Preliminary Merger Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Filed by the Registrant  x                             Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

x   Preliminary Proxy Statement
¨   Confidential, for use of the Commission only (as permitted by Rule 14a-6(e)(2))
¨   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material Under Rule 14a-12

Avalanche Biotechnologies, Inc.

(Name of Registrant as Specified in its Charter)

Payment of Filing Fee (Check the appropriate box):

¨   No fee required
x   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
  (1)  

Title of each class of securities to which transaction applies:

 

Common stock, par value $0.0001 per share, of Avalanche Biotechnologies, Inc. (“Common Stock”)

  (2)  

Aggregate number of securities to which transaction applies:

 

13,135,189 shares of Common Stock and 4,653,821 shares of Common Stock underlying options (the “Avalanche Options”) to purchase shares of Common Stock (collectively, the “Consideration”). The Consideration is based on the number of shares of Common Stock that are expected to be issued pursuant to the transaction to shareholders of Annapurna Therapeutics SAS (“Annapurna”), and the number of Avalanche Options that are expected to be exchanged for options and other rights to purchase the capital stock of Annapurna (the “Annapurna Options”) pursuant to the transaction, at a ratio of 9.5615 shares of Common Stock (the “Exchange Ratio) for each outstanding share of Annapurna capital stock and for each Annapurna Option.

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

The proposed maximum aggregate value of the transaction was calculated based on the sum of (a) 13,135,189 shares of Common Stock multiplied by $5.03 per share (the average of the high and low trading prices of the Common Stock on the NASDAQ Global Market on March 15, 2016) and (b) 4,653,821 shares of Common Stock underlying options to purchase Common Stock multiplied by $4.82 (which is equal to the difference between $5.03 and the weighted average exercise price of such options of $0.21 per share (calculated by (x) multiplying the €1.76 weighted average exercise price of each Annapurna Option by $1.1180 (the euro to U.S. dollar exchange rate announced by the U.S. Federal Reserve Board on March 11, 2016) and (y) dividing such product by the Exchange Ratio)). The filing fee equals the product of 0.0001007 multiplied by the maximum aggregate value of the transaction.

  (4)  

Proposed maximum aggregate value of transaction:

 

$88,501,417.89

  (5)  

Total fee paid:

 

$8,912.09

¨   Fee paid previously with preliminary materials.
¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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PRELIMINARY PROXY MATERIAL SUBJECT TO COMPLETION

AVALANCHE BIOTECHNOLOGIES, INC.

1035 O’Brien Drive, Suite A

Menlo Park, CA

[●], 2016

To the Stockholders of Avalanche Biotechnologies, Inc.:

On behalf of the board of directors of Avalanche Biotechnologies, Inc. (“Avalanche,” the “Company,” “we,” “us” or “our”), we cordially invite you to attend the 2016 Annual Meeting of Stockholders (the “2016 Annual Meeting”), which will be held on [●], 2016 at [●], at the [●].

As previously announced, Avalanche, Annapurna Therapeutics SAS (“Annapurna”), the shareholders of Annapurna (the “Annapurna Shareholders”), and Shareholder Representative Services LLC, acting as the representative of the Annapurna Shareholders, have entered into an Acquisition Agreement, dated January 29, 2016 (as such agreement may be amended from time to time, the “Acquisition Agreement”), pursuant to which (i) Avalanche will acquire from the Annapurna Shareholders all of the issued and outstanding shares of capital stock of Annapurna, in exchange for (x) 13,135,189 newly issued shares of our common stock plus (y) any additional number of newly issued shares of our common stock to be exchanged for shares of Annapurna issued in connection with any exercise of outstanding options or other rights to purchase capital stock of Annapurna (the “Annapurna Options”) prior to or concurrently with the closing of the transaction (collectively, the “New Avalanche Shares”) and (ii) the Annapurna Options will be exchanged for options relating to approximately 4.7 million shares of our common stock (as may be reduced to reflect any exercise of Annapurna Options prior to or concurrently with the closing of the transaction) (collectively, the “Transaction”). If the Transaction is completed, Annapurna will be a wholly-owned subsidiary of Avalanche, the Annapurna Shareholders will own approximately 37.5% of Avalanche common stock and existing Avalanche stockholders will own approximately 62.5% of Avalanche common stock (inclusive of shares of our common stock underlying vested and unvested options, as calculated on a treasury stock method basis as of January 28, 2016). Completion of the proposed Transaction is subject to satisfaction or waiver of customary closing conditions, including approval by our stockholders of the issuance of the New Avalanche Shares to the Annapurna Shareholders (the “Stock Issuance”).

At the 2016 Annual Meeting, you will be asked to consider and vote upon the following proposals:

 

  1. To approve the Stock Issuance.

 

  2. To elect two Class II directors to hold office until the 2019 Annual Meeting of Stockholders or until their successors are elected.

 

  3. To ratify the selection, by the audit committee of our board of directors, of Deloitte & Touche LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2016.

 

  4. To consider and vote on a proposal to adjourn the annual meeting, if necessary, to solicit additional proxies, in the event that there are not sufficient votes at the time of the 2016 Annual Meeting to approve item 1 above.

 

  5. To transact such other business as may properly come before the 2016 Annual Meeting or any adjournment or postponement thereof.

The Transaction cannot be completed unless the proposal to approve the Stock Issuance receives the affirmative vote of a majority of votes cast in person or by proxy (excluding “abstentions” or “broker non-votes”).

After careful consideration, our board of directors (our “Board”) unanimously approved the Acquisition Agreement and the Transaction. Our Board has determined and believes that each of the proposals outlined above is advisable to, and in the best interests of, Avalanche and its stockholders and has approved each such proposal. Our Board recommends that Avalanche stockholders vote “FOR” each such proposal.


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The proxy statement accompanying this letter provides you with more specific information concerning the Acquisition Agreement, the Transaction, the Stock Issuance and the proposals to be voted on at the 2016 Annual Meeting. We encourage you to carefully read the accompanying proxy statement and the copy of the Acquisition Agreement attached as Annex A thereto. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 14.

It is very important that your vote be represented at the 2016 Annual Meeting, regardless of the number of shares of our common stock that you own. Even if you plan to attend the 2016 Annual Meeting, we urge you to submit your vote promptly.

If you own shares of record, you will find enclosed a proxy and voting instruction card or cards and an envelope in which to return the card(s). Whether or not you plan to attend the 2016 Annual Meeting, please sign, date and return your enclosed proxy and voting instruction card(s), or vote over the phone or internet, as soon as possible so that your shares can be voted at the meeting in accordance with your instructions. You can revoke your proxy before the 2016 Annual Meeting and issue a new proxy as you deem appropriate. You will find the procedures to follow if you wish to revoke your proxy on page 27 of the enclosed proxy statement.

If you hold your shares in “street name” through a broker, bank or other nominee, you should follow the directions provided by your broker, bank or other nominee regarding how to instruct your broker, bank or other nominee to vote your shares. Without those instructions, your shares will not be voted with respect to the proposals relating to the Stock Issuance, the election of directors and any adjournment of the 2016 Annual Meeting.

If you have any questions or need assistance voting your shares, please contact our proxy solicitation agent:

Morrow & CO, LLC

470 West Avenue

Stamford, CT 06902

800-662-5200

Thank you for your cooperation and continued support. I look forward to seeing you at the 2016 Annual Meeting.

 

Very truly yours,
 

 

Paul B. Cleveland

President and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the proposed Stock Issuance or passed upon the adequacy or accuracy of the information contained in the accompanying proxy statement. Any representation to the contrary is a criminal offense.

The accompanying proxy statement is dated [●], 2016 and is first being mailed to our stockholders on or about [●], 2016.


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PRELIMINARY PROXY MATERIAL SUBJECT TO COMPLETION

AVALANCHE BIOTECHNOLOGIES, INC.

1035 O’Brien Drive, Suite A

Menlo Park, CA

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

Time and Date:      [●] local time, on [●], 2016
Place:      [●]
Purpose:     

At the 2016 Annual Meeting, you will be asked to consider and vote upon the following proposals:

 

1.      To approve the issuance (the “Stock Issuance”) of (x) 13,135,189 shares of our common stock plus (y) any additional number of newly issued shares of our common stock to be exchanged for shares of Annapurna Therapeutics SAS (“Annapurna”) issued in connection with any exercise of outstanding options or other rights to purchase capital stock of Annapurna prior to or concurrently with the closing of the transaction with Annapurna (the “New Avalanche Shares”), to the shareholders of Annapurna (the “Annapurna Shareholders”), pursuant to the Acquisition Agreement, dated January 29, 2016 (as such agreement may be amended from time to time, the “Acquisition Agreement”), by and among Avalanche, Annapurna, the Annapurna Shareholders, and Shareholder Representative Services LLC, acting as the representative of the Annapurna Shareholders.

 

2.      To elect two Class II directors to hold office until the 2019 Annual Meeting of Stockholders or until their successors are elected.

 

3.      To ratify the selection, by the audit committee of our board of directors (our “Board”), of Deloitte & Touche LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2016.

 

4.      To consider and vote on a proposal to adjourn the annual meeting, if necessary, to solicit additional proxies, in the event that there are not sufficient votes at the time of the 2016 Annual Meeting to approve item 1 above.

 

5.      To transact such other business as may properly come before the 2016 Annual Meeting or any adjournment or postponement thereof.

Record Date:      Only stockholders of record as of the close of business on [●], 2016 are entitled to notice of and to vote at the 2016 Annual Meeting and any adjournments or postponements thereof.
General:     

For more information concerning the Acquisition Agreement, the transactions contemplated thereby, including the Stock Issuance, and the proposals to be voted on at the 2016 Annual Meeting, please review the accompanying proxy statement and the copy of the Acquisition Agreement attached as Annex A thereto. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 13.

 

Your vote is very important, regardless of the number of shares of our common stock you own. The transactions contemplated by the Acquisition Agreement cannot be completed unless the proposal to approve the Stock Issuance receives the affirmative vote of a majority of votes cast in person or by proxy (excluding “abstentions” or “broker non-votes”).


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After careful consideration, our Board unanimously approved the Acquisition Agreement and the transactions contemplated thereby. Our Board has determined and believes that each of the proposals outlined above is advisable to, and in the best interests of, Avalanche and its stockholders and has approved each such proposal.

 

Our Board unanimously recommends a vote “FOR” the Stock Issuance as described in Proposal No. 1 of the proxy statement, “FOR” the election of the director nominees named in Proposal No. 2 of the proxy statement, “FOR” the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm as described in Proposal No. 3 of the proxy statement, and “FOR” the adjournment of the 2016 Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1.

 

If you own shares of record, you will find enclosed a proxy and voting instruction card or cards and an envelope in which to return the card(s). Whether or not you plan to attend the 2016 Annual Meeting, please sign, date and return your enclosed proxy and voting instruction card(s), or vote over the phone or internet, as soon as possible so that your shares can be voted at the meeting in accordance with your instructions. You can revoke your proxy before the 2016 Annual Meeting and issue a new proxy as you deem appropriate. You will find the procedures to follow if you wish to revoke your proxy on page 27 of the enclosed proxy statement.

 

If you hold your shares in “street name” through a broker, bank or other nominee, you should follow the directions provided by your broker, bank or other nominee regarding how to instruct your broker, bank or other nominee to vote your shares. Without those instructions, your shares will not be voted with respect to the proposals relating to the Stock Issuance, the election of directors and any adjournment of the 2016 Annual Meeting.

 

By Order of the Board of Directors,
 

 

Jennifer Cheng, Ph.D., J.D.

Corporate Secretary

Menlo Park, California

[●], 2016


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ADDITIONAL INFORMATION

Additional business and financial information about Avalanche can be found in documents previously filed by us with the U.S. Securities and Exchange Commission, which we refer to as the “SEC”. This information is available to you without charge at the SEC’s website at www.sec.gov. In addition to receiving the proxy statement from Avalanche in the mail or obtaining the information on the SEC’s website, our stockholders will also be able to obtain the proxy statement, free of charge, from us by requesting copies in writing using the following contact information:

Avalanche Biotechnologies, Inc.

Attn: Corporate Secretary

1035 O’Brien Drive, Suite A

Menlo Park, CA 94025

You may also request additional copies from our proxy solicitor, Morrow & Co., LLC (“Morrow”), using the following contact information:

470 West Avenue

Stamford, CT 06902

800-662-5200

See “Where You Can Find Additional Information” beginning on page 142 for more information about the documents previously filed by us with the SEC and incorporated herein by reference.

Except as otherwise specifically noted in this proxy statement, “Avalanche”, “we”, “our”, “us” and similar words refer to Avalanche Biotechnologies, Inc., including, in certain cases, our subsidiaries. Throughout this proxy statement, we refer to Annapurna Therapeutics SAS as “Annapurna” and we refer to the Acquisition Agreement, dated as of January 29, 2016, by and among Annapurna, Avalanche, the shareholders of Annapurna and Shareholder Representative Services LLC, acting as the representative of those shareholders of Annapurna, as it may be amended from time to time, as the “Acquisition Agreement”.

In addition, throughout this proxy statement, we refer to the shareholders of Annapurna party to the Acquisition Agreement as the “Annapurna Shareholders” and we refer to transactions contemplated by the Acquisition Agreement, including the acquisition by Avalanche of all outstanding capital stock of Annapurna and the issuance of Avalanche common stock to the Annapurna Shareholders, as, collectively, the “Transaction”.


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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS

  

ABOUT THE 2016 ANNUAL MEETING AND THE TRANSACTION

     i   

SUMMARY

     1   

SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

     8   

Selected Historical Financial Data of Avalanche

     8   

Selected Historical Financial Data of Annapurna

     10   

Selected Unaudited Pro Forma Combined Financial Data of Avalanche and Annapurna

     11   

Comparative Historical and Unaudited Pro Forma Per Share Data

     12   

MARKET PRICE AND DIVIDEND INFORMATION

     13   

RISK FACTORS

     14   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     23   

THE 2016 ANNUAL MEETING

     25   

Date, Time and Place

     25   

Purposes of the 2016 Annual Meeting

     25   

Recommendation of our Board

     25   

Record Date and Stockholders Entitled to Vote

     26   

Quorum

     26   

Voting Procedures

     26   

How Proxies Are Voted

     27   

Revocation of Proxies

     27   

Required Vote

     27   

No Dissenters’ Rights or Appraisal Rights

     28   

Solicitation of Proxies

     28   

Adjournments and Postponements

     28   

Voting by Avalanche’s Directors, Executive Officers and Principal Securityholders

     28   

Assistance

     29   

THE PARTIES

     30   

MATTERS BEING SUBMITTED TO A VOTE OF AVALANCHE STOCKHOLDERS

     31   

Proposal No. 1: The Stock Issuance

     31   

Proposal No. 2: Election of Directors

     32   

Proposal No. 3: Ratification of Selection of Independent Registered Public Accounting Firm

     35   

Proposal No. 4: Possible Adjournment of the 2016 Annual Meeting

     36   

THE TRANSACTION

     37   

Background of the Transaction

     37   

Recommendation of our Board and Avalanche’s Reasons for the Transaction

     43   

Opinion of Cowen and Company, LLC, Financial Advisor to Avalanche

     45   

Interests of Avalanche’s Directors and Executive Officers in the Transaction

     54   

Our Board of Directors Following the Transaction

     54   

Other Organizational Changes Following the Transaction

     55   

Impact of the Stock Issuance on Existing Avalanche Stockholders

     55   

Regulatory Approvals Required for the Transaction

     55   

NASDAQ Stock Market Listing

     56   

Accounting Treatment of the Transaction

     56   

Material U.S. Federal Income Tax Consequences of the Transaction

     56   

Federal Securities Law Consequences; Restrictions on Transfer

     56   

THE ACQUISITION AGREEMENT

     58   

Explanatory Note Regarding the Acquisition Agreement

     58   

Terms of the Transaction

     58   

 

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Treatment of Annapurna Options

     59   

Lock-Up Agreement

     59   

Representations and Warranties

     59   

Conduct of Business Prior to Closing

     61   

Other Agreements

     63   

Conditions to Closing

     67   

Termination of the Acquisition Agreement

     68   

Reverse Termination Fee

     69   

Representation, Warranty and Covenant Survival

     69   

Indemnification by Annapurna Shareholders

     70   

Amendment

     70   

Specific Performance

     70   

AGREEMENTS RELATING TO THE TRANSACTION

     71   

Support Agreements

     71   

Investor Rights Agreement

     71   

AVALANCHE’S BUSINESS

     73   

ANNAPURNA’S BUSINESS

     73   

AVALANCHE’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     83   

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT AVALANCHE’S MARKET RISK

     83   

ANNAPURNA’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     83   

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT ANNAPURNA’S MARKET RISK

     93   

DIRECTORS AND EXECUTIVE OFFICERS OF AVALANCHE FOLLOWING THE TRANSACTION

     95   

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS REFLECTING THE TRANSACTION

     98   

DESCRIPTION OF AVALANCHE’S CAPITAL STOCK

     108   

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

     112   

CORPORATE GOVERNANCE

     113   

NON-EMPLOYEE DIRECTOR COMPENSATION

     120   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     122   

EXECUTIVE OFFICERS

     123   

EXECUTIVE COMPENSATION

     124   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AVALANCHE

     134   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ANNAPURNA

     137   

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     139   

HOUSEHOLDING

     140   

OTHER MATTERS

     141   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     142   

INDEX TO ANNAPURNA CONSOLIDATED FINANCIAL STATEMENTS

     F-1   
Annex A     Acquisition Agreement, dated as of January 29, 2016   
Annex B     Form of Investor Rights Agreement   
Annex C     Form of Support Agreement   
Annex D     Opinion of Cowen and Company, LLC   

 

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QUESTIONS AND ANSWERS

ABOUT THE 2016 ANNUAL MEETING AND THE TRANSACTION

The following questions and answers are intended to briefly address some commonly asked questions regarding the 2016 Annual Meeting and the Transaction. These questions and answers may not address all questions that may be important to you as a stockholder. You should read the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.

 

Q: Why am I receiving this proxy statement?

 

A: We have mailed these proxy materials to you because our Board is soliciting your proxy to vote at the 2016 Annual Meeting or any adjournments or postponements thereof that take place. As a stockholder, you are invited to attend the 2016 Annual Meeting and are requested to vote on the proposals described in this proxy statement. However, you do not need to attend the 2016 Annual Meeting in order to vote.

 

Q: When and where is 2016 Annual Meeting?

 

A: The 2016 Annual Meeting will be held on [●], 2016, at [●] local time, at [●].

 

Q: Who is entitled to vote at the 2016 Annual Meeting?

 

A: Only stockholders of record as of the close of business on [●], 2016 (the “Record Date”) will be entitled to vote at the 2016 Annual Meeting. As of the close of business on the Record Date, there were [●] shares of our common stock outstanding and entitled to vote, held by [●] stockholders of record. Each stockholder is entitled to one vote for each share of our common stock held by such stockholder on the Record Date on each of the proposals presented in this proxy statement.

If, at the close of business on [●], 2016, your shares were registered directly in your name with our transfer agent, Wells Fargo Shareowner Services, then you are a stockholder of record. As a stockholder of record, you may vote in person at the 2016 Annual Meeting or vote by proxy. Whether or not you plan to attend the 2016 Annual Meeting, please vote as soon as possible by completing and returning the enclosed proxy card or vote by proxy over the telephone or on the internet as instructed below to ensure your vote is counted.

If, at the close of business on [●], 2016, your shares were not held in your name, but rather in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered to be the stockholder of record for purposes of voting at the 2016 Annual Meeting. As a beneficial owner, you have the right to direct your broker or other agent how to vote the shares in your account. You are also invited to attend the 2016 Annual Meeting. However, because you are not the stockholder of record, you may not vote your shares in person at the 2016 Annual Meeting unless you request and obtain a valid proxy from your broker or other agent.

 

Q: What proposals will be considered at the 2016 Annual Meeting?

 

A: At the 2016 Annual Meeting, you will be asked to consider and vote on the following proposals:

 

    a proposal to approve the issuance, which we refer to as the “Stock Issuance”, to the Annapurna Shareholders pursuant to the Acquisition Agreement of (x) 13,135,189 shares of our common stock plus (y) any additional number of shares of our common stock to be exchanged for shares of Annapurna issued in connection with the exercise of any outstanding options or other rights to purchase capital stock of Annapurna prior to or concurrently with the closing of the Transaction, which we refer to, collectively, as the “New Avalanche Shares”;

 



 

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    a proposal to elect two Class II directors to hold office until the 2019 Annual Meeting of Stockholders or until their successors are elected;

 

    a proposal to ratify the selection, by the audit committee of our Board, of Deloitte & Touche LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2016;

 

    a proposal to adjourn the 2016 Annual Meeting, if necessary, to solicit additional proxies, in the event that there are not sufficient votes at the time of the 2016 Annual Meeting to approve the proposal to approve the Stock Issuance; and

 

    a proposal to transact such other business as may properly come before the 2016 Annual Meeting or any adjournment or postponement thereof.

 

Q: What is the Transaction?

 

A: Avalanche, Annapurna, the Annapurna Shareholders, and Shareholder Representative Services LLC, acting as the representative of the Annapurna Shareholders, have entered into the Acquisition Agreement, pursuant to which Avalanche will acquire from the Annapurna Shareholders all of the issued and outstanding shares of capital stock of Annapurna, in exchange for the New Avalanche Shares. The outstanding options or other rights to purchase capital stock of Annapurna (the “Annapurna Options”) will be converted into options relating to approximately 4.7 million shares of Avalanche common stock (as may be reduced to reflect any exercise of Annapurna Options prior to or concurrently with the closing of the Transaction), which we refer to as the “Avalanche Options”. Avalanche and Annapurna expect the Transaction to be consummated in the second quarter of 2016, subject to the satisfaction of applicable conditions. The New Avalanche Shares and shares underlying the vested and unvested Avalanche Options would represent approximately 37.5% of our post-closing issued and outstanding shares of common stock (as calculated on a treasury stock-method basis as of January 28, 2016). Upon the closing of the Transaction, Annapurna will become a wholly-owned subsidiary of Avalanche.

 

Q: Why is stockholder approval required for the Stock Issuance?

 

A: Our common stock is listed on, and we are subject to the rules and regulations of, the NASDAQ Global Market, which we refer to as “NASDAQ”.

NASDAQ rules require stockholder approval prior to the issuance of securities in connection with the acquisition of the stock or assets of another company if (a) the common stock, or securities convertible into common stock, that we issue has or will have upon issuance voting power equal to or in excess of 20% of the voting power of our securities outstanding before the issuance or (b) the number of shares of common stock, or securities convertible into common stock, to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance. In addition, NASDAQ rules require stockholder approval prior to the issuance of securities in a private placement if the number of shares of common stock, or securities convertible into common stock, to be issued is or will be equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock. Under relevant NASDAQ rules, stockholder approval is not required to effect the conversion of the Annapurna Options into the Avalanche Options.

We are proposing to issue 13,135,189 shares of our common stock to the Annapurna Shareholders pursuant to the Acquisition Agreement, with such number of shares to be increased based on the exercise of the Annapurna Options by their holders prior to or concurrently with the closing of the Transaction. The number of shares we will issue will exceed 20% of both the voting power and the number of shares of our common stock outstanding before the issuance. Accordingly, at the 2016 Annual Meeting, we are asking holders of shares of our common stock to consider and vote on the Stock Issuance to satisfy NASDAQ rules.

 



 

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Stockholder approval of the Stock Issuance is a condition to completion of the Transaction pursuant to the Acquisition Agreement, and we believe the Transaction is beneficial to our stockholders for a number of reasons. See “The Transaction—Recommendation of our Board and Avalanche’s Reasons for the Transaction”, beginning on page 43, for a description of these reasons.

 

Q: What will happen if our stockholders vote to approve the Stock Issuance?

 

A: If the Stock Issuance is approved and all required authorizations, clearances, consents and governmental approvals are obtained, subject to the satisfaction or waiver of the other closing conditions, we expect the Transaction to be completed in the second quarter of 2016.

 

Q: What will happen if our stockholders do not vote to approve the Stock Issuance?

 

A: Stockholder approval of the Stock Issuance is a condition to the consummation of the Transaction. If this proposal is not approved, the Acquisition Agreement may be terminated by Avalanche or Annapurna. In the event of termination for failure of our stockholders to approve the Stock Issuance, we will be required to pay to Annapurna a $4.0 million reverse termination fee, which may increase to $6.0 million upon the occurrence of certain other triggering events. We provide additional information relating to termination rights under the Acquisition Agreement in the section below entitled “The Acquisition Agreement—Reverse Termination Fee” beginning on page 69.

 

Q: Are there risks associated with the Transaction?

 

A: Yes. The material risks associated with the Transaction that are known to us are discussed in the section entitled “Risk Factors” beginning on page 14.

 

Q: What will happen to outstanding options or other rights to purchase capital stock of Annapurna?

 

A: Upon the closing of the Transaction, the Annapurna Options will be exchanged for the Avalanche Options, which relate to approximately 4.7 million shares of Avalanche common stock. The number of Avalanche Options are subject to reduction based on the exercise of the Annapurna Options by their holders prior to the closing of the Transaction. We expect to grant the Avalanche Options under our 2014 Equity Incentive Plan.

 

Q: What will happen to my Avalanche common stock upon completion of the Transaction?

 

A: Each outstanding share of our common stock will be unaffected by the Transaction and will remain outstanding. Holders of our common stock will continue to hold the shares that they currently hold following the completion of the Transaction.

 

Q: Will the stock issuance dilute the existing stockholders’ percentage of ownership in Avalanche?

 

A:

Yes. The Stock Issuance will dilute your existing holdings of our common stock. As of the Record Date, there were approximately [●] shares of our common stock issued and outstanding. If we consummate the Transaction, we will issue approximately 13.1 million shares of our common stock, and the Annapurna Options will be converted into the Avalanche Options, which relate to approximately 4.7 million shares of Avalanche common stock. The number of newly issued shares and the number of shares that the Annapurna Options relate to are subject to increase and decrease, respectively, based on the exercise of Annapurna Options by their holders prior to or concurrently with the closing of the Transaction. Upon the closing of the Transaction, the Annapurna Shareholders will own approximately 37.5% of Avalanche common stock and existing Avalanche stockholders will own approximately 62.5% of Avalanche common stock (inclusive of

 



 

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  shares of our common stock underlying vested and unvested options, as calculated on a treasury stock method basis as of January 28, 2016). Therefore, the ownership and voting interests of our existing stockholders will be proportionately reduced.

 

Q: Do I, as a stockholder of Avalanche, have dissenters’ or appraisal rights?

 

A: No. Holders of our common stock will not be entitled to any dissenters’ rights or appraisal rights with respect to any of the proposals to be voted on at the 2016 Annual Meeting.

 

Q: Other than the Acquisition Agreement, what other agreements have been or will be entered into in connection with the proposed Transaction?

 

A: In order to induce Annapurna to enter into the Acquisition Agreement, certain officers, directors and other stockholders of Avalanche (solely in their capacity as holders of shares of Avalanche’s common stock) entered into support and voting agreements with Annapurna, which we refer to collectively as the “Support Agreements”, covering approximately 10.3% of the outstanding shares of Avalanche’s common stock as of January 28, 2016 (including restricted stock units vested at July 29, 2016 and options exercisable at July 29, 2016 on an as converted to common stock basis). Each of these persons agreed to vote, or cause to be voted, all its shares in favor of the Stock Issuance and any other matters necessary for consummation of the Transaction and against, among other things, any proposal opposing or competing with the Transaction.

As a condition to the closing of the Transaction, we and the Annapurna Shareholders will enter into a second amended and restated investor rights agreement, which we refer to as the “Investor Rights Agreement”, pursuant to which the Annapurna Shareholders and other stockholders of Avalanche will have, among other things, certain demand and “piggyback” registration rights under the Securities Act of 1933, as amended (the “Securities Act”), with respect to their registrable shares, subject to certain limitations.

We provide additional information relating to the Support Agreements and the Investor Rights Agreement in the section below entitled “Agreements Relating to the Transaction” beginning on page 71.

 

Q: Are there restrictions on the resale of the New Avalanche Shares issued to the Annapurna Shareholders in connection with the Transaction?

 

A: Yes. The New Avalanche Shares will be considered “restricted securities” under Rule 144 of the Securities Act.

The New Avalanche Shares will be subject to the further restrictions on transfer contained in the Investor Rights Agreement. Each holder of the New Avalanche Shares will agree not to transfer its shares unless, subject to certain exceptions, such transfer is made pursuant to a registration statement or Rule 144.

 

Q: What are the material U.S. federal income tax consequences of the Transaction?

 

A: Because our existing stockholders do not participate in the Transaction, they will not recognize gain or loss in connection with the Transaction with respect to their shares of our common stock.

 

Q: What other matters may arise at the 2016 Annual Meeting?

 

A: Other than the proposals described in this proxy statement, we do not expect any other matters to be presented for a vote at the 2016 Annual Meeting. If any other matter is properly brought before the 2016 Annual Meeting, your proxy gives authority to the individuals named in the proxy to vote on such matters in their discretion.

 



 

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Q: What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

A: If your shares are registered in your name as evidenced and recorded in the stock ledger maintained by us and Wells Fargo Shareowner Services, our transfer agent, you are a stockholder of record. If your shares are held in the name of your broker, bank or other nominee, these shares are held in street name and you are the beneficial owner.

 

Q: How do I vote?

 

A: For Proposal No. 1 to approve the Stock Issuance, you may either vote “FOR” or “AGAINST” or you may abstain from voting. For Proposal No. 2 to elect two Class II directors to hold office until the 2019 Annual Meeting of Stockholders or until their successors are elected, you may either vote “FOR” all nominees to the board of directors or you may “WITHHOLD” your vote for any nominee you specify, or you may abstain from voting. For Proposal No. 3 to ratify the selection of Deloitte & Touche LLP as the independent registered public accounting firm of Avalanche for the fiscal year ending December 31, 2016, you may either vote “FOR” or “AGAINST” or you may abstain from voting. For Proposal No. 4 to adjourn the 2016 Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1, you may either vote “FOR” or “AGAINST” or you may abstain from voting.

 

Q: How do I cast my vote if I am a stockholder of record?

 

A: If you are a stockholder with shares registered in your name, you may vote in person at the 2016 Annual Meeting or vote by proxy by telephone or internet or by mail. Whether or not you plan to attend the 2016 Annual Meeting, please vote as soon as possible to ensure your vote is counted. You may still attend the 2016 Annual Meeting and vote in person even if you have already voted by proxy. For more detailed instructions on how to vote using one of these methods, please see the section of this proxy statement entitled “The 2016 Annual Meeting—Voting Procedures” beginning on page 26.

 

    To vote in person. You may attend the 2016 Annual Meeting and we will give you a ballot when you arrive. If you need directions to the meeting, please visit www.avalanchebiotech.com.

 

    To vote by proxy by telephone or internet. If you have telephone or internet access, you may submit your proxy by following the instructions provided in this proxy statement, or if you received paper proxy materials by mail, by following the instructions provided with your proxy materials and on your proxy card or voting instruction card.

 

    To vote by proxy by mail. If you received paper proxy materials, you may submit your proxy by mail by completing and signing your proxy card and mailing it in the enclosed envelope. Your shares will be voted as you have instructed.

 

Q: How do I cast my vote if I am a beneficial owner of shares registered in the name of my broker or bank?

 

A: If you are a beneficial owner of shares registered in the name of your broker, bank, dealer or other similar organization, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from us. Simply complete and mail the proxy card to ensure that your vote is counted. Alternatively, you may vote by telephone or over the internet as instructed by your broker or other agent. To vote in person at the 2016 Annual Meeting, you must obtain a valid proxy from your broker or other agent. Follow the instructions from your broker or other agent included with these proxy materials, or contact your broker or bank to request a proxy form.

 



 

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Q: How many votes do I have?

 

A: On each matter to be voted upon, you have one vote for each share of our common stock you hold as of the Record Date.

 

Q: What if I return a proxy card but do not make specific choices?

 

A: If you return a signed and dated proxy card without marking any voting selections, your shares will be voted “FOR” the approval of the Stock Issuance, “FOR” the election of each nominee for director, “FOR” the ratification of the selection of Deloitte & Touche LLP as the independent registered public accounting firm of Avalanche for the fiscal year ending December 31, 2016, and “FOR” the adjournment of the 2016 Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1. If any other matter is properly presented at the 2016 Annual Meeting, your proxyholder (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.

 

Q: Who is paying for this proxy solicitation?

 

A: We will pay for the entire cost of soliciting proxies. In addition to these mailed proxy materials, our directors, officers and employees may also solicit proxies in person, by telephone, or by other means of communication. Directors, officers and employees will not be paid any additional compensation for soliciting proxies.

 

Q: What does it mean if I receive more than one proxy card?

 

A: If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.

 

Q: Can I change my vote after I have submitted my proxy?

 

A: Yes. You can revoke your proxy at any time before the final vote at the 2016 Annual Meeting. If you are the stockholder of record of your shares, you may revoke your proxy in any one of three ways:

 

    You may submit another properly completed proxy with a later date.

 

    You may send a timely written notice that you are revoking your proxy to our Corporate Secretary at Avalanche Biotechnologies, Inc., 1035 O’Brien Avenue, Suite A, Menlo Park, California 94025.

 

    You may attend the 2016 Annual Meeting and vote in person. Simply attending the 2016 Annual Meeting will not, by itself, revoke your proxy.

If your shares are held by your broker or other agent, you should follow the instructions provided by your broker or agent.

 

Q: What constitutes a quorum for purposes of the 2016 Annual Meeting?

 

A: A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if stockholders holding at least a majority of the issued and outstanding shares entitled to vote are present or represented by proxy at the 2016 Annual Meeting. On the Record Date, there were [●] shares of our common stock outstanding and entitled to vote. Accordingly, the holders of [●] shares must be present at the 2016 Annual Meeting to have a quorum. Your shares will be counted toward the quorum at the 2016 Annual Meeting only if you vote in person at the meeting, or you submit a valid proxy vote.

 



 

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Abstentions and broker non-votes (as described below) will be counted towards the quorum requirement. If there is no quorum, the chairperson of the meeting or the holders of a majority of shares entitled to vote at the meeting and present in person or represented by proxy may adjourn the 2016 Annual Meeting to another date.

 

Q: How are votes counted?

 

A: [●] has been engaged as our independent agent to tabulate stockholder votes for the 2016 Annual Meeting (the “Inspector of Elections”). The Inspector of Elections will separately count “FOR” and “AGAINST” votes, abstentions and, if any, broker non-votes for Proposal No. 1 (the Stock Issuance), “FOR”, “WITHHOLD” and broker non-votes for Proposal No. 2 (the election of directors), “FOR” and “AGAINST” votes, abstentions, and, if any, broker non-votes for Proposal No. 3 (the ratification of the selection of Deloitte & Touche LLP as the independent registered accounting firm of Avalanche for the fiscal year ending December 31, 2016), and “FOR” and “AGAINST” votes, abstentions and, if any, broker non-votes for Proposal No. 4 (the approval of possible adjournment of the 2016 Annual Meeting).

