private Design International, L.P., Deerfield Private Design II, L.P., and Deerfield Private Design International II, L.P. (collectively, the Funds). Deerfield Management Company, L.P. is the investment manager of
the Funds. Mr. James E. Flynn is the sole member of the general partner of each of Deerfield Mgmt, L.P. and Deerfield Management Company, L.P., collectively referred to as Deerfield Management. Each of the Deerfield Management entities and Mr. James
E. Flynn may be deemed to beneficially own the shares held by the Funds. The address of the Funds, the Deerfield Management entities and Mr. James E. Flynn is c/o Deerfield Management Company, L.P., 780 Third Avenue, Floor 37, New York, NY 10017.
|
(2)
|
Consists of 845,940 shares beneficially owned by Biotechnology Value Fund, L.P. (BVF), 545,222 shares beneficially owned by Biotechnology Value Fund II, L.P. (BVF2), and 163,029 shares owned by
Biotechnology Value Trading Fund OS LP (Trading Fund OS). BVF Partners OS Ltd. (Partners OS) is the general partner of Trading Fund OS and may be deemed to beneficially own the 163,029 shares beneficially owned by Trading
Fund OS. BVF Partners L.P. (Partners) is the general partner of BVF and BVF2, the investment manager of Trading Fund OS and the sole member of Partners OS; Partners may be deemed to beneficially own the shares beneficially owned by BVF,
BVF2 Trading Fund OS and certain Partners management accounts, including 310,283 shares held in such management accounts. BVF Inc. is the general partner of Partners and may be deemed to beneficially own the 1,864,474 shares beneficially owned by
Partners. Mark N. Lampert is a director and officer of BVF Inc. and may be deemed to beneficially own the 1,864,474 shares beneficially owned by BVF Inc. Partners OS disclaims beneficial ownership of the shares beneficially owned by Trading Fund OS.
Each of Partners, BVF Inc. and Mr. Lampert disclaim beneficial ownership of the shares beneficially owned by BVF, BVF2, Trading Fund OS and the Partners management accounts. The business address of BVF, BVF2, Partners, BVF Inc. and Mr. Lampert is 1
Sansome Street, 30th Floor, San Francisco, CA 94104; the business address of Trading Fund OS and Partners OS is PO Box 309 Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
|
(3)
|
The address for the Estate of Arnold H. Snider, III is c/o Ropes & Gray LLP, Attn: Steven Wilcox, 800 Boylston Street, Boston, MA 02199.
|
(4)
|
Includes options to purchase 24,844 shares of common stock that are currently exercisable or will become exercisable within 60 days of April 18, 2017.
|
(5)
|
Includes options to purchase 24,525 shares of common stock that are currently exercisable or will become exercisable within 60 days of April 18, 2017.
|
(6)
|
Includes options to purchase 27,757 shares of common stock that are currently exercisable or will become exercisable within 60 days of April 18, 2017.
|
(7)
|
Includes options to purchase 27,757 shares of common stock that are currently exercisable or will become exercisable within 60 days of April 18, 2017.
|
(8)
|
Includes options to purchase 14,006 shares of common stock that are currently exercisable or will become exercisable within 60 days of April 18, 2017.
|
(9)
|
Includes options to purchase 3,587 shares of common stock that are currently exercisable or will become exercisable within 60 days of April 18, 2017.
|
(10)
|
Includes options to purchase 133,951 shares of common stock that are currently exercisable or will become exercisable within 60 days of April 18, 2017.
|
(11)
|
Includes options to purchase 145,386 shares of common stock that are currently exercisable or will become exercisable within 60 days of April 18, 2017.
|
(12)
|
Includes options to purchase 401,813 shares of common stock that are currently exercisable or will become exercisable within 60 days of April 18, 2017.
|
286
PRINCIPAL STOCKHOLDERS OF ALPINE
The following table and the related notes present information on the beneficial ownership of Alpines capital stock as of April 18,
2017 by:
|
|
|
each director of Alpine;
|
|
|
|
each named executive officer of Alpine;
|
|
|
|
all of Alpines current directors and executive officers as a group; and
|
|
|
|
each stockholder known by Alpine to beneficially own more than five percent of its common stock on an as converted to common stock basis.
|
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the
securities. Shares of Alpines common stock that may be acquired by an individual or group within 60 days of April 18, 2017, pursuant to the exercise of options or warrants, are deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table.
Except as indicated in the footnotes to this table, Alpine believes that the stockholders named in this table have sole voting and investment
power with respect to all shares of Alpines common stock shown to be beneficially owned by them, based on information provided to Alpine by such stockholders. Unless otherwise indicated, the address for each stockholder listed is: c/o Alpine
Immune Sciences, Inc., 201 Elliott Avenue West, Suite 230, Seattle, WA 98119.
|
|
|
|
|
|
|
|
|
|
|
|
|
5% Stockholders
|
|
Number of
Shares
|
|
|
Options and
Warrants
Exercisable
Within 60 Days
|
|
|
Approximate
Percent
Owned
|
|
Alpine Immunosciences, L.P.(1)
600 Stewart Street, Suite 1503
Seattle, WA 98101
|
|
|
7,135,231
|
|
|
|
|
|
|
|
41.1
|
%
|
OrbiMed Private Investments VI, LP(2)
601 Lexington Avenue
54th Floor
New York, NY 10022-4629
|
|
|
5,338,078
|
|
|
|
|
|
|
|
30.7
|
%
|
Frazier Life Sciences VIII, L.P.(3)
601 Union Street, Suite 3200
Seattle, WA 98101
|
|
|
3,558,719
|
|
|
|
|
|
|
|
20.5
|
%
|
|
|
|
|
Directors and Named Executive Officers
|
|
Number of
Shares
|
|
|
Options and
Warrants
Exercisable
Within 60 Days
|
|
|
Approximate
Percent
Owned
|
|
Mitchell H. Gold M.D.(4)
|
|
|
7,332,106
|
|
|
|
14,063
|
|
|
|
42.3
|
%
|
Jay Venkatesan, M.D.(5)
|
|
|
7,253,981
|
|
|
|
18,750
|
|
|
|
41.8
|
%
|
Peter Thompson(2)
|
|
|
5,338,078
|
|
|
|
|
|
|
|
30.7
|
%
|
James N. Topper, M.D., Ph.D.(3)
|
|
|
3,558,719
|
|
|
|
|
|
|
|
20.5
|
%
|
Stanford Peng, M.D., Ph.D.(6)
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Paul Rickey(7)
|
|
|
|
|
|
|
|
|
|
|
*
|
|
All current executive officers and directors as a group (6 persons)
|
|
|
16,347,653
|
|
|
|
32,813
|
|
|
|
94.1
|
%
|
*
|
Represents beneficial ownership of less than 1% of the shares of common stock.
|
287
(1)
|
Consists of 5,000,000 shares of Alpines Series Seed Preferred Stock and 2,135,231 shares of Series A-1 Preferred Stock. Alpine Immunosciences, L.P. will purchase 520,045 shares of common stock pursuant to the
Subscription Agreement prior to the closing of the merger. Alpine BioVentures GP, LLC is the general partner of Alpine Immunosciences, L.P. Dr. Gold and Dr. Venkatesan are the Managing Partners of Alpine BioVentures GP, LLC. Dr. Gold
and Dr. Venkatesan are also limited partners of Alpine Immunosciences, L.P. By virtue of such relationships, Dr. Gold and Dr. Venkatesan may be deemed to have voting and investment power with respect to the shares held by Alpine
Immunosciences, L.P. and as a result may be deemed to have beneficial ownership of such shares. Each of Dr. Gold and Dr. Venkatesan disclaims beneficial ownership of the shares held by Alpine Immunosciences, L.P., except to the extent of
his pecuniary interest therein, if any.
|
(2)
|
Consists of 5,338,078 shares of Alpines Series A-1 Preferred Stock. OrbiMed Private Investments VI, LP will purchase 1,300,112 shares of common stock pursuant to the Subscription Agreement prior to the closing of
the merger. OrbiMed Capital GP VI LLC (GP VI) is the general partner of OrbiMed Private Investments VI, LP. OrbiMed Advisors LLC (OrbiMed Advisors) is the managing member of GP VI. Samuel D. Isaly is the managing member of
and owner of a controlling interest in OrbiMed Advisors. By virtue of such relationships, GP VI, OrbiMed Advisors and Mr. Isaly may be deemed to have voting and investment power with respect to the shares held by OrbiMed Private Investments VI,
LP and as a result may be deemed to have beneficial ownership of such shares. Dr. Thompson, an employee of OrbiMed Advisors, is a member of Alpines board of directors. Each of GP VI, OrbiMed Advisors, Mr. Isaly and Dr. Thompson
disclaims beneficial ownership of the shares held by OrbiMed Private Investments VI, LP, except to the extent of its or his pecuniary interest therein, if any.
|
(3)
|
Consists of 3,558,719 shares of Alpines Series A-1 Preferred Stock held directly by Frazier Life Sciences VIII, L.P. Frazier Life Sciences VIII, L.P. will purchase 866,741 shares of common stock pursuant to the
Subscription Agreement prior to the closing of the merger. FHM Life Sciences VIII, LP is the general partner of Frazier Life Sciences VIII, L.P. and FHM Life Sciences VIII, LLC is the general partner of FHM Life Sciences VIII, LP. Dr. Topper
and Patrick J. Heron are the sole members of FHM Life Sciences VIII, LLC and therefore share voting and investment power over the shares held by Frazier Life Sciences VIII, L.P. Dr. Topper and Mr. Heron disclaim beneficial ownership of the
shares of Alpine held by Frazier Life Sciences VIII, L.P. except to the extent of their pecuniary interests in such shares, if any.
|
(4)
|
Consists of 46,875 shares of Alpines common stock held directly by Dr. Gold, 150,000 shares of Alpines common stock held in trust for the benefit of Dr. Golds children, 14,063 shares issuable
upon exercise of options to purchase shares of Alpines common stock within 60 days of April 18, 2017, 5,000,000 shares of Alpines Series Seed Preferred stock held directly by Alpine Immunosciences, L.P. and 2,135,231 shares of
Alpines Series A-1 Preferred Stock held directly by Alpine Immunosciences, L.P. Please see footnote 1 regarding Dr. Golds voting and investment power over the shares held by Alpine Immunosciences, L.P.
|
(5)
|
Consists of 43,750 shares of Alpines common stock held directly by Dr. Venkatesan, 75,000 shares of Alpines common stock held in trust for the benefit of Dr. Venkatesans children, 18,750
shares issuable upon exercise of options to purchase shares of Alpines common stock within 60 days of April 18, 2017, 5,000,000 shares of Alpines Series Seed Preferred Stock held directly by Alpine Immunosciences, L.P. and 2,135,231
shares of Alpines Series A-1 Preferred Stock held directly by Alpine Immunosciences, L.P. Please see footnote 1 regarding Dr. Venkatesans voting and investment power over the shares held by Alpine Immunosciences, L.P.
|
(6)
|
Dr. Peng does not beneficially own or hold any shares or options or warrants for Alpine common stock that are exercisable within 60 days of April 18, 2017.
|
(7)
|
Mr. Rickey does not beneficially own or hold any shares or options or warrants for Alpine common stock that are exercisable within 60 days of April 18, 2017.
|
288
PRINCIPAL STOCKHOLDERS OF COMBINED ORGANIZATION
Except where specifically noted, the following information does not give effect to the Nivalis Reverse Stock Split described in Nivalis
Proposal No. 2.
The following table and the related notes present certain information with respect to the beneficial ownership
of the common stock of the combined organization upon consummation of the merger, assuming the closing of the merger occurs on July 31, 2017, by:
|
|
|
each director and named executive officer of the combined organizations;
|
|
|
|
all of the combined organizations directors and executive officers as a group; and
|
|
|
|
each person or group who is known to the management of Alpine or Nivalis to become the beneficial owner of more than 5% of the common stock of the combined organization upon the consummation of the merger.
|
Unless otherwise indicated in the footnotes to this table, Alpine and Nivalis believe that each of the persons named in
this table have sole voting and investment power with respect to the shares indicated as beneficially owned.
The following table assumes
the exercise of all outstanding options to purchase shares of Nivalis common stock prior to the closing of the merger and that Nivalis will have 17,344,288 shares of common stock outstanding as of July 31, 2017 following the exercise of
such options. Immediately prior to the merger, Alpine will have 20,059,551 shares of capital stock outstanding. Upon the closing of the merger, the 20,059,551 shares of Alpines capital stock will be converted into the right to receive an
aggregate of 39,874,373 shares of Nivalis common stock, and, assuming the exercise of all outstanding options to purchase shares of Nivalis common stock prior to the closing of the merger, there will be a total of 57,218,661 shares of
Nivalis common stock outstanding upon the closing of the merger. The following table does not give effect to the one-for-four reverse stock split of Nivalis common stock proposed to be implemented prior to the closing of the merger.
Shares of Nivalis common stock that may be acquired by an individual or group within 60 days of July 31, 2017, pursuant to the exercise of options or warrants, are deemed to be outstanding for the purpose of computing the percentage
ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of Nivalis common stock of any other person shown in the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
5% Stockholders
|
|
Number of
Shares
|
|
|
Options and
Warrants
Exercisable
Within 60 Days
|
|
|
Approximate
Percent
Owned
|
|
Alpine Immunosciences, L.P.(1)
600 Stewart Street, Suite 1503
Seattle, WA 98101
|
|
|
15,217,157
|
|
|
|
|
|
|
|
26.6
|
%
|
OrbiMed Private Investments VI, LP(2)
601 Lexington Avenue
54th Floor
New York, NY 10022-4629
|
|
|
13,195,394
|
|
|
|
|
|
|
|
23.1
|
%
|
Frazier Life Sciences VIIII, L.P.(3)
601 Union Street Suite 3200
Seattle, WA 98101
|
|
|
8,796,929
|
|
|
|
|
|
|
|
15.4
|
%
|
Deerfield Management(4)
c/o Deerfield Management Company, L.P., 780 Third Avenue, Floor 37, New York, NY 10017
|
|
|
3,732,412
|
|
|
|
|
|
|
|
6.5
|
%
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Named Executive Officers
|
|
Number of
Shares
|
|
|
Options and
Warrants
Exercisable
Within 60 Days
|
|
|
Approximate
Percent
Owned
|
|
Mitchell H. Gold, M.D.(5)
|
|
|
15,608,505
|
|
|
|
55,907
|
|
|
|
27.3
|
%
|
Jay Venkatesan, M.D.(6)
|
|
|
15,453,207
|
|
|
|
74,543
|
|
|
|
27.1
|
%
|
Peter Thompson, M.D.(7)
|
|
|
13,195,394
|
|
|
|
|
|
|
|
23.1
|
%
|
James N. Topper, M.D., Ph.D.(8)
|
|
|
8,796,929
|
|
|
|
|
|
|
|
15.4
|
%
|
Stanford Peng, M.D., Ph.D.(9)
|
|
|
|
|
|
|
198,780
|
|
|
|
*
|
|
Paul Rickey(10)
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Robert Conway(11)
|
|
|
60,000
|
|
|
|
31,425
|
|
|
|
*
|
|
Paul Sekhri(12)
|
|
|
|
|
|
|
23,775
|
|
|
|
*
|
|
All current executive officers and directors as a group (8 persons)
|
|
|
37,896,878
|
|
|
|
384,430
|
|
|
|
66.5
|
%
|
*
|
Represents beneficial ownership of less than 1% of the shares of common stock.
|
(1)
|
Consists of 15,217,157 shares of Nivalis common stock. Alpine BioVentures GP, LLC is the general partner of Alpine Immunosciences, L.P. Dr. Gold and Dr. Venkatesan are the Managing Partners of Alpine BioVentures
GP, LLC. Dr. Gold and Dr. Venkatesan are also limited partners of Alpine Immunosciences, L.P. By virtue of such relationships, Dr. Gold and Dr. Venkatesan may be deemed to have voting and investment power with respect to the shares held by
Alpine Immunosciences, L.P. and as a result may be deemed to have beneficial ownership of such shares. Each of Dr. Gold and Dr. Venkatesan disclaims beneficial ownership of the shares held by Alpine Immunosciences, L.P., except to the
extent of his pecuniary interest therein, if any.
|
(2)
|
Consists of 13,195,394 shares of Nivalis common stock. OrbiMed Capital GP VI LLC (GP VI) is the general partner of OrbiMed Private Investments VI, LP. OrbiMed Advisors LLC (OrbiMed
Advisors) is the managing member of GP VI. Samuel D. Isaly is the managing member of and owner of a controlling interest in OrbiMed Advisors. By virtue of such relationships, GP VI, OrbiMed Advisors and Mr. Isaly may be deemed to have
voting and investment power with respect to the shares held by OrbiMed Private Investments VI, LP and as a result may be deemed to have beneficial ownership of such shares. Dr. Thompson, an employee of OrbiMed Advisors. Each of GP VI, OrbiMed
Advisors, Mr. Isaly and Dr. Thompson disclaims beneficial ownership of the shares held by OrbiMed Private Investments VI, LP, except to the extent of its or his pecuniary interest therein, if any.
|
(3)
|
Consists of 8,796,929 shares of Nivalis common stock held directly by Frazier Life Sciences VIII, L.P. FHM Life Sciences VIII, LP is the general partner of Frazier Life Sciences VIII, L.P. and FHM Life Sciences
VIII, LLC is the general partner of FHM Life Sciences VIII, LP. Dr. Topper and Patrick J. Heron are the sole members of FHM Life Sciences VIII, LLC and therefore share voting and investment power over the shares held by Frazier Life Sciences
VIII, L.P. Dr. Topper and Mr. Heron disclaim beneficial ownership of the shares held by Frazier Life Sciences VIII, L.P. except to the extent of their pecuniary interests in such shares, if any.
|
(4)
|
Consists of 1,124,740 shares of Nivalis common stock held by Deerfield Special Situations Fund, L.P., 402,062 shares of Nivalis common stock held by Deerfield Private Design, L.P., 647,152 shares of
Nivalis common stock held by Deerfield Private Design International, L.P., 726,242 shares of Nivalis common stock held by Deerfield Private Design Fund II, L.P., and 832,216 shares of Nivalis common stock held by Deerfield Private
Design International II, L.P. Deerfield Mgmt, L.P. is the general partner of Deerfield Special Situations Fund, L.P., Deerfield Private Design, L.P., Deerfield Private Design International, L.P., Deerfield Private Design II, L.P., and Deerfield
Private Design International II, L.P. (collectively, the Funds). Deerfield Management Company, L.P. is the investment manager of the Funds. Mr. James E. Flynn is the sole member of the general partner of each of Deerfield Mgmt,
L.P. and Deerfield Management Company, L.P., collectively referred to as Deerfield Management. Each of the Deerfield Management entities and Mr. James E. Flynn may be deemed to beneficially own the shares held by the Funds.
|
290
(5)
|
Consists of 93,178 shares of Nivalis common stock held directly by Dr. Gold, 298,170 shares of Nivalis common stock held in trust for the benefit of Dr. Golds children, 55,907 shares of
Nivalis common stock issuable upon exercise of options within 60 days of July 31, 2017 and 15,217,157 shares of Nivalis common stock held directly by Alpine Immunosciences, L.P. Please see footnote 1 regarding Dr. Golds
voting and investment power over the shares held by Alpine Immunosciences, L.P.
|
(6)
|
Consists of 86,966 shares of Nivalis common stock held directly by Dr. Venkatesan, 149,084 shares of Nivalis common stock held in trust for the benefit of Dr. Venkatesans children, 74,543
shares of Nivalis common stock issuable upon exercise of options within 60 days of July 31, 2017 and 15,217,157 shares of Nivalis common stock held directly by Alpine Immunosciences, L.P. Please see footnote 1 regarding
Dr. Venkatesans voting and investment power over the shares held by Alpine Immunosciences, L.P.
|
(7)
|
Consists of 13,195,394 shares of Nivalis common stock held directly by OrbiMed Private Investments VI, LP. Please see footnote 2 regarding Dr. Thompsons voting and investment power over the shares held
by OrbiMed Private Investments VI, LP.
|
(8)
|
Consists of 8,796,929 shares of Nivalis common stock held directly by Frazier Life Sciences VIIII, L.P. Please see footnote 3 regarding Dr. Toppers voting and investment power over the shares held by
Frazier Life Sciences VIIII, L.P.
|
(9)
|
Consists of 198,780 shares of Nivalis common stock issuable upon exercise of options within 60 days of July 31, 2017.
|
(10)
|
Mr. Rickey does not beneficially own or hold any shares or options or warrants for Nivalis common stock that are exercisable within 60 days of July 31, 2017.
|
(11)
|
Consists of 60,000 shares of Nivalis common stock held directly by Mr. Conway and 31,425 shares of Nivalis common stock issuable upon exercise of options within 60 days of July 31, 2017.
|
(12)
|
Consists of 23,775 shares of Nivalis common stock issuable upon exercise of options within 60 days of July 31, 2017.
|
291
LEGAL MATTERS
Latham & Watkins LLP, will pass on the validity of Nivalis common stock offered by this proxy statement/prospectus/information
statement.
EXPERTS
The financial statements of Nivalis Therapeutics, Inc. at December 31, 2016 and 2015, and for each of the three years in the period ended
December 31, 2016, included in the Proxy Statement of Nivalis Therapeutics, Inc., which is referred to and made a part of this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The financial statements of Alpine Immune Sciences, Inc. as of and for the years ended December 31, 2015 and 2016, included in the Proxy
Statement of Nivalis Therapeutics, Inc., which is referred to and made a part of this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
292
WHERE YOU CAN FIND MORE INFORMATION
Nivalis files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports,
statements or other information that Nivalis files at the SEC public reference rooms in Washington, D.C.; New York, New York; and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330
for further information on the public reference rooms. Nivalis SEC filings are also available to the public from commercial document retrieval services and on the website maintained by
the SEC at http://www.sec.gov. Reports, proxy statements and other information concerning Nivalis also may be inspected at the offices of the National Association of Securities Dealers, Inc., Listing Section, 1735 K Street, Washington, D.C. 20006.
As of the date of this proxy statement/prospectus/information statement, Nivalis has filed a registration statement on Form
S-4
to register with the SEC Nivalis common stock that Nivalis will issue to Alpines stockholders in the merger. This proxy statement/prospectus/information statement is a part of that registration
statement and constitutes a prospectus of Nivalis, as well as a proxy statement of Nivalis for its special meeting and an information statement for the purpose of Alpine for its written consent.
Nivalis has supplied all information contained in this proxy statement/prospectus/information statement relating to Nivalis, and Alpine has
supplied all information contained in this proxy statement/prospectus/information statement relating to Alpine.
If you would like to
request documents from Nivalis or Alpine, please send a request in writing or by telephone to either Nivalis or Alpine at the following addresses:
|
|
|
Nivalis Therapeutics, Inc.
PO Box 18387
Boulder, CO 80308
Telephone: (720) 600-4740
Attn:
Chief Financial Officer
|
|
Alpine Immune Sciences, Inc.
201 Elliott Avenue West, Suite 230
Seattle, WA 98119
Telephone: (206)
788-4545
Attn: Chief Financial Officer
|
TRADEMARK NOTICE
Nivalis Therapeutics, Inc.
TM
is a registered and unregistered trademark of Nivalis in the
United States and other jurisdictions. Alpine, Variant Immunoglobulin Domain
TM
, vlgD
TM
, TIP
TM
, SIP
TM
the Alpine logo and other trademarks, service marks, and trade names of Alpine are registered and unregistered marks of
Alpine Immune Sciences, Inc. Other third-party logos and product/trade names are registered trademarks or trade names of their respective companies.
293
OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires Nivalis officers and directors, and persons who own more than ten percent of a registered
class of Nivalis equity securities, to file reports of ownership and changes in ownership with the SEC. Such officers, directors and
ten-percent
stockholders are also required by SEC rules to furnish
Nivalis with copies of all forms that they file pursuant to Section 16(a). Based on Nivalis review of the copies of such forms received by it and written representations from certain reporting persons, Nivalis believes that during fiscal 2016,
its executive officers, directors and
ten-percent
stockholders complied with all other applicable filing requirements.
Stockholder Proposals
Nivalis stockholders are entitled to present proposals for action at a forthcoming meeting if they comply with the requirements of
Nivalis amended and restated bylaws and the rules established by the SEC under the Exchange Act. Under these requirements, proposals from Nivalis stockholders that are intended to be presented by such stockholders at Nivalis 2018
annual meeting of stockholders must be addressed to the Secretary and received in writing at Nivalis executive offices on or after January 15, 2018 and no later than February 14, 2018, unless the date of the 2018 annual meeting of stockholders
is more than 30 days before or 60 after May 15, 2018, in which case notice must be delivered, or mailed and received, not later than the 90th day prior to the annual meeting date and, if later, the 10th day following the day on which public
disclosure of the annual meeting date is first made.
Communication with Nivalis Board of Directors
In accordance with Nivalis policies regarding communication to members of Nivalis board of directors, stockholders may communicate with
such members by sending an email to the board of directors at BoardofDirectors@nivalis.com. The Chief Financial Officer monitors such communications and forwards the communications to the appropriate director or directors to whom the communication
is addressed. If a communication is addressed to the Chair of the Audit Committee or the non-management or independent members of the board of directors, the communication will only be shared with management upon the instruction of the Chair of the
Audit Committee. Where the nature of the communication is determined in good faith by the Chief Financial Officer to be frivolous, hostile, threatening, illegal or similarly unsuitable or unrelated to the duties and responsibilities of the board of
directors, the Chief Financial Officer is not required to forward the communication.
294
Nivalis Therapeutics, Inc.
Index to Financial Statements
F-A-1
Nivalis Therapeutics, Inc.
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act
Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Under the supervision and with the participation of our management, including our Interim President and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016 based on the framework set forth in Internal Control Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that, as of December 31, 2016, our internal control over financial reporting was effective.
Date: February 13, 2017
|
/s/ R. MICHAEL CARRUTHERS
|
R. Michael Carruthers
Interim President and
Chief Financial Officer
|
F-A-2
Report of Independent Registered Public Accounting Firm
The Stockholders and Board of Directors
Nivalis Therapeutics,
Inc.
We have audited the accompanying balance sheets of Nivalis Therapeutics, Inc. (the Company) as of December 31, 2016 and 2015, and
the related statements of operations and comprehensive loss, convertible preferred stock and stockholders equity (deficit) and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are
the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Nivalis Therapeutics, Inc., at December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016,
in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Denver, Colorado
February 13, 2017
F-A-3
Nivalis Therapeutics, Inc.
Balance Sheets
(In thousands, except for share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
24,203
|
|
|
$
|
24,991
|
|
Marketable securities
|
|
|
36,832
|
|
|
|
62,263
|
|
Prepaid expenses and other current assets
|
|
|
628
|
|
|
|
432
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
61,663
|
|
|
|
87,686
|
|
Property and equipment and other assets, net
|
|
|
272
|
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
61,935
|
|
|
$
|
87,909
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,921
|
|
|
$
|
994
|
|
Accrued direct program expenses
|
|
|
2,646
|
|
|
|
1,555
|
|
Accrued employee benefits
|
|
|
1,879
|
|
|
|
1,675
|
|
Accrued other liabilities
|
|
|
53
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
6,499
|
|
|
|
4,419
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000,000 shares authorized for both periods presented; no
shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 200,000,000 shares authorized for both periods presented;
15,565,973 and 15,462,030 shares issued and outstanding, respectively
|
|
|
16
|
|
|
|
15
|
|
Additional paid-in capital
|
|
|
235,737
|
|
|
|
232,309
|
|
Accumulated other comprehensive income (loss)
|
|
|
(17
|
)
|
|
|
3
|
|
Accumulated deficit
|
|
|
(180,300
|
)
|
|
|
(148,837
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
55,436
|
|
|
|
83,490
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
61,935
|
|
|
$
|
87,909
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-A-4
Nivalis Therapeutics, Inc.
Statements of Operations and Comprehensive Loss
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
23,316
|
|
|
|
16,054
|
|
|
|
12,200
|
|
General and administrative
|
|
|
8,586
|
|
|
|
6,844
|
|
|
|
2,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(31,902
|
)
|
|
|
(22,898
|
)
|
|
|
(14,487
|
)
|
Interest and other income, net
|
|
|
439
|
|
|
|
80
|
|
|
|
296
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
(845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(31,463
|
)
|
|
|
(22,818
|
)
|
|
|
(15,036
|
)
|
Gain on extinguishment of convertible debt as a capital transaction
|
|
|
|
|
|
|
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(31,463
|
)
|
|
$
|
(22,818
|
)
|
|
$
|
(14,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on marketable securities, net
|
|
|
(20
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(31,483
|
)
|
|
$
|
(22,815
|
)
|
|
$
|
(14,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingbasic and diluted
|
|
|
15,492
|
|
|
|
9,371
|
|
|
|
723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholdersbasic and diluted
|
|
$
|
(2.03
|
)
|
|
$
|
(2.43
|
)
|
|
$
|
(20.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-A-5
Nivalis Therapeutics, Inc.
Statements of Convertible Preferred Stock and Stockholders Equity (Deficit)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series 1
Convertible
Preferred Stock
|
|
|
Series 2 Convertible
Preferred Stock
|
|
|
Series A-2
Convertible
Preferred Stock
|
|
|
Series C-1
Convertible
Preferred Stock
|
|
|
Series C-2
Convertible
Preferred Stock
|
|
|
Series D
Convertible
Preferred Stock
|
|
|
Series E
Convertible
Preferred Stock
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Balance as of December 31, 2013
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
1,393
|
|
|
$
|
9,000
|
|
|
|
2,811
|
|
|
$
|
18,155
|
|
|
|
2,379
|
|
|
$
|
19,980
|
|
|
|
7,203
|
|
|
$
|
15,675
|
|
|
|
4,266
|
|
|
$
|
14,983
|
|
Conversion of 2013 notes payable, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,528
|
|
|
|
12,326
|
|
Recapitalization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,393
|
)
|
|
|
(9,000
|
)
|
|
|
(2,811
|
)
|
|
|
(18,155
|
)
|
|
|
(2,379
|
)
|
|
|
(19,980
|
)
|
|
|
(7,203
|
)
|
|
|
(15,675
|
)
|
|
|
(7,794
|
)
|
|
|
(27,309
|
)
|
Conversion of 2014 notes payable, net of issuance costs
|
|
|
8,813
|
|
|
|
12,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on extinguishment of convertible debt
|
|
|
|
|
|
|
(384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of convertible preferred stock, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
11,166
|
|
|
|
29,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of incentive stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclass of preferred stock warrant liabilities to equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2014
|
|
|
8,813
|
|
|
$
|
11,945
|
|
|
|
11,166
|
|
|
$
|
29,935
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Conversion of convertible preferred stock to common stock
|
|
|
(8,813
|
)
|
|
|
(11,945
|
)
|
|
|
(11,166
|
)
|
|
|
(29,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock, net of $9.8 million of offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under employee share plans and awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Issuance of common stock, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock under employee share plans and awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-A-6
Nivalis Therapeutics, Inc.
Statements of Convertible Preferred Stock and Stockholders Equity (Deficit) (Continued)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A-1
Convertible
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders
Equity (Deficit)
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
Balance as of December 31, 2013
|
|
|
1,992
|
|
|
$
|
2
|
|
|
|
171
|
|
|
$
|
|
|
|
$
|
19,693
|
|
|
$
|
|
|
|
$
|
(110,983
|
)
|
|
$
|
(91,288
|
)
|
Conversion of 2013 notes payable, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization
|
|
|
(1,992
|
)
|
|
|
(2
|
)
|
|
|
2,040
|
|
|
|
2
|
|
|
|
90,120
|
|
|
|
|
|
|
|
|
|
|
|
90,120
|
|
Conversion of 2014 notes payable, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on extinguishment of convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
378
|
|
Sale of convertible preferred stock, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of incentive stock options
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Reclass of preferred stock warrant liabilities to equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Employee stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,036
|
)
|
|
|
(15,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2014
|
|
|
|
|
|
$
|
|
|
|
|
2,211
|
|
|
$
|
2
|
|
|
$
|
110,265
|
|
|
$
|
|
|
|
$
|
(126,019
|
)
|
|
$
|
(15,752
|
)
|
Conversion of convertible preferred stock to common stock
|
|
|
|
|
|
|
|
|
|
|
6,916
|
|
|
|
7
|
|
|
|
41,873
|
|
|
|
|
|
|
|
|
|
|
|
41,880
|
|
Issuance of common stock, net of $9.8 million of offering costs
|
|
|
|
|
|
|
|
|
|
|
6,325
|
|
|
|
6
|
|
|
|
78,765
|
|
|
|
|
|
|
|
|
|
|
|
78,771
|
|
Issuance of common stock under employee share plans and awards
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
Employee stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,343
|
|
|
|
|
|
|
|
|
|
|
|
1,343
|
|
Unrealized gains on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,818
|
)
|
|
|
(22,818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
|
|
|
|
$
|
|
|
|
|
15,462
|
|
|
$
|
15
|
|
|
$
|
232,309
|
|
|
$
|
3
|
|
|
$
|
(148,837
|
)
|
|
$
|
83,490
|
|
Issuance of common stock, net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Issuance of common stock under employee share plans and awards
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
1
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
146
|
|
Employee stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,263
|
|
|
|
|
|
|
|
|
|
|
|
3,263
|
|
Unrealized losses on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
(20
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,463
|
)
|
|
|
(31,463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
|
|
|
$
|
|
|
|
|
15,566
|
|
|
$
|
16
|
|
|
$
|
235,737
|
|
|
$
|
(17
|
)
|
|
$
|
(180,300
|
)
|
|
$
|
55,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-A-7
Nivalis Therapeutics, Inc.
Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(31,463
|
)
|
|
$
|
(22,818
|
)
|
|
$
|
(15,036
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and loss on disposal of assets
|
|
|
143
|
|
|
|
66
|
|
|
|
88
|
|
Stock-based compensation expense
|
|
|
3,263
|
|
|
|
1,343
|
|
|
|
70
|
|
Change in value of preferred stock warrant liabilities and derivative
|
|
|
|
|
|
|
|
|
|
|
(296
|
)
|
Amortization of deferred financing costs and noncash interest
|
|
|
|
|
|
|
|
|
|
|
708
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
|
(282
|
)
|
|
|
198
|
|
|
|
(380
|
)
|
Accounts payable
|
|
|
927
|
|
|
|
65
|
|
|
|
258
|
|
Accrued direct program expenses
|
|
|
1,091
|
|
|
|
311
|
|
|
|
355
|
|
Accrued employee benefits
|
|
|
204
|
|
|
|
1,465
|
|
|
|
(183
|
)
|
Accrued other liabilities
|
|
|
(142
|
)
|
|
|
163
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(26,259
|
)
|
|
|
(19,207
|
)
|
|
|
(14,448
|
)
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(106
|
)
|
|
|
(188
|
)
|
|
|
(4
|
)
|
Purchases of marketable securities
|
|
|
(75,324
|
)
|
|
|
(76,260
|
)
|
|
|
|
|
Proceeds from maturities and sales of marketable securities
|
|
|
100,735
|
|
|
|
14,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
25,305
|
|
|
|
(62,448
|
)
|
|
|
(4
|
)
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net of offering costs
|
|
|
20
|
|
|
|
78,771
|
|
|
|
|
|
Proceeds from issuance of common stock under employee share plans
|
|
|
146
|
|
|
|
63
|
|
|
|
2
|
|
Proceeds from issuance of convertible preferred stock, net
|
|
|
|
|
|
|
|
|
|
|
29,935
|
|
Decrease in restricted cash
|
|
|
|
|
|
|
|
|
|
|
2,500
|
|
Proceeds from notes payable, net
|
|
|
|
|
|
|
|
|
|
|
11,868
|
|
Principal payment on debt
|
|
|
|
|
|
|
|
|
|
|
(3,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
166
|
|
|
|
78,834
|
|
|
|
41,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(788
|
)
|
|
|
(2,821
|
)
|
|
|
26,714
|
|
Cash and cash equivalents, beginning of period
|
|
|
24,991
|
|
|
|
27,812
|
|
|
|
1,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
24,203
|
|
|
$
|
24,991
|
|
|
$
|
27,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
|
|
|
$
|
|
|
|
$
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible preferred stock to common stock
|
|
$
|
|
|
|
$
|
41,880
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible debt and accrued interest to convertible preferred stock, net
|
|
$
|
|
|
|
$
|
|
|
|
$
|
24,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-A-8
Nivalis Therapeutics, Inc.
Notes to Financial Statements
1. Organization and Description of Business
Nivalis Therapeutics, Inc. (the Company or Nivalis), incorporated in Delaware on August 1, 2012, is a
pharmaceutical company that has historically focused on the discovery and development of product candidates for patients with cystic fibrosis, or CF.
2. Liquidity Risks
The Company has
incurred operating losses and has an accumulated deficit as a result of ongoing research and development spending. As of December 31, 2016, the Company had an accumulated deficit of $180.3 million. For the year ended December 31, 2016, net
loss was $31.5 million and net cash used in operating activities was $26.3 million.
In November 2016, the Company announced that its
Phase 2 trial, evaluating the efficacy and safety of cavosonstat in adult patients with CF, had failed to demonstrate a benefit in its primary endpoint. On January 3, 2017, the Company announced that its board of directors had initiated a
process to explore and review a range of strategic alternatives. At that time, the Company engaged financial advisors and established a Special Committee of the board of directors to explore strategic alternatives.
As announced on January 12, 2017, the Company committed to a restructuring plan that consisted primarily of a workforce reduction of 25
positions, to a total of 5 remaining positions in order to conserve cash while the Company continues to evaluate business alternatives. In connection with this restructuring, the Company discontinued a substantial portion of its research and
clinical development activities and no longer anticipates expending material resources on any of its drug candidates to reduce expenditures. After considering the actions taken by management, the Company has sufficient cash and marketable securities
to fund operations for at least the next twelve months.
3. Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and include all
adjustments necessary for the presentation of the Companys financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes, including accrued liabilities and the fair value-based measurement of equity instruments. Actual results could differ
materially from those estimates. The Company evaluates its estimates and assumptions as facts and circumstances dictate.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be
cash equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking, interest- bearing and demand money market accounts.
Marketable Securities
The Company
has designated marketable securities as available-for-sale securities and accounts for them at their respective fair values. Marketable securities are classified as short-term or long-term based on the nature of the securities and their availability
to meet current operating requirements. Securities that are classified as
F-A-9
available-for-sale are carried at fair value, including accrued interest, with temporary unrealized gains and losses reported as a component of stockholders equity until their disposition.
The Company reviews all available-for-sale securities at each period end to determine if they remain available-for-sale based on the Companys then current intent and ability to sell the security if it is required to do so. The cost of
securities sold is based on the specific identification method. All marketable securities are subject to a periodic impairment review. The Company will recognize an impairment charge when a decline in the fair value of the investments below the cost
basis is judged to be other-than-temporary.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and
marketable securities. The Company has established guidelines to limit its exposure to credit risk by placing investments with high credit quality financial institutions, diversifying its investment portfolio and making investments with maturities
that maintain safety and liquidity. At December 31, 2016 and 2015, the Companys cash equivalents were with money market funds that invest in securities issued by the U.S. Treasury. At December 31, 2016 and 2015, the Companys
marketable securities were in U.S. Treasury securities, obligations of U.S. government agencies, reverse repurchase agreements and high-grade corporate debt securities.
Property and Equipment
Property
and equipment are stated at cost less accumulated depreciation. Lab equipment, computer equipment and software are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over
the shorter of the estimated useful lives of the assets or the lease term. Maintenance and repairs are expensed as incurred.
Impairment of
Long-Lived Assets
The Company assesses the potential impairments of its long-lived assets whenever events or changes in
circumstances indicate that an assets carrying value may not be recoverable. If the carrying value exceeds the undiscounted future cash flows estimated to result from the use and eventual disposition of the asset, the Company writes down the
asset to its estimated fair value. Management believes that no long-lived assets were materially impaired as of December 31, 2016 and 2015.
Accrued Direct Program Expenses
Substantial portions of the Companys preclinical studies and clinical trials, including the manufacture and packaging of drug supplies,
are performed by third-party laboratories, contract manufacturing organizations, medical centers, contract research organizations and other service providers (collectively vendors). These vendors generally bill monthly or quarterly for services
performed or upon achieving certain milestones. For preclinical studies and product development and manufacturing, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical
studies, expenses are accrued based upon patient enrollment and the duration of the study. The Company monitors patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data
reported by these vendors using software tracking systems, or through clinical site visits and vendor correspondence. Company estimates depend on the timeliness and accuracy of the data provided by these vendors regarding the status of each program
and total program spending. The Company periodically evaluates these estimates to determine if adjustments are necessary or appropriate based on information received. No vendor comprised more than 10% of all external costs in 2016, 2015, and 2014.
F-A-10
Research and Development
The Company expenses costs associated with research and development as incurred. These costs include direct program expenses, which are
payments made to third parties that specifically relate to the Companys research and development, such as payments to clinical research organizations, clinical investigators, manufacturing of clinical material, pre-clinical testing and
consultants. In addition, employee costs (salaries, payroll taxes, benefits and travel) for employees contributing to research and development activities are classified as research and development costs.
Stock-Based Compensation
The
Company measures employee and director stock-based compensation expense for all stock and purchase awards at the grant date based on the fair value measurement of the award. The expense is recorded over the related service period, generally the
vesting period, net of estimated forfeitures. Any changes to the estimated forfeiture rates are accounted for prospectively. The Company calculates the fair value measurement of stock options using the Black-Scholes valuation model and the
single-option method and recognizes expense using the straight-line attribution approach.
Income Taxes
The Company accounts for income taxes under an asset and liability approach. Deferred income taxes reflect the impact of temporary differences
between assets and liabilities recognized for tax and financial reporting purposes measured by applying enacted tax rates and laws that will be in effect when the differences are expected to reverse, net operating loss and tax credit carryforwards.
Tax benefits are recorded when the benefit is more likely than not to be sustained upon audit. The Company accrues interest and penalties related to uncertain tax positions in income tax expense. Valuation allowances are provided when necessary to
reduce net deferred tax assets to an amount that is more likely than not to be realized.
Segment Information
The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The
Companys singular focus is on discovering and developing potential drugs. No revenue has been generated since inception, and all tangible assets are held in the United States.
Comprehensive Loss
Comprehensive
loss is comprised of net loss and adjustments for the change in unrealized gains and losses on the Companys investments in available-for-sale marketable securities. The Company presents comprehensive loss and its components in the statements
of operations and comprehensive loss for the year ended December 31, 2016 and 2015.
Net Loss per Share
The Company reports net loss per share in accordance with the standard codification of ASC Earnings per Share (ASC
260). Under ASC 260, basic earnings per share, which excludes dilution, is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of
securities that could be exercised or converted into common shares, and is computed by dividing net loss by the weighted average of common shares outstanding plus the dilutive potential common shares. Diluted earnings per share excludes the impact
of options to purchase common stock, restricted stock units and warrants to purchase common stock, as the effect would be anti-dilutive. During a loss period, the assumed exercise of in-the-money stock options and other potentially diluted
instruments has an anti-dilutive effect and therefore, these instruments are excluded from the computation of dilutive earnings per share.
F-A-11
Recently Adopted Accounting Pronouncements
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements Going Concern Disclosure of Uncertainties
About an Entitys Ability to Continue as a Going Concern, which requires management to evaluate whether there are conditions or events that raise substantial doubt about an entitys ability to continue as a going concern and to provide
disclosures when certain criteria are met. The guidance is effective for annual periods beginning after December 15, 2016 and interim reporting periods starting in the first quarter of 2017. The Company adopted this standard as of
December 31, 2016.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new guidance requires organizations that lease assets to
recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition,
measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand
the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application
permitted. The new standard is to be applied using a modified retrospective approach. The Company does not expect the standard will have a material impact on its disclosures.
In March 2016, the FASB issued ASU No. 2016-09, Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting. The amendments in this update simplify several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, as well as
classification within the statement of cash flows. The guidance will be effective for the annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently evaluating the impact of the
new pronouncement on its financial statements.
Fair Value of Financial Instruments
The carrying amounts of cash equivalents and marketable securities approximate their fair value based upon quoted market prices. Certain
financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as cash, accounts payable, accrued direct program expenses,
and accrued employee benefits, and other financial instruments included within current assets or current liabilities.
The Company
accounted for warrants to purchase its redeemable preferred stock pursuant to ASC Topic 480,
Distinguishing Liabilities from Equity
, and classified them as liabilities. The fair value of the outstanding preferred stock warrant
liabilities at December 31, 2013 was $267,750. Subsequent to the completion of the Stock Conversion on September 23, 2014, whereby all outstanding shares of preferred stock were converted into shares of common stock, and the warrants
became exercisable for shares of common stock pursuant to the adjustment provisions of the warrants, the fair value of the preferred stock warrant liabilities was remeasured and reclassified into equity. During the year ended December 31, 2014
a remeasurement gain of $265,750 was recognized in interest and other income, net in the statement of operations and comprehensive loss. Upon the Stock Conversion, the remaining balance of $2,000 was reclassified from liabilities to equity.
Fair Value Measurements
In
general, asset and liability fair values are determined using the following categories:
Level 1
inputs utilize quoted prices in active markets for identical assets or liabilities.
Level 2
inputs
include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
F-A-12
Level 3
inputs are unobservable inputs and include
situations where there is little, if any, market activity for the balance sheet items at period end. Pricing inputs are unobservable for the terms and are based on the Companys own estimates about the assumptions that a market participant
would use in pricing as asset.
The Companys financial instruments, including money market investments, reverse repurchase
agreements, corporate debt securities, U.S. Treasury securities and obligations of U.S. government agencies, are measured at fair value on a recurring basis. There were no transfers between levels for the years ended December 31, 2016 and 2015.
Assets and liabilities measured at fair value on a recurring basis consisted of the following types of instruments as of
December 31, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
December 31,
2016
|
|
|
Quoted prices
in active
markets for
identical assets
(Level 1)
|
|
|
Quoted prices
for similar assets
observable in the
market place
(Level 2)
|
|
|
December 31,
2015
|
|
|
Quoted prices
in active
markets for
identical assets
(Level 1)
|
|
|
Quoted prices
for similar assets
observable in the
market place
(Level 2)
|
|
Assets measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments
|
|
$
|
14,186
|
|
|
$
|
14,186
|
|
|
$
|
|
|
|
$
|
12,131
|
|
|
$
|
12,131
|
|
|
$
|
|
|
U.S. Treasury securities, obligations of U.S. government agencies, corporate debt securities and
reverse repurchase agreements
|
|
|
41,832
|
|
|
|
|
|
|
|
41,832
|
|
|
|
73,261
|
|
|
|
|
|
|
|
73,261
|
|
4. Cash, Cash Equivalents and Marketable Securities
The following is a summary of cash, cash equivalents and marketable securities as of December 31, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair market
value
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5,017
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,017
|
|
Money market funds
|
|
|
14,186
|
|
|
|
|
|
|
|
|
|
|
|
14,186
|
|
Reverse repurchase agreements
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
U.S. Treasury securities and obligations of U.S. government agencies
|
|
|
16,458
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
16,457
|
|
Corporate debt securities
|
|
|
20,391
|
|
|
|
1
|
|
|
|
(17
|
)
|
|
|
20,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for December 31, 2016
|
|
$
|
61,052
|
|
|
$
|
2
|
|
|
$
|
(19
|
)
|
|
$
|
61,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,862
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,862
|
|
Money market funds
|
|
|
12,131
|
|
|
|
|
|
|
|
|
|
|
|
12,131
|
|
Reverse repurchase agreements
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
U.S. Treasury securities and obligations of U.S. government agencies
|
|
|
28,982
|
|
|
|
4
|
|
|
|
(7
|
)
|
|
|
28,979
|
|
Corporate debt securities
|
|
|
38,276
|
|
|
|
22
|
|
|
|
(16
|
)
|
|
|
38,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for December 31, 2015
|
|
$
|
87,251
|
|
|
$
|
26
|
|
|
$
|
(23
|
)
|
|
$
|
87,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-A-13
5. Property and Equipment
Property and equipment consisted of the following as of December 31, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Useful Life
(in years)
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Lab equipment
|
|
|
5
|
|
|
$
|
1,145
|
|
|
$
|
1,146
|
|
Computer equipment and software
|
|
|
3
|
|
|
|
456
|
|
|
|
421
|
|
Leasehold improvements
|
|
|
1
|
|
|
|
143
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
1,744
|
|
|
|
1,669
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(1,569
|
)
|
|
|
(1,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
$
|
175
|
|
|
$
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expenses were approximately $143,000, $66,000 and $86,000 for the years ended December 31,
2016, 2015 and 2014, respectively.
6. Notes Payable
As of December 31, 2016, the Company had no debt outstanding.
Convertible Debt
During February 2014 through September 2014, the Company issued subordinated secured convertible promissory notes (the 2014
Notes), to two related party investors totaling $12.0 million at an interest rate of 8.0% per annum. The outstanding principal and accrued and unpaid interest was convertible at the option of the investor into preferred shares in the
Company.
The 2014 Notes included a change in control redemption which was deemed an embedded derivative. This redemption right and the
right to convert at 75% of the price at which a new series of preferred stock was issued required the Company to bifurcate and separately account for the embedded derivatives, however the amount recorded and the impact on net loss was not material.
As part of the Stock Conversion on September 23, 2014, the holders of the 2014 Notes agreed to the issuance of shares of a newly
created Series 1 convertible preferred stock in settlement of the 2014 Notes. The Company issued 8,813,203 Series 1 convertible preferred shares at a price of $1.40 per share through the settlement of $12,373,741 of convertible debt and related
interest held by two separate investors. This transaction resulted in a gain on extinguishment of $378,251, which was recognized through equity during the year ended December 31, 2014, as this was a transaction with stockholders.
7. Commitments and Contingencies
Operating Lease
The Company has a lease obligation for office and laboratory space, which will expire on March 31, 2018. The Company has the
option to renew the lease for an additional three-year term and has the option to terminate the lease at any time after March 31, 2017, for a termination fee of $25,000.
The approximate future minimum payments under these lease arrangements as of December 31, 2016, are as follows (in thousands):
|
|
|
|
|
2017
|
|
$
|
295
|
|
2018
|
|
|
80
|
|
|
|
|
|
|
Total
|
|
$
|
375
|
|
|
|
|
|
|
F-A-14
During 2016, 2015 and 2014, the Company incurred approximately $279,000, $267,000 and $225,000
for rent expense, respectively.
Purchase Commitments
The Company has entered into contracts with external parties to provide the Company future services, which include research and development,
clinical development support and testing services. As of December 31, 2016, the Companys obligation for future services under these contracts approximated $1.7 million.
8. Stockholders Equity
Convertible Preferred Stock
Immediately prior to the Stock Conversion, the Company had six series of outstanding convertible preferred stock: Series A-1 convertible
preferred stock, Series A-2 convertible preferred stock, Series C-1 convertible preferred stock, Series C-2 convertible preferred stock, Series D convertible preferred stock and Series E convertible preferred stock. The convertible preferred stock
was initially recorded at the issuance price on the date of issuance, net of issuance costs. As a result of the Stock Conversion on September 23, 2014, all outstanding preferred stock was converted into shares of common stock on an 11.556-for-1
basis. Concurrent with the Stock Conversion, a newly created Series 1 convertible preferred stock was issued in the settlement of the 2014 Notes. In November and December 2014, the Company raised $31.0 million gross proceeds in a private placement
of Series 2 convertible preferred stock.
On June 22, 2015, prior to the closing of the Companys IPO, all outstanding shares of
convertible preferred stock, amounting to 19,978,986 shares, were automatically converted into 6,915,525 shares of common stock in accordance with the terms of the Companys amended and restated certificate of incorporation then in existence.
As of December 31, 2016 and 2015, the Company had no preferred stock or convertible preferred stock outstanding.
Common Stock
On June 22,
2015, the Company completed its IPO of 6,325,000 shares of its common stock, including 875,000 shares from the exercise of the underwriters over-allotment option, at a price to the public of $14.00 per share for aggregate gross proceeds of
$88.6 million. The Company received proceeds of $78.8 million from its IPO, net of $3.6 million in expenses and $6.2 million in underwriters discounts and commissions relating to the issuance and distribution of the securities.
On April 18, 2016, in connection with the appointment of the Companys new Chief Medical Officer, the Company approved a grant of
stock options to purchase 108,333 shares of the Companys common stock (the Options) and 216,667 restricted stock units (RSUs). The Options and RSUs were issued pursuant to a separate Notice of Inducement Stock Option
Grant and Inducement Stock Option Agreement and Notice of Restricted Stock Unit Inducement Grant and Inducement Restricted Stock Unit Agreement and are considered inducement grants made in accordance with NASDAQ Listing Rule 5635(c)(4).
On July 5, 2016, the Company filed a registration statement on Form S-3 that was declared effective on July 14, 2016 registering
(i) the offering, issuance and sale of up to $125,000,000 in the aggregate of an indeterminate number of shares of common stock and preferred stock, an indeterminate principal amount of debt securities and an indeterminate number of warrants
and (ii) the resale of up to 3,732,412 shares of common stock by selling stockholders pursuant to a base prospectus that forms a part of the registration statement. The registration statement also registers the offering, issuance and sale of
the Companys common stock having up to a maximum aggregate offering price of $20,000,000 that may be issued and sold in an at-the-market offering under a sales agreement the Company entered into with Cowen and Company, LLC on July 5, 2016
pursuant to a
F-A-15
sales agreement prospectus that forms a part of the registration statement. The $20,000,000 of common stock that may be sold under the sales agreement prospectus is included in the $125,000,000
that may be sold by the Company under the base prospectus. As of December 31, 2016, approximately 20,000 shares of common stock have been sold at an average sales price of $8.00 per share under the sales agreement, net of offering costs of
approximately $140,000.
At December 31, 2016, shares of common stock have been reserved for issuance as follows:
|
|
|
|
|
Options to purchase common stockissued
|
|
|
2,756,921
|
|
Options to purchase common stockunissued
|
|
|
391,927
|
|
Inducement grantsissued
|
|
|
288,889
|
|
Employee stock purchase planunissued
|
|
|
180,845
|
|
Warrants to purchase common stock
|
|
|
18,534
|
|
|
|
|
|
|
Total
|
|
|
3,637,116
|
|
|
|
|
|
|
Stock-Based Compensation
Stock Options and Restricted Stock Units
In August 2012, the Company adopted the 2012 Stock Incentive Plan (the 2012 Plan). A total of 147,109 shares of common stock were
originally reserved for issuance under the 2012 Plan. On November 17, 2014, and December 12, 2014, the Companys board of directors approved an increase of 623,052 and 519,210 shares, respectively, to the total number of shares that
may be issued under the 2012 Plan, which after these increases totaled 1,289,371 shares. As of December 31, 2015, 1,288,174 accumulated shares had been granted under the 2012 Plan to employees and directors, while 685 shares had been exercised
and 512 shares were terminated upon the termination of the 2012 Plan effective with the closing of the Companys IPO.
