Commitments and Contingencies
|12 Months Ended|
Dec. 31, 2015
|Commitments and Contingencies Disclosure [Abstract]|
|Commitments and Contingencies||
NOTE 6 COMMITMENTS AND CONTINGENCIES
Master Services Agreement
On December 30, 2015, we entered into a Master Service Agreement with Covance, Inc. (Covance), with an effective date of December 29, 2015. Pursuant to the terms of the Master Service Agreement, Covance (or one or more of its affiliates) will provide Phase 1, 2, 3, and 4 clinical services for a clinical study or studies to us, and, at our request, assist us with the design of such studies, in accordance with the terms of separate individual project agreements to be entered into by the parties. The term of the agreement is for three years and will renew automatically for successive one year periods unless Covance is no longer providing services under the agreement or either party has terminated the agreement upon written notice. We may terminate the Master Service Agreement or any individual project agreement entered into under the Master Service Agreement prior to the applicable studys completion at any time for any reason upon 30 days written notice to Covance, except when the reason for termination is the safety of subjects, in which case it may be terminated immediately. Covance may not terminate any individual project agreement without cause, except when the reason for the termination is the safety of subjects, in which case it may be terminated immediately. In the event of a termination of the Master Service Agreement, Covance will be entitled to full payment for (i) work performed on the applicable project upon through the date work on such project is concluded and (ii) reimbursement for all non-cancellable and non-refundable expenses and financial obligations which Covance (or an affiliate) has incurred or undertaken on our behalf.
Clinical Supply and Cooperation Agreement with Ricerche Sperimentali Montale (Ricerche) and Inalco SpA (Inalco)
Effective July 24, 2015, we entered into an amended Clinical Supply and Cooperation Agreement (the Amended Supply Agreement) with Ricerche and Inalco (collectively, RSM). The Amended Supply Agreement amends certain terms of the Clinical Supply and Cooperation Agreement, dated December 16, 2009, amended on September 25, 2010 (the Existing Supply Agreement).
Under the Existing Supply Agreement, RSM granted us an exclusive worldwide option in a specified field and territory to assignment of all right, title and interest to a purified Galacto-oligosaccharides product (Improved GOS), the composition of matter of the Improved GOS and any information relating to the Improved GOS, including certain specified technical information and other intellectual property rights (the Improved GOS IP). Pursuant to the amended terms, we could exercise the option by paying RSM $800,000 within ten days after the effective date of the Amended Supply Agreement. We exercised this option on July 30, 2015 and RSM transferred the Improved GOS IP to us. Under the terms of the Existing Supply Agreement, if a further option payment of $1 million due in the future is not made, we may be required to return the Improved GOS IP to RSM.
The Amended Supply Agreement also provides that we must pay RSM $400,000 within 10 days following FDA approval of a new drug application for the first product owned or controlled by us using Improved GOS as its active pharmaceutical ingredient. In addition, we agreed to purchase 350 kilos of Improved GOS for the sum of $250 per kilo for clinical supply of Improved GOS instead of $2,000 per kilo as under the Existing Supply Agreement.
In consideration for RSM entering into the Amended Supply Agreement, we issued 100,000 shares of our common stock, par value $0.001 per share (the RSM Shares), to RSM on November 30, 2015. Fair value of these shares totaling $416,000 was recognized in stockholders equity in the balance sheet as of December 31, 2015. The stock purchase agreement includes a lock-up agreement by RSM in our favor pursuant to which RSM will not be able to sell the RSM Shares for a period ending on the earlier of (i) the public release by us of the final results of our Phase 2b/3 clinical trial of RP-G28 and (ii) the filing of our Form 10-Q with the Securities and Exchange Commission for the fiscal quarter in which we receives the results of our Phase 2b/3 clinical trial of RP-G28.
We lease office space for our headquarters in California. Until September 30, 2015, we leased office and storage space pursuant to a two-year agreement which called for a minimum monthly rent of approximately $5,000 and an annual increase of 3%.
On July 9, 2015, we entered into a lease with Century Park, a California limited partnership, pursuant to which we are leasing approximately 2,780 square feet of office space in Los Angeles, California for our headquarters. The lease provides for a term of sixty-one (61) months, commencing on October 1, 2015. We paid no rent for the first month of the term and will pay base rent of $9,174 per month for months 2 through 13 of the term, with increasing base rent for each twelve month period thereafter under the term of the lease to a maximum of $10,325 per month for months 50 through 61. The base rent payments do not include our proportionate share of any operating expenses, including real estate taxes. We have the option to extend the term of the lease for one five-year term, provided that the rent would be subject to market adjustment at the beginning of the renewal term. We will recognize rent expense on a straight-line basis over the lease term.