If your shares are held by your broker or other agent as your nominee (that is, held beneficially in “street name”), you will need to obtain a proxy form from the institution that holds your shares and follow the instructions included on that form regarding how to instruct your broker or other agent to vote your shares. If you do not give voting instructions to your broker or other agent, your broker or other agent can only vote your shares with respect to “routine” matters (as described below).

 

Q: What are “broker non-votes”?

 

A: If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute “broker non-votes”. Broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. These matters are referred to as “non-routine” matters. Proposal No. 1 to approve the Stock Issuance, Proposal No. 2 to elect directors and Proposal No. 4 to adjourn the 2016 Annual Meeting to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1 are “non-routine matters”, but Proposal No. 3 to ratify the selection of Deloitte & Touche LLP as the independent registered public accounting firm for Avalanche for the fiscal year ending December 31, 2016 is a “routine” matter. Broker non-votes will not be counted toward the vote total for any proposal at the 2016 Annual Meeting.

 

Q: How many votes are needed to approve each proposal?

 

A: The following votes are required to approve each proposal:

 

    Proposal No. 1To approve the Stock Issuance. “FOR” votes from the holders of a majority of the shares cast in person or by proxy (excluding abstentions and broker non-votes) are required to approve this proposal.

 

    Proposal No. 2—To elect two Class II directors to hold office until the 2019 Annual Meeting of Stockholders or until their successors are elected. The two nominees receiving the most “FOR” votes (from the votes of shares cast in person or by proxy) will be elected. Broker non-votes will not be counted towards the vote total for this proposal.

 

    Proposal No. 3—To ratify the selection of Deloitte & Touche LLP as the independent registered public accounting firm of Avalanche for the fiscal year ending December 31, 2016. “FOR” votes from the holders of a majority of the shares cast in person or by proxy (excluding abstentions and broker non-votes) are required to approve this proposal. Because Proposal No. 3 is a “routine” matter, no broker non-votes are expected in connection with this proposal.

 



 

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    Proposal No. 4—To approve the proposal to adjourn the 2016 Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1. If a quorum is present at the 2016 Annual Meeting, “FOR” votes from the holders of a majority of the shares cast in person or by proxy (excluding abstentions and broker non-votes) are required to approve this proposal. If a quorum is not present, either (i) the chairperson of the meeting or (ii) the holders of a majority of shares entitled to vote at the 2016 Annual Meeting and present in person or represented by proxy may adjourn the meeting.

 

Q: How does our Board recommend that I vote?

 

A: Our Board unanimously recommends a vote “FOR” the approval of the Stock Issuance, “FOR” the election of each nominee for director, “FOR” the ratification of the selection of Deloitte & Touche LLP as the independent registered public accounting firm of Avalanche for the fiscal year ending December 31, 2016, and “FOR” the adjournment of the 2016 Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1.

For a discussion of the factors that our Board considered in determining to recommend the approval of the Stock Issuance, please see the section of this proxy statement entitled “The Transaction—Recommendation of our Board and Avalanche’s Reasons for the Transaction” beginning on page 43. In addition, in considering the recommendation of our Board with respect to the Acquisition Agreement, you should be aware that some of our directors and executive officers have interests that may be different from, or in addition to, the interests of our stockholders generally. Please see the section of this proxy statement entitled “The Transaction—Interests of Avalanche’s Directors and Executive Officers in the Transaction” beginning on page 54.

 

Q: How do Avalanche’s directors, executive officers and principal stockholders intend to vote?

 

A: Our directors and executive officers have entered into the Support Agreements under which each has agreed to vote, or cause to be voted all his or her shares in favor of the Stock Issuance. In addition, our directors and executive officers have informed us that they intend, as of the date hereof, to vote all of their shares of our common stock in favor of the other matters before our stockholders as described in this proxy statement. As of the close of business on [●], 2016, the Record Date for the 2016 Annual Meeting, our directors and executive officers owned, in the aggregate, [●] shares of our common stock, or, collectively, approximately [●]% of the outstanding shares of our common stock.

 

Q: Do any of Avalanche’s directors or executive officers have any interests in the Transaction that are different from, or in addition to, my interests as a stockholder?

 

A: Paul B. Cleveland, our President and Chief Executive Officer and a member of our Board, has interests in the Transaction that may be different from, or in addition to, the interests of Avalanche’s stockholders generally. The members of our Board were aware of and considered these interests in reaching the determination to approve the Acquisition Agreement and the Transaction and deem the Acquisition Agreement and the Transaction to be advisable and in the best interests of Avalanche and its stockholders, and in recommending that Avalanche’s stockholders vote for the approval of the Stock Issuance.

For more information, please see the section of this proxy statement entitled “The Transaction—Interests of Avalanche’s Directors and Executive Officers in the Transaction” beginning on page 54.

 

Q: How can I find out the results of the voting at the 2016 Annual Meeting?

 

A:

We will disclose final voting results in a Current Report on Form 8-K filed with the SEC within four business days after the 2016 Annual Meeting. If final voting results are unavailable at that time, then we

 



 

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  intend to file a Current Report on Form 8-K to disclose preliminary voting results and file an amended Current Report on Form 8-K within four business days after the date the final voting results are available.

 

Q: When are stockholder proposals due for next year’s annual meeting?

 

A: Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, or the “Exchange Act”, stockholders may present proper proposals for inclusion in the proxy statement and for consideration at our next annual meeting of stockholders. To be eligible for inclusion in our proxy statement for the 2017 Annual Meeting of Stockholders, your proposal must be submitted in writing by [●] to our Corporate Secretary at Avalanche Biotechnologies, Inc., 1035 O’Brien Avenue, Suite A, Menlo Park, California 94025. However, if the meeting is not held between May 27, 2017 and July 26, 2017, then the deadline will be a reasonable time before we begin to print and mail our proxy materials for that meeting. While our Board will consider stockholder proposals, we reserve the right to omit from the proxy statement stockholder proposals that we are not required to include under the Exchange Act, including Rule 14a-8.

If you wish to submit a proposal before the stockholders or nominate a director at the 2017 Annual Meeting of Stockholders, but you are not requesting that your proposal or nomination be included in the proxy materials for that meeting, then you must follow the procedures set forth in our bylaws and, among other things, notify our Corporate Secretary in writing between [●] and [●]. However, if the date of the 2017 Annual Meeting of Stockholders is more than 30 days before or more than 60 days after June 26, 2017, then you must give notice not later than the 90th day prior to that meeting or, if later, the 10th day following the day on which public disclosure of that annual meeting date is first made. You are also advised to review our bylaws, which contain additional requirements regarding advance notice of stockholder proposals and director nominations.

 

Q: Who can help answer my questions?

 

A: If you need assistance in completing your proxy card or have questions regarding the 2016 Annual Meeting, please contact Morrow & Co., LLC, which is acting as our proxy solicitation agent in connection with the Transaction, toll free at 800-662-5200 or via email at aavl@morrowco.com. Brokers may call collect at 203-658-9400.

 



 

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SUMMARY

This summary term sheet highlights selected information in this proxy statement and may not contain all of the information about the Transaction and the proposals being considered at the 2016 Annual Meeting that is important to you. We have included page references in parentheses to direct you to more complete descriptions of the topics presented in this summary term sheet. You should carefully read this proxy statement in its entirety, including the annexes hereto and the other documents to which we have referred you, for a more complete understanding of the matters being considered at the 2016 Annual Meeting. You may obtain, without charge, copies of documents incorporated by reference into this proxy statement by following the instructions under the section of this proxy statement entitled Where You Can Find Additional Information beginning on page 142.

The 2016 Annual Meeting

(page 25)

The 2016 Annual Meeting of Stockholders of Avalanche will be held on [●], 2016 at [●], at the [●]. At the 2016 Annual Meeting, you will be asked to consider and vote upon:

 

  (1) a proposal to approve the Stock Issuance;

 

  (2) a proposal to elect two Class II directors to hold office until the 2019 Annual Meeting of Stockholders or until their successors are elected;

 

  (3) a proposal to ratify the selection, by the audit committee of our Board, of Deloitte & Touche LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2016;

 

  (4) a proposal to adjourn the 2016 Annual Meeting, if necessary, to solicit additional proxies, in the event that there are not sufficient votes at the time of the 2016 Annual Meeting to approve the proposal to approve the Stock Issuance; and

 

  (5) a proposal to transact such other business as may properly come before the 2016 Annual Meeting or any adjournment or postponement thereof.

Approval of the Stock Issuance is a condition to closing the Transaction.

Only stockholders at the close of business on [●], 2016 (the “Record Date”) are entitled to notice of, and to vote at, the 2016 Annual Meeting and any adjournment or postponement thereof. Such stockholders are entitled to one vote on each matter submitted to stockholders at the 2016 Annual Meeting for each share of our common stock held as of the Record Date. At the close of business on the Record Date, there were [●] shares of our common stock issued and outstanding, and entitled to vote at the 2016 Annual Meeting, held by [●] holders of record.

Provided a quorum is present, the affirmative vote of a majority of the votes cast in person or by proxy is required for the approval of each of the Stock Issuance, the ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2016, and the adjournment of the 2016 Annual Meeting, if necessary, to solicit additional proxies, in the event that there are not sufficient votes at the time of the 2016 Annual Meeting to approve the proposal to approve the Stock Issuance. Our Class II directors are elected by a plurality of the votes cast. Abstentions will be counted for purposes of determining whether there is a quorum but will have no effect on the outcome of these proposals and unvoted shares will have no effect on the outcome of the proposals.

If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute “broker non-votes”. Broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. These matters

 



 

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are referred to as “non-routine” matters. Proposal No. 1 to approve the Stock Issuance, Proposal No. 2 to elect directors and Proposal No. 4 to adjourn the 2016 Annual Meeting, if necessary, are “non-routine matters”, but Proposal No. 3 to ratify the selection of Deloitte & Touche LLP as the independent registered public accounting firm for Avalanche for the fiscal year ending December 31, 2016 is a “routine” matter. Broker non-votes will not be counted toward the vote total for any proposal at the 2016 Annual Meeting.

This solicitation is made on behalf of our Board, and we will pay the costs of solicitation. Copies of solicitation materials will be furnished to banks, brokerage firms and other custodians, nominees and fiduciaries holding shares in their names that are beneficially owned by others so that they may forward the solicitation materials to such beneficial owners upon request. We will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to our stockholders. In addition to the solicitation of proxies by mail, our directors, officers and employees may solicit proxies by telephone, electronic mail, letter, facsimile or in person. We have engaged Morrow & Co., LLC to assist in the solicitation of proxies for the 2016 Annual Meeting and will pay Morrow a fee of approximately $25,000, plus reimbursement of out-of-pocket expenses.

The Parties

(page 30)

Avalanche is a gene therapy company committed to discovering and developing novel medicines that can offer potentially life-changing therapeutic benefit to patients suffering from chronic or debilitating disease. To date, Avalanche’s primary focus has been the development of AVA-101 for the treatment of wet age-related macular degeneration. Avalanche’s common stock is listed on the NASDAQ Global Market, which we refer to as “NASDAQ”, under our trading symbol “AAVL”. Avalanche’s principal executive office is located at 1035 O’Brien Drive, Suite A, Menlo Park, CA and its telephone number is (650) 272-6269.

Annapurna is a gene therapy company focused on discovering and developing new therapeutic products for people living with severe diseases where continuous expression of a therapeutic protein may lead to meaningful clinical benefit. Annapurna’s principal executive office is located at 183 Avenue de Choisy, 75013 Paris, France.

The Transaction

(page 37)

Avalanche, Annapurna, the Annapurna Shareholders, and Shareholder Representative Services LLC, acting as the representative of the Annapurna Shareholders, have entered into the Acquisition Agreement, pursuant to which Avalanche will acquire from the Annapurna Shareholders all of the issued and outstanding shares of capital stock of Annapurna, in exchange for the New Avalanche Shares. The Annapurna Options will be converted into the Avalanche Options. Avalanche and Annapurna expect the Transaction to be consummated in the second quarter of 2016, subject to the satisfaction of applicable conditions. The New Avalanche Shares and shares underlying the vested and unvested Avalanche Options would represent approximately 37.5% of our issued and outstanding shares of common stock post-closing (as calculated on a treasury stock method basis as of January 28, 2016). Upon the closing of the Transaction, Annapurna will become a wholly-owned subsidiary of Avalanche.

 



 

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Recommendation of our Board and Avalanche’s Reasons for the Transaction

(page 43)

The Avalanche Board unanimously recommends that you vote “FOR” Proposal No. 1 to approve the Stock Issuance.

In evaluating the Transaction, our Board considered a number of factors, including the benefits described in this proxy statement and the positive and negative factors described in the section of this proxy statement entitled “The Transaction—Recommendation of our Board and Avalanche’s Reasons for the Transaction”, beginning on page 43, and unanimously determined that the Transaction is fair to and in the best interests of Avalanche and our stockholders and approved the Acquisition Agreement and the other documents to be entered into in connection with the Transaction. Our Board believes that the Transaction will be beneficial because it is expected to, among other things, (i) provide us with a portfolio of product candidates nearing clinical stage with the potential to address orphan diseases with unmet medical need, (ii) enable us to leverage our AAV vector discovery and optimization system and industrialized manufacturing process to optimize development of our and Annapurna’s product candidates, and (iii) transform us into a leading gene therapy company with an extensive pipeline. Our Board also believes that the Transaction will be beneficial because it will provide us with the deep gene-therapy expertise and experience of Annapurna’s scientific team and advisors, who are expected to continue employment or consulting relationships, as applicable, with Avalanche, as described in the section of this proxy statement entitled “Directors and Executive Officers of Avalanche Following the Transaction”.

Opinion of Cowen and Company, LLC, Financial Advisor to Avalanche

(page 45)

At the meeting of our Board on January 29, 2016, Cowen and Company, LLC (“Cowen”), our financial advisor, delivered its oral opinion to our Board, subsequently confirmed in writing, to the effect that, subject to the various assumptions made, procedures followed, matters considered, limitations of the review undertaken, qualifications contained and other matters set forth therein, as of the date of Cowen’s opinion, the consideration (i.e., the value on January 29, 2016 of the New Avalanche Shares to be issued to the Annapurna Shareholders by Avalanche as consideration in the Transaction pursuant to the Acquisition Agreement, net of any cash and cash equivalents) was fair, from a financial point of view, to Avalanche.

The full text of the written opinion of Cowen, dated January 29, 2016, which sets forth the assumptions made, procedures followed, other matters considered and limitations on the review undertaken in rendering its opinion, is attached as Annex D to this proxy statement and is incorporated herein by reference. We urge holders of our common stock to read Cowen’s written opinion in its entirety for the assumptions made, procedures followed, other matters considered and limits of the review undertaken by Cowen. Cowen’s written opinion was prepared for and addressed to our Board and was directed only to the fairness, from a financial point of view, of the consideration to be paid by Avalanche in the Transaction, and does not constitute an opinion as to the merits of the Transaction or a recommendation to any stockholder as to how to vote with respect to the proposed Stock Issuance or otherwise. The summary of the opinion of Cowen set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion.

 



 

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Executive Officers of Avalanche Following the Transaction

(page 95)

Immediately following consummation of the Transaction, the Avalanche executive management team will be composed as set forth below:

 

Name    Position with Avalanche After Closing    Current Position
Paul B. Cleveland    Chief Executive Officer    Chief Executive Officer and President of Avalanche
Amber Salzman, Ph.D.    President and Chief Operating Officer    President and Chief Executive Officer of Annapurna
Carlo Russo, M.D.    Executive Vice President and Chief Medical Officer    Chief Medical Officer and Head of Development of Annapurna
Mehdi Gasmi, Ph.D.    Chief Technology Officer    Interim Chief Scientific Officer of Avalanche
Samuel B. Barone, M.D.    Senior Vice President, Clinical Development    Chief Medical Officer of Avalanche
Shirley Braun, Ph.D.    Vice President, Human Resources    Vice President, Human Resources of Avalanche

Avalanche’s Board Following the Transaction

(page 96)

Upon the closing of the Transaction, our Board will expand to seven directors, comprised of four of Avalanche’s current directors – Dr. Mark S. Blumenkranz, M.D., Paul B. Cleveland, John P. McLaughlin and Dr. Steven D. Schwartz, M.D – and three new directors initially designated by Annapurna – Dr. Amber Salzman, Ph.D., Dr. Mitchell Finer, Ph.D. and Dr. Thomas Woiwode, Ph.D. Our fifth current director, Paul D. Wachter, intends to resign as a member of our Board and audit committee upon the closing of the Transaction. If the Acquisition Agreement is terminated prior to closing, Mr. Wachter’s resignation will not become effective.

The biographies of each of the five current directors of Avalanche are set forth below in the section entitled “Proposal No. 2: Election of Directors” beginning on page 32, and the biographies of each of the three directors to be appointed upon consummation of the Transaction are described in further detail in the section below entitled “Directors and Executive Officers of Avalanche Following the Transaction” beginning on page 95.

Impact of the Stock Issuance on Existing Avalanche Stockholders

(page 55)

The Stock Issuance will dilute the ownership and voting interests of our existing stockholders. The New Avalanche Shares and shares underlying the vested and unvested Avalanche Options will represent approximately 37.5% of Avalanche common stock post-closing (calculated on a treasury stock method basis as of January 28, 2016), with our current stockholders owning approximately 62.5% of Avalanche common stock post-closing.

Accounting Treatment of the Transaction

(page 56)

We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Under U.S. GAAP, the Transaction will be accounted for by applying the acquisition method with Avalanche treated as the accounting and legal acquiror.

 



 

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No Dissenters’ Rights or Appraisal Rights

(page 28)

Holders of our common stock will not be entitled to any dissenters’ rights or appraisal rights with respect to any of the proposals to be voted on at the 2016 Annual Meeting.

Interests of Avalanche’s Directors and Executive Officers in the Transaction

(page 54)

Paul B. Cleveland, our President and Chief Executive Officer and a member of our Board, has interests in the Transaction that may be different from, or in addition to, the interests of Avalanche’s stockholders generally. The members of our Board were aware of and considered these interests in reaching the determination to approve the Acquisition Agreement and the Transaction and deem the Acquisition Agreement and the Transaction to be advisable and in the best interests of Avalanche and its stockholders, and in recommending that Avalanche’s stockholders vote for the approval of the Stock Issuance.

Regulatory Approvals Required for the Transaction

(page 55)

Neither Avalanche nor Annapurna is required to make filings or to obtain approvals or clearances from any antitrust regulatory authorities in the United States, European Union or other countries to consummate the Transaction. In the United States, Avalanche must comply with applicable federal and state securities laws and the rules and regulations of NASDAQ in connection with the issuance of the New Avalanche Shares and the filing of this proxy statement with the SEC. Avalanche has submitted a request for authorization to the French Ministry of the Economy (the “Ministry”) pursuant to the regulations on foreign investment in certain economic sectors, and more particularly in accordance with Articles L. 151-1 et seq. and R. 153-1 et seq. of the Monetary and Financial Code (Code monétaire et financier). If the Ministry determines that its prior authorization is required, we must receive the Ministry’s authorization before we are able to consummate the Transaction.

Federal Securities Laws Consequences; Restrictions on Transfer

(page 56)

The New Avalanche Shares will be issued to the Annapurna Shareholders in a private placement transaction under the exemption from registration provided under Section 4(a)(2) of the Securities Act, as the offer and sale of the New Avalanche Shares does not involve a public offering of our common stock. The Annapurna Shareholders have represented to us that they are “accredited investors” within the meaning of Rule 501(a) under the Securities Act. The certificates representing the New Avalanche Shares will bear legends that such securities have not been registered under the Securities Act or the securities laws of any state and may not be sold or transferred in the absence of an effective registration statement under the Securities Act and applicable state securities laws or an exemption from registration thereunder.

In addition, the New Avalanche Shares will be subject to further restrictions on transfer and the Annapurna Shareholders will be entitled to certain registration rights as described in more detail in “Agreements Relating to the Transaction—Investor Rights Agreement” on page 71.

The Acquisition Agreement

(page 58)

The Acquisition Agreement, which is attached to this proxy statement as Annex A, is described in more detail under the section entitled “The Acquisition Agreement” beginning on page 58. We urge you to read the Acquisition Agreement in its entirety because the Acquisition Agreement and not this proxy statement is the legal document governing the Transaction.

 



 

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Terms of the Transaction (page 58)

Avalanche will acquire all of the issued and outstanding capital stock of Annapurna from the Annapurna Shareholders in exchange for the New Avalanche Shares. Annapurna Shareholders will receive 9.5615 newly issued shares of Avalanche common stock in exchange for each share of Annapurna contributed to Avalanche (such ratio, as may be adjusted in accordance with the Acquisition Agreement, the “Exchange Ratio”).

Treatment of Annapurna Options (page 59)

At the closing of the Transaction, each Annapurna Option shall be exchanged for an Avalanche Option upon substantially similar terms and conditions as are in effect immediately prior to such closing. Each Avalanche Option will relate to the whole number of shares of Avalanche common stock (rounded down to the nearest whole share) equal to the number of shares of the common stock of Annapurna subject to such Annapurna Option multiplied by the Exchange Ratio. The exercise price per share for each Avalanche Option will be equal to the exercise price per share of such Annapurna Option divided by the Exchange Ratio. We expect that the Avalanche Options will be issued and granted under our 2014 Equity Incentive Plan.

Lock-Up Agreement (page 59)

Following the closing of the Transaction, each of the Annapurna Shareholders will be restricted, except in certain limited circumstances, from selling any of the New Avalanche Shares until 180 days after closing.

Representations and Warranties; Covenants (page 59)

The Acquisition Agreement contains customary representations, warranties and covenants made by Annapurna, the Annapurna Shareholders and Avalanche, including, among other things, covenants relating to non-solicitation of alternative transactions, Avalanche’s and Annapurna’s conduct of their respective businesses between the date of signing the Acquisition Agreement and the closing of the Transaction, the filing of this proxy statement and entry into the Investor Rights Agreement.

Conditions to Closing (page 67)

To consummate the Transaction, our stockholders must approve the Stock Issuance. In addition to obtaining such stockholder approval, each of the other closing conditions set forth in the Acquisition Agreement must be satisfied or waived.

Termination of the Acquisition Agreement (page 68)

Either Avalanche or Annapurna can terminate the Acquisition Agreement under certain circumstances, including, among others, (i) if the closing of the Transaction has not occurred by the six-month anniversary of the execution of the Acquisition Agreement, subject to certain exceptions, (ii) if a court or other governmental authority has issued a final and non-appealable order or law restraining or prohibiting the closing of the Transaction, or (iii) if Avalanche’s stockholders fail to approve the Stock Issuance.

The Acquisition Agreement may be terminated by Annapurna (i) upon an uncured breach by Avalanche of any of its representations, covenants or agreements that would result in a failure of the conditions to the closing, which we refer to as an “Avalanche Material Breach”, or (ii) if (1) Avalanche’s Board fails to recommend to, or withdraws or modifies its recommendation for, Avalanche’s stockholders to vote to approve the issuance of the New Avalanche Shares, (2) Avalanche’s Board approves or recommends, or Avalanche enters into an agreement relating to, an alternative transaction or (3) Avalanche or any of its directors, officers, or agents willfully and intentionally breaches the non-solicitation provisions set forth in the Acquisition Agreement, each of which we refer to as an “Avalanche Triggering Event”.

 



 

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The Acquisition Agreement may be terminated by Avalanche upon an uncured breach by Annapurna of any of its representations, covenants or agreements that would result in a failure of the conditions to the closing.

Reverse Termination Fee (page 69)

The Acquisition Agreement provides for Avalanche to pay to Annapurna a reverse termination fee of $4.0 million if the Acquisition Agreement is terminated by either party for Avalanche’s failure to obtain Avalanche stockholder approval of the Stock Issuance or if the Acquisition Agreement is terminated by Annapurna upon an Avalanche Triggering Event. The Acquisition Agreement also provides for Avalanche to pay to Annapurna a reverse termination fee of $6.0 million (less the $4.0 million reverse termination fee described above, if paid) if the Acquisition Agreement is terminated by either party for Avalanche’s failure to obtain Avalanche stockholder approval of the Stock Issuance, the Acquisition Agreement is terminated by Annapurna upon an Avalanche Material Breach or an Avalanche Triggering Event, and either (x) Avalanche consummates within twelve months of such termination an alternative transaction that was publicly announced or communicated in writing to Avalanche’s Board prior to such termination or (y) Avalanche consummates within six months of such termination an alternative transaction that is first publicly announced or otherwise communicated in writing to Avalanche’s Board following the termination of the Acquisition Agreement while an alternative transaction described in foregoing clause (x) remains outstanding and not withdrawn.

Material U.S. Federal Income Tax Consequences of the Transaction

(page 56)

The Transaction will not result in any taxable gain or loss for U.S. federal income tax purposes to Avalanche or any Avalanche stockholder in his or her capacity as an Avalanche stockholder. Avalanche stockholders who are also stockholders of Annapurna should consult their own tax advisors as to the tax consequences to them of participating in the Transaction with respect to their Annapurna stock.

Support Agreements

(page 71)

In order to induce Annapurna to enter into the Acquisition Agreement, certain officers, directors and other stockholders of Avalanche (solely in their capacity as holders of shares of Avalanche’s common stock) entered into the Support Agreements covering approximately 10.3% of the outstanding shares of Avalanche’s common stock as of January 28, 2016 (including restricted stock units vesting at July 29, 2016 and options exercisable at July 29, 2016 on an as converted to common stock basis). Each of these persons agreed to vote, or cause to be voted, all its shares in favor of the Stock Issuance and any other matters necessary for consummation of the transactions contemplated in the Acquisition Agreement and against, among other things, any proposal opposing or competing with the Transaction. Each of the Support Agreements will terminate upon the earliest of the closing of the Transaction, the termination of the Acquisition Agreement, and the date on which neither the stockholder party to such Support Agreement nor its affiliates beneficially own any Avalanche shares. Each Avalanche director and officer who has entered into a Support Agreement has done so solely in his or her capacity as a stockholder and not in his or her capacity as a director or officer of Avalanche. Accordingly, nothing in the Support Agreements will limit or restrict such director or officer in acting in his or her capacity as a director or officer of Avalanche and exercising his or her fiduciary duties and other legal obligations and responsibilities as a director or officer of Avalanche. A copy of the form of Support Agreement is attached to this proxy statement as Annex C.

The Investor Rights Agreement

(page 71)

As a condition to the closing of the Transaction, we and the Annapurna Shareholders will enter into the Investor Rights Agreement, pursuant to which the Annapurna Shareholders and other stockholders of Avalanche

 



 

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will have, among other things, certain demand and “piggyback” registration rights under the Securities Act with respect to their registrable shares, subject to certain limitations. “Registrable shares” for purposes of the Investor Rights Agreement will be shares of our common stock that were issued previously upon conversion of convertible preferred stock of Avalanche, as part of the Stock Issuance in connection with the Transaction, or as a stock dividend or exchange for any of the foregoing shares, in each case, excluding any shares (i) sold by any person to the public, (ii) sold in a private transaction in which the transferor’s rights under the Investor Rights Agreement are not assigned or (iii) that are transferable pursuant to Rule 144 under the Securities Act. The registration rights of holders of registrable securities will terminate upon the earlier of August 5, 2017 and at such time as such holder holds less than 1% of our outstanding common stock and all registrable securities held by such holder and its affiliates may be sold pursuant to Rule 144 during any 90-day period without limitation.

The New Avalanche Shares will be subject to further restrictions on transfer contained in the Investor Rights Agreement. Each holder of the New Avalanche Shares will agree not to transfer its shares unless, subject to certain exceptions, such transfer is made pursuant to a registration statement or Rule 144.

The Investor Rights Agreement will terminate upon the earlier of August 5, 2017 and a consolidation or merger of Avalanche with or into any other entity or person in which the shares of our capital stock immediately prior to such transaction do not represent a majority of the voting power of the surviving entity. A copy of the form of Investor Rights Agreement is attached to this proxy statement as Annex B.

Additional Information

(page 142)

You can find more information about Avalanche in the periodic reports and other information we file with the SEC. The information is available at the SEC’s public reference facilities and at the website maintained by the SEC at www.sec.gov. See “Where You Can Find Additional Information” beginning on page 142.

SELECTED HISTORICAL AND

UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following tables present summary historical financial data for Avalanche and Annapurna, summary unaudited pro forma condensed combined financial data for Avalanche and Annapurna, and comparative historical and unaudited pro forma per share data for Avalanche and Annapurna.

Selected Historical Financial Data of Avalanche

The following table sets forth selected consolidated statements of operations data and comprehensive loss for the years ended December 31, 2015, 2014 and 2013, and selected consolidated balance sheet data as of December 31, 2015 and 2014 derived from Avalanche’s audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Avalanche’s historical results are not necessarily indicative of the results that may be expected in any future period.

 



 

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The following selected historical consolidated financial data are only a summary and should be read in conjunction with the section titled “Avalanche’s Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Risk Factors” and Avalanche’s consolidated financial statements and related notes included in Avalanche’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 3, 2016 (the “Avalanche 10-K”), which is incorporated by reference in this proxy statement.

 

     YEARS ENDED DECEMBER
31,
 
     2015     2014     2013  
(In thousands, except per share data)                   

CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS DATA:

      

Revenue

      

Collaboration revenue

   $ 2,319      $ 572      $ —     

Government grant revenue

     —          —          480   
  

 

 

   

 

 

   

 

 

 

Total revenue

     2,319        572        480   

Operating expenses:

      

Research and development

     25,462        16,976        2,151   

General and administrative

     22,107        7,998        1,783   

Restructuring charges

     2,573        —          —     
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     50,142        24,974        3,934   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (47,823     (24,402     (3,454

Other income (expense)

      

Interest expense

     —          (18     (73

Other income (expense), net

     370        (21     (4

Change in fair value of embedded derivative

     —          —          18   

Change in fair value of warrant liabilities

     —          (759     (92

Loss on extinguishment of related-party convertible notes

     —          (204     (1,671
  

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     370        (1,002     (1,822
  

 

 

   

 

 

   

 

 

 

Net loss

     (47,453     (25,404     (5,276

Deemed dividend

     —          (3,230     —     
  

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (47,453   $ (28,634   $ (5,276
  

 

 

   

 

 

   

 

 

 

Other comprehensive loss:

      

Net unrealized loss on marketable securities

     (6     —          —     

Foreign currency translation adjustment

     (15     (17     19   
  

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (47,474   $ (25,421   $ (5,257
  

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders-basic and diluted

   $ (1.86   $ (2.46   $ (1.44
  

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding-basic and diluted

     25,479        11,651        3,673   
  

 

 

   

 

 

   

 

 

 

 

     DECEMBER 31,  
     2015      2014  
(In thousands)              

CONSOLIDATED BALANCE SHEET DATA:

     

Cash and cash equivalent

   $ 221,348       $ 159,404   

Marketable securities

     37,732         —     

Working capital

     254,418         154,807   

Total assets

     264,319         161,906   

Accumulated deficit

     (84,168      (36,715

Total stockholders’ equity

     252,592         149,483   

 

 



 

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Selected Historical Financial Data of Annapurna

The following table sets forth selected consolidated statements of operations data and comprehensive loss for the years ended December 31, 2015 and 2014, and selected consolidated balance sheet data as of December 31, 2015 and 2014, in each case derived from Annapurna’s audited consolidated financial statements, which have been prepared in accordance with French generally accepted accounting principles, reconciled to U.S. GAAP, and translated from euro to U.S. dollars. We used average exchange rates for the statement of operations, period-end exchange rates for assets and liabilities, and historical rates for equity and convertible preferred stock. Translation difference was recorded to other comprehensive income (loss) in accordance with U.S. GAAP. The results of operations and the financial position were not significant for 2013 period from inception (December 20, 2013) to December 31, 2013 and are not presented below. Annapurna’s historical results are not necessarily indicative of the results that may be expected in any future period.

The following selected historical consolidated financial data are only a summary and should be read in conjunction with the section titled “Annapurna’s Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Risk Factors” and Annapurna’s consolidated financial statements and related notes included elsewhere in this proxy statement.

 

     YEARS ENDED DECEMBER 31,  
     2015
Under U.S.
GAAP Converted
into USD
     2014
Under U.S.
GAAP Converted
into USD
 
(In thousands, except per share data)              

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:

     

Operating expenses:

     

Research and development

   $ 10,996       $ 2,410   

General and administrative

     1,397         1,192   
  

 

 

    

 

 

 

Total operating expenses

     12,393         3,602   
  

 

 

    

 

 

 

Operating loss

     (12,393      (3,602

Other income (expense)

     

Interest expense

     (370      —     

Other income, net

     573         407   
  

 

 

    

 

 

 

Total other income, net

     203         407   
  

 

 

    

 

 

 

Net loss

   $ (12,190    $ (3,195
  

 

 

    

 

 

 

 

     DECEMBER 31,  
     2015
Under U.S. GAAP
Converted into
USD
     2014
Under U.S. GAAP
Converted into
USD
 
(In thousands)              

CONSOLIDATED BALANCE SHEET DATA:

     

Cash and cash equivalents

   $ 2,514       $ 2,628   

Working capital

     (5,996      2,072   

Total assets

     3,542         3,361   

Convertible loan

     3,967         —     

Convertible preferred stock

     4,573         4,573   

Other long-term liabilities

     355         —     

Accumulated deficit

     (15,385      (3,195

Total stockholders’ deficit

     (10,727      (3,043

 



 

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Selected Unaudited Pro Forma Combined Financial Data of Avalanche and Annapurna

The following selected unaudited pro forma combined financial data is intended to show how the Transaction might have affected Avalanche’s historical financial statements if the Transaction had been completed on January 1, 2015 for the purpose of the statement of operations, and as of December 31, 2015 for the purpose of the balance sheet, and was prepared based on the historical financial results reported by Avalanche’s and Annapurna’s historical financial statements as reconciled to U.S. GAAP and translated to U.S. dollars. The following should be read in conjunction with the section titled “Unaudited Pro Forma Condensed Combined Financial Statements Reflecting the Transaction” beginning on page 98, Avalanche’s audited historical financial statements and notes thereto included in the Avalanche 10-K, Annapurna’s audited historical financial statements and the notes thereto beginning on page F-1, the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Avalanche 10-K, the section titled “Annapurna Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 83, and the other information contained in this proxy statement.