In May 2015,
the Companys board of directors and its stockholders approved the 2015 Equity Incentive Plan (the 2015 Plan). Effective with the Companys IPO closing, a total of 1,081,700 shares of common stock were originally reserved for
issuance under the 2015 Plan. The 2015 Plan provides that an additional number of shares will automatically be added to the shares authorized for issuance under the 2015 Plan on January 1 of each calendar year, from January 1, 2016 through
January 1, 2025. The number of shares added each year will be equal to: (a) 5% of the total number of shares of Common Stock issued and outstanding on December 31 of the preceding calendar year; or (b) such lesser number of
shares of Common Stock approved by the board of directors on or prior to such immediately preceding December 31. On January 1, 2016 a total of 773,102 additional shares were automatically added to the shares authorized for issuance under
the 2015 Plan.
The 2015 Plan provides for the granting of incentive and nonqualified stock options, stock appreciation rights, restricted
stock, restricted stock units, performance-based awards and other stock-based awards to its employees, directors and consultants. Stock options granted vest over either a one-year period or three-year period for board of directors grants or over a
four-year period for employee grants and expire 10 years from the date of grant.
The fair value of each option grant for the year ended
December 31, 2016 and 2015 was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Estimated dividend yield
|
|
|
|
|
|
|
|
|
Weighted-average expected stock price volatility
|
|
|
79.1
|
%
|
|
|
75.7%
|
|
Weighted-average risk-free interest rate
|
|
|
1.5
|
%
|
|
|
1.8%
|
|
Weighted-average expected life of option (in years)
|
|
|
6.20
|
|
|
|
6.22
|
|
Weighted-average fair value per option
|
|
$
|
5.09
|
|
|
$
|
5.09
|
|
F-A-16
There were no stock options granted during the year ended December 31, 2014
Due to limited historical data, the Company estimates stock price volatility based on the actual volatility of comparable publicly traded
companies over the expected life of the option. The expected term represents the average time that options that vest are expected to be outstanding. The Company does not have sufficient history of exercise of stock options to estimate the expected
term for employee stock options and, thus, continues to calculate expected life based on the midpoint between the average vesting date and the contractual term, which is in accordance with the simplified method. The risk-free rate is based on the
United States Treasury yield curve for the expected life of the option. The fair value of the common stock utilized in the fair value estimation of option and restricted stock arrangements prior to the Companys IPO of June 2015 has been
determined utilizing contemporaneous valuations primarily based on an option pricing methodology.
The tables below summarize the stock
option activity for the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted -
Average
Remaining
Contractual
Life
(in Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance as of December 31, 2015
|
|
|
1,787,864
|
|
|
$
|
7.54
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,101,958
|
|
|
|
7.37
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(5,722
|
)
|
|
|
4.52
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(33,488
|
)
|
|
|
12.81
|
|
|
|
|
|
|
|
|
|
Canceled or Expired
|
|
|
(7,649
|
)
|
|
|
16.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
2,842,963
|
|
|
|
7.39
|
|
|
|
8.76
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
821,934
|
|
|
|
6.80
|
|
|
|
8.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expected to vest, net of estimated forfeitures
|
|
|
2,723,085
|
|
|
$
|
7.36
|
|
|
|
8.74
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the status of our non-vested RSUs as of December 31, 2016 and changes during the year ended
December 31, 2016, is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of
RSUs
|
|
|
Weighted
Average
Grant Date Fair Value
|
|
Unvested as of December 31, 2015
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
216,667
|
|
|
|
4.68
|
|
Vested
|
|
|
(36,111
|
)
|
|
|
4.68
|
|
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2016
|
|
|
180,556
|
|
|
$
|
4.68
|
|
|
|
|
|
|
|
|
|
|
During 2016, 2015 and 2014, the Company recorded approximately $3.3 million, $1.3 million and $70,000,
respectively, in stock-based compensation expense for the vesting of stock options and RSUs. No stock options or RSUs have been granted to consultants. As of December 31, 2016, there was approximately $10.0 million of total unrecognized
stock-based compensation expense related to nonvested stock options and nonvested RSUs, net of related forfeiture estimates. During the first quarter of 2017, we expect to record approximately $2.3 million of stock-based compensation expense
due to the accelerated vesting of options and RSUs offered to employees affected by the restructuring plan and workforce reduction announced on January 12, 2017.
The Company did not recognize a tax benefit related to stock-based compensation expense during the years ended December 31, 2016, 2015
and 2014 as the Company maintains net operating loss carryforwards and has established a valuation allowance against the entire net deferred tax asset as of December 31, 2016.
F-A-17
Employee Stock Purchase Plan
In May 2015, the Companys board of directors and its stockholders approved the Nivalis Therapeutics, Inc. Employee Stock Purchase Plan
(the Purchase Plan). Effective on the closing of the Companys IPO, a total of 231,800 shares of common stock were made available for sale under the Purchase Plan. The Purchase Plan may be amended, suspended or terminated at any
time by the board of directors, however stockholder approval is required to increase the number of common stock available under the Purchase Plan or to change the employees eligible to participate in the Purchase Plan.
The Purchase Plan provides for a series of successive six-month offering periods, from January to June and July to December of each calendar
year during which participating employees may elect to have up to 15% of their compensation withheld and applied to the purchase of common stock at the end of each offering period. The purchase price of the common stock is 85% of the lower of the
fair value of a share of common stock on the first trading date of each offering period or the fair value of a share of common stock on the last trading day of the offering period. The Company sold 42,031 and 8,924 shares to employees during 2016
and 2015, respectively. There were 180,845 shares available for sale under the Purchase Plan as of December 31, 2016. The weighted-average estimated grant date fair value of purchase awards under the Purchase Plan during the year ended
December 31, 2016 and 2015 was $1.98 and $5.18, respectively. The total stock-based compensation expense recorded as a result of the Purchase Plan was approximately $73,000 and $22,000 during the year ended December 31, 2016 and 2015,
respectively.
The fair value of purchase awards granted to our employees during the year ended December 31, 2016 and 2015 was
estimated using the Black-Scholes option pricing model using the weighted-average assumptions provided in the following table:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Estimated dividend yield
|
|
|
|
|
|
|
|
|
Expected stock price volatility
|
|
|
66.4
|
%
|
|
|
62.5
|
%
|
Risk-free interest rate
|
|
|
0.4
|
%
|
|
|
0.1
|
%
|
Expected life of option (in years)
|
|
|
0.5
|
|
|
|
0.5
|
|
The Company estimates stock price volatility based on the actual volatility of its publicly traded stock over
the expected life of the purchase right. The risk-free rate is based on the U.S. Treasury yield in effect at the time of grant with terms similar to the contractual term of the purchase right. The expected term represents the six-month offering
period for the Purchase Plan.
9. Income Taxes
No provision for federal or state income tax expense has been recorded for the years ended December 31, 2016, 2015 and 2014, since the
Company generated net operating losses in all years.
F-A-18
Deferred income taxes reflect the net tax effect of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax assets and liabilities at December 31, 2016 and 2015 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
28,271
|
|
|
$
|
20,280
|
|
Income tax credit carryforwards
|
|
|
9,268
|
|
|
|
1,813
|
|
Accrued benefits and other
|
|
|
613
|
|
|
|
643
|
|
Stock-based compensation
|
|
|
1,221
|
|
|
|
|
|
Property and equipment
|
|
|
20
|
|
|
|
|
|
Intangible assets
|
|
|
107
|
|
|
|
125
|
|
Valuation allowance
|
|
|
(39,500
|
)
|
|
|
(22,858
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Company records a full valuation allowance against its net deferred tax assets since the Company cannot
conclude that it was more likely than not that its deferred tax assets would be realized.
At December 31, 2016, the Company had
federal and state income loss carryforwards of $75.7 million and $83.0 million, respectively, that begin to expire in 2032 for both federal and state purposes. Additionally, the Company has research and development credits and orphan drug credits of
approximately $2.0 million and $7.3 million, respectively, available for federal purposes, which begin to expire in 2032 and 2036, respectively. The utilization of the federal net operating loss and credit carryforwards to reduce future income
taxes will depend on the Companys ability to generate sufficient taxable income prior to the expiration of the carryforwards. In addition, the utilization of the federal net operating loss and credit carryforwards may be subject to limitations
under the rules regarding a change in stock ownership as determined by the Internal Revenue Code and state laws. Section 382 of the Internal Revenue Code of 1986, as amended, imposes annual limitations on the utilization of net operating loss
(NOL) carryforwards, other tax carryforwards and certain built-in losses upon an ownership change as defined by that section. In general terms, an ownership change may result from transactions that increase the aggregate ownership of
certain stockholders in the Company stock by more than 50 percentage points over a three year testing period (Section 382 Ownership Change). If the Company has undergone a Section 382 Ownership change, an annual limitation would be
imposed on certain tax attributes of the Company, including NOL and capital loss carryforwards and certain other losses and credits. As of December 31, 2016, the Company has not performed a formal study to determine whether there are
Section 382 limitations that apply and such limitations could be significant.
F-A-19
The difference between actual income tax rate for the years ended December 31, 2016, 2015
and 2014, and the statutory federal income tax rate are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
% of Pretax
Earnings
|
|
|
% of Pretax
Earnings
|
|
|
% of Pretax
Earnings
|
|
Income tax benefit at statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State income taxes, net of federal tax benefit
|
|
|
3.1
|
%
|
|
|
3.1
|
%
|
|
|
3.1
|
%
|
Income tax credits
|
|
|
23.7
|
%
|
|
|
2.6
|
%
|
|
|
3.5
|
%
|
Nondeductible expenses and other
|
|
|
(7.9
|
)%
|
|
|
(1.9
|
)%
|
|
|
(1.0
|
)%
|
Change in valuation allowance
|
|
|
(52.9
|
)%
|
|
|
(37.8
|
)%
|
|
|
(39.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 and 2015, the Company had no unrecognized tax benefits. The Company has analyzed
its filing positions in all significant federal and state jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state
and local tax examinations by taxing authorities for years before 2013. No income tax returns are currently under examination by taxing authorities.
10. Employment Benefit Plan
The Company
outsources its payroll, benefits and human resource administration functions to a Professional Employer Organization (PEO). The Companys employees are eligible to participate in the PEOs Multiple Employer Retirement Savings Plan
(401(k) plan). The 401(k) plan allows immediate participation by U.S. employees that are 20 years of age or older. Participants may defer up to 75% of their gross pay, up to a maximum limit determined by U.S. federal law. The Company provides
all active employees with a safe harbor contribution equal to 3% of compensation (regardless of participation in the 401(k) plan) up to maximum U.S. federal law limits. These safe harbor contributions vest immediately. During 2016, 2015 and 2014,
the Company paid approximately $150,000, $115,000 and $129,000, respectively, for employer contributions and plan expenses.
11. Net Loss per Share
The Company excluded the following common stock equivalents, outstanding as of the years ended December 31, 2016, 2015 and 2014,
from the computation of diluted net loss per share for these same periods because they had an anti-dilutive impact on the computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Options to purchase common stockissued
|
|
|
2,756,921
|
|
|
|
1,810,155
|
|
|
|
88,346
|
|
Inducement grantsissued
|
|
|
288,889
|
|
|
|
|
|
|
|
|
|
Unvested restricted common stock
|
|
|
|
|
|
|
318
|
|
|
|
3,342
|
|
Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
6,915,525
|
|
Warrants to purchase convertible preferred and common stock
|
|
|
18,534
|
|
|
|
18,534
|
|
|
|
18,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,064,344
|
|
|
|
1,829,007
|
|
|
|
7,025,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-A-20
12. Quarterly Financial Data (Unaudited)
The results of operations on a quarterly basis for the years ended December 31, 2016 and 2015 were as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
June 30,
2016
|
|
|
September 30,
2016
|
|
|
December 31,
2016
|
|
|
|
|
|
March 31,
2015
|
|
|
June 30,
2015
|
|
|
September 30,
2015
|
|
|
December 31,
2015
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
5,567
|
|
|
|
6,424
|
|
|
|
5,669
|
|
|
|
5,656
|
|
|
|
|
|
|
|
3,017
|
|
|
|
4,465
|
|
|
|
4,279
|
|
|
|
4,293
|
|
General and administrative
|
|
|
2,367
|
|
|
|
2,172
|
|
|
|
1,879
|
|
|
|
2,168
|
|
|
|
|
|
|
|
1,298
|
|
|
|
1,387
|
|
|
|
1,822
|
|
|
|
2,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(7,934
|
)
|
|
|
(8,596
|
)
|
|
|
(7,548
|
)
|
|
|
(7,824
|
)
|
|
|
|
|
|
|
(4,315
|
)
|
|
|
(5,852
|
)
|
|
|
(6,101
|
)
|
|
|
(6,630
|
)
|
Interest and other income, net
|
|
|
96
|
|
|
|
117
|
|
|
|
115
|
|
|
|
111
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
12
|
|
|
|
67
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,838
|
)
|
|
$
|
(8,479
|
)
|
|
$
|
(7,433
|
)
|
|
$
|
(7,713
|
)
|
|
|
|
|
|
$
|
(4,314
|
)
|
|
$
|
(5,852
|
)
|
|
$
|
(6,089
|
)
|
|
$
|
(6,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingbasic and diluted
|
|
|
15,462
|
|
|
|
15,462
|
|
|
|
15,504
|
|
|
|
15,540
|
|
|
|
|
|
|
|
2,209
|
|
|
|
4,159
|
|
|
|
15,451
|
|
|
|
15,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per sharebasic and diluted
|
|
$
|
(0.51
|
)
|
|
$
|
(0.55
|
)
|
|
$
|
(0.48
|
)
|
|
$
|
(0.50
|
)
|
|
|
|
|
|
$
|
(1.95
|
)
|
|
$
|
(1.41
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
(0.42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Subsequent Events
In January 2017, following the failure of a Phase 2 trial of cavosonstat in patients with CF to meet its primary endpoint, the Company
initiated a process to explore and review a range of strategic alternatives focused on maximizing stockholder value from its clinical assets and cash resources. As a result, the Company ceased its research activities and further development of
cavosonstat and its other GSNOR inhibitors and began implementation of a workforce reduction of 25 positions to better align its workforce to its revised operating plan. The workforce reduction will be substantially completed during the first
quarter of 2017, at which time the Company expects to have approximately five remaining employees. Cash payments in connection with the workforce reduction, comprised principally of severance and benefits continuation costs, are estimated to be
approximately $3.0 million and expected to be paid during the first half of 2017.
In addition to severance payments, all unvested stock
options held by employees affected by the workforce reduction were 100% vested and a portion of unvested RSUs held by one employee vested. As a result, the Company expects to record in the first quarter of 2017 approximately $2.3 million of
stock-based compensation expense related to this accelerated vesting.
The Company has not incurred, nor does it expect to incur,
significant cancellation charges with its vendors as a result of winding down research and development activities.
F-A-21
Nivalis Therapeutics, Inc.
Index to Financial Statements
F-A-22
Nivalis Therapeutics, Inc.
Balance Sheets
(In thousands, except for share amounts)
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,929
|
|
|
$
|
24,203
|
|
Marketable securities
|
|
|
39,745
|
|
|
|
36,832
|
|
Prepaid expenses and other current assets
|
|
|
263
|
|
|
|
628
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
52,937
|
|
|
|
61,663
|
|
|
|
|
Property and equipment and other assets, net
|
|
|
72
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
53,009
|
|
|
$
|
61,935
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,278
|
|
|
$
|
1,921
|
|
Accrued direct program expenses
|
|
|
87
|
|
|
|
2,646
|
|
Accrued restructuring charges
|
|
|
2,251
|
|
|
|
|
|
Accrued employee benefits
|
|
|
119
|
|
|
|
1,879
|
|
Accrued other liabilities
|
|
|
54
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,789
|
|
|
|
6,499
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000,000 shares authorized and no shares issued and
outstanding for both periods presented
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 200,000,000 shares authorized for both periods presented;
15,656,251 and 15,565,973 shares issued and outstanding, respectively
|
|
|
16
|
|
|
|
16
|
|
Additional
paid-in
capital
|
|
|
238,434
|
|
|
|
235,737
|
|
Accumulated other comprehensive income
|
|
|
(14
|
)
|
|
|
(17
|
)
|
Accumulated deficit
|
|
|
(189,216
|
)
|
|
|
(180,300
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
49,220
|
|
|
|
55,436
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
53,009
|
|
|
$
|
61,935
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-A-23
Nivalis Therapeutics, Inc.
Statements of Operations and Comprehensive Loss
(In thousands, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Research and development (1)
|
|
|
2,758
|
|
|
|
5,567
|
|
General and administrative (1)
|
|
|
2,781
|
|
|
|
2,367
|
|
Restructuring charges
|
|
|
3,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(9,025
|
)
|
|
|
(7,934
|
)
|
|
|
|
Interest income
|
|
|
109
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(8,916
|
)
|
|
$
|
(7,838
|
)
|
|
|
|
|
|
|
|
|
|
Unrealized gains on marketable securities
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(8,913
|
)
|
|
$
|
(7,838
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingbasic and diluted
|
|
|
15,644
|
|
|
|
15,462
|
|
|
|
|
|
|
|
|
|
|
Net loss per sharebasic and diluted
|
|
$
|
(0.57
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based compensation expense
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
1,265
|
|
|
$
|
213
|
|
General and administrative
|
|
|
1,432
|
|
|
|
494
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
2,697
|
|
|
$
|
707
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-A-24
Nivalis Therapeutics, Inc.
Statement of Stockholders Equity
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated Other
Comprehensive
Income
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders
Equity
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
15,566
|
|
|
$
|
16
|
|
|
$
|
235,737
|
|
|
$
|
(17
|
)
|
|
$
|
(180,300
|
)
|
|
$
|
55,436
|
|
Employee stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
2,697
|
|
|
|
|
|
|
|
|
|
|
|
2,697
|
|
Issuance of common stock under restricted stock unit awards
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,916
|
)
|
|
|
(8,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2017
|
|
|
15,656
|
|
|
$
|
16
|
|
|
$
|
238,434
|
|
|
$
|
(14
|
)
|
|
$
|
(189,216
|
)
|
|
$
|
49,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-A-25
Nivalis Therapeutics, Inc.
Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,916
|
)
|
|
$
|
(7,838
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
57
|
|
|
|
30
|
|
Stock-based compensation expense
|
|
|
2,697
|
|
|
|
707
|
|
Gain on sales of property and equipment
|
|
|
(26
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
|
462
|
|
|
|
(69
|
)
|
Accounts payable
|
|
|
(643
|
)
|
|
|
202
|
|
Accrued direct program expenses
|
|
|
(2,559
|
)
|
|
|
1,054
|
|
Accrued restructuring charges
|
|
|
2,251
|
|
|
|
|
|
Accrued employee benefits
|
|
|
(1,760
|
)
|
|
|
(963
|
)
|
Accrued other liabilities
|
|
|
1
|
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(8,436
|
)
|
|
|
(7,011
|
)
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
(31
|
)
|
Proceeds from sales of property and equipment
|
|
|
72
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(18,982
|
)
|
|
|
(29,469
|
)
|
Proceeds from sales and maturities of marketable securities
|
|
|
16,072
|
|
|
|
27,550
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,838
|
)
|
|
|
(1,950
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(11,274
|
)
|
|
|
(8,961
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
24,203
|
|
|
|
24,991
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
12,929
|
|
|
$
|
16,030
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-A-26
Nivalis Therapeutics, Inc.
Notes to Unaudited Financial Statements
1. Organization and Description of Business
Nivalis Therapeutics, Inc. (the Company or Nivalis), incorporated in Delaware on August 1, 2012, is a
pharmaceutical company that has historically focused on the discovery and development of product candidates for patients with cystic fibrosis, or CF. In November 2016, the Company announced that its Phase 2 trial, evaluating the efficacy and safety
of cavosonstat in adult patients with CF, had failed to demonstrate a benefit in its primary endpoint. On January 3, 2017, the Company announced that its board of directors had initiated a process to explore and review a range of strategic
alternatives. At that time, the Company also announced that it had engaged a financial advisor and established a Special Committee of the board of directors to explore strategic alternatives. As a result of this process, on April 18, 2017, the
Company, Nautilus Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (Merger Sub), and Alpine Immune Sciences, Inc., a Delaware corporation (Alpine),entered into an Agreement and Plan of
Merger and Reorganization (the Merger Agreement), pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Alpine, with
Alpine continuing as a wholly owned subsidiary of Nivalis and the surviving corporation of the merger (the Merger). See Note 7 below for more information regarding the Merger.
2. Liquidity Risks
The Company has
incurred operating losses and has an accumulated deficit as a result of ongoing research and development spending. As of March 31, 2017, the Company had an accumulated deficit of $189.2 million. For the three months ended March 31,
2017, net loss was $8.9 million and net cash used in operating activities was $8.4 million.
As announced on January 12,
2017, the Company committed to a restructuring plan that consisted primarily of a workforce reduction of 25 positions, to a total of five remaining positions in order to conserve cash while the Company continued to evaluate strategic alternatives.
In connection with this restructuring, the Company discontinued a substantial portion of its research and clinical development activities and no longer anticipates expending material resources on any of its drug candidates in order to reduce
expenditures. The Company expects to incur significant transaction related expenses relating to the consummation of the Merger. After considering the actions taken by management, the Company has sufficient cash and marketable securities to fund
operations for at least the next 12 months.
3. Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and include all
adjustments necessary for the presentation of the Companys financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes, including accrued liabilities and the fair value-based measurement of equity instruments. Actual results could differ
materially from those estimates. The Company evaluates its estimates and assumptions as facts and circumstances dictate.
Unaudited Interim
Financial Data
The balance sheet at December 31, 2016 was derived from the Companys audited financial statements, but
these interim financial statements do not include all the annual disclosures required by GAAP. These financial
F-A-27
statements should be read in conjunction with the Companys audited financial statements and the notes thereto for the year ended December 31, 2016. The accompanying interim financial
statements as of March 31, 2017 and for the three months ended March 31, 2017 and 2016, are unaudited. The unaudited interim financial statements have been prepared on a basis consistent with the audited financial statements, pursuant to
the rules and regulations of the SEC for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to fairly state the Companys financial position as of March 31, 2017 and the
results of operations and cash flows for the three months ended March 31, 2017 and 2016. The results for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the year ending
December 31, 2017 or for any future interim period.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash
equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking, interest-bearing and demand money market accounts.
Marketable Securities
The Company
has designated marketable securities as
available-for-sale
securities and accounts for them at their respective fair values. Marketable securities are classified as
short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Securities that are classified as
available-for-sale
are carried at fair value, including accrued interest, with temporary unrealized gains and losses reported as a component of stockholders equity
until their disposition. The Company reviews all
available-for-sale
securities at each period end to determine if they remain
available-for-sale
based on the Companys then current intent and ability to sell the security if it is required to do so. The cost of securities sold is based on the specific identification method. All
marketable securities are subject to a periodic impairment review. The Company will recognize an impairment charge when a decline in the fair value of the investments below the cost basis is judged to be other-than-temporary.
Accrued Direct Program Expenses
Substantial portions of the Companys preclinical studies and clinical trials, including the manufacture and packaging of drug supplies
were performed by third-party laboratories, contract manufacturing organizations, medical centers, contract research organizations and other service providers (collectively vendors). These vendors generally bill monthly or quarterly for services
performed or upon achieving certain milestones. For preclinical studies and product development and manufacturing, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. For clinical
studies, expenses are accrued based upon patient enrollment and the duration of the study. The Company monitors patient enrollment, the progress of clinical studies and related activities to the extent possible through internal reviews of data
reported by these vendors using software tracking systems, or through clinical site visits and vendor correspondence. The Companys estimates depend on the timeliness and accuracy of the data provided by these vendors regarding the status of
each program and total program spending. The Company periodically evaluates these estimates to determine if adjustments are necessary or appropriate based on information received.
Accrued Restructuring Charges
In
January 2017, the Company committed to a restructuring plan that consisted primarily of a workforce reduction of 25 positions, to a total of five remaining positions in order to conserve cash while the Company continued to evaluate strategic
alternatives. The restructuring was substantially completed during the first quarter of 2017. Cash payments in connection with the workforce reduction, comprised principally of monthly or
F-A-28
one-time
severance payments, retention bonuses and benefit continuation costs, were approximately $3.5 million of which approximately
$1.2 million was paid during the first quarter of 2017. As of March 31, 2017, approximately $2.3 million was accrued for remaining restructuring-related payments expected to be paid in the second and third quarters of 2017.
Comprehensive Loss
Comprehensive
loss is comprised of net loss and adjustments for the change in unrealized gains and losses on the Companys investments in
available-for-sale
marketable
securities. The Company presents comprehensive loss and its components in the statements of operations and comprehensive loss for the three months ended March 31, 2017.
Net Loss per Share
The Company
reports net loss per share in accordance with the standard codification of ASC Earnings per Share (ASC 260). Under ASC 260, basic earnings per share, which excludes dilution, is computed by dividing net loss by the weighted
average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could be exercised or converted into common shares, and is computed by dividing net loss by the weighted
average of common shares outstanding plus the dilutive potential common shares. Diluted earnings per share excludes the impact of options to purchase common stock, restricted stock units and warrants to purchase common stock, as the effect would be
anti-dilutive. During a loss period, the assumed exercise of
in-the-money
stock options and other potentially diluted instruments has an anti-dilutive effect and
therefore, these instruments are excluded from the computation of dilutive earnings per share.
Recent Accounting Pronouncements
In March 2016, the FASB issued ASU
No. 2016-09,
Compensation Stock Compensation (Topic
718): Improvements to Employee Share-Based Payment Accounting. The amendments in this update simplify several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, statutory
tax withholding requirements, as well as classification within the statement of cash flows. The guidance is effective for the annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted
this standard as of January 1, 2017 and it did not have a material effect on its financial statements. As part of the adoption of this standard, the Company elected to recognize forfeiture of awards as they occur rather than estimating the
expected forfeiture rate, as was previously required.
For additional discussion of recent accounting pronouncements please refer to Note
3, Summary of Significant Accounting Policies Recently Adopted Accounting Pronouncements and Recently Issued Accounting Pronouncements, in the Companys previously filed Annual Report on Form
10-K
for the year ended December 31, 2016.
Fair Value of Financial Instruments
The carrying amounts of cash equivalents and marketable securities approximate their fair value based upon quoted market prices. Certain
financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as cash, accounts payable, accrued direct program expenses,
accrued restructuring charges, and accrued employee benefits, and other financial instruments included within current assets or current liabilities.
Fair Value Measurements
In
general, asset and liability fair values are determined using the following categories:
Level
1
inputs utilize quoted prices in active markets for identical assets or liabilities.
F-A-29
Level
2
inputs include quoted prices for similar
assets or liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
Level
3
inputs are unobservable inputs and include situations where there is little, if any,
market activity for the balance sheet items at period end. Pricing inputs are unobservable for the terms and are based on the Companys own estimates about the assumptions that a market participant would use in pricing an asset.
The Companys financial instruments, including money market investments, reverse repurchase agreements, corporate debt securities, U.S.
Treasury securities and obligations of U.S. government agencies, are measured at fair value on a recurring basis. There were no transfers between levels for the three months ended March 31, 2017.
Assets and liabilities measured at fair value on a recurring basis consisted of the following types of instruments as of March 31, 2017
and December 31, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
March 31,
2017
|
|
|
Quoted prices
in active
markets for
identical assets
(Level 1)
|
|
|
Quoted prices
for similar assets
observable in the
market place
(Level 2)
|
|
|
December 31,
2016
|
|
|
Quoted prices
in active
markets for
identical assets
(Level 1)
|
|
|
Quoted prices
for similar assets
observable in the
market place
(Level 2)
|
|
Assets measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments
|
|
$
|
6,882
|
|
|
$
|
6,882
|
|
|
$
|
|
|
|
$
|
14,186
|
|
|
$
|
14,186
|
|
|
$
|
|
|
U.S. Treasury securities, obligations of U.S. government agencies, corporate debt securities and
reverse repurchase agreements
|
|
|
42,745
|
|
|
|
|
|
|
|
42,745
|
|
|
|
41,832
|
|
|
|
|
|
|
|
41,832
|
|
4. Cash, Cash Equivalents and Marketable Securities
The following is a summary of cash, cash equivalents and marketable securities as of March 31, 2017 and December 31, 2016 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
|
Gross
unrealized
gains
|
|
|
Gross
unrealized
losses
|
|
|
Fair market
value
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,047
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,047
|
|
Money market funds
|
|
|
6,882
|
|
|
|
|
|
|
|
|
|
|
|
6,882
|
|
Reverse repurchase agreement
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
U.S Treasury securities and obligations of U.S. government agencies
|
|
|
16,535
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
16,528
|
|
Corporate debt securities
|
|
|
23,224
|
|
|
|
1
|
|
|
|
(8
|
)
|
|
|
23,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for March 31, 2017
|
|
$
|
52,688
|
|
|
$
|
1
|
|
|
$
|
(15
|
)
|
|
$
|
52,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5,017
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,017
|
|
Money market funds
|
|
|
14,186
|
|
|
|
|
|
|
|
|
|
|
|
14,186
|
|
Reverse repurchase agreements
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
U.S Treasury securities and obligations of U.S. government agencies
|
|
|
16,458
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
16,457
|
|
Corporate debt securities
|
|
|
20,391
|
|
|
|
1
|
|
|
|
(17
|
)
|
|
|
20,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for December 31, 2016
|
|
$
|
61,052
|
|
|
$
|
2
|
|
|
$
|
(19
|
)
|
|
$
|
61,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-A-30
5. Stockholders Equity
Common Stock
On June 22,
2015, the Company completed its IPO of 6,325,000 shares of its common stock, including 875,000 shares from the exercise of the underwriters over-allotment option. The Company received proceeds of $78.8 million from its IPO, net of
$9.8 million in expenses and underwriters discounts and commissions relating to the issuance and distribution of the securities.
On April 18, 2016, in connection with the appointment of the Companys new Chief Medical Officer, the Company approved a grant of
stock options to purchase 108,333 shares of the Companys common stock (the Options) and 216,667 restricted stock units (RSUs). The Options and RSUs were issued pursuant to a separate Notice of Inducement Stock Option
Grant and Inducement Stock Option Agreement and Notice of Restricted Stock Unit Inducement Grant and Inducement Restricted Stock Unit Agreement and are considered inducement grants made in accordance with NASDAQ Listing Rule 5635(c)(4). In
January 15, 2017, Dr. Rodmans employment was terminated as part of our workforce reduction when his position was eliminated. As a result of the termination of Dr. Rodmans employment, all unvested Options were 100% vested
and the unvested portion of the RSUs that would have vested in the
12-month
period following the termination date vested and the remaining unvested RSUs were forfeited.
On July 5, 2016, the Company filed a registration statement on Form
S-3
that was declared
effective on July 14, 2016 registering (i) the offering, issuance and sale of up to $125,000,000 in the aggregate of an indeterminate number of shares of common stock and preferred stock, an indeterminate principal amount of debt
securities and an indeterminate number of warrants and (ii) the resale of up to 3,732,412 shares of common stock by selling stockholders pursuant to a base prospectus that forms a part of the registration statement. The registration statement
also registers the offering, issuance and sale of the Companys common stock having up to a maximum aggregate offering price of $20,000,000 that may be issued and sold in an
at-the-market
offering under a sales agreement the Company entered into with Cowen and Company, LLC on July 5, 2016 pursuant to a sales agreement prospectus that
forms a part of the registration statement. The $20,000,000 of common stock that may be sold under the sales agreement prospectus is included in the $125,000,000 that may be sold by the Company under the base prospectus. As of March 31, 2017,
approximately 20,000 shares of common stock have been sold at an average sales price of $8.00 per share under the sales agreement, net of offering costs of approximately $140,000.
At March 31, 2017, shares of common stock have been reserved for issuance as follows:
|
|
|
|
|
Options to purchase common stockissued
|
|
|
3,376,921
|
|
Options to purchase common stockunissued
|
|
|
550,225
|
|
Inducement grantsissued
|
|
|
108,333
|
|
Employee stock purchase planunissued
|
|
|
180,845
|
|
Warrants to purchase common stock
|
|
|
18,534
|
|
|
|
|
|
|
|
|
|
4,234,858
|
|
|
|
|
|
|
Stock-Based Compensation
During the three-month period ended March 31, 2017 and 2016, the Company recorded approximately $2.7 million and $707,000,
respectively, in stock-based compensation expense for the vesting of stock options and RSUs. During the first quarter of 2017, the Company recorded approximately $2.3 million of stock-based compensation expense specifically related to the
accelerated vesting of options and RSUs held by employees affected by the restructuring plan and workforce reduction announced on January 12, 2017.
F-A-31
6. Net Loss per Share
The Company excluded the following common stock equivalents, outstanding as of March 31, 2017 and 2016, from the computation of diluted
net loss per share for the applicable quarterly periods because they had an anti-dilutive impact on the computation:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Options to purchase common stockissued
|
|
|
3,376,921
|
|
|
|
1,807,118
|
|
Inducement grantsissued
|
|
|
108,333
|
|
|
|
|
|
Warrants to purchase common stock
|
|
|
18,534
|
|
|
|
18,534
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,503,788
|
|
|
|
1,825,652
|
|
|
|
|
|
|
|
|
|
|
7. Subsequent Events
On April 18, 2017, the Company, Merger Sub and Alpine entered into the Merger Agreement pursuant to which, among other matters, and
subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Alpine, with Alpine continuing as a wholly owned subsidiary of Nivalis and the surviving corporation of the Merger. The
Merger is intended to qualify for federal income tax purposes as a
tax-free
reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.
Subject to the terms and conditions of the Merger Agreement, at the closing of the Merger, each outstanding share of Alpine capital stock will
be converted into the right to receive shares of Nivalis common stock (subject to the payment of cash in lieu of fractional shares and after giving effect to a reverse stock split of Nivalis common stock if determined necessary or appropriate by
Nivalis, Alpine and Merger Sub) such that, immediately following the effective time of the Merger, current Nivalis stockholders, optionholders and warrantholders are expected to own, or hold rights to acquire, approximately 26% of the Fully-Diluted
Common Stock of Nivalis, and current Alpine stockholders, optionholders and warrantholders are expected to own, or hold rights to acquire, approximately 74% of the Fully-Diluted Common Stock of Nivalis.
Prior to the execution and delivery of the Merger Agreement, and as a condition of the willingness of Nivalis to enter into the Merger
Agreement, certain existing stockholders of Alpine have entered into agreements with Alpine pursuant to which such stockholders have agreed, subject to the terms and conditions of such agreements, to purchase prior to the consummation of the Merger
shares of Alpines capital stock for an aggregate purchase price of approximately $17 million. The consummation of the transactions contemplated by such agreements is conditioned upon the satisfaction or waiver of the conditions set forth
in the Merger Agreement.
Consummation of the Merger is subject to certain closing conditions, including, among other things, approval by
the stockholders of Nivalis and Alpine, and satisfaction of minimum net cash thresholds by each of Nivalis and Alpine. In accordance with the terms of the Merger Agreement, (i) certain executive officers, directors and stockholders of Alpine
(solely in their respective capacities as Alpine stockholders) have entered into support agreements with Nivalis to vote all of their shares of Alpine capital stock in favor of adoption of the Merger Agreement (the Alpine Support
Agreements) and (ii) certain executive officers, directors and stockholders of Nivalis (solely in their respective capacities as Nivalis stockholders) have entered into support agreements with Alpine to vote all of their shares of Nivalis
common stock in favor of approval of the Merger Agreement (the Nivalis Support Agreements, together with the Alpine Support Agreements, the Support Agreements). The Support Agreements include covenants with respect to the
voting of such shares in favor of approving the transactions contemplated by the Merger Agreement and against any competing acquisition proposals and, other than the Nivalis Support Agreement delivered by The Estate of Arnold H. Snider, III, place
certain restrictions on the transfer of the shares of Nivalis and Alpine held by the respective signatories thereto.
F-A-32
The Support Agreements to be executed by certain stockholders of Nivalis affiliated with Deerfield Management Company, L.P. (the Deerfield Signatories) contain certain exceptions to
the transfer of the shares of Nivalis held by the respective signatories thereto.
The Merger Agreement contains certain termination
rights for both Nivalis and Alpine, and further provides that, upon termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee of $2,500,000, or in some circumstances
reimburse the other partys expenses up to a maximum of $1,000,000.
At the effective time of the Merger, the board of directors of
Nivalis is expected to consist of seven members, four of whom will be designated by Alpine, two of whom will be designated by Nivalis and one of whom will be an independent director designated by a majority of the other members of Nivalis
board of directors.
F-A-33
ALPINE IMMUNE SCIENCES, INC.
INDEX TO FINANCIAL STATEMENTS
F-B-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Alpine Immune Sciences,
Inc.
We have audited the accompanying balance sheets of Alpine Immune Sciences, Inc. as of December 31, 2015 and 2016, and the related statements of
operations, convertible preferred stock and stockholders 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) and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the
financial statements referred to above present fairly, in all material respects, the financial position of Alpine Immune Sciences, Inc. at December 31, 2015 and 2016, and the results of its operations and its cash flows for each of the years in the
period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
May 18, 2017
F-B-2
ALPINE IMMUNE SCIENCES, INC.
BALANCE SHEETS
(in
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2015
|
|
|
December 31,
2016
|
|
|
March 31,
2017
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,423
|
|
|
$
|
11,819
|
|
|
$
|
13,568
|
|
Prepaid expenses and other current assets
|
|
|
10
|
|
|
|
36
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,433
|
|
|
|
11,855
|
|
|
|
13,738
|
|
Property and equipment, net
|
|
|
6
|
|
|
|
740
|
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,439
|
|
|
$
|
12,595
|
|
|
$
|
14,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, convertible preferred stock, and stockholders deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
47
|
|
|
$
|
127
|
|
|
$
|
326
|
|
Accrued liabilities
|
|
|
176
|
|
|
|
170
|
|
|
|
555
|
|
Income taxes payable
|
|
|
|
|
|
|
66
|
|
|
|
66
|
|
Deferred revenue, current portion
|
|
|
2,950
|
|
|
|
2,008
|
|
|
|
1,271
|
|
Deferred rent, current portion
|
|
|
|
|
|
|
33
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,173
|
|
|
|
2,404
|
|
|
|
2,254
|
|
Deferred revenue, long-term portion
|
|
|
2,008
|
|
|
|
|
|
|
|
|
|
Deferred rent, long-term portion
|
|
|
|
|
|
|
113
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,181
|
|
|
|
2,517
|
|
|
|
2,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock, $0.0001 par value per share; 5,400,000, 22,081,852 and 22,081,852
shares authorized at December 31, 2015 and 2016 and March 31, 2017 (unaudited), respectively; 2,440,000, 8,677,343 and 10,100,830 shares issued and outstanding at December 31, 2015 and 2016 and March 31, 2017 (unaudited),
respectively; aggregate liquidation preference of $610, $11,583 and $15,583 at December 31, 2015 and 2016 and March 31, 2017 (unaudited), respectively
|
|
|
610
|
|
|
|
11,535
|
|
|
|
15,535
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value per share; 10,600,000, 46,500,000 and 46,500,000 shares authorized
at December 31, 2015 and 2016 and March 31, 2017 (unaudited), respectively; 1,000,000, 1,225,000 and 1,340,625 shares issued and outstanding at December 31, 2015 and 2016 and March 31, 2017(unaudited), respectively
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in
capital
|
|
|
17
|
|
|
|
144
|
|
|
|
217
|
|
Accumulated deficit
|
|
|
(369
|
)
|
|
|
(1,601
|
)
|
|
|
(3,590
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(352
|
)
|
|
|
(1,457
|
)
|
|
|
(3,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, convertible preferred stock and stockholders deficit
|
|
$
|
5,439
|
|
|
$
|
12,595
|
|
|
$
|
14,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-B-3
ALPINE IMMUNE SCIENCES, INC.
STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Three Months Ended
March 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration revenue
|
|
$
|
492
|
|
|
$
|
2,950
|
|
|
$
|
737
|
|
|
$
|
737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
492
|
|
|
|
2,950
|
|
|
|
737
|
|
|
|
737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
422
|
|
|
|
2,989
|
|
|
|
421
|
|
|
|
1,858
|
|
General and administrative
|
|
|
441
|
|
|
|
1,149
|
|
|
|
220
|
|
|
|
873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
863
|
|
|
|
4,138
|
|
|
|
641
|
|
|
|
2,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(371
|
)
|
|
|
(1,188
|
)
|
|
|
96
|
|
|
|
(1,994
|
)
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2
|
|
|
|
22
|
|
|
|
4
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
(369
|
)
|
|
|
(1,166
|
)
|
|
|
100
|
|
|
|
(1,989
|
)
|
Income tax expense
|
|
|
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
(369
|
)
|
|
$
|
(1,232
|
)
|
|
$
|
100
|
|
|
$
|
(1,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share attributable to common stockholders
|
|
$
|
(0.37
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
0.03
|
|
|
$
|
(1.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share attributable to common stockholders
|
|
$
|
(0.37
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
0.03
|
|
|
$
|
(1.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute basic net income (loss) per share attributable to common
stockholders
|
|
|
1,000,000
|
|
|
|
1,136,066
|
|
|
|
1,000,000
|
|
|
|
1,238,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute diluted net income (loss) per share attributable to common
stockholders
|
|
|
1,000,000
|
|
|
|
1,136,066
|
|
|
|
3,950,196
|
|
|
|
1,238,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-B-4
ALPINE IMMUNE SCIENCES, INC.
STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS DEFICIT
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders
Deficit
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
Balance, January 1, 2015
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Issuance of convertible preferred stock
|
|
|
2,440,000
|
|
|
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation and warrant expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(369
|
)
|
|
|
(369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
|
2,440,000
|
|
|
|
610
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
17
|
|
|
|
(369
|
)
|
|
|
(352
|
)
|
Issuance of convertible preferred stock, net of issuance costs
|
|
|
6,237,343
|
|
|
|
10,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises of stock options
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
50
|
|
Stock-based compensation and warrant expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
77
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,232
|
)
|
|
|
(1,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
8,677,343
|
|
|
|
11,535
|
|
|
|
1,225,000
|
|
|
|
|
|
|
|
144
|
|
|
|
(1,601
|
)
|
|
|
(1,457
|
)
|
Issuance of convertible preferred stock (unaudited)
|
|
|
1,423,487
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises of stock options (unaudited)
|
|
|
|
|
|
|
|
|
|
|
90,625
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
20
|
|
Exercise of common stock warrants (unaudited)
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Stock-based compensation (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
52
|
|
Net loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,989
|
)
|
|
|
(1,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2017 (unaudited)
|
|
|
10,100,830
|
|
|
$
|
15,535
|
|
|
|
1,340,625
|
|
|
$
|
|
|
|
|
217
|
|
|
$
|
(3,590
|
)
|
|
$
|
(3,373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-B-5
ALPINE IMMUNE SCIENCES, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Three Months Ended
March 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss)
|
|
$
|
(369
|
)
|
|
$
|
(1,232
|
)
|
|
$
|
100
|
|
|
$
|
(1,989
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1
|
|
|
|
69
|
|
|
|
3
|
|
|
|
46
|
|
Stock-based compensation and warrant expense
|
|
|
16
|
|
|
|
77
|
|
|
|
27
|
|
|
|
52
|
|
Common stock issued for intellectual property
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(10
|
)
|
|
|
(26
|
)
|
|
|
3
|
|
|
|
(134
|
)
|
Accounts payable
|
|
|
47
|
|
|
|
80
|
|
|
|
112
|
|
|
|
199
|
|
Deferred revenue
|
|
|
4,958
|
|
|
|
(2,950
|
)
|
|
|
(737
|
)
|
|
|
(737
|
)
|
Accrued liabilities
|
|
|
176
|
|
|
|
39
|
|
|
|
44
|
|
|
|
406
|
|
Deferred rent and other
|
|
|
|
|
|
|
146
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used) in operating activities
|
|
|
4,820
|
|
|
|
(3,797
|
)
|
|
|
(448
|
)
|
|
|
(2,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(7
|
)
|
|
|
(782
|
)
|
|
|
(151
|
)
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(7
|
)
|
|
|
(782
|
)
|
|
|
(151
|
)
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of preferred stock
|
|
|
610
|
|
|
|
10,925
|
|
|
|
|
|
|
|
4,000
|
|
Proceeds from exercise of stock options and common stock warrants
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
610
|
|
|
|
10,975
|
|
|
|
|
|
|
|
4,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
5,423
|
|
|
|
6,396
|
|
|
|
(599
|
)
|
|
|
1,749
|
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
5,423
|
|
|
|
5,423
|
|
|
|
11,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
5,423
|
|
|
$
|
11,819
|
|
|
$
|
4,824
|
|
|
$
|
13,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
F-B-6
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
1. Description of the Business
Alpine
Immune Sciences, Inc. (Alpine or the Company) is focused on discovering and developing modern, protein-based immunotherapies targeting the immune synapse to treat cancer, inflammation, and other diseases. The Companys
proprietary scientific platform uses a process known as directed evolution, or an iterative scientific engineering process purposefully conducted to evolve a protein towards a particular therapeutic function to create therapeutics
potentially capable of modulating native human immune system proteins. In the Companys
pre-clinical
animal studies, its platform has proven capable of identifying novel molecules, including single
domains capable of modulating multiple targets. The Company was incorporated on December 30, 2014 under the laws of the State of Delaware and is headquartered in Seattle, Washington. The Company did not receive funding or commence operations
until 2015.
2. Summary of Significant Accounting Policies
Basis of presentation and use of estimates
The accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles (U.S.
GAAP). The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the amounts reported in the Companys financial statements and accompanying notes.
The Company bases its estimates and assumptions on historical experience when available and on various factors that the Company believes to be reasonable under the circumstances. Significant estimates relied upon in preparing the accompanying
financial statements related to revenue recognition, accounting for stock-based compensation, warrants and income taxes. Actual results could differ materially from those estimates.
Unaudited Interim Financial Information
The accompanying financial statements as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 and the related
interim information contained within the notes to the financial statements are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited financial statements and in the opinion of management, reflect
all normal recurring adjustments necessary for a fair statement of the Companys financial position as of March 31, 2017 and the results of operations and cash flows for the three months ended March 31, 2016 and 2017. The results of
operations for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the year ended December 31, 2017 or for other future interim periods or years.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist of deposits with commercial banks in checking and interest-bearing
accounts, and highly liquid money market funds.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash
equivalents. Periodically, the Company maintains deposits in financial institutions in excess of government insured limits. Management believes that the Company is not exposed to significant credit risk as the Companys deposits are held at
financial institutions that management believes to be of high credit quality. To date, the Company has not experienced any losses in these deposits.
F-B-7
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Expenditures for maintenance and repairs are
expensed as incurred. Major improvements are capitalized as additions to property and equipment. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, as follows:
|
|
|
Asset Category
|
|
Estimated Useful Life
|
Laboratory equipment
|
|
5 years
|
General equipment and furniture
|
|
5 years
|
Computer equipment and software
|
|
3 years
|
Leasehold improvements
|
|
Shorter of asset life
or the lease term
|
Impairment of Long-lived Assets
The Company evaluates its long-lived tangible assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. If the carrying value exceeds the undiscounted future cash flows estimated to result from the use and eventual disposition of the asset, the Company writes down the asset to its estimated fair value.
Impairment is assessed by comparing the undiscounted cash flows expected to be generated by the asset to its carrying value. The Company did not record any impairments in the years ended December 31, 2015 and 2016 or in the three months ended
March 31, 2016 and 2017.
Accrued Liabilities
As part of the process of preparing its financial statements, the Company is required to estimate accruals for professional services and
research and development expenses. This process involves reviewing contracts and vendor agreements, and communicating with applicable personnel to identify services that have been performed on the Companys behalf. The Company estimates the
level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The Company estimates accrued expenses as of each balance sheet date based on known
facts and circumstances.
Leases and Deferred Rent
The Company has entered into lease agreements for office and laboratory space. One lease was terminated effective December 31, 2016 and
the other lease commenced on September 15, 2016. These leases are classified as operating leases. Rent payments, rent-free periods and rent increases are recognized as rent expense on a straight-line basis over the lease term. The difference
between rent expense recognized and rental payments is recorded as deferred rent in the accompanying balance sheets.
Common Stock Warrants
The Company granted common stock warrants to certain
non-employee
professional advisers.
The Company accounts for its warrants at fair value, with changes in fair value recognized in operating expenses. Common stock warrants are initially recorded at their issuance date fair value and are subsequently remeasured at each balance sheet
date. These warrants are valued using the Black-Scholes option pricing model based on the
F-B-8
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
estimated market value of the underlying common stock at the valuation measurement dates, the remaining contractual term of the warrant, risk-free interest rates, expected dividends, and expected
volatility of the price of the underlying common stock.
Fair Value Measurements
Cash and cash equivalents are recorded at cost, which approximates fair value. Additionally, accounts payable and accrued expenses approximate
fair value because of the short-term nature of these financial instruments.
Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability, or an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used
to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, is as follows:
Level
1
: Quoted prices in active markets for identical assets or liabilities.
Level
2
: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities,
quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level
3
: Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities.
The Company had no assets or liabilities measured using Level 1, Level 2 or Level 3
inputs at December 31, 2015 or 2016, or March 31, 2017. The Company had cash of $5,423,000, $11,819,000 and $8,566,000 at December 31, 2015 and 2016, and March 31, 2017, respectively. The Company had no cash equivalents at
December 31, 2015 or 2016, and $5,002,000 of cash equivalents at March 31, 2017.
Revenue Recognition
The Company derives its revenue from collaboration and licensing agreements. The Company recognizes revenue when each of the following four
criteria are met: (i) persuasive evidence of an arrangement exists; (ii) products have been delivered or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured.
The Company recognizes revenue under its License and Research Agreement (the Collaboration Agreement) with Kite Pharma, Inc.
(Kite) in accordance with the guidance on multiple element arrangements. Multiple elements or deliverables may include (i) grants of, or options to obtain, intellectual property licenses; (ii) research and development services;
and/or (iii) manufacturing or supply services. Payments typically received under these arrangements include one or more of the following:
non-refundable
upfront license fees, option exercise fees, payment
for research and/or development efforts, amounts due upon the achievement of specified objectives, and/or royalties on future product sales.
F-B-9
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
The evaluation of multiple-element arrangements requires management to make judgments about
(i) the identification of deliverables, (ii) whether such deliverables are separable from other aspects of the contractual relationship, (iii) the estimated selling price of each deliverable, and (iv) the expected period of
performance for each deliverable. To determine the units of accounting under a multiple-element arrangement, management evaluates certain separation criteria, including whether the deliverables have stand-alone value, based on the relevant facts and
circumstances for each arrangement. Management then estimates the selling price for each unit of accounting and allocates the arrangement consideration to each unit using the relative selling price method. The allocated consideration for each unit
of accounting is recognized based on the method most appropriate for that unit of account and in accordance with the revenue recognition criteria detailed above. If there are deliverables in an arrangement that are not separable from other aspects
of the contractual relationship, they are treated as a combined unit of accounting, with the allocated revenue for the combined unit recognized in a manner consistent with the revenue recognition criteria applicable to the final deliverable in the
combined unit. Payments received prior to satisfying the relevant revenue recognition criteria are recorded as deferred revenue in the accompanying balance sheets and recognized as revenue when the related revenue recognition criteria are met.
The Collaboration Agreement provides for
non-refundable
milestone payments. The Company recognizes
revenue that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is considered substantive when the consideration payable to the Company for such milestone
(i) is consistent with the Companys performance necessary to achieve the milestone or the increase in value to the collaboration resulting from the Companys performance, (ii) relates solely to the Companys past
performance and (iii) is reasonable relative to all of the other deliverables and payments within the arrangement. In making this assessment, the Company considers all facts and circumstances relevant to the arrangement, including factors such
as the scientific, regulatory, commercial and other risks that must be overcome to achieve the milestone, the level of effort and investment required to achieve the milestone and whether any portion of the milestone consideration is related to
future performance or deliverables.
The Company will periodically review the estimated performance periods under the Collaboration
Agreement which provides for
non-refundable
upfront payments and fees. The Company will adjust the periods over which revenue should be recognized when appropriate to reflect changes in assumptions
relating to the estimated performance periods. The Company could accelerate revenue recognition in the event of early termination of programs or if the Companys expectations change. Alternatively, the Company could decelerate revenue
recognition if programs are extended or delayed. While such changes to the Companys estimates have no impact on the Companys reported cash flows, the timing of revenue recorded in future periods could be materially impacted.
Research and Development
Research
and development costs are expensed as incurred. Research and development costs include payroll and personnel expense, consulting costs, external contract research and development expenses, raw materials, drug product manufacturing costs and
allocated overhead including depreciation, rent and utilities. Research and development costs that are paid in advance of performance are capitalized as a prepaid expense and amortized over the service period as the services are provided.
Patent and Licensing Costs
Patent and licensing costs are expensed as incurred because their realization is uncertain. These costs are classified as research and
development expenses in the accompanying statements of operations.
F-B-10
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
Stock-based Compensation
The Company accounts for all stock-based compensation granted to employees and
non-employees
using a
fair value method. Stock-based compensation awarded to employees and
non-employees
is measured at the grant date fair value for stock option grants. The Company uses the Black-Scholes option pricing model to
estimate the fair value of stock options at the grant date. Stock-based compensation to employees is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis. Stock-based compensation awarded
to
non-employees
is revalued over its vesting period using a Black-Sholes option pricing model. For performance-based awards where the vesting of the options may be accelerated upon the achievement of certain
milestones, vesting and the related stock-based compensation is recognized as an expense when it is probable the milestone will be met. The Company recognizes forfeiture of awards as they occur rather than estimating the expected forfeiture rate.
When awards are modified, the Company compares the fair value of the affected award measured immediately prior to modification to its
value after modification. To the extent that the fair value of the modified award exceeds the original award, the incremental fair value of the modified award is recognized as compensation on the date of modification for vested awards, and over the
remaining vesting period for unvested awards.
Income Taxes
Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities at the applicable enacted tax rates. The Company will establish a valuation allowance for deferred tax assets if it
is more likely than not that these items will expire before the Company is able to realize their benefits or that future deductibility is uncertain.
The Company recognizes the tax benefit from uncertain tax position only if it is more likely than not that the tax position will be sustained
on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefits that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes
interest and penalties related to income tax matters in income tax expense if incurred.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and certain changes in equity that are excluded from net income (loss). There was
no difference between comprehensive income (loss) and net income (loss) for the years ended December 31, 2015 and 2016 and for the three months ended March 31, 2016 and 2017.