Rent expense, recognized on a straight-line basis, was approximately $74,000 and $60,000 for the years ended December 31, 2015 and 2014, respectively, and is recorded in general and administrative expenses in the accompanying statements of operations.
The following table summarized our lease obligations at December 31, 2015:
Michael D. Step
On December 2, 2014, Michael D. Step accepted an offer letter from us setting forth the terms of his employment as Chief Executive Officer. The offer letter provides that Mr. Step is entitled to an annual base salary of $360,000 and a total of three grants of options to purchase our common stock.
The first two options entitle Mr. Step to purchase 646,537 and 73,377 of our shares, respectively, for an exercise price of $5.86 per share. Each of these options was immediately exercisable in full as of the date of the grant, with 44/48ths of the total number of shares covered by each option subject to a right of repurchase by us upon termination of Mr. Steps employment with us for any reason. This right of repurchase lapses over a period of 44 months, with 1/44th of the total number of shares subject to the right of repurchase lapsing on January 1, 2015 and on the first day of each month thereafter. In addition, the right of repurchase will lapse in its entirety upon a termination of the employment under certain circumstances.
The third option became exercisable upon the closing of our initial public offering on June 29, 2015. The option is for a total of 163,799 shares of our common stock, which, together with the shares subject to the first option, represent 7.5% of the shares of common stock deemed to be outstanding at June 29, 2015 on a fully-diluted basis, after giving effect to the number of shares subject to the third option. Seventy-five percent of the shares subject to the third option are subject to a right of repurchase by us upon termination of Mr. Steps employment for any reason. This right of repurchase lapses with respect to 1/36th of the total number of shares subject to the right of repurchase on the first day of each month following the date on which the third option becomes exercisable. In addition, the right of repurchase will lapse in its entirety upon Mr. Steps termination of employment under certain circumstances.
Additionally, under the terms of his Executive Severance and Change in Control Agreement, also effective on December 2, 2014, Mr. Step is entitled to receive certain payments in the event his employment is terminated under certain scenarios.
Andrew Ritter and Ira Ritter
On September 25, 2013, our board of directors approved the Executive Compensation Plan (the Compensation Plan) setting forth certain compensation to be paid to Andrew Ritter, our current President and former Chief Executive Officer, and Ira Ritter, our current Chief Strategic Officer (CSO), for their respective contributions to our company. Effective June 29, 2015, in connection with our initial public offering, Andrew Ritter and Ira Ritter accepted offer letters from us setting forth the terms of their employment as President and CSO, respectively, of the Company. The offer letters superseded the Compensation Plan.
Their respective offer letters provide that that Andrew Ritter is entitled to an annual base salary of $310,000 and Ira Ritter is entitled to an annual base salary of $295,000. In accordance with his offer letter, Andrew Ritter also became entitled to receive up to $180,000 payable over a three year period for tuition reimbursement. As of December 31, 2015, we paid an aggregate of $105,000 and have an accrual of $75,000 in tuition reimbursement for Andrew Ritter and recognized such amount in general and administrative expenses in the accompanying statements of operations for the year ended December 31, 2015.
Additionally, under the terms of their Executive Severance and Change in Control Agreements, also effective on June 29, 2015, each of Andrew Ritter and Ira Ritter is entitled to receive certain payments in the event their employment is terminated under certain scenarios.
Pursuant to their respective offer letters, Andrew Ritter and Ira Ritter each have the opportunity to earn an annual bonus based upon a percentage of their base salary and the achievement of specific performance as determined by the Company. The initial target bonus opportunities are 40% and 35% of the base salary for Andrew Ritter and Ira Ritter, respectively. The board of directors determined that the specific performance requirements were met for fiscal year 2015 and accordingly, Andrew Ritter received 40% of his base salary, or $124,000 and Ira Ritter received 35% of his base salary, or $103,250. These bonus payments are recognized in general and administrative expense in the accompanying statements of operations for the year ended December 31, 2015.
Pursuant to the Compensation Plan, as in effect prior to entering into their offer letters, Andrew Ritter and Ira Ritter had bonus opportunities to, upon the satisfaction of the events described below, each potentially receive the following cash payments and each potentially receive the following options to purchase up to 48,951 shares of our common stock (the Executive Options) pursuant to the 2008 Stock Plan:
As of December 31, 2015, 27,972 of the maximum 48,951 Executive Options potentially issuable to each executive had been issued to each executive subject to the vesting conditions described above.
The Company is not currently involved in any legal matters arising in the normal course of business. From time to time, the Company could become involved in disputes and various litigation matters that arise in the normal course of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters. Periodically, the Company reviews the status of significant matters, if any exist, and assesses its potential financial exposure. If the potential loss from any claim or legal claim is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation.
The entire disclosure for commitments and contingencies.
Reference 1: http://www.xbrl.org/2003/role/presentationRef