 

     YEAR ENDED
DECEMBER 31, 2015
 
(In thousands, except per share data)    (unaudited)  

PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA:

  

Revenue

  

Collaboration revenue

   $ 2,319   
  

 

 

 

Total revenue

     2,319   

Operating expenses:

  

Research and development

     40,346   

General and administrative

     23,498   

Restructuring charges

     2,573   
  

 

 

 

Total operating expenses

     66,417   
  

 

 

 

Operating loss

     (64,098

Other income (expense)

  

Interest expense

     (86

Other income (expense), net

     442   
  

 

 

 

Total other income (expense), net

     356   
  

 

 

 

Net loss attributable to common stockholders

   $ (63,742
  

 

 

 

Net loss per share attributable to common stockholders-basic and diluted

   $ (1.65
  

 

 

 

Weighted-average common shares outstanding-basic and diluted

     38,614   
  

 

 

 

 

     DECEMBER 31, 2015  
     (unaudited)  
(In thousands)       

PRO FORMA COMBINED BALANCE SHEET DATA:

  

Cash and cash equivalents

   $ 231,739   

Marketable securities

     37,732   

Working capital

     258,032   

Total assets

     351,943   

Other long-term liabilities

     355   

Accumulated deficit

     (87,633

Total stockholders’ equity

     332,253   

 



 

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Comparative Historical and Unaudited Pro Forma Per Share Data

The information below reflects the historical net loss and book value per share of Avalanche common stock and the historical net loss and book value per share of Annapurna common stock, as reconciled to U.S. GAAP and translated to U.S. dollars, in comparison with the unaudited pro forma net loss and book value per share after giving effect to the proposed acquisition of Annapurna by Avalanche on a pro forma basis.

You should read the tables below in conjunction with the audited consolidated financial statements of Avalanche included in the Avalanche 10-K and the audited consolidated financial statements of Annapurna included in this proxy statement and the related notes and the unaudited pro forma combined financial information and notes related to such financial statements included elsewhere in this proxy statement.

AVALANCHE

 

     Year Ended
December 31,
2015
 

Historical Per Common Share Data:

  

Basic and diluted net loss per share

   $ (1.86

Book value per share

   $ 9.91   

ANNAPURNA

 

     Year Ended
December 31,
2015
 

Historical Per Common Share Data:

  

Basic and diluted net loss per share

   $ (86.45

Book value per share

   $ (76.11

AVALANCHE AND ANNAPURNA

 

     Year Ended
December 31,
2015
 

Historical Per Common Share Data:

  

Basic and diluted net loss per share

   $ (1.65

Book value per share

   $ 8.60   

 



 

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MARKET PRICE AND DIVIDEND INFORMATION

Avalanche’s common stock trades on NASDAQ under the symbol “AAVL”. The table below provides the high and low closing prices of our common stock for the periods indicated, as reported by NASDAQ. Annapurna is a private company and its common and preferred stock are not publicly traded.

Avalanche Common Stock

 

     High      Low  

Fiscal Year 2016

     

First quarter (ended [●], 2016)

     [●]         [●]   

Fiscal Year 2015 (ended December 31, 2015)

     

Fourth quarter

   $ 10.48       $ 7.49   

Third quarter

   $ 16.78       $ 8.04   

Second quarter

   $ 42.09       $ 15.28   

First quarter

   $ 60.08       $ 33.27   

Fiscal Year 2014 (ended December 31, 2014)

     

Fourth quarter

   $ 55.89       $ 29.90   

Third quarter (from July 31, 2014)

   $ 36.35       $ 22.60   

On January 28, 2016, the last trading day prior to our Board’s approval of the Acquisition Agreement, the reported closing price for our common stock was $5.84 per share. On [●], 2016, the latest practicable trading date before the filing of this proxy statement, the reported closing price for our common stock was $[●]. You are encouraged to obtain current market quotations for shares of our common stock in connection with voting your shares of our common stock.

As of the close of business on the Record Date, there were [●] shares of our common stock outstanding and entitled to vote, held by [●] stockholders of record. The number of holders is based upon the actual number of holders registered in our records at such date and excludes holders of shares in “street name” or persons, partnerships, associations, corporations or other entities identified in security positions listings maintained by depository trust companies.

Dividend Policy

We have never declared or paid any cash dividend on our common stock and do not currently intend to do so for the foreseeable future. Annapurna has never paid or declared any cash dividends on its common stock.

 

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RISK FACTORS

If the Transaction is consummated, the combined company 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, you should carefully consider the risks described below before deciding how to vote your shares of common stock. In addition, you should read and consider the risks associated with the business of Avalanche because these risks may also affect the combined company—these risks can be found in Avalanche’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on March 3, 2016, which is incorporated by reference into this proxy statement. You should also read and consider the other information in this proxy statement and the other documents incorporated by reference into this proxy statement. Please see the section entitled “Where You Can Find Additional Information” beginning on page 142.

Risks Related to the Proposed Transaction

The announcement and pendency of the Transaction could have an adverse effect on our stock price, business, financial condition, results of operations and prospects.

The announcement and pendency of the Transaction could disrupt our business in a number of ways, which may include the following, among others:

 

    investors may react negatively to the prospects of the combined company’s business, resulting in a decline in our stock price;

 

    third parties may seek to terminate and/or renegotiate their relationships with us as a result of the Transaction, whether pursuant to the terms of their existing agreements with us or otherwise; and

 

    the attention of our management may be directed toward the completion of the Transaction and related matters and may be diverted from our day-to-day business operations, including from other opportunities that might be beneficial to us.

Should they occur, any of these matters could adversely affect our stock price or harm our business, financial condition, results of operations and prospects.

Failure to complete the Transaction could negatively impact our stock price and/or our business, financial condition, results of operations and prospects.

Completion of the Transaction is conditioned upon the satisfaction of certain customary closing conditions, including approval by our stockholders of the issuance of the shares of our common stock as consideration, the absence of any law or order preventing the Transaction, receipt of all required government approvals, the accuracy of the representations and warranties of the parties, and compliance with the covenants of the parties. These conditions are described in more detail in the Acquisition Agreement, which is filed as Annex A hereto and incorporated herein by reference.

The required conditions to closing may not be satisfied in a timely manner, or at all, or, if permissible, waived. If the Transaction is not completed for these or any other reasons, our ongoing business may be adversely affected and will be subject to a number of risks and consequences, including the following:

 

    we may be required, under certain circumstances, to pay Annapurna a reverse termination fee of up to $6.0 million pursuant to the terms of the Acquisition Agreement;

 

    we must pay the substantial fees and expenses we incurred related to the Transaction, such as legal and accounting fees, even if the Transaction is not completed;

 

    the price of our common stock may decline and remain volatile; and

 

    we may experience negative reactions to the termination of the Transaction from third parties and employees.

 

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Furthermore, any delay in the completion of the Transaction, or any uncertainty about its completion, could have a material adverse effect on our stock price, business, financial condition, results of operations, prospects and cash flows.

Except in connection with the exercise of Annapurna Options, there will be no adjustments to the number of shares of our common stock that will be issued upon the completion of the Transaction, and therefore if the market price of our common stock increases prior to the completion of the Transaction, the fair value of the purchase price for Annapurna will increase correspondingly.

The number of shares of our common stock to be issued in connection with the Transaction will not be adjusted in the event of any increase or decrease in the market price of our common stock before the closing of the Transaction. As a result, the value of our shares, as reflected in the market price of our common stock, may be substantially higher at the time of the closing of the Transaction than the value at the time our Board approved the Transaction and the Acquisition Agreement. The market price of our common stock may fluctuate due to, among other things, changes in our business, operations or prospects, market assessments of the likelihood of completion of the Transaction, the timing of the completion of the Transaction, investors’ views of the prospects for the combined entity, general market and economic conditions, and other factors.

While the Transaction is pending, we will be subject to contractual limitations that could adversely affect our business.

The Acquisition Agreement restricts us from taking certain specified actions while the Transaction is pending without Annapurna’s consent, including incurring or guaranteeing indebtedness, making capital expenditures in excess of $250,000, acquiring any material assets or selling, leasing or otherwise disposing of any assets or properties, and selling, transferring, licensing or otherwise disposing of any of our intellectual property, subject to certain exceptions in the ordinary course of business. These restrictions may prevent us from pursuing otherwise attractive business opportunities that may arise and making other changes to our business prior to the closing of the Transaction or termination of the Acquisition Agreement.

The Acquisition Agreement restricts our ability to pursue certain alternatives to the Acquisition and requires us to pay a reverse termination fee to Annapurna if we do.

The Acquisition Agreement contains non-solicitation provisions that, subject to limited exceptions, restrict our ability to initiate, solicit or encourage or take any action to discuss or accept a competing third-party proposal. Although our Board is permitted to change its recommendation that stockholders approve the matters relating to the Transaction if it determines in good faith that this action is reasonably likely to be required to comply with its fiduciary duties and certain other conditions, doing so in certain situations would require us to pay a reverse termination fee to Annapurna of $4.0 million. Furthermore, we will have to pay a reverse termination fee of $6.0 million (less the $4.0 million fee described above, if paid) if the agreement is terminated due to our Board making such change in recommendation and either (i) we consummate within twelve months of such termination an alternative transaction that was publicly announced or communicated in writing to our Board prior to such termination or (ii) we consummate within six months of such termination an alternative transaction that is first publicly announced or otherwise communicated in writing to our Board following such termination while an alternative transaction described in the foregoing clause (i) remains outstanding and not withdrawn.

Additionally, these non-solicitation provisions could discourage a potential acquiror that might have an interest in acquiring all or a significant part of our company from considering or proposing that acquisition, or might result in a potential acquiror proposing to pay a lower per share price to acquire our company than it might otherwise have proposed to pay because of the added expense of the reverse termination fee that may become payable to Annapurna in certain circumstances.

We have incurred substantial expenses in connection with the Transaction.

We have incurred and will incur additional substantial expenses in connection with the Transaction, whether or not the Transaction is completed. These costs include fees for financial advisors, attorneys and accountants,

 

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filing fees and financial printing costs. If the Transaction is not consummated, we will be responsible for our own expenses, which are not reimbursable in the event the Transaction does not occur. Upon completion of the Transaction, the amount of transaction costs, including the amount of Annapurna’s transaction costs, will, in effect, reduce the cash reserves available for the combined company to pursue its plan of business.

Our directors and officers may have interests in the Transaction that are different from, or in addition to, those of our stockholders generally that may influence them to support or approve the Transaction.

Our officers and directors may have interests in the Transaction that are different from, or are in addition to, those of our stockholders. For example, upon the closing of the Transaction, we will grant Mr. Cleveland options under our 2014 Equity Incentive Plan to purchase 381,000 shares of our common stock with a per share exercise price equal to the closing sales price of our common stock on NASDAQ on the closing date. These differing or additional interests may influence our officers and directors to support or approve the Transaction.

Risks Related to the Combined Company if the Transaction is Completed

The Transaction, if successfully completed, will transform Avalanche from a company developing product candidates for the treatment of eye diseases into a gene therapy company with a diverse pipeline of gene therapy product candidates. We may encounter challenges in implementing this transformation and the integration of Avalanche and Annapurna that could adversely impact the business and operations of the combined company.

To date, all of our development efforts have been focused on developing product candidates for the treatment of eye diseases. Annapurna’s pipeline includes gene therapy product candidates designed to treat a range of diseases. The most advanced product candidate in Annapurna’s pipeline is ANN-001, which is designed to deliver alpha-1 antitrypsin protein (“A1AT”), in patients with A1AT deficiency, a rare genetic disorder which may result in serious respiratory disease in adults and, less commonly, liver disease at any age. Other product candidates in Annapurna’s pipeline are designed to treat patients with hereditary angioedema, Friedreich’s ataxia, and severe allergies. If the Transaction is consummated, we intend to continue to advance both our and Annapurna’s current development programs. As a result, we will transform from a company focused solely on gene therapy treatments for eye diseases to a gene therapy company with a diverse pipeline of product candidates.

This transformation into a diversified gene therapy company poses risks relating to implementing a new business and operational strategy, including the following:

 

    the potential disruption of our ongoing development of product candidates for the treatment of eye diseases;

 

    demands on our management and our limited resources related to the increase in number and diversification of our product candidates;

 

    difficulties in coordinating research and development activities;

 

    the establishment of uniform standards, controls, procedures and policies; and

 

    uncertainties in the business relationships with our collaborators and suppliers due to the Transaction and the transformation.

Additionally, various decisions regarding management restructuring, operational staffing and reporting systems following the Transaction have not yet been finalized, and there can be no guarantee that Avalanche and Annapurna will operate successfully as a combined company. Integration of the two companies and consolidation of their operations will require considerable time and attention from management, which could result in the diversion of management resources from other important matters. Moreover, if the Transaction is consummated, we expect that Drs. Salzman and Russo will be based in Annapurna’s Philadelphia office and certain Annapurna operations will continue to be based in Annapurna’s Paris office. Their location outside of our Menlo Park headquarters may make their integration into our organization more challenging.

 

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If we are unable to successfully manage these or other risks and uncertainties relating to the combination of our and Annapurna’s businesses, there will likely be adverse impacts on the business and operations of the combined company.

All of our and Annapurna’s product candidates are still under preclinical development and may never advance to clinical testing or be successfully commercialized, which could materially and adversely impact the value of our common stock.

All of our and Annapurna’s product candidates are still under preclinical development and may never advance to clinical testing or be successfully commercialized. The failure to enter clinical development and ultimately successfully commercialize one or more of Annapurna’s current product candidates would significantly diminish the anticipated benefits of the Transaction and materially and adversely affect the business and prospects of the combined company. Consequently, we cannot assure you that our transformation into a diversified gene therapy company upon completion of the Transaction will be successful, and the Transaction could depress the value of our common stock.

Even if the Transaction is successful, we expect to continue to incur losses for the foreseeable future and might never achieve profitability.

Both Annapurna and we have incurred significant operating losses since inception, and, on a pro forma basis, the combined company incurred a net loss of $63.9 million for the year ended December 31, 2015. As of December 31, 2015 on a pro forma basis, the combined company had an accumulated deficit of $87.7 million. For more detail on the pro forma financials, see “Unaudited Pro Forma Condensed Combined Financial Statements Reflecting the Transaction” beginning on page 98 of this proxy statement.

If the Transaction is successful, we intend to continue to conduct our and Annapurna’s research and development, clinical testing, regulatory compliance activities, and, if any of our or Annapurna’s product candidates is approved, sales and marketing activities that, together with anticipated general administrative expenses, will likely result in us incurring significant losses for the next several years.

Neither Annapurna nor we currently generate any significant revenues, and the combined company may never be able to commercialize any of its product candidates. Neither Annapurna nor we have the required approvals to market any of its or our respective product candidates, and the combined company may never receive such approvals. The combined company may not be profitable even if it or any of its future development partners succeeds in commercializing any of its product candidates. Because of the numerous risks and uncertainties in developing and commercializing our and Annapurna’s product candidates, we are unable to predict the extent of any future losses or when the combined company could become profitable, if at all.

While we expect that, if the Transaction is successful, our cash and cash equivalents will be sufficient to fund the combined company for at least 36 months, we may need to obtain additional capital to fund the combined company’s operations. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate the product development efforts or other operations of the combined company.

Developing gene therapy products is expensive, and, if the Transaction is successful, we expect the research and development expenses of the combined company to increase substantially, particularly if we advance ANN-001, ANN-002 and other product candidates into clinical studies.

We expect that our cash and cash equivalents will be sufficient to fund the operations of the combined company through at least 36 months. However, this estimate is based on a number of assumptions that may prove to be wrong, and changing circumstances beyond our and Annapurna’s control may cause capital to be consumed more rapidly than currently anticipated. As a result, the operating plan of the combined company may change due to factors currently unknown to us and Annapurna, and we may need to seek additional funds sooner than planned, through collaboration agreements and public or private financings. Additional funding may not be

 

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available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. In addition, the issuance of additional shares by us, or the possibility of such issuance, may cause our market price to decline.

If we are unable to obtain funding on a timely basis, we will not be able to complete any future clinical trials for our product candidates and may be required to significantly curtail some or all of our activities.

Annapurna’s most advanced product candidate, ANN-001, and Annapurna’s other product candidates are designed to treat rare genetic disorders, and as a result, the combined company may find it difficult to enroll patients in future clinical studies for these product candidates. Failure to enroll a sufficient number of patients may delay or prevent clinical studies of these product candidates.

Annapurna intends to initiate clinical trials for its most advanced product candidate, ANN-001, in the second half of 2016 and accordingly, if the Transaction is successful, we expect ANN-001 to be the next product candidate of the combined company to enter clinical development. If the Transaction is completed, identifying and qualifying patients to participate in clinical studies of ANN-001 and Annapurna’s other product candidates will be critical to the success of the combined company. The timing of future clinical studies will depend on the speed at which we can recruit patients to participate in future testing of these product candidates. If patients are unwilling to participate in Annapurna’s gene therapy studies because of negative publicity from adverse events in the biotechnology or gene therapy industries or for other reasons, including competitive clinical studies for similar patient populations, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of potential products may be delayed. These delays could result in increased costs, delays in advancing product development, delays in testing the effectiveness of Annapurna’s technology or failure to begin clinical studies altogether.

The combined company may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a study. In particular, each of the conditions for which Annapurna plans to evaluate its current product candidates are rare genetic disorders with limited patient pools from which to draw for clinical studies. ANN-001 is focused on the treatment of patients with A1AT deficiency. It is estimated that A1AT deficiency affects approximately 100,000 patients in the United States. ANN-002 is focused on the treatment of patients with hereditary angioedema (“HAE”). The prevalence of HAE is estimated to be 1 in 10,000 to 1 in 50,000, with approximately 10,000 patients diagnosed across major markets. ANN-003 is focused on the treatment of patients with Friedreich’s ataxia. It is estimated that Friedreich’s ataxia affects approximately 5,000 people in the United States and approximately 5,000 to 10,000 people in Europe. Annapurna plans to seek initial marketing approval of its product candidates in the United States and Europe and the combined company may not be able to initiate clinical studies if it cannot enroll a sufficient number of eligible patients to participate in the clinical studies required by the U.S. Food and Drug Administration (“FDA”) or the European Medicines Agency (“EMA”) or other regulatory agencies.

If we have difficulty enrolling a sufficient number of patients to conduct clinical studies on Annapurna’s product candidates as planned, the combined company may need to delay, limit or terminate future clinical studies, any of which would have an adverse effect on the business of the combined company.

Annapurna’s collaboration with Weill Cornell Medicine is crucial to its business. If Annapurna is unable to maintain this collaboration, or if this collaboration is not successful, the business of the combined company could be adversely affected.

Annapurna has licensed its most advanced product candidate, ANN-001, and two other product candidates, ANN-002, and ANN-004, from Weill Cornell Medicine (“Weill Cornell”). In addition, Annapurna relies on Weill Cornell to conduct preclinical development for its product candidates pursuant to a master services agreement. If Annapurna were to fail to comply with its obligations under any of these agreements and Weill Cornell were to terminate these licenses and/or its preclinical development services, then Annapurna’s pipeline of product candidates would be adversely affected.

 

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Furthermore, Weill Cornell may fail to properly maintain or defend the intellectual property Annapurna has licensed from them, leading to the potential invalidation of Annapurna’s intellectual property or subjecting the combined company to litigation or arbitration, any of which would be time-consuming and expensive. Additionally, in the event that Weill Cornell commits a material breach of any of these license or master service agreements, Annapurna’s only recourse is to terminate the agreement. If Annapurna terminates its collaboration with Weill Cornell, especially during its preclinical development phase, the development of Annapurna’s product candidates would be materially delayed or harmed.

If disputes with Weill Cornell prevent or impair Annapurna’s ability to maintain its current licensing and preclinical development arrangements on acceptable terms, Annapurna may be unable to successfully develop and commercialize the affected product candidates, and the business of the combined company could be materially harmed.

Because the target patient populations of Annapurna’s product candidates are relatively small, if the Transaction is successful, we must be able to successfully identify patients and achieve a significant market share to maintain profitability and growth. If the market opportunities for Annapurna’s product candidates are smaller than Annapurna believes they are, our revenues may be adversely affected and our business may suffer.

Annapurna focuses its research and product development on treatments for rare genetic and orphan diseases. Its projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with its product candidates, are based on estimates. These estimates may prove to be incorrect and new studies may change the estimated incidence or prevalence of these diseases. The number of patients in the United States, Europe and elsewhere may turn out to be lower than expected, may not be otherwise amenable to treatment with Annapurna’s products, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect its results of operations and its business.

Additionally, because Annapurna’s target patient populations are relatively small, the pricing and reimbursement of Annapurna’s product candidates, if approved, must be adequate to support commercial infrastructure. If the combined company is unable to obtain adequate levels of reimbursement, its ability to successfully market and sell its product candidates will be adversely affected. The manner and level at which reimbursement is provided for services related to Annapurna’s product candidates (e.g., for administration of Annapurna’s product to patients) is also important. Inadequate reimbursement for such services may lead to physician resistance and adversely affect the ability of the combined company to market or sell Annapurna’s products.

The Transaction will result in changes to our Board that may affect the combined company’s business strategy and operations.

If the Transaction is completed, our Board will expand to seven members, comprising our current directors (other than Paul D. Wachter) and three new directors. This newly composed board of directors of the combined company may effect business strategies and operating decisions with respect to the combined company that may have an adverse impact on the combined company’s business, financial condition and results of operations following the completion of the Transaction.

If the Transaction is completed, the future success of the combined company depends on its ability to retain key members of its management team.

If the Transaction is completed, the combined company will be highly dependent on principal members of its management team, which will include Drs. Salzman and Russo of Annapurna as described in more detail in the section of this proxy statement entitled “Directors and Executive Officers of Avalanche Following the Transaction” beginning on 95. The loss of the services of any member of the combined company’s management

 

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team may adversely impact the achievement of its objectives. While Avalanche has entered into employment agreements with Drs. Salzman and Russo, contingent upon completion of the Transaction, and with its other executive officers, any of them could leave the combined company’s employment at any time, as all employees are, and will be, “at will’ employees. The inability to recruit or loss of the services of any executive or key employee may impede the progress of the combined company’s research, development and commercialization objectives.

The ability of the combined company to use Annapurna’s net operating loss carryforwards may be limited.

Annapurna has incurred net operating losses in France every year since its inception in 2014, has never generated revenue from product sales, and may never be profitable. To the extent that the post-acquisition company continues to generate taxable losses, unused losses will carry forward to offset future taxable income in France, if any, unless such losses expire. Such losses may expire under certain conditions if, in particular, Annapurna’s activity, assets, revenues or staff change substantially, or if Annapurna becomes a party to certain forms of reorganizations. In any event, Annapurna’s ability to use these losses to offset future income in any given year is limited under current French tax law.

Current stockholders will have reduced ownership and voting interests after the Transaction.

We will issue to Annapurna’s shareholders approximately 17.6 million shares of our common stock (inclusive of shares of our common stock underlying vested and unvested options, as calculated on a treasury method basis) as consideration in the Transaction. Upon completion of the Transaction, our current stockholders will own approximately 62.5% of the common stock of the combined company and Annapurna shareholders will own approximately 37.5% of the common stock of the combined company (inclusive of shares of our common stock underlying vested and unvested options, calculated on a treasury stock method basis as of January 28, 2016). As a result, the ownership and voting interests in Avalanche of our current stockholders will be significantly reduced immediately following the Transaction. This reduction in ownership and voting interests will decrease the ability of our current stockholders to influence the election of directors and other matters. In addition, our current stockholders will experience dilution in their interest in our earnings per share.

The pro forma financial statements are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the completion of the Transaction.

The pro forma financial statements contained in this proxy statement are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the Transaction for several reasons. The pro forma financial statements have been derived from the historical financial statements of Avalanche and Annapurna and adjustments and assumptions have been made regarding the combined company after giving effect to the Transaction. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. Moreover, the pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the Transaction. For example, the impact of any incremental costs incurred in integrating the two companies is not reflected in the pro forma financial statements. As a result, the actual financial condition of the combined company following the Transaction may not be consistent with, or evident from, these pro forma financial statements. The assumptions used in preparing the pro forma financial statements may not prove to be accurate, and other factors may affect the combined company’s financial condition following the Transaction. See “Unaudited Pro Forma Condensed Combined Financial Statements Reflecting the Transaction” beginning on page 98 of this proxy statement.

The market price of our common stock following the completion of the Transaction is expected to be volatile and may drop following completion of the Transaction.

The market price of our common stock could be subject to significant fluctuations following the completion of the Transaction. Market prices for securities of early-stage pharmaceutical, biotechnology and other life

 

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sciences companies, including gene-therapy companies, have historically been particularity volatile. Some of the factors that may cause the market price of our common stock to fluctuate following completion of the Transaction include:

 

    our plans regarding further development of AVA-101 and any of the combined company’s other product candidates;

 

    the ability of the combined company to obtain regulatory approvals for its product candidates, and delays or failures to obtain such approvals;

 

    the results of any clinical trials;

 

    failure of any of the combined company’s product candidates, if approved, to be reimbursed or achieve commercial success;

 

    failure to maintain the combined company’s existing third-party license and supply agreements;

 

    failure by the combined company or its licensors to prosecute, maintain or enforce its intellectual property rights;

 

    changes in laws or regulations applicable to the combined company’s product candidates;

 

    any inability to obtain adequate supply of the combined company’s product candidates or the inability to do so at acceptable prices;

 

    adverse regulatory authority decisions;

 

    the introduction of new products, services or technologies by the combined company’s competitors;

 

    failure to meet or exceed the expectations of financial or industry analysts;

 

    failure to achieve the perceived benefits of the Transaction as rapidly or to the extent anticipated by financial or industry analysts;

 

    announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by the combined company or its competitors;

 

    additions or departures of key personnel;

 

    significant lawsuits, including patent or stockholder litigation;

 

    changes in the market valuations of similar companies;

 

    general market or macroeconomic conditions;

 

    sales of its common stock by the combined company or its stockholders in the future;

 

    trading volume of the combined company’s common stock;

 

    announcements by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant contracts, commercial relationships or capital commitments;

 

    adverse publicity relating to the gene therapy market generally, including with respect to other products and potential products in such markets;

 

    the introduction of technological innovations or new therapies that compete with potential products of the combined company; and

 

    period-to-period fluctuations in the combined company’s financial results.

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of the combined company’s common stock.

 

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In the past, following periods of volatility in the market price of a company’s 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 organization’s profitability and reputation.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement and the documents incorporated by reference into this proxy statement contain forward-looking statements. All statements other than statements of historical facts contained in this proxy statement are forward-looking statements. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as Avalanche cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “will,” “would,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “predict,” “seek,” “contemplate,” “potential” or “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

    our expectations regarding the structure, timing and completion of the Transaction;

 

    our expectations regarding the capitalization, resources and ownership structure of the combined company;

 

    our expectations regarding the sufficiency of the combined company’s resources to fund the advancement of any development program or the completion of any clinical trial;

 

    the nature, strategy and focus of the combined company;

 

    the safety, efficacy and projected development timeline and commercial potential of any product candidates;

 

    the expected benefits and potential value created by the Transaction for the stockholders of Avalanche;

 

    our expectations regarding future economic conditions or performance;

 

    the executive officer and board structure of the combined company;

 

    the plans, strategies and objectives of management with respect to the approval and closing of the Transaction, and Avalanche’s ability to solicit a sufficient number of proxies to approve matters related to the consummation of the Transaction;

 

    our expectations regarding voting by Avalanche’s stockholders in connection with matters relating to the Transaction; and

 

    our belief and assumptions underlying any of the foregoing.

These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” beginning on page 14 and elsewhere in this proxy statement.

Any forward-looking statement in this proxy statement reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, industry and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date of this proxy statement. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This proxy statement contains estimates, projections and other information concerning our industry, our business and the markets for certain drugs, including data regarding the estimated size of those markets, their projected growth rates and the incidence of certain medical conditions. Information that is based on estimates,

 

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forecasts, projections or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

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 Avalanche. See “Where You Can Find Additional Information” beginning on page 142.

 

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THE 2016 ANNUAL MEETING

We are furnishing this proxy statement to our stockholders as part of the solicitation of proxies by our Board for use at the 2016 Annual Meeting and at any adjournments or postponements thereof.

Date, Time and Place

The 2016 Annual Meeting will be held on [●], 2016, at [●] local time, at [●].

If you plan to attend the meeting, please note that you will need to present government-issued identification showing your name and photograph (e.g., a driver’s license or passport), and, if you are a representative of an institutional investor, professional evidence showing your representative capacity for such entity, in each case to be verified against our stockholder list as of the record date for the meeting. In addition, if your shares are held in the name of a broker, you will need a valid proxy from such entity or a recent brokerage statement or letter from such entity reflecting your stock ownership as of the record date for the meeting.

Purposes of the 2016 Annual Meeting

The purposes of the 2016 Annual Meeting are:

 

    To consider and vote upon a proposal to approve the Stock Issuance;

 

    To consider and vote upon a proposal to elect two Class II directors to hold office until the 2019 Annual Meeting of Stockholders or until their successors are elected;

 

    To consider and vote upon a proposal to ratify the selection, by the audit committee of our Board, of Deloitte & Touche LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2016;

 

    To consider and vote upon an adjournment of the 2016 Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes to approve the proposal to approve the Stock Issuance; and

 

    To transact such other business as may properly come before the 2016 Annual Meeting or any adjournment or postponement thereof.

A copy of the Acquisition Agreement is attached as Annex A to this proxy statement.

Stockholder approval of the Stock Issuance is a condition to closing the Transaction pursuant to the Acquisition Agreement.

Recommendation of our Board

 

    Our Board has determined and believes that the Transaction and the Stock Issuance are in the best interests of Avalanche and our stockholders and has approved such items. Our Board recommends that Avalanche stockholders vote “FOR” Proposal No. 1 to approve the Stock Issuance.

 

    Our Board has determined and believes that the election to our Board of the Class II director nominees named in this proxy statement is in the best interests of Avalanche and our stockholders. Our Board recommends that Avalanche stockholders vote “FOR” the election of the director nominees named in Proposal No. 2.

 

    Our Board has determined and believes that the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016 is in the best interests of Avalanche and our stockholders. Our Board recommends that Avalanche stockholders vote “FOR” Proposal No. 3 to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016.

 

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    Our Board has determined and believes that adjourning the 2016 Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1 is advisable to, and in the best interests of, Avalanche and our stockholders. Our Board recommends that Avalanche stockholders vote “FOR” Proposal No. 4 to adjourn the 2016 Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1.

Record Date and Stockholders Entitled to Vote

Only holders of record of our common stock as of the close of business on [●], 2016, the record date for the 2016 Annual Meeting (the “Record Date”), are entitled to vote the shares of our common stock they held on the Record Date at the 2016 Annual Meeting. As of the close of business on the Record Date, there were [●] shares of our common stock outstanding and entitled to vote, held by [●] stockholders of record. Each stockholder is entitled to one vote for each share of our common stock held by such stockholder on the record date on each of the proposals presented in this proxy statement.

Quorum

A quorum will be present if stockholders holding at least a majority of the issued and outstanding shares of our Common Stock entitled to vote are present or represented by proxy at the 2016 Annual Meeting. On the Record Date, there were [●] shares outstanding and entitled to vote. Accordingly, the holders of [●] shares must be present at the 2016 Annual Meeting to have a quorum. Your shares will be counted toward the quorum at the 2016 Annual Meeting only if you vote in person at the meeting, or you submit a valid proxy vote.

Abstentions and broker non-votes (as described below) will be counted towards the quorum requirement. If there is no quorum, the chairperson of the meeting or the holders of a majority of shares entitled to vote at the meeting and present in person or represented by proxy may adjourn the 2016 Annual Meeting to another date.

Voting Procedures

If you are a stockholder of record, you may vote in person at the 2016 Annual Meeting or vote by proxy by telephone or internet or by mail. Whether or not you plan to attend the 2016 Annual Meeting, please vote as soon as possible to ensure your vote is counted. You may still attend the 2016 Annual Meeting and vote in person even if you have already voted by proxy. As a stockholder of record:

 

    To vote in person. You may attend the 2016 Annual Meeting and we will give you a ballot when you arrive. If you need directions to the meeting, please visit www.avalanchebiotech.com.

 

    To vote by proxy by telephone or internet. If you have telephone or internet access, you may submit your proxy by following the instructions provided in this proxy statement, or if you received paper proxy materials by mail, by following the instructions provided with your proxy materials and on your proxy card or voting instruction card.

 

    To vote by proxy by mail. If you received paper proxy materials, you may submit your proxy by mail by completing and signing your proxy card and mailing it in the enclosed envelope. Your shares will be voted as you have instructed.

Votes submitted by telephone or via the internet for the matters before our stockholders as described in this proxy statement must be received by [●], local time, on [●], 2016.

If you are a beneficial owner of shares registered in the name of your broker, bank, dealer or other similar organization, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from us. Simply complete and mail the proxy card to ensure that your vote is counted. Alternatively, you may vote by telephone or over the internet as instructed by your broker or other agent. To vote in person at the 2016 Annual Meeting, you must obtain a valid proxy from your broker or other agent. Follow the instructions from your broker or other agent included with these proxy materials, or contact your broker or bank to request a proxy form.

 

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If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute “broker non-votes”. Broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. These matters are referred to as “non-routine” matters. Proposal No. 1 to approve the Stock Issuance, Proposal No. 2 to elect directors and Proposal No. 4 to adjourn the 2016 Annual Meeting, if necessary, are “non-routine” matters, but Proposal No. 3 to ratify the selection of Deloitte & Touche LLP as the independent registered public accounting firm for Avalanche for the fiscal year ending December 31, 2016 is a “routine” matter. Broker non-votes will not be counted toward the vote total for any proposal at the 2016 Annual Meeting.

For additional questions about the Transaction, assistance in submitting proxies or voting shares of our common stock, or to request additional copies of this proxy statement or the enclosed proxy card, please contact Morrow & Co., LLC, which is acting as our proxy solicitation agent in connection with the Transaction, toll free at 800-662-5000 or via email at aavl@morrowco.com. Brokers may call collect at 203-658-9400.

How Proxies Are Voted

If you complete and submit your proxy card or voting instructions, the persons named as proxies will follow your instructions. If you return a signed and dated proxy card without marking any voting selections, your shares will be voted “FOR” the approval of the Stock Issuance (Proposal No. 1), “FOR” the election of each nominee for director (Proposal No. 2), “FOR” the ratification of the selection of Deloitte & Touche LLP as the independent registered public accounting firm of Avalanche for the fiscal year ending December 31, 2016 (Proposal No. 3) and “FOR” the adjournment of the 2016 Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal No. 1 (Proposal No. 4). If any other matter is properly presented at the 2016 Annual Meeting, your proxyholder (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.

Revocation of Proxies

If you are a stockholder with shares registered in your name, once you have given your proxy vote for the matters before our stockholders as described in this proxy statement, you may revoke it at any time before the final vote at the 2016 Annual Meeting. If you are the stockholder of record of your shares, you may revoke your proxy in any one of three ways:

 

    You may submit another properly completed proxy with a later date.

 

    You may send a timely written notice that you are revoking your proxy to our Corporate Secretary at Avalanche Biotechnologies, Inc., 1035 O’Brien Avenue, Suite A, Menlo Park, California 94025.