Net Income (Loss) Per Share
The
Company computes net income (loss) per share attributable to common stockholders using the
two-class
method required for participating securities. The Company considers its convertible preferred stock to be
participating securities. In accordance with the
two-class
method, earnings allocated to these participating securities, which include participation rights in undistributed earnings, are subtracted from net
income to determine total undistributed earnings to be allocated to common stockholders.
Basic net income (loss) per share attributable
to common stockholders is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding
F-B-11
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
during the period. All participating securities are excluded from basic weighted-average common shares outstanding. In computing both basic net income (loss) per share attributable to common
stockholders and diluted net income (loss) per share attributable to common stockholders, undistributed earnings are
re-allocated
to reflect the potential impact of dilutive securities, including stock options
and warrants. Diluted net income (loss) per share attributable to common stockholders is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common equivalent shares outstanding for the
period. Diluted net income (loss) per share attributable to common stockholders includes any dilutive effect from outstanding stock options and warrants using the treasury stock method.
The common stock issuable upon the conversion or exercise of the following dilutive securities has been excluded from the diluted net loss per
share attributable to common stockholders calculation because their effect would have been antidilutive for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
2016
|
|
|
March 31,
2017
|
|
|
|
2015
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Convertible preferred stock
|
|
|
2,440,000
|
|
|
|
8,677,343
|
|
|
|
|
|
|
|
10,100,830
|
|
Options to purchase common stock
|
|
|
808,400
|
|
|
|
1,048,000
|
|
|
|
|
|
|
|
1,726,375
|
|
Warrants to purchase common stock
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,273,400
|
|
|
|
9,750,343
|
|
|
|
|
|
|
|
11,827,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the calculation of basic and diluted net income/loss per share attributable to
common stockholders (in thousands, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Three Months Ended
March 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), as reported
|
|
$
|
(369
|
)
|
|
$
|
(1,232
|
)
|
|
$
|
100
|
|
|
$
|
(1,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic net income (loss) attributable to common stockholders
|
|
|
1,000,000
|
|
|
|
1,136,066
|
|
|
|
1,000,000
|
|
|
|
1,238,090
|
|
Adjustment for assumed conversion of convertible preferred stock, options and warrants to purchase
common stock
|
|
|
|
|
|
|
|
|
|
|
2,950,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income (loss) attributable to common stockholders
|
|
|
1,000,000
|
|
|
|
1,136,066
|
|
|
|
3,950,196
|
|
|
|
1,238,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Information
The Company views its operations and manages its business in one operating segment, the research and development of immunotherapies targeting
the immune synapse to treat cancer, inflammation, and other diseases.
F-B-12
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
Subsequent Events
The Company considers events or transactions that occur after the balance sheet date but before May 18, 2017 to provide additional
evidence relative to certain estimates or to identify matters that require additional disclosure.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (ASU)
No. 2014-09,
Revenue from Contracts with Customers, as amended, which amends the guidance for revenue recognition to replace numerous industry specific requirements. ASU
2014-09,
as amended, implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. ASU
2014-09,
as amended, also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenues and cash flows from contracts with customers.
Other major provisions include ensuring the time value of money is considered in the transaction price, and allowing estimates of variable
consideration to be recognized before contingencies are resolved in certain circumstances. ASU
2014-09,
as amended, is effective for reporting periods beginning after December 15, 2017. Early adoption is
permitted, but not before December 15, 2016. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is continuing to evaluate the effect that the standard will
have on its financial statements and related disclosures including the areas of variable consideration and new disclosure requirements. The Company is currently expecting to use the modified retrospective method to adopt this standard.
In November 2015, the FASB issued ASU
No. 2015-17, Income
Taxes (Topic 740): Balance Sheet
Classification of Deferred Taxes. The standard requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. Entities are currently required to separate deferred income tax liabilities
and assets into current and noncurrent amounts in a classified statement of financial position. The amendments, which require noncurrent presentation only (by jurisdiction), are effective for financial statements issued for annual periods beginning
after December 15, 2016 with earlier application permitted as of the beginning of an interim or annual reporting period. The guidance is to be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all
periods presented. The adoption of this standard retrospectively to January 1, 2015 did not have a significant impact on the Companys financial position or results of operations.
In February 2016, the FASB issued ASU
No. 2016-02,
Leases. ASU
2016-02
requires a lessee to separate the lease components from the
non-lease
components in a contract and recognize in the statement of financial position a liability
to make lease payments (the lease liability) and a
right-of-use
asset representing its right to use the underlying asset for the lease term. It also aligns lease
accounting for lessors with the revenue recognition guidance in ASU
2014-09.
ASU
2016-02
is effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years, and is to be applied at the beginning of the earliest period presented using a modified retrospective approach. The Company is continuing to evaluate the effect that the standard will have on its financial
statements and related disclosures.
In March 2016, the Financial Accounting Standards Board (the FASB) issued ASU
2016-09
Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplified the accounting for share-based payment transactions, including the income tax
consequences, the calculation of diluted earnings per share, the treatment of forfeitures, the classification of
F-B-13
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
awards as either equity or liabilities, and the classification on the statement of cash flows by amending sections of the Accounting Standards Codification. For public business entities, the
amendments in this Update are effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. The Company adopted ASU
2016-09
with effect from January 1, 2015.
ASU
2016-09
permits an entity to make an entity-wide accounting policy election either to estimate the number of forfeitures expected to occur or to account for forfeitures in the compensation cost when they occur. The Company made an accounting policy election
to recognize forfeiture of awards as they occur rather than estimating the expected forfeiture rate.
3. Property and equipment, net
Property and equipment, net consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2015
|
|
|
December 31,
2016
|
|
|
March 31,
2017
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Laboratory equipment
|
|
$
|
7
|
|
|
$
|
660
|
|
|
$
|
719
|
|
General equipment and furniture
|
|
|
|
|
|
|
74
|
|
|
|
83
|
|
Computer equipment and software
|
|
|
|
|
|
|
70
|
|
|
|
82
|
|
Leasehold improvements
|
|
|
|
|
|
|
6
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost
|
|
|
7
|
|
|
|
810
|
|
|
|
897
|
|
Less accumulated depreciation and amortization
|
|
|
(1
|
)
|
|
|
(70
|
)
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
6
|
|
|
$
|
740
|
|
|
$
|
781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $1,000 and $69,000 for the years ended December 31, 2015 and 2016, respectively,
and $3,000 and $46,000 for the three months ended March 31, 2016 and 2017, respectively.
4. Accrued Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Accrued taxes and licenses
|
|
$
|
31
|
|
|
$
|
61
|
|
|
$
|
52
|
|
Deferred compensation
|
|
|
110
|
|
|
|
61
|
|
|
|
41
|
|
Accrued professional fees
|
|
|
6
|
|
|
|
5
|
|
|
|
419
|
|
Accrued other
|
|
|
29
|
|
|
|
43
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
176
|
|
|
$
|
170
|
|
|
$
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-B-14
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
5. Convertible Preferred Stock
A summary of convertible preferred stock is as follows (amount in thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Issued Price
per Share
|
|
|
Shares
Authorized
|
|
|
Shares
Issued and
Outstanding
|
|
|
Aggregate
Liquidation
Preference
|
|
|
Carrying
Value
|
|
Series Seed
|
|
$
|
0.25
|
|
|
|
5,400,000
|
|
|
|
2,440,000
|
|
|
$
|
610
|
|
|
$
|
610
|
|
Series A
|
|
$
|
2.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
5,400,000
|
|
|
|
2,440,000
|
|
|
$
|
610
|
|
|
$
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Issued Price
per Share
|
|
|
Shares
Authorized
|
|
|
Shares
Issued and
Outstanding
|
|
|
Aggregate
Liquidation
Preference
|
|
|
Carrying
Value
|
|
Series Seed
|
|
$
|
0.25
|
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
|
$
|
1,250
|
|
|
$
|
1,250
|
|
Series A
|
|
$
|
2.81
|
|
|
|
17,081,852
|
|
|
|
3,677,343
|
|
|
|
10,333
|
|
|
|
10,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
22,081,852
|
|
|
|
8,677,343
|
|
|
$
|
11,583
|
|
|
$
|
11,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017 (unaudited)
|
|
|
|
Issued Price
per Share
|
|
|
Shares
Authorized
|
|
|
Shares
Issued and
Outstanding
|
|
|
Aggregate
Liquidation
Preference
|
|
|
Carrying
Value
|
|
Series Seed
|
|
$
|
0.25
|
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
|
$
|
1,250
|
|
|
$
|
1,250
|
|
Series A
|
|
$
|
2.81
|
|
|
|
17,081,852
|
|
|
|
5,100,830
|
|
|
|
14,333
|
|
|
|
14,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
22,081,852
|
|
|
|
10,100,830
|
|
|
$
|
15,583
|
|
|
$
|
15,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Between January 2015 and November 2015 the Company issued and sold 2,440,000 shares of Series Seed convertible
preferred stock and received a total of $610,000 in ten separate monthly payments. In April 2016 the Company issued and sold a further 2,560,000 shares of Series Seed convertible preferred stock and received a total of $640,000.
In June 2016, the Company issued and sold 3,677,343 shares of Series A convertible preferred stock and received $10,333,000. The Company
incurred $48,000 of issuance costs related to the June 2016 issuance. In March 2017, the Company issued and sold 1,423,487 shares of Series A convertible preferred stock and received a total of $4,000,000.
The rights, preferences and privileges of convertible preferred stock are summarized below:
Voting
The Company has four directors:
one appointed by the common stock holders and three appointed by convertible preferred stock holders. Holders of shares of convertible preferred stock have full voting rights and powers similar to the rights and powers of the common stockholders on
an
as-converted
basis.
F-B-15
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
Dividends
Holders of convertible preferred stock are entitled to dividends at a rate of six percent of the original issue price per share per annum only
when, as, and if, declared by the Companys board of directors. Such dividends are noncumulative. The dividend rate will be appropriately adjusted from time to time for stock splits, stock dividends, combinations, subdivisions,
recapitalizations and the like with respect to the convertible preferred stock. No dividends shall be paid on any common stock of the Company until all dividends on the convertible preferred stock have been paid. After payment of such dividends to
the holders of convertible preferred stock, any additional dividends shall be distributed among the holders of convertible preferred stock and common stock pro rata based on the number of shares of common stock then held by each holder (including
all shares of common stock into which such holders shares of preferred stock could be converted at the then effective conversion ratio).
Tranche
Obligations
Under the Series A Preferred Stock Purchase Agreement dated June 10, 2016, the stockholders have additional rights
and obligations to participate in future tranches. The second tranche Series A convertible preferred stock closing is triggered when a simple majority of the Companys board of directors approves the nomination of a lead drug candidate for U.S.
FDA Investigational New Drug enabling studies (IND), or
non-US
regulatory equivalent. When the second tranche closing occurs, holders of Series A convertible preferred stock will be required to
purchase 7,354,685 shares of Series A convertible preferred stock at $2.81 per share for a total purchase price of $20,667,000.
In the
event a holder of Series A convertible preferred stock desires to purchase, prior to the second tranche closing, its required second tranche shares, it may purchase all, but not less than all, of its required second tranche shares (a Second
Tranche Put Closing). The purchase price for such shares will be $2.81 per share. In March 2017, one holder of convertible preferred stock chose to exercise their rights to purchase their second tranche of Series A convertible preferred stock
in a Second Tranche Put Closing in the amount of 1,423,487 shares for total consideration of $4,000,000.
The third tranche Series A
convertible preferred stock closing will occur should the Companys cash, cash equivalents and prepaid assets less all liabilities be less than $17,000,000 on the first date that the Company provides the first dosing of a human subject in a
clinical trial under an open IND or
non-US
equivalent for the Companys lead drug candidate (the Dosing Date). Each holder of Series A convertible preferred stock will be required to purchase
Series A convertible preferred shares equal to the dollar amount by which the Companys cash, cash equivalents and prepaid assets less all liabilities are less than $17,000,000 on the Dosing Date. The purchase price will be $2.81 per share. In
certain circumstances, holders of Series A convertible preferred stock will have the option of purchasing additional shares of Series A preferred stock at $2.81 per share in an amount not to exceed $7,000,000.
Optional Conversion
Each share is
convertible, at the option of the holder, at any time after the date of issuance, on a
one-for-one
basis into common stock. In certain circumstances the preferred stock
holder may receive more than one share of common stock for each share of preferred stock.
Mandatory Conversion
Each share of convertible preferred stock is automatically converted into shares of common stock on a
one-for-one
basis unless the conversion price is adjusted upon the earlier of (i) the closing of the Companys sale
F-B-16
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
of its common stock (which shares are to be listed on a U.S. national securities exchange) in a firm commitment underwritten public offering pursuant to a registration statement on Form
S-1
under the Securities Act, in which the public offering price per share is not less than three times the original issue price (as adjusted for any stock splits, stock dividends, combinations, subdivisions,
recapitalizations and the like) and pursuant to which the Corporation receives gross proceeds of at least $50,000,000 and has a
pre-offering
valuation of at least $200,000,000, or (ii) the date, or the
occurrence of an event, specified by vote or written consent or agreement of at least eighty two percent of all then outstanding shares of preferred stock (if prior to the occurrence of the second tranche closing) or a simple majority of then
outstanding shares of convertible preferred stock (if on or after the second tranche closing).
Special Mandatory Conversion
Under the Series A Preferred Stock Purchase Agreement, the investors agreed to purchase Series A convertible preferred shares in each of the
tranches, if applicable. In the event any investor fails to purchase all securities that the investor agreed to purchase pursuant to the Series A Preferred Stock Purchase Agreement, each ten shares of Series A preferred stock held by such
investor(s) will be automatically converted into one share of common stock.
Liquidation Preference
Upon a liquidation event, as defined in the Companys certificate of incorporation, the holders of convertible preferred stock have a
liquidation preference in priority to holders of common stock at $2.81 per share plus any declared but unpaid dividends.
6. Stockholders Deficit
Common Stock
The Company
had 1,000,000, 1,225,000 and 1,340,625 shares of common stock outstanding as of December 31, 2015 and 2016 and March 31, 2017, respectively. Shares of common stock reserved for future issuance were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
Shares to be issued upon conversion of convertible preferred stock
|
|
|
2,440,000
|
|
|
|
8,677,343
|
|
|
|
10,100,830
|
|
Shares to be issued upon exercise of outstanding stock options
|
|
|
808,400
|
|
|
|
1,048,000
|
|
|
|
1,726,375
|
|
Shares to be issued upon conversion of common stock warrants
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
Shares available for future stock grants
|
|
|
416,600
|
|
|
|
1,096,935
|
|
|
|
1,378,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock reserved for future issuance
|
|
|
3,690,000
|
|
|
|
10,847,278
|
|
|
|
13,205,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive Plan
In February 2015, the Companys board of directors approved the 2015 Stock Plan to provide incentive stock options and
non-qualified
stock options to employees,
non-qualified
stock options to members of the board
F-B-17
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
of directors and advisory board, and
non-employees.
The terms of the stock awards, including vesting requirements, are determined by the board of
directors, subject to the provisions of the 2015 Plan. Stock options granted under the 2015 Plan generally vest within four years and vested options are exercisable from the grant date until ten years after the date of grant. Vesting of certain
employee stock options may be accelerated in the event of a change in control of the Company. The Company grants stock options to employees with exercise prices equal to the fair value of its common stock on the date of grant. The term of incentive
stock options may not exceed ten years from the date of grant.
Under the 2015 Plan, a total of 1,250,000, 2,394,935 and 3,445,604 shares
of common stock were authorized for issuance at December 31, 2015 and 2016, and March 31, 2017, respectively. As of December 31, 2016, options to purchase 225,000 shares of common stock have been exercised (315,625 exercised as of
March 31, 2017) with 1,096,935 and 1,378,604 shares available for future grant under the 2015 Plan at December 31, 2016 and March 31, 2017, respectively.
A summary of stock option activity under the 2015 Plan is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
|
Weighted-
average
Exercise
Price
|
|
|
Weighted-
average
Remaining
Contract
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Outstanding at December 31, 2015
|
|
|
808,400
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,032,100
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(225,000
|
)
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
Forfeited/Expired
|
|
|
(567,500
|
)
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
1,048,000
|
|
|
$
|
0.25
|
|
|
|
9.22
|
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
769,000
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(90,625
|
)
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
Forfeited/Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2017 (unaudited)
|
|
|
1,726,375
|
|
|
$
|
0.28
|
|
|
|
9.42
|
|
|
$
|
3,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest after December 31, 2016
|
|
|
1,048,000
|
|
|
$
|
0.25
|
|
|
|
9.22
|
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
132,782
|
|
|
$
|
0.19
|
|
|
|
8.85
|
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest after March 31, 2017 (unaudited)
|
|
|
1,726,375
|
|
|
$
|
0.28
|
|
|
|
9.42
|
|
|
$
|
3,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2017 (unaudited)
|
|
|
103,227
|
|
|
$
|
0.17
|
|
|
|
8.57
|
|
|
$
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In May 2016 the Company extended the vesting period of 567,500 unvested share options held by 5 employees. As
a result of this modification, the Company recognized additional compensation expense of $4,000 for the year ended December 31, 2016.
Stock-Based Compensation Expense
The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options at the grant date. The Black-Scholes option
pricing model requires the Company to make certain estimates and assumptions, including assumptions related to the expected price volatility of its stock, the period during which
F-B-18
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
the options will be outstanding, the rate of return on risk-free investments, and the expected dividend yield of its stock. The fair values of stock options granted to employees were calculated
using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Three Months Ended
March 31,
|
|
|
2015
|
|
2016
|
|
2016
|
|
2017
|
|
|
|
|
|
|
(unaudited)
|
Risk-free interest rate
|
|
1.79% - 2.24%
|
|
1.14% - 2.24%
|
|
1.29% - 1.63%
|
|
2.09% - 2.26%
|
Expected term of options
(in years)
|
|
5.21 - 10.00
|
|
5.22 - 7.00
|
|
5.48 - 6.98
|
|
5.82 - 6.06
|
Expected stock price volatility
|
|
70.37% - 84.66%
|
|
71.66% - 78.84%
|
|
71.66% - 76.56%
|
|
77.09 -77.80%
|
Expected weighted-average stock price volatility
|
|
71.08%
|
|
72.90%
|
|
73.09%
|
|
77.27%
|
Expected dividend yield
|
|
%
|
|
%
|
|
%
|
|
%
|
The Company used the simplified method for options to determine the expected term of stock option
granted to employees. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option. Volatility is a measure of the amount by which a financial variable, such as
share price, has fluctuated or is expected to fluctuate during a period. The Company analyzed the stock price volatility of companies at a similar stage of development to estimate expected volatility of its stock price. The risk-free interest rate
assumption was based on
zero-coupon
U.S. Treasury instruments that had terms consistent with the expected term of the Companys stock option grants. The Company has never declared or paid any cash
dividends and does not presently plan to pay cash dividends in the foreseeable future.
The fair value of each
non-employee
stock option is estimated at the date of grant using the Black-Scholes option pricing model. Assumptions used in valuing
non-employee
stock options are generally
consistent with those used for employee stock options with the exception that the expected term is over the contractual life.
The
weighted-average grant date fair value per share of stock options granted during the years ended December 31, 2015 and 2016 was $0.19 and $0.21, respectively, and for the three months ended March 31, 2016 and 2017 was $0.21 and $2.05,
respectively. The aggregate intrinsic value of stock options exercised during the year ended December 31, 2016 was $23,000, and for the three months ended March 31, 2017 was $18,000. At December 31, 2016 and March 31, 2017 there
was $177,000 and $1,789,000 of unrecognized compensation cost related to nonvested stock options which is expected to be recognized over a weighted-average period of 3.03 and 3.3 years, respectively. The total fair value of shares vested
during the year ended December 31, 2016 and for the three months ended March 31, 2017 was $70,000 and $14,000, respectively.
Stock-based compensation expense is classified in the statements of operations as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
Three Months Ended
March 31,
|
|
|
|
2015
|
|
|
2016
|
|
|
2016
|
|
|
2017
|
|
Employee:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
|
|
|
$
|
14
|
|
|
$
|
1
|
|
|
$
|
13
|
|
General and administrative
|
|
|
10
|
|
|
|
53
|
|
|
|
25
|
|
|
|
27
|
|
Non-Employee:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2
|
|
|
|
5
|
|
|
|
1
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
12
|
|
|
$
|
72
|
|
|
$
|
27
|
|
|
$
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-B-19
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
Amounts in the above table exclude stock-based compensation expense related to common stock
warrants.
7. Common Stock Warrants
On April 24, 2015, the Company issued common stock warrants to certain
non-employee
professional
advisers. The warrants were convertible into 25,000 shares of common stock at an exercise price of $0.05 per share. The warrants vested ratably over 24 months and had a vesting commencement date of October 1, 2014. The warrants fully vested on
September 30, 2016 and were exercised in full on March 20, 2017. Stock-based compensation expense related to warrants is included in general and administrative expenses for all periods presented and amounted to $4,000 and $5,000 for the
years ended December 31, 2015 and 2016, respectively, and $1,000 for the three months ended March 31, 2016.
8. Income Taxes
The Companys entire income (loss) before taxes is considered domestic (United States) as the Company has no foreign operations.
The Company received $5,450,000 in advanced payments from Kite in 2015. As of December 31, 2016, $2,008,000 of this $5,450,000 was deferred
for financial reporting purposes but was included in taxable income for the year ended December 31, 2016. As a result of this timing difference, the Company incurred current federal and state income tax expense in the year ended December 31, 2016.
The Company expects to be in a loss position for tax purposes in 2017 and thereafter for the foreseeable future.
The provision for income
taxes is composed of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2015
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
|
|
U.S. - Federal
|
|
$
|
|
|
|
$
|
4
|
|
U.S. - State
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
U.S. - Federal
|
|
|
|
|
|
|
|
|
U.S. - State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
|
|
|
$
|
66
|
|
|
|
|
|
|
|
|
|
|
F-B-20
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
The effective tax rate of the provision for income taxes differs from the federal statutory
rate as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2015
|
|
|
2016
|
|
U.S. Statutory rate
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
State taxes (net of federal benefit)
|
|
|
5.11
|
%
|
|
|
5.58
|
%
|
Permanent differences
|
|
|
(1.30
|
%)
|
|
|
(1.50
|
%)
|
Federal research and development credit
|
|
|
4.56
|
%
|
|
|
9.43
|
%
|
Change in valuation allowance
|
|
|
(42.37
|
%)
|
|
|
(53.96
|
%)
|
Benefit of a lower tax rate
|
|
|
0.00
|
%
|
|
|
0.81
|
%
|
Effective income tax rate
|
|
|
0.00
|
%
|
|
|
(5.64
|
%)
|
The Company recorded a tax provision of $0 and $66,000 for the years ended December 31, 2015 and
December 31, 2016, respectively, representing effective tax rates of 0.00% and
-5.64%
for the 12 months ended December 31, 2015 and December 31, 2016, respectively. The difference between the
U.S. federal statutory tax rate of 34% and the Companys effective tax rate in all periods is primarily due to a full valuation allowance related to the Companys deferred tax assets, in addition to the generation, and consumption, of
federal R&D tax credits.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table represents the significant components of the Companys deferred tax assets and liabilities for the periods presented (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
78
|
|
|
$
|
|
|
Deferred compensation
|
|
|
44
|
|
|
|
24
|
|
Research and development credits
|
|
|
29
|
|
|
|
103
|
|
Intangible asset basis
|
|
|
17
|
|
|
|
16
|
|
Deferred revenue
|
|
|
|
|
|
|
800
|
|
Deferred rent
|
|
|
|
|
|
|
58
|
|
Other
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
171
|
|
|
|
1,004
|
|
Valuation allowance
|
|
|
(156
|
)
|
|
|
(786
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net of valuation allowance
|
|
|
15
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
(15
|
)
|
|
|
|
|
Prepaid expenses
|
|
|
|
|
|
|
(12
|
)
|
Fixed asset basis
|
|
|
|
|
|
|
(206
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liability
|
|
|
(15
|
)
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets and liabilities
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
F-B-21
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
A valuation allowance is provided for deferred tax assets where the recoverability of the
assets is uncertain. The determination to provide a valuation allowance is dependent upon the assessment of whether it is more likely than not that sufficient taxable income will be generated to utilize the deferred tax assets. Based on the weight
of the available evidence, which includes the Companys historical operating losses since inception and uncertainty of future taxable income, the Company provided a full valuation allowance against its deferred tax assets. The valuation
allowance increased by $157,000 and $629,000 during the year ended December 31, 2015 and December 31, 2016, respectively.
The
Company had net operating loss carryforwards as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2016
|
|
Federal
|
|
$
|
193
|
|
|
$
|
|
|
California
|
|
$
|
212
|
|
|
$
|
|
|
Federal and state net operating loss carryforwards would begin to expire in 2035, but were, however, fully
consumed in 2016.
Current tax laws impose substantial restrictions on the utilization of R&D credit and net operating loss
carryforwards in the event of an ownership change, as defined by the Internal Revenue Code Section 382 and 383. Such an event may limit the Companys ability to utilize its net operating losses and R&D tax credit carryforwards. The
Company has not performed a Section 382 analysis, but currently believes that its net operating loss carryforwards and R&D credit carryforwards should not be limited.
The Company accounts for uncertainty in income taxes in accordance with ASC 740. Tax positions are evaluated in a
two-step
process, whereby the Company first determines whether it is more likely than not that a tax position will be sustained upon examination by the tax authority, including resolutions of any related appeals or
litigation processes, based on technical merit. If a tax position meets the
more-likely-than-not
recognition threshold it is then measured to determine the amount of benefit to recognize in the financial
statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.
The following table summarizes the activity related to unrecognized tax benefits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2016
|
|
Unrecognized benefits beginning of year
|
|
$
|
|
|
|
$
|
7
|
|
Gross increases (decreases) prior year tax positions
|
|
|
|
|
|
|
|
|
Gross increases (decreases) current year tax positions
|
|
|
7
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
Unrecognized benefit end of year
|
|
$
|
7
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
All of the unrecognized tax benefits as of December 31, 2016 are accounted for as a reduction in the
Companys deferred tax assets. Due to the Companys valuation allowance, none of the $34,000 of unrecognized tax benefits would affect the Companys effective tax rate, if recognized. The Company does not believe it is reasonably
possible that its unrecognized tax benefits will significantly change in the next twelve months.
F-B-22
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
The Company recognizes interest and penalties related to unrecognized tax benefits as income
tax expense. There were no accrued interest or penalties related to unrecognized tax benefits for 2015 and 2016.
The Company does not
expect any significant change in its unrecognized tax benefits during the next twelve months.
The Companys material income tax
jurisdictions are the United States (federal) and California (state). The Company is subject to audit for tax years 2015 and forward for federal and state purposes.
9. Commitments and Contingencies
Leases
The Company rents office and laboratory space in Seattle under a
non-cancelable
operating
lease which expires on December 31, 2019. The Company has two options to extend the lease term with each option enabling the Company to extend the lease term by twelve months. The lease requires a security deposit of $132,054. Rent expense was
$43,000 and $267,000 for the years ended December 31, 2015 and 2016, respectively, and $24,000 and $125,000 for the three months ended March 31, 2016 and 2017, respectively. Deferred rent resulting from a rent-free period amounted to $0,
$146,000 and $139,000 at December 31, 2015 and 2016 and March 31, 2017, respectively.
Future minimum lease payments for
non-cancelable
operating leases at December 31, 2016 are as follows (amounts in thousands):
|
|
|
|
|
Year ending December 31,
|
|
|
|
|
2017
|
|
$
|
533
|
|
2018
|
|
|
549
|
|
2019
|
|
|
565
|
|
|
|
|
|
|
Total
|
|
$
|
1,647
|
|
|
|
|
|
|
10. License and Collaboration Agreement
In October, 2015, the Company entered into a Collaboration and Licensing Agreement with Kite Pharma, Inc. to discover and develop protein-based
immunotherapies targeting the immune synapse to treat cancer, pursuant to which the Company would perform certain research services and grant to Kite an exclusive license to two programs from its transmembrane immunomodulatory protein (TIP)
technology, which Kite is planning to further engineer into chimeric antigen receptor (CAR) and T cell receptor (TCR) product candidates.
Under the terms of the collaboration, Kite made an upfront payment to the Company of $5,450,000. The Company will also be eligible to receive
milestone payments based upon the successful achievement of
pre-specified
research, clinical, and regulatory milestones totaling $530 million plus royalty payments on product sales. Kite will receive an
exclusive, worldwide license to research, develop and commercialize engineered autologous T cell therapies incorporating two programs coming from the Companys platform.
11. Unused Commitments for Long-Term Financing
On December 16, 2016 the Company entered into an agreement with a financial institution that enables the Company to request up to
$5,000,000 in term loan advances of not less than $500,000 each. Up to $4,000,000 can be drawn prior to July 1, 2017. The remaining $1,000,000 can only be drawn upon achieving certain
F-B-23
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
milestones and expires on December 31, 2017. Interest accrues at a floating per annum rate equal to the Prime Rate minus one and three-quarters of one percent. There is no commitment fee.
However, a final payment fee of 7.5% on any term loan advance must be made upon the repayment of such term loan advance.
Each term loan
advance has an interest-only period that expires on July 1, 2018, at which point the Company will make thirty consecutive equal monthly payments of principal (each in an amount that would fully amortize any outstanding term loan advances), plus
accrued interest.
The Company had not requested any term loan advances at December 31, 2016 or March 31, 2017.
12. Related Party Transactions
The
Company has a shared services agreement with Alpine BioVentures GP, LLC, pursuant to which it incurred costs of $47,000 and $17,000 in the years ended December 31, 2015 and 2016, and $4,000 and $0 in the three months ended March 31, 2016
and 2017, respectively. The Company had an accrual of $5,000 related to the shared services agreement at both December 31, 2016 and March 31, 2017.
13. Subsequent Events (Unaudited)
Agreement and
Plan of Merger
On April 18, 2017, the Company, Merger Sub and Nivalis, a public biotechnology company, entered into the
Merger Agreement pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Alpine, with Alpine continuing as a wholly owned subsidiary
of Nivalis and the surviving corporation of the merger. The Merger is intended to qualify for federal income tax purposes as a
tax-free
reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended. Subject to the terms and conditions of the Merger Agreement, at the closing of the Merger, each outstanding share of Alpine common stock will be converted into the right to receive shares of Nivalis common
stock (subject to the payment of cash in lieu of fractional shares and after giving effect to a reverse stock split of Nivalis common stock if determined necessary or appropriate by Alpine, Nivalis and Merger Sub) such that, immediately following
the effective time of the Merger, preexisting Nivalis stockholders, optionholders and warrantholders are expected to own, or hold rights to acquire, approximately 26% of the Fully-Diluted Common Stock of Nivalis, and preexisting Alpine stockholders,
optionholders and warrantholders are expected to own, or hold rights to acquire approximately 74% of the Fully-Diluted Common Stock of Nivalis.
Contemporaneously with the execution and delivery of the Merger Agreement, and as a condition of the willingness of Nivalis to enter into the
Merger Agreement, certain existing stockholders of Alpine entered into a Subscription Agreement with Alpine pursuant to which such stockholders have agreed, subject to the terms and conditions of such Subscription Agreement, to purchase, immediately
prior to the closing of the Merger, shares of Alpines capital stock for an aggregate purchase price of approximately $17 million. The consummation of the transactions contemplated by the Subscription Agreement is conditioned upon the
satisfaction or waiver of the conditions set forth in the Merger Agreement.
Consummation of the Merger is subject to certain closing
conditions, including, among other things, approval by the stockholders of Nivalis and Alpine, and satisfaction of minimum net cash thresholds by each of Nivalis and Alpine. In accordance with the terms of the Merger Agreement, (i) certain
executive officers, directors and stockholders of Alpine (solely in their respective capacities as Alpine stockholders) have entered into a support agreement with Nivalis to vote all of their shares of Alpine capital stock in favor of adoption of
the
F-B-24
ALPINE IMMUNE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 2017 and for the three months ended March 31, 2016 and 2017 is unaudited)
Merger Agreement, subject to the terms of the support agreement (the Alpine Support Agreement) and (ii) certain executive officers, directors and stockholders of Nivalis (solely
in their respective capacities as Nivalis stockholders) have entered into support agreements with Alpine to vote all of their shares of Nivalis common stock in favor of approval of the Merger Agreement (the Nivalis Support Agreements,
together with the Alpine Support Agreement, the Support Agreements). The Support Agreements include covenants with respect to the voting of such shares in favor of approving the transactions contemplated by the Merger Agreement and
against any competing acquisition proposals and, other than the Nivalis Support Agreement delivered by The Estate of Arnold H. Snider, III, place certain restrictions on the transfer of the shares of Nivalis and Alpine held by the respective
signatories thereto. The Support Agreements to be executed by certain stockholders of Nivalis affiliated with Deerfield Management Company, L.P. (the Deerfield Signatories) contain certain exceptions to the transfer of the shares of
Nivalis held by the respective signatories thereto.
The Merger Agreement contains certain termination rights for both Nivalis and Alpine,
and further provides that, upon termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee of $2,500,000, or in some circumstances reimburse the other partys
expenses up to a maximum of $1,000,000. At the effective time of the Merger, the Board of Directors of Nivalis is expected to consist of seven members, four of whom will be designated by Alpine, two of whom will be designated by Nivalis and one of
whom will be an independent director designated by a majority of the other members of the Nivalis Board of Directors.
Convertible Preferred Stock
On April 18, 2017, prior to the execution and delivery of the Merger Agreement, and as contemplated by the Merger Agreement,
certain holders of the Companys Series A-1 convertible preferred stock purchased 5,931,198 shares of Series A-1 preferred stock for $16,667,000 in proceeds, pursuant to a Second Tranche Put Closing (after which all shares issuable in the
second tranche will have been issued and sold).
In lieu of purchasing Series A-2 convertible preferred stock in the third tranche,
holders of the Companys Series A convertible preferred stock have agreed, subject to the terms and conditions of the Subscription Agreement, to purchase, immediately prior to the closing of the merger, shares of the Companys capital
stock for an aggregate purchase price of approximately $17,000,000.
Upon the closing of the merger, the Series A Preferred Stock Purchase
Agreement and the related ancillary documents thereunder are expected to be terminated.
Operating Lease
On April 1, 2017 the Company entered into an amendment to its existing lease pursuant to which it agreed to lease additional premises that
are adjacent to its existing leased premises for an annual base rent of $38,000. The amendment is effective on April 12, 2017. The amendment does not alter the expiry date of the existing lease which remains December 31, 2019.
F-B-25
Appendix A
Execution Copy
AGREEMENT AND
PLAN OF MERGER
AND REORGANIZATION
among:
NIVALIS
THERAPEUTICS, INC.,
a Delaware corporation;
NAUTILUS MERGER SUB, INC.,
a Delaware corporation; and
ALPINE IMMUNE SCIENCES, INC.,
a Delaware corporation
Dated as
of April 18, 2017
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
Section 1. Description of Transaction
|
|
|
A-2
|
|
1.1
|
|
The Merger
|
|
|
A-2
|
|
1.2
|
|
Effects of the Merger
|
|
|
A-2
|
|
1.3
|
|
Closing; Effective Time
|
|
|
A-2
|
|
1.4
|
|
Certificate of Incorporation and Bylaws; Directors and Officers
|
|
|
A-3
|
|
1.5
|
|
Conversion of Shares
|
|
|
A-3
|
|
1.6
|
|
Closing of the Companys Transfer Books
|
|
|
A-4
|
|
1.7
|
|
Surrender of Certificates
|
|
|
A-4
|
|
1.8
|
|
Appraisal Rights
|
|
|
A-5
|
|
1.9
|
|
Further Action
|
|
|
A-6
|
|
1.10
|
|
Tax Consequences
|
|
|
A-6
|
|
|
|
Section 2. Representations and Warranties of the Company
|
|
|
A-6
|
|
2.1
|
|
Due Organization; Subsidiaries
|
|
|
A-6
|
|
2.2
|
|
Organizational Documents
|
|
|
A-7
|
|
2.3
|
|
Authority; Binding Nature of Agreement
|
|
|
A-7
|
|
2.4
|
|
Vote Required
|
|
|
A-7
|
|
2.5
|
|
Non-Contravention; Consents
|
|
|
A-7
|
|
2.6
|
|
Capitalization
|
|
|
A-8
|
|
2.7
|
|
Financial Statements
|
|
|
A-9
|
|
2.8
|
|
Absence of Changes
|
|
|
A-10
|
|
2.9
|
|
Absence of Undisclosed Liabilities
|
|
|
A-10
|
|
2.10
|
|
Title to Assets
|
|
|
A-10
|
|
2.11
|
|
Real Property; Leasehold
|
|
|
A-11
|
|
2.12
|
|
Intellectual Property
|
|
|
A-11
|
|
2.13
|
|
Agreements, Contracts and Commitments
|
|
|
A-13
|
|
2.14
|
|
Compliance; Permits; Restrictions
|
|
|
A-15
|
|
2.15
|
|
Legal Proceedings; Orders
|
|
|
A-16
|
|
2.16
|
|
Tax Matters
|
|
|
A-17
|
|
2.17
|
|
Employee and Labor Matters; Benefit Plans
|
|
|
A-18
|
|
2.18
|
|
Environmental Matters
|
|
|
A-20
|
|
2.19
|
|
Insurance
|
|
|
A-21
|
|
2.20
|
|
Subscription Agreement
|
|
|
A-21
|
|
2.21
|
|
No Financial Advisors
|
|
|
A-21
|
|
2.22
|
|
Disclosure
|
|
|
A-21
|
|
2.23
|
|
Transactions with Affiliates
|
|
|
A-21
|
|
2.24
|
|
No Other Representations or Warranties
|
|
|
A-22
|
|
|
|
Section 3. Representations and Warranties of Nautilus and Merger Sub
|
|
|
A-22
|
|
3.1
|
|
Due Organization; Subsidiaries
|
|
|
A-22
|
|
3.2
|
|
Organizational Documents
|
|
|
A-23
|
|
3.3
|
|
Authority; Binding Nature of Agreement
|
|
|
A-23
|
|
3.4
|
|
Vote Required
|
|
|
A-23
|
|
3.5
|
|
Non-Contravention; Consents
|
|
|
A-23
|
|
3.6
|
|
Capitalization
|
|
|
A-24
|
|
3.7
|
|
SEC Filings; Financial Statements
|
|
|
A-25
|
|
3.8
|
|
Absence of Changes
|
|
|
A-27
|
|
3.9
|
|
Absence of Undisclosed Liabilities
|
|
|
A-27
|
|
3.10
|
|
Title to Assets
|
|
|
A-27
|
|
A-i
|
|
|
|
|
|
|
3.11
|
|
Real Property; Leasehold
|
|
|
A-27
|
|
3.12
|
|
Intellectual Property
|
|
|
A-27
|
|
3.13
|
|
Agreements, Contracts and Commitments
|
|
|
A-30
|
|
3.14
|
|
Compliance; Permits; Restrictions
|
|
|
A-31
|
|
3.15
|
|
Legal Proceedings; Orders
|
|
|
A-33
|
|
3.16
|
|
Tax Matters
|
|
|
A-33
|
|
3.17
|
|
Employee and Labor Matters; Benefit Plans
|
|
|
A-34
|
|
3.18
|
|
Environmental Matters
|
|
|
A-36
|
|
3.19
|
|
Insurance
|
|
|
A-36
|
|
3.20
|
|
Transactions with Affiliates
|
|
|
A-37
|
|
3.21
|
|
No Financial Advisors
|
|
|
A-37
|
|
3.22
|
|
Valid Issuance
|
|
|
A-37
|
|
3.23
|
|
No Other Representations or Warranties
|
|
|
A-37
|
|
3.24
|
|
Opinion of Financial Advisor
|
|
|
A-37
|
|
|
|
Section 4. Certain Covenants of the Parties
|
|
|
A-37
|
|
4.1
|
|
Operation of Nautilus Business
|
|
|
A-37
|
|
4.2
|
|
Operation of the Companys Business
|
|
|
A-39
|
|
4.3
|
|
Access and Investigation
|
|
|
A-40
|
|
4.4
|
|
No Solicitation
|
|
|
A-41
|
|
4.5
|
|
Notification of Certain Matters
|
|
|
A-42
|
|
|
|
Section 5. Additional Agreements of the Parties
|
|
|
A-42
|
|
5.1
|
|
Registration Statement; Proxy Statement
|
|
|
A-42
|
|
5.2
|
|
Company Stockholder Written Consent
|
|
|
A-43
|
|
5.3
|
|
Nautilus Stockholders Meeting
|
|
|
A-45
|
|
5.4
|
|
Regulatory Approvals
|
|
|
A-47
|
|
5.5
|
|
Company Options and Company Warrants
|
|
|
A-47
|
|
5.6
|
|
Nautilus Options
|
|
|
A-48
|
|
5.7
|
|
Employee Benefits
|
|
|
A-48
|
|
5.8
|
|
Indemnification of Officers and Directors
|
|
|
A-48
|
|
5.9
|
|
Additional Agreements
|
|
|
A-49
|
|
5.10
|
|
Disclosure
|
|
|
A-50
|
|
5.11
|
|
Listing
|
|
|
A-50
|
|
5.12
|
|
Tax Matters
|
|
|
A-50
|
|
5.13
|
|
Legends
|
|
|
A-51
|
|
5.14
|
|
Directors and Officers
|
|
|
A-51
|
|
5.15
|
|
Termination of Certain Agreements and Rights
|
|
|
A-51
|
|
5.16
|
|
Corporate Identity
|
|
|
A-51
|
|
5.17
|
|
Section 16 Matters
|
|
|
A-51
|
|
5.18
|
|
Cooperation
|
|
|
A-51
|
|
5.19
|
|
Allocation Certificate
|
|
|
A-51
|
|
5.20
|
|
Company Financial Statements
|
|
|
A-52
|
|
5.21
|
|
Nautilus Reverse Stock Split
|
|
|
A-52
|
|
5.22
|
|
Nautilus Wind-Down
|
|
|
A-52
|
|
|
|
Section 6. Conditions Precedent to Obligations of Each Party
|
|
|
A-52
|
|
6.1
|
|
Effectiveness of Registration Statement
|
|
|
A-52
|
|
6.2
|
|
No Restraints
|
|
|
A-52
|
|
6.3
|
|
Stockholder Approval
|
|
|
A-52
|
|
6.4
|
|
Listing
|
|
|
A-52
|
|
A-ii
|
|
|
|
|
|
|
Section 7. Additional Conditions Precedent to Obligations of Nautilus and Merger
Sub
|
|
|
A-53
|
|
7.1
|
|
Accuracy of Representations
|
|
|
A-53
|
|
7.2
|
|
Performance of Covenants
|
|
|
A-53
|
|
7.3
|
|
Closing Certificate
|
|
|
A-53
|
|
7.4
|
|
Company Pre-Closing Financing
|
|
|
A-53
|
|
7.5
|
|
FIRPTA Certificate
|
|
|
A-53
|
|
7.6
|
|
No Company Material Adverse Effect
|
|
|
A-53
|
|
7.7
|
|
Termination of Investor Agreements
|
|
|
A-53
|
|
7.8
|
|
Lock-Up Agreements
|
|
|
A-53
|
|
7.9
|
|
Company Closing Financial Certificate
|
|
|
A-54
|
|
|
|
Section 8. Additional Conditions Precedent to Obligation of the Company
|
|
|
A-54
|
|
8.1
|
|
Accuracy of Representations
|
|
|
A-54
|
|
8.2
|
|
Performance of Covenants
|
|
|
A-54
|
|
8.3
|
|
Documents
|
|
|
A-54
|
|
8.4
|
|
Sarbanes-Oxley Certifications
|
|
|
A-55
|
|
8.5
|
|
No Nautilus Material Adverse Effect
|
|
|
A-55
|
|
8.6
|
|
Lock-Up Agreements
|
|
|
A-55
|
|
8.7
|
|
Tax Opinion
|
|
|
A-55
|
|
|
|
Section 9. Termination
|
|
|
A-55
|
|
9.1
|
|
Termination
|
|
|
A-55
|
|
9.2
|
|
Effect of Termination
|
|
|
A-57
|
|
9.3
|
|
Expenses; Termination Fees
|
|
|
A-57
|
|
|
|
Section 10. Miscellaneous Provisions
|
|
|
A-59
|
|
10.1
|
|
Non-Survival of Representations and Warranties
|
|
|
A-59
|
|
10.2
|
|
Amendment
|
|
|
A-59
|
|
10.3
|
|
Waiver
|
|
|
A-59
|
|
10.4
|
|
Entire Agreement; Counterparts; Exchanges by Facsimile
|
|
|
A-60
|
|
10.5
|
|
Applicable Law; Jurisdiction
|
|
|
A-60
|
|
10.6
|
|
Attorneys Fees
|
|
|
A-60
|
|
10.7
|
|
Assignability
|
|
|
A-60
|
|
10.8
|
|
Notices
|
|
|
A-60
|
|
10.9
|
|
Cooperation
|
|
|
A-61
|
|
10.10
|
|
Severability
|
|
|
A-61
|
|
10.11
|
|
Other Remedies; Specific Performance
|
|
|
A-62
|
|
10.12
|
|
No Third Party Beneficiaries
|
|
|
A-62
|
|
10.13
|
|
Construction
|
|
|
A-62
|
|
Exhibits:
|
|
|
Exhibit A
|
|
Definitions
|
Exhibit B
|
|
Form of Nautilus Stockholder Support Agreement
|
Exhibit C
|
|
Form of Company Stockholder Support Agreement
|
Exhibit D
|
|
Subscription Agreement
|
Exhibit E
|
|
Form of Nautilus Charter Amendment
|
Exhibit F
|
|
Form of Lock-Up Agreement
|
A-iii
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
(this
Agreement
) is made and entered into as of
April 18, 2017, by and among
NIVALIS THERAPEUTICS, INC.,
a Delaware corporation (
Nautilus
),
NAUTILUS MERGER SUB, INC.
, a Delaware corporation and wholly owned subsidiary of Nautilus
(
Merger Sub
), and
ALPINE IMMUNE SCIENCES, INC.
, a Delaware corporation (the
Company
). Certain capitalized terms used in this Agreement are defined in
Exhibit A
.
RECITALS
A. Nautilus and the Company intend to effect a merger of Merger Sub with and into the Company (the
Merger
) in
accordance with this Agreement and the DGCL. Upon consummation of the Merger, Merger Sub will cease to exist and the Company will become a wholly owned subsidiary of Nautilus.
B. The Parties intend that the Merger qualify as a reorganization within the meaning of Section 368(a) of the Code.
C. The Nautilus Board has (i) determined that the Contemplated Transactions are fair to, advisable and in the best interests of
Nautilus and its stockholders, (ii) approved and declared advisable this Agreement and the Contemplated Transactions, including the issuance of shares of Nautilus Common Stock to the stockholders of the Company pursuant to the terms of this
Agreement and (iii) determined to recommend, upon the terms and subject to the conditions set forth in this Agreement, that the stockholders of Nautilus vote to approve this Agreement and the Contemplated Transactions, including the issuance of
shares of Nautilus Common Stock to the stockholders of the Company pursuant to the terms of this Agreement and, if deemed necessary by the Parties, an amendment to Nautilus certificate of incorporation to effect the Nautilus Reverse Stock
Split.
D. The Merger Sub Board has (i) determined that the Contemplated Transactions are fair to, advisable, and in the best
interests of Merger Sub and its sole stockholder, (ii) approved and declared advisable this Agreement and the Contemplated Transactions and (iii) determined to recommend, upon the terms and subject to the conditions set forth in this
Agreement, that the stockholder of Merger Sub vote to adopt this Agreement and thereby approve the Contemplated Transactions.
E. The
Company Board has (i) determined that the Contemplated Transactions are fair to, advisable and in the best interests of the Company and its stockholders, (ii) approved and declared advisable this Agreement and the Contemplated Transactions
and (iii) determined to recommend, upon the terms and subject to the conditions set forth in this Agreement, that the stockholders of the Company vote to adopt this Agreement and thereby approve the Contemplated Transactions.
F. Concurrently with the execution and delivery of this Agreement and as a condition and inducement to the Companys willingness to
enter into this Agreement, the officers, directors and stockholders of Nautilus listed on Section A of the Nautilus Disclosure Schedule (solely in their capacity as stockholders of Nautilus) are executing support agreements in favor of the
Company in substantially the form attached hereto as
Exhibit B
(the
Nautilus Stockholder Support Agreement
), pursuant to which such Persons have, subject to the terms and conditions set forth therein, agreed to
vote all of their shares of capital stock of Nautilus in favor of the approval of this Agreement and thereby approve the Contemplated Transactions and against any competing proposals.
G. Concurrently with the execution and delivery of this Agreement and as a condition and inducement to Nautilus willingness to
enter into this Agreement, the officers, directors and 5% or greater stockholders (together with their Affiliates) of the Company listed on Section A of the Company Disclosure Schedule (solely in their capacity as stockholders of the Company)
are executing support agreements in favor of Nautilus in substantially the form attached hereto as
Exhibit C
(the
Company Stockholder Support Agreement
), pursuant
A-1
to which such Persons have, subject to the terms and conditions set forth therein, agreed to vote all of their shares of Company Capital Stock in favor of the adoption of this Agreement and
thereby approve the Contemplated Transactions and against any competing proposals.
H. It is expected that the issuance of shares of
Nautilus Common Stock to the stockholders of the Company pursuant to the Merger will result in a change of control of Nautilus.
I. It is expected that within two Business Days after the Registration Statement is declared effective under the Securities Act, the
holders of shares of Company Capital Stock sufficient to adopt and approve this Agreement and the Merger as required under the DGCL and the Companys certificate of incorporation and bylaws will execute and deliver an action by written consent
adopting this Agreement in a form reasonably acceptable to Nautilus, in order to obtain the Required Company Stockholder Vote (each, a
Company Stockholder Written Consent
and collectively, the
Company
Stockholder Written Consents
).
J. Immediately prior to the execution and delivery of this Agreement, and as a
condition of the willingness of Nautilus to enter into this Agreement, certain investors have executed the Subscription Agreement, in the form attached hereto as
Exhibit D
, with the Company, pursuant to which such investors have agreed
to purchase certain shares of Company Capital Stock prior to the Closing in connection with the Company Pre-Closing Financing.
AGREEMENT
The Parties,
intending to be legally bound, agree as follows:
Section 1. DESCRIPTION OF TRANSACTION
1.1 The Merger
.
Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time,
Merger Sub shall be merged with and into the Company, and the separate existence of Merger Sub shall cease. The Company will continue as the surviving corporation in the Merger (the
Surviving Corporation
).
1.2 Effects of the Merger
.
The Merger shall have the effects set forth in this Agreement and in the applicable
provisions of the DGCL. As a result of the Merger, the Company will become a wholly owned subsidiary of Nautilus.
1.3 Closing; Effective Time
.
Unless this Agreement is earlier terminated pursuant to the provisions of
Section 9.1
, and subject to the satisfaction or waiver of the conditions set forth in
Sections 6
,
7
and
8
, the consummation of the Merger (the
Closing
) shall take place at the offices of
Latham & Watkins LLP, 140 Scott Drive, Menlo Park, California 94025, as promptly as practicable (but in no event later than the second Business Day following the satisfaction or waiver of the last to be satisfied or waived of the
conditions set forth in
Sections 6
,
7
and
8
, other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of each of such conditions), or at such other time, date
and place as Nautilus and the Company may mutually agree in writing. The date on which the Closing actually takes place is referred to as the
Closing Date
. At the Closing, the Parties shall cause the Merger to be
consummated by executing and filing with the Secretary of State of the State of Delaware a certificate of merger with respect to the Merger, satisfying the applicable requirements of the DGCL and in a form reasonably acceptable to Nautilus and the
Company (the
Certificate of Merger
). The Merger shall become effective at the time of the filing of such Certificate of Merger with the Secretary of State of the State of Delaware or at such later time as may be
specified in such Certificate of Merger with the consent of Nautilus and the Company (the time as of which the Merger becomes effective being referred to as the
Effective Time
).
A-2
1.4 Certificate of Incorporation and Bylaws; Directors and Officers
.
At
the Effective Time:
(a) the certificate of incorporation of the Surviving Corporation shall be amended and restated in its
entirety to read identically to the certificate of incorporation of Merger Sub as in effect immediately prior to the Effective Time, until thereafter amended as provided by the DGCL and such certificate of incorporation;
(b) the certificate of incorporation of Nautilus shall be identical to the certificate of incorporation of Nautilus immediately prior to
the Effective Time, until thereafter amended as provided by the DGCL and such certificate of incorporation;
provided
,
however
, that at the Effective Time, Nautilus shall file an amendment to its certificate of incorporation to
(i) change the name of Nautilus to Alpine Immune Sciences, Inc., and (ii) effect the Nautilus Reverse Stock Split, such amendment to be in the form attached hereto as
Exhibit E
, with such changes as are
mutually agreed by Nautilus and the Company (the
Nautilus Charter Amendment
);
(c) the bylaws of the
Surviving Corporation shall be identical to the bylaws of Merger Sub as in effect immediately prior to the Effective Time, until thereafter amended as provided by the DGCL and such bylaws;
(d) the directors and officers of Nautilus, each to hold office in accordance with the certificate of incorporation and bylaws of
Nautilus, shall be as set forth in
Section 5.14
; and
(e) the directors and officers of the Surviving Corporation, each
to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation, shall be the directors and officers of Nautilus as set forth in
Section 5.14
, after giving effect to the provisions of
Section 5.14
.
1.5 Conversion of Shares
.
(a) At the Effective Time, by virtue of the Merger and without any further action on the part of Nautilus, Merger Sub, the Company or any
stockholder of the Company or Nautilus:
(i) any shares of Company Capital Stock held as treasury stock or held or owned by the
Company or Merger Sub, or any Subsidiary of the Company immediately prior to the Effective Time shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor; and
(ii) subject to
Section 1.5(c)
, each share of Company Capital Stock (including any shares of Company Capital Stock issued
pursuant to the Company Pre-Closing Financing) outstanding immediately prior to the Effective Time (excluding shares to be canceled pursuant to
Section 1.5(a)(i)
and excluding Dissenting Shares) shall be converted solely into the
right to receive a number of shares of Nautilus Common Stock equal to the Exchange Ratio (the
Merger Consideration
).
(b) If any shares of Company Capital Stock outstanding immediately prior to the Effective Time are unvested or are subject to a
repurchase option or a risk of forfeiture under any applicable restricted stock purchase agreement or other similar agreement with the Company, then the shares of Nautilus Common Stock issued in exchange for such shares of Company Capital Stock will
to the same extent be unvested and subject to the same repurchase option or risk of forfeiture, and such shares of Nautilus Common Stock shall accordingly be marked with appropriate legends. The Company shall take all actions that may be necessary
to ensure that, from and after the Effective Time, Nautilus is entitled to exercise any such repurchase option or other right set forth in any such restricted stock purchase agreement or other agreement.
(c) No fractional shares of Nautilus Common Stock shall be issued in connection with the Merger, and no certificates or scrip for any
such fractional shares shall be issued. Any holder of Company Capital Stock who would otherwise be entitled to receive a fraction of a share of Nautilus Common Stock (after aggregating all fractional shares of Nautilus Common Stock issuable to
such holder) shall, in lieu of such fraction of a share and upon surrender by such holder of a letter of transmittal in accordance with
Section 1.7
and any accompanying documents as required therein, be paid in cash the dollar amount
(rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the Nautilus Closing Price.
A-3
(d) All Company Options and Company Warrants outstanding immediately prior to the Effective
Time under the Company Plan shall be treated in accordance with
Section 5.5
.
(e) Each share of common stock, $0.0001 par
value per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock, $0.0001 par value per share, of the
Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares shall, as of the Effective Time, evidence ownership of such shares of common stock of the Surviving Corporation.
(f) If, between the date of this Agreement and the Effective Time, the outstanding shares of Company Capital Stock or Nautilus Common
Stock shall have been changed into, or exchanged for, a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, recapitalization, split (including the Nautilus Reverse Stock Split to the
extent such split has not previously been taken into account in calculating the Exchange Ratio), combination or exchange of shares or other like change, the Exchange Ratio shall, to the extent necessary, be equitably adjusted to reflect such change
to the extent necessary to provide the holders of Company Capital Stock and Nautilus Common Stock with the same economic effect as contemplated by this Agreement prior to such stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares or other like change;
provided, however
, that nothing herein will be construed to permit the Company or Nautilus to take any action with respect to Company Capital Stock or Nautilus Common Stock,
respectively, that is prohibited or not expressly permitted by the terms of this Agreement.
1.6 Closing of the Companys
Transfer Books
.
At the Effective Time: (a) all shares of Company Capital Stock outstanding immediately prior to the Effective Time shall be treated in accordance with
Section 1.5(a)
, and all holders of certificates
representing shares of Company Capital Stock that were outstanding immediately prior to the Effective Time shall cease to have any rights as stockholders of the Company; and (b) the stock transfer books of the Company shall be closed with
respect to all shares of Company Capital Stock outstanding immediately prior to the Effective Time. No further transfer of any such shares of Company Capital Stock shall be made on such stock transfer books after the Effective Time. If,
after the Effective Time, a valid certificate previously representing any shares of Company Capital Stock outstanding immediately prior to the Effective Time (a
Company Stock Certificate
) is presented to the Exchange Agent
or to the Surviving Corporation, such Company Stock Certificate shall be canceled and shall be exchanged as provided in
Sections 1.5
and
1.7
.
1.7 Surrender of Certificates
.
(a) On or prior to the Closing Date, Nautilus and the Company shall agree upon and select a reputable bank, transfer agent or trust
company to act as exchange agent in the Merger (the
Exchange Agent
). At the Effective Time, Nautilus shall deposit with the Exchange Agent: (i) evidence of book-entry shares representing the Nautilus Common Stock
issuable pursuant to
Section 1.5(a)
and (ii) cash sufficient to make payments in lieu of fractional shares in accordance with
Section 1.5(c)
. The Nautilus Common Stock and cash amounts so deposited with the
Exchange Agent, together with any dividends or distributions received by the Exchange Agent with respect to such shares, are referred to collectively as the
Exchange Fund
.
(b) Promptly after the Effective Time, the Parties shall cause the Exchange Agent to mail to the Persons who were record holders of
shares of Company Capital Stock that were converted into the right to receive the Merger Consideration: (i) a letter of transmittal in customary form and containing such provisions as Nautilus may reasonably specify (including a provision
confirming that delivery of Company Stock Certificates shall be effected, and risk of loss and title to Company Stock Certificates shall pass, only upon delivery of such Company Stock Certificates to the Exchange Agent); and (ii) instructions
for effecting the surrender of Company Stock Certificates in exchange for book-entry shares of Nautilus Common Stock. Upon surrender of a Company Stock Certificate to the Exchange Agent for exchange, together with a duly executed letter of
transmittal and such other documents as may be reasonably required by the Exchange Agent or Nautilus: (A) the holder of such Company Stock Certificate shall be entitled to receive in exchange therefor book-entry shares representing the
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Merger Consideration (in a number of whole shares of Nautilus Common Stock) that such holder has the right to receive pursuant to the provisions of
Section 1.5(a)
(and cash in
lieu of any fractional share of Nautilus Common Stock pursuant to the provisions of
Section 1.5(c)
); and (B) the Company Stock Certificate so surrendered shall be canceled. Until surrendered as contemplated by this
Section 1.7(b)
, each Company Stock Certificate shall be deemed, from and after the Effective Time, to represent only the right to receive book-entry shares of Nautilus Common Stock representing the Merger Consideration (and cash in lieu
of any fractional share of Nautilus Common Stock). If any Company Stock Certificate shall have been lost, stolen or destroyed, Nautilus may, in its discretion and as a condition precedent to the delivery of any shares of Nautilus Common Stock,
require the owner of such lost, stolen or destroyed Company Stock Certificate to provide an applicable affidavit with respect to such Company Stock Certificate and post a bond indemnifying Nautilus against any claim suffered by Nautilus related to
the lost, stolen or destroyed Company Stock Certificate or any Nautilus Common Stock issued in exchange therefor as Nautilus may reasonably request.
(c) No dividends or other distributions declared or made with respect to Nautilus Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Company Stock Certificate with respect to the shares of Nautilus Common Stock that such holder has the right to receive in the Merger until such holder surrenders such Company Stock Certificate
or provides an affidavit of loss or destruction in lieu thereof in accordance with this
Section 1.7
(at which time such holder shall be entitled, subject to the effect of applicable abandoned property, escheat or similar laws, to receive
all such dividends and distributions, without interest).
(d) Any portion of the Exchange Fund that remains undistributed to holders
of Company Stock Certificates as of the date that is 180 days after the Closing Date shall be delivered to Nautilus upon demand, and any holders of Company Stock Certificates who have not theretofore surrendered their Company Stock Certificates in
accordance with this
Section 1.7
shall thereafter look only to Nautilus for satisfaction of their claims for Nautilus Common Stock, cash in lieu of fractional shares of Nautilus Common Stock and any dividends or distributions with
respect to shares of Nautilus Common Stock.
(e) Each of the Exchange Agent, Nautilus and the Surviving Corporation shall be entitled
to deduct and withhold from any consideration deliverable pursuant to this Agreement to any holder of any Company Stock Certificate such amounts as are required to be deducted or withheld from such consideration under the Code or under any other
applicable Law. To the extent such amounts are so deducted or withheld, and remitted to the appropriate taxing authority, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts
would otherwise have been paid.
(f) No party to this Agreement shall be liable to any holder of any Company Stock Certificate or to
any other Person with respect to any shares of Nautilus Common Stock (or dividends or distributions with respect thereto) or for any cash amounts delivered to any public official pursuant to any applicable abandoned property law, escheat law or
similar Law.
1.8 Appraisal Rights
.
(a) Notwithstanding any provision of this Agreement to the contrary, shares of Company Capital Stock that are outstanding immediately
prior to the Effective Time and which are held by stockholders who have exercised and perfected appraisal rights for such shares of Company Capital Stock in accordance with the DGCL (collectively, the
Dissenting Shares
)
shall not be converted into or represent the right to receive the Merger Consideration described in
Section 1.5
attributable to such Dissenting Shares. Such stockholders shall be entitled to receive payment of the appraised value of
such shares of Company Capital Stock held by them in accordance with the DGCL, unless and until such stockholders fail to perfect or effectively withdraw or otherwise lose their appraisal rights under the DGCL. All Dissenting Shares held by
stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their right to appraisal of such shares of Company Capital Stock under the DGCL shall thereupon be deemed to be converted into and to have become
exchangeable for, as of the
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Effective Time, the right to receive the Merger Consideration attributable to such Dissenting Shares upon their surrender in the manner provided in
Section 1.5
.
(b) The Company shall give Nautilus prompt written notice of any demands by dissenting stockholders received by the Company, withdrawals
of such demands and any other instruments served on the Company and any material correspondence received by the Company in connection with such demands. The Company shall not, without Nautilus prior written consent, make any payment with
respect to, or settle or offer to settle, any such demands, or agree to do any of the foregoing.
1.9 Further
Action
.
If, at any time after the Effective Time, any further action is determined by the Surviving Corporation to be necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full
right, title and possession of and to all rights and property of the Company, then the officers and directors of the Surviving Corporation shall be fully authorized, and shall use their and its commercially reasonable efforts (in the name of the
Company, in the name of Merger Sub, in the name of the Surviving Corporation and otherwise) to take such action.
1.10 Tax
Consequences
.
For United States federal income tax purposes, the Merger is intended to constitute a reorganization within the meaning of Section 368(a) of the Code. The Parties adopt this Agreement as a plan of
reorganization within the meaning of Section 1.368-2(g) of the Treasury Regulations.
Section 2. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
Subject to
Section 10.13(h)
, except as set forth in the written disclosure schedule
delivered by the Company to Nautilus (the
Company Disclosure Schedule
), the Company represents and warrants to Nautilus and Merger Sub as follows:
2.1 Due Organization; Subsidiaries.
(a) Each of the Company and its Subsidiaries is a corporation or other legal entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all necessary power and authority: (i) to conduct its business in the manner in which its business is currently being conducted;
(ii) to own or lease and use its property and assets in the manner in which its property and assets are currently owned or leased and used; and (iii) to perform its obligations under all Contracts by which it is bound.
(b) Each of the Company and its Subsidiaries is duly licensed and qualified to do business, and is in good standing (to the extent
applicable in such jurisdiction), under the laws of all jurisdictions where the nature of its business requires such licensing or qualification other than in jurisdictions where the failure to be so qualified individually or in the aggregate would
not be reasonably expected to have a Company Material Adverse Effect.
(c) The Company has no Subsidiaries, except for the Entities
identified in
Section 2.1(c)
of the Company Disclosure Schedule; and neither the Company nor any of the Entities identified in
Section 2.1(c)
of the Company Disclosure Schedule owns any capital stock of, or any
equity, ownership or profit sharing interest of any nature in, or controls directly or indirectly, any other Entity other than the Entities identified in
Section 2.1(c)
of the Company Disclosure Schedule. Neither the Company nor any
of its Subsidiaries is or has otherwise been, directly or indirectly, a party to, member of or participant in any partnership, joint venture or similar business entity. Neither the Company nor any of its Subsidiaries has agreed or is obligated
to make, or is bound by any Contract under which it may become obligated to make, any future investment in or capital contribution to any other Entity. Neither the Company nor any of its Subsidiaries has, at any time, been a general partner of,
or has otherwise been liable for any of the debts or other obligations of, any general partnership, limited partnership or other Entity.
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2.2 Organizational Documents
.
The Company has delivered to Nautilus
accurate and complete copies of the Organizational Documents of the Company and each of its Subsidiaries. Neither the Company nor any of its Subsidiaries is in breach or violation of its Organizational Documents in any material respect.
2.3 Authority; Binding Nature of Agreement.
The Company and each of its Subsidiaries have all necessary corporate power and
authority to enter into and to perform its obligations under this Agreement and to consummate the Contemplated Transactions. The Company Board has (i) determined that the Contemplated Transactions are fair to, advisable and in the best
interests of the Company and its stockholders, (ii) approved and declared advisable this Agreement and the Contemplated Transactions and (iii) determined to recommend, upon the terms and subject to the conditions set forth in this
Agreement, that the stockholders of the Company vote to adopt this Agreement and thereby approve the Contemplated Transactions.
This
Agreement has been duly executed and delivered by the Company and assuming the due authorization, execution and delivery by Nautilus and Merger Sub, constitutes the legal, valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, subject to the Enforceability Exceptions. Prior to the execution of the Company Stockholder Support Agreements, the Company Board approved the Company Stockholder Support Agreements and the transactions
contemplated thereby.
2.4 Vote Required.
The affirmative vote (or written consent) of (a) the holders of a majority of
the shares of Company Common Stock and Company Preferred Stock each outstanding on the record date for the Company Stockholder Written Consent and entitled to vote thereon, voting as a single class, and (b) the holders of a majority of the
shares of Company Preferred Stock outstanding on the record date for the Company Stockholder Written Consent and entitled to vote thereon, voting as a separate class (collectively, the
Required Company Stockholder Vote
), is
the only vote (or written consent) of the holders of any class or series of Company Capital Stock necessary to adopt and approve this Agreement and approve the Contemplated Transactions.
2.5 Non-Contravention; Consents.
Subject to obtaining the Required Company Stockholder Vote and the filing of the Certificate
of Merger required by the DGCL, neither (x) the execution, delivery or performance of this Agreement by the Company, nor (y) the consummation of the Contemplated Transactions, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of any of the provisions of the Companys Organizational
Documents;
(b) contravene, conflict with or result in a material violation of, or to the Knowledge of the Company give any
Governmental Body or other Person the right to challenge the Contemplated Transactions or to exercise any material remedy or obtain any material relief under, any Law or any order, writ, injunction, judgment or decree to which the Company or its
Subsidiaries, or any of the assets owned or used by the Company or its Subsidiaries, is subject, except as would not be material to the Company or its business;
(c) contravene, conflict with or result in a material violation of any of the terms or requirements of, or to the Knowledge of the
Company, give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by the Company or its Subsidiaries, except as would not be material to the Company or its business;
(d) contravene, conflict with or result in a material violation or breach of, or result in a default under, any provision of any
Company Material Contract, or give any Person the right to: (i) declare a default or exercise any remedy under any Company Material Contract; (ii) any material payment, rebate, chargeback, penalty or change in delivery schedule under any
Company Material Contract; (iii) accelerate the maturity or performance of any Company Material Contract; or (iv) cancel, terminate or modify any term of any Company Material Contract, except in the case of any non-material breach,
default, penalty or modification; or
A-7
(e) result in the imposition or creation of any Encumbrance upon or with respect to any
material asset owned or used by the Company or its Subsidiaries (except for Permitted Encumbrances).
Except for (i) any Consent set forth on
Section 2.5
of the Company Disclosure Schedule under any Company Contract, (ii) the Required Company Stockholder Vote, (iii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware pursuant
to the DGCL, and (iv) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws, neither the Company nor any of its Subsidiaries is
or will be required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement, or (y) the consummation of the Contemplated
Transactions, which if individually or in the aggregate were not given or obtained, would be material to the Company or its business. The Company Board has taken and will take all actions necessary to ensure that the restrictions applicable to
business combinations contained in Section 203 of the DGCL are, and will be, inapplicable to the execution, delivery and performance of this Agreement and the Company Stockholder Support Agreements and to the consummation of the Contemplated
Transactions. No other state takeover statute or similar Law applies or purports to apply to the Merger, this Agreement, the Company Stockholder Support Agreements or any of the Contemplated Transactions.
2.6 Capitalization.
(a) The authorized Company Capital Stock as of the date of this Agreement consists of (i) 46,500,000 shares of Company Common Stock,
par value $0.0001 per share, of which 1,340,625 shares have been issued and are outstanding as of the date of this Agreement, and (ii) 22,081,852 shares of preferred stock, par value $0.0001 per share (the
Company Preferred
Stock
), 5,000,000 of which are designated as Series Seed Preferred Stock and all of which shares have been issued and are outstanding, 14,590,748 of which are designated as Series A-1 Preferred Stock, of which 11,032,029
shares have been issued and are outstanding, and 2,491,104 of which are designated as Series A-2 Preferred Stock, none of which shares have been issued and are outstanding as of the date of this Agreement. The Company does not hold
any shares of its capital stock in its treasury. As of the date of this Agreement, there are outstanding Company Warrants to purchase 25,000 shares of Company Common Stock and 31,139 shares of Series A-1 Preferred Stock.
Section 2.6(a)
of the Company Disclosure Schedule lists, as of the date of this Agreement, (A) each record holder of issued and outstanding Company Warrants, (B) the number and type of shares subject to each such Company
Warrant, (C) the exercise price of each such Company Warrant, (D) the termination date of each such Company Warrant and (E) whether and to what extent any holders of Company Warrants shall be required to exercise such Company Warrants
prior to the Effective Time.
(b) All of the outstanding shares of Company Common Stock and Company Preferred Stock have been duly
authorized and validly issued, and are fully paid and nonassessable. Except as set forth in the Investor Agreements, none of the outstanding shares of Company Common Stock or Company Preferred Stock is entitled or subject to any preemptive
right, right of participation, right of maintenance or any similar right and none of the outstanding shares of Company Common Stock or Company Preferred Stock is subject to any right of first refusal in favor of the Company. Except as
contemplated herein and in the Investor Agreements, there is no Company Contract relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or granting any option or similar
right with respect to), any shares of Company Common Stock or Company Preferred Stock. The Company is not under any obligation, nor is it bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise
acquire any outstanding shares of Company Common Stock or other securities.
Section 2.6(b)
of the Company Disclosure Schedule accurately and completely lists all repurchase rights held by the Company with respect to shares of
Company Common Stock (including shares issued pursuant to the exercise of stock options) and specifies which of those repurchase rights are currently exercisable. Each share of Company Preferred Stock is convertible into one share of Company
Common Stock.
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(c) Except for the Companys Amended and Restated 2015 Stock Plan, as amended (the
Company Plan
), the Company does not have any stock option plan or any other plan, program, agreement or arrangement providing for any equity-based compensation for any Person. As of the date of this Agreement, the
Company has reserved 3,445,604 shares of Company Common Stock for issuance under the Company Plan, of which 340,625 shares have been issued and are currently outstanding, 2,399,914 have been reserved for issuance upon exercise of Company Options and
Company Warrants granted under the Company Plan, and 705,065 shares of Company Common Stock remain available for future issuance pursuant to the Company Plan.
Section 2.6(c)
of the Company Disclosure Schedule sets forth the
following information with respect to each Company Option outstanding as of the date of this Agreement: (i) the name of the optionee; (ii) the number of shares of Company Common Stock subject to such Company Option at the time of
grant; (iii) the number of shares of Company Common Stock subject to such Company Option as of the date of this Agreement; (iv) the exercise price of such Company Option; (v) the date on which such Company Option was granted;
(vi) the applicable vesting schedule, including the number of vested and unvested shares as of the date of this Agreement and any acceleration provisions; (vii) the date on which such Company Option expires; and (viii) whether such
Company Option is intended to constitute an incentive stock option (as defined in the Code) or a non-qualified stock option. The Company has made available to Nautilus an accurate and complete copy of the Company Plan and forms of
all stock option agreements approved for use thereunder. No vesting of Company Options will accelerate in connection with the closing of the Contemplated Transactions.
(d) Except in connection with the Company Pre-Closing Financing and the Second Tranche Closing and except for (x) the outstanding
Company Warrants set forth on
Section 2.6(a)
of the Company Disclosure Schedule and (y) the Company Options set forth on a schedule provided by the Company to Nautilus concurrently with the execution hereof, there is no:
(i) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock or other securities of the Company or any of its Subsidiaries; (ii) outstanding security,
instrument or obligation that is or may become convertible into or exchangeable for any shares of the capital stock or other securities of the Company or any of its Subsidiaries; (iii) stockholder rights plan (or similar plan commonly referred
to as a poison pill) or Contract under which the Company or any of its Subsidiaries is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities; or (iv) condition or circumstance
that is reasonably likely to give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any shares of capital stock or other securities of the Company or any of its
Subsidiaries. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or other similar rights with respect to the Company or any of its Subsidiaries.
(e) All outstanding shares of Company Common Stock, Company Preferred Stock, Company Warrants, Company Options and other securities of
the Company have been issued and granted in material compliance with (i) all applicable securities laws and other applicable Law, and (ii) all requirements set forth in applicable Contracts.
2.7 Financial Statements.
(a) Concurrently with the execution hereof, the Company has provided to Nautilus true and complete copies of (i) the Companys
unaudited consolidated balance sheets at December 31, 2015 and December 31, 2016, (ii) the Company Unaudited Interim Balance Sheet, (iii) the Companys unaudited consolidated statements of income, cash flow and
stockholders equity for the years ended December 31, 2015 and December 31, 2016, and (iv) the Companys unaudited statements of income, cash flow and stockholders equity for the three months ended March 31, 2017
(collectively, the
Company Financials
). The Company Financials fairly present, in all material respects, the financial position and operating results of the Company and its consolidated Subsidiaries as of the dates and
for the periods indicated therein.
(b) Each of the Company and its Subsidiaries maintains accurate books and records reflecting
their assets and liabilities and maintains a system of internal accounting controls designed to provide reasonable
A-9
assurance that: (i) transactions are executed in accordance with managements general or specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of the financial statements of the Company and its Subsidiaries and to maintain accountability of the Companys and its Subsidiaries assets; (iii) access to the Companys and its Subsidiaries assets is
permitted only in accordance with managements general or specific authorization; (iv) the recorded accountability for the Companys and its Subsidiaries assets is compared with the existing assets at regular intervals and
appropriate action is taken with respect to any differences; and (v) accounts, notes and other receivables and inventory are recorded accurately, and proper and adequate procedures are implemented to effect the collection thereof on a current
and timely basis. The Company and each of its Subsidiaries maintains internal control over financial reporting that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes.
(c)
Section 2.7(c)
of the Company Disclosure Schedule lists, and the Company has delivered to
Nautilus accurate and complete copies of the documentation creating or governing, all securitization transactions and off-balance sheet arrangements (as defined in Item 303(c) of Regulation S-K under the Exchange Act) effected
by the Company or any of its Subsidiaries since January 1, 2014.
(d) Since January 1, 2014, there have been no formal
internal investigations regarding financial reporting or accounting policies and practices discussed with, reviewed by or initiated at the direction of the chief executive officer, chief financial officer or general counsel of the Company, the
Company Board or any committee thereof. Since January 1, 2014, neither the Company nor its independent auditors have identified (i) any significant deficiency or material weakness in the design or operation of the system of internal
accounting controls utilized by the Company and its Subsidiaries, (ii) any fraud, whether or not material, that involves the Company, any of its Subsidiaries, the Companys management or other employees who have a role in the preparation
of financial statements or the internal accounting controls utilized by the Company and its Subsidiaries or (iii) any claim or allegation regarding any of the foregoing.
2.8 Absence of Changes
.
Except as set forth on
Section 2.8
of the Company Disclosure Schedule, between the
date of the Company Unaudited Interim Balance Sheet and the date of this Agreement, the Company has conducted its business only in the Ordinary Course of Business (except for the execution and performance of this Agreement and the discussions,
negotiations and transactions related thereto) and there has not been any Company Material Adverse Effect.
2.9 Absence of
Undisclosed Liabilities
.
As of the date hereof, neither the Company nor any of its Subsidiaries has any liability, indebtedness, obligation, expense, of any kind, whether accrued, absolute, contingent, matured, unmatured or other
(whether or not required to be reflected in the financial statements in accordance with GAAP) (each a
Liability
), individually or in the aggregate, except for: (a) Liabilities disclosed, reflected or reserved against
in the Company Unaudited Interim Balance Sheet; (b) normal and recurring current Liabilities that have been incurred by the Company or its Subsidiaries since the date of the Company Unaudited Interim Balance Sheet in the Ordinary Course of
Business and which are not in excess of $250,000 in the aggregate; (c) Liabilities for performance of obligations of the Company or any of its Subsidiaries under Company Contracts; (d) Liabilities incurred in connection with the
Contemplated Transactions and the Subscription Agreement; and (e) Liabilities listed in
Section 2.9
of the Company Disclosure Schedule.
2.10 Title to Assets
.
Each of the Company and its Subsidiaries owns, and has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests in, all tangible properties or tangible assets and equipment used or held for use in its business or operations or purported to be owned by it that are material to the Company or its
business, including: (a) all assets reflected on the Company Unaudited Interim Balance Sheet; and (b) all other assets reflected in the books and records of the Company or any of its Subsidiaries as being owned by the Company or such
Subsidiary. All of such assets are owned or, in the case of leased assets, leased by the Company or any of its Subsidiaries free and clear of any Encumbrances, other than Permitted Encumbrances.
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2.11 Real Property; Leasehold
.
Neither the Company nor any of its
Subsidiaries owns or has ever owned any real property. The Company has made available to Nautilus (a) an accurate and complete list of all real properties with respect to which the Company directly or indirectly holds a valid leasehold
interest as well as any other real estate that is in the possession of or leased by the Company or any of its Subsidiaries, and (b) copies of all leases under which any such real property is possessed (the
Company Real Estate
Leases
), each of which is in full force and effect, with no existing material default thereunder.
2.12 Intellectual
Property
.
(a) The Company, directly or through any of its Subsidiaries, owns, or has the right to use, as currently being
used by the Company or any of its Subsidiaries, all Company IP Rights, and with respect to Company IP Rights that are owned by the Company or any of its Subsidiaries, has the right to bring actions for the infringement of such Company IP Rights, in
each case except for any failure to own, have such rights to use, or have such rights to bring actions for infringement that would not reasonably be expected to have a Company Material Adverse Effect.
(b) Concurrently with the execution hereof, the Company has provided to Nautilus an accurate, true and complete listing of all Company
Registered IP.
(c)
Section 2.12(c)
of the Company Disclosure Schedule accurately identifies (i) all Company
Contracts pursuant to which Company IP Rights are licensed to the Company or any of its Subsidiaries (other than (A) any non-customized software that (1) is so licensed solely in executable or object code form pursuant to a non-exclusive,
internal use software license and other Intellectual Property associated with such software and (2) is not incorporated into, or material to the development, manufacturing, or distribution of, any of the Companys or any of its
Subsidiaries products or services, (B) any Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials and (C) any confidential information provided under confidentiality agreements), and
(ii) whether the license or licenses granted to the Company or any of its Subsidiaries are exclusive or non-exclusive.
(d)
Section 2.12(d)
of the Company Disclosure Schedule accurately identifies each Company Contract pursuant to which the
Company or any of its Subsidiaries has granted any license under, or any right (whether or not currently exercisable) or interest in, any Company IP Rights to any Person (other than (i) any confidential information provided under
confidentiality agreements and (ii) any Company IP Rights non-exclusively licensed to suppliers or service providers for the sole purpose of enabling such supplier or service providers to provide services for the Companys benefit).
(e) Except as set forth in
Section 2.12(e)
of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is bound by, and no Company IP Rights are subject to, any Company Contract containing any covenant or other provision that in any way limits or restricts the ability of the Company or any of its Subsidiaries to use, exploit, assert,
enforce, sell, transfer or dispose of any such Company IP Rights anywhere in the world, in each case, in a manner that would materially limit the business of the Company as currently conducted or planned to be conducted.
(f) Except as identified in
Section 2.12(f)
of the Company Disclosure Schedule, to the Knowledge of the Company, the
Company or one of its Subsidiaries exclusively owns all right, title, and interest to and in Company IP Rights (other than (i) Company IP Rights exclusively and non-exclusively licensed to the Company or one of its Subsidiaries, as identified
in
Section 2.12(c)
of the Company Disclosure Schedule, (ii) any non-customized software that (A) is licensed to the Company or any of its Subsidiaries solely in executable or object code form pursuant to a non-exclusive,
internal use software license and other Intellectual Property associated with such software and (B) is not incorporated into, or material to the development, manufacturing, or distribution of, any of the Companys or any of its
Subsidiaries products or services and (iii) any Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials), in each case, free
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and clear of any Encumbrances (other than Permitted Encumbrances). Without limiting the generality of the foregoing:
(i) All documents and instruments necessary to register or apply for or renew registration of Company Registered IP have been validly
executed, delivered, and filed in a timely manner with the appropriate Governmental Body except for any such failure, individually or collectively, that would not reasonably be expected to have a Company Material Adverse Effect.
(ii) Each Person who is or was an employee or contractor of the Company or any of its Subsidiaries and who is or was involved in the
creation or development of any material Company IP Rights has signed a valid, enforceable agreement containing an assignment of such Intellectual Property to the Company or such Subsidiary and confidentiality provisions protecting trade secrets and
confidential information of the Company and its Subsidiaries.
(iii) To the Knowledge of the Company, no current or former
stockholder, officer, director, or employee of the Company or any of its Subsidiaries has any claim, right (whether or not currently exercisable), or interest to or in any Company IP Rights purported to be owned by the Company. To the Knowledge
of the Company, no employee of the Company or any or any of its Subsidiaries is (a) bound by or otherwise subject to any Contract restricting him or her from performing his or her duties for the Company or such Subsidiary or (b) in breach
of any Contract with any former employer or other Person concerning Company IP Rights purported to be owned by the Company or confidentiality provisions protecting trade secrets and confidential information comprising Company IP Rights purported to
be owned by the Company.
(iv) Except as identified in
Section 2.12(f)(iv)
of the Company Disclosure Schedule, no
funding, facilities, or personnel of any Governmental Body were used, directly or indirectly, to develop or create, in whole or in part, any Company IP Rights in which the Company or any of its Subsidiaries has an ownership interest.
(v) The Company and each of its Subsidiaries has taken reasonable steps to maintain the confidentiality of and otherwise protect and
enforce its rights in all proprietary information that the Company or such Subsidiary holds, or purports to hold, as a material trade secret.
(vi) Neither the Company nor any of its Subsidiaries has assigned or otherwise transferred ownership of, or agreed to assign or
otherwise transfer ownership of, any Company IP Rights owned or purported to be owned by or exclusively licensed to Company or any of its Subsidiaries to any other Person. As of the date of this Agreement, except as set forth in
Section 2.12(f)(vi)
of the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries has granted any licenses or covenants not to sue, or sold or otherwise transferred (other than standard licenses or rights to
use granted to customers, suppliers or service providers in the Ordinary Course of Business) any of the Company IP Rights to any third party, and there exists no obligation by the Company or any of its Subsidiaries to assign, license or otherwise
transfer any of the Company IP Rights to any third party.
(vii) To the Knowledge of the Company, the Company IP Rights constitute
all Intellectual Property necessary for the Company and its Subsidiaries to conduct its business as currently conducted and planned to be conducted.
(g) The Company has delivered or made available to Nautilus, a complete and accurate copy of all Company IP Rights Agreements required to
be listed on
Section 2.12(c)
or
Section 2.12(d)
of the Company Disclosure Schedule. With respect to each such Company IP Rights Agreement: (i) each such agreement is valid and binding on the Company or its
Subsidiaries, as applicable, and in full force and effect, subject to the Enforceability Exceptions; (ii) the Company has not received any written notice of termination or cancellation under such agreement, or received any written notice of
breach or default under such agreement, which breach has not been cured or waived; and (iii) neither the Company nor its Subsidiaries, and to the Knowledge of the Company, no other party to any such agreement, is in breach or default thereof in
any material respect. To the
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Knowledge of the Company, the consummation of the transactions contemplated by this Agreement will neither result in the modification, cancellation, termination, suspension of, or acceleration of
any payments with respect to any Company IP Rights Agreements, nor give any third party to any such Company IP Rights Agreement the right to do any of the foregoing. Following the closing of the transactions contemplated by this Agreement,
Nautilus will be permitted to exercise all of the rights of the Company or its Subsidiaries under such agreements to the same extent, in all material respects, the Company or its Subsidiaries would have been able had the transactions contemplated by
this Agreement not occurred and without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments that the Company or its Subsidiaries would otherwise be required to pay.
(h) To the Knowledge of the Company, the manufacture, marketing, license, sale or intended use of any product or technology currently
licensed or sold or under development by the Company or any of its Subsidiaries does not violate any license or agreement between the Company or its Subsidiaries and any third party, and does not infringe or misappropriate any Intellectual Property
right of any third party, which infringement or misappropriation would reasonably be expected to have a Company Material Adverse Effect. To the Knowledge of the Company, no third party is infringing upon any Company IP Rights or violating any
license or agreement between the Company or its Subsidiaries and such third party.
(i) There is no current or pending Legal
Proceeding (including, but not limited to, opposition, interference or other proceeding in any patent or other government office) contesting the validity, ownership or right to use, sell, license or dispose of any Company IP Rights, nor has the
Company or any of its Subsidiaries received any written notice asserting that any such Company IP Rights, or the Companys or any of its Subsidiaries right to use, sell, license or dispose of any such Company IP Rights conflicts with or
infringes or misappropriates or will conflict with or infringe or misappropriate the rights of any other Person.
(j) Each item of
Company IP Rights that is Company Registered IP is and at all times has been filed and maintained in compliance with all applicable Law and all filings, payments, and other actions required to be made or taken to maintain such item of Company
Registered IP in full force and effect have been made by the applicable deadline, except for any failure to perform any of the foregoing, individually or collectively, that would not reasonably be expected to have a Company Material Adverse Effect.
(k) To the Knowledge of the Company, no trademark (whether registered or unregistered) or trade name owned, used, or applied for by
the Company or any of its Subsidiaries conflicts or interferes with any trademark (whether registered or unregistered) or trade name owned, used, or applied for by any other Person.
(l) Except as set forth in the Contracts listed on
Section 2.12(l)
of the Company Disclosure Schedule (i) and
except for Company Contracts entered into in the Ordinary Course of Business, neither the Company nor any of its Subsidiaries is bound by any Contract to indemnify, defend, hold harmless, or reimburse any other Person with respect to any
Intellectual Property infringement, misappropriation, or similar claim, in each case, that would be material to the Company or its business, and (ii) neither the Company nor any of its Subsidiaries has ever assumed, or agreed to discharge or
otherwise take responsibility for, any existing or potential liability of another Person for infringement, misappropriation, or violation of any Intellectual Property right, which assumption, agreement or responsibility is material and remains in
force as of the date of this Agreement.
2.13 Agreements, Contracts and Commitments
.
(a)
Section 2.13(a)
of the Company Disclosure Schedule lists the following Company Contracts in effect as of the date of
this Agreement (each, a
Company Material Contract
and collectively, the
Company Material Contracts
):
(i) each Company Contract relating to any material bonus, deferred compensation, severance, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or arrangements;
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(ii) each Company Contract requiring payments by the Company after the date of this
Agreement in excess of $150,000 per year pursuant to its express terms relating to the employment of, or the performance of employment-related services by, any Person, including any employee, consultant or independent contractor, or entity providing
employment-related, consulting or independent contractor services, not terminable by the Company or its Subsidiaries on 90 calendar days or less notice without liability, except to the extent general principles of wrongful termination law may
limit the Companys, its Subsidiaries or such successors ability to terminate employees at will;
(iii) each
Company Contract relating to any agreement or plan, including any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by
the occurrence of any of the Contemplated Transactions (either alone or in conjunction with any other event, such as termination of employment), or the value of any of the benefits of which will be calculated on the basis of any of the Contemplated
Transactions;
(iv) each Company Contract relating to any agreement of indemnification or guaranty not entered into in the Ordinary
Course of Business;
(v) each Company Contract containing (A) any covenant limiting the freedom of the Company, its
Subsidiaries or the Surviving Corporation to engage in any line of business or compete with any Person, (B) any most-favored pricing arrangement, (C) any exclusivity provision, or (D) any non-solicitation provision;
(vi) each Company Contract relating to capital expenditures and requiring payments after the date of this Agreement in excess of
$250,000 pursuant to its express terms and not cancelable without penalty;
(vii) each Company Contract relating to the disposition
or acquisition of material assets or any ownership interest in any Entity;
(viii) each Company Contract relating to any mortgages,
indentures, loans, notes or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit in excess of $250,000 or creating any material Encumbrances with respect to any assets of
the Company or any of its Subsidiaries or any loans or debt obligations with officers or directors of the Company;
(ix) each
Company Contract requiring payment by or to the Company after the date of this Agreement in excess of $250,000 pursuant to its express terms relating to: (A) any distribution agreement (identifying any that contain exclusivity provisions);
(B) any agreement involving provision of services or products with respect to any pre-clinical or clinical development activities of the Company; (C) any dealer, distributor, joint marketing, alliance, joint venture, cooperation,
development or other agreement currently in force under which the Company has continuing obligations to develop or market any product, technology or service, or any agreement pursuant to which the Company has continuing obligations to develop any
Intellectual Property that will not be owned, in whole or in part, by the Company; or (D) any Contract to license any third party to manufacture or produce any product, service or technology of the Company or any Contract to sell, distribute or
commercialize any products or service of the Company, in each case, except for Company Contracts entered into in the Ordinary Course of Business;
(x) each Company Contract with any Person, including any financial advisor, broker, finder, investment banker or other Person, providing
advisory services to the Company in connection with the Contemplated Transactions;
(xi) each Company Real Estate Lease; or
(xii) any other Company Contract that is not terminable at will (with no penalty or payment) by the Company or its Subsidiaries, as
applicable, and (A) which involves payment or receipt by the Company or its
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Subsidiaries after the date of this Agreement under any such agreement, contract or commitment of more than $250,000 in the aggregate, or obligations after the date of this Agreement in excess of
$250,000 in the aggregate, or (B) that is material to the business or operations of the Company and its Subsidiaries, taken as a whole.
(b) The Company has delivered or made available to Nautilus accurate and complete copies of all Company Material Contracts, including all
amendments thereto. Except as set forth in
Section 2.13(b)
of the Company Disclosure Schedule, there are no Company Material Contracts that are not in written form. Neither the Company nor any of its Subsidiaries has, nor to the
Companys Knowledge, as of the date of this Agreement has any other party to a Company Material Contract, breached, violated or defaulted under, or received notice that it breached, violated or defaulted under, any of the terms or conditions of
any Company Material Contract in such manner as would permit any other party to cancel or terminate any such Company Material Contract, or would permit any other party to seek damages which would reasonably be expected to have a Company Material
Adverse Effect. As to the Company and its Subsidiaries, as of the date of this Agreement, each Company Material Contract is valid, binding, enforceable and in full force and effect, subject to the Enforceability Exceptions. No Person is
renegotiating, or has a right pursuant to the terms of any Company Material Contract to change, any material amount paid or payable to the Company under any Company Material Contract or any other material term or provision of any Company Material
Contract.
2.14 Compliance; Permits; Restrictions.
(a) The Company and each of its Subsidiaries are, and since January 1, 2014 have been, in compliance in all material respects with
all applicable Laws, including the FDCA, the FDA regulations adopted thereunder, the Controlled Substance Act and any other similar Law administered or promulgated by a Drug Regulatory Agency, except for any noncompliance, either individually or in
the aggregate, which would not be material to the Company. No investigation, claim, suit, proceeding, audit or other action by any Governmental Body is pending or, to the Knowledge of the Company, threatened against the Company or any of its
Subsidiaries. There is no agreement, judgment, injunction, order or decree binding upon the Company or any of its Subsidiaries which (i) has or would reasonably be expected to have the effect of prohibiting or materially impairing any
business practice of the Company or any of its Subsidiaries, any acquisition of material property by the Company or any of its Subsidiaries or the conduct of business by the Company or any of its Subsidiaries as currently conducted, (ii) is
reasonably likely to have an adverse effect on the Companys ability to comply with or perform any covenant or obligation under this Agreement, or (iii) is reasonably likely to have the effect of preventing, delaying, making illegal or
otherwise interfering with the Contemplated Transactions.
(b) The Company and its Subsidiaries hold all required Governmental
Authorizations which are material to the operation of the business of the Company and its Subsidiaries as currently conducted (the
Company Permits
).
Section 2.14(b)
of the Company Disclosure Schedule
identifies each Company Permit. Each of the Company and its Subsidiaries is in material compliance with the terms of the Company Permits. No Legal Proceeding is pending or, to the Knowledge of the Company, threatened, which seeks to
revoke, limit, suspend, or materially modify any Company Permit.
(c) There are no proceedings pending or, to the Knowledge of the
Company, threatened with respect to an alleged material violation by the Company or any of its Subsidiaries of the Federal Food, Drug, and Cosmetic Act (
FDCA
), the Food and Drug Administration
(
FDA
) regulations adopted thereunder, the Controlled Substance Act or any other similar Law administered or promulgated by the FDA or other comparable Governmental Body responsible for regulation of the development,
clinical testing, manufacturing, sale, marketing, distribution and importation or exportation of drug products (
Drug Regulatory Agency
).
(d) The Company and each of its Subsidiaries holds all required Governmental Authorizations issuable by any Drug Regulatory Agency
material to the conduct of the business of the Company or such Subsidiary as currently conducted, and, as applicable, the development, clinical testing, manufacturing, marketing, distribution and importation or exportation, as currently conducted,
of any of its products or product candidates (the
Company Product Candidates
) (collectively, the
Company Regulatory Permits
) and no such Company
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Regulatory Permit has been (i) revoked, withdrawn, suspended, cancelled or terminated or (ii) modified in any adverse manner, other than immaterial adverse modifications. The
Company and each of its Subsidiaries are in compliance in all material respects with the Company Regulatory Permits and have not received any written notice or other written communication from any Drug Regulatory Agency regarding (A) any
material violation of or failure to comply materially with any term or requirement of any Company Regulatory Permit or (B) any revocation, withdrawal, suspension, cancellation, termination or material modification of any Company Regulatory
Permit. Except for the information and files identified in
Section 2.14(d)
of the Company Disclosure Schedule, the Company has made available to Nautilus all information requested by Nautilus in the Companys or its
Subsidiaries possession or control relating to the Company Product Candidates and the development, clinical testing, manufacturing, importation and exportation of the Company Product Candidates, including complete copies of the following (to
the extent there are any): (x) copies of all investigational new drug applications (INDs) submitted to the FDA, and all supplements to and amendments of such INDs; new drug applications; adverse event reports; clinical study reports and
material study data; inspection reports, notices of adverse findings, warning letters, filings and letters and other material written correspondence to and from any Drug Regulatory Agency; and meeting minutes with any Drug Regulatory Agency; and
(y) similar notices, letters, filings, correspondence and meeting minutes with any other Governmental Body. The Company and each of its Subsidiaries have complied in all material respects with the ICH E9 Guidance for Industry: Statistical
Principles for Clinical Trials in the management of the clinical data that have been presented to the Company. To the Knowledge of the Company, there are no facts that would be reasonably likely to result in any warning, untitled or notice of
violation letter or Form FDA-483 from the FDA.
(e) All clinical, pre-clinical and other studies and tests conducted by or on
behalf of, or sponsored by, the Company or its Subsidiaries, or in which the Company or its Subsidiaries or their respective current products or product candidates, including the Company Product Candidates, have participated, were and, if still
pending, are being conducted in all material respects in accordance with standard medical and scientific research procedures and in compliance in all material respects with the applicable regulations of any applicable Drug Regulatory Agency and
other applicable Law, including 21 C.F.R. Parts 50, 54, 56, 58 and 312. No preclinical or clinical trial conducted by or on behalf of the Company or any of its Subsidiaries has been terminated or suspended prior to completion for safety or
non-compliance reasons. Since January 1, 2014, neither the Company nor any of its Subsidiaries has received any notices, correspondence, or other communications from any Drug Regulatory Agency requiring, or to the Knowledge of the Company
threatening to initiate, the termination or suspension of any clinical studies conducted by or on behalf of, or sponsored by, the Company or any of its Subsidiaries or in which the Company or any of its Subsidiaries or their respective current
products or product candidates, including the Company Product Candidates, have participated.
(f) Neither the Company nor any of its
Subsidiaries is the subject of any pending or, to the Knowledge of the Company, threatened investigation in respect of its business or products by the FDA pursuant to its Fraud, Untrue Statements of Material Facts, Bribery, and Illegal
Gratuities Final Policy set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto. To the Knowledge of the Company, neither the Company nor any of its Subsidiaries has committed any acts, made any statement, or
failed to make any statement, in each case in respect of its business or products that would violate the FDAs Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities Final Policy, and any amendments thereto.
None of the Company, any of its Subsidiaries or, to the Knowledge of the Company, any of their respective officers, employees or agents has been convicted of any crime or engaged in any conduct that could result in a debarment or exclusion
(i) under 21 U.S.C. Section 335a or (ii) any similar applicable Law. To the Knowledge of the Company, no debarment or exclusionary claims, actions, proceedings or investigations in respect of their business or products are
pending or threatened against the Company, any of its Subsidiaries or any of their respective officers, employees or agents.
2.15 Legal Proceedings; Orders
.
(a) There is no pending Legal Proceeding and, to the Knowledge of the Company, no Person has threatened in writing to commence any Legal
Proceeding: (i) that involves (A) the Company, (B) or any of its
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Subsidiaries, any Company Associate (in his or her capacity as such) or (C) any of the material assets owned or used by the Company or its Subsidiaries; or (ii) that challenges, or that
may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Contemplated Transactions.
(b) Except
as set forth in
Section 2.15(b)
of the Company Disclosure Schedule, since January 1, 2015, no Legal Proceeding has been pending against the Company that resulted in material liability to the Company.
(c) There is no order, writ, injunction, judgment or decree to which the Company or any of its Subsidiaries, or any of the material
assets owned or used by the Company or any of its Subsidiaries, is subject. To the Knowledge of the Company, no officer or other Key Employee of the Company or any of its Subsidiaries is subject to any order, writ, injunction, judgment or
decree that prohibits such officer or employee from engaging in or continuing any conduct, activity or practice relating to the business of the Company or any of its Subsidiaries or to any material assets owned or used by the Company or any of its
Subsidiaries.
2.16 Tax Matters
.
(a) The Company and each of its Subsidiaries have timely filed all federal income Tax Returns and other material Tax Returns that they
were required to file under applicable Law. All such Tax Returns were correct and complete in all material respects and have been prepared in material compliance with all applicable Law. Subject to exceptions as would not be material, no
claim has ever been made by an authority in a jurisdiction where the Company or any of its Subsidiaries does not file Tax Returns that it is subject to taxation by that jurisdiction.
(b) All material Taxes due and owing by the Company or any of its Subsidiaries on or before the date hereof (whether or not shown on any
Tax Return) have been paid. Since the date of the Company Unaudited Interim Balance Sheet, neither the Company nor any of its Subsidiaries has incurred any material Liability for Taxes outside the Ordinary Course of Business or otherwise
inconsistent with past custom and practice.
(c) The Company and each of its Subsidiaries have withheld and paid all material Taxes
required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party.
(d) There are no Encumbrances for material Taxes (other than Taxes not yet due and payable) upon any of the assets of the Company or any
of its Subsidiaries.
(e) No deficiencies for material Taxes with respect to the Company or any of its Subsidiaries have been
claimed, proposed or assessed by any Governmental Body in writing. There are no pending (or, based on written notice, threatened) material audits, assessments or other actions for or relating to any liability in respect of Taxes of the Company
or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries (or any of their predecessors) has waived any statute of limitations in respect of material Taxes or agreed to any extension of time with respect to a material Tax
assessment or deficiency.
(f) Neither the Company nor any of its Subsidiaries has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(g) Neither the Company nor any of its Subsidiaries is a party to any material Tax allocation, Tax sharing or similar agreement
(including indemnity arrangements), other than commercial contracts entered into in the Ordinary Course of Business with vendors, customers and landlords.
(h) Neither the Company nor any of its Subsidiaries has ever been a member of an affiliated group filing a consolidated U.S. federal
income Tax Return (other than a group the common parent of which is the
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Company). Neither the Company nor any of its Subsidiaries has any material Liability for the Taxes of any Person (other than the Company and any of its Subsidiaries) under Treasury
Regulations Section 1.1502-6 (or any similar provision of state, local, or foreign law) or as a transferee or successor.
(i) Neither the Company nor any of its Subsidiaries has distributed stock of another Person, or has had its stock distributed by another
Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 of the Code or Section 361 of the Code in the last two years.
(j) Neither the Company nor any of its Subsidiaries has entered into any transaction identified as a listed transaction for
purposes of Treasury Regulations Sections 1.6011-4(b)(2) or 301.6111-2(b)(2).
2.17 Employee and Labor Matters; Benefit
Plans
.
(a) Neither the Company nor any of its Subsidiaries is a party to, bound by, or has a duty to bargain
under, any collective bargaining agreement or other Contract with a labor organization representing any of its employees, and there are no labor organizations representing or, to the Knowledge of the Company, purporting to represent or seeking to
represent any employees of the Company or its Subsidiaries, including through the filing of a petition for representation election.
(b)
Section 2.17(b)
of the Company Disclosure Schedule lists all written and describes all non-written employee benefit
plans (as defined in Section 3(3) of ERISA) and all bonus, equity-based, incentive, deferred compensation, retirement or supplemental retirement, profit sharing, severance, golden parachute, vacation, cafeteria, dependent care, medical
care, employee assistance program, education or tuition assistance programs and other similar material fringe or employee benefit plans, programs or arrangements, including any employment or executive compensation or severance agreements, written or
otherwise, which are currently in effect relating to any present or former employee or director of the Company or any of its Subsidiaries (or any trade or business (whether or not incorporated) which is a Company Affiliate) or which is maintained
by, administered or contributed to by, or required to be contributed to by, the Company, any of its Subsidiaries or any Company Affiliate, or under which the Company or any of its Subsidiaries or any Company Affiliate has any current liability or
may incur liability after the date hereof (each, a
Company Employee Plan
).
(c) With respect to Company
Options granted pursuant to the Company Plan, (i) each Company Option intended to qualify as an incentive stock option under Section 422 of the Code so qualifies, (ii) each grant of a Company Option was duly authorized no
later than the date on which the grant of such Company Option was by its terms to be effective (the
Grant Date
) by all necessary corporate action, including, as applicable, approval by the Company Board (or a duly
constituted and authorized committee thereof) and any required stockholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto,
(iii) each Company Option grant was made in accordance with the terms of the Company Plan and all other applicable Law and (iv) the per share exercise price of each Company Option was not less than the fair market value of a share of
Company Common Stock on the applicable Grant Date.
(d) Each Company Employee Plan that is intended to be qualified under
Section 401(a) of the Code has received a favorable determination or opinion letter with respect to such qualified status from the IRS. To the Knowledge of the Company, nothing has occurred that would reasonably be expected to
adversely affect the qualified status of any such Company Employee Plan or the exempt status of any related trust.
(e) Each Company
Employee Plan has been maintained in compliance, in all material respects, with its terms and, both as to form and operation, with all applicable Law, including the Code and ERISA.
(f) Neither the Company nor any of its Subsidiaries has engaged in any transaction in violation of Sections 404 or 406 of ERISA or any
prohibited transaction, as defined in Section 4975(c)(1) of the Code, for
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which no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or (d) of the Code, or has otherwise violated the provisions of Part 4 of Title I, Subtitle B
of ERISA. Neither the Company nor any of its Subsidiaries has knowingly participated in a violation of Part 4 of Title I, Subtitle B of ERISA by any plan fiduciary of any Company Employee Plan subject to ERISA and neither the Company nor
any of its Subsidiaries has been assessed any civil penalty under Section 502(l) of ERISA.
(g) No Company Employee Plan is
subject to Title IV or Section 302 of ERISA or Section 412 of the Code, and neither the Company nor any of its Subsidiaries or Company Affiliates has ever maintained, contributed to or partially or completely withdrawn from, or incurred
any obligation or liability with respect to, any such plan. No Company Employee Plan is a Multiemployer Plan, and neither the Company nor any of its Subsidiaries or Company Affiliates has ever contributed to or had an obligation to contribute,
or incurred any liability in respect of a contribution, to any Multiemployer Plan. No Company Employee Plan is a Multiple Employer Plan.
(h) No Company Employee Plan provides for medical or death benefits beyond termination of service, other than pursuant to COBRA or an
analogous state law requirement. Neither the Company nor any of its Subsidiaries sponsors or maintains any self-funded employee benefit plan. No Company Plan is subject to any Law of a foreign jurisdiction outside of the United States.
(i) Neither the Company nor any of its Subsidiaries is a party to any Contract that has resulted or would reasonably be expected to
result, separately or in the aggregate, in the payment of (i) any excess parachute payment within the meaning of Section 280G of the Code and (ii) any amount the deduction for which would be disallowed under
Section 162(m) of the Code.
(j) To the Knowledge of the Company, no Company Options or other equity-based awards issued or
granted by the Company are subject to the requirements of Code Section 409A. To the Knowledge of the Company, each nonqualified deferred compensation plan (as such term is defined under Section 409A(d)(1) of the Code
and the guidance thereunder) (each, a
409A Plan
) under which the Company makes, is obligated to make or promises to make, payments, complies in all material respects, in both form and operation, with the requirements of
Code Section 409A and the guidance thereunder. No payment to be made under any 409A Plan is, or to the Knowledge of the Company will be, subject to the penalties of Code Section 409A(a)(1).
(k) Except as would not reasonably be expected to have a Company Material Adverse Effect, the Company and each of its Subsidiaries is in
compliance with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment, worker classification, tax withholding, prohibited discrimination,
equal employment, fair employment practices, meal and rest periods, immigration status, employee safety and health, wages (including overtime wages), indemnification, compensation, and hours of work, and in each case, with respect to employees:
(i) has withheld and reported all material amounts required by law or by agreement to be withheld and reported with respect to wages, salaries and other payments to employees, (ii) is not liable for any arrears of wages, severance pay or
any Taxes or any penalty for failure to comply with any of the foregoing, and (iii) is not liable for any material payment to any trust or other fund governed by or maintained by or on behalf of any governmental authority, with respect to
unemployment compensation benefits, social security or other benefits or obligations for employees (other than routine payments to be made in the Ordinary Course of Business). There are no actions, suits, claims or administrative matters pending or,
to the Knowledge of the Company, threatened or reasonably anticipated against the Company or any of its Subsidiaries relating to any employee, employment agreement or Company Employee Plan (other than routine claims for benefits).
(l) Neither the Company nor any of its Subsidiaries has any material liability with respect to any misclassification of: (a) any
Person as an independent contractor rather than as an employee, (b) any employee leased from another employer, or (c) any employee currently or formerly classified as exempt from overtime wages. Neither the Company nor any Subsidiary
has taken any action which would constitute a plant closing or
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mass layoff within the meaning of the WARN Act or similar state or local law, issued any notification of a plant closing or mass layoff required by the WARN Act or similar state or
local law, or incurred any liability or obligation under WARN or any similar state or local law that remains unsatisfied. No terminations of employees of the Company or any of its Subsidiaries prior to the Closing would trigger any notice or
other obligations under the WARN Act or similar state or local law.
(m) With respect to each Company Employee Plan, the Company has
made available to Nautilus a true and complete copy of, to the extent applicable, (i) such Company Employee Plan, (ii) the three most recent annual reports (Form 5500) as filed with the IRS, (iii) each currently effective trust
agreement related to such Company Employee Plan, (iv) the most recent summary plan description for each Company Employee Plan for which such description is required, along with all summaries of material modifications, amendments, resolutions
and all other material plan documentation related thereto in the possession of the Company, and (v) the most recent IRS determination or opinion letter or analogous ruling under foreign law issued with respect to any Company Employee Plan.