 

    You may attend the 2016 Annual Meeting and vote in person. Simply attending the 2016 Annual Meeting will not, by itself, revoke your proxy.

If your shares are held by your broker or other agent, you should follow the instructions provided by your broker or agent.

Required Vote

The following are the voting requirements for each proposal:

Proposal No. 1: Stock Issuance.

Assuming a quorum is present at the 2016 Annual Meeting, the approval of Proposal No. 1 by our stockholders requires the affirmative vote of a majority of the votes cast in person or by proxy. Abstentions and broker non-votes will have no effect on the outcome of Proposal No. 1.

 

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Proposal No. 2: Election of Directors.

Assuming a quorum is present at the 2016 Annual Meeting, a plurality of the votes cast shall be sufficient to elect a director. Broker non-votes will not be counted towards the vote total for this proposal.

Proposal No. 3: Ratification of Selection of Independent Accounting Firm

Assuming a quorum is present at the 2016 Annual Meeting, the approval of Proposal No. 3 by our stockholders requires the affirmative vote of a majority of the votes cast in person or by proxy. Abstentions will have no effect on the outcome of Proposal No. 3.

Proposal No. 4: Possible Adjournment of the 2016 Annual Meeting

Assuming a quorum is present at the 2016 Annual Meeting, the approval of Proposal No. 4 by our stockholders requires the affirmative vote of a majority of the votes cast in person or by proxy on this proposal at the 2016 Annual Meeting. Abstentions and broker non-votes will have no effect on the outcome of Proposal No. 4. If a quorum is not present, either (i) the chairperson of the meeting or (ii) the holders of a majority of shares entitled to vote at the 2016 Annual Meeting and present in person or represented by proxy may adjourn the meeting.

No Dissenters’ Rights or Appraisal Rights

Holders of our common stock will not be entitled to any dissenters’ rights or appraisal rights with respect to any of the proposals to be voted on at the 2016 Annual Meeting.

Solicitation of Proxies

We will bear the cost of soliciting proxies. In addition to these mailed proxy materials, our directors, officers and employees may also solicit proxies in person, by telephone, or by other means of communication. Directors, officers and employees will not be paid any additional compensation for soliciting proxies. In addition, we have retained Morrow & Co., LLC to solicit stockholder proxies at a total cost to us of approximately $25,000, plus reimbursement of reasonable out-of-pocket expenses.

Adjournments and Postponements

The 2016 Annual Meeting may be adjourned, recessed or postponed if a quorum is not present.

If the time, date and place of an adjourned meeting are announced at the original convening of the 2016 Annual Meeting, no notice of an adjourned meeting need be given unless, after the adjournment, a new record date is fixed for the adjourned meeting, in which case notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. At any subsequent reconvening of the 2016 Annual Meeting at which a quorum is present in person or represented by proxy, any business may be transacted that might have been transacted at the original meeting, and all proxies will be voted in the same manner as they would have been voted at the original convening of the 2016 Annual Meeting, except for any proxies that have been validly revoked or withdrawn prior to the reconvened meeting.

Voting by Avalanche’s Directors, Executive Officers and Principal Stockholders

As of the close of business on the Record Date for the 2016 Annual Meeting, our directors and executive officers owned, in the aggregate, [●] shares of our common stock, or collectively approximately [●]% of the outstanding shares of our common stock. Our directors and executive officers have entered into the Support Agreements under which each have agreed to vote, or cause to be voted, all his or her shares in favor of

 

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the Stock Issuance. For more information on the Support Agreement, please see the section of this proxy statement entitled “Agreements Relating to the Transaction” beginning on page 71. In addition, our directors and executive officers have informed us that they intend, as of the date hereof, to vote all of their shares of our common stock in favor of the matters before our stockholders as described in this proxy statement. Mr. Cleveland has interests in the Transaction that may be different from, or in addition to, the interests of our stockholders generally. For more information, please see the section of this proxy statement entitled “The Transaction—Interests of Avalanche’s Directors and Executive Officers in the Transaction” beginning on page  54.

Assistance

If you need assistance in completing your proxy card or have questions regarding the 2016 Annual Meeting, please contact Morrow & Co., LLC, which is acting as our proxy solicitation agent in connection with the Transaction, toll free at 800-662-5000 or via email at aavl@morrowco.com. Brokers may call collect at 203-658-9400.

 

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THE PARTIES

Avalanche Biotechnologies, Inc.

Avalanche is a gene therapy company committed to discovering and developing novel medicines that can offer potentially life-changing therapeutic benefit to patients suffering from chronic or debilitating disease. To date, Avalanche’s primary focus has been the development of AVA-101 for the treatment of wet age-related macular degeneration.

Avalanche’s common stock is listed on the NASDAQ, under our trading symbol “AAVL”. Avalanche’s principal executive office is located at 1035 O’Brien Drive, Suite A, Menlo Park, CA and its telephone number is (650) 272-6269.

Annapurna Therapeutics SAS

Annapurna is a gene therapy company focused on discovering and developing new therapeutic products for people living with severe diseases where continuous expression of a therapeutic protein may lead to meaningful clinical benefit. Annapurna’s initial programs address alpha-1 antitrypsin (“A1AT”) deficiency, hereditary angioedema, the cardiomyopathy associated with Friedreich’s ataxia, and severe allergy. Annapurna’s lead program, ANN-001, for the treatment of A1AT deficiency, has an open Investigational New Drug application (“IND”) with the FDA. Annapurna plans to initiate clinical trials for ANN-001 in the second half of 2016.

Annapurna’s principal executive office is located at 183 Avenue de Choisy, 75013 Paris, France.

 

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MATTERS BEING SUBMITTED TO A VOTE OF AVALANCHE STOCKHOLDERS

Proposal No. 1: The Stock Issuance

General

On January 29, 2016, we entered into the Acquisition Agreement with Annapurna, the Annapurna Shareholders and Shareholder Representative Services LLC, acting as the representative of the Annapurna Shareholders, pursuant to which we agreed to acquire all of the issued and outstanding shares of common stock of Annapurna. In consideration for such Annapurna shares, we will issue to the Annapurna Shareholders the New Avalanche Shares, totaling (x) 13,135,189 shares of our common stock plus (y) any additional number of newly issued shares of our common stock to be exchanged for Annapurna shares issued in connection with the exercise of Annapurna Options prior to or concurrently with the closing of the Transaction. For more information, see the section of this proxy statement entitled “The Transaction” beginning on page 37.

As of the Record Date, we had [●] shares of common stock outstanding and no shares of preferred stock outstanding.

NASDAQ Global Market Stockholder Approval Requirements

Our common stock is listed on, and we are subject to the rules and regulations of, NASDAQ. NASDAQ Marketplace Rule 5635(a)(1) requires stockholder approval prior to the issuance of securities in connection with the acquisition of the stock or assets of another company if (a) the common stock, or securities convertible into common stock, we issue has or will have upon issuance voting power equal to or in excess of 20% of the voting power of our securities outstanding before the issuance or (b) the number of shares of common stock, or securities convertible into common stock, to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance. In addition, NASDAQ Marketplace Rule 5635(d)(1) requires stockholder approval prior to the issuance of securities in a private placement if the number of shares of common stock, or securities convertible into common stock, to be issued is or will be equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock. Under relevant NASDAQ rules, stockholder approval is not required to effect the conversion of the Annapurna Options into the Avalanche Options.

We are proposing to issue 13,135,189 shares of our common stock to the Annapurna Shareholders pursuant to the Acquisition Agreement, with such number of shares to be increased based on the exercise of the Annapurna Options by their holders prior to or concurrently with the closing of the Transaction. The number of shares we will issue will exceed 20% of both the voting power and the number of shares of our common stock outstanding before the issuance. Accordingly, at the 2016 Annual Meeting, we are asking holders of shares of our common stock to consider and vote on the Stock Issuance to satisfy the applicable NASDAQ rules.

Vote Required for Approval

The affirmative vote of a majority of the votes cast in person or by proxy (excluding abstentions and broker non-votes) will be required to approve the Stock Issuance.

OUR BOARD UNANIMOUSLY RECOMMENDS THAT OUR SHAREHOLDERS VOTE “FOR” THE STOCK ISSUANCE. IF NOT OTHERWISE SPECIFIED, PROXIES WILL BE VOTED “FOR” THE APPROVAL OF THIS PROPOSAL.

 

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Proposal No. 2: Election of Directors

General

Our Board is divided into three classes. Each class consists, as nearly as possible, of one-third of the total number of directors, and each class has a three-year term. Except as otherwise provided by law, vacancies on our Board may be filled only by individuals elected by a majority of the remaining directors. A director elected by our Board to fill a vacancy in a particular class, including a vacancy created by an increase in the number of directors, shall serve for the remainder of the full term of that class and until such director’s successor is elected and qualified, or until such director’s earlier death, resignation or removal.

Our Board currently consists of five directors and no vacancies, divided into the three following classes:

 

    The Class I directors are Paul B. Cleveland and Paul D. Wachter, and their terms will expire at the annual meeting of stockholders to be held in 2018;

 

    The Class II directors are Steven D. Schwartz, M.D. and John P. McLaughlin, and their terms will expire at 2016 Annual Meeting; and

 

    The Class III director is Mark S. Blumenkranz, M.D., and his term will expire at the annual meeting of stockholders to be held in 2017.

Mr. Wachter intends to resign as a member of our Board and audit committee upon the closing of the Transaction. If the Acquisition Agreement is terminated prior to closing, his resignation will not become effective.

Our current Class II directors, Steven D. Schwartz, M.D. and John P. McLaughlin, have been nominated to serve as Class II directors and have agreed to stand for election. If the nominees for Class II are elected at the 2016 Annual Meeting, then each nominee will serve for a three-year term expiring at the 2019 Annual Meeting of Stockholders, or until his successor is elected and qualified, or until his earlier death, resignation or removal.

Vote Required for Approval

Our directors are elected by a plurality of the votes cast. If a choice is specified on the proxy card by a stockholder, the shares will be voted as specified. If a choice is not specified on the proxy card, and authority to do so is not withheld, the shares will be voted “FOR” the election of the two nominees for Class II above. If any of the nominees becomes unavailable for election as a result of an unexpected occurrence, shares that would have been voted for the nominee will instead be voted for the election of a substitute nominee proposed by our management or Board. Each person nominated for election has agreed to serve if elected. Our management has no reason to believe that any nominee will be unable to serve.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH OF THE TWO CLASS II NOMINEES FOR DIRECTOR. IF NOT OTHERWISE SPECIFIED, PROXIES WILL BE VOTED “FOR” EACH OF THE TWO CLASS II NOMINEES FOR DIRECTOR.

The directors of Avalanche are set forth below as of March 17, 2016:

 

Name    Age      Position(s)    Director
Since
 

Paul B. Cleveland

     59       Chief Executive Officer and Director      2015   

Mark S. Blumenkranz, M.D.(1)(2)(3)

     65       Chairman of the Board      2006   

John P. McLaughlin(1)(2)(3)

     64       Director      2014   

Steven D. Schwartz, M.D.(1)(2)(3)

     54       Director      2010   

Paul D. Wachter(1)

     59       Director      2014   

 

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(1) Member of the audit committee.
(2) Member of the compensation committee.
(3) Member of the nominating and corporate governance committee.

The following is a brief biography and discussion of the specific attributes, qualifications, experience and skills of each nominee for director and each director whose term will continue after the 2016 Annual Meeting. Our Board and management encourage each nominee for director and each continuing director to attend the 2016 Annual Meeting.

CLASS I DIRECTORSTo continue in office until the 2018 Annual Meeting of Stockholders

Paul B. Cleveland. Mr. Cleveland has served as our President and Chief Executive Officer since December 2015. Prior to joining Avalanche, Mr. Cleveland served as the Chief Executive Officer and President and as a director of Celladon Corporation, a publicly held cardiovascular gene therapy company, from May 2015 to November 2015, and as the President and Chief Financial Officer of Celladon Corporation from June 2014 to May 2015. From February 2013 to August 2013, Mr. Cleveland served as Executive Vice President, Corporate Strategy and Chief Financial Officer of Aragon Pharmaceuticals, Inc., a private biotechnology company focused on the development of small-molecule drugs for the treatment of hormone-dependent cancers. From April 2011 to February 2013, Mr. Cleveland served as General Partner and Chief Operating Officer of Mohr Davidow Ventures, a venture capital firm. From January 2006 to February 2011, Mr. Cleveland served as Executive Vice President, Corporate Development and Chief Financial Officer of Affymax, Inc., a biopharmaceutical company. From April 2004 to December 2005, he served as a managing director at Integrated Finance, Ltd., an investment bank. From September 1996 to April 2003, Mr. Cleveland served as a managing director at investment bank J.P.Morgan Chase and Co. and a predecessor firm, Hambrecht & Quist. From January 1993 to September 1996, Mr. Cleveland was a partner at Cooley LLP; from December 1988 to December 1992, he was a corporate attorney at Sidley Austin LLP; and from September 1981 to November 1988, he was a corporate attorney at Davis Polk & Wardwell LLP. He has served as a member of the board of directors of Sangamo BioSciences, Inc., a publicly held biopharmaceutical company, since November 2008, and as a member of the board of directors of Alder BioPharmaceuticals, Inc., a publicly held biopharmaceutical company, since August 2015. Mr. Cleveland received a B.A. from Washington University in St. Louis and a J.D. from Northwestern University School of Law. Mr. Cleveland has been chosen to serve on our Board due to his role as our President and Chief Executive Officer, as well as his extensive experience with the operational, financial issues and best practices of biopharmaceutical companies.

Paul D. Wachter. Mr. Wachter has served as a member of our Board since April 2014. Mr. Wachter has been the Chief Executive Officer of Main Street Advisors, which he also founded, since 1997. Prior to forming Main Street Advisors, from June 1993 to March 1997, Mr. Wachter was Managing Director of Schroder & Co. Incorporated, an asset management company. From December 1991 to June 1993, Mr. Wachter was a managing director at Kidder, Peabody & Co., an investment banking firm. Since October 2010, Mr. Wachter has served on the board of directors and audit committee of Time Warner, Inc., a publicly traded media company, and since August 2015, he has served on the board of directors of Virgin America Inc., a publicly traded airline. Mr. Wachter received his B.S. in Business Administration from the Wharton School of the University of Pennsylvania and his J.D. from the Columbia University School of Law. Mr. Wachter has been chosen to serve on our Board due to his substantial expertise in business, financial and corporate governance matters.

CLASS II DIRECTORS—To be elected for a three-year term expiring at the 2019 Annual Meeting of Stockholders

John P. McLaughlin. Mr. McLaughlin has served as a member of our Board since February 2014. Mr. McLaughlin has been President and Chief Executive Officer of PDL BioPharma, Inc., a publicly traded biopharmaceutical company, since December 2008, and a director since October 2008. Previously, he was the Chief Executive Officer and a director of Anesiva, Inc., formerly known as Corgentech, Inc., a publicly traded

 

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biopharmaceutical company, from January 2000 to June 2008. From December 1997 to September 1999, Mr. McLaughlin was President of Tularik Inc., a biopharmaceutical company. From September 1987 to December 1997, Mr. McLaughlin held a number of senior management positions at Genentech, a publicly traded biopharmaceutical company, including Executive Vice President. From 1985 to 1987, Mr. McLaughlin was a partner at a Washington, D.C. law firm specializing in food and drug law. Prior to that, Mr. McLaughlin served as counsel to various subcommittees in the U.S. House of Representatives, where he drafted numerous measures that became FDA laws. Mr. McLaughlin cofounded and served as Chairman of the board of directors of Eyetech, a biopharmaceutical company subsequently bought by OSI Pharmaceuticals, Inc. He also co-founded and served as a director of PEAK Surgical, Inc., a privately held medical device company, subsequently purchased by Medtronic, Inc. He also served as a director of Axogen, Inc., a publicly traded biopharmaceutical company from October 2012 to August 2014. Mr. McLaughlin has served on the board of directors of Seattle Genetics, Inc., a publicly traded biopharmaceutical company, since June 2007. He received his B.A. in Government from the University of Notre Dame and his J.D. from the Catholic University of America. Mr. McLaughlin has been chosen to serve on our Board due to his significant experience as an officer and director at biopharmaceutical companies, including publicly traded companies, as well as his substantial expertise in corporate licensing, legal and regulatory matters relating to healthcare.

Steven D. Schwartz, M.D. Dr. Schwartz has served as a member of our Board since September 2010 and is a co-founder of Avalanche. Dr. Schwartz is the Ahmanson Professor in Ophthalmology at the Jules Stein Eye Institute at the University of California, Los Angeles, where he has served as an ophthalmologist and vitreoretinal surgeon since 1994 and as Chief of the Retina Division since 2002. Previously, Dr. Schwartz was a principal investigator in a number of early-stage clinical trials for retinal diseases, including the initial studies for ranibizumab (Lucentis). Dr. Schwartz was principal investigator for the first in human stem cell derived tissue transplantation program, as well as projects in gene and cell therapy. Dr. Schwartz has served on the board of directors of the American Society of Retina Specialists, and currently serves on the finance committee for the Retina Society. Between 2002 and 2005, Dr. Schwartz held various positions at Eyetech, a biopharmaceutical company. Dr. Schwartz currently serves on the board of directors of DigiSight Technologies, Inc., a privately held digital health company. Dr. Schwartz has also served on a number of scientific advisory boards, including for Alcon, Bausch and Lomb, and Genentech, a publicly traded biotechnology company, as well as for ophthalmology technology companies Ophthotech, Optos plc and Optimedica Corporation. Dr. Schwartz received his B.A. from the University of California, Berkeley and his M.D. from the Keck School of Medicine at the University of Southern California, followed by a Residency in Ophthalmology at the University of California, Los Angeles, and medical retina and vitreoretinal fellowships at Moorefield’s Eye Hospital in London. Dr. Schwartz has been chosen to serve on our Board due to his substantial scientific expertise as an ophthalmologist and medical researcher, as well as his experience at several ophthalmology-focused technology companies.

CLASS III DIRECTORS—To continue in office until the 2017 Annual Meeting of Stockholders

Mark S. Blumenkranz, M.D. Dr. Blumenkranz has served as a member of our Board since our inception in July 2006 and is a co-founder of Avalanche. Dr. Blumenkranz is a trained vitreoretinal surgeon and is the HJ Smead Professor and former Chairman of the Department of Ophthalmology at Stanford University, where he has served since 1997. He was the inaugural director of the Byers Eye Institute, a nationally-recognized eye care center dedicated to combating blindness and preserving sight, between 2010 and 2015. Dr. Blumenkranz is a founder and director of Digisight Corporation, a privately held ophthalmic digital health company, and of Lagunita Biosciences LLC, a privately held biotechnology and medical investment company. He was a founder and director of Peak Surgical, Inc., an innovator in pulsed plasma mediated electrosurgery, which was acquired by Medtronic, Inc. in 2011. In 2004, he co-founded Optimedica Corporation, a manufacturer of retinal and cataract scanning lasers, which was acquired by Abbott Medical Optics, Inc. in 2013. Dr. Blumenkranz was also a co-founder and director of Oculeve, a privately held medical device company focused on new technologies for dry eye disease, which was acquired by Allergan in August 2015. In addition, he previously served as a director of Oculex Pharmaceuticals and Macusight, biopharmaceutical companies that were acquired, respectively, by Allergan in 2003 and Santen in 2010. Dr. Blumenkranz served as a director of Presbia PLC, a publicly held

 

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ophthalmic device company, from January 2015 until August 2015, and he previously served as a director of Presbia Holdings, Presbia PLC’s controlling shareholder. Dr. Blumenkranz received his A.B. in Biology, his M.M.S. in Biochemical Pharmacology and his M.D. all from Brown University, followed by a residency in ophthalmology at Stanford University and a fellowship in vitreoretinal diseases at the Bascom Palmer Eye Institute of the University of Miami, where he served on the faculty for five years. Dr. Blumenkranz is a past-President of the American University Professors of Ophthalmology, Retina Society and Macula Society, and a Fellow of the Corporation of Brown University, where he serves as chairman of the Medical School Committee. Dr. Blumenkranz has been chosen to serve on our Board due to his experience as a director and founder of several biotechnology companies, as well as his significant medical expertise in ophthalmology an biotechnology.

Proposal No. 3: Ratification of Selection of Independent Registered Public Accounting Firm

General

The audit committee of our Board has selected Deloitte & Touche LLP (“DT”) as our independent registered public accounting firm for the year ending December 31, 2016, and is seeking ratification of such selection by our stockholders at the 2016 Annual Meeting. DT has audited our financial statements for the fiscal years ended December 31, 2015, 2014 and 2013. Representatives of DT are expected to be present at the 2016 Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

Neither our bylaws nor other governing documents or law require stockholder ratification of the selection of DT as our independent registered public accounting firm. However, the audit committee is submitting the selection of DT to our stockholders for ratification as a matter of good corporate practice. If our stockholders fail to ratify the selection, the audit committee will reconsider whether or not to retain DT. Even if the selection is ratified, the audit committee in its discretion may select a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of Avalanche and our stockholders.

Vote Required for Approval

The affirmative vote of a majority of the shares cast in person or by proxy at the 2016 Annual Meeting (excluding abstentions and non-votes) will be required to ratify the selection of DT.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2016. IF NOT OTHERWISE SPECIFIED, PROXIES WILL BE VOTED “FOR” THE APPROVAL OF THIS PROPOSAL.

For the fiscal years ended December 31, 2015 and 2014, DT billed the approximate fees set forth below. All fees included below were approved by the audit committee.

 

     Year Ended December 31,  
     2015      2014  

Audit Fees(1)

   $ 982,000         1,441,000   

Audit-Related Fees (2)

     —           —     

Tax Fees

     21,000         —     

All Other Fees(3)

     —           —     
  

 

 

    

 

 

 

Total All Fees

   $ 1,003,000       $ 1,441,000   
  

 

 

    

 

 

 

 

(1)

This category consists of fees for professional services rendered for the audit of our financial statements, review of interim financial statements, assistance with registration statements filed with the SEC and

 

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  services that are normally provided by DT in connection with statutory and regulatory filings or engagements. Related to the year ended December 31, 2014, a fee of $830,050 was billed in connection with the filing of our Registration Statement on Form S-1 in connection with the initial public offering of our common stock (“IPO”). In the year ended December 31, 2015, a fee of $121,000 was billed in connection with our subsequent public offering of our common stock.
(2) This category consists of fees for assurance and related services reasonably related to the performance of the audit or review of financial statements and that are not reported under the Audit Fees category. We did not incur any fees in this category in the years ended December 31, 2015 or 2014.
(3) This category consists of fees for our subscription to an account research tool provided by DT.

Pre-Approval Policies and Procedures

The audit committee is responsible for reviewing the terms of the proposed engagement of the independent registered public accounting firm for audit or permissible non-audit services and for pre-approving all such engagements. The audit committee has adopted a policy for the pre-approval of all audit and non-audit services to be performed for Avalanche by the independent registered public accounting firm. This policy is set forth in the charter of the audit committee and is available at http://investors.avalanchebiotech.com. In providing any pre-approval, the audit committee considers whether the services to be approved are consistent with the SEC’s rules on auditor independence. The audit committee has considered the role of DT in providing audit and audit-related services to Avalanche and has concluded that such services are compatible with DT’s role as Avalanche’s independent registered public accounting firm. In fiscal years 2015 and 2014, all of the services performed by our independent registered public accounting firm were pre-approved by the audit committee pursuant to our policy.

Proposal No. 4: Possible Adjournment of the 2016 Annual Meeting

General

If we fail to receive a sufficient number of votes to approve Proposal No. 1, we may propose to adjourn the 2016 Annual Meeting, for a period of not more than 30 days, for the purpose of soliciting additional proxies to approve Proposal No. 1. We currently do not intend to propose adjournment at the 2016 Annual Meeting if there are sufficient votes to approve Proposal No. 1.

Vote Required for Approval

If a quorum is present at the 2016 Annual Meeting, the affirmative vote of a majority of the shares cast in person or by proxy at the 2016 Annual Meeting (excluding abstentions and broker non-votes) will be required to approve the adjournment of the 2016 Annual Meeting. If a quorum is not present, either (i) the chairperson of the meeting or (ii) the holders of a majority of shares entitled to vote at the 2016 Annual Meeting and present in person or represented by proxy may adjourn the meeting.

OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” ADJOURNMENT OF THE 2016 ANNUAL MEETING, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF PROPOSAL NO. 1. IF NOT OTHERWISE SPECIFIED, PROXIES WILL BE VOTED “FOR” THE APPROVAL OF THIS PROPOSAL, IF NECESSARY.

 

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THE TRANSACTION

The following section and the section entitled “The Acquisition Agreement” in this proxy statement describe the material aspects of the Transaction and the material terms of the Acquisition Agreement. The discussion is subject, and qualified in its entirety by reference, to the Acquisition Agreement attached as Annex A to this proxy statement. You should read carefully this entire proxy statement for a more complete understanding of the Transaction and Acquisition Agreement, including the Acquisition Agreement and the opinion of Cowen, attached as Annex A and Annex D, respectively, to this proxy statement, and the other documents to which you are referred herein.

Background of the Transaction

As part of our ongoing corporate development efforts, the Board and our management team, with assistance from our business development group, regularly review and assess our longer term goals and strategic objectives, including maintaining awareness of other gene therapy companies, their product pipelines and stages of development. Our business development group identifies these companies through the course of normal business, including by participating in relevant conferences, performing competitive landscape analysis and engaging in discussions with key opinion leaders.

On June 15, 2015, we announced the top-line results of our Phase 2a trial for AVA-101 and began in-depth analysis of the Phase 2a data to guide our decision-making regarding further development of AVA-101. On August 13, 2015, we announced our decision not to move forward with the Phase 2b trial for AVA-101 at the dose and with the subretinal administration procedure we had planned to initiate in the second half of 2015, and we began planning additional preclinical studies to inform further development of our wet AMD program. In parallel with such events, we continued to review and assess our strategic options and goals as part of our ongoing corporate development efforts, and in June 2015, following the announcement of our Phase 2a trial results, senior management authorized our business development group to begin identifying appropriate assets and companies that we should consider for potential collaboration, licensing, merger or acquisition. One of the companies identified during the course of this process was Annapurna (formerly AAVLife). To assist our business development group in the identification and review of academic and commercial gene therapy assets across all disease indications, Health Advances LLC, a professional healthcare consulting company, was engaged in July 2015.

On July 15, 2015, Dr. Gurpreet Ratra, our then-Director of Business Development, presented Annapurna to our senior management as one of several companies that could be a potential party in a merger or acquisition transaction based on the potential complementary nature of Annapurna’s gene therapy programs.

Following the initial presentation of Annapurna to our senior management, on July 27, 2015, Dr. Mehdi Gasmi, our interim Chief Scientific Officer, who knew Dr. Amber Salzman, the president and chief executive officer of Annapurna, from their professional involvement in the gene therapy field, had a telephonic conversation with Dr. Salzman regarding Annapurna’s business and Dr. Salzman’s level of interest in exploring the possibility of a strategic transaction between the two companies. As a next step and for each of the companies to understand in more detail the other’s business strategy and pipeline, execution of a mutual confidentiality and non-disclosure agreement was proposed by Dr. Gasmi.

On August 4, 2015, we entered into a confidentiality and non-disclosure agreement with Annapurna. Over the following two weeks, Mr. Hans Hull, our then-interim Chief Executive Officer, Dr. Gasmi and Dr. Ratra engaged in preliminary due diligence regarding the potential implications of a merger or acquisition transaction with Annapurna.

At a meeting of the Board on August 9, 2015, the Board considered engaging a financial advisor to assist management and our business development team in their ongoing evaluation of our strategic options. Management and the Board determined after discussions that while the business development team should

 

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continue its efforts to identify prospective partners for a strategic transaction, engagement of a financial advisor would be premature at such time and that such engagement should be reconsidered at a later stage of the evaluation process being undertaken by management and our business development team.

On August 21, 2015, Dr. Ratra spoke with Dr. Salzman by telephone to further discuss the possibility of a strategic transaction involving the two companies, and on September 2, 2015, Annapurna shared with us additional confidential materials relating to Annapurna and its gene therapy programs.

On September 2, 2015, Dr. Ratra emailed Dr. Salzman to suggest an in-person meeting during their attendance at the European Society for Gene and Cellular Therapies conference in Helsinki, Finland. On September 18, 2015, Dr. Ratra and Dr. Salzman met in Helsinki, Finland, during which they discussed our and Annapurna’s respective therapeutic programs and pipelines, and explored possible synergies and strategic benefits that might arise from a combination of Avalanche and Annapurna. Drs. Ratra and Salzman agreed that Annapurna would make its data room available to Avalanche for Avalanche to begin its due diligence of Annapurna, and access to Annapurna’s data room was granted on November 18, 2015. Following this discussion, Dr. Ratra spoke with, and sent a follow-up email to, Mr. Hull outlining the key points of his meeting with Dr. Salzman.

Separately, on September 18, 2015, Dr. Mark Blumenkranz, Chairman of the Board, learned that Annapurna was seeking an additional round of funding and that there might be certain synergies between us and Annapurna with respect to the companies’ therapeutic programs and management teams that would warrant further exploration. Dr. Blumenkranz was subsequently introduced via email to Dr. Salzman, and a telephonic meeting was scheduled with Dr. Salzman for September 25, 2015, during which they arranged for an in-person meeting in New York on September 30, 2015.

On September 21, 2015, at a meeting of the Board, Mr. Hull updated the Board on management’s corporate development efforts and reviewed a list of potential candidates identified in the process with whom we might consider pursuing a strategic transaction. Following a review of the potential candidates and extensive discussions, the Board determined that management’s corporate development efforts going forward should primarily be focused on pursuing an in-licensing transaction with one potential candidate, Company X, with whom we had begun preliminary discussions, but that management could continue to engage and maintain contact with other companies identified as potential candidates, including Annapurna, in the ordinary course of such development efforts.

On September 27, 2015, Mr. Hull, Dr. Ratra and Dr. Gasmi met with Dr. Salzman in New York to discuss Annapurna’s pipeline, its business objectives and Dr. Salzman’s potential role in a combined company.

During their meeting on September 30, 2015 in New York, Dr. Blumenkranz and Dr. Salzman discussed a number of topics, including Dr. Salzman’s availability and interest in being considered as our permanent Chief Executive Officer, and potential synergies and benefits that might arise from a strategic transaction between Avalanche and Annapurna. Dr. Salzman did not express an interest in assuming the Chief Executive Officer position at the time but agreed to further explore the possibility of a strategic transaction.

On October 11, 2015, Dr. Salzman introduced Dr. Blumenkranz via email to Dr. Thomas Woiwode, a member of the board of directors of Annapurna and a partner at Versant Ventures, a major investor of Annapurna, and Drs. Woiwode and Blumenkranz arranged to speak by telephone on October 19, 2015. During their telephonic discussion on October 19, 2015, Dr. Woiwode indicated that Annapurna was in the process of exploring a possible additional round of financing. Dr. Woiwode also proposed the possibility of a combination transaction between Avalanche and Annapurna as an alternative to Annapurna’s financing round and requested that Avalanche consider such a transaction, which might offer potential synergies and benefits for the two companies from capital, technology and management perspectives.

 

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Following their October 19, 2015 telephonic discussion, Drs. Blumenkranz and Woiwode communicated multiple times over the next several weeks to further explore the possibility of a potential transaction between Avalanche and Annapurna.

On October 30, 2015, Drs. Blumenkranz and Woiwode met in person in Palo Alto, California during which Dr. Woiwode shared his views on the rationale of a combination of Avalanche and Annapurna and the strategic fit and potential benefits of combining the capabilities of the two companies, as well as his preliminary thoughts on the potential structure of such a combination transaction. Dr. Woiwode presented a range of economic structures for the proposed transaction, including a proposal for a stock-for-stock transaction that would provide the existing Annapurna shareholders between 35% and 40% equity ownership of Avalanche following the consummation of the transaction, with such percentage to be determined through further negotiation.

During the week of November 1, 2015, Dr. Blumenkranz held a number of telephonic discussions with each of the members of the Board regarding his October 30, 2015 meeting with Dr. Woiwode and updated the Board on his preliminary discussions with Dr. Woiwode about the potential transaction opportunity with Annapurna.

On November 6, 2015, Dr. Blumenkranz updated Mr. Hull on his October 30, 2015 meeting with Dr. Woiwode, and Mr. Hull updated Dr. Blumenkranz on certain discussions by management with Annapurna. On the same day, a confidentiality and non-disclosure agreement was executed between Avalanche and Versant Ventures in anticipation of Dr. Woiwode’s continued involvement as discussions with Annapurna moved forward.

Following the execution of the confidentiality and non-disclosure agreement, Dr. Blumenkranz held an in-person meeting with Dr. Woiwode on November 7, 2015 in Palo Alto, California, during which Dr. Woiwode outlined a proposal for a potential transaction structure, which included a range of economic terms, a proposed organizational chart for the combined company, and a proposed composition of the board of directors for the combined company. Drs. Blumenkranz and Woiwode also discussed a list of investment banks and financial advisory firms that could serve as the financial advisor for Avalanche for the proposed transaction, during which Cowen was named as a potential candidate given its expertise in the pharmaceutical and biotechnology industry and its familiarity with Avalanche through its work on Avalanche’s initial public offering in 2014 and Avalanche’s subsequent follow-on public stock offering in 2015. Dr. Blumenkranz received an email from Dr. Woiwode on November 8, 2015 summarizing the key terms of the proposed structure they discussed during the November 7, 2015 meeting, including the range of economic terms, board composition, management roles, reporting structure and executive compensation for Dr. Salzman in connection with the proposed transaction.

Following his November 7, 2015 meeting with Dr. Woiwode, Dr. Blumenkranz called a representative of Cowen to discuss the possibility of engaging Cowen to serve as the financial advisor to Avalanche in connection with the proposed transaction, including providing a fairness opinion to the Board.

On November 11, 2015, Dr. Blumenkranz brought the proposed transaction to the attention of Paul B. Cleveland, who was in advanced negotiations with us about assuming the position of Chief Executive Officer of Avalanche. We publicly announced on November 19, 2015 that Mr. Cleveland would become our Chief Executive Officer, starting on December 9, 2015.

During the period the above-mentioned discussions with Annapurna were occurring, management and our business development group also continued discussions with Company X and engaged in preliminary discussions with other companies about potential in-licensing and other strategic transactions, subject to confidentiality and non-disclosure agreements, as part of our ongoing corporate development efforts.