(n) There has never been, nor has there been any threat of, any strike, slowdown, work stoppage, lockout, job action, union and/or union
organizing activity, question concerning representation or any similar activity or dispute, affecting the Company or any of its Subsidiaries. No event has occurred, and no condition or circumstance exists, that might directly or indirectly be
likely to give rise to or provide a basis for the commencement of any such strike, slowdown, work stoppage, lockout, job action, union organizing activity, question concerning representation or any similar activity or dispute. The Company is not a
party to, bound by, or has a duty to bargain under, any collective bargaining agreement or other Contract with a labor organization representing any of its employees , and there are no labor organizations representing or to the Knowledge of the
Company, purporting to represent or seeking to represent any employees of the Company or its Subsidiaries, including, but not limited to, through the filing of a petition for representation election.
(o) Neither the Company nor any of its Subsidiaries is, nor has the Company or any of its Subsidiaries been, engaged in any unfair labor
practice within the meaning of the National Labor Relations Act. There is no Legal Proceeding, claim, labor dispute or grievance pending or, to the Knowledge of the Company, threatened or reasonably anticipated relating to any employment
contract, privacy right, labor dispute, wages and hours, leave of absence, plant closing notification, workers compensation policy, long-term disability policy, harassment, retaliation, immigration, employment statute or regulation, safety or
discrimination matter involving any Company Associate, including charges of unfair labor practices or discrimination complaints.
(p) There is no contract, agreement, plan or arrangement to which the Company or any Company Affiliate is a party or by which it is bound
to compensate any of its employees for excise taxes paid pursuant to Section 4999 of the Code.
2.18 Environmental
Matters.
Since January 1, 2014, the Company and each of its Subsidiaries has complied with all applicable Environmental Laws, which compliance includes the possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws and compliance with the terms and conditions thereof, except for any failure to be in such compliance that, either individually or in the aggregate, would not result in a Company Material Adverse
Effect. Neither the Company nor any of its Subsidiaries has received since January 1, 2014, any written notice or other communication (in writing or otherwise), whether from a Governmental Body, citizens group, employee or otherwise, that
alleges that the Company or any of its Subsidiaries is not in compliance with any Environmental Law and, to the Knowledge of the Company, there are no circumstances that may prevent or interfere with the Companys or any of its
Subsidiaries compliance with any Environmental Law in the future, except where such failure to comply would not reasonably be expected to have a Company Material Adverse Effect. To the Knowledge of the Company: (i) no current or
prior owner of any property leased or controlled by the Company or any of its Subsidiaries has received since January 1, 2014, any written notice or other communication relating to property owned or leased at any time by the Company or any of
its Subsidiaries, whether from a Governmental Body,
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citizens group, employee or otherwise, that alleges that such current or prior owner or the Company or any of its Subsidiaries is not in compliance in all material respects with or violated any
Environmental Law relating to such property and (ii) neither the Company nor any of its Subsidiaries has any material liability under any Environmental Law.
2.19 Insurance
.
The Company has delivered to Nautilus accurate and complete copies of all material insurance policies
and all material self-insurance programs and arrangements relating to the business, assets, liabilities and operations of the Company and each of its Subsidiaries. Each of such insurance policies is in full force and effect and the Company and
each of its Subsidiaries are in compliance in all material respects with the terms thereof. Other than customary end of policy notifications from insurance carriers, since January 1, 2014, neither the Company nor any of its Subsidiaries
has received any notice or other communication regarding any actual or possible: (i) cancellation or invalidation of any insurance policy; or (ii) refusal or denial of any coverage, reservation of rights or rejection of any material claim under
any insurance policy. The Company and each of its Subsidiaries have provided timely written notice to the appropriate insurance carrier(s) of each Legal Proceeding that is currently pending against the Company or any of its Subsidiaries
for which the Company or such Subsidiary has insurance coverage, and no such carrier has issued a denial of coverage or a reservation of rights with respect to any such Legal Proceeding, or informed the Company or any of its Subsidiaries of its
intent to do so.
2.20 Subscription Agreement
.
The Subscription Agreement has not been amended or modified in any
manner prior to the date of this Agreement. Neither the Company nor, to the Knowledge of the Company, any of its Affiliates has entered into any agreement, side letter or other arrangement relating to the Company Pre-Closing Financing other
than as set forth in the Subscription Agreement. The respective obligations and agreements contained in the Subscription Agreement have not been withdrawn or rescinded in any respect. The Subscription Agreement is in full force and effect
and represents a valid, binding and enforceable obligation of the Company and, to the Knowledge of the Company, of each party thereto, subject to the Enforceability Exceptions. No event has occurred which, with or without notice, lapse of time
or both, would constitute a breach or default on the part of the Company or, to the Knowledge of the Company, any other party thereto, under the Subscription Agreement. To the Knowledge of the Company, no party thereto will be unable to satisfy on a
timely basis any term of the Subscription Agreement. There are no conditions precedent related to the consummation of the Company Pre-Closing Financing, other than the satisfaction or waiver of the conditions expressly set forth in Sections 4
and 5 of the Subscription Agreement. To the Knowledge of the Company, the proceeds of the Company Pre-Closing Financing will be made available to the Company prior to the consummation of the Merger.
2.21 No Financial Advisors
.
Except as set forth on
Section 2.21
of the Company Disclosure Schedule, no
broker, finder or investment banker is entitled to any brokerage fee, finders fee, opinion fee, success fee, transaction fee or other fee or commission in connection with the Contemplated Transactions based upon arrangements made by or on
behalf of the Company or any of its Subsidiaries.
2.22 Disclosure
.
The information supplied by the Company and each of
its Subsidiaries for inclusion in the Proxy Statement (including any of the Company Financials) will not, as of the date of the Proxy Statement or as of the date such information is prepared or presented, (i) contain any statement that is
inaccurate or misleading with respect to any material facts, or (ii) omit to state any material fact necessary in order to make such information, in light of the circumstances under which such information will be provided, not false or
misleading.
2.23 Transactions with Affiliates
.
Section 2.23
of the Company Disclosure Schedule
describes any material transactions or relationships, since January 1, 2014, between, on one hand, the Company or any of its Subsidiaries and, on the other hand, any (a) executive officer or director of the Company or any of its
Subsidiaries or any of such executive officers or directors immediate family members, (b) owner of more than five percent (5%) of the voting power of the outstanding Company Capital Stock or (c) to the Knowledge of the
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Company, any related person (within the meaning of Item 404 of Regulation S-K under the Securities Act) of any such officer, director or owner (other than the Company or its
Subsidiaries) in the case of each of (a), (b) or (c) that is of the type that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act.
2.24 No Other Representations or Warranties
.
The Company hereby acknowledges and agrees that, except for the
representations and warranties contained in this Agreement, neither Nautilus nor any other person on behalf of Nautilus makes any express or implied representation or warranty with respect to Nautilus or with respect to any other information
provided to the Company, any of its Subsidiaries or their respective stockholders or Affiliates in connection with the transactions contemplated hereby, and (subject to the express representations and warranties of Nautilus set forth in
Section 3
(in each case as qualified and limited by the Nautilus Disclosure Schedule)) none of the Company, its Subsidiaries or any of their respective Representatives or stockholders, has relied on any such information (including the
accuracy or completeness thereof).
Section 3. REPRESENTATIONS AND WARRANTIES OF NAUTILUS AND MERGER SUB
Subject to
Section 10.13(h)
, except (i) as set forth in the written disclosure schedule delivered by Nautilus to the Company
(the
Nautilus Disclosure Schedule
) or (ii) as disclosed in the Nautilus SEC Documents filed with the SEC prior to the date hereof and publicly available on the SECs Electronic Data Gathering Analysis and
Retrieval system (but (A) without giving effect to any amendment thereof filed with, or furnished to the SEC on or after the date hereof and (B) excluding any disclosures contained under the heading Risk Factors and any
disclosure of risks included in any forward-looking statements disclaimer or in any other section to the extent they are forward-looking statements or cautionary, predictive or forward-looking in nature), it being understood that
(x) any matter disclosed in such filings shall not be deemed disclosed for purposes of Section 3.1, Section 3.2, Section 3.3, Section 3.4, Section 3.5 or Section 3.6; and (y) any matter disclosed in the
Nautilus SEC Documents will be deemed to be disclosed in a section of the Nautilus Disclosure Schedule only to the extent that it is readily apparent from a reading of such Nautilus SEC Documents that it is applicable to such section of the Nautilus
Disclosure Schedule, Nautilus and Merger Sub represent and warrant to the Company as follows:
3.1 Due Organization; Subsidiaries.
(a) Each of Nautilus and Merger Sub is a corporation duly incorporated, validly existing and in good standing under the laws of
the State of Delaware and has all necessary corporate power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own or lease and use its property and assets in the
manner in which its property and assets are currently owned or leased and used; and (iii) to perform its obligations under all Contracts by which it is bound. Since the date of its incorporation, Merger Sub has not engaged in any activities
other than in connection with or as contemplated by this Agreement.
(b) Nautilus is duly licensed and qualified to do business, and
is in good standing (to the extent applicable in such jurisdiction), under the laws of all jurisdictions where the nature of its business requires such licensing or qualification other than in jurisdictions where the failure to be so qualified
individually or in the aggregate would not be reasonably expected to have a Nautilus Material Adverse Effect.
(c) Nautilus has no
Subsidiaries except for Merger Sub and Nautilus does not own any capital stock of, or any equity ownership or profit sharing interest of any nature in, or control directly or indirectly, any other Entity other than Merger Sub. Nautilus is not
and has not otherwise been, directly or indirectly, a party to, member of or participant in any partnership, joint venture or similar business entity. Nautilus has not agreed and is not obligated to make, nor is Nautilus bound by any Contract under
which it may become obligated to make, any future investment in or capital contribution to any other Entity. Nautilus has not, at any time, been a general partner of, and has not otherwise been liable for any of the debts or other obligations
of, any general partnership, limited partnership or other Entity.
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3.2 Organizational Documents.
Nautilus has made available to the Company
accurate and complete copies of Nautilus Organizational Documents. Nautilus is not in breach or violation its Organizational Documents in any material respect.
3.3 Authority; Binding Nature of Agreement
.
Each of Nautilus and Merger Sub has all necessary corporate power and
authority to enter into and to perform its obligations under this Agreement and to consummate the Contemplated Transactions. The Nautilus Board (at meetings duly called and held) has: (a) determined that the Contemplated Transactions
are fair to, advisable and in the best interests of Nautilus and its stockholders; (b) approved and declared advisable this Agreement and the Contemplated Transactions, including the issuance of shares of Nautilus Common Stock to the
stockholders of the Company pursuant to the terms of this Agreement and the treatment of the Company Options and Company Warrants pursuant to this Agreement; and (c) determined to recommend, upon the terms and subject to the conditions set
forth in this Agreement, that the stockholders of Nautilus vote to approve this Agreement and the Contemplated Transactions, including the issuance of shares of Nautilus Common Stock to the stockholders of the Company pursuant to the terms of this
Agreement. The Merger Sub Board (by unanimous written consent) has: (x) determined that the Contemplated Transactions are fair to, advisable, and in the best interests of Merger Sub and its sole stockholder; (y) deemed advisable and
approved this Agreement and the Contemplated Transactions; and (z) determined to recommend, upon the terms and subject to the conditions set forth in this Agreement, that the stockholder of Merger Sub vote to adopt this Agreement and thereby
approve the Contemplated Transactions. This Agreement has been duly executed and delivered by Nautilus and Merger Sub and, assuming the due authorization, execution and delivery by the Company, constitutes the legal, valid and binding obligation of
Nautilus and Merger Sub, enforceable against each of Nautilus and Merger Sub in accordance with its terms, subject to the Enforceability Exceptions. Prior to the execution of the Nautilus Stockholder Support Agreements, the Nautilus Board
approved the Nautilus Stockholder Support Agreements and the transactions contemplated thereby.
3.4 Vote
Required
.
The affirmative vote of the holders of a majority of the shares of Nautilus Common Stock entitled to vote thereon is the only vote of the holders of any class or series of Nautilus capital stock necessary to approve
the Nautilus Stockholder Matters (the
Required Nautilus Stockholder Vote
).
3.5 Non-Contravention;
Consents
.
Subject to obtaining the Required Nautilus Stockholder Vote and the filing of the Certificate of Merger required by the DGCL, neither (x) the execution, delivery or performance of this Agreement by Nautilus or Merger
Sub, nor (y) the consummation of the Contemplated Transactions, will directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of any of the provisions of the Organizational Documents of Nautilus or Merger
Sub;
(b) contravene, conflict with or result in a material violation of, or, to the Knowledge of Nautilus, give any Governmental
Body or other Person the right to challenge the Contemplated Transactions or to exercise any material remedy or obtain any material relief under, any Law or any order, writ, injunction, judgment or decree to which Nautilus or any of the assets owned
or used by Nautilus, is subject, except as would not be material to Nautilus or its business;
(c) contravene, conflict with or
result in a material violation of any of the terms or requirements of, or, to the Knowledge of Nautilus give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by
Nautilus;
(d) contravene, conflict with or result in a material violation or breach of, or result in a default under, any provision
of any Nautilus Material Contract, or give any Person the right to: (i) declare a default or exercise any remedy under any Nautilus Material Contract; (ii) any material payment, rebate, chargeback, penalty or change in delivery
schedule under any such Nautilus Material Contract; (iii) accelerate the maturity or performance of any Nautilus Material Contract; or (iv) cancel, terminate or modify any term of any Nautilus Material Contract, except in the case of any
non-material breach, default, penalty or modification; or
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(e) result in the imposition or creation of any Encumbrance upon or with respect to any
material asset owned or used by Nautilus (except for Permitted Encumbrances).
Except for (i) any Consent set forth on
Section 3.5
of the
Nautilus Disclosure Schedule under any Nautilus Contract, (ii) the Required Nautilus Stockholder Vote, (iii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware pursuant to the DGCL, and
(iv) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws, Nautilus is not and will not be required to make any filing with or
give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement, or (y) the consummation of the Contemplated Transactions, which if individually or in the
aggregate were not given or obtained, would be material to Nautilus or its business. The Nautilus Board and the Merger Sub Board have taken and will take all actions necessary to ensure that the restrictions applicable to business combinations
contained in Section 203 of the DGCL are, and will be, inapplicable to the execution, delivery and performance of this Agreement and the Nautilus Stockholder Support Agreements and to the consummation of the Contemplated Transactions. No
other state takeover statute or similar Law applies or purports to apply to the Merger, this Agreement, the Nautilus Stockholder Support Agreements or any of the other Contemplated Transactions.
3.6 Capitalization.
(a) The authorized capital stock of Nautilus consists of (i) 200,000,000 shares of Nautilus Common Stock, par value $0.001 per
share, of which 15,656,251 shares have been issued and are outstanding as of March 31, 2017 (the
Capitalization Date
) and (ii) 10,000,000 shares of Preferred Stock, par value $0.001 per share, of which no shares
have been issued and are outstanding as of the Capitalization Date. Nautilus does not hold any shares of its capital stock in its treasury. As of the date of this Agreement, there are outstanding Nautilus Warrants to purchase 18,534 shares
of Nautilus Common Stock.
Section 3.6(a)
of the Nautilus Disclosure Schedule lists, as of the date of this Agreement, (A) each record holder of issued and outstanding Nautilus Warrants, (B) the number and type of shares
subject to each such Nautilus Warrant, (C) the exercise price of each such Nautilus Warrant, (D) the termination date of each such Nautilus Warrant and (E) whether and to what extent any holders of Nautilus Warrants shall be required
to exercise such Nautilus Warrants prior to the Effective Time.
(b) All of the outstanding shares of Nautilus Common Stock have been
duly authorized and validly issued, and are fully paid and nonassessable. None of the outstanding shares of Nautilus Common Stock is entitled or subject to any preemptive right, right of participation, right of maintenance or any similar
right. None of the outstanding shares of Nautilus Common Stock is subject to any right of first refusal in favor of Nautilus. Except as contemplated herein, there is no Nautilus Contract relating to the voting or registration of, or
restricting any Person from purchasing, selling, pledging or otherwise disposing of (or granting any option or similar right with respect to), any shares of Nautilus Common Stock. Nautilus is not under any obligation, nor is Nautilus bound by
any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares of Nautilus Common Stock or other securities. There are no repurchase rights held by Nautilus with respect to shares of
Nautilus Common Stock (including shares issued pursuant to the exercise of stock options).
(c) Except for the N30
Pharmaceuticals, Inc. 2012 Stock Incentive Plan and the Nivalis Therapeutics, Inc. 2015 Equity Incentive Plan (collectively, the
Nautilus Stock Plans
) and the Nivalis Therapeutics, Inc. 2015 Employee Stock
Purchase Plan (the
Nautilus ESPP
), and except as set forth on
Section 3.6(c)
of the Nautilus Disclosure Schedule, Nautilus does not have any stock option plan or any other plan, program, agreement or
arrangement providing for any equity-based compensation for any Person. As of the date of this Agreement, Nautilus has reserved 3,921,274 shares of Nautilus Common Stock for issuance under the Nautilus Stock Plans, of which 7,692 shares have been
issued and are currently outstanding, 3,351,630 shares have been reserved for issuance upon exercise of Nautilus Options granted under the Nautilus Stock Plans, and
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550,225 shares remain available for future issuance pursuant to the Nautilus Stock Plans. As of the date of this Agreement, 180,845 shares of Nautilus Common Stock are reserved and remain
available for future issuance pursuant to the Nautilus ESPP.
Section 3.6(c)
of the Nautilus Disclosure Schedule sets forth the following information with respect to each Nautilus Option outstanding as of the date of this Agreement
and that will not expire by its terms on or prior to July 1, 2017: (i) the name of the optionee; (ii) the number of shares of Nautilus Common Stock subject to such Nautilus Option at the time of grant; (iii) the number of
shares of Nautilus Common Stock subject to such Nautilus Option as of the date of this Agreement; (iv) the exercise price of such Nautilus Option; (v) the date on which such Nautilus Option was granted; (vi) the applicable vesting
schedule; (vii) the date on which such Nautilus Option expires; and (viii) whether such Nautilus Option is intended to constitute an incentive stock option (as defined in the Code) or a non-qualified stock option. Nautilus
has made available to the Company accurate and complete copies of the Nautilus Stock Plans and the Nautilus ESPP and the forms of all award agreements evidencing the equity-based awards granted thereunder. As of the date of this Agreement, no
employee or other service provider of Nautilus is participating in the ESPP, and there are no ongoing offering periods under the Nautilus ESPP.
(d) Except for the outstanding Nautilus Warrants and Nautilus Options set forth on
Section 3.6(a)
and
Section 3.6(c)
of the Nautilus Disclosure Schedule, respectively, there is no: (i) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock
or other securities of Nautilus; (ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of the capital stock or other securities of Nautilus; (iii) stockholder rights plan
(or similar plan commonly referred to as a poison pill) or Contract under which Nautilus is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities; or (iv) condition or
circumstance that is reasonably likely to give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any shares of capital stock or other securities of
Nautilus. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or other similar rights with respect to Nautilus.
(e) All outstanding shares of Nautilus Common Stock, Nautilus Warrants, Nautilus Options and other securities of Nautilus have been
issued and granted in material compliance with (i) all applicable securities laws and other applicable Law and (ii) all requirements set forth in applicable Contracts.
3.7 SEC Filings; Financial Statements
.
(a) Nautilus has delivered to the Company accurate and complete copies of all registration statements, proxy statements, Certifications
(as defined below) and other statements, reports, schedules, forms and other documents filed by Nautilus with the SEC since January 1, 2016 (the
Nautilus SEC Documents
), other than such documents that can be obtained
on the SECs website at
www.sec.gov
. Except as set forth on
Section 3.7(a)
of the Nautilus Disclosure Schedule, all material statements, reports, schedules, forms and other documents required to have been filed by
Nautilus or its officers with the SEC have been so filed on a timely basis. As of the time it was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing), each of the
Nautilus SEC Documents complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act (as the case may be) and, as of the time they were filed, none of the Nautilus SEC Documents 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 light of the circumstances under which they were made, not misleading. The certifications
and statements required by (i) Rule 13a-14 under the Exchange Act and (ii) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act) relating to the Nautilus SEC Documents (collectively, the
Certifications
) are accurate and complete and comply as to form and content with all applicable Laws. As used in this
Section 3.7
, the term file and variations thereof shall be broadly construed
to include any manner in which a document or information is furnished, supplied or otherwise made available to the SEC.
(b) The
financial statements (including any related notes) contained or incorporated by reference in the Nautilus SEC Documents: (i) complied as to form in all material respects with the published rules and regulations of
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the SEC applicable thereto; (ii) were prepared in accordance with GAAP (except as may be indicated in the notes to such financial statements or, in the case of unaudited financial
statements, except as permitted by Form 10-Q of the SEC, and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments that are not reasonably expected to be material
in amount) applied on a consistent basis unless otherwise noted therein throughout the periods indicated; and (iii) fairly present, in all material respects, the financial position of Nautilus as of the respective dates thereof and the results
of operations and cash flows of Nautilus for the periods covered thereby. Other than as expressly disclosed in the Nautilus SEC Documents filed prior to the date hereof, there has been no material change in Nautilus accounting methods or
principles that would be required to be disclosed in Nautilus financial statements in accordance with GAAP. The books of account and other financial records of Nautilus and each of its Subsidiaries are true and complete in all material
respects.
(c) Nautilus independent registered accounting firm has at all times since the date Nautilus become subject to the
applicable provisions of the Sarbanes-Oxley Act been: (i) a registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act); (ii) to the Knowledge of Nautilus, independent with respect to
Nautilus within the meaning of Regulation S-X under the Exchange Act; and (iii) to the Knowledge of Nautilus, in compliance with subsections (g) through (l) of Section 10A of the Exchange Act and the rules and regulations
promulgated by the SEC and the Public Company Accounting Oversight Board thereunder.
(d) Nautilus has not received any comment
letter from the SEC or the staff thereof or any correspondence from officials of NASDAQ or the staff thereof relating to the delisting or maintenance of listing of the Nautilus Common Stock on NASDAQ. Nautilus has not disclosed any unresolved
comments in the Nautilus SEC Documents.
(e) Since January 1, 2014, there have been no formal internal investigations regarding
financial reporting or accounting policies and practices discussed with, reviewed by or initiated at the direction of the chief executive officer, chief financial officer, or general counsel of Nautilus, the Nautilus Board or any committee thereof,
other than ordinary course audits or reviews of accounting policies and practices or internal controls required by the Sarbanes-Oxley Act.
(f) Nautilus is in compliance in all material respects with the applicable provisions of the Sarbanes-Oxley Act and the applicable
listing and governance rules and regulations of NASDAQ.
(g) Nautilus maintains a system of internal control over financial
reporting (as defined in
Rules 13a-15(f) and
15d-15(f) of the Exchange Act) that is sufficient to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with GAAP, including policies and procedures sufficient to provide reasonable assurance (i) that Nautilus maintains records that in reasonable detail accurately and fairly
reflect Nautilus transactions and dispositions of assets, (ii) that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, (iii) that receipts and expenditures are made only in
accordance with authorizations of management and the Nautilus Board, and (iv) regarding prevention or timely detection of the unauthorized acquisition, use or disposition of Nautilus assets that could have a material effect on
Nautilus financial statements. Nautilus has evaluated the effectiveness of Nautilus internal control over financial reporting as of December 31, 2016, and, to the extent required by applicable Law, presented in any applicable
Nautilus SEC Document that is a report on Form 10-K or Form 10-Q (or any amendment thereto) its conclusions about the effectiveness of the internal control over financial reporting as of the end of the period covered by such report or
amendment based on such evaluation. Nautilus has disclosed to Nautilus independent registered accounting firm and the Audit Committee of the Nautilus Board (and made available to the Company a summary of the significant aspects of such
disclosure) (A) all significant deficiencies and material weaknesses, if any, in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect Nautilus ability to record, process,
summarize and report financial information and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in Nautilus internal control over financial reporting. Nautilus has not
identified any material weaknesses in the design or operation of Nautilus internal control over financial reporting.
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(h) Nautilus disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are reasonably designed to ensure that all information (both financial and non-financial) required to be disclosed by Nautilus in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that all such information is accumulated and communicated to Nautilus management as appropriate to allow
timely decisions regarding required disclosure and to make the Certifications.
3.8 Absence of Changes.
Except as set
forth on
Section 3.8
of the Nautilus Disclosure Schedule, between December 31, 2016 and the date of this Agreement, Nautilus has conducted its business only in the Ordinary Course of Business (except for the execution and
performance of this Agreement and the discussions, negotiations and transactions related thereto) and there has not been any Nautilus Material Adverse Effect.
3.9 Absence of Undisclosed Liabilities.
As of the date hereof, Nautilus does not have any Liability, individually or in the
aggregate, except for: (a) Liabilities disclosed, reflected or reserved against in the Nautilus Balance Sheet; (b) normal and recurring current Liabilities that have been incurred by Nautilus since the date of the Nautilus Balance
Sheet in the Ordinary Course of Business and which are not in excess of $250,000, in the aggregate; (c) Liabilities for performance of obligations of Nautilus under Nautilus Contracts; (d) Liabilities incurred in connection with the
Contemplated Transactions; and (e) Liabilities described in
Section 3.9
of the Nautilus Disclosure Schedule.
3.10 Title to Assets
.
Nautilus owns, and has good and valid title to, or, in the case of leased properties and assets,
valid leasehold interests in, all tangible properties or tangible assets and equipment used or held for use in its business or operations or purported to be owned by it that are material to Nautilus or its business, including: (a) all assets
reflected on the Nautilus Balance Sheet; and (b) all other assets reflected in the books and records of Nautilus as being owned by Nautilus. All of such assets are owned or, in the case of leased assets, leased by Nautilus free and clear
of any Encumbrances, other than Permitted Encumbrances.
3.11 Real Property; Leasehold
.
Nautilus does not own and
has never owned any real property. Nautilus has made available to the Company (a) an accurate and complete list of all real properties with respect to which Nautilus directly or indirectly holds a valid leasehold interest as well as any
other real estate that is in the possession of or leased by Nautilus, and (b) copies of all leases under which any such real property is possessed (the
Nautilus Real Estate Leases
), each of which is in full force and
effect, with no existing material default thereunder.
3.12 Intellectual Property
.
(a) Nautilus owns, or has the right to use, as currently being used by Nautilus, all Nautilus IP Rights, and with respect to Nautilus IP
Rights that are owned by Nautilus, has the right to bring actions for the infringement of such Nautilus IP Rights, in each case except for any failure to own, have such rights to use, or have such rights to bring actions for infringement that would
not reasonably be expected to have a Nautilus Material Adverse Effect.
(b) Concurrently with the execution hereof, Nautilus has
provided to the Company an accurate, true and complete listing of all Nautilus Registered IP.
(c)
Section 3.12(c)
of the Nautilus Disclosure Schedule accurately identifies (i) all Nautilus Contracts pursuant
to which Nautilus IP Rights are licensed to Nautilus (other than (A) any non-customized software that (1) is so licensed solely in executable or object code form pursuant to a non-exclusive, internal use software license and other
Intellectual Property associated with such software and (2) is not incorporated into, or material to the development, manufacturing, or distribution of, any of Nautilus products or services, (B) any Intellectual Property licensed
ancillary to the purchase or use of equipment, reagents or other materials and (C) any confidential information provided under confidentiality agreements), and (ii) whether the license or licenses granted to Nautilus are exclusive or
non-exclusive.
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(d)
Section 3.12(d)
of the Nautilus Disclosure Schedule accurately
identifies each Nautilus Contract pursuant to which Nautilus granted any license under, or any right (whether or not currently exercisable) or interest in, any Nautilus IP Rights to any Person (other than (i) any confidential information
provided under confidentiality agreements and (ii) any Nautilus IP Rights non-exclusively licensed to suppliers or service providers for the sole purpose of enabling such supplier or service providers to provide services for Nautilus
benefit).
(e) Nautilus is not bound by, and no Nautilus IP Rights are subject to, any Nautilus Contract containing any covenant or
other provision that in any way materially limits or restricts the ability of Nautilus to use, exploit, assert, enforce, sell, transfer or dispose of any such Nautilus IP Rights anywhere in the world, in each case, in a manner that would materially
limit the business of Nautilus as currently conducted or planned to be conducted.
(f) Except as identified in
Section 3.12(f)
of the Nautilus Disclosure Schedule, to the Knowledge of the Nautilus, Nautilus exclusively owns all right, title, and interest to and in Nautilus IP Rights (other than (i) Nautilus IP Rights exclusively and
non-exclusively licensed to Nautilus, as identified in
Section 3.12(c)
of the Nautilus Disclosure Schedule, (ii) any non-customized software that (A) is licensed to the Nautilus solely in executable or object code form
pursuant to a non-exclusive, internal use software license and other Intellectual Property associated with such software and (B) is not incorporated into, or material to the development, manufacturing, or distribution of, any of Nautiluss
products or services and (iii) any Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials), in each case, free and clear of any Encumbrances (other than Permitted Encumbrances). Without
limiting the generality of the foregoing:
(i) All documents and instruments necessary to register or apply for or renew
registration of Nautilus Registered IP have been validly executed, delivered, and filed in a timely manner with the appropriate Governmental Body except for any such failure, individually or collectively, that would not reasonably be expected to
have a Nautilus Material Adverse Effect.
(ii) Each Person who is or was an employee or contractor of Nautilus and who is or was
involved in the creation or development of any material Nautilus IP Rights has signed a valid, enforceable agreement containing an assignment of such Intellectual Property to Nautilus and confidentiality provisions protecting trade secrets and
confidential information of Nautilus.
(iii) To the Knowledge of Nautilus, no current or former stockholder, officer, director, or
employee of Nautilus has any claim, right (whether or not currently exercisable), or interest to or in any Nautilus IP Rights purported to be owned by Nautilus. To the Knowledge of Nautilus, no employee of Nautilus is in breach of any Contract
with any former employer or other Person concerning Nautilus IP Rights purported to be owned by Nautilus or confidentiality provisions protecting trade secrets and confidential information comprising Nautilus IP Rights purported to be owned by the
Nautilus.
(iv) Except as identified in
Section 3.12(f)(iv)
of the Nautilus Disclosure Schedule, no funding,
facilities, or personnel of any Governmental Body were used, directly or indirectly, to develop or create, in whole or in part, any Nautilus IP Rights in which Nautilus has an ownership interest.
(v) Nautilus has taken reasonable steps to maintain the confidentiality of and otherwise protect and enforce its rights in all
proprietary information that Nautilus holds, or purports to hold, as a material trade secret.
(vi) Except as identified in
Section 3.12(f)(vi)
of the Nautilus Disclosure Schedule, Nautilus has not assigned or otherwise transferred ownership of, or agreed to assign or otherwise transfer ownership of, any Nautilus IP Rights owned or purported to be owned
by or exclusively licensed to Nautilus to any other Person. As of the date of this Agreement, except as set forth in
Section 3.12(f)(vi)
of the Nautilus Disclosure
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Schedule, Nautilus has not granted any licenses or covenants not to sue, or sold or otherwise transferred (other than standard licenses or rights to use granted to customers, suppliers or service
providers in the Ordinary Course of Business) any of the Nautilus IP Rights to any third party, and there exists no obligation by Nautilus to assign, license or otherwise transfer any of the Nautilus IP Rights to any third party.
(g) Nautilus has delivered, or made available to the Company, a complete and accurate copy of all Nautilus IP Rights Agreements required
to be listed on
Section 3.12(c)
or
Section 3.12(d)
of the Nautilus Disclosure Schedule. With respect to each such Nautilus IP Rights Agreement: (i) each such agreement is valid and binding on
Nautilus, and in full force and effect, subject to the Enforceability Exceptions; (ii) Nautilus has not received any written notice of termination or cancellation under such agreement, or received any written notice of breach or default under
such agreement, which breach has not been cured or waived; and (iii) Nautilus has not, and to the Knowledge of Nautilus, no other party to any such agreement, is in breach or default thereof in any material respect. To the Knowledge of
Nautilus, the consummation of the transactions contemplated by this Agreement will neither result in the modification, cancellation, termination, suspension of, or acceleration of any payments with respect to any such Nautilus IP Rights Agreement,
nor give any third party to any such Nautilus IP Rights Agreement the right to do any of the foregoing. Following the closing of the transactions contemplated by this Agreement, Nautilus will be permitted to exercise all of the rights of
Nautilus under such agreements to the same extent, in all material respects, Nautilus would have been able had the transactions contemplated by this Agreement not occurred and without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments that the Nautilus would otherwise be required to pay.
(h) To the Knowledge of Nautilus, neither
the manufacture, marketing, license, sale or intended use of any product or technology currently licensed or sold or under development by Nautilus does not violate any license or agreement between Nautilus and any third party, and, to the Knowledge
of Nautilus, does not infringe or misappropriate any Intellectual Property right of any third party, which violation, infringement or misappropriation would reasonably be expected to have a Nautilus Material Adverse Effect. To the Knowledge of
Nautilus, no third party is infringing upon any Nautilus IP Rights or violating any license or agreement between Nautilus and such third party.
(i) There is no current or pending Legal Proceeding (including, but not limited to, opposition, interference or other proceeding in any
patent or other government office) contesting the validity, ownership or right to use, sell, license or dispose of any Nautilus IP Rights, nor has Nautilus received any written notice asserting that any such Nautilus IP Rights, or Nautilus
right to use, sell, license or dispose of any such Nautilus IP Rights conflicts with or infringes or misappropriates or will conflict with or infringe or misappropriate the rights of any other Person.
(j) Each item of Nautilus IP Rights that is Nautilus Registered IP is and at all times has been filed and maintained in compliance with
all applicable Laws and all filings, payments, and other actions required to be made or taken to maintain such item of Nautilus Registered IP in full force and effect have been made by the applicable deadline, except for any failure to perform any
of the foregoing, individually or collectively, that would not reasonably be expected to have a Nautilus Material Adverse Effect.
(k) No trademark (whether registered or unregistered) or trade name owned, used, or applied for by Nautilus conflicts or interferes with
any trademark (whether registered or unregistered) or trade name owned, used, or applied for by any other Person except as would not have a Nautilus Material Adverse Effect.
(l) Except as set forth in the Contracts listed on
Section 3.12(l)
of the Nautilus Disclosure Schedule (i) and
except for Nautilus Contracts entered into in the Ordinary Course of Business, Nautilus is not bound by any Contract to indemnify, defend, hold harmless, or reimburse any other Person with respect to any Intellectual Property infringement,
misappropriation, or similar claim, in each case, that would be material to Nautilus or its business, and (ii) Nautilus has never assumed, or agreed to discharge or otherwise take responsibility for, any
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existing or potential liability of another Person for infringement, misappropriation, or violation of any Intellectual Property right, which assumption, agreement or responsibility is material
and remains in force as of the date of this Agreement.
3.13 Agreements, Contracts and
Commitments.
Section 3.13
of the Nautilus Disclosure Schedule identifies each Nautilus Contract that is in effect as of the date of this Agreement and is:
(a) a material contract as defined in Item 601(b)(10) of Regulation S-K as promulgated under the Securities Act,
(b) a Contract to which Nautilus is a party or by which any of its assets and properties is currently bound, which involves annual
obligations of payment by, or annual payments to, Nautilus in excess of $150,000;
(c) a Nautilus Real Estate Lease;
(d) a Contract disclosed in or required to be disclosed in
Section 3.12(c)
or
Section 3.12(d)
of the
Nautilus Disclosure Schedule;
(e) a Nautilus Contract relating to any material bonus, deferred compensation, severance, incentive
compensation, pension, profit-sharing or retirement plans, or any other employee benefit plans or arrangements;
(f) a Nautilus
Contract requiring payments by Nautilus after the date of this Agreement in excess of $150,000 pursuant to its express terms relating to the employment of, or the performance of employment-related services by, any Person, including any employee,
consultant or independent contractor, or entity providing employment related, consulting or independent contractor services, not terminable by Nautilus on 90 calendar days or less notice without liability, except to the extent general
principles of wrongful termination law may limit Nautilus ability to terminate employees at will;
(g) a Nautilus Contract
relating to any agreement or plan, including any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of
any of the Contemplated Transactions (either alone or in conjunction with any other event, such as termination of employment), or the value of any of the benefits of which will be calculated on the basis of any of the Contemplated Transactions;
(h) a Nautilus Contract relating to any agreement of indemnification or guaranty not entered into in the Ordinary Course of Business;
(i) a Nautilus Contract containing (A) any covenant limiting the freedom of Nautilus to engage in any line of business or
compete with any Person, (B) any most-favored pricing arrangement, (C) any exclusivity provision, or (D) any non-solicitation provision;
(j) a Nautilus Contract relating to capital expenditures and requiring payments after the date of this Agreement in excess of $250,000
pursuant to its express terms and not cancelable without penalty;
(k) a Nautilus Contract relating to the disposition or acquisition
of material assets or any ownership interest in any Entity;
(l) a Nautilus Contract relating to any mortgages, indentures, loans,
notes or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit in excess of $250,000 or creating any material Encumbrances with respect to any assets of Nautilus or any
loans or debt obligations with officers or directors of Nautilus;
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(m) a Nautilus Contract requiring payment by or to Nautilus after the date of this Agreement
in excess of $250,000 pursuant to its express terms relating to: (A) any distribution agreement (identifying any that contain exclusivity provisions); (B) any agreement involving provision of services or products with respect to any
pre-clinical or clinical development activities of Nautilus; (C) any dealer, distributor, joint marketing, alliance, joint venture, cooperation, development or other agreement currently in force under which Nautilus has continuing obligations
to develop or market any product, technology or service, or any agreement pursuant to which Nautilus has continuing obligations to develop any Intellectual Property that will not be owned, in whole or in part, by Nautilus; or (D) any Contract
to license any third party to manufacture or produce any product, service or technology of Nautilus or any Contract to sell, distribute or commercialize any products or service of Nautilus, in each case, except for Nautilus Contracts entered into in
the Ordinary Course of Business;
(n) a Nautilus Contract containing any standstill provision with respect to the
acquisition of Nautilus Common Stock or other equity securities of Nautilus;
(o) a Nautilus Contract with any Person, including any
financial advisor, broker, finder, investment banker or other Person, providing advisory services to Nautilus in connection with the Contemplated Transactions; or
(p) any other Nautilus Contract that is not terminable at will (with no penalty or payment) by Nautilus, and (A) which involves
payment or receipt by Nautilus after the date of this Agreement under any such agreement, contract or commitment of more than $250,000 in the aggregate, or obligations after the date of this Agreement in excess of $250,000 in the aggregate, or
(B) that is material to the business or operations of Nautilus.
Nautilus has delivered or made available to the Company accurate and complete copies
of all Contracts to which Nautilus is a party or by which it is bound of the type described in clauses (a)-(o) of the immediately preceding sentence (any such Contract, a
Nautilus Material Contract
). Nautilus has not
nor, to Nautilus Knowledge as of the date of this Agreement, has any other party to a Nautilus Material Contract, breached, violated or defaulted under, or received notice that it breached, violated or defaulted under, any of the terms or
conditions of any Nautilus Material Contract in such manner as would permit any other party to cancel or terminate any such Nautilus Material Contract, or would permit any other party to seek damages which would reasonably be expected to have a
Nautilus Material Adverse Effect. As to Nautilus, as of the date of this Agreement, each Nautilus Material Contract is valid, binding, enforceable and in full force and effect, subject to the Enforceability Exceptions. No Person is renegotiating, or
has a right pursuant to the terms of any Nautilus Material Contract to change, any material amount paid or payable to Nautilus under any Nautilus Material Contract or any other material term or provision of any Nautilus Material Contract.
3.14 Compliance; Permits; Restrictions.
(a) Nautilus is, and since January 1, 2014, has been in compliance in all material respects with all applicable Laws, including the
FDCA, the FDA regulations adopted thereunder, the Controlled Substance Act and any other similar Law administered or promulgated by a Drug Regulatory Agency, except for any noncompliance, either individually or in the aggregate, which would not be
material to Nautilus. No investigation, claim, suit, proceeding, audit or other action by any Governmental Body is pending or, to the Knowledge of Nautilus, threatened against Nautilus. There is no agreement, judgment, injunction, order or
decree binding upon Nautilus which (i) has or could reasonably be expected to have the effect of prohibiting or materially impairing any business practice of Nautilus, any acquisition of material property by Nautilus or the conduct of business
by Nautilus as currently conducted, (ii) is reasonably likely to have an adverse effect on Nautilus ability to comply with or perform any covenant or obligation under this Agreement, or (iii) is reasonably likely to have the effect
of preventing, delaying, making illegal or otherwise interfering with the Contemplated Transactions.
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(b) Each of Nautilus and Merger Sub holds all required Governmental Authorizations which are
material to the operation of the business of Nautilus and Merger Sub as currently conducted (collectively, the
Nautilus Permits
).
Section 3.14(b)
of the Nautilus Disclosure Schedule identifies each Nautilus
Permit. Each of Nautilus and Merger Sub is in material compliance with the terms of the Nautilus Permits. No Legal Proceeding is pending or, to the Knowledge of Nautilus, threatened, which seeks to revoke, limit, suspend, or materially
modify any Nautilus Permit.
(c) There are no proceedings pending or, to the Knowledge of Nautilus, threatened with respect to an
alleged material violation by Nautilus of the FDCA, FDA regulations adopted thereunder, the Controlled Substance Act or any other similar Law administered or promulgated by a Drug Regulatory Agency.
(d) Each of Nautilus and Merger Sub holds all required Governmental Authorizations issuable by any Drug Regulatory Agency material to the
conduct of the business of Nautilus and Merger Sub as currently conducted, and, as applicable, the development, clinical testing, manufacturing, marketing, distribution and importation or exportation, as currently conducted, of any of its products
or product candidates (the
Nautilus Product Candidates
) (the
Nautilus Regulatory Permits
) and no such Nautilus Regulatory Permit has been (i) revoked, withdrawn, suspended, cancelled or
terminated or (ii) modified in any adverse manner other than immaterial adverse modifications. Each of Nautilus and Merger Sub is in compliance in all material respects with the Nautilus Regulatory Permits and neither Nautilus nor Merger
Sub has received any written notice or other written communication from any Drug Regulatory Agency regarding (A) any material violation of or failure to comply materially with any term or requirement of any Nautilus Regulatory Permit or
(B) any revocation, withdrawal, suspension, cancellation, termination or material modification of any Nautilus Regulatory Permit. Except for the information and files identified in
Section 3.14(d)
of the Nautilus
Disclosure Schedule, Nautilus has made available to the Company all information requested by the Company in Nautilus possession or control relating to the Nautilus Product Candidates and the development, clinical testing, manufacturing,
importation and exportation of the Nautilus Product Candidates, including complete copies of the following (to the extent there are any): (x) copies of all investigational new drug applications (INDs) submitted to the FDA, and all
supplements to and amendments of such INDs; new drug applications; adverse event reports; clinical study reports and material study data; inspection reports, notices of adverse findings, warning letters, filings and letters and other material
written correspondence to and from any Drug Regulatory Agency; and meeting minutes with any Drug Regulatory Agency; and (y) similar notices, letters, filings, correspondence and meeting minutes with any other Governmental Body. Each of
Nautilus and Merger Sub has complied in all material respects with the ICH E9 Guidance for Industry: Statistical Principles for Clinical Trials in the management of the clinical data that have been presented to the Company. To the Knowledge of
Nautilus, there are no facts that would be reasonably likely to result in any warning, untitled or notice of violation letter or Form FDA-483 from the FDA.
(e) All clinical, pre-clinical and other studies and tests conducted by or on behalf of, or sponsored by, Nautilus or in which Nautilus
or its respective products or product candidates, including the Nautilus Product Candidates, have participated were and, if still pending, are being conducted in all material respects in accordance with standard medical and scientific research
procedures and in compliance in all material respects with the applicable regulations of any applicable Drug Regulatory Agency and other applicable Law, including 21 C.F.R. Parts 50, 54, 56, 58 and 312. No preclinical or clinical trial
conducted by or on behalf of Nautilus has been terminated or suspended prior to completion for safety or non-compliance reasons. Other than as set forth on
Section 3.14(e)
of the Nautilus Disclosure Schedule, since
January 1, 2014, neither Nautilus nor Merger Sub has received any notices, correspondence, or other communications from any Drug Regulatory Agency requiring or, to the Knowledge of Nautilus, threatening to initiate, the termination, suspension
or material modification of any clinical studies conducted by or on behalf of, or sponsored by, Nautilus or in which Nautilus or its current products or product candidates, including the Nautilus Product Candidates, have participated. To the
extent required, all clinical trials conducted by or on behalf of Nautilus have been registered on, and trial results have been reported on, the United States National Institutes of Health Website, www.clinicaltrials.gov, in accordance with 42
U.S.C. § 282(j), and are listed in accordance with any applicable additional state and local law requirements.
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(f) Except as set forth on
Section 3.14(f)
of the Nautilus Disclosure
Schedule, Nautilus has withdrawn each IND submitted to the FDA and, for each such IND, notified FDA of the withdrawal, ended all clinical investigations conducted under the IND, notified all clinical investigators, assured return or disposal of all
stocks of the investigational drug and has otherwise wound down all IND-related activities in accordance with all applicable Laws.
(g) Nautilus has not been and is not the subject of any pending or, to the Knowledge of Nautilus, threatened investigation in respect of
its business or products by the FDA pursuant to its Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities Final Policy set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto. To
the Knowledge of Nautilus, Nautilus has not committed any acts, made any statement, or failed to make any statement, in each case in respect of its business or products that has violated or would violate the FDAs Fraud, Untrue Statements
of Material Facts, Bribery, and Illegal Gratuities Final Policy, and any amendments thereto. None of Nautilus, Merger Sub, or, to the Knowledge of Nautilus, any of their respective officers, employees or agents has been convicted of any
crime or engaged in any conduct that has resulted in or could result in debarment or exclusion (i) under 21 U.S.C. Section 335a or (ii) any similar applicable Law. To the Knowledge of Nautilus, no debarment or exclusionary
claims, actions, proceedings or investigations in respect of their business or products are pending or threatened against Nautilus or any of its officers, employees or agents.
3.15 Legal Proceedings; Orders
.
(a) There is no pending Legal Proceeding and, to the Knowledge of Nautilus, no Person (including any participant in any of Nautilus
clinical trials) has, since January 1, 2015, threatened in writing to commence any Legal Proceeding: (i) that involves Nautilus or any Nautilus Associate (in his or her capacity as such) or any of the material assets owned or used by
Nautilus; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Contemplated Transactions.
(b) Except as set forth in
Section 3.15(b)
of the Nautilus Disclosure Schedule, since January 1, 2015, no Legal
Proceeding has been pending against Nautilus that resulted in material liability to Nautilus.
(c) There is no order, writ,
injunction, judgment or decree to which Nautilus, or any of the material assets owned or used by Nautilus is subject. To the Knowledge of Nautilus, no officer or other Key Employee of Nautilus is subject to any order, writ, injunction, judgment
or decree that prohibits such officer or employee from engaging in or continuing any conduct, activity or practice relating to the business of Nautilus or to any material assets owned or used by Nautilus.
3.16 Tax Matters
.
(a) Each of Nautilus and Merger Sub has timely filed all federal income Tax Returns and other material Tax Returns that they were
required to file under applicable Law. All such Tax Returns were correct and complete in all material respects and have been prepared in material compliance with all applicable Law. Subject to exceptions as would not be material, no claim
has ever been made by an authority in a jurisdiction where Nautilus does not file Tax Returns that it is subject to taxation by that jurisdiction.
(b) All material Taxes due and owing by Nautilus on or before the date hereof (whether or not shown on any Tax Return) have been
paid. Since the date of the Nautilus Balance Sheet, Nautilus has not incurred any material Liability for Taxes outside the Ordinary Course of Business or otherwise inconsistent with past custom and practice.
(c) Each of Nautilus and Merger Sub has withheld and paid all material Taxes required to have been withheld and paid in connection with
any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party.
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(d) There are no Encumbrances for material Taxes (other than Taxes not yet due and payable)
upon any of the assets of Nautilus.
(e) No deficiencies for material Taxes with respect to Nautilus have been claimed, proposed or
assessed by any Governmental Body in writing. There are no pending (or, based on written notice, threatened) material audits, assessments or other actions for or relating to any liability in respect of Taxes of Nautilus. Neither Nautilus
(nor Merger Sub or any of their predecessors) has waived any statute of limitations in respect of material Taxes or agreed to any extension of time with respect to a material Tax assessment or deficiency.
(f) Nautilus has never been a United States real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(g) Nautilus is a not party to any
material Tax allocation, Tax sharing or similar agreement (including indemnity arrangements), other than commercial contracts entered into in the Ordinary Course of Business with vendors, customers and landlords.
(h) Nautilus has never been a member of an affiliated group filing a consolidated U.S. federal income Tax Return (other than a group the
common parent of which is Nautilus). Nautilus does not have any material Liability for the Taxes of any Person (other than Nautilus and Merger Sub) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local, or
foreign law) or as a transferee or successor.
(i) Nautilus has not distributed stock of another Person, or had its stock distributed
by another Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 of the Code or Section 361 of the Code in the last two years.
(j) Nautilus has not entered into any transaction identified as a listed transaction for purposes of Treasury Regulations
Sections 1.6011-4(b)(2) or 301.6111-2(b)(2).
3.17 Employee and Labor Matters; Benefit Plans
.
(a)
Section 3.17(a)
of the Nautilus Disclosure Schedule lists all written and describes all non-written employee benefit
plans (as defined in Section 3(3) of ERISA) and all bonus, equity-based, incentive, deferred compensation, retirement or supplemental retirement, profit sharing, severance, golden parachute, vacation, cafeteria, dependent care, medical
care, employee assistance program, education or tuition assistance programs and other similar material fringe or employee benefit plans, programs or arrangements, including any employment or executive compensation or severance agreements, written or
otherwise, which are currently in effect relating to any present or former employee or director of Nautilus (or any trade or business (whether or not incorporated) which is a Nautilus Affiliate) or which is maintained by, administered or contributed
to by, or required to be contributed to by, Nautilus, or any Nautilus Affiliate, or under which Nautilus or any Nautilus Affiliate has incurred or may incur any liability (each, an
Nautilus Employee Plan
).
(b) With respect to each Nautilus Employee Plan, Nautilus has made available to the Company a true and complete copy of, to the extent
applicable, (i) such Nautilus Employee Plan, (ii) the most recent annual report (Form 5500) as filed with the IRS, (iii) each currently effective trust agreement related to such Nautilus Employee Plan, (iv) the most recent
summary plan description for each Nautilus Employee Plan for which such description is required, along with all summaries of material modifications, amendments, resolutions in the possession of Nautilus, and (v) the most recent IRS
determination or opinion letter or analogous ruling under foreign law issued with respect to any Nautilus Employee Plan.
(c) Each
Nautilus Employee Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination or opinion letter with respect to such qualified status from the IRS. To the
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Knowledge of Nautilus, nothing has occurred that would reasonably be expected to adversely affect the qualified status of any such Nautilus Employee Plan or the exempt status of any related
trust.
(d) Each Nautilus Employee Plan has been maintained in compliance, in all material respects, with its terms and, both as to
form and operation, with all applicable Law, including the Code and ERISA.
(e) No Nautilus Employee Plan is subject to Title IV or
Section 302 of ERISA or Section 412 of the Code, and neither Nautilus nor any Nautilus Affiliate has ever maintained, contributed to or partially or completely withdrawn from, or incurred any obligation or liability with respect to, any
such plan. No Nautilus Employee Plan is a Multiemployer Plan, and neither Nautilus nor any Nautilus Affiliate has ever contributed to or had an obligation to contribute, or incurred any liability in respect of a contribution, to any
Multiemployer Plan. No Nautilus Employee Plan is a Multiple Employer Plan.
(f) Except as set forth in
Section 3.17(f)
of the Nautilus Disclosure Schedule, no Nautilus Employee Plan provides for medical or death benefits beyond termination of service or retirement, other than (i) pursuant to COBRA or an analogous state law
requirement or (ii) death or retirement benefits under a Nautilus Employee Plan qualified under Section 401(a) of the Code. Nautilus does not sponsor or maintain any self-funded employee benefit plan. No Nautilus Employee Plan is
subject to any law of a foreign jurisdiction outside of the United States.
(g) With respect to Nautilus Options granted
pursuant to the Nautilus Stock Plans, each Nautilus Option grant was made in accordance with the terms of the Nautilus Stock Plan pursuant to which it was granted and, to the Knowledge of Nautilus, all other applicable Law and regulatory
rules or requirements.
(h) To the Knowledge of Nautilus, no Nautilus Options or other equity-based awards issued or granted by
Nautilus are subject to the requirements of Code Section 409A. To the Knowledge of Nautilus, each 409A Plan under which Nautilus makes, is obligated to make or promises to make, payments complies in all material respects, in both form
and operation, with the requirements of Code Section 409A and the guidance thereunder. No payment to be made under any 409A Plan is or, to the Knowledge of Nautilus will be, subject to the penalties of Code Section 409A(a)(1).
(i) Except as would not reasonably be expected to have a Nautilus Material Adverse Effect, Nautilus is in compliance with all applicable
foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment, worker classification, tax withholding, prohibited discrimination, equal employment, fair employment
practices, meal and rest periods, immigration status, employee safety and health, wages (including overtime wages), compensation, indemnification, and hours of work, and in each case, with respect to employees: (i) has withheld and reported all
material amounts required by law or by agreement to be withheld and reported with respect to wages, salaries and other payments to employees, (ii) is not liable for any arrears of wages, severance pay or any Taxes or any penalty for failure to
comply with any of the foregoing, and (iii) is not liable for any material payment to any trust or other fund governed by or maintained by or on behalf of any governmental authority, with respect to unemployment compensation benefits, social
security or other benefits or obligations for employees (other than routine payments to be made in the Ordinary Course of Business). There are no actions, suits, claims or administrative matters pending or, to the Knowledge of Nautilus, threatened
or reasonably anticipated against Nautilus relating to any employee, employment agreement or Nautilus Employee Plan (other than routine claims for benefits). Nautilus has no material liability with respect to any misclassification of:
(a) any Person as an independent contractor rather than as an employee, (b) any employee leased from another employer, or (c) any employee currently or formerly classified as exempt from overtime wages. Nautilus has not taken any
action which would constitute a plant closing or mass layoff within the meaning of the WARN Act or similar state or local law, issued any notification of a plant closing or mass layoff required by the WARN Act or similar
state or local law, or incurred any liability or obligation under WARN or any similar state or local law that remains unsatisfied. No terminations of employees of Nautilus prior to the Closing would trigger any notice or other obligations under
the WARN Act or similar state or local law.