On November 13, 2015, the Board held a telephonic meeting, in which Mr. Cleveland participated, to discuss financial advisors for the proposed transaction with Annapurna. Two firms that were shortlisted were Cowen and Centerview Partners. Following discussions of various considerations and options, including the

 

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possibility of engaging each firm for different roles in connection with the proposed transaction, the Board determined that engaging Cowen as Avalanche’s sole financial advisor was advisable, given Cowen’s experience in the relevant industry and its existing relationship with, and knowledge of, Avalanche as well as the benefit of minimizing expenses through engagement of a single firm. In addition, at this meeting, the Board directed management to scale back the ongoing corporate development efforts with companies other than Annapurna due to the advancement of discussions with Annapurna and a concern that continued discussions with other companies could be construed by Annapurna as a lack of serious interest on our part to pursue a transaction with Annapurna. It was the Board’s opinion that, at this stage of discussions, Annapurna might opt to discontinue discussions with us and pursue a financing round instead if Annapurna perceived a lack of commitment by us in further exploring a potential transaction with Annapurna.

On November 18, 2015, Annapurna provided us with access to an online data room that contained certain confidential data and information relating to its therapeutic programs and intellectual property as well as certain corporate documents.

On November 20, 2015, as part of our technical due diligence of Annapurna, we engaged Gerson Lehrman Group Inc. (“GLG”), a professional services firm specializing in providing industry-specific expert consulting and learning services, in order to provide us with additional information to facilitate our understanding of A1AT deficiency, Friedreich’s ataxia, hereditary angioedema and allergies, which were identified by Annapurna as the diseases and conditions targeted by the key programs comprising its pipeline. Over the course of the next two months, GLG identified and interviewed a number of subject matter experts in these diseases and the field of gene therapy generally, the identities of whom were not disclosed to Avalanche, in order to assist us in our due diligence and evaluation of Annapurna’s science and its key programs. With the assistance of GLG, we gained a deeper knowledge of these diseases, the currently-available therapies and the viability of gene therapy for these diseases. GLG’s work under this engagement was concluded on January 15, 2016.

On November 21, 2015, Dr. Blumenkranz introduced Mr. Cleveland to Dr. Woiwode by email, following which Mr. Cleveland arranged a telephone call with Dr. Woiwode, which took place on November 24, 2015. This call consisted of personal introductions and a discussion in general terms of the potential merits and challenges of the proposed transaction between the two companies.

On November 24, 2015, Dr. Salzman emailed Mr. Hull indicating her intent to have an initial due diligence call with Avalanche, which was scheduled for November 27, 2015. On November 27, 2015, Mr. Hull, Dr. Ratra and Dr. Jennifer Cheng, Avalanche’s Senior Director of Intellectual Property and legal counsel, participated in a telephonic meeting with Dr. Salzman and Graham Robinson of Skadden, Arps, Slate, Meagher & Flom, LLP (“Skadden”), legal counsel for Annapurna, during which aspects of the AVA-101 clinical trial, pending shareholder litigation and Avalanche corporate activities were discussed.

Over the course of the next several weeks, our senior management and other members of the Avalanche team reviewed the materials made available to us and continued to conduct due diligence on Annapurna. Due diligence on intellectual property matters relating to Annapurna’s science, product pipeline and programs was initiated on November 20, 2015 with the assistance of Bill Christiansen and Carol Laherty of Cooley LLP, our legal counsel for intellectual property matters. On December 4, 2015, a copy of a supplemental corporate and intellectual property preliminary due diligence request list was sent by Mr. Hull to Dr. Salzman via email.

On December 4, 2015, Dr. Blumenkranz met with Dr. Woiwode and a representative of Cowen to further discuss the rationale for a combination of the two companies, the potential structure and terms of such a combination transaction, and the process to attain the requisite approvals to complete such a transaction. They also discussed and revised the proposal communicated to Dr. Blumenkranz by Dr. Woiwode on November 7, 2015, including the proposed structure of the senior management team of a combined company, and the post-transaction equity ownership levels of the existing Avalanche and Annapurna stockholders in the combined

 

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company. It was agreed during the meeting that Dr. Salzman and Dr. Carlo Russo, Annapurna’s chief medical officer, would attend an in-person meeting with representatives from Avalanche, Annapurna and Cowen in San Francisco, California the following week.

On December 10, Dr. Blumenkranz sent to representatives of Annapurna a copy of our publicly filed Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, along with our program timelines and budgetary materials prepared by management. On December 11, 2015, Dr. Salzman provided us with a slide deck summarizing Annapurna’s program portfolio, its development plans and associated cost estimates and projections.

On December 12, 2015, Dr. Blumenkranz and Mr. Cleveland participated in a meeting at the offices of Cowen in San Francisco, California with Drs. Woiwode, Salzman, Russo, and representatives of Cowen. Terms of the proposed transaction were discussed during the meeting, including, among other things, structuring the transaction as an acquisition of all outstanding capital stock of Annapurna by Avalanche in consideration for newly issued shares of our common stock, the post-transaction equity ownership percentages of existing stockholders of Annapurna in the combined company (discussed as a range of 35% to 40% of the combined company to be owned by Annapurna shareholders), the composition of senior management and the board of directors of the combined company, anticipated timing of closing, and conditions precedent to closing. It was agreed that a non-binding letter of intent outlining the terms agreed upon during the meeting would be circulated to Avalanche and Annapurna, and their respective legal counsels, in advance of a regularly scheduled meeting of the Board on December 15, 2015. Mr. Cleveland also discussed with a representative of Cowen a proposed engagement letter pursuant to which Cowen would serve as the financial advisor for Avalanche in connection with the proposed transaction. Mr. Cleveland and the representative of Cowen agreed to the terms of the Cowen engagement letter, subject to review by our legal counsel and the approval of the Board, which was subsequently obtained at the December 15, 2015 Board meeting.

On December 14, 2015, a draft of the letter of intent was circulated to Avalanche, Annapurna and their respective representatives and advisors, and was subsequently revised to reflect the parties’ comments. Also on December 14, 2015, Dr. Mitchell Finer, a co-founder of and distinguished research fellow at Avalanche, had a telephonic call with Dr. Salzman, during which he asked a series of diligence questions that had been organized by us and certain of our advisors. Thereafter, a series of additional diligence calls were held between the parties, which generally included Drs. Russo and Crystal from Annapurna and a broad group representing us.

On December 15, 2015, the Board held a regularly scheduled meeting at which representatives of Munger, Tolles & Olson LLP (“Munger Tolles”), our legal counsel, participated and, at the invitation of the Board, representatives of Cowen participated telephonically for a portion of the meeting. The proposed transaction with Annapurna was discussed in detail, including, among other things, the strategic rationale for the proposed transaction, the proposed terms and structure of the transaction, the composition of senior management and the board of directors of the combined company, the timeline of the proposed transaction, potential synergies, merits and benefits of the proposed transaction, Annapurna’s assets and programs, and a preliminary valuation analysis of Annapurna conducted by Cowen. Following these discussions, the letter of intent with Annapurna was approved. At the meeting, the Board was advised of the proposed terms of Cowen’s engagement and that (i) an affiliate of Cowen owned approximately 0.8% of Avalanche’s common stock, (ii) certain members of senior management of Cowen and certain proposed members of the deal team for the Transaction collectively owned approximately 0.4% of Avalanche’s common stock, (iii) since 2014, Cowen had received approximately $8.2 million in total fees (inclusive of warrants) from serving as a placement agent in Avalanche’s pre-IPO private placement and as a joint-bookrunner for Avalanche’s IPO and follow-on offerings, (iv) Cowen, along with other members of the underwriting syndicate, had requested indemnification from Avalanche in connection with a lawsuit emanating one of Avalanche’s follow-on offerings, and (v) Cowen had no prior business relationship with Annapurna. The Board considered these factors and determined that they did not impact the Board’s decision regarding the engagement of Cowen, and the engagement of Cowen as the Avalanche’s financial advisor for the proposed transaction was approved, subject to legal review of Cowen’s engagement letter.

 

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In addition, at this meeting, at which point the representatives of Cowen had left the meeting, the Board discussed the status of management’s discussions with Company X and certain concerns about pursuing a transaction with Company X as an alternative to a transaction with Annapurna, including concerns regarding the ability to achieve synergies between Company X’s and Avalanche’s product platforms.

On December 17, 2015 the board of directors of Annapurna approved the letter of intent regarding the proposed transaction, and a signed copy was provided to Avalanche.

On December 30, 2015, Munger Tolles provided to Annapurna and Skadden an initial draft of the Acquisition Agreement. Over the course of the following four weeks, drafts of the Acquisition Agreement and other transaction documents were exchanged between the representatives and advisors of Avalanche, Annapurna and Annapurna’s shareholders as the parties engaged in negotiations of the Acquisition Agreement and other transaction documents, including the terms and conditions of the termination fee, interim operating covenants, the support agreement to be signed by certain members of our management, the release to be signed by the selling shareholders of Annapurna at closing, and the employment agreements for Drs. Salzman and Russo, which would become effective upon closing. Our senior management provided periodic updates to the Board of the status of such negotiations and the ongoing due diligence which was concurrently being conducted.

On January 6, 2016, Mr. Cleveland and Dr. Salzman spoke by telephone and discussed the timeline and process for completion of a definitive acquisition agreement, as well as cooperation between the two companies during the pendency of the proposed acquisition.

On January 12, 2016, Dr. Blumenkranz, Mr. Cleveland and Dr. Woiwode met in San Francisco, California to discuss matters relating to executive compensation, including salaries, bonus targets and deal completion bonuses of Drs. Salzman and Russo, method of allocation for the treatment of outstanding equity and a variety of other matters material to the proposed transaction. Erik Beucler of Compensia, our compensation consultant, joined a portion of this meeting. Shortly after Mr. Beucler left, Dr. Salzman joined the meeting. Materials providing context for the compensation discussions were prepared by Compensia and were provided to Drs. Blumenkranz and Woiwode and Mr. Cleveland at the meeting.

An informal dinner meeting was held in San Francisco, California on January 12, 2016 to which all the members of the Board and Annapurna’s board of directors and certain members of our and Annapurna’s management were invited to attend. Dr. Blumenkranz, Mr. Cleveland, Dr. Steven Schwartz and Dr. Finer from Avalanche, and Drs. Woiwode, Salzman, Russo, and Dr. Gianni Gromo and Ms. Chahra Louafi from Annapurna attended the dinner, with a representative of Cowen also in attendance.

On January 15, 2016, Drs. Blumenkranz, Woiwode and Salzman, and Mr. Cleveland met in Palo Alto. They discussed the possible organizational structure of the combined company. After negotiations they agreed to propose to their respective boards of directors that the existing shareholders of Annapurna receive shares of Avalanche representing in the aggregate 37.5% ownership interest in the combined company in exchange for their shares of Annapurna capital stock and Annapurna Options. Separately, they also discussed during the meeting possible titles and roles of senior management of the combined company.

On January 19, 2016, Mr. Cleveland, Mr. Hull, Dr. Gasmi, Mr. Michael Swartzburg, Vice President, Finance and Principal Accounting Officer, Ms. Carla Fiankan, Vice-President Regulatory Affairs, Dr. Ratra, Dr. Cheng, and Dr. Elizabeth Alcamo, Director of Pipeline Planning, participated in a telephonic meeting with Dr. Salzman and Dr. Carlo Russo to review and discuss the status and timelines of Annapurna’s programs.

On January 22, 2016, the Board held a regularly scheduled meeting at which representatives of Munger Tolles participated telephonically. At the meeting, the Board was provided with an update of the status of the negotiations with Annapurna relating to the terms of the proposed transaction, the Acquisition Agreement and related documents, which were reviewed and discussed by the Board. The Board was also updated as to the

 

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results of the due diligence activities performed over the past several weeks, following which the Board engaged in an extensive discussion of the due diligence findings to date. Our senior management also presented to the Board an analysis of potential alternative merger or acquisition candidates that might be strategically suitable for Avalanche, which candidates were identified by our senior management and our business development group. Following in-depth discussions, the Board approved the terms of Acquisition Agreement and the proposed transaction, subject to further diligence regarding Annapurna’s clinical programs to be conducted over the course of the following week.

Following the January 22, 2016 Board meeting, Mr. Cleveland and other members of our senior management arranged and conducted additional due diligence on Annapurna’s development programs through telephonic meetings with Dr. Salzman, other members of the Annapurna team, and certain clinical regulatory and preclinical experts and consultants, during which anticipated timelines and other aspects of Annapurna’s clinical programs were discussed at length and in detail.

During the week following the January 22, 2016 Board meeting, Avalanche, Annapurna and their respective representatives finalized the Acquisition Agreement and related agreements, including the employment agreements of Drs. Salzman and Russo. On January 27, 2016 the board of directors of Annapurna voted to support the transaction.

The Board held a meeting on January 29, 2016 to further consider the proposed transaction and related agreements. At the invitation of the Board, members of our senior management and representatives of our legal and financial advisors also attended the meeting. The Board reviewed and engaged in extensive discussions regarding due diligence matters relating to Annapurna’s clinical programs, as well as the material terms of the proposed Acquisition Agreement and related agreements, including, among other things, the consideration, exchange ratio, employment matters, termination fees, and stockholder approval. At the request of the Board, representatives of Cowen then reviewed and discussed its financial analyses of the proposed transaction and the consideration to be paid by Avalanche in the proposed transaction. Thereafter, at the request of the Board, Cowen verbally rendered its opinion to the Board, which was subsequently confirmed in writing that, as of the date of Cowen’s opinion, and subject to the various assumptions made, procedures followed, matters considered, limitations of the review undertaken, qualifications contained and other matters set forth in Cowen’s written opinion, the consideration to be paid by Avalanche in the Transaction pursuant to the terms of the Acquisition Agreement was fair, from a financial point of view, to Avalanche. The Board then unanimously approved the Acquisition Agreement and the proposed transaction with Annapurna.

Following the Board meeting, the parties executed the Acquisition Agreement and related agreements on January 29, 2016 after close of trading on the NASDAQ Global Market. Before the opening of trading on the NASDAQ Global Market on February 1, 2016, we issued a press release announcing the execution of the Acquisition Agreement and held a conference call in connection with the announcement of the proposed transaction.

Recommendation of our Board and Avalanche’s Reasons for the Transaction

Our Board unanimously recommends that you vote “FOR” the Stock Issuance.

Our Board considered the following factors, among others, in reaching its conclusion to approve the Transaction and to recommend that the Avalanche stockholders approve the Stock Issuance, all of which our Board viewed as supporting its decision to approve the Transaction:

 

    our Board and our senior management had undertaken a comprehensive and thorough process of reviewing and analyzing potential merger and acquisition candidates to identify the opportunity that would, in our Board’s opinion, create the most value for Avalanche’s stockholders;

 

   

our Board believes, based in part on the judgment, advice and analysis of our senior management with respect to the potential strategic, financial and operational benefits of the Transaction (which judgment,

 

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advice and analysis was informed in part on the business, technical, financial, accounting and legal due diligence investigation performed with respect to Annapurna), that Annapurna’s product candidates represent sizeable market opportunities and have the potential to address orphan diseases with unmet medical need and to generate returns for our investors;

 

    our Board also reviewed the potential synergies of Annapurna’s portfolio of product candidates with our adeno-associated virus (“AAV”) vector discovery and optimization system and industrialized manufacturing process, and believes that the combined organization can leverage the Avalanche platform to optimize the development of Avalanche’s and Annapurna’s product candidate portfolios;

 

    our Board considered the depth of gene-therapy expertise and experience of Annapurna’s senior management, each of whom are expected to be appointed as officers of Avalanche in connection with the Transaction;

 

    our Board also considered the significant scientific and biopharmaceutical business experience of the persons who have been identified by Annapurna to be appointed as new directors of Avalanche in connection with the Transaction, and the potential difficulty of otherwise recruiting directors with similar experience to our Board in the short term;

 

    our Board also considered its decision in the third quarter of 2015 to not move forward with Phase 2b clinical trial for AVA-101 at the dose and administration procedure we had planned to initiate in the second half of 2015 and, as a result, the unlikeliness of Avalanche having a product candidate in clinical development in the short term, and the potential for Annapurna’s A1AT product candidate to begin clinical development in 2016;

 

    our Board also considered the financial analyses of Cowen, including Cowen’s written opinion that, as of the date of Cowen’s opinion, and subject to the various assumptions made, procedures followed, matters considered, limitations of the review undertaken, qualifications contained and other matters set forth therein, the consideration to be paid by Avalanche in the Transaction pursuant to the terms of the Acquisition Agreement was fair, from a financial point of view, to Avalanche, as more fully described under the caption “The Transaction—Opinion of Cowen and Company, LLC, Financial Advisor to Avalanche; and

 

    our Board concluded that the Transaction would provide our stockholders with the opportunity to participate in the potential value that may result from the successful development of Annapurna’s product candidates and the potential increase in the value of the combined organization following the Transaction.

Our Board also reviewed the terms of the Acquisition Agreement and associated transactions, including the safeguards and protective provisions provided therein to mitigate certain risks, including:

 

    the exchange ratio used to establish the number of shares of Avalanche common stock to be issued in connection with the Transaction, and the expected relative percentage ownership of Avalanche by our stockholders and Annapurna shareholders immediately following the completion of the Transaction;

 

    the limited number and nature of the conditions of the Annapurna shareholders’ obligation to consummate the Transaction and the limited risk of non-satisfaction of such conditions as well as the likelihood that the Transaction will be consummated on a timely basis;

 

    the respective limitations on Avalanche and Annapurna under the Acquisition Agreement to solicit alternative acquisition proposals and consider unsolicited acquisition proposals, as well as the rights of Avalanche to consider certain unsolicited acquisition proposals under certain circumstances should Avalanche receive a superior proposal;

 

    the reasonableness of the potential reverse termination fees of $4.0 million or $6.0 million, which could become payable by Avalanche if the Acquisition Agreement is terminated in certain circumstances; and

 

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    the parties’ representations, warranties and covenants, and the conditions to their respective obligations, all of which our Board believes, along with the other terms of the Acquisition Agreement, to be reasonable under the circumstances.

In the course of its deliberations, our Board also considered a variety of risks and other countervailing factors relating to entering into the Transaction, including:

 

    the reverse termination fee of $4.0 million or $6.0 million payable by Avalanche to Annapurna upon the occurrence of certain events and the potential effect of such fee in deterring other parties from proposing an alternative transaction that may be more advantageous to Avalanche stockholders;

 

    the substantial expenses to be incurred in connection with the Transaction, including the costs associated with any related litigation;

 

    the possible volatility, at least in the short term, of the trading price of Avalanche common stock following the announcement of the Transaction;

 

    the risk that the Transaction might not be consummated in a timely manner or at all and the potential adverse effect on the reputation of Avalanche caused by any delay or failure to complete the Transaction;

 

    the risk to Avalanche’s business, operations and financial results in the event that the Transaction is not consummated, including the diminution of Avalanche’s cash and its likely inability to raise additional capital in the near term through the public or private sale of equity securities;

 

    the risk that Avalanche will fail to effectively integrate Drs. Salzman and Russo into Avalanche following the completion of the Transaction;

 

    the risk that the addition of three new directors to our Board following the completion of the Transaction will be disruptive to the dynamics of our Board and will negatively affect our Board’s ability to effectively make strategic regarding the continuing organization;

 

    the risk that the continuing organization following the completion of the Transaction will be dependent, in part, on product candidates of Annapurna that have not yet been tested in clinical trials and that commercialization of such product candidates might not be successful; and

 

    various other risks associated with the combined organization and the Transaction, including those described in the section entitled “Risk Factors” in this proxy statement.

The foregoing information and factors considered by our Board are not intended to be exhaustive but are believed to include all of the material factors considered by our Board. In view of the wide variety of factors considered in connection with its evaluation of the Transaction and the complexity of these matters, our Board did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of our Board may have given different weight to different factors. Our Board conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, our management team and our legal and financial advisors, and considered the factors overall to be favorable to, and to support, its determination.

This explanation of our Board’s reasons for recommending the approval of the Acquisition Agreement and the Stock Issuance and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors described in the section of this proxy statement entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 23.

Opinion of Cowen and Company, LLC, Financial Advisor to Avalanche

Pursuant to an engagement letter with Avalanche, dated December 17, 2015, Avalanche retained Cowen as its financial advisor to render an opinion to the Avalanche Board as to the fairness, from a financial point of view, to Avalanche of the consideration to be paid by Avalanche in the Transaction.

 

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On January 29, 2016, Cowen delivered to the Avalanche Board its oral opinion, subsequently confirmed in writing, referred to as the “Opinion”, that, as of the date of the Opinion, and subject to the various assumptions made, procedures followed, matters considered, limitations of the review undertaken, qualifications contained and other matters set forth therein, the consideration to be paid by Avalanche in the Transaction pursuant to the terms of the Acquisition Agreement was fair, from a financial point of view, to Avalanche. The full text of the Opinion is attached as Annex D hereto and is incorporated herein by reference. Holders of shares of Avalanche common stock are urged to read the Opinion in its entirety for the assumptions made, procedures followed, other matters considered and limits of the review undertaken by Cowen. The summary of the Opinion set forth herein is qualified in its entirety by reference to the full text of the Opinion. The Opinion was prepared for and addressed to the Avalanche Board and was directed only to the fairness, from a financial point of view, of the consideration to be paid by Avalanche in the Transaction, and does not constitute an opinion as to the merits of the Transaction or a recommendation to any stockholder as to how to vote on the proposed Transaction. The consideration to be paid by Avalanche in the Transaction was determined through negotiations between Avalanche and Annapurna and not pursuant to recommendations of Cowen.

In connection with the Opinion, Cowen reviewed and considered such financial and other matters as it deemed relevant, including, among other things:

 

    a draft of the Acquisition Agreement, dated January 28, 2016, which was the last draft of the Agreement made available to Cowen;

 

    certain financial terms of the Transaction as compared to the financial terms of certain selected merger and acquisition transactions that Cowen deemed relevant;

 

    certain publicly available financial and other information of certain publicly traded companies that Cowen deemed relevant;

 

    certain financial terms of the Transaction as compared to the financial terms of initial public offerings (“IPOs”), conducted by certain selected companies that Cowen deemed relevant;

 

    certain financial terms of the Transaction as compared to the financial terms of certain selected private financing transactions conducted by certain selected companies that Cowen deemed relevant;

 

    certain publicly available financial and other information for Avalanche;

 

    information regarding the cash requirements of Annapurna for the fiscal years 2016 through 2018 prepared by Annapurna’s management;

 

    certain information regarding Annapurna’s operations and business prospects provided by management of Annapurna; and

 

    such other information, financial studies, analyses and investigations and such other factors that Cowen deemed relevant for the purposes of the Opinion.

In conducting its review and arriving at the Opinion, Cowen, with Avalanche’s consent, assumed and relied, without independent investigation, upon the accuracy and completeness of all information provided to it by Annapurna and Avalanche, respectively, or which was publicly available or was otherwise reviewed by Cowen. Cowen did not undertake any responsibility for the accuracy, completeness or reasonableness of, or independent verification of, such information. In addition, Cowen did not conduct nor assume any obligation to conduct any physical inspection of the properties or facilities of Annapurna or Avalanche. Cowen relied upon the representation of Annapurna and Avalanche that all information provided to it by Annapurna or Avalanche, as applicable, was accurate and complete in all material respects. Cowen did not receive any internal financial analyses, financial forecasts, reports or other information concerning Annapurna prepared by either the management of Annapurna or Avalanche of a nature that would have enabled Cowen to perform a discounted cash flow analysis of Annapurna’s future cash flows.

 

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Cowen assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of Annapurna or Avalanche since the date of the last financial statements of Annapurna or Avalanche, as applicable, that were reviewed by it. Cowen did not make or obtain any independent evaluations, valuations or appraisals of the assets or liabilities of Annapurna or Avalanche, nor was Cowen furnished with such materials. In addition, Cowen did not evaluate the solvency or fair value of Annapurna or Avalanche under any state or federal laws relating to bankruptcy, insolvency or similar matters. The Opinion does not address any legal, tax or accounting matters related to the Acquisition Agreement or the Transaction, as to which Cowen assumed that Avalanche and the Avalanche Board received such advice from legal, tax and accounting advisors as each determined appropriate. The Opinion addresses only the fairness, from a financial point of view, to Avalanche, of the consideration to be paid by Avalanche in the Transaction. Cowen did not express any view as to any other aspect or implication of the Transaction or any other agreement, arrangement or understanding entered into in connection with the Transaction or otherwise. The Opinion is necessarily based upon economic and market conditions and other circumstances as they existed and could be evaluated by Cowen on the date of the Opinion. The Opinion states that it should be understood that, although subsequent developments may affect the Opinion, Cowen does not have any obligation to update, revise or reaffirm the Opinion and Cowen expressly disclaims any responsibility to do so.

Cowen did not consider any potential legislative or regulatory changes being considered at the time of or recently enacted before the issuance of the Opinion 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 the Opinion, Cowen assumed in all respects material to its analysis, that the representations and warranties of each party contained in the Acquisition Agreement are true and correct, that each party will perform all of the covenants and agreements required to be performed by it under the Acquisition Agreement and that all conditions to the consummation of the Transaction will be satisfied without waiver thereof. Cowen assumed that the final form of the Acquisition Agreement will be substantially similar to the last draft reviewed by it. Cowen also assumed that all governmental, regulatory and other consents and approvals contemplated by the Acquisition 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 Transaction. Cowen assumed that the Transaction will be consummated in a manner that complies with the applicable provisions of the Securities Act, the Exchange Act, and all other applicable state, federal, or foreign statutes, rules and regulations.

The Opinion states that it is intended for the benefit and use of the Avalanche Board in its consideration of the financial terms of the Transaction and may not be disclosed, referred to, or communicated (in whole or in part) to any third party for any purpose whatsoever except with Cowen’s prior written approval. The Opinion states that it may be reproduced in full in any proxy or information statement mailed to the stockholders of Avalanche, but may not otherwise be disclosed publicly in any manner without Cowen’s prior written approval. The Opinion does not constitute a recommendation to the Avalanche Board on whether or not to approve the Transaction or to take any other action in connection with the Transaction or otherwise, or to any stockholder of Avalanche or any other person as to how to vote with respect to the Transaction. Cowen does not express any opinion as to what the value, price or trading range of the shares of Avalanche common stock actually will be following the consummation of the Transaction. Cowen was not requested to opine as to, and the Opinion does not in any manner address, Avalanche’s underlying business decision to effect the Transaction or the relative merits of the Transaction as compared to other business strategies or transactions that may have been available to Avalanche. Additionally, Cowen was not involved in any determinations of the Avalanche Board or Avalanche’s management to pursue strategic alternatives or in the negotiation of any of the terms of the Transaction, and Cowen was not authorized or requested to, and did not, solicit or investigate any other alternative transactions that may have been available to Avalanche. In addition, Cowen was not requested to opine as to, and the Opinion does not in any manner address, the fairness of the Transaction or the consideration to the holders of any class of securities, creditors or other constituencies of Avalanche.

 

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The following is a summary of the principal financial analyses performed by Cowen to arrive at the 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. Cowen reviewed with the management of Avalanche the assumptions on which such analyses were based. No limitations were imposed by the Avalanche Board with respect to the investigations made or procedures followed by Cowen in rendering the Opinion.

For purposes of Cowen’s analyses, Cowen calculated the estimated Equity Value of Annapurna of $105.8 million following the consummation of the Transaction, defined as the product of the implied number of shares of Avalanche common stock and options to be issued to the Annapurna Shareholders and the closing price for Avalanche Common Stock as of January 29, 2016, and the estimated Enterprise Value of Annapurna of $103.1 million, defined as the Equity Value plus total debt and less cash and cash equivalents as provided to Cowen by Annapurna’s management and adjusted using the euro-to-U.S. dollar exchange rate as of December 31, 2015.

Analysis of Selected Transactions. Cowen reviewed the financial terms, to the extent publicly available, of 15 transactions (the “Early-Stage Biotech Transactions”) involving the acquisition of companies in the early-stage biotechnology industry which Cowen believes have operating, market valuation and trading valuations similar to what might be expected of Annapurna, which were announced since February 4, 2010. These transactions were (listed as acquiror/target):

 

Date of Announcement

  

Acquiror

  

Target

11/09/15

   Astellas Pharma, Inc.    Ocata Therapeutics, Inc.

10/09/15

   Roche Holding AG    Adheron Therapeutics, Inc.

08/31/15

   Bristol-Myers Squibb Company    Promedior, Inc.

07/28/15

   Merck & Co. Inc.    cCAM Biotherapeutics Ltd.

02/23/15

   Bristol-Myers Squibb Company    Flexus Biosciences, Inc.

02/20/15

   Sosei Group Corporation    Heptares Therapeutics Ltd.

05/02/14

   Shire plc    Fibrotech Therapeutics Pty Ltd.

01/07/13

   BioMarin Pharmaceutical Inc.    Zacharon Pharmaceuticals, Inc.

02/14/12

   Biogen Idec Inc.    Stromedix, Inc.

12/28/11

   Alexion Pharmaceuticals Inc.    Enobia Pharma Corp.

07/21/11

   Bristol-Myers Squibb Company    Amira Pharmaceuticals Inc.

01/31/11

   Alexion Pharmaceuticals Inc.    Taligen Therapeutics Inc.

12/20/10

   Gilead Sciences Inc.    Arresto Biosciences Inc.

08/17/10

   BioMarin Pharmaceutical Inc.    ZyStor Therapeutics, Inc.

02/04/10

   BioMarin Pharmaceutical Inc.    LEAD Therapeutics, Inc.

Cowen reviewed the upfront consideration (“Upfront Consideration”) and contingent consideration (“Contingent Consideration”) expected to be received by the target’s shareholders in each Early-Stage Biotech Transaction and calculated the total transaction value as the aggregate value of Upfront Consideration and Contingent Consideration in each such Transaction, without any adjustment for probability and time value of money (“Transaction Value”). The following table presents the results of Cowen’s review:

 

    

Metrics for Early-Stage Biotech Transactions

(in millions)

 
     Low           1st Quartile        Median         3rd Quartile        High   

Upfront Consideration

     10.0           75.0        111.0         275.0        800.0   

Contingent Consideration

     0.0           150.0        450.0         482.5        1,100.0   

Transaction Value

     10.0           302.0        478.0         592.0        1,250.0   

 

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Cowen noted that the implied total Enterprise Value of approximately $103.1 million attributed to Annapurna in the Acquisition Agreement was less than the median Transaction Value of $478.0 million and the median Upfront Consideration of $111.0 million for the Early-Stage Biotech Transactions.

Analysis of Selected Publicly Traded Companies. To provide contextual data and comparative market information, Cowen reviewed certain financial data for certain AAV-based gene therapy companies and pre-data (i.e., no patient clinical data related to such companies’ product candidates have been previously announced) biotechnology companies (excluding pre-data AAV-based gene therapy companies) whose securities are publicly traded and which Cowen believes have operating, market valuation and trading valuations similar to what might be expected of Annapurna. These companies were:

Selected AAV-Based Gene Therapy Companies

 

    Applied Genetic Technologies Corporation

 

    Avalanche Biotechnologies, Inc.

 

    Dimension Therapeutics, Inc.

 

    Regenxbio Inc.

 

    Spark Therapeutics, Inc.

 

    uniQure N.V.

 

    Voyager Therapeutics, Inc.

Selected Pre-Data Biotechnology Companies (Excluding Selected Pre-Data AAV-Based Gene Therapy Companies)

 

    Blueprint Medicines Corporation

 

    CytomX Therapeutics, Inc.

 

    WAVE Life Sciences Pte. Ltd.

 

    Zynerba Pharmaceuticals, Inc.

The financial data analyzed by Cowen included the equity value calculated based on the market capitalization of the common stock of each of these selected companies as of January 29, 2016 on a fully diluted basis using the treasury stock method (“Equity Value”), and the enterprise value of such selected companies calculated as Equity Value plus total debt, preferred stock and non-controlling interest less cash and cash equivalents (“Enterprise Value”).

The following table presents the Equity Value and Enterprise Value metrics of the selected AAV-based gene therapy companies and selected pre-data biotechnology companies (excluding pre-data AAV-based gene therapy companies):

 

     Selected Company Metrics (in millions)  
   Low     1st Quartile      Median      3rd Quartile      High  

Selected AAV-Based Gene Therapy Companies

             

Equity Value

     176.3        238.8         311.1         435.8         781.6   

Enterprise Value

     (82.7     88.7         130.7         220.9         473.1   

Selected Pre-Data Biotechnology Companies (Excluding Selected Pre-Data AAV-Based Gene Therapy Companies)

             

Equity Value

     63.8        250.6         381.3         493.9         626.8   

Enterprise Value

     19.0        127.4         220.6         332.8         498.2   

 

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Cowen noted that the implied total Enterprise Value of approximately $103.1 million attributed to Annapurna in the Acquisition Agreement was less than the median Enterprise Value for the selected AAV-based gene therapy companies of $130.7 million and was less than the median Enterprise Value for the selected pre-data biotechnology companies (excluding selected pre-data AAV-based gene therapy companies) of $220.6 million.

IPO Analysis. To analyze the potential valuation which investors might accord Annapurna in the context of a public offering, Cowen reviewed and analyzed certain publicly available financial terms regarding IPOs for certain AAV-based gene therapy companies and pre-data biotechnology companies (excluding pre-data AAV-based gene therapy companies) that have consummated an IPO since October 4, 2012, which companies Cowen believes have operating, market valuation and trading valuations similar to what might be expected of Annapurna. These companies were:

Selected AAV-Based Gene Therapy Companies

 

    Applied Genetic Technologies Corporation

 

    Avalanche Biotechnologies, Inc.

 

    Celladon Corporation

 

    Dimension Therapeutics, Inc.

 

    Regenxbio Inc.

 

    Spark Therapeutics, Inc.

 

    uniQure N.V.

 

    Voyager Therapeutics, Inc.

Selected Pre-Data Biotechnology Companies (Excluding Selected Pre-Data AAV-Based Gene Therapy Companies)

 

    Blueprint Medicines Corporation

 

    Cidara Therapeutics, Inc.

 

    CytomX Therapeutics, Inc.

 

    Dicerna Pharmaceuticals, Inc.

 

    Loxo Oncology, Inc.

 

    Regulus Therapeutics Inc.

 

    WAVE Life Sciences Pte. Ltd.

Cowen calculated the pre-money Equity Value for each selected company at the time of each IPO, and the pre-money Enterprise Value calculated as pre-money Equity Value plus total debt, preferred stock and non-controlling interest less cash and cash equivalents, using the financial terms contained in public filings of such companies.

 

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The following table presents the results of Cowen’s analysis:

 

     Selected Company Metrics (in millions)  
   Low      1st Quartile      Median      3rd Quartile      High  

Selected AAV-Based Gene Therapy Companies

              

Pre-Money Equity Value

     117.8         208.6         292.4         352.3         480.8   

Pre-Money Enterprise Value

     81.5         126.0         206.1         297.9         395.6   

Selected Pre-Data Biotechnology Companies (Excluding Selected Pre-Data AAV-Based Gene Therapy Companies)

              

Pre-Money Equity Value

     77.2         157.3         176.1         333.5         384.2   

Pre-Money Enterprise Value

     60.7         97.3         127.2         275.0         340.7   

Cowen noted that the implied total Enterprise Value of approximately $103.1 million attributed to Annapurna in the Acquisition Agreement was less than the median pre-money Enterprise Value for the selected AAV-based gene therapy companies of $206.1 million and was less than the median pre-money Enterprise Value for the selected pre-data biotechnology companies (excluding selected pre-data AAV-based gene therapy companies) of $127.2 million.

Private Financing Analysis. Cowen reviewed and analyzed certain publicly available information regarding venture-backed, private preferred stock financings since August 1, 2013 for certain AAV-based gene therapy companies and pre-clinical biotechnology companies (excluding pre-clinical AAV-based gene therapy companies) that have filed to go public within 12 months of a private financing, which companies Cowen believes have operating, market valuation and trading valuations similar to what might be expected of Annapurna. These companies were:

Selected AAV-Based Gene Therapy Companies

 

    Audentes Therapeutics, Inc.(1)

 

    Avalanche Biotechnologies, Inc.(2)

 

    AveXis, Inc.(3)

 

    Dimension Therapeutics, Inc.(4)

 

    Regenxbio Inc.(5)

 

    Spark Therapeutics, Inc.(6)

 

    Voyager Therapeutics, Inc.(7)

Selected Pre-Clinical Biotechnology Companies (Excluding Selected Pre-Clinical AAV-Based Gene Therapy Companies)

 

    Blueprint Medicines Corporation(8)

 

    Cidara Therapeutics, Inc.(9)

 

    CytomX Therapeutics, Inc.(10)

 

    Dicerna Pharmaceuticals, Inc.(11)

 

    Loxo Oncology, Inc.(12)

 

(1) Pre-money Enterprise Value calculation based on outstanding options and cash and cash equivalent numbers as of September 30, 2015.
(2) Pre-money Enterprise Value calculation based on outstanding options and cash and cash equivalent numbers as of March 31, 2014.
(3) Pre-money Enterprise Value calculation based on outstanding options and cash and cash equivalent (net of private financing proceeds) numbers as of September 30, 2015.

 

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(4) Pre-money Enterprise Value calculation based on outstanding options and cash and cash equivalent (net of private financing proceeds) numbers as of June 30, 2015.
(5) Pre-money Enterprise Value calculation based on outstanding options number as of April 21, 2015 and cash and cash equivalent (net of private financing proceeds) numbers as of June 30, 2015.
(6) Pre-money Enterprise Value calculation based on outstanding options and cash and cash equivalent (net of private financing proceeds) numbers as September 30, 2014.
(7) Pre-money Enterprise Value calculation based on outstanding options and cash and cash equivalent (net of private financing proceeds) numbers as of June 30, 2015.
(8) Pre-money Enterprise Value calculation based on outstanding options and cash and cash equivalent (net of private financing proceeds) numbers as of December 31, 2014.
(9) Pre-money Enterprise Value calculation based on outstanding options and cash and cash equivalent numbers as of December 31, 2014.
(10) Pre-money Enterprise Value calculation based on outstanding options and cash and cash equivalent (net of private financing proceeds) numbers as of June 30, 2015.
(11) Pre-money Enterprise Value calculation based on outstanding options and cash and cash equivalent (net of private financing proceeds) numbers as of September 30, 2013.
(12) Pre-money Enterprise Value calculation based on outstanding options and cash and cash equivalent numbers as of March 31, 2014.

Cowen calculated the pre-money Equity Value for each selected company at the time of the private financing, and the pre-money Enterprise Value calculated as pre-money Equity Value plus total debt, preferred stock and non-controlling interest less cash and cash equivalents, using the financial terms contained in public filings of such companies with dates most proximate to dates of the financing transactions.

The following table presents the results of Cowen’s analysis:

 

     Selected Company Metrics (in millions)  
   Low      1st Quartile      Median      3rd Quartile      High  

Selected AAV-Based Gene Therapy Companies:

              

Pre-Money Equity Value

     72.0         111.0         135.0         206.0         360.0   

Pre-Money Enterprise Value

     72.0         95.0         119.0         140.0         355.0   

Selected Pre-Clinical Biotechnology Companies (Excluding Selected Pre-Clinical AAV-Based Gene Therapy Companies)

              

Pre-Money Equity Value

     19.0         64.0         70.0         166.0         220.0   

Pre-Money Enterprise Value

     19.0         43.0         45.0         166.0         167.0   

Cowen noted that the implied total Enterprise Value of approximately $103.1 million attributed to Annapurna in the Acquisition Agreement was less than the median pre-money Enterprise Value for the selected AAV-based gene therapy companies of $119.0 million and was more than the median pre-money Enterprise Value for the selected pre-clinical biotechnology companies (excluding selected pre-clinical AAV-based gene therapy companies) of $45.0 million.

Although the selected transactions and companies were used for comparison purposes, none of those transactions or companies, as applicable, are directly comparable to the Transaction or Annapurna, as applicable, and they all differ in material ways. Accordingly, an analysis of the results described above is not mathematical; rather it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the acquisition value of the selected companies or transactions to which they are being compared.

The summary set forth above does not purport to be a complete description of all the analyses performed by Cowen. 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,

 

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therefore, such an opinion is not readily susceptible to partial analysis or summary description. Cowen 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, Cowen believes, and has advised the Avalanche Board, 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 the Opinion. Each of these analyses yielded a range of implied enterprise values, and therefore, such implied enterprise value ranges developed from these analyses were viewed by Cowen collectively and not individually.

In performing its analyses, Cowen made numerous assumptions with respect to industry performance, business and economic conditions and other matters, many of which are beyond the control of Annapurna and Avalanche. Except as otherwise noted, the information utilized by Cowen in its analyses, to the extent that it was based on market data, is based on market data as it existed on or before January 29, 2016 and is not necessarily indicative of current market conditions. These analyses performed by Cowen 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 Annapurna, Avalanche, Cowen or any other person assumes responsibility if future results are materially different from those projected. The analyses supplied by Cowen and the Opinion were among several factors taken into consideration by the Avalanche Board in making its decision to enter into the Acquisition Agreement and should not be considered as determinative of such decision.

Cowen was selected by the Avalanche Board to render the Opinion to the Avalanche Board because Cowen is a nationally recognized investment banking firm and because Cowen, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, 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, Cowen and its affiliates may actively trade the equity securities of Annapurna or Avalanche for their own account and for the accounts of their customers, and, accordingly, may at any time hold a long or short position in such securities. The issuance of the Opinion was approved by Cowen’s fairness opinion review committee.

Cowen is acting as exclusive financial advisor to the Avalanche Board in connection with the Transaction and will receive a fee of $1,500,000 (the “Transaction Fee”) from Avalanche for Cowen’s services pursuant to the terms of the engagement letter, a significant portion of which is contingent upon the consummation of the Transaction. Cowen received a fee of $750,000 for providing the Opinion which is creditable against the Transaction Fee. In addition, Avalanche agreed to reimburse certain of Cowen’s expenses and to indemnify Cowen for certain liabilities that may arise out of Cowen’s engagement. In the two years preceding the date of the Opinion, Cowen had served as a placement agent in Avalanche’s pre-IPO private placement and as a joint-bookrunner for Avalanche’s IPO and follow-on offerings and had received fees for the rendering of such services. In addition, as of the date of the Opinion, an affiliate of Cowen owned approximately 0.8% of outstanding Avalanche common stock and certain senior deal team members, together with senior management of Cowen, collectively owned approximately 0.04% of outstanding Avalanche common stock. Other than the foregoing, as of the date of the Opinion, Cowen has not had a material relationship with Annapurna or any other party to the Transaction. Cowen and its affiliates may in the future provide commercial and investment banking services to Annapurna, Avalanche and their respective affiliates, and may receive fees for the rendering of such services.

The terms of the fee arrangement with Cowen, which are customary in transactions of this nature, were negotiated at arm’s length between Avalanche and Cowen, and the Avalanche Board was aware of the arrangement, including the fact that a significant portion of the Transaction Fee is contingent upon the completion of the Transaction.

 

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Interests of Avalanche’s Directors and Executive Officers in the Transaction

Except as described below with respect to Paul B. Cleveland, our President and Chief Executive Officer and a member of our Board, none of our directors or executive officers or their associates have any interests in the Transaction that may be different from, or in addition to the interests of our stockholders generally. Our Board was aware of this potential conflict of interest and considered it, among other matters, in reaching its decision to approve the Acquisition Agreement and the Transaction and to recommend, as applicable, that our stockholders approve the proposal to approve the Stock Issuance.

Paul B. Cleveland Option Grant

Upon the closing of the Transaction, we will grant Mr. Cleveland options to purchase 381,000 shares of our common stock, which we refer to as the “Cleveland Option”. The Cleveland Option and Mr. Cleveland’s previously granted options to purchase shares of our common stock, if all such options are fully exercised into shares of our common stock, will represent approximately 3.30% of the outstanding shares of our common stock (calculated on the basis of the total number of shares underlying the options issued to Mr. Cleveland divided by basic shares outstanding immediately following the closing of the Transaction). The Cleveland Option will be granted under our 2014 Equity Incentive Plan and will have a per share exercise price equal to the closing sales price of our common stock on NASDAQ on the closing date of the Transaction.

Transaction-related Compensation of Named Executive Officers

The following table and the related footnotes present information about the compensation payable to our named executive officers in connection with the Transaction. The compensation shown in the table below is intended to comply with Item 402(t) of Regulation S-K of the Securities Act, which requires disclosure of information about compensation for each named executive officer that is based on or otherwise relates to the Transaction. The disclosure provided by this table is quantified assuming that the Transaction closed on [●], 2016, the latest practicable date prior to the filing of this proxy statement.

GOLDEN PARACHUTE COMPENSATION

 

Name    Cash      Equity      Pension/
NQDC
     Perquisites/
benefits
     Tax
reimbursement
     Other
($)
    Total
($)
 

Paul B. Cleveland

     —           —           —           —           —           [ ●](1)      [ ●] 

 

(1) The amount in this column represents the aggregate grant date fair value of the shares of our common stock subject to the Cleveland Option as of [●], 2016 as calculated in accordance with ASC Topic 718, excluding the impact of estimated forfeitures related to service-based vesting provisions.

Our Board of Directors Following the T ransaction

Upon the closing of the Transaction, our Board will expand to seven directors, comprised of four of our current directors:

 

    Mark S. Blumenkranz, M.D.,

 

    Mr. Cleveland,

 

    John P. McLaughlin, and

 

    Steven D. Schwartz, M.D.

and three new directors initially designated by Annapurna:

 

    Amber Salzman, Ph.D., the current president and chief executive officer of Annapurna,

 

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    Mitchell H. Finer, Ph.D., managing director of MPM Capital and a distinguished research fellow at Avalanche, and

 

    Thomas Woiwode, Ph.D., managing director at Versant Ventures.

Dr. Blumenkranz, the current chairman of our Board, will continue to serve as chairman of our Board. Our fifth current director, Paul D. Wachter, intends to resign as a member of our Board and audit committee upon the closing of the Transaction. If the Acquisition Agreement is terminated prior to closing, Mr. Wachter’s resignation will not become effective.

Other Organizational Changes Following the Transaction

Upon the closing of the Transaction, in addition to the changes to our Board noted above, the following organizational appointments will take place:

 

    Dr. Salzman will become President and Chief Operating Officer of Avalanche;

 

    Carlo Russo, M.D., Chief Medical Officer and Head of Development at Annapurna, will serve as Executive Vice President and Chief Medical Officer of Avalanche;

 

    Mehdi Gasmi, Ph.D., our interim Chief Scientific Officer, will be appointed Chief Technology Officer of Avalanche;

 

    Ronald Crystal, M.D., a co-founder of Annapurna and Chairman of Genetic Medicine, the Bruce Webster Professor of Internal Medicine and a Professor of Genetic Medicine and of Medicine at Weill Cornell, will serve as a scientific advisor of Avalanche;

 

    Hélène Puccio, Ph.D. of the Institute of Genetics and Molecular and Cellular Biology, University of Strasbourg, France, will serve as a scientific advisor of Avalanche; and

 

    Fulvio Mavillo, Ph.D., Scientific Director of Genethon (Evry, France), will serve as a scientific advisor of Avalanche.

Impact of the Stock Issuance on Existing Avalanche Stockholders

The Stock Issuance will dilute the ownership and voting interests of our existing stockholders. As of the Record Date, there were approximately [●] shares of our common stock issued and outstanding. Upon the closing of the Transaction, we will issue to the Annapurna Shareholders the New Avalanche Shares and Avalanche Options, together representing approximately 17.6 million shares of common stock (inclusive of shares of our common stock underlying vested and unvested options, as calculated on a treasury method basis), as such number of shares may be adjusted as described elsewhere in this proxy statement. The New Avalanche Shares and Avalanche Options will represent approximately 37.5% of our total voting power upon the closing of the Transaction, with our current stockholders owning approximately 62.5% of our total voting power. Therefore, the ownership and voting interests of our existing stockholders will be proportionately reduced.

Regulatory Approvals Required for the Transaction

Completion of the Transaction is subject to prior receipt of all approvals required to be obtained from applicable governmental and regulatory authorities. Subject to the terms and conditions of the Acquisition Agreement, we and Annapurna have agreed to use our commercially reasonable efforts to file or otherwise submit, as soon as practicable, all documentation reasonably required to consummate the Transaction and the Stock Issuance.

We believe that the Transaction does not raise substantial antitrust or other significant regulatory concerns and that both parties will be able to obtain all requisite regulatory approvals prior to the anticipated closing.

 

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However, at any time before or after the closing of the Transaction, the Federal Trade Commission, the U.S. Department of Justice Antitrust Division or others (including foreign regulatory agencies, states and private parties) could challenge the Transaction and take action under antitrust laws. There can be no assurance that a challenge to the Transaction on antitrust grounds will not be made or, if such challenge is made, that it would not be successful.

Avalanche has submitted a request for authorization to the French Ministry of the Economy (the “Ministry”), pursuant to the regulations on foreign investment in certain economic sectors, and more particularly in accordance with Articles L. 151-1 et seq. and R. 153-1 et seq. of the Monetary and Financial Code (Code monétaire et financier). If the Ministry determines that its prior authorization is required, we must receive the Ministry’s authorization before we are able to consummate the Transaction.

Avalanche must also comply with the applicable federal and state securities laws and the rules and regulations of NASDAQ for the approval of the listing application to be submitted in connection with the Stock Issuance and the filing with the SEC of this proxy statement.

The foregoing is a summary of the material regulatory requirements for the Transaction, satisfaction or waiver of certain of which requirements is a condition to completion of the Transaction. There can be no guarantee as to if and when any of the consents or approvals required for the Transaction will be obtained or as to the conditions that such consents and approvals may contain.

NA SDAQ Stock Market Listing

Avalanche common stock currently is listed on NASDAQ under the symbol “AAVL”. Avalanche has agreed to use commercially reasonable efforts to maintain its existing listing on NASDAQ, and to obtain approval for listing on NASDAQ of the New Avalanche Shares. In addition, under the Acquisition Agreement, each party’s obligation to complete the Transaction is subject to the satisfaction or waiver by each of the parties of various conditions, at or prior to the closing of the Transaction, including that the existing shares of Avalanche common stock must have been continually listed on NASDAQ, and Avalanche must have caused the New Avalanche Shares to be approved for listing on NASDAQ as of the closing of the Transaction.

Accounting Treatment of the Transaction

We prepare our financial statements in accordance with U.S. GAAP. Under U.S. GAAP, the Transaction will be accounted for by applying the acquisition method with Avalanche treated as the accounting and legal acquiror.

Material U.S. Federal Income Tax Consequences of the Transaction

The Transaction will not result in any taxable gain or loss for U.S. federal income tax purposes to Avalanche or any Avalanche stockholder in his or her capacity as an Avalanche stockholder. Avalanche stockholders who are also stockholders of Annapurna should consult their own tax advisors as to the tax consequences to them of participating in the Transaction with respect to their Annapurna stock.

Federal Securities Law Consequences; Restrictions on Transfer

If the Stock Issuance is approved, the New Avalanche Shares will be issued to the Annapurna Shareholders in a private placement transaction under the exemption from registration provided under Section 4(a)(2) of the Securities Act, as the offer and sale of the New Avalanche Shares does not involve a public offering of our common stock or preferred stock. We have determined that the Annapurna Shareholders are “accredited investors” within the meaning of Rule 501(a) under the Securities Act. The certificates representing the New Avalanche Shares will bear legends that such securities have not been registered under the Securities Act or the securities laws of any state and may not be sold or transferred in the absence of an effective registration statement under the Securities Act and applicable state securities laws or an exemption from registration thereunder.

 

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In addition, the Acquisition Agreement contains a lock-up provision whereby the Annapurna Shareholders have agreed not to, except in limited circumstances, sell or transfer, or engage in swap or similar transactions with respect to, the New Avalanche Shares until the date that is 180 days from the closing of the Transaction. Moreover, the New Avalanche Shares will be subject to further restrictions on transfer and the Annapurna Shareholders will be entitled to certain registration rights as described in more detail in “Agreements Relating to the Transaction—Investor Rights Agreement” on page 71.

 

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THE ACQUISITION AGREEMENT

The following is a summary of the material provisions of the Acquisition Agreement, a copy of which is attached to this proxy statement as Annex A, and which we incorporate by reference into this proxy statement. The provisions of the Acquisition Agreement are extensive and not easily summarized. We encourage you to read carefully the Acquisition Agreement in its entirety, as the rights and obligations of the parties to the Acquisition Agreement are governed by the express terms of the Acquisition Agreement and not by this summary or any other information contained in this proxy statement. In addition, you should read “Agreements Relating to the Transaction” beginning on page 71, which summarizes the Support Agreements and the Investor Rights Agreement, as certain provisions of these agreements relate to certain provisions of the Acquisition Agreement.

Explanatory Note Regarding the Acquisition Agreement

The Acquisition Agreement and this summary of its terms have been included to provide you with information regarding the terms of the Acquisition Agreement. Factual disclosures about Avalanche contained in this proxy statement or in Avalanche’s public reports filed with the SEC may supplement, update or modify the factual disclosures about Avalanche contained in the Acquisition Agreement and described in this summary. The representations, warranties and covenants made in the Acquisition Agreement by Avalanche, Annapurna and the Annapurna Shareholders to the other parties to the Acquisition Agreement were qualified and subject to important limitations agreed to by Avalanche, Annapurna and the Annapurna Shareholders in connection with negotiating the terms of the Acquisition Agreement. In particular, in your review of the representations and warranties contained in the Acquisition Agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the Acquisition Agreement may have the right not to close the Transaction if the representations and warranties of the other party prove to be untrue, due to a change in circumstance or otherwise, and allocating risk between the parties to the Acquisition Agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC, and in some cases were qualified by disclosures that were made by each party to the Acquisition Agreement to the other, which disclosures are not reflected in the Acquisition Agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the Acquisition Agreement, January 29, 2016. Additional information about Avalanche may be found elsewhere in this proxy statement and in Avalanche’s other public filings. See “Where You Can Find Additional Information” beginning on page 142.

Terms of the Transaction

Upon the terms and subject to the conditions described in the Acquisition Agreement, Avalanche will acquire all of the issued and outstanding capital stock of Annapurna from the Annapurna Shareholders in exchange for the New Avalanche Shares, and the Annapurna Options will be converted into Avalanche Options, as further discussed below. Annapurna Shareholders will receive 9.5615 shares of Avalanche common stock in exchange for each share of Annapurna contributed (such ratio, as may be adjusted in accordance with the Acquisition Agreement, the “Exchange Ratio”).

The issuance of the New Avalanche Shares to the Annapurna Shareholders will be not be registered with the SEC and the New Avalanche Shares will bear a customary restricted stock legend. Avalanche and the Annapurna Shareholders have agreed to enter into the Investor Rights Agreement which provides certain registration rights to the Annapurna Shareholders for the resale of the New Avalanche Shares.

Upon the closing of the Transaction, Annapurna will be a wholly-owned subsidiary of Avalanche, the Annapurna Shareholders will own approximately 37.5% of Avalanche common stock and existing Avalanche shareholders will own approximately 62.5% of Avalanche common stock (inclusive of shares of Avalanche

 

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common stock underlying vested and unvested options, as calculated on a treasury stock method basis as of January 28, 2016).

Treatment of Annapurna Options

At the closing of the Transaction, each Annapurna Option that is outstanding immediately prior to such closing shall be converted into an option relating to shares of Avalanche’s common stock (an “Avalanche Option”). Each Avalanche Option will relate to the whole number of shares of Avalanche common stock (rounded down to the nearest whole share) equal to the number of shares of the common stock of Annapurna subject to such Annapurna Option multiplied by the Exchange Ratio. Each Avalanche Option will have substantially the same terms, including the same termination date and vesting schedule, as the Annapurna Option for which it is being exchanged, and the exercise price per share for such Avalanche Option will be equal to the exercise price per share of such Annapurna Option divided by the Exchange Ratio.

Avalanche will file with the SEC, within five (5) business days after the closing of the Transaction, a registration statement on Form S-8 relating to the shares of Avalanche common stock issuable upon exercise of the Avalanche Options to the extent permitted by federal securities laws, and shall maintain the effectiveness of such registration statement for so long as such Avalanche Options remain outstanding.

Prior to the closing of the Transaction, Annapurna will cause each holder of an Annapurna Option to waive any rights to accelerated vesting of such Annapurna Option (including rights that are contingent on a subsequent termination of employment or service) that may be triggered by the Transaction. However, each holder will maintain such accelerated vesting rights with respect to its Avalanche Options in the event of any subsequent change of control transaction involving Avalanche.

Lock-Up Agreement

Following the closing of the Transaction, each of the Annapurna Shareholders will be restricted, except in certain limited circumstances, from selling any of the New Avalanche Shares until 180 days after such closing.

Representations and Warranties

The Acquisition Agreement contains customary representations and warranties of the parties. Annapurna represented and warranted to the following matters:

 

    corporate organization and authority, and subsidiaries;

 

    capitalization and indebtedness;

 

    no conflicts or required consents with respect to execution and delivery of the Acquisition Agreement and consummation of the Transaction;

 

    financial statements;

 

    undisclosed liabilities;

 

    absence of changes;

 

    title to assets;

 

    real property and leasehold interests;

 

    intellectual property;

 

    the validity of material contracts to which Annapurna or its subsidiaries are a party and any violation, default or breach to such contract;

 

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    regulatory compliance, permits and restrictions;

 

    privacy and data protection;

 

    taxes;

 

    employee benefit plans and employee matters;

 

    environmental matters;

 

    insurance;

 

    legal proceedings and orders;

 

    compliance with anti-corruption laws;

 

    no broker, finder or investment banker fee;

 

    accuracy of bank account information;

 

    interested party transactions; and

 

    accuracy of disclosures supplied by Annapurna for inclusion in this proxy statement.

Each Annapurna Shareholder, severally but not jointly, represented and warranted to the following matters:

 

    power and capacity to enter into the Acquisition Agreement and consummate the Transaction;

 

    enforceability of the Acquisition Agreement against such Annapurna Shareholder and no conflicts or required consents with respect to execution and delivery of the Acquisition Agreement and consummation of the Transaction;

 

    ownership of Annapurna capital stock;

 

    litigation;

 

    certain customary representations relating to private placements, including that such Annapurna Shareholder is an accredited investor; and

 

    accuracy of Annapurna’s representations and warranties to such Annapurna Shareholder’s actual knowledge.

Avalanche represented and warranted to the following matters:

 

    corporate organization and authority;

 

    no conflicts or required consents with respect to execution and delivery of the Acquisition Agreement and consummation of the Transaction;

 

    the nature of the required stockholder vote to approve the issuance of the New Avalanche Shares;

 

    that the New Avalanche Shares will be duly issued, fully paid and non-assessable when issued;

 

    NASDAQ listing matters;

 

    timeliness of filing, compliance as to form and accuracy of documents filed with the SEC;

 

    no disqualification events;

 

    absence of certain changes;

 

    accuracy of disclosures in the Acquisition Agreement and, with respect to information supplied by Avalanche, in this proxy statement; and

 

    legal proceedings and orders.

 

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Many of the representations and warranties in the Acquisition Agreement are qualified by knowledge or materiality qualifications or a “material adverse effect” clause.

For purposes of the Acquisition Agreement, a “material adverse effect” with respect to either Annapurna or Avalanche means any effect, change, event, circumstance or development, that, considered with all other such effects, is or would reasonably be expected to be or to become materially adverse to, or has had or would reasonably be expected to result in a material adverse effect on:

 

    the business, condition (financial or otherwise), capitalization, assets, operations or financial performance of such company and its subsidiaries, other than any such effect resulting from:

 

    conditions generally affecting the economy or financial markets generally or the industries in which such company participates, to the extent that such conditions do not have a disproportionate impact on such company and its subsidiaries;

 

    with respect to Avalanche, any failure by Avalanche to meet internal projections or forecasts or third party revenue or earning predictions, or any change in the price or trading volume of its common stock (provided that any effect causing or contributing to such failure to meet projections or predictions or any change in stock price or trading volume may constitute a material adverse effect or may be taken into account in determining whether a material adverse effect has occurred);

 

    with respect to Avalanche, the resignation or termination of any officer or director;

 

    the execution, delivery, announcement or performance of the obligations under the Acquisition Agreement or the announcement, pendency or anticipated consummation of the Transaction;

 

    any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation or worsening thereof, to the extent that such events do not have a disproportionate impact on such company and its subsidiaries;

 

    changes in law or generally accepted accounting principles;

 

    any decision or action, or inaction, by the FDA or other comparable foreign governmental authority with respect to any product of any competitor of such company or of any third-party company developing gene-therapy products; or

 

    any scientific treatment of clinical trial results relating to any product of any competitor of such company or of any third-party company developing gene-therapy products; or

 

    the ability of such company to consummate the Transaction or to perform any of its covenants or obligations under the Acquisition Agreement in all material respects.

Conduct of Business Prior to Closing

Both Annapurna and Avalanche agreed, among other things, during the period prior to the closing of the Transaction, to carry out their respective businesses in accordance with good commercial practice and to carry on in the ordinary course of business consistent with past practice. With respect to Avalanche, “Ordinary Course of Business” also includes (i) actions consistent with that budget and operating plan delivered to Annapurna prior to the signing of the Acquisition Agreement, (ii) certain acquisition and other in-licensing activities, (iii) restructuring of operations, and (iv) modification or termination of its development programs.

In addition, Annapurna agreed that, subject to limited exceptions, without the consent of Avalanche, it will not, during the period prior to the closing of the Transaction:

 

    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 capital stock from terminated employees);

 

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    amend its organizational documents, effect or be party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction;

 

    sell, issue or grant, or authorize the issuance of, or make any commitments to do any of the foregoing, other than as contemplated by the Acquisition Agreement: (i) any capital stock or other security of Annapurna (except for common stock issued upon the valid exercise of Annapurna Options outstanding as of the date of the Acquisition Agreement or upon the conversion of any convertible securities outstanding as of the date of the Acquisition Agreement); (ii) any option, warrant or right to acquire any capital stock or any other security of Annapurna; or (iii) any instrument convertible into or exchangeable for any capital stock or other security of Annapurna, except, in the case of clauses (ii) and (iii), in connection with a bridge financing permitted by the Acquisition Agreement;

 

    form any subsidiary or acquire any equity or other interest in any other entity or enter into a joint venture with any other entity;

 

    lend money to any person; except for a permitted bridge financing, incur or guarantee any indebtedness for borrowed money; issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities; guarantee any debt securities of others; or make any capital expenditure or commitment in excess of $100,000 (or its equivalent in euros);

 

    establish, adopt, enter into or amend any benefit plan, pay any bonus or make any profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions or other compensation (including equity-based compensation) payable to any of its directors or officers, other than in the ordinary course of business consistent with past practices, as required by applicable law or by written agreements in effect prior to the date of the Acquisition Agreement;

 

    acquire any material asset or sell, lease or otherwise 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;

 

    enter into, amend, or terminate any material contract;

 

    sell, assign, transfer, license, sublicense of otherwise dispose of any of its intellectual property (other than non-exclusive licenses entered into in the ordinary course of business consistent with past practices);

 

    increase rights to indemnification for any person to which Annapurna is obligated to indemnify;

 

    initiate any litigation, action suit, proceeding, claim or arbitration or settle or agree to settle any litigation, action, suit proceeding, claim or arbitration (except in connection with the Acquisition Agreement); or

 

    make certain changes with respect to tax elections, file amendments to any tax returns, enter into or modify certain agreements relating to taxes, or take any other similar action relating to the filing of any tax return or the payment of any tax if such action would have the effect of increasing the tax liability of Avalanche, Annapurna or the Annapurna Shareholders for any period ending after the closing of the Transaction or decreasing any tax attribute of Avalanche, Annapurna or the Annapurna Shareholders existing on such closing date.

Avalanche also agreed that, subject to limited exceptions, without the consent of Annapurna, it will not, during the period prior to the closing of the Transaction:

 

    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 capital stock from terminated employees);

 

    amend its certificate of incorporation, bylaws or other charter or organizational documents, except as related to the Transaction and in the Ordinary Course of Business;

 

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    lend money to any person, incur or guarantee any indebtedness for borrowed money, issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities, guarantee any debt securities of others, or make any capital expenditure or commitment in excess of $250,000, in each case other than in the Ordinary Course of Business;

 

    establish, adopt, enter into or amend any benefit plan, pay any bonus or make any profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions or other compensation (including equity-based compensation) payable to any of its directors or executive officers, other than in the Ordinary Course of Business, as required by applicable law or by written agreements in effect prior to the date of the Acquisition Agreement;

 

    acquire any material asset or sell, lease or otherwise 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;

 

    terminate any material contract, other than in the Ordinary Course of Business;

 

    sell, assign, transfer, license, sublicense of otherwise dispose of any of its intellectual property (other than non-exclusive licenses entered into in the Ordinary Course of Business);

 

    increase rights to indemnification for any person to which Avalanche is obligated to indemnify; or

 

    initiate any litigation, action, suit, proceeding, claim or arbitration or settle or agree to settle any litigation, action, suit, proceeding, claim or arbitration (except in connection with the Acquisition Agreement or with respect to certain ongoing litigation).

Other Agreements

No Solicitation

Annapurna, Avalanche and each Annapurna Shareholder agreed that during the period prior to the closing of the Transaction, neither it nor its representatives will:

 

    solicit, initiate, seek, entertain, knowingly encourage, facilitate, support or induce the making, submission or announcement of any inquiry, expression of interest, proposal or offer that constitutes, or could reasonably be expected to lead to, an “acquisition proposal”, as defined below;

 

    enter into, participate in, maintain or continue any communications (except solely to provide written notice as to the existence of the non-solicitation provision) or negotiations regarding, or deliver or make available to any person any non-public information with respect to, or take any other action regarding, any inquiry, expression of interest, proposal or offer that constitutes, or would reasonably be expected to lead to, an acquisition proposal, except for the purpose of complying with applicable law;

 

    grant any waiver or release under any confidentiality, standstill or similar agreement (other than to Avalanche or Annapurna, as applicable);

 

    agree to, accept, approve, endorse or recommend any acquisition proposal (or publicly propose or announce any intention or desire to do so);

 

    enter into any letter of intent, term sheet, merger agreement, acquisition agreement, option agreement or any other contract contemplating or otherwise relating to any acquisition proposal;

 

    submit any acquisition proposal to the vote of any shareholders of Annapurna or Avalanche, as applicable; or

 

    enter into any other transaction or series of transactions, the consummation of which would or would reasonably be expected to impede, interfere with, prevent or delay the consummation of the Transaction;

 

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except that, prior to Avalanche stockholder approval of the Stock Issuance, Avalanche may furnish non-public information regarding itself to, and enter into discussions or negotiations with, any person in response to a bona fide written acquisition proposal, which Avalanche’s Board determines in good faith, after consultation with its financial advisor and its outside legal counsel, constitutes, or is reasonably likely to result in, a “superior offer”, as defined below, subject to the following conditions:

 

    such acquisition proposal was not solicited in violation of the non-solicitation provision of the Acquisition Agreement;

 

    Avalanche’s Board determines in good faith, based on the advice of outside legal counsel, that the failure to take such action is reasonably likely to result in a breach of its fiduciary duties;

 

    at least five (5) business days prior to furnishing any such non-public information to, or entering into discussions with, such person, Avalanche gives Annapurna written notice of such person’s identity and of its intention to furnish non-public information to or enter into discussion with such person; and

 

    at least five (5) business days prior to furnishing any such non-public information to such person, Avalanche furnishes such non-public information to Annapurna (to the extent such information has not already been furnished to Annapurna).

An “acquisition proposal” means any third party offer or proposal, whether written or oral contemplating or otherwise relating to any “acquisition transaction”, as defined below.

An “acquisition transaction” means any transaction or series of transactions involving:

 

    any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or other similar transaction in which Annapurna or Avalanche is a constituent corporation, a person or “group” (as defined under applicable securities laws) of persons directly or indirectly acquires beneficial or record ownership of securities representing more than 15% of the outstanding securities of any class of voting securities of such party or any of its subsidiaries, or in which such party or any of its subsidiaries issues securities representing more than 15% of the outstanding securities of any class of voting securities of such party or any of its subsidiaries;

 

    any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 15% or more of the consolidated book value or the fair market value of the assets of Annapurna, or Avalanche, as applicable, and their respective subsidiaries, taken as a whole, or

 

    any liquidation or dissolution of Annapurna or Avalanche.

A “superior offer” means a bona fide, unsolicited written offer by a third party to enter into:

 

    a merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or other similar transaction as a result of which either Avalanche’s stockholders prior to such transaction cease to own 50% of the voting securities of the entity surviving or resulting from such transaction, or in which a person or group (as defined under applicable security laws) directly or indirectly acquires beneficial or record ownership of securities representing 50% of Avalanche’s capital stock; or

 

    a sale, lease, exchange, transfer, license, acquisition or other disposition of any business or other disposition of 50% of the assets of Avalanche or its subsidiaries, taken as a whole, in a single transaction or series of related transactions;

in each case, so long as such offer (i) was not obtained or made as a result or indirect result of a breach of the Acquisition Agreement and (ii) is on terms and conditions that Avalanche’s Board determines, in its reasonable,

 

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good faith judgment, after obtaining and taking into account the advice of its outside legal counsel and independent financial advisor, is (x) reasonably likely to be more favorable, from a financial point of view, to Avalanche’s stockholders, than the terms of the Transaction and (y) is reasonably capable of being consummated.

An offer will not be a “superior offer” if any financing required to consummate the transaction contemplated by such offer is not committed or is not reasonably capable of being obtained by such third party.

The Acquisition Agreement also provides that each party will as soon as reasonably practicable (but in any event, within 24 hours) notify the other of the receipt of 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 request by a third party for non-public information.

Avalanche Stockholders’ Meeting

Avalanche is obligated under the Acquisition Agreement to take all action necessary under applicable law to call, give notice of and hold a meeting of Avalanche stockholders to vote on the Stock Issuance, and to hold such meeting as promptly as practicable following the mailing of this proxy statement.