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(j) There has never been, nor has there been any threat of, any strike, slowdown, work
stoppage, lockout, job action, union and/or union organizing activity, question concerning representation or any similar activity or dispute, affecting Nautilus. No event has occurred, and no condition or circumstance exists, that might
directly or indirectly be likely to give rise to or provide a basis for the commencement of any such strike, slowdown, work stoppage, lockout, job action, union organizing activity, question concerning representation or any similar activity or
dispute. Nautilus is not a party to, bound by, or has a duty to bargain under, any collective bargaining agreement or other Contract with a labor organization representing any of its employees, and there are no labor organizations representing
or, to the Knowledge of Nautilus, purporting to represent or seeking to represent any employees of the Nautilus, including, but not limited to, through the filing of a petition for representation election
(k) Nautilus is not, nor has Nautilus been, engaged in any unfair labor practice within the meaning of the National Labor Relations
Act. There is no Legal Proceeding, claim, labor dispute or grievance pending or, to the Knowledge of Nautilus, threatened or reasonably anticipated relating to any employment contract, privacy right, labor dispute, wages and hours, leave of
absence, plant closing notification, workers compensation policy, long-term disability policy, harassment, retaliation, immigration, employment statute or regulation, safety or discrimination matter involving any Nautilus Associate, including
charges of unfair labor practices or discrimination complaints.
(l) There is no contract, agreement, plan or arrangement to which
Nautilus or any Nautilus Affiliate is a party or by which it is bound to compensate any of its employees for excise taxes paid pursuant to Section 4999 of the Code.
(m) Nautilus is not a party to any Contract that has resulted or would reasonably be expected to result, separately or in the aggregate,
in the payment of (i) any excess parachute payment within the meaning of section 280G of the Code and (ii) any amount the deduction for which would be disallowed under Section 162(m) of the Code.
3.18 Environmental Matters
.
Since January 1, 2014, Nautilus has complied with all applicable Environmental Laws,
which compliance includes the possession by Nautilus of all permits and other Governmental Authorizations required under applicable Environmental Laws and compliance with the terms and conditions thereof, except for any failure to be in compliance
that, individually or in the aggregate, would not result in a Nautilus Material Adverse Effect. Nautilus has not received since January 1, 2014, any written notice or other communication (in writing or otherwise), whether from a
Governmental Body, citizens group, employee or otherwise, that alleges that Nautilus is not in compliance with any Environmental Law, and, to the Knowledge of Nautilus, there are no circumstances that may prevent or interfere with Nautilus
compliance with any Environmental Law in the future, except where such failure to comply would not reasonably be expected to have a Nautilus Material Adverse Effect. To the Knowledge of Nautilus: (i) no current or prior owner of any
property leased or controlled by Nautilus has received since January 1, 2014, any written notice or other communication relating to property owned or leased at any time by Nautilus, whether from a Governmental Body, citizens group, employee or
otherwise, that alleges that such current or prior owner or Nautilus is not in compliance with or violated any Environmental Law relating to such property and (ii) Nautilus has no material liability under any Environmental Law.
3.19 Insurance
.
Nautilus has made available to the Company accurate and complete copies of all material insurance policies
and all material self-insurance programs and arrangements relating to the business, assets, liabilities and operations of Nautilus and Merger Sub. Each of such insurance policies is in full force and effect and Nautilus and Merger Sub are in
compliance in all material respects with the terms thereof. Other than customary end of policy notifications from insurance carriers, since January 1, 2014, Nautilus has not received any notice or other communication regarding any actual
or possible: (i) cancellation or invalidation of any insurance policy; or (ii) refusal or denial of any coverage, reservation of rights or rejection of any material claim under any insurance policy. Each of Nautilus and Merger
Sub has provided timely written notice to the
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appropriate insurance carrier(s) of each Legal Proceeding pending against Nautilus for which Nautilus has insurance coverage, and no such carrier has issued a denial of coverage or a
reservation of rights with respect to any such Legal Proceeding, or informed Nautilus of its intent to do so.
3.20 Transactions
with Affiliates
.
Except as set forth in the Nautilus SEC Documents filed prior to the date of this Agreement, since the date of Nautilus last proxy statement filed in 2016 with the SEC, no event has occurred that would be
required to be reported by Nautilus pursuant to Item 404 of Regulation S-K promulgated by the SEC.
Section 3.20
of the Nautilus Disclosure Schedule identifies each Person who is (or who may be deemed to be) an Affiliate of
Nautilus as of the date of this Agreement.
3.21 No Financial Advisors
.
Except as set forth on
Section 3.21
of the Nautilus Disclosure Schedule, no broker, finder or investment banker is entitled to any brokerage fee, finders fee, opinion fee, success fee, transaction fee or other fee or commission in connection with the
Contemplated Transactions based upon arrangements made by or on behalf of Nautilus.
3.22 Valid Issuance
.
The
Nautilus Common Stock to be issued in the Merger will, when issued in accordance with the provisions of this Agreement, be validly issued, fully paid and nonassessable.
3.23 No Other Representations or Warranties
.
Nautilus hereby acknowledges and agrees that, except for the
representations and warranties contained in this Agreement, neither the Company nor any of its Subsidiaries nor any other person on behalf of the Company or its Subsidiaries makes any express or implied representation or warranty with respect to the
Company or its Subsidiaries or with respect to any other information provided to Nautilus, Merger Sub or their respective stockholders or Affiliates in connection with the transactions contemplated hereby, and (subject to the express representations
and warranties of the Company set forth in
Section 2
(in each case as qualified and limited by the Company Disclosure Schedule)) none of Nautilus, Merger Sub or any of their respective Representatives or stockholders, has relied on any
such information (including the accuracy or completeness thereof).
3.24 Opinion of Financial Advisor
.
The
Nautilus Board has received an opinion of Ladenburg Thalman & Co., Inc., financial advisor to Nautilus, dated as of the date of this Agreement, to the effect that the Exchange Ratio is fair to the stockholders of Nautilus, from a
financial point of view.
Section 4. CERTAIN COVENANTS OF THE PARTIES
4.1 Operation of Nautilus Business
.
(a) Except as set forth on
Section 4.1(a)
of the Nautilus Disclosure Schedule, as expressly contemplated or
permitted by this Agreement, as required by applicable Law or unless the Company shall otherwise consent in writing (which consent shall not be unreasonably withheld, delayed or conditioned), during the period commencing on the date of this
Agreement and continuing until the earlier to occur of the termination of this Agreement pursuant to
Section 9
and the Effective Time (the
Pre-Closing Period
): Nautilus shall conduct its business and operations
in the Ordinary Course of Business and in compliance with all applicable Law and the requirements of all Contracts that constitute Nautilus Material Contracts.
(b) Except (i) as expressly contemplated or permitted by this Agreement, (ii) as set forth in
Section 4.1(b)
of the Nautilus Disclosure Schedule, (iii) as required by applicable Law or (iv) with the prior written consent of the Company (which consent shall not be unreasonably withheld, delayed or conditioned), at
all times during the Pre-Closing Period, Nautilus shall not:
(i) declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any shares of its capital stock or repurchase, redeem or otherwise reacquire any shares of its capital stock or other securities (except for shares of Nautilus Common Stock from terminated employees, directors or
consultants of Nautilus);
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(ii) sell, issue, grant, pledge or otherwise dispose of or encumber or authorize any of the
foregoing with respect to: (A) any capital stock or other security (except for Nautilus Common Stock issued upon the valid exercise of outstanding Nautilus Options or Nautilus Warrants); (B) any option, warrant or right to acquire any
capital stock or any other security; or (C) any instrument convertible into or exchangeable for any capital stock or other security;
(iii) except as required to give effect to anything in contemplation of the Closing, amend any of its Organizational Documents, or
effect or be a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction except, for the avoidance of doubt, the Contemplated
Transactions;
(iv) form any Subsidiary or acquire any equity interest or other interest in any other Entity or enter into a joint
venture with any other Entity;
(v) (A) lend money to any Person, (B) incur or guarantee any indebtedness for borrowed
money, (C) guarantee any debt securities of others, or (D) make any capital expenditure or commitment in excess of the amounts set forth in the Nautilus operating budget delivered to the Company concurrently with the execution of this
Agreement;
(vi) other than as required by applicable Law or the terms of a Nautilus Employee Plan in effect as of the date hereof,
(A) adopt, establish or enter into any Nautilus Employee Plan; (B) cause or permit any Nautilus Employee Plan to be amended; (C) other than in the Ordinary Course of Business, pay any bonus or make any profit-sharing or similar
payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its employees, directors or consultants; (D) increase the severance or change of control benefits
offered to any current or new employees, directors or consultants or (E) hire any new employees, consultants or independent contractors other than in connection with the Wind-Down;
(vii) enter into any material transaction other than in connection with the Wind-Down;
(viii) acquire any material asset or sell, lease or otherwise irrevocably dispose of any of its assets or properties, or grant any
Encumbrance with respect to such assets or properties, except in the Ordinary Course of Business;
(ix) make, change or revoke any
material Tax election, file any material amendment to any Tax Return, settle or compromise any material Tax liability, or adopt or change any material accounting method in respect of Taxes;
(x) enter into, materially amend or terminate any Nautilus Material Contract other than in connection with or as necessary to effect the
Wind-Down;
(xi) make any expenditures or incur any Liabilities in amounts that exceed the limitations set forth in the Nautilus
operating budget delivered to the Company concurrently with the execution of this Agreement in an amount that exceeds, in the aggregate, $500,000; or
(xii) agree, resolve or commit to do any of the foregoing.
Nothing contained in this Agreement shall give the Company, directly or indirectly, the right to control or direct the operations of Nautilus
prior to the Effective Time. Prior to the Effective Time, Nautilus shall exercise, consistent with the terms and conditions of this Agreement, complete unilateral control and supervision over its business operations. For the avoidance of doubt,
notwithstanding anything in this Agreement to the contrary, including any of the covenants in this
Section 4.1
, at all times during the Pre-Closing Period Nautilus may take
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any action in furtherance of the Wind-Down;
provided
that, unless the Company shall have consented to such transaction, such transaction does not impose any post-closing indemnification or
other material post-closing obligations or liabilities upon Nautilus or any of its Subsidiaries (including, following the Closing, the Company).
4.2 Operation of the Companys Business
.
(a) Except as set forth on
Section 4.2(a)
of the Company Disclosure Schedule, as expressly contemplated or permitted by
this Agreement, as required by applicable Law or unless Nautilus shall otherwise consent in writing (which consent shall not be unreasonably withheld, delayed or conditioned), during the Pre-Closing Period: each of the Company and its Subsidiaries
shall conduct its business and operations in the Ordinary Course of Business and in compliance with all applicable Law and the requirements of all Contracts that constitute Company Material Contracts.
(b) Except (i) as expressly contemplated or permitted by this Agreement, (ii) as set forth in
Section 4.2(b)
of the Company Disclosure Schedule, (iii) as required by applicable Law or (iv) with the prior written consent of Nautilus (which consent shall not be unreasonably withheld, delayed or conditioned), at all
times during the Pre-Closing Period, the Company shall not, nor shall it cause or permit any of its Subsidiaries to, do any of the following:
(i) declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock; or
repurchase, redeem or otherwise reacquire any shares of Company Capital Stock or other securities (except for shares of Company Common Stock from terminated employees, directors or consultants of the Company);
(ii) except as required to give effect to anything in contemplation of the Closing, amend any of its or its Subsidiaries
Organizational Documents, or effect or be a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction except, for the avoidance of
doubt, the Contemplated Transactions;
(iii) sell, issue, grant, pledge or otherwise dispose of or encumber or authorize any of the
foregoing actions with respect to: (A) any capital stock or other security of the Company or any of its Subsidiaries (except for shares of outstanding Company Common Stock issued upon the valid exercise of Company Options or Company
Warrants and shares of Company Capital Stock issued in connection with the Company Pre-Closing Financing or the Second Tranche Closing); (B) any option, warrant or right to acquire any capital stock or any other security, other than option
grants to employees and service providers in the Ordinary Course of Business; or (C) any instrument convertible into or exchangeable for any capital stock or other security of the Company or any of its Subsidiaries other than Company Capital
Stock issued in connection with the Company Pre-Closing Financing;
(iv) form any Subsidiary or acquire any equity interest or other
interest in any other Entity or enter into a joint venture with any other Entity;
(v) (A) lend money to any Person,
(B) incur or guarantee any indebtedness for borrowed money, other than in the Ordinary Course of Business, (C) guarantee any debt securities of others, or (D) make any capital expenditure or commitment in excess of the amounts set
forth in the Company operating budget delivered to Nautilus concurrently with the execution of this Agreement (the
Company Budget
);
(vi) other than as required by applicable Law or in the Ordinary Course of Business: (A) adopt, establish or enter into any
Company Employee Plan; (B) cause or permit any Company Employee Plan to be amended; (C) pay any bonus or make any profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its
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directors, officers or employees, other than grants of options to employees and other service providers in the Ordinary Course of Business; or (D) increase the severance or change of control
benefits offered to any current or new employees, directors or consultants;
(vii) enter into any material transaction outside the
Ordinary Course of Business, except in accordance with the Company Budget;
(viii) acquire any material asset or sell, lease or
otherwise irrevocably dispose of any of its assets or properties, or grant any Encumbrance with respect to such assets or properties, except in the Ordinary Course of Business and except in accordance with the Company Budget;
(ix) sell, assign, transfer, license, sublicense or otherwise dispose of any material Company IP Rights (other than (A) pursuant to
non-exclusive licenses in the Ordinary Course of Business and (B) in accordance with the Company Budget);
(x) make, change or
revoke any material Tax election; file any material amendment to any Tax Return, settle or compromise any material Tax liability, or adopt or change any material accounting method in respect of Taxes;
(xi) other than in connection with the Company Pre-Closing Financing or in accordance with the Company Budget, enter into, materially
amend or terminate any Company Material Contract;
(xii) make any expenditures or incur any Liabilities in amounts that exceed the
limitations set forth in the Company operating budget delivered to Nautilus concurrently with the execution of this Agreement in an amount that exceeds, in the aggregate, $500,000; or
(xiii) agree, resolve or commit to do any of the foregoing.
(c) Nothing contained in this Agreement shall give Nautilus, directly or indirectly, the right to control or direct the operations of the
Company prior to the Effective Time. Prior to the Effective Time, the Company shall exercise, consistent with the terms and conditions of this Agreement, complete unilateral control and supervision over its business operations.
4.3 Access and Investigation
.
Subject to the terms of the Confidentiality Agreement, which the Parties agree will
continue in full force following the date of this Agreement, during the Pre-Closing Period, upon reasonable notice, Nautilus, on the one hand, and the Company, on the other hand, shall and shall use commercially reasonable efforts to cause such
Partys Representatives to: (a) provide the other Party and such other Partys Representatives with reasonable access during normal business hours to such Partys Representatives, personnel and assets and to all existing
books, records, Tax Returns, work papers and other documents and information relating to such Party and its Subsidiaries; (b) provide the other Party and such other Partys Representatives with such copies of the existing books, records,
Tax Returns, work papers, product data, and other documents and information relating to such Party and its Subsidiaries, and with such additional financial, operating and other data and information regarding such Party and its Subsidiaries as the
other Party may reasonably request; and (c) permit the other Partys officers and other employees to meet, upon reasonable notice and during normal business hours, with the chief financial officer and other officers and managers of such
Party responsible for such Partys financial statements and the internal controls of such Party to discuss such matters as the other Party may deem necessary or appropriate and; (d) provide the other Party with copies, when available, of
unaudited financial statements or management accounts, and communications sent by or on behalf of such Party to its stockholders or any notice, report or other document filed with or sent to or received from any Governmental Body in connection with
the Contemplated Transactions. Any investigation conducted by either Nautilus or the Company pursuant to this
Section 4.3
shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of the
other Party.
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Notwithstanding the foregoing, any Party may restrict the foregoing access to the extent that any Law applicable
to such Party requires such Party to restrict or prohibit access to any such properties or information.
4.4 No
Solicitation
.
Each of Nautilus and the Company agrees that, during the Pre-Closing Period, neither it nor any of its Subsidiaries shall, nor shall it or any of its Subsidiaries authorize any of its Representatives to, directly or
indirectly: (i) solicit, initiate or knowingly encourage, induce or facilitate the communication, making, submission or announcement of any Acquisition Proposal or Acquisition Inquiry or take any action that could reasonably be expected to
lead to an Acquisition Proposal or Acquisition Inquiry; (ii) furnish any non-public information regarding such Party to any Person in connection with or in response to an Acquisition Proposal or Acquisition Inquiry; (iii) engage in
discussions or negotiations with any Person with respect to any Acquisition Proposal or Acquisition Inquiry; (iv) approve, endorse or recommend any Acquisition Proposal (subject to
Section 5.2
and
Section 5.3
);
(v) execute or enter into any letter of intent or any Contract contemplating or otherwise relating to any Acquisition Transaction; or (vi) publicly propose to do any of the foregoing;
provided
,
however
, that, notwithstanding
anything contained in this
Section 4.4
and subject to compliance with this
Section 4.4
, prior to the approval of this Agreement by a Partys stockholders (
i.e.
, the Required Company Stockholder Vote, in the case
of the Company and its Subsidiaries, or the Required Nautilus Stockholder Vote in the case of Nautilus), such Party may furnish non-public information regarding such Party and its Subsidiaries to, and enter into discussions or negotiations with, any
Person in response to a bona fide written Acquisition Proposal by such Person which such Partys board of directors determines in good faith, after consultation with such Partys outside financial advisors and outside legal counsel,
constitutes, or is reasonably likely to result in, a Superior Offer (and is not withdrawn) if: (A) neither such Party nor any Representative of such Party shall have breached this
Section 4.4
in any material respect,
(B) the board of directors of such Party concludes in good faith based on the advice of outside legal counsel, that the failure to take such action is reasonably likely to be inconsistent with the fiduciary duties of the board of directors of
such Party under applicable Law; (C) at least two Business Days prior to furnishing any such nonpublic information to, or entering into discussions with, such Person, such Party gives the other Party written notice of the identity of such
Person and of such Partys intention to furnish nonpublic information to, or enter into discussions with, such Person; (D) such Party receives from such Person an executed confidentiality agreement containing provisions (including
nondisclosure provisions, use restrictions, non-solicitation provisions and no hire provisions) at least as favorable to such Party as those contained in the Confidentiality Agreement; and (E) substantially contemporaneously with furnishing any
such nonpublic information to such Person, such Party furnishes such nonpublic information to the other Party (to the extent such information has not been previously furnished by such Party to the other Party). Without limiting the generality
of the foregoing, each Party acknowledges and agrees that, in the event any Representative of such Party (whether or not such Representative is purporting to act on behalf of such Party) takes any action that, if taken by such Party, would
constitute a breach of this
Section 4.4
by such Party, the taking of such action by such Representative shall be deemed to constitute a breach of this
Section 4.4
by such Party for purposes of this Agreement.
(b) If any Party or any Representative of such Party receives an Acquisition Proposal or Acquisition Inquiry at any time during the
Pre-Closing Period, then such Party shall promptly (and in no event later than one Business Day after such Party becomes aware of such Acquisition Proposal or Acquisition Inquiry) advise the other Party orally and in writing of such Acquisition
Proposal or Acquisition Inquiry (including the identity of the Person making or submitting such Acquisition Proposal or Acquisition Inquiry, and provide a copy of the Acquisition Proposal or Acquisition Inquiry, or if the Acquisition Proposal or
Acquisition Inquiry is not written, the terms thereof). Such Party shall keep the other Party reasonably informed with respect to the status and terms of any such Acquisition Proposal or Acquisition Inquiry and any material modification or
proposed material modification thereto. In addition to the foregoing, Nautilus shall provide the Company with at least one Business Days written notice of a meeting of the Nautilus Board (or any committee thereof) at which the Nautilus Board
(or any committee thereof) is reasonably expected to consider an Acquisition Proposal or Acquisition Inquiry it has received.
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(c) Each Party shall immediately cease and cause to be terminated any existing discussions,
negotiations and communications with any Person that relate to any Acquisition Proposal or Acquisition Inquiry as of the date of this Agreement and request the destruction or return of any nonpublic information provided to such Person.
4.5 Notification of Certain Matters
.
During the Pre-Closing Period, each of the Company, on the one hand, and
Nautilus, on the other hand, shall promptly notify the other (and, if in writing, furnish copies of) if any of the following occurs: (a) any notice or other communication is received from any Person alleging that the Consent of such Person
is or may be required in connection with any of the Contemplated Transactions; (b) any Legal Proceeding against or involving or otherwise affecting such Party or its Subsidiaries is commenced, or, to the Knowledge of such Party, threatened
against such Party or, to the Knowledge of such Party, any director, officer or Key Employee of such Party; (c) such Party becomes aware of any inaccuracy in any representation or warranty made by such Party in this Agreement; or (d) the
failure of such Party to comply with any covenant or obligation of such Party; in each case that could reasonably be expected to make the timely satisfaction of any of the conditions set forth in
Sections 6
,
7
and
8
, as
applicable, impossible or materially less likely. No notification given to a Party pursuant to this
Section 4.5
shall change, limit or otherwise affect any of the representations, warranties, covenants or obligations of the Party
providing such notification or any of such Partys Subsidiaries contained in this Agreement or the Company Disclosure Schedule or the Nautilus Disclosure Schedule, as appropriate, for purposes of
Sections 6
,
7
and
8
, as
applicable.
Section 5. ADDITIONAL AGREEMENTS OF THE PARTIES
5.1 Registration Statement; Proxy Statement
.
(a) As promptly as practicable after the date of this Agreement, the Parties shall prepare, and Nautilus shall cause to be filed with the
SEC, the Registration Statement, in which the Proxy Statement will be included as a prospectus. Nautilus covenants and agrees that the Proxy Statement, including any pro forma financial statements included therein (and the letter to
stockholders, notice of meeting and form of proxy included therewith) will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not misleading. The Company covenants and agrees that the information provided by the Company or its Subsidiaries to Nautilus for inclusion in the Proxy Statement (including the
Company Financials) will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make such information not misleading. Notwithstanding the foregoing, Nautilus
makes no covenant, representation or warranty with respect to statements made in the Proxy Statement (and the letter to stockholders, notice of meeting and form of proxy included therewith), if any, based on information provided by the Company or
its Subsidiaries or any of their Representatives specifically for inclusion therein. The Company and its legal counsel shall be given reasonable opportunity to review and comment on the Proxy Statement, including all amendments and supplements
thereto, prior to the filing thereof with the SEC, and on the response to any comments of the SEC prior to the filing thereof with the SEC. Each of the Parties shall use commercially reasonable efforts to cause the Registration Statement and
the Proxy Statement to comply with the applicable rules and regulations promulgated by the SEC, to respond promptly to any comments of the SEC or its staff and to have the Registration Statement declared effective under the Securities Act as
promptly as practicable after it is filed with the SEC. Each of the Parties shall use commercially reasonable efforts to cause the Proxy Statement to be mailed to Nautilus stockholders as promptly as practicable after the Registration
Statement is declared effective under the Securities Act. Each Party shall promptly furnish to the other Party all information concerning such Party and such Partys Affiliates and such Partys stockholders that may be required or
reasonably requested in connection with any action contemplated by this
Section 5.1
. If Nautilus, Merger Sub or the Company become aware of any event or information that, pursuant to the Securities Act or the Exchange Act, should be
disclosed in an amendment or supplement to the Registration Statement or Proxy Statement, as the case may be, then such Party, as the case may be, shall promptly inform the other Parties thereof and shall cooperate with such other Parties in filing
such amendment or supplement with the SEC and, if appropriate, in mailing such amendment or supplement to the Nautilus stockholders.
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(b) Prior to the Effective Time, Nautilus shall use commercially reasonable efforts to
obtain all regulatory approvals needed to ensure that the Nautilus Common Stock to be issued in the Merger (to the extent required) shall be registered or qualified or exempt from registration or qualification under the securities law of every
jurisdiction of the United States in which any registered holder of Company Capital Stock has an address of record on the applicable record date for determining the holders of Company Capital Stock entitled to notice of and to vote pursuant to the
Company Stockholder Written Consent;
provided
,
however
, that Nautilus shall not be required: (i) to qualify to do business as a foreign corporation in any jurisdiction in which it is not now qualified; or (ii) to file a
general consent to service of process in any jurisdiction.
(c) The Company shall reasonably cooperate with Nautilus and provide, and
require its Representatives to provide, Nautilus and its Representatives, with all true, correct and complete information regarding the Company or its Subsidiaries that is required by law to be included in the Registration Statement or reasonably
requested by Nautilus to be included in the Registration Statement. Without limiting the foregoing, the Company will use commercially reasonable efforts to cause to be delivered to Nautilus a letter of the Companys independent accounting firm,
dated no more than two Business Days before the date on which the Registration Statement becomes effective (and reasonably satisfactory in form and substance to Nautilus), that is customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the Registration Statement.
5.2 Company Stockholder
Written Consent
.
(a) Promptly after the Registration Statement shall have been declared effective under the
Securities Act, and in any event no later than five Business Days thereafter, the Company shall obtain the approval by written consent from Company stockholders sufficient for the Required Company Stockholder Vote in lieu of a meeting pursuant to
Section 228 of the DGCL, for purposes of (i) adopting and approving this Agreement and the Contemplated Transactions, (ii) acknowledging that the approval given thereby is irrevocable and that such stockholder is aware of its rights
to demand appraisal for its shares pursuant to Section 262 of the DGCL, a copy of which will be attached thereto, and that such stockholder has received and read a copy of Section 262 of the DGCL, and (iii) acknowledging that by its
approval of the Merger it is not entitled to appraisal rights with respect to its shares in connection with the Merger and thereby waives any rights to receive payment of the fair value of its capital stock under the DGCL. Under no
circumstances shall the Company assert that any other approval or consent is necessary by its stockholders to approve this Agreement and the Contemplated Transactions.
(b) Reasonably promptly following receipt of the Required Company Stockholder Vote, the Company shall prepare and mail a notice (the
Stockholder Notice
) to every stockholder of the Company that did not execute the Company Stockholder Written Consent. The Stockholder Notice shall (i) be a statement to the effect that the Company Board determined that
the Merger is advisable in accordance with Section 251(b) of the DGCL and in the best interests of the stockholders of the Company and approved and adopted this Agreement, the Merger and the other Contemplated Transactions,
(ii) provide the stockholders of the Company to whom it is sent with notice of the actions taken in the Company Stockholder Written Consent, including the adoption and approval of this Agreement, the Merger and the other Contemplated
Transactions in accordance with Section 228(e) of the DGCL and the certificate of incorporation and bylaws of the Company and (iii) include a description of the appraisal rights of the Companys stockholders available under the
DGCL, along with such other information as is required thereunder and pursuant to applicable Law. All materials (including any amendments thereto) submitted to the stockholders of the Company in accordance with this
Section 5.2(b)
shall be subject to Nautilus advance review and reasonable approval.
(c) The Company agrees
that, subject to
Section 5.2(d)
: (i) the Company Board shall recommend that the Companys stockholders vote to adopt and approve this Agreement and the Contemplated Transactions and shall use commercially reasonable
efforts to solicit such approval within the time set forth in
Section 5.2(a)
(the recommendation of the Company Board that the Companys stockholders vote to adopt and approve this Agreement being referred to as the
Company Board Recommendation
); and (ii) the Company Board
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Recommendation shall not be withdrawn or modified (and the Company Board shall not publicly propose to withdraw or modify the Company Board Recommendation) in a manner adverse to Nautilus, and no
resolution by the Company Board or any committee thereof to withdraw or modify the Company Board Recommendation in a manner adverse to Nautilus or to adopt, approve or recommend (or publicly propose to adopt, approve or recommend) any Acquisition
Proposal shall be adopted or proposed.
(d) Notwithstanding anything to the contrary contained in
Section 5.2(c)
, and
subject to compliance with
Section 4.4
and
Section 5.2
, if at any time prior to approval and adoption of this Agreement by the Required Company Stockholder Vote, the Company receives a bona fide written Superior Offer, the
Company Board may withhold, amend, withdraw or modify the Company Board Recommendation (or publicly propose to withhold, amend, withdraw or modify the Company Board Recommendation) in a manner adverse to Nautilus (collectively, a
Company
Board Adverse Recommendation Change
) if, but only if, following the receipt of and on account of such Superior Offer, (i) the Company Board determines in good faith, based on the advice of its outside legal counsel, that the
failure to withhold, amend, withdraw or modify such recommendation would be reasonably likely to be inconsistent with its fiduciary duties under applicable Law, (ii) the Company has, and has caused its financial advisors and outside legal
counsel to, during the Company Notice Period (as defined below), negotiate with Nautilus in good faith to make such adjustments to the terms and conditions of this Agreement so that such Acquisition Proposal ceases to constitute a Superior Offer,
and (iii) if after Nautilus shall have delivered to the Company a written offer to alter the terms or conditions of this Agreement during the Company Notice Period, the Company Board shall have determined in good faith, based on the advice of
its outside legal counsel, that the failure to withhold, amend, withdraw or modify the Company Board Recommendation would be reasonably likely to be inconsistent with its fiduciary duties under applicable Law (after taking into account such
alterations of the terms and conditions of this Agreement);
provided
that Nautilus receives written notice from the Company confirming that the Company Board has determined to change its recommendation at least four Business Days in advance
of the Company Board Adverse Recommendation Change (the
Company Notice Period
), which notice shall include a description in reasonable detail of the reasons for such Company Board Adverse Recommendation Change, and written
copies of any relevant proposed transaction agreements with any party making a potential Superior Offer. In the event of any material amendment to any Superior Offer (including any revision in the amount, form or mix of consideration the
Companys stockholders would receive as a result of such potential Superior Offer), the Company shall be required to provide Nautilus with notice of such material amendment and the Company Notice Period shall be extended, if applicable, to
ensure that at least three Business Days remain in the Company Notice Period following such notification during which the parties shall comply again with the requirements of this
Section 5.2(d)
and the Company Board shall not make a
Company Board Adverse Recommendation Change prior to the end of such Company Notice Period as so extended.
(e) Other than in
connection with a bona fide written Superior Offer (which shall be subject to
Section 5.2(d)
), the Company Board may make a Company Board Adverse Recommendation Change in response to a Company Change in Circumstance, if and only if:
(A) the Company Board determines in good faith, after consultation with the Companys outside legal counsel, that the failure to do so would be reasonably likely to be inconsistent with its fiduciary duties under applicable Law;
(B) Nautilus receives written notice from the Company confirming that the Company Board has determined to change its recommendation at least four Business Days in advance of the Company Board Adverse Recommendation Change (the
Company Change in Circumstance Notice
); and (C) (1) the Company shall have specified the Company Change in Circumstance in reasonable detail, (2) the Company shall have given Nautilus four business days after
the Company Change in Circumstance Notice to propose revisions to the terms of this Agreement or make another proposal so that such Company Change in Circumstance would no longer necessitate a Company Board Adverse Recommendation Change, and shall
have negotiated in good faith with Nautilus with respect to such proposed revisions or other proposal, if any, and (3) after considering the results of such negotiations and giving effect to the proposals made by Nautilus, if any, after
consultation with outside legal counsel, the Company Board shall have determined, in good faith, that the failure to make the Company Board Adverse Recommendation Change in response to such Company Change in Circumstance would be reasonably likely
to be inconsistent with its fiduciary duties under applicable Law. For the avoidance of doubt, the provisions of this Section 5.2(e) shall also apply to any material
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change to the facts and circumstances relating to such Company Change in Circumstance and require a new Company Change in Circumstance Notice, except that the references to four business days
shall be deemed to be three business days.
(f) The Companys obligation to solicit the consent of its stockholders to sign the
Company Stockholder Written Consent in accordance with
Section 5.2(a)
shall not be limited or otherwise affected by the commencement, disclosure, announcement or submission of any Superior Offer or other Acquisition Proposal, or by
any Company Board Adverse Recommendation Change.
5.3 Nautilus Stockholders Meeting.
(a) Nautilus shall take all action necessary under applicable Law to call, give notice of and hold a meeting of the holders of Nautilus
Common Stock to consider and vote to approve this Agreement and the Contemplated Transactions, including the issuance of the shares of Nautilus Common Stock to the stockholders of the Company pursuant to the terms of this Agreement and the Nautilus
Charter Amendment (collectively, the
Nautilus Stockholder Matters
and such meeting, the
Nautilus Stockholders Meeting
). The Nautilus Stockholders Meeting shall be held as promptly
as practicable after the Registration Statement is declared effective under the Securities Act. Nautilus shall take reasonable measures to ensure that all proxies solicited in connection with the Nautilus Stockholders Meeting are
solicited in compliance with all applicable Law. Notwithstanding anything to the contrary contained herein, if on the date of the Nautilus Stockholders Meeting, or a date preceding the date on which the Nautilus Stockholders Meeting is
scheduled, Nautilus reasonably believes that (i) it will not receive proxies sufficient to obtain the Required Nautilus Stockholder Vote, whether or not a quorum would be present or (ii) it will not have sufficient shares of Nautilus
Common Stock represented (whether in person or by proxy) to constitute a quorum necessary to conduct the business of the Nautilus Stockholders Meeting, Nautilus may postpone or adjourn, or make one or more successive postponements or
adjournments of, the Nautilus Stockholders Meeting as long as the date of the Nautilus Stockholders Meeting is not postponed or adjourned more than an aggregate of 30 calendar days in connection with any postponements or adjournments.
(b) Nautilus agrees that, subject to
Section 5.3(c)
: (i) the Nautilus Board shall recommend that the holders
of Nautilus Common Stock vote to approve the Nautilus Stockholder Matters and shall use commercially reasonable efforts to solicit such approval within the timeframe set forth in
Section 5.3(a)
above, (ii) the Proxy Statement
shall include a statement to the effect that the Nautilus Board recommends that Nautilus stockholders vote to approve the Nautilus Stockholder Matters (the recommendation of the Nautilus Board being referred to as the
Nautilus
Board Recommendation
); and (iii) the Nautilus Board Recommendation shall not be withheld, amended, withdrawn or modified (and the Nautilus Board shall not publicly propose to withhold, amend, withdraw or modify the Nautilus Board
Recommendation) in a manner adverse to the Company, and no resolution by the Nautilus Board or any committee thereof to withdraw or modify the Nautilus Board Recommendation in a manner adverse to the Company or to adopt, approve or recommend (or
publicly propose to adopt, approve or recommend) any Acquisition Proposal shall be adopted or proposed (the actions set forth in the foregoing clause (iii), collectively, a
Nautilus Board Adverse Recommendation Change
).
(c) Notwithstanding anything to the contrary contained in
Section 5.3(b)
, and subject to compliance with
Section 4.4
and
Section 5.3
, if at any time prior to the approval of Nautilus Stockholder Matters by the Required Nautilus Stockholder Vote, Nautilus receives a bona fide written Superior Offer, the Nautilus Board may make a
Nautilus Board Adverse Recommendation Change if, but only if, following the receipt of and on account of such Superior Offer, (i) the Nautilus Board determines in good faith, based on the advice of its outside legal counsel, that the failure to
make a Nautilus Board Adverse Recommendation Change would reasonably likely to be inconsistent with its fiduciary duties under applicable Law, (ii) Nautilus has, and has caused its financial advisors and outside legal counsel to, during the
Nautilus Notice Period (as defined below), negotiate with the Company in good faith to make such adjustments to the terms and conditions of this Agreement so that such Acquisition Proposal ceases to constitute a Superior Offer, and (iii) if
after the Company shall have delivered to Nautilus a written offer to alter the terms or conditions of this Agreement during the Nautilus Notice
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Period, the Nautilus Board shall have determined in good faith, based on the advice of its outside legal counsel, that the failure to withhold, amend, withdraw or modify the Nautilus Board
Recommendation would be reasonably likely to be inconsistent with its fiduciary duties under applicable Law (after taking into account such alterations of the terms and conditions of this Agreement);
provided
that the Company receives written
notice from Nautilus confirming that the Nautilus Board has determined to change its recommendation at least four Business Days in advance of such Nautilus Board Adverse Recommendation Change, (the
Nautilus Notice Period
),
which notice shall include a description in reasonable detail of the reasons for such Nautilus Board Adverse Recommendation Change and, if such reasons are related to a Superior Offer, written copies of any relevant proposed transaction agreements
with any party making a potential Superior Offer. In the event of any material amendment to any Superior Offer, Nautilus shall be required to provide the Company with notice of such material amendment and the Nautilus Notice Period shall be
extended, if applicable, to ensure that at least three Business Days remain in the Nautilus Notice Period following such notification during which the parties shall comply again with the requirements of this
Section 5.3(c)
and the
Nautilus Board shall not make a Nautilus Board Adverse Recommendation Change prior to the end of such Nautilus Notice Period as so extended.
(d) Other than in connection with a bona fide written Superior Officer (which shall be subject to
Section 5.3(c)
), the
Nautilus Board may make a Nautilus Board Adverse Recommendation Change in response to a Nautilus Change in Circumstance, if and only if: (A) the Nautilus Board determines in good faith, after consultation with the Companys outside legal
counsel, that the failure to do so is reasonably likely to be inconsistent with its fiduciary duties under applicable Law; (B) the Company receives written notice from Nautilus confirming that the Nautilus Board has determined to change its
recommendation at least four Business Days in advance of the Nautilus Board Adverse Recommendation Change (the
Nautilus Change in Circumstance Notice
); and (C) (1) Nautilus shall have specified the Nautilus Change
in Circumstance in reasonable detail, (2) Nautilus shall have given the Company four business days after the Nautilus Change in Circumstance Notice to propose revisions to the terms of this Agreement or make another proposal so that such
Nautilus Change in Circumstance would no longer necessitate a Nautilus Board Adverse Recommendation Change, and shall have negotiated in good faith with the Company with respect to such proposed revisions or other proposal, if any, and
(3) after considering the results of such negotiations and giving effect to the proposals made by the Company, if any, after consultation with outside legal counsel, the Nautilus Board shall have determined, in good faith, that the failure to
make the Nautilus Board Adverse Recommendation Change in response to such Nautilus Change in Circumstance is reasonably likely to be inconsistent with its fiduciary duties under applicable Law. For the avoidance of doubt, the provisions of this
Section 5.3(d)
shall also apply to any material change to the facts and circumstances relating to such Nautilus Change in Circumstance and require a new Nautilus Change in Circumstance Notice, except that the references to four
business days shall be deemed to be three business days.
(e) Nautilus obligation to call, give notice of and hold the Nautilus
Stockholders Meeting in accordance with
Section 5.3(a)
shall not be limited or otherwise affected by the commencement, disclosure, announcement or submission of any Superior Offer or Acquisition Proposal, or by any withdrawal
or modification of the Nautilus Board Recommendation.
(f) Nothing contained in this Agreement shall prohibit Nautilus or the
Nautilus Board from complying with Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act;
provided however
, that any disclosure made by Nautilus or the Nautilus Board pursuant to Rules 14d-9 and 14e-2(a) shall be
limited to a statement that Nautilus is unable to take a position with respect to the bidders tender offer unless the Nautilus Board determines in good faith, after consultation with its outside legal counsel, that such statement would result
in a breach of its fiduciary duties under applicable Law
provided further
, that any such disclosures (other than a stop, look and listen communication or similar communication of the type contemplated by Section 14d
9(f) under the Exchange Act) shall be deemed to be a change of the Nautilus Board Recommendation unless the Nautilus Board expressly publicly reaffirms the Nautilus Board Recommendation (i) in such communication or (ii) within three
(3) Business Days after being requested in writing to do so by the Company.
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5.4 Regulatory Approvals
.
Each Party shall use commercially reasonable
efforts to file or otherwise submit, as soon as practicable after the date of this Agreement, all applications, notices, reports and other documents reasonably required to be filed by such Party with or otherwise submitted by such Party to any
Governmental Body with respect to the Contemplated Transactions, and to submit promptly any additional information requested by any such Governmental Body.
5.5 Company Options and Company Warrants
.
(a) Subject to
Section 5.5(c)
, at the Effective Time, each Company Option that is outstanding and unexercised immediately
prior to the Effective Time under the Company Plan, whether or not vested, shall be converted into and become an option to purchase Nautilus Common Stock, and Nautilus shall assume the Company Plans and each such Company Option in accordance with
the terms (as in effect as of the date of this Agreement) of the Company Plans and the terms of the stock option agreement by which such Company Option is evidenced. All rights with respect to Company Common Stock under Company Options assumed
by Nautilus shall thereupon be converted into rights with respect to Nautilus Common Stock. Accordingly, from and after the Effective Time: (i) each Company Option assumed by Nautilus may be exercised solely for shares of Nautilus Common
Stock; (ii) the number of shares of Nautilus Common Stock subject to each Company Option assumed by Nautilus shall be determined by multiplying (A) the number of shares of Company Common Stock that were subject to such Company Option, as
in effect immediately prior to the Effective Time, by (B) the Exchange Ratio, and rounding the resulting number down to the nearest whole number of shares of Nautilus Common Stock; (iii) the per share exercise price for the Nautilus Common
Stock issuable upon exercise of each Company Option assumed by Nautilus shall be determined by dividing (A) the per share exercise price of Company Common Stock subject to such Company Option, as in effect immediately prior to the Effective
Time, by (B) the Exchange Ratio and rounding the resulting exercise price up to the nearest whole cent; and (iv) any restriction on the exercise of any Company Option assumed by Nautilus shall continue in full force and effect and the
term, exercisability, vesting schedule and other provisions of such Company Option shall otherwise remain unchanged;
provided, however
, that: (A) to the extent provided under the terms of a Company Option, such Company Option assumed by
Nautilus in accordance with this
Section 5.5(a)
shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, division or subdivision of shares, stock dividend, reverse stock split,
consolidation of shares, reclassification, recapitalization or other similar transaction with respect to Nautilus Common Stock subsequent to the Effective Time; and (B) the Nautilus Board or a committee thereof shall succeed to the authority
and responsibility of the Company Board or any committee thereof with respect to each Company Option assumed by Nautilus. Notwithstanding anything to the contrary in this
Section 5.5(a)
, the conversion of each Company Option
(regardless of whether such option qualifies as an incentive stock option within the meaning of Section 422 of the Code) into an option to purchase shares of Nautilus Common Stock shall be made in a manner consistent with Treasury
Regulation Section 1.424-1, such that the conversion of a Company Option shall not constitute a modification of such Company Option for purposes of Section 409A or Section 424 of the Code.
(b) Nautilus shall file with the SEC, promptly (and no later than 30 days) after the Effective Time, a registration statement on
Form S-8, if available for use by Nautilus, relating to the shares of Nautilus Common Stock issuable with respect to Company Options assumed by Nautilus in accordance with
Section 5.5(a)
.
(c) Subject to Section 5.5(c), at the Effective Time, each Company Warrant that is outstanding and unexercised immediately prior to
the Effective Time, shall become converted into and become a warrant to purchase Nautilus Common Stock and Nautilus shall assume each such Company Warrant in accordance with its terms. All rights with respect to Company Common Stock or Company
Preferred Stock under Company Warrants assumed by Nautilus shall thereupon be converted into rights with respect to Nautilus Common Stock. Accordingly, from and after the Effective Time: (i) each Company Warrant assumed by Nautilus may be
exercised solely for shares of Nautilus Common Stock; (ii) the number of shares of Nautilus Common Stock subject to each Company Warrant assumed by Nautilus shall be determined by multiplying (A) the number of shares of Company Common
Stock, or the number of shares of Company Common Stock issuable upon
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conversion of the shares of Company Preferred Stock issuable upon exercise of the Company Warrant, as applicable, that were subject to such Company Warrant immediately prior to the Effective Time
by (B) the Exchange Ratio and rounding the resulting number down to the nearest whole number of shares of Nautilus Common Stock; (iii) the per share exercise price for the Nautilus Common Stock issuable upon exercise of each Company
Warrant assumed by Nautilus shall be determined by dividing the per share exercise price of Company Common Stock or Company Preferred Stock, subject to such Company Warrant, as in effect immediately prior to the Effective Time, by the Exchange Ratio
and rounding the resulting exercise price up to the nearest whole cent; and (iv) any restriction on any Company Warrant assumed by Nautilus shall continue in full force and effect and the terms and other provisions of such Company Warrant shall
otherwise remain unchanged.
(d) Prior to the Effective Time, the Company shall take all actions that may be necessary (under the
Company Plans and otherwise) to effectuate the provisions of this
Section 5.5
and to ensure that, from and after the Effective Time, holders of Company Options have no rights with respect thereto other than those specifically provided in
this
Section 5.5
.
5.6 Nautilus Options
.
Prior to the Closing, the Nautilus Board shall have adopted
appropriate resolutions and taken all other actions necessary and appropriate to provide that each unexpired and unexercised Nautilus Option, whether vested or unvested, shall be accelerated in full effective as of immediately prior to the Effective
Time.
5.7 Employee Benefits
.
Nautilus and the Company shall cause Nautilus to comply with the terms of any
employment, severance, retention, change of control, or similar agreement specified on
Section 3.17(a)
of the Nautilus Disclosure Schedule, subject to the provisions of such agreements.
5.8 Indemnification of Officers and Directors
.
(a) From the Effective Time through the sixth anniversary of the date on which the Effective Time occurs, each of Nautilus and the
Surviving Corporation shall indemnify and hold harmless each person who is now, or has been at any time prior to the date hereof, or who becomes prior to the Effective Time, a director or officer of Nautilus or the Company, respectively (the
D&O Indemnified Parties
), against all claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys fees and disbursements (collectively,
Costs
), incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that the D&O Indemnified Party
is or was a director or officer of Nautilus or of the Company, whether asserted or claimed prior to, at or after the Effective Time, in each case, to the fullest extent permitted under the DGCL for directors or officers of Delaware
corporations. Each D&O Indemnified Party will be entitled to advancement of expenses incurred in the defense of any such claim, action, suit, proceeding or investigation from each of Nautilus and the Surviving Corporation, jointly and
severally, upon receipt by Nautilus or the Surviving Corporation from the D&O Indemnified Party of a request therefor;
provided
that any such person to whom expenses are advanced provides an undertaking to Nautilus, to the extent then
required by the DGCL, to repay such advances if it is ultimately determined that such person is not entitled to indemnification.
(b) The provisions of the certificate of incorporation and bylaws of Nautilus with respect to indemnification, advancement of expenses
and exculpation of present and former directors and officers of Nautilus that are presently set forth in the certificate of incorporation and bylaws of Nautilus shall not be amended, modified or repealed for a period of six years from the Effective
Time in a manner that would adversely affect the rights thereunder of individuals who, at or prior to the Effective Time, were officers or directors of Nautilus. The certificate of incorporation and bylaws of the Surviving Corporation shall contain,
and Nautilus shall cause the certificate of incorporation and bylaws of the Surviving Corporation to so contain, provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of present and former directors
and officers as those presently set forth in the certificate of incorporation and bylaws of Nautilus.
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(c) From and after the Effective Time, (i) the Surviving Corporation shall fulfill and
honor in all respects the obligations of the Company to its D&O Indemnified Parties as of immediately prior to the Closing pursuant to any indemnification provisions under the Companys Organizational Documents and pursuant to any
indemnification agreements between the Company and such D&O Indemnified Parties, with respect to claims arising out of matters occurring at or prior to the Effective Time and (ii) Nautilus shall fulfill and honor in all respects the
obligations of Nautilus to its D&O Indemnified Parties as of immediately prior to the Closing pursuant to any indemnification provisions under Nautilus Organizational Documents and pursuant to any indemnification agreements between
Nautilus and such D&O Indemnified Parties, with respect to claims arising out of matters occurring at or prior to the Effective Time.
(d) From and after the Effective Time, Nautilus shall maintain directors and officers liability insurance policies, with an
effective date as of the Closing Date, on commercially available terms and conditions and with coverage limits customary for U.S. public companies similarly situated to Nautilus. In addition, Nautilus shall purchase, prior to the Effective
Time, a six-year prepaid tail policy (the cost of which shall be a Nautilus Transaction Expense) for the non-cancellable extension of the directors and officers liability coverage of Nautilus existing directors
and officers insurance policies for a claims reporting or discovery period of at least six years from and after the Effective Time with respect to any claim related to any period of time at or prior to the Effective Time with terms,
conditions, retentions and limits of liability that are no less favorable than the coverage provided under Nautilus existing policies as of the date of this Agreement with respect to any actual or alleged error, misstatement, misleading
statement, act, omission, neglect, breach of duty or any matter claimed against a director or officer of Nautilus by reason of him or her serving in such capacity that existed or occurred at or prior to the Effective Time (including in connection
with this Agreement or the Contemplated Transactions or in connection with Nautilus initial public offering of shares of Nautilus Common Stock).
(e) From and after the Effective Time, Nautilus shall pay all expenses, including reasonable attorneys fees, that are incurred by
the persons referred to in this
Section 5.8
in connection with their successful enforcement of the rights provided to such persons in this
Section 5.8
.
(f) The provisions of this
Section 5.8
are intended to be in addition to the rights otherwise available to the current and
former officers and directors of Nautilus and the Company by law, charter, statute, bylaw or agreement, and shall operate for the benefit of, and shall be enforceable by, each of the D&O Indemnified Parties, their heirs and their
representatives.
(g) In the event Nautilus or the Surviving Corporation or any of their respective successors or assigns
(i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers all or substantially all of its properties and assets to any
Person, then, and in each such case, proper provision shall be made so that the successors and assigns of Nautilus or the Surviving Corporation, as the case may be, shall succeed to the obligations set forth in this
Section 5.8
. Nautilus shall cause the Surviving Corporation to perform all of the obligations of the Surviving Corporation under this
Section 5.8
.
5.9 Additional Agreements
.
The Parties shall use commercially reasonable efforts to cause to be taken all actions necessary
to consummate the Contemplated Transactions. Without limiting the generality of the foregoing, each Party to this Agreement: (a) shall make all filings and other submissions (if any) and give all notices (if any) required to be made
and given by such Party in connection with the Contemplated Transactions; (b) shall use commercially reasonable efforts to obtain each Consent (if any) reasonably required to be obtained (pursuant to any applicable Law or Contract, or
otherwise) by such Party in connection with the Contemplated Transactions or for such Contract to remain in full force and effect; (c) shall use commercially reasonable efforts to lift any injunction prohibiting, or any other legal bar to, the
Contemplated Transactions; and (d) shall use commercially reasonable efforts to satisfy the conditions precedent to the consummation of this Agreement.
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5.10 Disclosure
.
Without limiting any Partys obligations under the
Confidentiality Agreement, no Party shall, and no Party shall permit any of its Subsidiaries or any Representative of such Party to, issue any press release or make any disclosure (to any customers or employees of such Party, to the public or
otherwise) regarding the Contemplated Transactions unless: (a) the other Party shall have approved such press release or disclosure in writing, such approval not to be unreasonably conditioned, withheld or delayed; or (b) such Party
shall have determined in good faith, upon the advice of outside legal counsel, that such disclosure is required by applicable Law and, to the extent practicable, before such press release or disclosure is issued or made, such Party advises the other
Party of, and consults with the other Party regarding, the text of such press release or disclosure;
provided
,
however
, that each of the Company and Nautilus may make any public statement in response to specific questions by the press,
analysts, investors or those attending industry conferences or financial analyst conference calls, so long as any such statements are consistent with previous press releases, public disclosures or public statements made by the Company or Nautilus in
compliance with this
Section 5.10
.
5.11 Listing
.
Nautilus shall use its commercially reasonable
efforts: (a) to maintain its existing listing on NASDAQ until the Closing Date and to obtain approval of the listing of the combined organization on NASDAQ; (b) without derogating from the generality of the requirements of clause
(a) and to the extent required by the rules and regulations of NASDAQ, to (i) prepare and submit to NASDAQ a notification form for the listing of the shares of Nautilus Common Stock to be issued in connection with the
Contemplated Transactions and (ii) to cause such shares to be approved for listing (subject to official notice of issuance); and (c) to the extent required by Nasdaq Marketplace Rule 5110, to file an initial listing application for
the Nautilus Common Stock on NASDAQ (the
NASDAQ Listing Application
) and to cause such NASDAQ Listing Application to be conditionally approved prior to the Effective Time. Each Party will promptly inform the other Party of
all verbal or written communications between NASDAQ and such Party or its representatives. The Parties will use commercially reasonable efforts to coordinate with respect to compliance with NASDAQ rules and regulations. The Company agrees
to pay all NASDAQ fees associated with the NASDAQ Listing Application. The Company will cooperate with Nautilus as reasonably requested by Nautilus with respect to the NASDAQ Listing Application and promptly furnish to Nautilus all information
concerning the Company and its stockholders that may be required or reasonably requested in connection with any action contemplated by this
Section 5.11
.
5.12 Tax Matters.
(a) The Parties shall not file any U.S. federal, state or local Tax Return in a manner that is inconsistent with the treatment of the
Merger as a reorganization within the meaning of Section 368(a) of the Code for U.S. federal, state and other relevant Tax purposes, unless otherwise required by applicable Law.
(b) The Parties shall use their respective reasonable best efforts to cause the Merger to qualify, and will not take any action or cause
any action to be taken which action would reasonably be expected to prevent the Merger from qualifying, as a reorganization within the meaning of Section 368(a) of the Code.
(c) Each of the Parties agrees to prepare and file all U.S. federal income Tax Returns in accordance with the foregoing provisions of
this
Section 5.12
and shall not take any position inconsistent therewith in the course of any audit, litigation or other Legal Proceeding with respect to U.S. federal income taxes, except as otherwise required by applicable Law or
following a final determination by a court of competent jurisdiction or other final administrative decision by an applicable Governmental Body.
(d) The Company shall use its reasonable best efforts to obtain the opinion of Sidley Austin LLP or another firm of national reputation
(
Tax Counsel
) to the effect that the Merger will be treated, for U.S. federal income tax purposes, as a reorganization within the meaning of Section 368(a) of the Code (the
Tax Opinion
),
dated as of the Closing and also dated as of any earlier date as may be required by the SEC in connection with the effectiveness of the Registration Statement. As a condition precedent to the rendering of the Tax Opinion, Nautilus, Merger Sub and
the Company shall use reasonable best efforts to execute and deliver to Tax Counsel
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tax representation letters (the
Tax Representation Letters
), with such customary representations as Tax Counsel shall reasonably request (taking into account the
ownership and control of Nautilus following consummation of the Merger), dated and executed as of the date (or dates) of such Tax Opinion, on which such Tax Representation Letters Tax Counsel shall be entitled to rely in delivering the Tax Opinion.
5.13 Legends
.
Nautilus shall be entitled to place appropriate legends on the book entries and/or certificates
evidencing any shares of Nautilus Common Stock to be received in the Merger by equityholders of the Company who may be considered affiliates of Nautilus for purposes of Rules 144 and 145 under the Securities Act reflecting the
restrictions set forth in Rules 144 and 145 and to issue appropriate stop transfer instructions to the transfer agent for Nautilus Common Stock.