Avalanche Board Recommendation Change

The Avalanche Board is not permitted to withdraw or modify, in a manner adverse to Annapurna or the Annapurna Shareholders in any material respect, its recommendation that Avalanche stockholders vote to approve the Stock Issuance or to recommend any acquisition transaction (each such Board action, an “Adverse Recommendation Change”).

Notwithstanding the prohibition in the prior paragraph, prior to obtaining approval of the Stock Issuance, Avalanche may make an Adverse Recommendation Change if (i) Avalanche’s Board determines in good faith, following consultation with its outside legal counsel, that the failure to make such Adverse Recommendation Change would reasonably be likely to result in a breach of its fiduciary duties, (ii) Avalanche provides each of Annapurna and the Annapurna Shareholders prompt written notice of its intention to make such Adverse Recommendation Change at least five (5) business days in advance of making such Adverse Recommendation Change, and (iii) Annapurna does not make within five (5) business days of receipt of such notice an offer that obviates the need for Avalanche’s Board to make such Adverse Recommendation Change.

Indemnification; Directors’ and Officers’ Insurance

For a period of six years after the closing of the Transaction, Avalanche will indemnify each of the current and former directors, officers and statutory auditors of Annapurna to the fullest extent permitted under applicable law.

Avalanche will maintain in effect for six (6) years after the closing Annapurna’s directors’ and officers’ insurance policies and fiduciary liability insurance policies in place as of the date of the Acquisition Agreement or purchase comparable insurance policies for such six-year period, provided that in no event will Avalanche be required expend more than an amount per year equal to 250% of the current annual premiums paid by Annapurna.

In addition, Avalanche will grant a waiver providing that Annapurna’s directors and officers resigning on the date of the closing of the Transaction shall be discharged from any liability as directors and officers of Annapurna and its subsidiaries.

Permitted Bridge Financing; Convertible Securities

Annapurna, prior to the closing of the Transaction, will take all steps as may be required to draw upon any unfunded loan amounts available under its permitted bridge financing and to take all action required to effect

 

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prior to such closing the conversion of the permitted bridge financing into Annapurna preferred stock and the repayment in full of any other outstanding convertible indebtedness of Annapurna and its subsidiaries.

Directors and Officers

Annapurna will obtain and deliver to Avalanche at or prior to the closing the resignation of each officer, director and observer of Annapurna who will not be continuing as an officer or director or observer of Annapurna following the closing of the Transaction.

Prior to the closing of the Transaction, but to be effective at such closing, the Avalanche Board will:

 

    increase its size to permit the service of seven directors;

 

    elect three (3) directors selected by Annapurna (see “Directors and Executive Officers of Avalanche Following the Transaction” on page 95 for more information), each to serve as a member of the Avalanche Board in staggered classes to be agreed upon by Annapurna and Avalanche prior to the closing;

 

    appoint Drs. Salzman and Russo as officers of Avalanche in the positions set forth in the Acquisition Agreement (see “Directors and Executive Officers of Avalanche Following the Transaction” on page 95 for more information); and

 

    appoint certain directors to the committees of the Avalanche Board, as agreed by Annapurna and Avalanche.

Other Covenants

Each of Annapurna and Avalanche has agreed to use commercially reasonable efforts to:

 

    coordinate with the other in preparing and exchanging information and promptly provide the other with copies of certain notices, filings or submissions made in connection with the Transaction;

 

    file or otherwise submit, as soon as reasonably practicable after the date of the Acquisition Agreement, all applications, notices, reports and other documents reasonably required to be filed to any governmental authority in connection with the Transaction and to submit promptly any additional information requested by such governmental authority;

 

    obtain all consents, approvals or waivers reasonably required in connection with the Transaction;

 

    lift any injunction prohibiting, or any other legal bar to, the Transaction; and

 

    satisfy the conditions precedent to the consummation of the Transaction.

The Acquisition Agreement also contains additional agreements between Annapurna, the Annapurna Shareholders and Avalanche relating to, among other matters:

 

    the filing of this proxy statement;

 

    the coordination of press releases and other disclosure regarding the Transaction;

 

    cooperation with respect to certain tax matters;

 

    certain matters relating to Section 16 of the Exchange Act;

 

    the termination of certain Annapurna shareholder agreements existing prior to the date of the Acquisition Agreement;

 

    the resignation of Annapurna’s statutory auditors;

 

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    maintenance of Avalanche’s existing listing of common stock on NASDAQ and submission to NASDAQ of the notification form for the listing of the New Avalanche Shares;

 

    entry by Avalanche and each Annapurna Shareholder into an investor rights agreement containing certain registration rights of the Annapurna Shareholders, as discussed in greater detail in “Agreements Relating to the Transaction”; and

 

    entry by each Annapurna Shareholder into a general release to be effective as of the closing of the Transaction.

Conditions to Closing

Each party’s obligation to complete the Transaction is subject to the satisfaction or waiver by each of the parties, at or prior to the closing of the Transaction, of various conditions, which include the following:

 

    there must not have been issued any order preventing the consummation of the Transaction by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Transaction in effect, and no action shall have been taken by any governmental authority seeking any of the foregoing, and no law, statute, rule, regulation, ruling or decree shall have been enacted, entered, enforced or deemed applicable to the Transaction that makes the consummation of the Transaction illegal;

 

    the expiration or termination of any waiting period applicable to the consummation of the Transaction under any applicable law, and there shall not be in effect any voluntary agreement between Annapurna, the Annapurna Shareholders and/or Avalanche, on the one hand, and any governmental authority, on the other hand, pursuant to which such party has agreed not to consummate the Transaction for any period of time;

 

    the Stock Issuance must have been approved by the required vote of the Avalanche stockholders; and

 

    the existing shares of Avalanche common stock must have been continually listed on NASDAQ through the closing of the Transaction, and the New Avalanche Shares must be approved for listing on NASDAQ (subject to official notice of issuance) as of the closing of the Transaction.

In addition, the obligations of the Annapurna Shareholders to consummate the Transaction is further subject to the satisfaction or waiver of the following conditions:

 

    the accuracy of all representations and warranties of Avalanche contained in the Acquisition Agreement as of the closing date as if made on the closing date, or if such representations and warranties address matters as of a particular date, then as of that particular date, except where the failure of such representations and warranties to be true and accurate would not, individually or in the aggregate, be expected to have a material adverse effect on Avalanche;

 

    the performance and compliance by Avalanche in all material respects with all covenants in the Acquisition Agreement required to be performed or complied with by Avalanche at or prior to the closing;

 

    there shall not have occurred a material adverse effect with respect to Avalanche that continues to be in effect as of the closing;

 

    the receipt by Annapurna and the Annapurna Shareholders of all closing deliverables to be delivered by Avalanche as listed in the Acquisition Agreement;

 

    Avalanche shall have caused its Board to be constituted as set forth in the Acquisition Agreement and appointed the new executive officers specified in the Acquisition Agreement, in each case effective as of the closing; and

 

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    the execution and delivery by Avalanche of that certain Investor Rights Agreement to be effective as of the closing.

In addition, the obligations of Avalanche to consummate the Transaction are subject to the satisfaction and waiver of the following conditions:

 

    the accuracy of all representations and warranties of Annapurna contained in the Acquisition Agreement as of the closing date as if made on the closing date, or if such representations and warranties address matters as of a particular date, then as of that particular date, except where the failure of such representations and warranties to be true and accurate would not, individually or in the aggregate, be expected to have a material adverse effect on Annapurna;

 

    the accuracy of all representations and warranties of each Annapurna Shareholder contained in the Acquisition Agreement (other than the representation and warranty as to the accuracy of Annapurna’s representations and warranties) as of the closing date as if made on the closing date, or if such representations and warranties address matters as of a particular date, then as of that particular date, and the accuracy of each Annapurna Shareholder’s representation and warranty as to the accuracy of Annapurna’s representations and warranties as of the closing date, except where the failure of such representation and warranty to be true and accurate would not, individually or in the aggregate, be expected to have a material adverse effect on Annapurna;

 

    the performance and compliance by Annapurna in all material respects with all covenants in the Acquisition Agreement required to be performed or complied with by Annapurna at or prior to the closing;

 

    the performance and compliance by each of the Annapurna Shareholders in all material respects with all covenants in the Acquisition Agreement required to be performed or complied with by such Annapurna Shareholder at or prior to the closing;

 

    there shall not have occurred a material adverse effect with respect to Annapurna that continues to be in effect as of the closing;

 

    the receipt by Avalanche of all closing deliverables to be delivered by Annapurna and the Annapurna Shareholders as listed in the Acquisition Agreement;

 

    the filing by Annapurna prior to the closing of certain financial statements for year 2015 with the Paris Trade and Companies register; and

 

    there shall have been obtained all approvals of governmental authorities required to be obtained prior to the closing in connection with the Transaction.

Termination of the Acquisition Agreement

The Acquisition Agreement may be terminated at any time before the consummation of the Transaction, whether before or after the required stockholder approval of the Stock Issuance has been obtained, as set forth below:

 

    by mutual written consent duly authorized by the board of directors of each of Annapurna and Avalanche;

 

   

by either Annapurna or Avalanche, by written notice to the other, if the Transaction has not been consummated by July 29, 2016; provided, however, that this right to terminate the Acquisition Agreement will not be available to any party whose action or failure to act has been a principal cause of the failure of the Transaction to occur on or before such date and such action or failure to act constitutes a breach of the Acquisition Agreement, and this right to terminate will be available for an additional sixty (60) days following such date upon the request of either party if the waiting period

 

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under any applicable law of any jurisdiction has not expired, if applicable, or a request for additional information has been made by any governmental authority, or in the event that the SEC has not cleared this proxy statement by the date that is thirty (30) days prior to such date;

 

    by either Annapurna or Avalanche if a court or other governmental authority in which Annapurna or any of its subsidiaries or Avalanche or any of its subsidiaries have meaningful operations has issued a final and non-appealable order or law that has the effect of permanently restraining, enjoining or otherwise prohibiting the Transaction;

 

    by either Annapurna or Avalanche if the stockholders of Avalanche do not approve the Stock Issuance at the Avalanche 2016 Annual Meeting (including any adjournments and postponements thereof);

 

    by Annapurna, if (i) Avalanche’s Board fails to recommend to, or withdraws or modifies its recommendation for, Avalanche’s stockholders to vote to approve the Stock Issuance, (ii) Avalanche’s Board approves or recommends, or Avalanche enters into an agreement relating to, an alternative transaction, or (iii) Avalanche, or any director, officer or agent of Avalanche willfully and intentionally breaches the no solicitation provisions set forth in the Acquisition Agreement (each of the above clauses is referred to as an “Avalanche Triggering Event”);

 

    by Annapurna, upon an uncured breach by Avalanche of any of its representations, covenants or agreements in the Acquisition Agreement that would result in a failure of the conditions to closing (referred to as an “Avalanche Material Breach”); or

 

    by Avalanche, upon an uncured breach by Annapurna or the Annapurna Shareholders of any of their respective representations, covenants or agreements in the Acquisition Agreement that would result in a failure of the conditions to closing.

Reverse Termination Fee

The Acquisition Agreement provides for Avalanche to pay to Annapurna a reverse termination fee of $4.0 million if the Acquisition Agreement is terminated by either party for the failure of the Avalanche stockholders to approve the Stock Issuance or if the Acquisition Agreement is terminated by Annapurna upon an Avalanche Triggering Event. The Acquisition Agreement also provides for Avalanche to pay to Annapurna a reverse termination fee of $6.0 million (less the $4.0 million fee described above, if paid) if the Acquisition Agreement is terminated by either party for the failure of the Avalanche stockholders to approve the Stock Issuance, or the Acquisition Agreement is terminated by Annapurna upon an Avalanche Material Breach or Avalanche Triggering Event, and either (x) Avalanche consummates within twelve months of such termination an alternative transaction that was publicly announced or communicated in writing to Avalanche’s Board prior to such termination or (y) Avalanche consummates within six months of such termination an alternative transaction that is first publicly announced or otherwise communicated in writing to Avalanche’s Board following the termination of the Acquisition Agreement while an alternative transaction described in foregoing clause (x) remains outstanding and not withdrawn.

Representation, Warranty and Covenant Survival

The representations, warranties and covenants of Annapurna, the Annapurna Shareholders and Avalanche contained in the Acquisition Agreement will terminate at closing, except (i) for covenants that by their terms expressly survive closing, (ii) for the representations and warranties of each Annapurna Shareholder with respect to ownership of Annapurna capital stock, which will survive indefinitely, and (iii) that such termination will not affect the rights of any party to seek recovery of damages from another party arising out of, resulting from or in connection with any actual or intentional fraud of such other party, or the intentional and willful failure of such other party to fulfill a condition to the performance of its obligations under the Acquisition Agreement, until the expiration of the applicable statute of limitations.

 

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Indemnification by Annapurna Shareholders

Each Annapurna Shareholder will severally, but not jointly, indemnify and hold harmless Avalanche and its directors, officers, stockholders, employees, agents, representatives, subsidiaries and affiliates from losses arising under or resulting from any breach by such Annapurna Shareholder of its representations and warranties with respect to its ownership of Annapurna capital stock.

Amendment

The Acquisition Agreement may be amended by the parties by authorized action at any time pursuant to an instrument in writing signed by each of Avalanche, Annapurna and each of the Annapurna Shareholders, subject to applicable law.

Specific Performance

Under certain circumstances, Annapurna, the Annapurna Shareholders and Avalanche are entitled to specific performance of the terms of the Acquisition Agreement, in addition to any other remedy at law or equity.

 

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AGREEMENTS RELATING TO THE TRANSACTION

The following is a summary of the material terms and conditions of certain other agreements entered into, or to be entered into, in connection with the Transaction. This summary may not contain all the information about such agreements that is important to you and is qualified in its entirety by reference to the applicable agreements, each attached as an annex hereto and incorporated by reference into this proxy statement. You are encouraged to read each agreement in its entirety.

Support Agreements

In order to induce Annapurna and the Annapurna Shareholders to enter into the Acquisition Agreement, certain officers, directors and other stockholders of Avalanche (solely in their capacity as holders of shares of Avalanche’s common stock) entered into support and voting agreements with Annapurna (the “Support Agreements”) covering approximately 10.3% of the outstanding shares of Avalanche’s common stock as of January 28, 2016 (including restricted stock units vesting at July 29, 2016 and options exercisable at July 29, 2016 on an as converted to common stock basis), whereby each such officer, director and stockholder agreed to (a) appear at any meeting of the Avalanche stockholders or otherwise cause its shares to be counted as present for the purpose of establishing a quorum for such meeting and (b) vote, or cause to be voted at such meeting, all its shares (i) in favor of the Stock Issuance and any other matters necessary for consummation of the Transaction, (ii) in favor of any proposal to adjourn such meeting to solicit additional proxies to be voted in favor of the Stock Issuance and (iii) against (A) any “Acquisition Proposal” (as defined in the Acquisition Agreement) in respect of Avalanche or (B) any other action, agreement or transaction that is intended to or would reasonably be expected to prevent or nullify any provision of the Support Agreement or impede, interfere with, delay, postpone or adversely affect the Transaction or any other obligation or agreement of Avalanche under the Acquisition Agreement.

Pursuant to the Support Agreements, each stockholder party thereto also agreed not to, directly or indirectly, solicit, facilitate or support any inquiry, proposal or offer, or enter into or maintain any communications or negotiations regarding any inquiry, proposal or offer, in each case, that constitutes, or would reasonably be expected to lead to an Acquisition Proposal in respect of Avalanche. Each such stockholder further agreed to not accept, approve, endorse or recommend, or enter into any letter of intent, term sheet or any other agreement relating to, any Acquisition Proposal in respect of Avalanche, not submit any such Acquisition Proposal to the vote of any Avalanche stockholders, and not enter into any other transaction that would impede, interfere with, prevent or delay the consummation of the Transaction.

Subject to certain exceptions, each stockholder party to a Support Agreement also agreed not to (i) offer, sell or transfer Avalanche shares held by such stockholder without the prior written consent of Annapurna, (ii) enter into any contract, option or other agreement with respect to any transfer of Avalanche shares held by such stockholder, or (iii) grant any proxy, power-of-attorney or other authorization, or enter into any voting agreement or similar arrangement with respect to Avalanche shares held by such stockholder.

Each Support Agreement will terminate upon the earliest of the closing of the Transaction, the termination of the Acquisition Agreement, and the date on which neither stockholder party to such Support Agreement nor its respective affiliates beneficially owns any Avalanche shares. Nothing in the Support Agreements will limit or restrict the applicable stockholder, or any of its affiliates or designees, who serves as a director or officer of Avalanche in acting in his or her capacity as director or officer of Avalanche and exercising his or her fiduciary duties and other legal obligations and responsibilities as a director or officer of Avalanche. A copy of the form of the Support Agreement is attached to this proxy statement as Annex C.

Investor Rights Agreement

As a condition to the closing of the Transaction, Avalanche and the Annapurna Shareholders will enter into a second amended and restated investor rights agreement (the “Investor Rights Agreement”), pursuant to which

 

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the Annapurna Shareholders and other stockholders of Avalanche will have, among other things, certain registration rights under the Securities Act with respect to their shares of Avalanche common stock, and will agree to certain transfer restrictions.

The stockholders party to the Investor Rights Agreement will have the right to demand that we file a registration statement for their shares of Avalanche common stock or request that their shares of Avalanche common stock be covered by a registration statement that we are otherwise filing, in each case, to the extent their shares of such common stock were issued (i) previously upon conversion of convertible preferred stock, (ii) as part of the Stock Issuance in connection with the Transaction, or (iii) as a stock dividend or exchange for any of the foregoing shares. These shares of Avalanche common stock, other than any shares (x) sold by any person to the public, (y) sold in a private transaction in which the transferor’s rights under the Investor Rights Agreement are not assigned or (z) that are transferable without volume limitations pursuant to Rule 144 under the Securities Act, are referred to as “registrable securities”.

The holders of registrable securities will be entitled to certain demand registration rights. The holders of at least a majority of the registrable securities, on not more than two occasions, may request that we register all or a portion of their registrable shares, subject to certain specified exceptions. Such request for registration must cover at least a majority of the registrable securities then outstanding (or a lesser percentage if the aggregate offering price before payment of underwriting discounts and commissions exceeds $10.0 million).

If we propose to register for offer and sale any of our securities under the Securities Act in a registered offering, either for our own account or for the account of other security holders, the holders of these registrable shares will be entitled to certain “piggyback” registration rights allowing them to include their registrable shares in such registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act, including a registration statement on Form S-3 as discussed below, other than with respect to (i) any employee benefit plan, (ii) any corporate reorganization or transaction under Rule 145 of the Securities Act, any registration statement on Form S-4 or any similar form related to the issuance or resale of securities issued in such a transaction, or (iii) securities issued upon conversion of debt securities, the holders of the registrable shares will be entitled to notice of the registration and have the right, subject to limitations that the underwriters may impose on the number of shares included in the registration, to include their registrable shares in the registration.

The holders of registrable securities will also be entitled to certain registration rights on Form S-3. A holder of registrable shares may make a request that we register for offer and sale their registrable shares on Form S-3 if we are qualified to file a registration statement on Form S-3 at the time of such request, subject to certain specified exceptions. The aggregate public offering price of the registrable shares covered by any such requested registration on Form S-3 must equal or exceed $1.0 million before payment of the underwriting discounts and commissions. We will not be required to effect more than two registrations on Form S-3 pursuant to the Investor Rights Agreement.

The right of holders of registrable securities to request registration or inclusion of registrable securities under the Investor Rights Agreement will terminate upon the earlier of August 5, 2017 and such time as such holder holds less than 1% of our outstanding common stock and all registrable securities held by such holder and its affiliates may be sold pursuant to Rule 144 during any 90-day period without limitation.

Further, the holders of registrable securities will agree under the Investor Rights Agreement not to transfer its registrable shares unless, subject to certain exceptions, such transfer is made pursuant to a registration statement or Rule 144.

The Investor Rights Agreement will terminate upon the earlier of August 5, 2017 and a consolidation or merger of Avalanche with or into any other entity or person in which the shares of our capital stock immediately prior to such transaction do not represent a majority of the voting power of the surviving entity. A copy of the form of Investor Rights Agreement is attached to this proxy statement as Annex B.

 

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AVALANCHE’S BUSINESS

For a description of Avalanche’s business, please refer to the section entitled “Item 1. Business” set forth in Avalanche’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 3, 2016, which section is incorporated by reference herein.

ANNAPURNA’S BUSINESS

Annapurna is a gene therapy company focused on discovering and developing new therapeutic products in areas of significant unmet medical need. Annapurna is passionate in its quest to serve and bring hope to patients and their families living with severe diseases, and values its relationship with patient communities and the organizations that serve them. It plans to become a gene therapy leader by advancing the science of gene therapy in an innovative, focused and ethical manner, and is dedicated to transforming the treatment paradigm in a range of severe diseases where treatment options are limited.

Annapurna’s initial gene therapy programs address alpha-1 antitrypsin (A1AT) deficiency, hereditary angioedema, the cardiomyopathy associated with Friedreich’s ataxia, and severe allergy. Its lead program, ANN-001 for the treatment of A1AT deficiency, has an open IND with the FDA. Annapurna plans to initiate clinical trials for ANN-001 in the second half of 2016.

Annapurna’s product candidates are focused on a subset of diseases that it believes are particularly well-suited to gene therapies. Annapurna has developed a scientific platform that brings together deep expertise in rare genetic diseases, adeno-associated virus (“AAV”), gene therapy and vector manufacturing. Annapurna believes that it can leverage this expertise to accelerate the development of its existing pipeline of programs while continuing to discover and develop additional gene therapy product candidates.

Annapurna’s lead gene therapy product candidates and programs are designed to provide a functional copy of a therapeutic protein using its AAV-based vector delivery technology, which has been optimized to potentially offer durable clinical benefit to patients, either via simple intravenous infusion or via direct tissue delivery into an affected organ. Annapurna is planning to expand its portfolio into other severe diseases where continued expression of a protein above a certain therapeutic level has the potential to transform the treatment paradigm for patients with a wide range of severe diseases. Annapurna has leveraged a good manufacturing practice (“GMP”)-compliant manufacturing facility at Weill Cornell to support its preclinical and planned initial clinical trials. Annapurna believes that its manufacturing processes, methods and expertise will ultimately give it a comprehensive manufacturing platform for AAV-based gene therapy product candidates.

In selecting its portfolio, Annapurna starts with a deep understanding of disease biology. Annapurna partners with key disease experts who have developed robust models of the relevant diseases, which Annapurna believes will allow it to more reliably predict the correct dosing for the applicable patient populations. Most of Annapurna’s programs have a validated biomarker associated with disease progression or severity that allows for the straightforward, early and ongoing assessment of potential durable clinical benefits throughout the development process. To execute on this opportunity, Annapurna has assembled a team of seasoned

 

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biopharmaceutical executives, scientific advisory members, patient organizations and key partners with broad and deep expertise in all areas of global drug discovery, development, manufacturing and commercialization. Annapurna’s current pipeline of gene therapy products is depicted below:

 

LOGO

ANN-001, Annapurna’s lead gene therapy product candidate, is designed to deliver A1AT protein in patients with A1AT deficiency. Annapurna licensed the rights to ANN-001 from Cornell University, on behalf of Weill Cornell, in December 2015. A1AT deficiency is a rare genetic disorder where deficiency in A1AT may result in serious respiratory disease in adults and/or liver disease at any age. The current standard of care for patients with A1AT deficiency involves chronic augmentation of A1AT protein through a weekly intravenous infusion to address their lung disease. Prevalence of A1AT deficiency is estimated at 1 in 5,000 to 1 in 3,500 people with European ancestry, leading to approximately 100,000 A1AT deficiency patients in the United States alone. It is estimated that fewer than 10,000 patients in the United States are on protein augmentation therapy with A1AT protein, translating to very low treatment rates. The discrepancy between the addressable patient population and actual treated patients is due to limited disease awareness among non-specialists, coupled with the slowly progressive nature of the disease, which is often treated with bronchodilators, and the treatment burden of available treatments which require once weekly intravenous infusions.

In contrast to prior approaches, Annapurna believes that delivery of ANN-001 in the pleural cavity, surrounding the lungs, could be a highly effective delivery method to achieve A1AT protein expression at therapeutic levels with relatively low safety risk. To evaluate the therapeutic response of ANN-001, Annapurna plans to assess therapeutic serum levels and levels of A1AT protein in the lung epithelial lining. Third-party studies have demonstrated A1AT serum levels of 11µM to be an established therapeutic serum concentration and a validated biochemical surrogate marker of efficacy. Based on preclinical studies of ANN-001 conducted by Weill Cornell using an intrapleural (“IP”) administrative route, as well as prior human clinical trials completed by separate researchers using an intramuscular (“IM”) administrative route for another AAV vector, Annapurna believes that ANN-001 can achieve therapeutic levels of A1AT. Annapurna’s ANN-001 program has an open IND with the FDA, and it plans to initiate clinical studies in the second half of 2016. Based on its preclinical studies completed to date, Annapurna believes ANN-001 has the potential to be a well-tolerated, effective therapy for A1AT deficiency.

 

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ANN-002 is Annapurna’s gene therapy product candidate designed for the treatment of patients with hereditary angioedema (“HAE”). Annapurna licensed the rights to ANN-002 from Cornell University, on behalf of Weill Cornell, in December 2015. HAE is a life-threatening genetic condition based on a lack of C1-esterase inhibitor (“C1-INH”), resulting in excessive levels of a protein called bradykinin, which causes fluid to leak from blood vessels. HAE patients suffer from rapid and painful attacks in the abdomen, arms, legs, feet, hands, lips, eyes, tongue or throat, which vary in frequency from a few attacks a year in mild cases to two or more attacks per month in severe forms of the disease. Attacks often do not have a known cause, and mortality rates for events that involve an airway have been reported to be as high as 30%. HAE affects approximately 1 in 10,000 to 1 in 50,000 people worldwide, of which Annapurna estimates approximately 80% are patients with moderate to severe forms. Patients with HAE are managed either by acute treatments (of which there are multiple approved options) or by preventive therapy. The most commonly used preventive treatments consist of intravenous injections of 1000U of C1-INH protein (Cinryze®, Shire) every three or four days, which costs approximately $500,000-$600,000 per year for each patient in the United States. Clinical studies with Cinryze® have demonstrated a reduction in the rate of attacks by about 50%. Preclinical studies with ANN-002 conducted at Weill Cornell demonstrated that ANN-02 can generate therapeutic C1-INH protein levels in wild type mice. A proprietary mouse model of HAE was established at Weill Cornell and a proof of concept study was initiated to assess plasma C1-INH level and vascular permeability, an indicator of C1-INH expression, post intravenous administration.

ANN-003 is Annapurna’s gene therapy program for the treatment of the cardiomyopathy associated with Friedreich’s ataxia. Friedreich’s ataxia is a rare disease that arises from mutations in the FXN gene that reduce production of frataxin, a mitochondrial protein essential for creating cell energy. Friedreich’s ataxia affects approximately 5,000 people in the United States and approximately 5,000 to 10,000 people in Europe. Although the disorder is characterized by the loss of full control of bodily movements, a majority of deaths result from progressive degradation of cardiac function, usually before the age of 40 years. There are no approved treatments. Annapurna’s scientific founders conducted a preclinical proof of concept study using the well-described MCK mouse model of the disease. The study indicated that delivery of the normal human frataxin gene by intravenous injection of an AAVrh.10 vector fully and rapidly corrected the cardiomyopathy of animals at an advanced stage of heart disease and dramatically increased survival. Because of the physiological and anatomic differences between mouse and human hearts, Annapurna initiated preclinical proof of concept studies in healthy pigs and non-human primates, in order to determine efficacious dose and optimal route of administration to be used in patients. Annapurna plans to evaluate therapeutic response by using a “therapeutic threshold” that corresponds to the minimum average vector copies per cardiac cell needed to achieve efficacy in the MCK mouse model. In parallel, Annapurna is also conducting non-interventional studies in Friedreich’s ataxia patients to identify the eligible patient population and determine appropriate safety and efficacy clinical endpoints.

ANN-004 is Annapurna’s gene therapy program for the treatment of severe allergies, which cause extreme discomfort and can be fatal. Annapurna licensed the rights to ANN-004 from Cornell University, on behalf of Weill Cornell, in December 2015. Scientists at Weill Cornell have conducted a successful proof of concept study, and the program is in the early stages of preclinical development.

Beyond its current pipeline of programs, Annapurna intends to focus its research and development on future product candidates that treat severe diseases that Annapurna believes are well-suited to its gene therapy platform, and it expects to leverage the learnings from its current programs into such future candidates. Annapurna selects its programs based on its ability to achieve target therapeutic protein levels that may lead to meaningful clinical benefit.

Strategy

Annapurna’s goal is to transform the lives of patients suffering from severe and chronic disorders by developing, manufacturing and commercializing gene therapies that have the potential to offer a durable and

 

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meaningful therapeutic benefit in areas of unmet medical need and where treatment options are limited, or where no long-term safe and effective options exist. To achieve its goal, Annapurna plans to pursue the following key strategies:

Advance its lead product candidates, ANN-001 and ANN-002, through clinical development. In the second half of 2016, Annapurna plans to initiate a clinical trial of ANN-001 in adults with A1AT deficiency. If this trial is successful, it intends to initiate a pivotal trial to support the filing of a biologics license application (“BLA”) with the FDA, and, subsequently, a marketing authorization application with the EMA. Annapurna expects to initiate a clinical trial for ANN-002 in patients with HAE in 2017.

Continue to deepen its pipeline. Annapurna will continue to leverage its expertise to create a pipeline of product candidates that address a broad range of severe diseases. Annapurna has identified an initial portfolio of opportunities beyond its current programs, and Annapurna’s goal is to be the leader in the development and commercialization of gene therapy product candidates for severe diseases.

Build a premier global ecosystem of patient-focused gene therapy expertise to support its continued leadership as an innovator in the gene therapy field. Annapurna will continue to build a professional ecosystem of employees, advisors and collaborators with industry-leading experience in the discovery, development, manufacturing and commercialization of gene therapies for severe diseases with great unmet medical need. Annapurna will leverage its already deep network in the rare disease space and partner with key patient organizations. Annapurna believes this collective expertise will be a key aspect of its continued success and will support its continued leadership as an innovator in the gene therapy field.

Annapurna’s Gene Therapy Technology and Industrialized Manufacturing Approach

Gene Therapy Technology

Annapurna’s AAV vectors and its delivery strategies are designed to produce the required therapeutic protein in the target organ(s), depending on Annapurna’s indications. To achieve this goal, Annapurna’s gene therapy product candidates consist of two key components:

 

    The therapeutic gene, or transgene, under the control of a strong ubiquitous synthetic promoter frequently used to drive high levels of gene expression in mammalian expression vectors, related gene regulatory elements, as well as minimal original sequences of AAV serotype 2, or AAV2, required for virus amplification, also called replication and packaging signals; and

 

    The AAV vector protein shell, or capsid, in which the therapeutic gene is packaged.

Annapurna has initially selected the capsid from the AAV serotype 10 from the rhesus monkey, or AAVrh.10, but may choose to use a different capsid for certain of its product candidates in the future. AAVrh.10 is a member of the Clade E family of capsids, which has demonstrated enhanced affinity for the liver, and certain of Annapurna’s scientific founders’ teams demonstrated that this AAV serotype also allows very efficient delivery to the heart, pleura and liver, as well as additional organs. To Annapurna’s knowledge, the AAVrh.10 vector has been used by others in three clinical trials for three different diseases in a total of 19 patients with no associated unexpected or severe adverse events.

Annapurna’s Manufacturing Process

Annapurna is currently partnering with a non-commercial manufacturing facility, the Belfer Gene Therapy Core Facility (“BGTCF”) at Weill Cornell, to supply material for its IND-enabling studies and subsequently for first time in human clinical trials. BGTCF has a track record of manufacturing clinical materials pursuant to the FDA’s current good manufacturing practices requirements and has established experience in manufacturing AAVrh.10 vectors that have been successfully used in the clinic for several different indications.

 

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Annapurna’s Product Pipeline

ANN-001

ANN-001 is a gene therapy product candidate designed to treat patients with A1AT deficiency in a durable fashion, possibly on the basis of a single infusion. Annapurna licensed the rights to ANN-001 from Cornell University, on behalf of Weill Cornell, in December 2015. ANN-001 consists of an AAV vector that uses the AAVrh.10 capsid serotype and an optimized A1AT gene, which can be delivered systemically or through intrapleural administration. Annapurna believes that ANN-001 is differentiated from other programs based on the combination of its choice of AAV capsid serotype and route of delivery. ANN-001 utilizes the AAV capsid serotype AAVrh.10 to deliver optimized wild-type A1AT protein that will be preferentially expressed in the cells of the pleura, the cells surrounding the lungs. Annapurna has an open IND for ANN-001 with the FDA. Annapurna expects to initiate clinical trials in the second half of 2016.

Alpha-1 Antitrypsin Deficiency

A1AT deficiency is a rare genetic disorder caused by a mutation in the SERPINA1 gene. More than 95% of A1AT-deficient individuals have the Z-type of A1AT protein instead of the normal M-type A1AT. It is estimated that A1AT deficiency affects approximately 100,000 patients in the United States alone. A1AT deficiency leads to progressive damage of lung tissue, eventually leading to emphysema and early death.

The current standard of care for A1AT deficiency is protein augmentation therapy (“PAT”), which requires weekly intravenous (“IV”) administration of 60 mg/kg A1AT protein. Although weekly intravenous infusions of A1AT protein restore serum A1AT levels to a protective level of >11µM and the National Institute of Health reported an overall death rate being 1.5 times higher among those who did not receive PAT, fewer than 10,000 patients with A1AT deficiency are currently treated with PAT. The lack of better penetration into this patient population is partially due to patient compliance (including the inconvenience of weekly intravenous infusions) and the slow advancement of the disease, which is often treated with bronchodilators. In addition, the low rate of diagnosis can be attributed to a lack of disease awareness amongst non-specialists. Several PAT treatment options are currently available including PROLASTIN® (since 1988); ZEMAIRA® (since 2003); ARALAST® (since 2003); and GLASSIA® (since 2010). PAT therapies require compliance, which can be expensive. The estimated annual cost of treatment is approximately $120,000 in the United States per patient.

Annapurna believes that the treatment of A1AT deficiency with gene therapy may allow for the treatment of broader patient populations, especially younger patients who may be asymptomatic or have mild symptoms and may be unwilling to comply with weekly IV schedules. In addition, and based on key opinion leader feedback, the potential benefit of gene therapy in younger patients is higher. In particular, given its potential to provide constant levels of A1AT, we believe that it is possible that an A1AT gene therapy product will stop or significantly delay the progressive destruction of lung tissue, and therefore increase the quality of life for A1AT deficiency patients.