5.14 Directors and Officers
.
Until successors are duly elected or appointed and qualified in accordance with
applicable Law, the Parties shall use reasonable best efforts and take all necessary action so that the Persons listed in
Schedule 5.14
are elected or appointed, as applicable, to the positions of officers and directors of Nautilus and the
Surviving Corporation, as set forth therein, to serve in such positions effective as of the Effective Time. If any Person listed in
Schedule 5.14
is unable or unwilling to serve as officer or director of Nautilus or the Surviving Corporation,
as set forth therein, the Party appointing such Person (as set forth on
Schedule 5.14
) shall designate a successor.
5.15 Termination of Certain Agreements and Rights
.
The Company shall cause any stockholders agreements, voting
agreements, registration rights agreements, co-sale agreements and any other similar Contracts between the Company and any holders of Company Capital Stock, including any such Contract granting any Person investor rights, rights of first refusal,
registration rights or director registration rights (collectively, the
Investor Agreements
), to be terminated immediately prior to the Effective Time, without any liability being imposed on the part of Nautilus or the
Surviving Corporation.
5.16 Corporate Identity
.
Nautilus shall submit to its stockholders at the Nautilus
Stockholders Meeting a proposal to approve and adopt the Nautilus Charter Amendment to change the name of Nautilus to Alpine Immune Sciences, Inc., contingent upon the Effective Time.
5.17 Section 16 Matters
.
Prior to the Effective Time, Nautilus shall take all such steps as may be required to
cause any acquisitions of Nautilus Common Stock and any options to purchase Nautilus Common Stock in connection with the Contemplated Transactions, by each individual who is reasonably expected to become subject to the reporting requirements of
Section 16(a) of the Exchange Act with respect to Nautilus, to be exempt under Rule 16b-3 promulgated under the Exchange Act.
5.18 Cooperation
.
Each Party shall cooperate reasonably with the other Party and shall provide the other Party with
such assistance as may be reasonably requested for the purpose of facilitating the performance by each Party of its respective obligations under this Agreement and to enable the combined organization to continue to meet its obligations following the
Effective Time.
5.19 Allocation Certificate
.
The Company will prepare and deliver to Nautilus at least two Business
Days prior to the Closing Date a certificate signed by the Chief Financial Officer of the Company in a form reasonably acceptable to Nautilus setting forth (as of immediately prior to the Effective Time) (a) each holder of Company Capital
Stock, Company Options or Company Warrants, (b) such holders name and address; (c) the number and type of Company Capital Stock held and/or underlying the Company Options or Company Warrants as of the Closing Date for each such
holder; and (c) the number of shares of Nautilus Common Stock to be issued to such holder, or to underlie any Nautilus Option or Company Warrant to be issued to such holder, pursuant to this Agreement in respect of the Company Capital Stock,
Company Options or Company Warrants held by such holder as of immediately prior to the Effective Time (the
Allocation Certificate
).
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5.20 Company Financial Statements
.
As promptly as reasonably practicable
following the date of this Agreement (and in any event within 28 days following the date of this Agreement with respect to the Company Audited Financial Statements), the Company will cause its independent auditors to furnish (i) audited
financial statements for the fiscal years ended 2015, and 2016, for inclusion in the Proxy Statement and the Registration Statement (the
Company Audited Financial Statements
) and (ii) unaudited interim financial
statements for each interim period completed prior to Closing that would be required to be included in the Registration Statement or any periodic report due prior to the Closing if the Company were subject to the periodic reporting requirements
under the Securities Act or the Exchange Act (the
Company Interim Financial Statements
). Each of the Company Audited Financial Statements and the Company Interim Financial Statements will be suitable for inclusion in
the Proxy Statement and the Registration Statement and prepared in accordance with GAAP as applied on a consistent basis during the periods involved (except in each case as described in the notes thereto) and on that basis will present fairly, in
all material respects, the financial position and the results of operations, changes in stockholders equity, and cash flows of the Company as of the dates of and for the periods referred to in the Company Audited Financial Statements or the
Company Interim Financial Statements, as the case may be.
5.21 Nautilus Reverse Stock Split
.
If deemed necessary
by the Parties, Nautilus shall submit to Nautilus stockholders at the Nautilus Stockholders Meeting the Nautilus Charter Amendment to authorize the Nautilus Board to effect a reverse stock split of all outstanding shares of Nautilus
Common Stock at a reverse stock split ratio mutually agreed to by the Company and Nautilus (the
Nautilus Reverse Stock Split
), and shall take such other actions as shall be reasonably necessary to effectuate the Nautilus
Reverse Stock Split.
5.22 Nautilus Wind-Down
.
Except as the Parties may otherwise agree or as set forth on
Section 5.22
of the Nautilus Disclosure Schedule, Nautilus shall use reasonable efforts to complete the Wind-Down, including the termination of the Nautilus ESPP but excluding the termination of the Nautilus Stock Plans, in each case,
except as otherwise agreed by the Parties, and to satisfy in full all liabilities relating to the Wind-Down, at or prior to the Closing.
Section 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY
The obligations of each Party to effect the Merger and otherwise consummate the Contemplated Transactions to be consummated at the Closing are
subject to the satisfaction or, to the extent permitted by applicable law, the written waiver by each of the Parties, at or prior to the Closing, of each of the following conditions:
6.1 Effectiveness of Registration Statement
.
The Registration Statement shall have become effective in accordance with
the provisions of the Securities Act, and shall not be subject to any stop order or proceeding (or threatened proceeding by the SEC) seeking a stop order with respect to the Registration Statement that has not been withdrawn.
6.2 No Restraints
.
No temporary restraining order, preliminary or permanent injunction or other order preventing the
consummation of the Contemplated Transactions shall have been issued by any court of competent jurisdiction or other Governmental Body of competent jurisdiction and remain in effect and there shall not be any Law which has the effect of making the
consummation of the Contemplated Transactions illegal.
6.3 Stockholder Approval
.
(a) Nautilus shall have
obtained the Required Nautilus Stockholder Vote and (b) the Company shall have obtained the Required Company Stockholder Vote.
6.4 Listing
.
The existing shares of Nautilus Common Stock shall have been continually listed on NASDAQ as of and from
the date of this Agreement through the Closing Date, the approval of the listing of additional shares of Nautilus Common Stock on NASDAQ shall have been obtained and the shares of Nautilus Common Stock to be issued in the Merger pursuant to this
Agreement shall have been approved for listing (subject to official notice of issuance) on NASDAQ as of the Closing.
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Section 7. ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF NAUTILUS AND MERGER
SUB
The obligations of Nautilus and Merger Sub to effect the Merger and otherwise consummate the transactions to be consummated at
the Closing are subject to the satisfaction or the written waiver by Nautilus, at or prior to the Closing, of each of the following conditions:
7.1 Accuracy of Representations
.
The Company Fundamental Representations shall have been true and correct in all
respects as of the date of this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of such date (except to the extent such representations and warranties are specifically made as
of a particular date, in which case such representations and warranties shall be true and correct as of such date). The Company Capitalization Representations shall have been true and correct in all respects as of the date of this Agreement and
shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of such date, except, in each case, (x) for such inaccuracies which are
de minimis
, individually or in the aggregate or
(y) for those representations and warranties which address matters only as of a particular date (which representations and warranties shall have been true and correct, subject to the qualifications as set forth in the preceding clause (x), as
of such particular date). The representations and warranties of the Company contained in this Agreement (other than the Company Fundamental Representations and the Company Capitalization Representations) shall have been true and correct as of
the date of this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on the Closing Date except (a) in each case, or in the aggregate, where the failure to be so true and correct would
not reasonably be expected to have a Company Material Adverse Effect (without giving effect to any references therein to any Company Material Adverse Effect or other materiality qualifications), or (b) for those representations and warranties
which address matters only as of a particular date (which representations shall have been true and correct, subject to the qualifications as set forth in the preceding clause (a), as of such particular date) (it being understood that, for purposes
of determining the accuracy of such representations and warranties, any update of or modification to the Company Disclosure Schedule made or purported to have been made after the date of this Agreement shall be disregarded).
7.2 Performance of Covenants
.
The Company shall have performed or complied with in all material respects all
agreements and covenants required to be performed or complied with by it under this Agreement at or prior to the Effective Time.
7.3 Closing Certificate
.
Nautilus shall have received a certificate executed by the Chief Executive Officer or Chief
Financial Officer of the Company certifying (a) that the conditions set forth in
Sections 7.1
,
7.2
,
7.4
,
7.6
and
7.7
have been duly satisfied and (b) that the information set forth in the Allocation
Certificate delivered by the Company in accordance with
Section 5.19
is true and accurate in all respects as of the Closing Date.
7.4 Company Pre-Closing Financing
.
The Company Pre-Closing Financing shall have been consummated and the Company shall
have received the proceeds of the Company Pre-Closing Financing on the terms and conditions set forth in the Subscription Agreement.
7.5 FIRPTA Certificate
.
Nautilus shall have received from the Company a form of notice to the IRS in accordance with
the requirements of Treasury Regulation Section 1.897-2(h) and in form and substance reasonably acceptable to Nautilus.
7.6 No Company Material Adverse Effect
.
Since the date of this Agreement, there shall not have occurred any Company
Material Adverse Effect that is continuing.
7.7 Termination of Investor Agreements
.
The Investor Agreements shall
have been terminated.
7.8 Lock-Up Agreements
.
Nautilus shall have received a copy of a lock-up agreement in
substantially the form attached hereto as
Exhibit F
(the
Lock-Up Agreement
) duly executed by each Company Lock-Up
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Signatory and each executive officer and director of the Company who is elected or appointed, as applicable, as an executive officer and director of Nautilus as of immediately following the
Closing, each of which shall be in full force and effect.
7.9 Company Closing Financial Certificate
.
Nautilus
shall have received the Company Closing Financial Certificate, a draft of which shall have been provided to Nautilus at least five Business Days prior to the Closing, which certificate shall be accompanied by such supporting documentation,
information and calculations as are reasonably requested by Nautilus to verify and determine the information contained therein, which Company Closing Financial Certificate shall certify that Company Net Cash shall be not less than $38,000,000 as of
the Closing.
Section 8. ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise consummate the transactions to be consummated at the Closing are subject to
the satisfaction or the written wavier by the Company, at or prior to the Closing, of each of the following conditions:
8.1 Accuracy of Representations
.
Each of the Nautilus Fundamental Representations shall have been true and correct in
all respects as of the date of this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of such date (except to the extent such representations and warranties are specifically
made as of a particular date, in which case such representations and warranties shall be true and correct as of such date). The Nautilus Capitalization Representations shall have been true and correct as of the date of this Agreement and shall be
true and correct on and as of the Closing Date with the same force and effect as if made on and as of such date, except, in each case, (x) for such inaccuracies which are
de minimis
, individually or in the aggregate or (y) for those
representations and warranties which address matters only as of a particular date (which representations and warranties shall have been true and correct, subject to the qualifications as set forth in the preceding clause (x), as of such particular
date). The representations and warranties of Nautilus and Merger Sub contained in this Agreement (other than the Nautilus Fundamental Representations and the Nautilus Capitalization Representations) shall have been true and correct as of the date of
this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on the Closing Date except (a) in each case, or in the aggregate, where the failure to be true and correct would not reasonably
be expected to have a Nautilus Material Adverse Effect (without giving effect to any references therein to any Nautilus Material Adverse Effect or other materiality qualifications), or (b) for those representations and warranties which address
matters only as of a particular date (which representations shall have been true and correct, subject to the qualifications as set forth in the preceding clause (a), as of such particular date) (it being understood that, for purposes of determining
the accuracy of such representations and warranties, any update of or modification to the Nautilus Disclosure Schedule made or purported to have been made after the date of this Agreement shall be disregarded).
8.2 Performance of Covenants
.
Nautilus and Merger Sub shall have performed or complied with in all material respects
all of their agreements and covenants required to be performed or complied with by each of them under this Agreement at or prior to the Effective Time.
8.3 Documents
.
The Company shall have received the following documents, each of which shall be in full force and
effect:
(a) a certificate executed by the Chief Executive Officer or Chief Financial Officer of Nautilus confirming that the
conditions set forth in
Sections 8.1
,
8.2
, and
8.5
have been duly satisfied;
(b) written resignations, in forms
satisfactory to the Company, dated as of the Closing Date and effective as of the Closing executed by the officers and directors of Nautilus who are not to continue as officers or directors of Nautilus pursuant to
Section 5.14
hereof;
and
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(c) the Nautilus Closing Financial Certificate, a draft of which shall have been provided at
least five Business Days prior to the Closing, which certificate shall be accompanied by such supporting documentation, information and calculations as are reasonably requested by the Company to verify and determine the information contained
therein, which Nautilus Closing Financial Certificate shall certify that Nautilus Net Cash shall be not less than $38,000,000 as of the Closing.
8.4 Sarbanes-Oxley Certifications
.
Neither the principal executive officer nor the principal financial officer of
Nautilus shall have failed to provide, with respect to any Nautilus SEC Document filed (or required to be filed) with the SEC on or after the date of this Agreement, any necessary certification in the form required under Rule 13a-14 under the
Exchange Act and 18 U.S.C. §1350.
8.5 No Nautilus Material Adverse Effect
.
Since the date of this Agreement,
there shall not have occurred any Nautilus Material Adverse Effect that is continuing.
8.6 Lock-Up
Agreements
.
The Company shall have received a copy of a Lock-Up Agreement duly executed by each Nautilus Lock-Up Signatory and each executive officer and director of Nautilus who is elected or appointed, as applicable, as an
executive officer and director of Nautilus as of immediately following the Closing, each of which shall be in full force and effect.
8.7 Tax Opinion
.
The Company shall have received the Tax Opinion, dated as of the Closing Date and addressed to the
Company.
Section 9. TERMINATION
9.1 Termination
.
This Agreement may be terminated prior to the Effective Time (whether before or after adoption of
this Agreement by the Companys stockholders and whether before or after approval of the Nautilus Stockholder Matters by Nautilus stockholders, unless otherwise specified below):
(a) by mutual written consent of Nautilus and the Company;
(b) by either Nautilus or the Company if the Contemplated Transactions shall not have been consummated by October 18, 2017 (subject
to possible extension as provided in this
Section 9.1(b)
, the
End Date
);
provided
,
however
, that the right to terminate this Agreement under this
Section 9.1(b)
shall not be
available to the Company, on the one hand, or to Nautilus or Merger Sub, on the other hand, if such Partys action or failure to act has been a principal cause of the failure of the Contemplated Transactions to occur on or before the End Date
and such action or failure to act constitutes a breach of this Agreement,
provided
,
further
,
however
, that, in the event that a request for additional information has been made by any Governmental Body, or in the event that the
SEC has not declared effective under the Securities Act the Registration Statement by the date which is sixty (60) days prior to the End Date, then either the Company or Nautilus shall be entitled to extend the End Date for an additional sixty
(60) days;
(c) by either Nautilus or the Company if a court of competent jurisdiction or other Governmental Body shall have
issued a final and nonappealable order, decree or ruling, or shall have taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Contemplated Transactions;
(d) by Nautilus if the Required Company Stockholder Vote shall not have been obtained within five Business Days of the Registration
Statement becoming effective in accordance with the provisions of the Securities Act;
provided
,
however
, that once the Required Company Stockholder Vote has been obtained, Nautilus may not terminate this Agreement pursuant to this
Section 9.1(d)
;
(e) by either Nautilus or the Company if (i) the Nautilus Stockholders Meeting (including any
adjournments and postponements thereof) shall have been held and completed and Nautilus stockholders shall
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have taken a final vote on the Nautilus Stockholder Matters and (ii) the Nautilus Stockholder Matters shall not have been approved at the Nautilus Stockholders Meeting (or at any
adjournment or postponement thereof) by the Required Nautilus Stockholder Vote;
provided
,
however
, that the right to terminate this Agreement under this
Section 9.1(e)
shall not be available to Nautilus where the
failure to obtain the Required Nautilus Stockholder Vote shall have been caused by the action or failure to act of Nautilus and such action or failure to act constitutes a material breach by Nautilus of this Agreement;
(f) by the Company (at any time prior to the approval of the Nautilus Stockholder Matters by the Required Nautilus Stockholder Vote) if a
Nautilus Triggering Event shall have occurred;
(g) by Nautilus (at any time prior to the adoption of this Agreement and the approval
of the Contemplated Transactions by the Required Company Stockholder Vote) if a Company Triggering Event shall have occurred;
(h) by
the Company, upon a breach of any representation, warranty, covenant or agreement set forth in this Agreement by Nautilus or Merger Sub or if any representation or warranty of Nautilus or Merger Sub shall have become inaccurate, in either case, such
that the conditions set forth in
Section 8.1
or
Section 8.2
would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become inaccurate;
provided
that the Company
is not then in material breach of any representation, warranty, covenant or agreement under this Agreement;
provided
,
further
, that if such inaccuracy in Nautilus or Merger Subs representations and warranties or breach by
Nautilus or Merger Sub is curable by Nautilus or Merger Sub, then this Agreement shall not terminate pursuant to this
Section 9.1(h)
as a result of such particular breach or inaccuracy until the earlier of (i) the expiration of
a 30-day period commencing upon delivery of written notice from the Company to Nautilus or Merger Sub of such breach or inaccuracy and its intention to terminate pursuant to this
Section 9.1(h)
and (ii) Nautilus or Merger Sub
(as applicable) ceasing to exercise commercially reasonable efforts to cure such breach following delivery of written notice from the Company to Nautilus or Merger Sub of such breach or inaccuracy and its intention to terminate pursuant to this
Section 9.1(h)
(it being understood that this Agreement shall not terminate pursuant to this
Section 9.1(h)
as a result of such particular breach or inaccuracy if such breach by Nautilus or Merger Sub is cured prior
to such termination becoming effective);
(i) by Nautilus, upon a breach of any representation, warranty, covenant or agreement set
forth in this Agreement by the Company or if any representation or warranty of the Company shall have become inaccurate, in either case, such that the conditions set forth in
Section 7.1
or
Section 7.2
would not be satisfied
as of the time of such breach or as of the time such representation or warranty shall have become inaccurate;
provided
that Nautilus is not then in material breach of any representation, warranty, covenant or agreement under this Agreement;
provided
,
further
, that if such inaccuracy in the Companys representations and warranties or breach by the Company is curable by the Company then this Agreement shall not terminate pursuant to this
Section 9.1(i)
as a result of such particular breach or inaccuracy until the earlier of (i) the expiration of a 30-day period commencing upon delivery of written notice from Nautilus to the Company of such breach or inaccuracy
and its intention to terminate pursuant to this
Section 9.1(i)
and (ii) the Company ceasing to exercise commercially reasonable efforts to cure such breach following delivery of written notice from Nautilus to the Company of
such breach or inaccuracy and its intention to terminate pursuant to this
Section 9.1(i)
(it being understood that this Agreement shall not terminate pursuant to this
Section 9.1(i)
as a result of such particular
breach or inaccuracy if such breach by the Company is cured prior to such termination becoming effective);
(j) by Nautilus, at any
time, if (i) all conditions in
Section 6
and
Section 8
have been satisfied (other than those conditions that by their nature are to be satisfied by actions taken at the Closing), and remain so satisfied and
(ii) Nautilus irrevocably confirms by written notice to the Company that (A) each of the conditions in
Section 7
, other than the condition set forth in
Section 7.4
, has been satisfied or that Nautilus is willing to
waive any such conditions that have not been satisfied (other than those conditions that by their nature are to be satisfied by actions taken at the Closing) and (B) it is prepared to consummate the Closing upon satisfaction of the condition
set forth in
Section 7.4
(i.e., consummation of the Company Pre-Closing Financing);
provided
, that
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this Agreement shall not terminate pursuant to this
Section 9.1(j)
unless the condition set forth in
Section 7.4
has not been satisfied within ten calendar days after
delivery of the written notice from Nautilus to the Company pursuant to clause (ii) of this
Section 9.1(j)
;
(k) by
Nautilus, at any time, if (i) all conditions in
Section 6
and
Section 8
have been satisfied (other than those conditions that by their nature are to be satisfied by actions taken at the Closing), and remain so satisfied
and (ii) Nautilus irrevocably confirms by written notice to the Company that (A) each of the conditions in
Section 7
, other than the condition set forth in
Section 7.9
, has been satisfied or that Nautilus is willing
to waive any such conditions that have not been satisfied (other than those conditions that by their nature are to be satisfied by actions taken at the Closing) and (B) it is prepared to consummate the Closing upon satisfaction of the condition
set forth in
Section 7.9
;
provided
, that this Agreement shall not terminate pursuant to this
Section 9.1(k)
unless the condition set forth in
Section 7.9
has not been satisfied within ten calendar days
after delivery of the written notice from Nautilus to the Company pursuant to clause (ii) of this
Section 9.1(k)
;
(l) by the Company, at any time, if (i) all conditions in
Section 6
and
Section 7
have been satisfied (other
than those conditions that by their nature are to be satisfied by actions taken at the Closing), and remain so satisfied and (ii) the Company irrevocably confirms by written notice to Nautilus that (A) each of the conditions in
Section 8
, other than the condition set forth in
Section 8.3(c)
, has been satisfied or that the Company is willing to waive any such conditions that have not been satisfied (other than those conditions that by their nature
are to be satisfied by actions taken at the Closing) and (B) it is prepared to consummate the Closing upon satisfaction of the condition set forth in
Section 8.3(c)
;
provided
, that this Agreement shall not terminate pursuant
to this
Section 9.1(l)
unless the condition set forth in
Section 8.3(c)
has not been satisfied within ten calendar days after delivery of the written notice from Nautilus to the Company pursuant to clause
(ii) of this
Section 9.1(l)
;
The Party desiring to terminate this Agreement pursuant to this
Section 9.1
(other than
pursuant to
Section 9.1(a)
) shall give a notice of such termination to the other Party specifying the provisions hereof pursuant to which such termination is made and the basis therefor described in reasonable detail.
9.2 Effect of Termination
.
In the event of the termination of this Agreement as provided in
Section 9.1
,
this Agreement shall be of no further force or effect;
provided
,
however
, that (a) this
Section 9.2
,
Section 9.3
, and
Section 10
shall survive the termination of this Agreement and shall remain
in full force and effect, and (b) the termination of this Agreement and the provisions of
Section 9.3
shall not relieve any Party of any liability for fraud or for any willful and material breach of any representation, warranty,
covenant, obligation or other provision contained in this Agreement.
9.3 Expenses; Termination Fees
.
(a) Except as set forth in this
Section 9.3
and
Section 5.11
all fees and expenses incurred in connection with
this Agreement and the Contemplated Transactions shall be paid by the Party incurring such expenses, whether or not the Merger is consummated;
provided
,
however
, that Nautilus and the Company shall also share equally all fees and
expenses incurred in relation to the printing and filing with the SEC of the Registration Statement (including any financial statements and exhibits) and any amendments or supplements thereto and paid to a financial printer or the SEC.
(b) If (i) this Agreement is terminated by Nautilus or the Company pursuant to
Section 9.1(e)
, (ii) at any time
after the date of this Agreement and prior to the Nautilus Stockholders Meeting an Acquisition Proposal with respect to Nautilus shall have been publicly announced, disclosed or otherwise communicated to the Nautilus Board and
(iii) within 12 months after the date of such termination, Nautilus enters into a definitive agreement with respect to a Subsequent Transaction or consummates a Subsequent Transaction, then Nautilus shall pay to the Company, upon such entry
into a definitive agreement and/or consummation of a Subsequent Transaction, a nonrefundable fee in an amount equal to $2,500,000 (the
Company Termination Fee
), less any amount previously paid to the Company pursuant to
Section 9.3(g)
, plus any amount payable to the Company pursuant to
Section 9.3(i)
.
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(c) If this Agreement is terminated by the Company pursuant to
Section 9.1(f)
,
then Nautilus shall pay to the Company, within ten Business Days after termination, the Company Termination Fee, in addition to any amount payable to the Company pursuant to
Section 9.3(i)
.
(d) If (i) this Agreement is terminated by Nautilus pursuant to
Section 9.1(d)
, (ii) at any time after the date of
this Agreement and before obtaining the Required Company Stockholder Vote an Acquisition Proposal with respect to the Company shall have been publicly announced, disclosed or otherwise communicated to the Company Board, and (iii) within 12
months after the date of such termination, the Company enters into a definitive agreement with respect to a Subsequent Transaction or consummates a Subsequent Transaction, then the Company shall pay to Nautilus, upon such entry into a definitive
agreement and/or consummation of a Subsequent Transaction, a nonrefundable fee in an amount equal to $2,500,000 (the
Nautilus Termination Fee
), in addition to any amount payable to Nautilus pursuant to
Section 9.3(i)
.
(e) If (i) this Agreement is terminated by Nautilus pursuant to
Section 9.1(g)
, then
the Company shall pay to Nautilus, within ten Business Days after termination, the Nautilus Termination Fee, in addition to any amount payable to Nautilus pursuant to
Section 9.3(i)
.
(f) If this Agreement is terminated by Nautilus pursuant to
Section 9.1(j)
, then the Company shall pay to Nautilus, within
ten Business Days after termination, the Nautilus Termination Fee, in addition to any amount payable to Nautilus pursuant to
Section 9.3(i)
.
(g) (i) If this Agreement is terminated by the Company pursuant to
Section 9.1(h)
or
Section 9.1(e)
or (ii) in the event of the failure of the Company to consummate the transactions to be contemplated at the Closing solely as a result of a Nautilus Material Adverse Effect as set forth in
Section 8.5
(
provided
, that at such time all of the other conditions precedent to Nautilus obligation to close set forth in
Section 6
and
Section 7
have been satisfied by the Company, are capable of being satisfied by
the Company or have been waived by Nautilus), then Nautilus shall reimburse the Company for all reasonable out-of-pocket fees and expenses incurred by the Company in connection with this Agreement and the Contemplated Transactions (such expenses,
collectively, the
Third Party Expenses
), up to a maximum of $1,000,000, by wire transfer of same-day funds within ten Business Days following the date on which the Company submits to Nautilus true and correct copies of
reasonable documentation supporting such Third Party Expenses;
provided
,
however
, that in no event shall Nautilus be obligated to reimburse the Company for any amounts payable to financial advisors to the Company except for reasonably
documented out-of-pocket expenses otherwise reimbursable by the Company to such financial advisors pursuant to the terms of the Companys engagement letter or similar arrangement with such financial advisors.
(h) (i) If this Agreement is terminated by Nautilus pursuant to
Section 9.1(i)
or (ii) in the event of the
failure of Nautilus to consummate the transactions to be consummated at the Closing solely as a result of a Company Material Adverse Effect as set forth in
Section 7.6
(
provided
, that at such time all of the other conditions
precedent to the Companys obligation to close set forth in
Section 6
and
Section 8
have been satisfied by Nautilus, are capable of being satisfied by Nautilus or have been waived by the Company), the Company shall
reimburse Nautilus for all Third Party Expenses incurred by Nautilus up to a maximum of $1,000,000, by wire transfer of same-day funds within ten Business Days following the date on which Nautilus submits to the Company true and correct copies of
reasonable documentation supporting such Third Party Expenses;
provided
,
however
, that in no event shall the Company be obligated to reimburse Nautilus for any amounts payable to financial advisors to Nautilus except for reasonably
documented out-of-pocket expenses otherwise reimbursable by Nautilus to such financial advisors pursuant to the terms of Nautilus engagement letter or similar arrangement with such financial advisors.
(i) If either Party fails to pay when due any amount payable by it under this
Section 9.3
, then (i) such Party shall
reimburse the other Party for reasonable costs and expenses (including reasonable fees and disbursements of counsel) incurred in connection with the collection of such overdue amount and the enforcement by the other Party of its rights under this
Section 9.3
, and (ii) such Party shall pay to the other Party
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interest on such overdue amount (for the period commencing as of the date such overdue amount was originally required to be paid and ending on the date such overdue amount is actually paid to the
other Party in full) at a rate per annum equal to the prime rate (as announced by Bank of America or any successor thereto) in effect on the date such overdue amount was originally required to be paid plus three percent.
(j) The Parties agree that, subject to
Section 9.2
, the payment of the fees and expenses set forth in this
Section 9.3
shall be the sole and exclusive remedy of each Party following a termination of this Agreement under the circumstances described in this
Section 9.3
, it being understood that in no event shall either Nautilus or
the Company be required to pay the individual fees or damages payable pursuant to this
Section 9.3
on more than one occasion. Subject to
Section 9.2
, following the payment of the fees and expenses set forth in this
Section 9.3
by a Party, (i) such party shall have no further liability to the other Party in connection with or arising out of this Agreement or the termination thereof, any breach of this Agreement by the other Party giving rise to
such termination, or the failure of the Contemplated Transactions to be consummated, (ii) no other Party or their respective Affiliates shall be entitled to bring or maintain any other claim, action or proceeding against such Party or seek to
obtain any recovery, judgment or damages of any kind against such Party (or any partner, member, stockholder, director, officer, employee, Subsidiary, affiliate, agent or other representative of such Party) in connection with or arising out of this
Agreement or the termination thereof, any breach by such Party giving rise to such termination or the failure of the Contemplated Transactions to be consummated and (iii) all other Parties and their respective Affiliates shall be precluded from
any other remedy against such Party and its Affiliates, at law or in equity or otherwise, in connection with or arising out of this Agreement or the termination thereof, any breach by such Party giving rise to such termination or the failure of the
Contemplated Transactions to be consummated. Each of the Parties acknowledges that (x) the agreements contained in this
Section 9.3
are an integral part of the Contemplated Transactions, (y) without these agreements, the
Parties would not enter into this Agreement and (z) any amount payable pursuant to this
Section 9.3
is not a penalty, but rather is liquidated damages in a reasonable amount that will compensate the Parties in the circumstances in
which such amount is payable.
Section 10. MISCELLANEOUS PROVISIONS
10.1 Non-Survival of Representations and Warranties
.
The representations and warranties of the Company, Nautilus and
Merger Sub contained in this Agreement or any certificate or instrument delivered pursuant to this Agreement shall terminate at the Effective Time, and only the covenants that by their terms survive the Effective Time and this
Section 10
shall survive the Effective Time.
10.2 Amendment
.
This Agreement may be amended with the approval of the
respective Boards of Directors of the Company, Merger Sub and Nautilus at any time (whether before or after the adoption and approval of this Agreement by the Companys stockholders or before or after obtaining the Required Nautilus Stockholder
Vote);
provided
,
however
, that after any such approval of this Agreement by a Partys stockholders, no amendment shall be made which by law requires further approval of such stockholders without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the Company, Merger Sub and Nautilus.
10.3 Waiver
.
(a) No failure on the part of any Party to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part
of any Party in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right, privilege or remedy.
(b) No Party shall be deemed to
have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or
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remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such Party and any such waiver shall not be applicable or have any effect except in the specific
instance in which it is given.
10.4 Entire Agreement; Counterparts; Exchanges by Facsimile
.
This Agreement and
the other agreements referred to in this Agreement constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among or between any of the Parties with respect to the subject matter hereof and
thereof;
provided
,
however
, that the Confidentiality Agreement shall not be superseded and shall remain in full force and effect in accordance with its terms. This Agreement may be executed in several counterparts, each of which
shall be deemed an original and all of which shall constitute one and the same instrument. The exchange of a fully executed Agreement (in counterparts or otherwise) by all Parties by facsimile or electronic transmission in .PDF format shall be
sufficient to bind the Parties to the terms and conditions of this Agreement.
10.5 Applicable Law;
Jurisdiction
.
This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws. In any
action or proceeding between any of the Parties arising out of or relating to this Agreement or any of the Contemplated Transactions, each of the Parties: (a) irrevocably and unconditionally consents and submits to the exclusive jurisdiction
and venue of the Court of Chancery of the State of Delaware or, to the extent such court does not have subject matter jurisdiction, the Superior Court of the State of Delaware or the United States District Court for the District of Delaware;
(b) agrees that all claims in respect of such action or proceeding shall be heard and determined exclusively in accordance with clause (a) of this
Section 10.5
; (c) waives any objection to laying venue in any such action
or proceeding in such courts; (d) waives any objection that such courts are an inconvenient forum or do not have jurisdiction over any Party; (e) agrees that service of process upon such Party in any such action or proceeding shall be
effective if notice is given in accordance with
Section 10.8
of this Agreement; and (f) irrevocably waives the right to trial by jury.
10.6 Attorneys Fees
.
In any action at law or suit in equity to enforce this Agreement or the rights of any of
the Parties, the prevailing Party in such action or suit (as determined by a court of competent jurisdiction) shall be entitled to recover its reasonable out-of-pocket attorneys fees and all other reasonable costs and expenses incurred in such
action or suit.
10.7 Assignability
.
This Agreement shall be binding upon, and shall be enforceable by and inure
solely to the benefit of, the Parties and their respective successors and assigns;
provided
,
however
, that neither this Agreement nor any of a Partys rights or obligations hereunder may be assigned or delegated by such Party
without the prior written consent of the other Party, and any attempted assignment or delegation of this Agreement or any of such rights or obligations by such Party without the other Partys prior written consent shall be void and of no
effect.
10.8 Notices
.
All notices and other communications hereunder shall be in writing and shall be deemed to
have been duly delivered and received hereunder (a) one Business Day after being sent for next Business Day delivery, fees prepaid, via a reputable international overnight courier service, (b) upon delivery in the case of delivery by hand,
or (c) on the date delivered in the place of delivery if sent by email or facsimile (with a written or electronic confirmation of delivery) prior to 6:00 p.m. Pacific time, otherwise on the next succeeding Business Day, in each case to the
intended recipient as set forth below:
if to Nautilus or Merger Sub:
Nivalis Therapeutics, Inc.
3122 Sterling Circle
Boulder, CO
80301
Attention: Mike Carruthers
Email: mike.carruthers@nivalis.com
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with a copy to (which shall not constitute notice):
Latham & Watkins LLP
140 Scott Drive
Menlo Park,
California 94025
Fax: (650) 463-2600
Attention: Alan Mendelson; Chad Rolston
Email: alan.mendelson@lw.com; chad.rolston@lw.com
and
Ballard Spahr LLP
1225 17th Street, Suite 2300
Denver, CO 80202-5596
Fax: (303) 296-3956
Attention: Carin M. Cutler
Email: cutlerc@ballardspahr.com
if to the Company:
Alpine
Immune Sciences, Inc.
201 Elliott Avenue West
Seattle, WA 98119
Attention: Mitchell H. Gold, M.D.
Email: mgold@alpinebio.com
with a copy to (which shall not constitute notice):
Sidley Austin LLP
1001
Page Mill Road
Building 1
Palo Alto, CA 94304
Fax: (650) 565-7100
Attention: Sam Zucker
Email: szucker@sidley.com
and
Ascent Law Partners, LLP
719 Second Avenue, Suite 1150
Seattle, WA 98104
Attention: Van
Katzman
Email: vkatzman@ascentllp.com
10.9 Cooperation
.
Each Party agrees to cooperate fully with the other Party and to execute and deliver such further
documents, certificates, agreements and instruments and to take such other actions as may be reasonably requested by the other Party to evidence or reflect the Contemplated Transactions and to carry out the intent and purposes of this Agreement.
10.10 Severability
.
Any term or provision of this Agreement that is invalid or unenforceable in any situation in
any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions of this Agreement or the validity or enforceability of the offending term or provision in any other situation or in any
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other jurisdiction. If a final judgment of a court of competent jurisdiction declares that any term or provision of this Agreement is invalid or unenforceable, the Parties agree that the
court making such determination shall have the power to limit such term or provision, to delete specific words or phrases or to replace such term or provision with a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be valid and enforceable as so modified. In the event such court does not exercise the power granted to it in the prior sentence, the Parties
agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term or provision.
10.11 Other Remedies; Specific Performance
.
Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a Party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such Party, and the exercise by a Party of any one remedy will not preclude the exercise of any other
remedy. The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that
the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity, and each of the Parties waives any bond, surety or other security that might be required of any other Party with respect thereto.
10.12 No Third Party Beneficiaries
.
Nothing in this Agreement, express or implied, is intended to or shall confer upon
any Person (other than the Parties and the D&O Indemnified Parties to the extent of their respective rights pursuant to
Section 5.8
) any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
10.13 Construction
.
(a) For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include masculine and feminine genders.
(b) The Parties agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting Party
shall not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words
include and including, and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words without limitation.
(d) The use of the word or shall not be exclusive.
(e) Except as otherwise indicated, all references in this Agreement to Sections, Exhibits and
Schedules are intended to refer to Sections of this Agreement and Exhibits and Schedules to this Agreement, respectively.
(f) Any reference to legislation or to any provision of any legislation shall include any modification, amendment, re-enactment thereof,
any legislative provision substituted therefore and all rules, regulations, and statutory instruments issued or related to such legislations.
(g) The bold-faced headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.
(h) The Parties
agree that the Company Disclosure Schedule or Nautilus Disclosure Schedule shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections
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contained in
Section 2
or
Section 3
, respectively. The disclosures in any section or subsection of the Company Disclosure Schedule or the Nautilus Disclosure Schedule
shall qualify other sections and subsections in
Section 2
or
Section 3
, respectively, to the extent it is readily apparent from a reading of the disclosure that such disclosure is applicable to such other sections and
subsections. The disclosures in any section or subsection of the Nautilus Disclosure Schedule shall qualify other sections and subsections in
Section 3
, to the extent it is readily apparent from a reading of the disclosure that such
disclosure is applicable to such other sections and subsections.
(i) delivered or made available means, with
respect to any documentation, that prior to 11:59 p.m. (Pacific time) on the date that is two calendar days prior to the date of this Agreement (i) a copy of such material has been posted to and made available by a Party to the
other Party and its Representatives in the electronic data room maintained by such disclosing Party or (ii) such material is disclosed in the Nautilus SEC Documents filed with the SEC prior to the date hereof and publicly made available on the
SECs Electronic Data Gathering Analysis and Retrieval system.
(
Remainder of page intentionally left blank
)
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IN WITNESS WHEREOF,
the Parties have caused this Agreement to be executed as of the date
first above written.
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NIVALIS THERAPEUTICS, INC.
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By:
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/s/ R. Michael Carruthers
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Name:
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R. Michael Carruthers
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Title:
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Interim President and Chief Financial Officer
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NAUTILUS MERGER SUB, INC.
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By:
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/s/ R. Michael Carruthers
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Name:
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R. Michael Carruthers
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Title:
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President and Chief Executive Officer
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ALPINE IMMUNE SCIENCES, INC.
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By:
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/s/ Mitchell H. Gold, M.D.
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Name:
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Dr. Mitchell H. Gold
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Title:
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Chief Executive Officer
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[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION]
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EXHIBIT A
CERTAIN DEFINITIONS
a) For purposes of the Agreement (including this Exhibit A):
Acquisition Inquiry
means, with respect to a Party, an inquiry, indication of interest or request for information
(other than an inquiry, indication of interest or request for information made or submitted by the Company, on the one hand, or Nautilus, on the other hand, to the other Party) that would reasonably be expected to lead to an Acquisition Proposal.
Acquisition Proposal
means, with respect to a Party, any offer or proposal, whether written or oral (other than
an offer or proposal made or submitted by or on behalf of the Company or any of its Affiliates, on the one hand, or by or on behalf of Nautilus or any of its Affiliates, on the other hand, to the other Party) contemplating or otherwise relating to
any Acquisition Transaction with such Party.
Acquisition Transaction
means any transaction or series of related
transactions involving:
(a) any merger, consolidation, amalgamation, share exchange, business combination, issuance
of securities, acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or other similar transaction: (i) in which a Party is a constituent entity; (ii) in which a Person or group (as
defined in the Exchange Act and the rules promulgated thereunder) of Persons directly or indirectly acquires beneficial or record ownership of securities representing more than 20% of the outstanding securities of any class of voting securities
of a Party or any of its Subsidiaries; or (iii) in which a Party or any of its Subsidiaries issues securities representing more than 20% of the outstanding securities of any class of voting securities of such Party or any of its Subsidiaries;
provided however
, in the case of the Company, the following shall not be deemed an Acquisition Transaction: (x) the Company Pre-Closing Financing; or (y) the Second Tranche Closing; or
(b) any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that
constitute or account for 20% or more of the consolidated book value or the fair market value of the assets of a Party and its Subsidiaries, taken as a whole.
Affiliate
shall have the meaning given to such term in Rule 145 under the Securities Act.
Agreement
means the Agreement and Plan of Merger and Reorganization to which this Exhibit A is attached, as it
may be amended from time to time.
Anticipated Closing Date
means the anticipated Closing Date (as mutually
agreed in good faith by Nautilus and the Company).
Business Day
means any day other than a day on which banks
in the State of New York are authorized or obligated to be closed.
Cash and Cash Equivalents
means all
(a) cash and cash equivalents, (b) marketable securities, (c) accounts, interest and other receivables (to the extent determined to be collectible) and (d) deposits (to the extent refundable).
Cash Determination Time
means (a) in the event that the Anticipated Closing Date occurs on or before
July 31, 2017, the close of business on the last Business Day prior to the Anticipated Closing Date or (b) in the event that the Anticipated Closing Date occurs on or after August 1, 2017, the close of business on the last Business
Day of the month immediately preceding the month in which the Anticipated Closing Date occurs.
A-A-1
COBRA
means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as set forth in Section 4980B of the Code and Part 6 of Title I of ERISA.
Code
means the Internal
Revenue Code of 1986, as amended.
Company Affiliate
means any Person that is (or at any relevant time was)
under common control with the Company within the meaning of Sections 414(b), (c), (m) and (o) of the Code, and the regulations issued thereunder.
Company Associate
means any current or former employee, independent contractor, officer or director of the Company.
Company Board
means the board of directors of the Company.
Company Capital Stock
means the Company Common Stock and the Company Preferred Stock.
Company Capitalization Representations
means the representations and warranties of the Company set forth in
Sections 2.6(a)
and
2.6(d)
.
Company Change in Circumstance
means any material event or
development or material change in circumstances with respect to the Company or its Subsidiaries that was neither known to the Company Board nor, in their reasonable estimation, reasonably likely to occur, as of the date of the Agreement (or the
consequences of which were not known to the Company Board, in their reasonable estimation, or reasonably foreseeable based on facts known to the Company Board as of the date of the Agreement); provided, that Company Change in
Circumstance shall not include any such event, development or change to the extend related to (i) any Acquisition Proposal, Acquisition Inquiry or the consequences thereof or (ii) the fact, in and of itself, that the Company meets or
exceeds internal budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations.
Company Closing Financial Certificate
means a certificate executed by the Chief Financial Officer of the Company, on
behalf of the Company and not in his or her personal capacity, certifying Company Net Cash as of the Anticipated Closing Date.
Company Common Stock
means the Common Stock, $0.0001 par value per share, of the Company.
Company Contract
means any Contract: (a) to which the Company or any of its Subsidiaries is a Party;
(b) by which the Company or any of its Subsidiaries or any Company IP Rights or any other asset of the Company or its Subsidiaries is or may become bound or under which the Company or any of its Subsidiaries has, or may become subject to, any
obligation; or (c) under which the Company or any of its Subsidiaries has or may acquire any right or interest.
Company
Fundamental Representations
means the representations and warranties of the Company set forth in
Sections 2.1(a)
,
2.3
,
2.4
and
2.21
.
Company IP Rights
means all Intellectual Property owned by, licensed to, or controlled by the Company or its
Subsidiaries that is necessary for or used in the business of the Company and its Subsidiaries as presently conducted.
Company IP Rights Agreement
means any Contract governing, related to or pertaining to any Company IP Rights.
Company Lock-Up Signatories
means those Persons set forth on Section A of the Company Disclosure Schedule.
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Company Material Adverse Effect
means any Effect that, considered
together with all other Effects that have occurred prior to the date of determination of the occurrence of a Company Material Adverse Effect, has or would reasonably be expected to have a material adverse effect on the business, financial condition,
assets, liabilities or results of operations of the Company or its Subsidiaries, taken as a whole;
provided
,
however
, that Effects arising or resulting from the following shall not be taken into account in determining whether there has
been a Company Material Adverse Effect: (a) any rejection by a Governmental Body of a registration or filing by the Company relating to the Company IP Rights; (b) the announcement of the Agreement or the pendency of the Contemplated
Transactions; (c) the taking of any action, or the failure to take any action, by the Company that is required to comply with the terms of the Agreement; (d) any natural disaster or any act or threat of terrorism or war anywhere in
the world, any armed hostilities or terrorist activities anywhere in the world, any threat or escalation or armed hostilities or terrorist activities anywhere in the world or any governmental or other response or reaction to any of the foregoing;
(e) any change in GAAP or applicable Law or the interpretation thereof; (f) general economic or political conditions or conditions generally affecting the industries in which the Company and its Subsidiaries operate; or (g) any change
in the cash position of the Company and its Subsidiaries which results from operations in the Ordinary Course of Business; except in each case with respect to clauses (d), (e) and (f), to the extent disproportionately affecting the Company and
its Subsidiaries, taken as a whole, relative to other similarly situated companies in the industries in which the Company and its Subsidiaries operate.
Company Net Cash
means (a) Company Cash and Cash Equivalents as of the Anticipated Closing Date, determined in
a manner substantially consistent with the manner in which such items were determined for the Company Financials,
minus
(b) the sum of (without duplication) (i) the Companys accounts payable and accrued expenses (including
accrued tax liabilities, but excluding accrued expenses which are Company Transaction Expenses) and the Companys other current liabilities payable in cash, in each case as of the Anticipated Closing Date and determined in a manner
substantially consistent with the manner in which such items were determined for the Company Financials, (ii) any Company Transaction Expenses, and (iii) any indebtedness for borrowed money of the Company.
Company Options
means options or other rights to purchase shares of Company Capital Stock issued by the Company.
Company Pre-Closing Financing
means an acquisition of Company Common Stock to be consummated prior to the
Closing pursuant to the Subscription Agreement with aggregate gross cash proceeds to the Company of at least $17.0 million (not including any conversion of promissory notes in connection therewith) at a purchase price of $6.327 per share.
Company Registered IP
means all Company IP Rights that are owned by or exclusively licensed to the Company or any of
its Subsidiaries that are registered, filed or issued under the authority of, with or by any Governmental Body, including all patents, registered copyrights and registered trademarks and all applications for any of the foregoing.
Company Stockholder Support Agreements
shall have the meaning set forth in the recitals.
Company Stockholder Written Consent
shall have the meaning set forth in the recitals.
Company Transaction Expenses
means Transaction Expenses of the Company.
Company Triggering Event
shall be deemed to have occurred if: (a) the Company Board or any committee thereof
shall have made a Company Board Adverse Recommendation Change or approved, endorsed or recommended any Acquisition Proposal; (b) the Company shall have entered into any letter of intent or similar document or any Contract relating to any
Acquisition Proposal (other than a confidentiality agreement permitted pursuant to
Section 4.4
); or (c) the Company or any director or officer of the Company shall have willfully and intentionally breached the provisions set
forth in
Section 4.4
or
Section 5.2
of the Agreement.
A-A-3
Company Unaudited Interim Balance Sheet
means the unaudited
consolidated balance sheet of the Company and its consolidated Subsidiaries as of March 31, 2017 provided to Nautilus prior to the date of the Agreement.
Confidentiality Agreement
means the Mutual Confidential Non-Disclosure Agreement dated as of January 30, 2017,
between the Company and Nautilus.
Consent
means any approval, consent, ratification, permission, waiver or
authorization (including any Governmental Authorization).
Contemplated Transactions
means the Merger and the
other transactions contemplated by the Agreement.
Contract
means, with respect to any Person, any written
agreement, contract, subcontract, lease (whether for real or personal property), mortgage, license, sublicense or other legally binding commitment or undertaking of any nature to which such Person is a party or by which such Person or any of its
assets are bound or affected under applicable Law.
DGCL
means the General Corporation Law of the State of
Delaware.
Effect
means any effect, change, event, circumstance, or development.
Encumbrance
means any lien, pledge, hypothecation, charge, mortgage, security interest, lease, license, option,
easement, reservation, servitude, adverse title, claim, infringement, interference, option, right of first refusal, preemptive right, community property interest or restriction or encumbrance of any nature (including any restriction on the voting of
any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of
any other attribute of ownership of any asset).
Enforceability Exceptions
means the (a) laws
of general application relating to bankruptcy, insolvency and the relief of debtors; and (b) rules of law governing specific performance, injunctive relief and other equitable remedies.
Entity
means any corporation (including any non-profit corporation), partnership (including any general partnership,
limited partnership or limited liability partnership), joint venture, estate, trust, company (including any company limited by shares, limited liability company or joint stock company), firm, society or other enterprise, association, organization or
entity, and each of its successors.
Environmental Law
means any federal, state, local or foreign Law relating
to pollution or protection of human health or the environment (including ambient air, surface water, ground water, land surface or subsurface strata), including any law or regulation relating to emissions, discharges, releases or threatened releases
of Hazardous Materials, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials.
ERISA
means the Employee Retirement Income Security Act of 1974.
Exchange Act
means the Securities Exchange Act of 1934.
Exchange Ratio
means, subject to
Section 1.5(f)
, the following ratio (rounded to four decimal places):
the quotient obtained by dividing (a) the Company Merger Shares by (b) the Company Outstanding Shares, in which:
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Aggregate Valuation
means the sum of (a) the Company Valuation, plus (b) the Nautilus Valuation.
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Company Valuation
means $142,300,000.
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Company Allocation Percentage
the quotient (rounded to two decimal places) determined by dividing (i) the Company Valuation
by
(ii) the Aggregate Valuation.
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Company Merger Shares
means the product determined by multiplying (i) the Post-Closing Nautilus Shares
by
(ii) the Company Allocation Percentage.
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Company Outstanding Shares
means the total number of shares of Company Capital Stock outstanding immediately prior to the Effective Time expressed on a fully-diluted and as-converted to Company
Common Stock basis and assuming, without limitation or duplication, (i) the exercise of all Company Options and Company Warrants outstanding as of immediately prior to the Effective Time, (ii) the consummation of the Company Pre-Closing
Financing and the issuance of all Company Common Stock pursuant to the Subscription Agreement, and (iii) the issuance of shares of Company Capital Stock in respect of all other outstanding options, warrants or rights to receive such shares,
whether conditional or unconditional and including any outstanding options, warrants or rights triggered by or associated with the consummation of the Merger (but excluding any shares of Company Common Stock reserved for issuance other than with
respect to outstanding Company Options under the Companys 2015 Stock Plan).
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Nautilus Allocation Percentage
the quotient (rounded to two decimal places) determined by dividing (i) the Nautilus Valuation
by
(ii) the Aggregate Valuation.
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Nautilus Outstanding Shares
means the total number of shares of Nautilus Common Stock outstanding immediately prior to the Effective Time expressed on a fully-diluted basis, but assuming,
without limitation or duplication, (i) with respect to Nautilus Options, the cashless exercise solely of those Nautilus Options outstanding as of immediately prior to the Effective Time with an exercise price less than the Nautilus Closing
Price (and otherwise disregarding any other Nautilus Options), (ii) with respect to Nautilus Warrants, the cashless exercise solely of those Nautilus Warrants outstanding as of immediately prior to the Effective Time with an exercise price less
than the Nautilus Closing Price (and otherwise disregarding any other Nautilus Warrants), and (iii) the issuance of shares of Nautilus Common Stock in respect of all other outstanding options, warrants or rights to receive such shares (assuming
cashless exercise using the Nautilus Closing Price in the case of options, warrants and other similar rights), whether conditional or unconditional and including any outstanding options, warrants or rights triggered by or associated with the
consummation of the Merger (but excluding any shares of Nautilus Common Stock reserved for issuance other than with respect to outstanding Nautilus Options under the Nautilus Stock Plans).
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Nautilus Valuation
means $50,000,000.
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Post-Closing Nautilus Shares
means the quotient determined by dividing (i) the Nautilus Outstanding Shares
by
(ii) the Nautilus Allocation Percentage.
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Governmental Authorization
means any: (a) permit, license, certificate, franchise, permission, variance,
exception, order, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Law; or (b) right under any Contract with any
Governmental Body.
Governmental Body
means any: (a) nation, state, commonwealth, province, territory,
county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental division,
department, agency, commission, bureau, instrumentality, official, ministry, fund, foundation, center, organization, unit, body or Entity and any court or other tribunal, and for the avoidance of doubt, any Taxing authority); or
(d) self-regulatory organization (including NASDAQ).
Hazardous Materials
means any pollutant, chemical,
substance and any toxic, infectious, carcinogenic, reactive, corrosive, ignitable or flammable chemical, or chemical compound, or hazardous substance, material or
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waste, whether solid, liquid or gas, that is subject to regulation, control or remediation under any Environmental Law, including without limitation, crude oil or any fraction thereof, and
petroleum products or by-products.
Intellectual Property
means United States, foreign and international
(a) patents, patent applications, provisional applications, statutory invention registrations and invention disclosures, and all divisionals, continuations, continuations-in-part, substitutions, renewals, extensions, reexaminations and reissues
of the foregoing, (b) trademarks, service marks, trade names, domain names, URLs, trade dress, brands logos and other source identifiers, including registrations and applications for registration thereof, together with all of the goodwill
associated therewith, (c) copyrights and works of authorship, including registrations and applications for registration thereof, and (d) software, formulae, customer lists, inventions, trade secrets, know-how, confidential information and
other proprietary rights and intellectual property, whether patentable or not.
IRS
means the United States
Internal Revenue Service.
Key Employee
means, with respect to the Company or Nautilus, an executive officer of
such Party or any employee of such Party that reports directly to the board of directors of such Party or to the Chief Executive Officer or Chief Operating Officer of such Party.
Knowledge
means, with respect to an individual, that such individual is actually aware of the relevant fact or such
individual would reasonably be expected to know such fact in the ordinary course of the performance of such individuals employment responsibilities. Any Person that is an Entity shall have Knowledge if any executive officer or director of
such Person as of the date such knowledge is imputed has Knowledge of such fact or other matter.
Law
means any
federal, state, national, foreign, material local or municipal or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated,
implemented or otherwise put into effect by or under the authority of any Governmental Body (including under the authority of NASDAQ or the Financial Industry Regulatory Authority).
Legal Proceeding
means any action, suit, litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or
arbitration panel.
Merger Sub Board
means the board of directors of Merger Sub.
Multiemployer Plan
means (a) a multiemployer plan, as defined in Section 3(37) or
4001(a)(3) of ERISA, or (b) a plan which if maintained or administered in or otherwise subject to the laws of the United States would be described in paragraph (a).
Multiple Employer Plan
means (a) a multiple employer plan within the meaning of
Section 413(c) of the Code or Section 3(40) of ERISA, or (b) a plan which if maintained or administered in or otherwise subject to the laws of the United States would be described in paragraph (a).
NASDAQ
means the Nasdaq Stock Market, including the Nasdaq Global Market or such other Nasdaq market on which shares
of Nautilus Common Stock are then listed.
Nautilus Affiliate
means any Person that is (or at any relevant time
was) under common control with Nautilus within the meaning of Sections 414(b), (c), (m) and (o) of the Code, and the regulations issued thereunder.
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Nautilus Associate
means any current or former employee, independent
contractor, officer or director of Nautilus.
Nautilus Balance Sheet
means the audited balance sheet of Nautilus
as of December 31, 2016, included in Nautilus Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the SEC.
Nautilus Board
means the board of directors of Nautilus.
Nautilus Capitalization Representations
means the representations and warranties of Nautilus and Merger Sub set
forth in
Sections 3.6(a)
and
3.6(d)
.
Nautilus Change in Circumstance
means any material
event or development or material change in circumstances with respect to Nautilus that was neither known to the Nautilus Board nor, in their reasonable estimation, reasonably likely to occur, as of the date of the Agreement (or the consequences of
which were not known to the Nautilus Board, in their reasonable estimation, or reasonably foreseeable based on facts known to the Nautilus Board as of the date of the Agreement); provided, that Nautilus Change in Circumstance shall not
include any such event, development or change to the extend related to (i) any Acquisition Proposal, Acquisition Inquiry or the consequences thereof or (ii) the fact, in and of itself, that Nautilus meets or exceeds internal budgets, plans
or forecasts of its revenues, earnings or other financial performance or results of operations.
Nautilus Closing Financial
Certificate
means a certificate executed by the Chief Financial Officer of Nautilus, on behalf of Nautilus and not in his or her personal capacity, certifying Nautilus Net Cash as of the Anticipated Closing Date.
Nautilus Closing Price
means the volume weighted average closing trading price of a share of Nautilus Common Stock
on NASDAQ for the five trading days ending the trading day immediately prior to the date upon which the Merger becomes effective.
Nautilus Common Stock
means the Common Stock, $0.001 par value per share, of Nautilus.
Nautilus Contract
means any Contract: (a) to which Nautilus is a party; (b) by which Nautilus or any
Nautilus IP Rights or any other asset of Nautilus is or may become bound or under which Nautilus has, or may become subject to, any obligation; or (c) under which Nautilus has or may acquire any right or interest.
Nautilus Fundamental Representations
means the representations and warranties of Nautilus and Merger Sub set forth
in
Sections 3.1(a)
,
3.1(b)
,
3.3
,
3.4
and
3.21
.
Nautilus IP Rights
means all
Intellectual Property owned by, licensed to, or controlled by Nautilus that is necessary for or used in the business of Nautilus as presently conducted.
Nautilus IP Rights Agreement
means any Contract governing, related or pertaining to any Nautilus IP Rights.
Nautilus Lock-Up Signatories
means those Persons set forth on Section A of the Nautilus Disclosure Schedule.
Nautilus Material Adverse Effect
means any Effect that, considered together with all other Effects that have
occurred prior to the date of determination of the occurrence of the Nautilus Material Adverse Effect, has or would reasonably be expected to have a material adverse effect on the business, financial condition, assets, liabilities or results of
operations of Nautilus;
provided
,
however
, that Effects arising or resulting from the following shall not be taken into account in determining whether there has been a Nautilus Material Adverse Effect: (a) any rejection by a
Governmental Body of a registration statement or filing by Nautilus relating to the
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Nautilus IP Rights; (b) the termination, sublease or assignment of Nautilus facility lease, or failure to do the foregoing; (c) the announcement of the Agreement or the pendency
of the Contemplated Transactions; (d) any change in the stock price or trading volume of Nautilus Common Stock (it being understood, however, that any Effect causing or contributing to any change in stock price or trading volume of Nautilus
Common Stock may be taken into account in determining whether a Nautilus Material Adverse Effect has occurred, unless such Effects are otherwise excepted from this definition); (e) the taking of any action, or the failure to take any action, by
Nautilus that is required to comply with the terms of the Agreement or the taking of any action expressly permitted by
Section 4.1(b)
of the Nautilus Disclosure Schedule; (f) any natural disaster or any act or threat of
terrorism or war anywhere in the world, any armed hostilities or terrorist activities anywhere in the world, any threat or escalation or armed hostilities or terrorist activities anywhere in the world or any governmental or other response or
reaction to any of the foregoing; (g) any change in GAAP or applicable Law or the interpretation thereof; (h) general economic or political conditions or conditions generally affecting the industries in which Nautilus operates;
(i) continued losses from operations or decreases in cash balances of Nautilus not materially inconsistent with kind and degree of losses from operations and decreases in cash balances which have occurred between December 31, 2016 and the
date of this Agreement; or (j) the winding down of Nautilus operations not materially inconsistent with the kind and degree of winding down activities which have occurred between December 31, 2016 and the date of this Agreement;
except, in each case with respect to clauses (f), (g) and (h), to the extent disproportionately affecting Nautilus relative to other similarly situated companies in the industries in which Nautilus operates.
Nautilus Net Cash
means (a) Nautilus Cash and Cash Equivalents as of the Anticipated Closing Date,
determined in a manner substantially consistent with the manner in which such items were determined for Nautilus most recent SEC filings,
minus
(b) the sum of (without duplication) (i) Nautilus accounts payable and
accrued expenses (including accrued tax liabilities, but excluding accrued expenses which are Nautilus Transaction Expenses) and Nautilus other current liabilities payable in cash, in each case as of the Anticipated Closing Date and determined
in a manner substantially consistent with the manner in which such items were determined for Nautilus most recent SEC filings, (ii) any Nautilus Transaction Expenses, (iii) any costs or expenses of the Wind-Down, and (iv) any
indebtedness for borrowed money of Nautilus. Notwithstanding the foregoing, Nautilus Net Cash shall be increased by an amount equal to 50% of the aggregate amount of any costs or expenses, including attorneys fees or settlement costs,
incurred in connection with any potential or actual securityholder litigation arising or resulting from the Agreement, the Merger or the other Contemplated Transactions and that may be brought in connection with or on behalf of any Nautilus
securityholders interest in Nautilus Common Stock (including all amounts paid or payable up to the retention amount of any insurance policy that is or may cover such costs or expenses and amounts not covered by any such insurance policy), to
the extent that such costs or expenses have otherwise reduced Nautilus Net Cash.
Nautilus Options
means options
or other rights to purchase shares of Nautilus Common Stock issued by Nautilus.
Nautilus Registered IP
means
all Nautilus IP Rights that are owned by or exclusively licensed to Nautilus that are registered, filed or issued under the authority of, with or by any Governmental Body, including all patents, registered copyrights and registered trademarks and
all applications for any of the foregoing.
Nautilus Reverse Stock Split
shall have the meaning set forth in
Section 5.21
.
Nautilus Stockholder Support Agreements
shall have the meaning set forth in the
recitals.
Nautilus Transaction Expenses
means the Transaction Expenses of Nautilus.
Nautilus Triggering Event
shall be deemed to have occurred if: (a) Nautilus shall have failed to include in the
Proxy Statement the Nautilus Board Recommendation or shall have made a Nautilus Board Adverse Recommendation Change; (b) the Nautilus Board or any committee thereof shall have approved, endorsed or
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recommended any Acquisition Proposal; (c) Nautilus shall have entered into any letter of intent or similar document or any Contract relating to any Acquisition Proposal (other than a
confidentiality agreement permitted pursuant to
Section 4.4
); or (d) Nautilus or any director or officer of Nautilus shall have willfully and intentionally breached the provisions set forth in
Section 4.4
or
Section 5.3
of the Agreement.
Nautilus Warrants
means the outstanding warrants to purchase Nautilus
Common Stock set forth in
Section 3.6(a)
of the Nautilus Disclosure Schedule.
Ordinary Course of
Business
means, in the case of each of the Company and Nautilus, such actions taken in the ordinary course of its normal operations and consistent with its past practices (which, in the case of Nautilus, shall include the Wind-Down).
Organizational Documents
means, with respect to any Person (other than an individual), (a) the certificate
or articles of association or incorporation or organization or limited partnership or limited liability company, and any joint venture, limited liability company, operating or partnership agreement and other similar documents adopted or filed in
connection with the creation, formation or organization of such Person and (b) all bylaws, regulations and similar documents or agreements relating to the organization or governance of such Person, in each case, as amended or supplemented.
Party
or
Parties
means the Company, Merger Sub and Nautilus.
Permitted Alternative Agreement
means a definitive agreement that contemplates or otherwise relates to an
Acquisition Transaction that constitutes a Superior Offer.
Permitted Encumbrance
means: (a) any liens for
current Taxes not yet due and payable or for Taxes that are being contested in good faith and for which adequate reserves have been made on the Company Unaudited Interim Balance Sheet or the Nautilus Balance Sheet, as applicable; (b) minor
liens that have arisen in the Ordinary Course of Business and that do not (in any case or in the aggregate) materially detract from the value of the assets or properties subject thereto or materially impair the operations of the Company or any of
its Subsidiaries or Nautilus, as applicable; (c) statutory liens to secure obligations to landlords, lessors or renters under leases or rental agreements; (d) deposits or pledges made in connection with, or to secure payment of,
workers compensation, unemployment insurance or similar programs mandated by Law; (e) non-exclusive licenses of Intellectual Property granted by the Company or any of its Subsidiaries or Nautilus, as applicable, in the Ordinary Course of
Business and that do not (in any case or in the aggregate) materially detract from the value of the Intellectual Property subject thereto; and (f) statutory liens in favor of carriers, warehousemen, mechanics and materialmen, to secure claims
for labor, materials or supplies.
Person
means any individual, Entity or Governmental Body.
Proxy Statement
means the proxy statement to be sent to Nautilus stockholders in connection with the Nautilus
Stockholders Meeting.
Registration Statement
means the registration statement on Form S-4 (or any
other applicable form under the Securities Act to register Nautilus Common Stock) to be filed with the SEC by Nautilus registering the public offering and sale of Nautilus Common Stock to some or all holders of Company Common Stock in the Merger,
whether or not including the shares of Nautilus Common Stock to be issued in exchange for shares of Company Common Stock issued in connection with the consummation of the Company Pre-Closing Financing, but including all shares of Nautilus Common
Stock to be issued in exchange for all other shares of Company Common Stock in the Merger, as said registration statement may be amended prior to the time it is declared effective by the SEC.
Representatives
means directors, officers, employees, agents, attorneys, accountants, investment bankers, advisors
and representatives.
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Sarbanes-Oxley Act
means the Sarbanes-Oxley Act of 2002.
SEC
means the United States Securities and Exchange Commission.
Second Tranche Closing
means the Second Tranche Closing of the Companys Series A-1 Preferred Stock, as
such terms are defined in that certain Series A Preferred Stock Purchase Agreement of the Company dated June 10, 2016.
Securities Act
means the Securities Act of 1933.
Subscription Agreement
means the Subscription Agreement attached hereto as
Exhibit D
, among the Company
and the Persons named therein, pursuant to which such Persons have agreed to purchase the number of shares of Company Capital Stock set forth therein in connection with the Company Pre-Closing Financing.
Subsequent Transaction
means any Acquisition Transaction (with all references to 20% in the definition of
Acquisition Transaction being treated as references to 50% for these purposes).
An entity shall be deemed to be a
Subsidiary
of a Person if such Person directly or indirectly owns or purports to own, beneficially or of record, (a) an amount of voting securities or other interests in such entity that is sufficient to enable such
Person to elect at least a majority of the members of such entitys board of directors or other governing body, or (b) at least 50% of the outstanding equity, voting, beneficial or financial interests in such Entity.
Superior Offer
means an unsolicited bona fide written Acquisition Proposal (with all references to 20% in the
definition of Acquisition Transaction being treated as references to greater than 50% for these purposes) that: (a) was not obtained or made as a direct or indirect result of a breach of (or in violation of) this Agreement; and (b) is
on terms and conditions that the Nautilus Board or the Company Board, as applicable, determines in good faith, based on such matters that it deems relevant (including the likelihood of consummation thereof), as well as any written offer by the other
Party to the Agreement to amend the terms of the Agreement, and following consultation with its outside legal counsel and outside financial advisors, if any, are more favorable, from a financial point of view, to Nautilus stockholders or the
Companys stockholders, as applicable, than the terms of the Contemplated Transactions; provided, however, that any such offer shall not be deemed to be a Superior Offer if any financing required to consummate the transaction
contemplated by such offer is not reasonably capable of being obtained by such third party.
Tax
means any
federal, state, local, foreign or other tax, including any income tax, franchise tax, capital gains tax, gross receipts tax, value-added tax, surtax, estimated tax, unemployment tax, national health insurance tax, excise tax, ad valorem tax,
transfer tax, stamp tax, sales tax, use tax, property tax, business tax, withholding tax, payroll tax, customs duty, alternative or add-on minimum or other tax of any kind whatsoever, and including any fine, penalty, addition to tax or interest
imposed by a Governmental Body with respect thereto.
Tax Return
means any return (including any information
return), report, statement, declaration, estimate, schedule, notice, notification, form, election, certificate or other document, and any amendment or supplement to any of the foregoing, filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Law relating to any Tax.
Transaction Expenses
means, with respect to any Person, the sum of (a) the cash cost of any change of control
payments or severance payments that are or become due to any employee of such Person or its Subsidiaries in connection with the consummation of the Contemplated Transactions and that are unpaid as of the Closing, (b) the cash cost of any
retention payments that are or become due to any employee of such Person or its Subsidiaries in connection with the consummation of the Contemplated Transactions and that are unpaid as of the
A-A-10
Closing, and (c) any costs, fees and expenses incurred by such Person or its Subsidiaries, or for which such Person or its Subsidiaries is liable, in connection with the negotiation,
preparation and execution of the Agreement and the consummation of the Contemplated Transactions and that are unpaid as of the Closing, including brokerage fees and commissions, finders fees or financial advisory fees, or any fees and expenses
of counsel or accountants payable by such Person or its Subsidiaries.
Treasury Regulations
means the United
States Treasury regulations promulgated under the Code.
Wind-Down
means the cessation by Nautilus of all
research and development activities, the termination of all employees of Nautilus, the termination of all Nautilus Contracts (to the extent terminable without breach), the satisfaction and payment of all severance and change of control payment
obligations, termination of all Nautilus employee benefit plans, the termination of all Nautilus stock option and other equity incentive plans, and the winding down of business operations of Nautilus, in each case, unless otherwise agreed by the
Parties in writing.
b) Each of the following terms is defined in the Section set forth opposite such term:
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|
|
Term
|
|
Section
|
409 A Plan
|
|
2.17(j)
|
Allocation Certificate
|
|
5.19
|
Capitalization Date
|
|
3.6(a)
|
Certificate of Merger
|
|
1.3
|
Certification
|
|
3.7(a)
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Closing
|
|
1.3
|
Closing Date
|
|
1.3
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Company
|
|
Preamble
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Company Board Recommendation
|
|
5.2(a)
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Company Budget
|
|
4.2(b)
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Company Change in Circumstance Notice
|
|
5.2(e)
|
Company Disclosure Schedule
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|
2
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Company Employee Plan
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|
2.17(b)
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Company Financials
|
|
2.7(a)
|
Company Material Contract
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2.13
|
Company Plan
|
|
2.6(c)
|
Company Permits
|
|
2.14(b)
|
Company Preferred Stock
|
|
2.6(a)
|
Company Product Candidates
|
|
2.14(d)
|
Company Real Estate Leases
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|
2.11
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Company Regulatory Permits
|
|
2.14(d)
|
Company Stock Certificate
|
|
1.6
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Company Stockholder Support Agreements
|
|
Recitals
|
Company Stockholder Written Consent
|
|
Recitals
|
Company Termination Fee
|
|
9.3(b)
|
Costs
|
|
5.8(a)
|
D&O Indemnified Party
|
|
5.8(a)
|
Dissenting Shares
|
|
1.8(a)
|
Drug Regulatory Agency
|
|
2.14(c)
|
Effective Time
|
|
1.3
|
End Date
|
|
9.1(b)
|
Exchange Agent
|
|
1.7(a)
|
Exchange Fund
|
|
1.7(a)
|
FDA
|
|
2.14(c)
|
A-A-11
|
|
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Term
|
|
Section
|
FDCA
|
|
2.14(c)
|
GAAP
|
|
2.7(a)
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Investor Agreements
|
|
5.15
|
Liability
|
|
2.9
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Merger
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|
Recitals
|
Merger Sub
|
|
Preamble
|
Nautilus
|
|
Preamble
|
Nautilus Board Recommendation
|
|
5.3(b)
|
Nautilus Change in Circumstance Notice
|
|
5.3(d)
|
Nautilus Charter Amendment
|
|
1.4(b)
|
Nautilus Disclosure Schedule
|
|
3
|
Nautilus Employee Plan
|
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3.17(a)
|
Nautilus Material Contract
|
|
3.13
|
Nautilus Notice Period
|
|
5.3(c)
|
Nautilus Permits
|
|
3.14(b)
|
Nautilus Product Candidates
|
|
3.14(d)
|
Nautilus Regulatory Permits
|
|
3.14(d)
|
Nautilus Real Estate Leases
|
|
3.11
|
Nautilus Reverse Stock Split
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|
5.21
|
Nautilus SEC Documents
|
|
3.7(a)
|
Nautilus Stock Plans
|
|
3.6(c)
|
Nautilus Stockholders Meeting
|
|
5.3(a)
|
Nautilus Stockholder Support Agreements
|
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Recitals
|
Notice Period
|
|
5.2(d)
|
Pre-Closing Period
|
|
4.1(a)
|
Required Company Stockholder Vote
|
|
2.4
|
Required Nautilus Stockholder Vote
|
|
3.4
|
Surviving Corporation
|
|
1.1
|
Tax Counsel
|
|
5.12(d)
|
Tax Opinion
|
|
5.12(d)
|
Tax Representation Letters
|
|
5.12(d)
|
Third Party Expenses
|
|
9.3(g)
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Annex B
April 17, 2017
Nivalis Therapeutics, Inc.
Attn: Michael Carruthers
Interim President and Chief Financial
Officer
3122 Sterling Circle
Boulder, CO 80301
Members of the Board of Directors:
We have been advised that
Nivalis Therapeutics, Inc., a Delaware corporation (Nivalis or the Company), proposes to enter into an Agreement and Plan of Merger and Reorganization, expected to be dated as of April 17, 2017 (the
Agreement), by and among the Company, Nautilus Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Nivalis (Merger Sub) and Alpine Immune Sciences, Inc., a Delaware corporation (Alpine Immune
Sciences). Pursuant to the Agreement, upon the closing of the Merger, Merger Sub will be merged with and into Alpine Immune Sciences, with Alpine Immune Sciences continuing as the surviving corporation (the Merger). We further
understand that as a result of the Merger, Alpine Immune Sciences will become a wholly owned subsidiary of Nivalis and each share of common stock of Alpine Immune Sciences outstanding immediately prior to the Merger (the Alpine Immune Sciences
Shares) will be converted into the right to receive a number of shares of Nivalis common stock equal to the Exchange Ratio such that, following the consummation of the Merger, the holders of Alpine Immune Sciences Shares (including the holders
of any unexercised options to purchase Alpine Immune Sciences Shares) immediately prior to the Merger shall hold approximately 74% of the fully-diluted shares of Nivalis common stock outstanding immediately following the Merger and the holders of
Nivalis common stock immediately prior to the Merger shall hold approximately 26% of the fully-diluted shares of Nivalis common stock outstanding immediately following the Merger. The terms and conditions of the Merger are more fully set forth in
the Agreement and capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Agreement.
In your capacity as
members of the Board of Directors (the Board of Directors) of Nivalis, you have requested our opinion (our Opinion), as investment bankers, as to the fairness, from a financial point of view and as of the date hereof, of the
Exchange Ratio to the Company Stockholders.
In connection with our Opinion, we took into account an assessment of general economic, market and financial
conditions as well as our experience in connection with similar transactions and securities valuations generally and, among other things:
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Reviewed a draft dated April 17, 2017 of the Agreement, which was the most recent draft made available to us prior to delivery of our Opinion;
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L
ADENBURG
T
HALMANN
&
C
O
. I
NC
.
277 Park Avenue, 26
th
floor
New York, NY 10172
Phone
212.409.2000 ● Fax 212.409.2169
MEMBER NYSE, NYSE MKT, FINRA, SIPC
B-1
Nivalis Therapeutics, Inc.
April 17, 2017
Page
2
of 4
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Reviewed and analyzed certain publicly available financial and other information for each of Nivalis and Alpine Immune Sciences, respectively, including equity research, and certain other relevant financial and
operating data furnished to us by the management of each of Nivalis and Alpine Immune Sciences, respectively;
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Reviewed and analyzed certain relevant historical financial and operating data concerning Alpine Immune Sciences furnished to us by the management of Alpine Immune Sciences;
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Discussed with certain members of the management of Nivalis the historical and current business operations, financial condition and prospects of Nivalis and Alpine Immune Sciences;
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Reviewed and analyzed certain operating results of Alpine Immune Sciences as compared to operating results and the reported price and trading histories of certain publicly traded companies that we deemed relevant;
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Reviewed and analyzed certain financial terms of the Agreement as compared to the publicly available financial terms of certain selected business combinations that we deemed relevant;
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Reviewed and analyzed certain financial terms of completed initial public offerings for certain companies that we deemed relevant;
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Reviewed certain pro forma financial effects of the Merger;
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Reviewed and analyzed such other information and such other factors, and conducted such other financial studies, analyses and investigations, as we deemed relevant for the purposes of our Opinion; and,
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Took into account our experience in other transactions, as well as our experience in securities valuations and our general knowledge of the industries in which Nivalis and Alpine Immune Sciences operate.
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In conducting our review and arriving at our Opinion, we have, with your consent, assumed and relied, without independent investigation,
upon the accuracy and completeness of all financial and other information provided to us by the Company and Alpine Immune Sciences, respectively, or which is publicly available or was otherwise reviewed by us. We have not undertaken any
responsibility for the accuracy, completeness or reasonableness of, or independent verification of, such information. We have relied upon, without independent verifications, the assessment of the Company management and Alpine Immune Sciences
management as to the viability of, and risks associated with, the current and future products and services of Alpine Immune Sciences (including without limitation, the development, testing and marketing of such products and services, the receipt of
all necessary governmental and other regulatory approvals for the development, testing and marketing thereof, and the life and enforceability of all relevant patents and other intellectual and other property rights associated with such products and
services). In addition, we have not conducted, nor have we assumed any obligation to conduct, any physical inspection of the properties or facilities of the Company or Alpine Immune Sciences. We have assumed, with your consent, that the only
material asset of the Company is its net cash, that no other assets of the Company, including, without limitation, any net operating losses of the Company, have any material value and that the Company does not, and does not intend to, engage in any
activity that may result in the generation of any revenue. Furthermore, we have assumed, with your consent, that there will be no further adjustments to the Exchange Ratio between the date hereof and the date the final Exchange Ratio is determined.
We have, with your consent, relied upon the assumption that all information provided to us by the Company and Alpine Immune Sciences is accurate and complete in all material respects. With respect to the financial forecasts supplied to us by the
Company and Alpine Immune Sciences, we have, with your consent, assumed that they were reasonably prepared on the basis reflecting the best currently available estimates and judgments of the management of the
B-2
Nivalis Therapeutics, Inc.
April 17, 2017
Page
3
of 4
Company and Alpine Immune
Sciences, as applicable, as to the future operating and financial performance of the Company and Alpine Immune Sciences, as applicable, and that they provided a reasonable basis upon which we could form our Opinion. We expressly disclaim any
undertaking or obligation to advise any person of any change in any fact or matter affecting our Opinion of which we become aware after the date hereof. We assumed there were no material changes in the assets, liabilities, financial condition,
results of operations, business or prospects of the Company or Alpine Immune Sciences since the date of the last financial statements made available to us. We have not made or obtained any independent evaluations, valuations or appraisals of the
assets or liabilities of the Company or Alpine Immune Sciences, nor have we been furnished with such materials. In addition, we have not evaluated the solvency or fair value of the Company or Alpine Immune Sciences under any state or federal laws
relating to bankruptcy, insolvency or similar matters. Our Opinion does not address any legal, tax or accounting matters related to the Agreement or the Merger, as to which we have assumed that the Company and the Board of Directors have received
such advice from legal, tax and accounting advisors as each has determined appropriate. Our Opinion addresses only the fairness of the Exchange Ratio, from a financial point of view, to Nivalis Stockholders. We express no view as to any other
aspect or implication of the Merger or any other agreement or arrangement entered into in connection with the Merger. Our Opinion is necessarily based upon economic and market conditions and other circumstances as they exist and can be evaluated by
us on the date hereof. It should be understood that although subsequent developments may affect our Opinion, we do not have any obligation to update, revise or reaffirm our Opinion and we expressly disclaim any responsibility to do so.
We have not considered any potential legislative or regulatory changes currently being considered or recently enacted by the United States or any foreign
government, or any domestic or foreign regulatory body, or any changes in accounting methods or generally accepted accounting principles that may be adopted by the Securities and Exchange Commission, the Financial Accounting Standards Board, or any
similar foreign regulatory body or board.
For purposes of rendering our Opinion we have assumed in all respects material to our analysis, that the
representations and warranties of each party contained in the Agreement are true and correct, that each party will perform all of the standards of the covenants and agreements required to be performed by it under the Agreement and that all
conditions to the consummation of the Merger will be satisfied without waiver thereof. We have assumed that the final form of the Agreement will be substantially similar to the last draft reviewed by us. We have also assumed that all governmental,
regulatory and other consents and approvals contemplated by the Agreement will be obtained and that in the course of obtaining any of those consents no restrictions will be imposed or waivers made that would have an adverse effect on the
contemplated benefits of the Merger. We have assumed that the Merger will be consummated in a manner that complies with the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all
other applicable federal and state statutes, rules and regulations. You have informed us, and we have assumed, that the Merger is intended to constitute a reorganization within the meaning of Section 368(a) of the Code and the Treasury
Regulations promulgated thereunder.
It is understood that this letter is intended for the benefit and use of the Board of Directors in its consideration
of the financial terms of the Merger and, except as set forth in the engagement letter with the Company, dated as of January 3, 2017 (the Engagement Letter), may not be used for any other purpose or reproduced, disseminated, quoted
or referred to at any time, in any manner or for any purpose without our prior written consent. This letter does not constitute a recommendation to the Board of Directors of whether or not to approve the Merger or to any stockholder or any other
person as to how to vote with respect to the Merger or to take any other action in connection with the Merger or otherwise. Our Opinion does not address the Companys underlying business decision to proceed with the Merger or the relative
merits of the Merger compared to other alternatives available to the Company. We express no opinion as to the prices or ranges of prices at which shares or the securities of
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Nivalis Therapeutics, Inc.
April 17, 2017
Page
4
of 4
any person, including the
Company, will trade at any time, including following the announcement or consummation of the Merger. We have not been requested to opine as to, and our Opinion does not in any manner address, the amount or nature of compensation to any of the
officers, directors or employees of any party to the Merger, or any class of such persons, relative to the compensation to be paid to the holders of the Alpine Immune Sciences Shares in connection with the Merger or with respect to the fairness of
any such compensation.
Ladenburg Thalmann & Co. Inc. (Ladenburg) is a full service investment bank providing investment banking,
brokerage, equity research, institutional sales and trading, and asset management services. As part of our investment banking services, we are regularly engaged in the valuation of businesses and their securities in connection with mergers,
negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. We have acted as the Companys financial advisor in connection with the Merger and will
receive a fee for our services pursuant to the terms of our Engagement Letter, a significant portion of which is contingent upon consummation of the Merger. In addition, the Company has agreed to reimburse our expenses and indemnify us for certain
liabilities that may arise out of our engagement. We will also receive an additional fee for rendering our Opinion set forth below pursuant to the Engagement Letter. In the three years preceding the date hereof, Ladenburg has not had a relationship
with Nivalis and has not received any fees from Nivalis, aside from the $50,000 up-front retainer which was paid to Ladenburg in connection with its engagement. In the three years preceding the date hereof, Ladenburg has not had a relationship with
Alpine Immune Sciences and has not received any fees from Alpine Immune Sciences. Ladenburg and its affiliates may in the future seek to provide investment banking or financial advisory services to the Company and Alpine Immune Sciences and/or
certain of their respective affiliates and expect to receive fees for the rendering of these services.
In the ordinary course of business, Ladenburg or
certain of our affiliates, as well as investment funds in which we or our affiliates may have financial interests, may acquire, hold or sell long or short positions, or trade or otherwise effect transactions in debt, equity, and other securities and
financial instruments (including bank loans and other obligations) of, or investments in, Nivalis, Alpine Immune Sciences or any other party that may be involved in the Merger and/or their respective affiliates.
Consistent with applicable legal and regulatory requirements, Ladenburg has adopted policies and procedures to establish and maintain the independence of our
research department and personnel. As a result, our research analysts may hold views, make statements or investment recommendations and/or publish research reports with respect to the Company and the proposed Merger that may differ from the views of
Ladenburgs investment banking personnel.
The Opinion set forth below was reviewed and approved by a fairness opinion committee of Ladenburg.
Based upon and subject to the foregoing, including the various assumptions and limitations set forth herein, it is our opinion that, as of the date hereof,
the Exchange Ratio is fair to the Nivalis Stockholders, from a financial point of view.
Very truly yours,
Ladenburg Thalmann & Co. Inc.
B-4
ANNEX C
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
§ 262. Appraisal rights.
(a) Any
stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of
the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to § 228 of this title shall be
entitled to an appraisal by the Court of Chancery of the fair value of the stockholders shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word
stockholder means a holder of record of stock in a corporation; the words stock and share mean and include what is ordinarily meant by those words; and the words depository receipt mean a receipt or
other instrument issued by a depository representing an interest in 1 or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to § 251 (other than a merger effected pursuant to § 251(g) of this title and, subject to paragraph (b)(3) of this section, § 251(h) of this title), § 252, § 254, § 255, § 256, § 257, §
258, § 263 or § 264 of this title:
(1) Provided, however, that, except as expressly provided in § 363(b) of this title, no
appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of the
meeting of stockholders to act upon the agreement of merger or consolidation, were either: (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall
be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in § 251(f) of this title.
(2) Notwithstanding paragraph (b)(1) of this section, appraisal rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to §§ 251, 252, 254, 255, 256, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs (b)(2)a. and b. of this section;
or
d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing paragraphs (b)(2)a., b. and c. of this section.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under § 251(h), § 253 or § 267 of this title is not owned by the parent immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.
(4) In the event of an amendment to a corporations certificate of incorporation contemplated by § 363(a) of this title,
appraisal rights shall be available as contemplated by § 363(b) of this title, and the procedures of
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this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as practicable, with the word amendment substituted for the words
merger or consolidation, and the word corporation substituted for the words constituent corporation and/or surviving or resulting corporation.
(c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or
series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the
certificate of incorporation contains such a provision, the provisions of this section, including those set forth in subsections (d), (e), and (g) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for notice of such meeting (or such members who received notice in accordance with §
255(c) of this title) with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) of this section that appraisal rights are available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Each stockholder electing to demand the appraisal of such stockholders shares shall
deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholders shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholders shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to § 228, § 251(h), § 253, or § 267 of this title, then either a
constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within 10 days thereafter shall notify each of the holders of any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy
of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice or, in the case of a merger approved pursuant to § 251(h) of this
title, within the later of the consummation of the offer contemplated by § 251(h) of this title and 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such
holders shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holders shares. If such notice did not
notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such
holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice or, in the case of a merger approved pursuant to
C-2
§ 251(h) of this title, later than the later of the consummation of the offer contemplated by § 251(h) of this title and 20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holders shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is
given.
(e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) of this section hereof and who is otherwise entitled to appraisal rights, may commence an appraisal proceeding by filing a petition in the Court of Chancery demanding a determination of the value of
the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named
party shall have the right to withdraw such stockholders demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) of this section hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth
the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholders written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under
subsection (d) of this section hereof, whichever is later. Notwithstanding subsection (a) of this section, a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person
may, in such persons own name, file a petition or request from the corporation the statement described in this subsection.
(f) Upon the filing of
any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a
duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of
such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the
day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the
costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates
of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. If immediately before
the merger or consolidation the shares of the class or series of stock of the constituent corporation as to which appraisal rights are available were listed on a national securities exchange, the Court shall dismiss the proceedings as to all holders
of such shares who are otherwise entitled to appraisal rights unless
C-3
(1) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of the class or series eligible for appraisal, (2) the value of the consideration provided in
the merger or consolidation for such total number of shares exceeds $1 million, or (3) the merger was approved pursuant to § 253 or § 267 of this title.
(h) After the Court determines the stockholders entitled to an appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the
Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding the Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of
the merger or consolidation, together with interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. Unless the Court in its discretion
determines otherwise for good cause shown, and except as provided in this subsection, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal
Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment. At any time before the entry of judgment in the proceedings, the
surviving corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest shall accrue thereafter as provided herein only upon the sum of (1) the difference, if any, between the amount so paid and the
fair value of the shares as determined by the Court, and (2) interest theretofore accrued, unless paid at that time. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal
proceeding, the Court may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted such stockholders certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined
that such stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Courts decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or
resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon the
parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the
effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or
resulting corporation a written withdrawal of such stockholders demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection
(e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just; provided, however that this provision shall not affect the right of any stockholder who has not commenced an
appraisal proceeding or joined that proceeding as a named party to withdraw such stockholders
C-4
demand for appraisal and to accept the terms offered upon the merger or consolidation within 60 days after the effective date of the merger or consolidation, as set forth in subsection
(e) of this section.
(l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation.
C-5
Annex D
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND
RESTATED
CERTIFICATE OF INCORPORATION
OF
NIVALIS THERAPEUTICS,
INC.
Nivalis Therapeutics, Inc. (the
Corporation
), a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, as amended (the
DGCL
), hereby certifies as follows:
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A.
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The name of the Corporation is Nivalis Therapeutics, Inc. The predecessor to the Corporation, N30 Pharmaceuticals, LLC, was originally formed as a limited liability company under
Section 18-201
of the Delaware Limited Liability Company Act on March 30, 2007. Effective as of 12:01 a.m. Eastern Time on August 1, 2012, the Corporations predecessor was converted into a
Delaware corporation pursuant to a Certificate of Conversion filed with the Secretary of State of the State of Delaware on July 31, 2012. The Corporations original Certificate of Incorporation was filed with the Secretary of State of the
State of Delaware on July 31, 2012 under the name N30 Pharmaceuticals, Inc. On February 11, 2015, the Corporation changed its name from N30 Pharmaceuticals, Inc. to Nivalis Therapeutics, Inc.
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|
B.
|
This Certificate of Amendment to the Amended and Restated Certificate of Incorporation (the
Certificate of Amendment
) amends the Corporations Amended and Restated Certificate of
Incorporation filed with the Secretary of State of the State of Delaware on June 22, 2015 (the
Prior Certificate
), and has been duly adopted by the Corporations Board of Directors and stockholders in accordance
with the provisions of Sections 242 and 228 of the DGCL.
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C.
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Article IV of the Prior Certificate is hereby amended to add the following Section D:
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D.
Immediately upon the filing of this Certificate of Amendment of Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware each one (1) share of Common Stock outstanding immediately prior to such
filing shall be automatically reclassified into one-fourth (1/4) of one share of Common Stock. The aforementioned reclassification shall be referred to collectively as the
Reverse Split.
The Reverse Split shall occur without any further action on the part of the Corporation or stockholders of the Corporation and whether or not
certificates representing such stockholders shares prior to the Reverse Split are surrendered for cancellation. No fractional interest in a share of Common Stock shall be deliverable upon the Reverse Split. All shares of Common Stock
(including fractions thereof) issuable upon the Reverse Split held by a holder prior to the Reverse Split shall be aggregated for purposes of determining whether the Reverse Split would result in the issuance of any fractional share. Any fractional
share resulting from such aggregation upon the Reverse Split shall be rounded down to the nearest whole number. Each holder who would otherwise be entitled to a fraction of a share of Common Stock upon the Reverse Split (after aggregating all
fractions of a share to which such stockholder would otherwise be entitled) shall, in lieu thereof, be entitled to receive a cash payment in an amount equal to the fraction to which the stockholder would otherwise be entitled multiplied by the
closing price of the Corporations Common Stock as reported on The NASDAQ Global Market on the first trading day immediately following the filing of this Certificate of Amendment of Amended and Restated Certificate of Incorporation with the
Secretary of State of the State of Delaware. The Corporation shall not be obliged to issue certificates evidencing the shares of Common Stock outstanding as a result of the Reverse Split unless and until the certificates evidencing the shares held
D-1
by a holder prior to the Reverse Split are either delivered to the Corporation or its transfer agent, or the holder notifies the Corporation or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates.
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D.
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The Certificate of Amendment of the Prior Certificate so adopted reads in full as set forth above and is hereby incorporated by reference. All other provisions of the Prior Certificate remain in full force and effect.
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IN WITNESS WHEREOF, Nivalis Therapeutics, Inc. has caused this Certificate of Amendment to be signed by Michael Carruthers,
a duly authorized officer of the Corporation, on , 2017.
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NIVALIS THERAPEUTICS, INC.
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By:
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Name:
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R. Michael Carruthers
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Title:
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Interim President and Chief Financial Officer
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D-2
Annex E
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND
RESTATED
CERTIFICATE OF INCORPORATION
OF
NIVALIS THERAPEUTICS,
INC.
Nivalis Therapeutics, Inc. (the
Corporation
), a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, as amended (the
DGCL
), hereby certifies as follows:
|
A.
|
The name of the Corporation is Nivalis Therapeutics, Inc. The predecessor to the Corporation, N30 Pharmaceuticals, LLC, was originally formed as a limited liability company under
Section 18-201
of the Delaware Limited Liability Company Act on March 30, 2007. Effective as of 12:01 a.m. Eastern Time on August 1, 2012, the Corporations predecessor was converted into a
Delaware corporation pursuant to a Certificate of Conversion filed with the Secretary of State of the State of Delaware on July 31, 2012. The Corporations original Certificate of Incorporation was filed with the Secretary of State of the
State of Delaware on July 31, 2012 under the name N30 Pharmaceuticals, Inc. On February 11, 2015, the Corporation changed its name from N30 Pharmaceuticals, Inc. to Nivalis Therapeutics, Inc.
|
|
B.
|
This Certificate of Amendment to the Amended and Restated Certificate of Incorporation (the
Certificate of Amendment
) amends the Corporations Amended and Restated Certificate of
Incorporation filed with the Secretary of State of the State of Delaware on June 22, 2015 (the
Prior Certificate
), and has been duly adopted by the Corporations Board of Directors and stockholders in accordance
with the provisions of Sections 242, 245 and 228 of the DGCL.
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C.
|
Article I of the Prior Certificate is hereby amended and restated to read as follows:
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ARTICLE I
The name of the corporation is Alpine Immune Sciences, Inc. (the
Corporation
).
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D.
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The Certificate of Amendment of the Prior Certificate so adopted reads in full as set forth above and is hereby incorporated by reference. All other provisions of the Prior Certificate remain in full force and effect.
|
IN WITNESS WHEREOF, Nivalis Therapeutics, Inc. has caused this Certificate of Amendment to be signed by Michael Carruthers,
a duly authorized officer of the Corporation, on [●], 2017.
|
|
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NIVALIS THERAPEUTICS, INC.
|
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By:
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|
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Name:
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R. Michael Carruthers
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Title:
|
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Interim President and Chief Financial Officer
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E-1
PART II
INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT
Item 20 Indemnification and Officers
Subsection (a) of Section 145 of the General Corporation Law of the State of Delaware (the DGCL) empowers a corporation
to indemnify any person who was or is a party or who is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action,
suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to
believe the persons conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person acted in any of the
capacities set forth above, against expenses (including attorneys fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a corporation has been successful on the merits or otherwise in
the defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys fees)
actually and reasonably incurred by such person in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and the indemnification
provided for by Section 145 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of such persons heirs, executors
and administrators. Section 145 also empowers the corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out
of his status as such, whether or not the corporation would have the power to indemnify such person against such liabilities under Section 145.
Section 102(b)(7) of the DGCL provides that a corporations certificate of incorporation may contain a provision eliminating or limiting
the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director (i) for any
breach of the directors duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the
DGCL or (iv) for any transaction from which the director derived an improper personal benefit.
II-1
Nivalis amended and restated certificate of incorporation provides that to the fullest
extent permitted by the DGCL, a director of Nivalis shall not be personally liable to Nivalis or its stockholders for monetary damages for breach of fiduciary duty as a director. Nivalis amended and restated bylaws provide that to the fullest
extent permitted by applicable law as it presently exists or may hereafter be amended, 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 she, or a person for whom he or she is the legal representative, is or was a director or officer of the corporation or, while a director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against
all liability and loss suffered and expenses reasonably incurred by such person.
Nivalis entered into indemnification agreements with its
directors and executive officers, in addition to the indemnification provided for in its amended and restated certificate of incorporation and amended and restated bylaws, and intends to enter into indemnification agreements with any new directors
and executive officers in the future.
Nivalis has purchased and intends to maintain insurance on behalf of any person who is or was a
director or officer of Nivalis against any loss arising from any claim asserted against him or her and incurred by him or her in any such capacity, subject to certain inclusions.
Pursuant to the terms of the Merger Agreement, from the Effective Time through the sixth anniversary of the date on which the Effective Time
occurs, Nivalis must indemnify and hold harmless each person who is now, or has been at any time prior to the date thereof, or who becomes prior to the Effective Time, a director or officer of Nivalis or Alpine, respectively, against all claims,
losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys fees and disbursements, incurred in connection with any claim, action, suit, proceeding or investigation to the fullest extent
permitted under the DGCL. Each such person will also be entitled to advancement of expenses incurred in the defense of any such claim, action, suit, proceeding or investigation, provided that such person provides an undertaking required by the DGCL,
to repay such advances if it is ultimately determined that such person is not entitled to indemnification. From and after the Effective Time, Nivalis must maintain directors and officers liability insurance policies, with an effective
date as of the closing date of the merger, on commercially available terms and conditions and with coverage limits customary for U.S. public companies similarly situated to Nivalis. In addition, Nivalis shall purchase, prior to the Effective Time, a
six-year
prepaid tail policy for the
non-cancellable
extension of the directors and officers liability coverage of Nivalis existing
directors and officers insurance policies with terms, conditions, retentions and limits of liability that are no less favorable than the current directors and officers liability insurance policies maintained by Nivalis.
Further, pursuant to the terms of the Merger Agreement, the provisions of the amended and restated certificate of incorporation and amended
and restated bylaws of Nivalis with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers of Nivalis shall not be amended, modified or repealed for a period of six years from the Effective
Time in a manner that would adversely affect the rights thereunder of individuals who, at or prior to the Effective Time, were officers and directors of Nivalis.
Item 21 Exhibits
a) Exhibit Index
A list of exhibits filed with this registration statement on Form S-4 is set forth on the Exhibit Index and is
incorporated herein by reference.
II-2
(b) Financial Statements
The financial statements filed with this registration statement on Form S-4 are set forth on the Financial Statement Index and are
incorporated herein by reference.
Item 22 Undertakings
(a) The undersigned registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered hereunder through use of a proxy statement/prospectus/information
statement which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering proxy statement/prospectus/information statement will
contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.
(2) That every proxy statement/prospectus/information statement (i) that is filed pursuant to paragraph (a)(1) immediately preceding, or
(ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, 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.
(3) To respond to
requests for information that is incorporated by reference into this proxy statement/prospectus/information statement pursuant to Item 4 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(4) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when it became effective.
(b) Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the city of Boulder, State of Colorado, on the 19th day of May, 2017.
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Nivalis Therapeutics, Inc.
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By:
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/
S
/ R. M
ICHAEL
C
ARRUTHERS
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R. Michael Carruthers
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Interim President and Chief Financial Officer
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Pursuant to the requirements of the Securities Act, this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
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Signature
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Title
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Date
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S
/ R. M
ICHAEL
C
ARRUTHERS
R. Michael Carruthers
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Interim and President Chief Financial Officer
(Principal Executive, Financial and Accounting Officer)
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May 19, 2017
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S
/ H
OWARD
F
URST
Howard Furst, M.D.
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Chairman of the Board of Directors
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May 19, 2017
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S
/ R
OBERT
C
ONWAY
Robert Conway
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Director
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May 19, 2017
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S
/ E
VAN
L
OH
Evan Loh, M.D., FACC, FAHA
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Director
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May 19, 2017
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S
/ J
OHN
M
OORE
John Moore
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Director
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May 19, 2017
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S
/ P
AUL
S
EKHRI
Paul Sekhri
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Director
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May 19, 2017
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S
/ C
YNTHIA
S
MITH
Cynthia Smith
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Director
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May 19, 2017
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INDEX TO EXHIBITS
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Exhibit
Number
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Description of Document
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2.1
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Agreement and Plan of Merger and Reorganization, dated as of April 18, 2017, by and among Nivalis Therapeutics, Inc., Nautilus Merger Sub, Inc. and Alpine Immune Sciences, Inc. (included as
Annex A
to the proxy
statement/prospectus/information statement forming a part of this Registration Statement).
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2.2
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Form of Support Agreement, by and between Nivalis Therapeutics, Inc. and certain stockholders of Alpine Immune Sciences, Inc. (incorporated by reference from the Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 18, 2017).
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2.3
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Form of Support Agreement, by between Alpine Immune Sciences, Inc. and certain stockholders of Nivalis Therapeutics, Inc. (incorporated by reference from the Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 18, 2017).
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2.4
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Form of Support Agreement, by and between Alpine Immune Sciences, Inc. and the Estate of Arnold H. Snider, III (incorporated by reference from the Current Report on Form 8-K filed with the Securities and Exchange Commission on April
18, 2017).
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2.5
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Form of Support Agreement, by and between Alpine Immune Sciences, Inc. and the Deerfield Signatories (incorporated by reference from the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 18,
2017).
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3.1
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Amended and Restated Certificate of Incorporation of Nivalis Therapeutics, Inc. (incorporated by reference from the Registration Statement on Form S-8 (Registration No. 333-205220) filed on June 25, 2015).
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3.2
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Amended and Restated Bylaws of Nivalis Therapeutics, Inc. (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on May 13, 2015).
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4.1
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Form of Stock Certificate of Nivalis Therapeutics, Inc. (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on May 13, 2015).
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4.2
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Second Amended and Restated Warrant to Purchase Common Stock of Nivalis Therapeutics, Inc., dated February 18, 2011, issued to Horizon Credit I, LLC (incorporated by reference from the Registration Statement on Form S-1
(Registration No. 333-204127), filed on May 13, 2015).
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4.3
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Second Amended and Restated Warrant to Purchase Common Stock of Nivalis Therapeutics, Inc., dated February 18, 2011, issued to Horizon Credit I, LLC (incorporated by reference from the Registration Statement on Form S-1
(Registration No. 333-204127), filed on May 13, 2015).
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4.4
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Second Amended and Restated Investor Rights Agreement of Nivalis Therapeutics, Inc., dated November 18, 2014 (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on May 13,
2015).
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5.1*
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Opinion of Latham & Watkins LLP regarding the validity of the securities.
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10.1#
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Nivalis Therapeutics, Inc. Employee Stock Purchase Plan (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on May 13, 2015).
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10.2#
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Form of Notice of Stock Option Grant and Stock Option Agreement for Employees under the Nivalis Therapeutics, Inc. 2015 Equity Incentive Plan (incorporated by reference from the Registration Statement on Form S-8 (Registration No.
333-205220) filed on June 25, 2015).
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10.3#
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Form of Notice of Stock Option Grant and Stock Option Agreement for Non-Employee Directors under the Nivalis Therapeutics, Inc. 2015 Equity Incentive Plan (incorporated by reference from the Registration Statement on Form S-8
(Registration No. 333-205220) filed on June 25, 2015).
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Exhibit
Number
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Description of Document
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10.4#
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N30 Pharmaceuticals, Inc. 2012 Stock Incentive Plan (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on May 13, 2015).
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10.5#
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Form of Stock Option Agreement pursuant to N30 Pharmaceuticals, Inc. 2012 Stock Incentive Plan (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on May 13, 2015).
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10.6#
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Nivalis Therapeutics, Inc. Employee Stock Purchase Plan (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on May 13, 2015).
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10.7#
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Employment Agreement, dated as of January 1, 2015, by and between Nivalis Therapeutics, Inc. and Jon Congleton (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on May 13,
2015).
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10.8#
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Amendment to Employment Agreement, dated as of March 6, 2015, by and between Nivalis Therapeutics, Inc. and Jon Congleton (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on
May 13, 2015).
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10.9#
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Amendment to Employment Agreement, dated as of January 12, 2017, by and between Nivalis Therapeutics, Inc. and Jon Congleton (incorporated by reference from the Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 13, 2017).
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10.10#
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Confidential Separation Agreement and General Release, dated as of January 15, 2017, by and between Nivalis Therapeutics, Inc. and Jon Congleton (incorporated by reference from the Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 13, 2017).
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10.11#
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Employment Agreement, dated as of November 1, 2012, by and between Nivalis Therapeutics, Inc. and Janice Troha (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on May 13,
2015).
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10.12#
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Amendment to Employment Agreement, dated as of December 15, 2014, by and between Nivalis Therapeutics, Inc. and Janice Troha (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed
on May 13, 2015).
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10.13#
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Amendment to Employment Agreement, dated as of March 6, 2015, by and between Nivalis Therapeutics, Inc. and Janice Troha (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on
May 13, 2015).
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10.14#
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Amendment to Employment Agreement, dated as of January 12, 2017, by and between Nivalis Therapeutics, Inc. and Janice Troha (incorporated by reference from the Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on February 13, 2017).
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10.15#
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Retention Bonus letter agreement, dated as of January 9, 2017, by and between Nivalis Therapeutics, Inc. and Janice Troha (incorporated by reference from the Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 13, 2017).
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10.16#
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Employment Agreement, dated as of January 21, 2015, by and between Nivalis Therapeutics, Inc. and R. Michael Carruthers (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on
May 13, 2015).
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10.17#
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Amendment to Employment Agreement, dated as of January 12, 2017, by and between Nivalis Therapeutics, Inc. and R. Michael Carruthers (incorporated by reference from the Annual Report on Form 10-K filed with the Securities and
Exchange Commission on February 13, 2017).
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10.18#
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Retention Bonus letter agreement, dated as of January 9, 2017, by and between Nivalis Therapeutics, Inc. and R. Michael Carruthers (incorporated by reference from the Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 13, 2017).
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Exhibit
Number
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Description of Document
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10.19#
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Employment Agreement, dated as of April 18, 2016, by and between Nivalis Therapeutics, Inc. and David M. Rodman, M.D. (incorporated by reference from the Quarterly Report on Form 10-Q, filed on May 3, 2016).
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10.20#
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Amendment to Employment Agreement, dated as of January 12, 2017, by and between Nivalis Therapeutics, Inc. and David M. Rodman, M.D. (incorporated by reference from the Annual Report on Form 10-K filed with the Securities and
Exchange Commission on February 13, 2017).
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10.21#
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Confidential Separation Agreement and General Release, dated as of January 15, 2017, by and between Nivalis Therapeutics, Inc. and David Rodman, M.D. (incorporated by reference from the Annual Report on Form 10-K filed with the
Securities and Exchange Commission on February 13, 2017).
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10.22#
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Notice of Inducement Stock Option Grant and Inducement Stock Option Agreement, each dated April 18, 2016 by and between Nivalis Therapeutics, Inc. and David M. Rodman, M.D. (incorporated by reference from the Quarterly Report on
Form 10-Q, filed on May 3, 2016).
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10.23#
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Notice of Restricted Stock Unit Inducement Grant and Inducement Restricted Stock Unit Agreement, each dated April 18, 2016 by and between Nivalis Therapeutics, Inc. and David M. Rodman, M.D. (incorporated by reference from the
Quarterly Report on Form 10-Q, filed on May 3, 2016).
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10.24
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Form of Indemnification Agreement entered into by and between Nivalis Therapeutic, Inc. and its directors and officers (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on
May 13, 2015).
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10.25
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Lease, dated March 11, 2010, by and between the Nivalis Therapeutics, Inc. and Aweida Properties, Inc. (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on May 13,
2015).
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10.26
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1st Amendment to Lease, dated December 5, 2014, by and between Nivalis Therapeutics, Inc. and Aweida Properties, Inc. (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on May
13, 2015).
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10.27
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2nd Amendment to Lease, dated February 11, 2015, by and between Nivalis Therapeutics, Inc. and Aweida Properties, Inc. (incorporated by reference from the Registration Statement on Form S-1 (Registration No. 333-204127), filed on
May 13, 2015).
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10.28
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Outside Director Compensation Guidelines (incorporated by reference from the Quarterly Report on Form 10-Q, filed August 4, 2015).
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23.1
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Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm to Nivalis Therapeutics, Inc.
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23.2
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Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm to Alpine Immune Sciences, Inc.
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23.3*
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Consent of Latham & Watkins LLP (included in Exhibit 5.1 hereto).
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99.1*
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Form of Proxy Card for the Nivalis Therapeutics, Inc. Special Meeting of Stockholders.
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99.2
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Opinion of Ladenburg Thalmann & Co. Inc., financial advisor to Nivalis Therapeutics, Inc. (included as
Annex B
to the proxy statement/prospectus/information statement forming a part of this Registration
Statement).
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99.3
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Consent of Ladenburg Thalmann & Co. Inc., financial advisor to Nivalis Therapeutics, Inc.
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99.4(a)
|
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Proposed Amended and Restated Certificate of Incorporation of Nivalis Therapeutics, Inc. (included as
Annex D
to the proxy statement/prospectus/information statement forming a part of this Registration
Statement).
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Exhibit
Number
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Description of Document
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99.4(b)
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Proposed Amended and Restated Certificate of Incorporation of Nivalis Therapeutics, Inc. (included as
Annex E
to the proxy statement/prospectus/information statement forming a part of this Registration Statement).
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99.5
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Consent of Mitchell H. Gold, M.D. to be named as director.
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99.6
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Consent of Peter Thompson, M.D. to be named as director.
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99.7
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Consent of James N. Topper, M.D., Ph.D. to be named as director.
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99.8
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Consent of Jay Venkatesan, M.D. to be named as director.
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101
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The following materials from Nivalis Therapeutic, Inc.s Annual Report on Form 10-K for the year ended December 31, 2016, and the Quarterly Report on Form 10-Q for the quarter ending March 31, 2017, formatted in Extensible
Business Reporting Language (XBRL) includes (i) Condensed Consolidated Balance Sheets at March 31, 2017 and December 31, 2016, (ii) Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2017,
(iii) Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2017 and (iv) Notes to Condensed Consolidated Financial Statements.
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*
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To be filed by amendment.
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#
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Indicates a management contract or compensatory plan, contract or arrangement.
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