Annapurna’s Solution — ANN-001

Annapurna’s goal – achieving target A1AT levels

A therapeutic serum level of A1AT of 11 µM has been established and the FDA has used the levels of this biomarker in serum for the approval of currently available PATs. In addition, a randomized, double-blind, placebo-controlled trial in 2015 validated that protein therapy reduces lung degradation as assessed by chest computed tomography (“CT”) scans. A prior clinical trial reported by others in 2011 using IM injection of AAV1-A1AT produced by a herpes simplex virus (“HSV”) complementation method, at the highest dose of 6x1012 viral genomes per kilogram (vg/kg) administered as 100 individual IM injections was able to demonstrate detectable serum levels of A1AT but at levels of only 0.57 µM (5% of therapeutic threshold).

In a preclinical study reported by others in 2011, AAV1 was manufactured using an HSV complementation method and administered via IM injection into mice. In that study, at the dose of 8x1013 vg/kg, A1AT level

 

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achieved was 36 µM, or 330% of therapeutic A1AT level. In another preclinical study conducted by others in 2006, AAVrh.10-hA1AT was injected by IP administration at a dose of 5x1012 vg/kg leading to A1AT levels of 49 µM or 450% therapeutic dose. Based on the data generated by these studies, Annapurna believes that ANN-001 can achieve >11 µM of A1AT in systemic circulation.

Preclinical Data

Experiments in preclinical mouse models conducted at Weill Cornell demonstrated high levels of A1AT present in both serum and in lung epithelial lining fluid. 1x1011 genome copies were administered to each mouse (n=4 per group). All doses of each vector were well tolerated. A single IP injection of AAVrh.10 led to the expression of A1AT for at least 24 weeks. Such sustained expression has been seen in several studies of mice and monkeys. Experiments in non-human primates, in which 36 primates were treated, resulted in high levels of human A1AT messenger ribonucleic acid (“mRNA”) expression in the lung for at least one year post-one time IP delivery.

Clinical Trials

In the second half of 2016, Annapurna plans to initiate an open-label clinical trial of ANN-001 in adults with A1AT deficiency. In this trial, Annapurna will dose-escalate to evaluate the safety, route of administration and dose of ANN-001 (AAVrh.10-hA1AT) in 18-25 A1AT deficiency patients. The primary endpoint of this dose-ranging clinical trial will be assessment of safety and the secondary endpoint will be the evaluation of early evidence of efficacy. With respect to its secondary endpoint, Annapurna’s goal is to achieve a therapeutic serum level of A1AT of 11 µM and a lung epithelial lining fluid level of 1.2 µM. The serum level of 11 µM is the validated surrogate biomarker of efficacy used in trials using protein augmentation therapy products and 1.2 µM is the level in epithelial lining fluid believed to correlate to 11 µM in serum. The trial is also designed to identify the dose needed to achieve durable A1AT protein levels that will have a clinically meaningful effect in CT lung density. The trial will enroll up to 25 subjects in five cohorts to receive a single infusion of ANN-001 at doses ranging from 1.14 x 1011 genome copies per kilogram to 6.14 x 1012 genome copies per kilogram, via IP or IV administration.

ANN-002

ANN-002 is a gene therapy product candidate consisting of an AAVrh.10 vector containing the C1-INH gene coding sequences, which is designed to be systemically administered to express human C1-INH preferentially in the liver, for the treatment of hereditary angioedema. Annapurna intends to develop ANN-002 for the treatment of patients with moderate to severe HAE. Annapurna licensed the rights to ANN-002 from Cornell University, on behalf of Weill Cornell, in December 2015.

Although the target level of C1-INH activity required for optimal therapeutic efficacy of C1-INH in symptomatic HAE patients is unknown, it is generally accepted that a threshold baseline level of C1-INH activity in the circulation above 40% of the normal level protects against development of attacks. Annapurna expects to initiate a dose ranging clinical trial for ANN-002 in patients with HAE in 2017, with the primary endpoint being assessment of safety and the secondary endpoint the evaluation of early evidence of efficacy.

HAE Overview

HAE is a rare genetic disease caused by mutations in the gene coding for C1-INH protein, resulting in recurrent swellings of subcutaneous or submucosal tissues, resulting from excessive levels of bradykinin, a downstream effect of C1-INH abnormalities. Leakage of fluid from small blood vessels causes rapid, sudden, and painful attacks of inflammation in the abdomen, arms, legs, feet, hands, lips, eyes, tongue or throat. HAE is a very serious, severe and sometimes fatal disease, in which the mortality rate for events that involve the airway has been reported to be as high as 30%. The onset of attacks is often not correlated with a known trigger, leading to a high disease burden and reduced quality of life, not only during attacks, but also between attacks due to fear of another attack. Depression and anxiety are common in HAE patients, and disease heterogeneity, or the frequency and severity of attacks, is high. The prevalence of HAE is estimated to be approximately 1 in 10,000 to

 

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1 in 50,000, with approximately 10,000 patients diagnosed across major markets. Annapurna estimates that approximately 80% of HAE patients have moderate to severe attacks and we believe that approximately 5,500 HAE patients are treated in the United States.

HAE is caused by genetic mutations in the SERPING1 gene and is divided in three types based on the level and activity of plasma C1-INH. Type 1 HAE is the most common type, affects approximately 85% of HAE patients and is due to deficiency of the C1-INH protein. Type 2 HAE results in normal C1-INH levels, but the protein is dysfunctional. Type 3 is rare and not relevant to this therapy.

The available treatments for patients with HAE come in two categories – on–demand therapies for acute attacks and prophylactic treatments for prevention of attacks. Agents used for treatment of acute attacks include C1-esterase inhibitors: CSL Behring’s Berinert® (since 2009), Pharming/Valeant’s Ruconest® (since 2014), kallikrein inhibitors: Dyax’s Kalbitor® (since 2009), and selective bradykinin B2 receptor antagonist: Shire’s Firazyr® (since 2011). Prophylactic treatment is currently limited to Shire’s Cinryze® (C1-esterase inhibitor, since 2008). Every diagnosed HAE patient must carry an acute “rescue” medication at all times and the onset of severe attacks can be unpredictable with rapid recurrences after resolution.

Many HAE patients eligible for prophylactic treatment opt for acute disease management due to the need for frequent infusions. Cinryze® requires intravenous injections of 1000U every three or four days and there are potential complications such as infections and loss of access to veins to administer the drug. Considering Cinryze’s® demonstrated 50% reduction in acute attacks in pivotal trials, there is a great unmet medical need for prevention of HAE attacks. Despite the very high cost of treatment with Cinryze® (estimated to be $500,000 - $600,000 in the United States per year per patient), there are limited barriers to patient access today due to the severity of the disease and the lack of alternative treatment options. New agents are being developed with the goal of improving compliance rates by reducing frequency of dosing or by using oral and more patient friendly administration routes. None of these agents replaces the deficient C1-INH protein.

Based on prior clinical studies of Cinryze®, Annapurna believes that a gene therapy product in HAE has the potential to achieve an ideal pharmacokinetics profile of having constant levels of C1-esterase inhibitor, but without the inconvenience, impracticality and cost of dosing Cinryze® every day.

Annapurna’s Solution — ANN-002

Preclinical data

The ability of ANN-002 to direct durable expression of functional C1-INH was assessed by researchers at Weill Cornell in a wild type mouse, in an experiment which included five male and five female animals per group. In this study, ANN-002 resulted in stable expression and activity of C1-INH, well above normal levels in humans. These effects were also consistent for 20 weeks following treatment with an intravenous infusion of ANN-002.

As a result of the data from this preclinical study, Annapurna believes that its ANN-002 candidate can offer meaningful long-term clinical benefit to HAE patients.

A proprietary mouse model of HAE was established at Weill Cornell and a proof of concept study was initiated to assess plasma C1-INH levels and vascular permeability, an indicator of C1-INH expression, post ANN-002 administration.

Clinical Trials

In 2017, Annapurna plans to initiate an open-label clinical trial of ANN-002 in patients with HAE. In this study, Annapurna will dose-escalate to evaluate the safety and dose of AAVrh.10-hC1-INH. Annapurna will administer ANN-002 in HAE patients with the primary endpoint being assessment of safety and the secondary endpoint being the evaluation of early evidence of efficacy. With respect to the secondary endpoint, Annapurna’s

 

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goal is to achieve a therapeutic serum level of C1-INH activity, and it believes that targeting this level will offer a meaningful clinical benefit to patients. Annapurna plans, in its first trial, to follow patients for a period of 12 months for efficacy, and an additional 12 months for safety.

ANN-003

ANN-003 consists of an AAVrh.10 vector carrying the human FXN gene that encodes the normal human frataxin protein to be expressed in the heart for the treatment of cardiomyopathy associated with Friedreich’s ataxia. Annapurna licensed the rights to ANN-003 from Inserm Transfert in July 2014.

Annapurna intends to apply for Orphan Drug Designation in the United States and in Europe, submit an IND with the FDA and submit a Clinical Trial Authorization application with the EMA. Annapurna is currently conducting two non-interventional studies in Friedreich’s ataxia patients to identify the eligible patient population and determine appropriate safety and efficacy clinical endpoints for the evaluation of ANN-003 in a clinical trial. Annapurna plans to administer ANN-003 to Friedreich’s ataxia patients suffering from heart disease, with the primary endpoint being assessment of safety and the secondary endpoint being evaluation of early signals of efficacy.

Friedreich’s Ataxia Overview

Friedreich’s ataxia is a debilitating neurodegenerative disease resulting in poor coordination of legs and arms, progressive loss of the ability to walk, generalized weakness, loss of sensation, scoliosis, diabetes and cardiomyopathy as well as impaired vision, hearing and speech. It affects approximately 5,000 people in the United States and approximately 5,000 to 10,000 people in Europe. The typical age of onset is 10 to 12 years, with neurological symptoms progressing for 20 to 30 years. Life expectancy is severely reduced, with patients generally dying before the age of 50 years. Over 90% of Friedreich’s ataxia patients also develop a hypertrophic cardiomyopathy, a disease which results in the thickening of the heart muscle. This cardiomyopathy is severe in 60% of the patients and leads to death before the age of 40 years, at least ten years earlier than the general life expectancy for the disease. There are currently no approved curative therapies for the disease, but patients often receive symptomatic treatments. For example, heart failure can be treated with diuretics, antagonists of angiotensin receptors, and ß blockers. Heart transplantation can even be considered but bears significant short- and long-term risk, such as those associated with surgery and the requirement for long-term immunosuppression.

Friedreich’s ataxia patients have mutations in the FXN gene that reduce production of the frataxin protein, resulting in progressive neurological and cardiac complications. Friedreich’s ataxia is an autosomal recessive disorder, meaning that a person must obtain a defective copy of the FXN gene from both parents in order to develop the condition. One healthy copy of the FXN gene, or 50% of normal frataxin protein levels, is sufficient to prevent the disease phenotype.

Annapurna’s Solution — ANN-003

ANN-003 is designed to deliver a functional version of the FXN gene to the heart, and Annapurna believes that ANN-003 has the potential to improve the cardiac function of patients with Friedreich’s ataxia. Unlike in many genetic disorders, most Friedreich’s ataxia patients normally produce very low levels of the frataxin protein, which, although insufficient to prevent the disease, exposes the patient’s immune system to frataxin. This reduces the likelihood that the FXN gene delivered with AAV gene therapy will trigger a harmful immune response.

Preclinical proof of concept of an AAV-based gene therapy has been established in a mouse model of the cardiomyopathy associated with Friedreich’s ataxia by the research team of one our scientific founders. In this mouse model, the FXN gene is selectively inactivated in cardiomyocytes and skeletal muscle cells. These mice develop features of cardiomyopathy that are comparable to the ones observed in patients suffering from Friedreich’s ataxia. The phenotype developed by these mice is more severe than that observed in humans, as they begin to develop heart failure at the age of five weeks, leading to the death of 100% of the mice at the age of 12

 

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weeks. In this completed study, an AAVrh.10 vector encoding the normal human frataxin (AAVrh.10-hFXN) was administered via IV after the onset of heart failure (7 weeks). This resulted in a complete reversion of the cardiac phenotype of the MCK mice: rapid normalization of heart function, normalization of left ventricular hypertrophy, correction of all biochemical mitochondrial anomalies, and correction of all ultra-structural cardiomyocytes abnormalities with a very early arrest of myocardial fibrosis. Dose-response studies in MCK mice showed that a correction of only 30%-40% cardiomyocytes was sufficient for a complete reversion of the cardiac phenotype.

 

LOGO

These dose-response studies in the MCK mice were conducted using six different doses of AAVrh.10-hFXN in order to determine the lowest efficacious dose in the mouse and establish a “therapeutic threshold” corresponding to the minimum average vector copies per cardiac cell needed to achieve efficacy.

This therapeutic threshold will be used as an analysis criterion to demonstrate proof of concept of Annapurna’s gene therapy approach in studies in the large animal, in which there is no model of the disease. Annapurna has already initiated studies in healthy pigs and non-human primates to determine efficacious dose and optimal route of administration to be used in patients.

In parallel, Annapurna is also conducting non-interventional studies in Friedreich’s ataxia patients in the United States and in France to determine appropriate biomarkers and clinical functional endpoints and to better define the patient population to be selected for the safety and efficacy trials that Annapurna plans to initiate. The U.S. study started in January 2015, with the objective of enrolling 30 patients and 15 age- and gender-matched healthy volunteers. The French study will enroll its first subject in early 2016, with a target enrollment of 20 patients and 20 age- and gender-matched healthy volunteers. Intermediate study results from both studies are expected in the fourth quarter of 2016, and final study reports should be available at the end of 2017.

Annapurna believes that delivering an effective cardiac gene therapy treatment to Friedreich’s ataxia patients suffering from heart disease will enable these patients to gain significant quality of life improvements, and the correction/stabilization of the cardiomyopathy is also expected to have a direct impact on the ability of these patients to manage their neurological disability.

Annapurna has built a strong relationship with patient advocacy groups, in particular the Friedreich’s Ataxia Research Alliance in the United States, which closely follows and supports Annapurna’s ANN-003 program.

ANN-004

ANN-004 consists of an AAVrh.10 vector that contains a gene that encodes a full length, high affinity, anti-human anti-immunoglobulin E (“anti-IgE”) antibody. ANN-004 is administered systemically in order to preferentially reach the liver and use this organ as a genetic metabolic factory for the sustained production and systemic delivery of therapeutic anti-IgE into the blood for the treatment of patients suffering from severe

 

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allergies. Annapurna’s solution is designed to be a one-time treatment to circumvent the requirement for repeated anti-IgE administration. Annapurna licensed the rights to ANN-004 from Cornell University, on behalf of Weill Cornell, in December 2015.

Researchers at Weill Cornell have conducted a proof of concept study with ANN-004. Annapurna is in the early stages of preclinical development of ANN-004.

Annapurna’s Partners and Advisors

Annapurna has established relationships with key academic and commercial entities to provide it access to cutting edge technologies as well as streamline its product development. Annapurna’s AAV technology is the product of over 25 years of research at Weill Cornell by Dr. Ronald Crystal, Chairman of Genetic Medicine and Professor of Internal Medicine at Weill Cornell and a founder and scientific advisor of Annapurna, and colleagues who first used a recombinant virus to deliver gene therapy in vivo.

Annapurna’s scientific and clinical advisors are key thought leaders in gene therapy, and rare and genetic diseases. In addition to Dr. Crystal, Annapurna’s scientific advisors include Hélène Puccio, Ph.D. of the Institute of Genetics and Molecular and Cellular Biology, University of Strasbourg, France and Fulvio Mavillo, Ph.D., Scientific Director of Genethon (Evry, France).

Relationship with Cornell University

Under a series of three licensing agreements with Cornell University, Annapurna will advance its ANN-001, ANN-002 and ANN-004 programs, which were each based on gene-therapy programs initiated at the Department of Genetic Medicine at Weill Cornell.

A1AT Deficiency License Agreement: Under this agreement, Annapurna holds an exclusive license to certain intellectual property related to A1AT deficiency and rights to an IND application to initiate clinical studies of a gene therapy for A1AT.

HAE License Agreement: Under this agreement, Annapurna holds an exclusive license to certain intellectual property related to HAE and a non-exclusive license to certain other intellectual property related to HAE.

Allergy License Agreement: Under this agreement, Annapurna holds an exclusive license to certain intellectual property related to allergens and a non-exclusive license to certain other intellectual property related to allergens.

Under these license agreements, Cornell University is entitled to receive certain milestone payments and royalties on sales. In addition, under a master services agreement with Cornell University, Annapurna will rely on the university to scale production of gene therapies by manufacturing processes that the institution has already used to produce GMP material for other gene-therapy trials. Annapurna expects that it will also enter into sponsored research agreements with the university in the future.

Dr. Crystal, Chairman of Genetic Medicine, the Bruce Webster Professor of Internal Medicine and a Professor of Genetic Medicine and of Medicine at Weill Cornell, serves as a consultant to Annapurna and has provided services to Annapurna since its inception.

Facilities

Annapurna leases office space in Paris, France and Philadelphia, Pennsylvania.

Employees

As of March 17, 2016, Annapurna had a total of five full-time employees, one located in France and the rest in the United States.

 

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AVALANCHE’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For Avalanche’s management’s discussion and analysis of financial condition and results of operations, please refer to Item 7 set forth in Avalanche’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 3, 2016, which section is incorporated by reference herein.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT AVALANCHE’S MARKET RISK

For quantitative and qualitative disclosures about Avalanche’s market risk, please refer to Item 7A set forth in Avalanche’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 3, 2016, which section is incorporated by reference herein.

ANNAPURNA’S MANAGEMENT’S 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 Annapurna’s financial statements and accompanying notes appearing elsewhere in this proxy statement. This Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties. Please see “Cautionary Statement Regarding Forward-Looking Statements” on page 23 for additional factors relating to such statements, and see “Risk Factors” beginning on page 14 for a discussion of certain risk factors applicable to Annapurna’s business, financial condition, and results of operations. Operating results are not necessarily indicative of results that may occur in future periods.

Overview

Annapurna is a gene therapy company focused on discovering and developing new therapeutic products in areas of significant unmet medical need. Annapurna’s initial gene therapy programs address A1AT deficiency, hereditary angioedema, the cardiomyopathy associated with Friedreich’s ataxia, and severe allergy. Its lead program, ANN-001 for the treatment of A1AT deficiency, has an open IND with the FDA. Annapurna plans to initiate clinical trials for ANN-001 in the second half of 2016. Annapurna licensed the rights to ANN-001 and two other product candidates – ANN-002, targeting hereditary angioedema, and ANN-004, targeting severe allergy – from Weill Cornell in December 2015.

Annapurna was incorporated in France on December 20, 2013 and has two subsidiaries in the United States and in Ireland. Annapurna is a development stage company and has incurred net losses since its inception. As of December 31, 2015, Annapurna had accumulated net loss from inception of approximately €8.4 million or $9.3 million (approximately €13.4 million or $15.4 million under U.S. GAAP), and net loss of approximately €5.8 million or $6.4 million (approximately €11.0 million or $12.2 million under U.S. GAAP) for the year ended December 31, 2015. Annapurna anticipates that a substantial portion of its capital resources and efforts in the foreseeable future will be focused on completing the development and obtaining regulatory approval of ANN-001 as well as the continued development of ANN-002, ANN-003 for the treatment of the cardiomyopathy associated with Friedreich’s ataxia, and ANN-004 product candidates.

Annapurna has devoted substantial resources towards the development of its product candidates, protecting and enhancing its intellectual property and providing general and administrative support for these activities. Annapurna has not generated any revenues from product sales and, to date, has funded its operations primarily through the private placement of equity securities and convertible debt. Through December 31, 2015, it has raised net cash proceeds of €4.3 million from the issuance of ordinary and preferred shares, net of issuance costs, and €5.0 million from the issuance of convertible debt and other borrowings.

Substantially all of Annapurna’s operating losses resulted from expenses incurred in connection with its development programs and from general and administrative costs associated with its operations. Annapurna expects to incur increasing operating losses for at least the next several years when it initiates the first in human

 

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study of ANN-001 in patients with A1AT deficiency and continues development of ANN-002, ANN-003 and ANN-004. Annapurna anticipates its expenses will increase significantly as it seeks regulatory approval for its product candidates and maintains, expands and protects its intellectual property portfolio.

Annapurna will need substantial additional financing to continue to develop its product candidates, obtain regulatory approvals and fund operating expenses. There cannot be assurance that such funds will be available on terms favorable to Annapurna, if at all. In addition, Annapurna may never successfully complete development of any of its product candidates, obtain adequate patent protection for its technology, obtain necessary government regulatory approval for its product candidates or achieve commercial viability for any approved product candidates. In addition, it may not be profitable even if it succeeds in commercializing any of its product candidates.

If the Transaction successfully closes, Annapurna will become a wholly owned subsidiary of Avalanche.

Recent Developments

On January 29, 2016, Annapurna entered into a definitive agreement with Avalanche providing for the acquisition by Avalanche of all outstanding shares of Annapurna in exchange for approximately 13.1 million newly issued shares of Avalanche common stock and the conversion of all Annapurna Options into the Avalanche Options, which relate to approximately 4.7 million shares of Avalanche common stock. Upon the closing of the Transaction, Annapurna stockholders will own approximately 37.5% of the combined company, and the prior Avalanche stockholders will own approximately 62.5% of the combined company, calculated on a fully diluted basis using the treasury stock method. The number of newly issued shares and the number of shares that the options or other rights to purchase capital stock of Annapurna relate to are subject to adjustment based on the exercise of such options or other rights to purchase Annapurna capital stock by their holders prior to the closing of the proposed Transaction. Completion of the proposed Transaction, which has been approved by the boards of directors of both companies, is subject to satisfaction or waiver of customary closing conditions, including approval by the stockholders of Avalanche of the Stock Issuance. The Transaction is expected to close during the second quarter of 2016.

Financial Overview

Annapurna’s consolidated financial statements, included elsewhere in this proxy statement, are prepared in accordance with French generally acceptable accounting principles (“French GAAP”). Reconciliation of French GAAP consolidated financial statements to U.S. GAAP is included in the Index to Annapurna Consolidated Financial Statements. Except as otherwise noted, this “Annapurna’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on the primary financial statements presented under French GAAP.

Revenue

Annapurna is a development stage company and has not generated any revenue from the sale of products since inception. Annapurna does not expect to generate any revenue from its existing product candidates unless or until it commercializes ANN-001 or any of its other product candidates.

Other operating income

Other income consists of the research tax credit that is granted by the French tax authorities to small businesses involved in products research and development activities. Tax credits can either reduce income taxes payable or can be reimbursed in cash. Refunds are provided based on the claimed amount of eligible research and development expenses incurred within the European Union. Annapurna records other income as eligible expenses are incurred, claims are submitted annually and refunds are received by the middle of the following year. Annapurna recorded other operating income of €0.4 million and €0.2 million in fiscal years 2014 and 2015, respectively.

 

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These refunds are reclassified from other operating income to research and development expenses (offset) in the U.S. GAAP reconciliation and pro forma financial statements, included elsewhere in this proxy statement, to adopt the U.S. GAAP accounting policy of Avalanche.

Research and Development Expenses

Since its inception, Annapurna has focused on the development of its product candidates.

Annapurna’s consolidated financial statements present operating expenses by nature and not by function. Annapurna reviewed its expenses and allocated them between research and development expenses and general and administrative expenses.

Annapurna’s research and development expenses consist primarily of:

 

    salaries and related expenses for R&D personnel;

 

    expenses related to preclinical studies;

 

    expenses related to license fees under in-licensing agreements;

 

    other consulting and collaboration fees paid to third parties;

 

    expenses related to compliance with drug development regulatory requirements in the United States, the European Union and other foreign jurisdictions; and

 

    other allocated expenses such as rent and consumables.

Annapurna records research and development expenses as they are incurred. Annapurna has been developing each of its programs in parallel, and typically uses its employees, consultants and infrastructure resources across its four programs. Thus, Annapurna does not allocate its research and development expenses by program. Annapurna’s research and development expenses for the years ended December 31, 2014, and 2015 were as follows:

 

In Euros

   December 31,
2014
     December 31,
2015
     Increase  

Consumables

     8,362         62,992         54,630   

Rental and maintenance

     3,500         41,395         37,895   

Services, subcontracting, and fees

     1,513,302         3,580,472         2,067,170   

Personnel expenses

     547,876         1,033,681         485,805   

Depreciation and amortization expense

     2,199         39,238         37,039   
  

 

 

    

 

 

    

 

 

 

Total

     2,075,238         4,757,778         2,682,539   
  

 

 

    

 

 

    

 

 

 

Research and development expenses increased by approximately €2.7 million, or 128% for the year ended December 31, 2015 as compared to the year ended December 31, 2014. This increase in research and development expense was primarily due to an increase in license and preclinical trial expenses of €2.1 million and an increase in personnel-related expenses of €0.5 million.

Annapurna expects its research and development expenses to increase when it initiates its first in human study of ANN-001 in patients with A1AT deficiency and continues development of additional product candidates. Due to the inherently unpredictable nature of product development, Annapurna is currently unable to estimate the expenses it will incur in the continued development of ANN-001 and its other product candidates.

 

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Annapurna’s future research and development expenditures are subject to numerous uncertainties in timing and cost to completion. Development timelines, the probability of success, and development expenses can differ materially from expectations. Clinical trials may be difficult to enroll given the small number of patients with certain target indications. Completion of clinical trials may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:

 

    the number of trials required for approval;

 

    the number of sites included in the trials;

 

    the length of time required to enroll suitable patients;

 

    the number of patients that participate in the trials;

 

    the drop-out or discontinuation rates of patients;

 

    the duration of patient follow-up;

 

    the number and complexity of analyses and tests performed during the trial;

 

    the phase of development of the product candidate; and

 

    the efficacy and safety profile of the product candidate.

As a result of the uncertainties discussed above, Annapurna is unable to determine with certainty the duration and completion costs of its development programs.

Other Operating Expenses

Other operating expenses principally consist of consulting and other professional services, such as legal services, audit and accounting services, salaries and payroll expenses of employees not involved in product development activities, allocated rent and consumables expenses, traveling expenses and telecommunication costs. These expenses are expected to increase in the future as Annapurna continues its product development and will require more administrative support.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of Annapurna’s financial statements requires it to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the revenues and expenses incurred during the reported periods. Annapurna 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 apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While Annapurna’s significant accounting policies are described in Note 2 of its consolidated financial statements appearing elsewhere in this proxy statement, Annapurna believes that the following critical accounting policies are most important to understanding and evaluating its reported financial results.

Research tax credit

The research tax credit (Crédit d’Impôt Recherche or “CIR”) is granted to companies by the French tax authorities in order to encourage them to conduct technical and scientific research. Companies that prove that they have expenditures that meet the required criteria (research expenditures incurred subsequent to January 1,

 

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2005 located in France, within the European Community, or in another state that is a party to the Agreement on the European Economic Area that has concluded a tax treaty with France that contains an administrative assistance clause) receive a tax credit that can be used for the payment of the corporate income tax due for the fiscal year in which the expenditures were made and the next three fiscal years, or, as applicable, can be reimbursed in cash.

The expenses taken into account for the calculation of the research tax credit include only research and development expenditures. The research tax credit is recorded as other operating income in the consolidated statements of operations in the period when eligible expenses for reimbursement are incurred. Cash refunds are usually received in the second quarter of the following year. Annapurna did not receive reimbursement for its 2014 expenses, as a tax audit was ongoing during 2015. The tax audit was completed in January 2016 and no matters were identified which would impact the recorded amounts of research tax credits.

Research and development expenditures

All research and development costs are expensed as incurred. Annapurna elected not to capitalize any research and development expenditures. License fees were recorded as they were paid and license maintenance fees were recorded over the period they were related to.

In accordance with U.S. GAAP, Annapurna accrued additional research and development expenses of €2.7 million, primarily related to license fees that were deemed probable and reasonably estimable.

Income Tax, Current and Deferred

Deferred taxes are recorded in the statements of operations and the balance sheet using the asset and liability method in respect of temporary differences between the book and taxable values of certain assets and liabilities.

Tax benefits resulting from tax loss carryforwards are recognized if it is more likely than not that they will be recovered within the foreseeable future. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Annapurna recorded full valuation allowance on its deferred tax assets as of December 31, 2014 and 2015.

As of December 31, 2014 and 2015, there were no significant deductible or taxable temporary differences. Annapurna had €2.9 million and €5.9 million of available tax loss carry-forwards as of December 2014 and 2015, respectively, for which no deferred tax asset was recognized given Annapurna’s historical and forecasted losses.

Stock-Based Compensation

Annapurna has authorized the issuance of free shares (“BSA”), warrants (“BSPCE”) and stock options (“SO”) to its directors and employees. Under French GAAP, the amounts received by Annapurna upon issuance of the BSA, BSPCE and SO are recorded in stockholders’ equity (deficit).

In accordance with U.S. GAAP, employee equity classified awards are measured at grant date fair value and recognized over the service period; employees’ stock-based compensation expense is recognized straight-line over the vesting period. Non-employee equity classified awards are generally re-measured throughout the service period; non-employees’ stock-based compensation expense is recognized using accelerated graded vesting over the vesting period.

 

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Founders’ common shares and Series O preferred shares

Common shares and Series O preferred shares were acquired by the founders of Annapurna at their nominal value of €0.01. Founders’ common shares and Series O preferred shares were measured at intrinsic value, which is the difference between the fair value of the share and its purchase price. The fair values of common shares and Series O preferred shares were determined by the Annapurna board of directors based upon a variety of factors, including the results obtained from an independent third party valuation, the financial position and historical financial performance, the status of technological developments, the effect of the rights and preferences of the preferred shareholders and the prospects of a liquidity event, among others. The fair values of common shares and Series O preferred shares were estimated as follows:

 

     Grant
Dates
     December 31,
2014
     December 31,
2015
 

Common share fair value

   0.66       0.93       14.29   

Series O preferred share fair value

   0.02       0.04       0.63   

The resulting compensation expenses recorded per U.S. GAAP for the years ended December 31, 2014 and 2015 are €110,862 and €671,740, respectively.

Employees’ and non-employees’ options

The fair value of employees’ and non-employees’ options was estimated using a Black-Scholes option pricing valuation model at the grant dates for employees or at the vesting dates for non-employees. Assumptions used in the valuations were as follows:

 

     Employees’
awards

October 21, 2015
    Non-employees’
awards

October 21, 2015
    Non-employees’
awards
December 31, 2015
 

Common Stock Price

   1.76        €1.76      14.29   

Expected Life

     5.89        10.00        9.81   

Risk Free Rate

     1.55     2.04     2.27

Volatility

     69.4     78.8     83.0

Dividend Yield

     0.0     0.0     0.0

No options were granted before December 31, 2014. For the year ended December 31, 2015, Annapurna recognized €2,090,626 of share-based compensation expense in connection with the options granted to employees and non-employees in accordance with U.S. GAAP.

Results of Operations

Comparison of the Years Ended December 31, 2014 and 2015

 

     YEARS ENDED DECEMBER 31,  
In Euros    2014      2015      % Change  

Other Operating Income

     369,258         217, 378         (41 %) 
  

 

 

    

 

 

    

 

 

 

Total Operating income

     369, 258         217, 378         (41 %) 
     —           —        

Other External Costs

     2,277,360         4,591,419         102

Personnel and Social Charges

     682,747         1,288,109         89

Taxes Other Than Income Tax

     7,535         4,429         (41 %) 

Depreciation

     2,199         39,238         1685
  

 

 

    

 

 

    

 

 

 

Total Operating Expenses

     2,969,840         5,923,194         99
     —           —        

Operating Loss

     2,600,582         5,705,816         119

Net Financial Loss

     —           49 240         100 %
  

 

 

    

 

 

    

 

 

 

Loss Before Tax and Net Loss

     2,600,582         5,755,056         121
  

 

 

    

 

 

    

 

 

 

 

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Other Operating Income

Other operating income consists of the research tax credit. It decreased by 41%, or €151,980, in 2015 compared to 2014, due to the decrease of eligible expenses as a result of the transfer of some employees involved in research and development to the U.S. subsidiary.

Other External Costs

Other external costs for the years ended December 31, 2014 and 2015 include the following:

 

In Euros

   2014      2015      % Change  

Clinical studies (subcontracting, consulting fees)

     991,548         3,236,841         226

License fees

     506,879         343,632         (32 %) 

Audit, accounting and legal fees

     558,466         650,186         16

Other

     220,467         360,761         64
  

 

 

    

 

 

    

 

 

 

Total

     2,277,360         4,591,419         102
  

 

 

    

 

 

    

 

 

 

Other external costs increased by 102%, from €2.3 million in 2014 to €4.6 million in 2015.

Clinical studies and license fees expenses increased from €1.5 million in 2014 to €3.6 million in 2015 as Annapurna advanced the development of ANN-001 and its other product candidates through preclinical studies. Clinical studies expenses include external consulting fees for various research projects, projects’ management and process development projects. Consulting fees related to Annapurna’s agreement with Cornell University were €0.5 million in 2014 and €2.1 million in 2015. License fees were recorded as fees were paid and include €472,000 ($600,000) and €275,550 ($300,000) in license fees paid to RegenX in 2014 and 2015, respectively.

Annapurna entered into license agreements with RegenX, Cornell and Inserm during 2014 and 2015. Some agreements provide for payments of initial license fees over a year. Annapurna accrued license fees of €2.7 million in 2015 in accordance with U.S. GAAP, as these expenses are probable and estimable as of December 31, 2015. Cornell fees were €1.8 million and RegenX fees were €800,000 of additional accrued license fees in accordance with U.S. GAAP.

Audit, accounting and legal expenses increased 16.4% from 2014 to 2015, or by approximately €92,000. Other expenses, which include various administrative expenses such as rent, travel expenses and office expenses, increased 63.6% from 2014 to 2015, or by approximately €140,000. These increases are related to increased operations of Annapurna in 2015 as compared to 2014 that required additional legal and administrative support.

Personnel and Social Charges

Personnel and social charges increased by 88.7%, from €682,747 in 2014 to €1,288,109 in 2015, primarily due to an increase in average headcount during 2014 and 2015. Annapurna had eight employees at December 31, 2015.

The increase in the number of employees resulted in increased salaries, social charges and other benefits. Social charges and other benefits, such as retirement and healthcare plans, which are generally subject to inflation, are paid according to industry conventions and/or national guidelines.

Annapurna allocated €135,000 and €254,000 related to salaries and social charges of administrative employees to general and administrative expenses in 2014 and 2015, respectively. Remaining personnel and social charges expenses were allocated to research and development expenses. This allocation was performed to conform to the U.S. GAAP presentation of the Avalanche consolidated income statement presented in the pro forma financial statements included elsewhere in this proxy statement.

 

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Depreciation and Amortization

Depreciation and amortization increased from €2,199 for the twelve-month period ended December 31, 2014 to €39,238 for the twelve-month period ended December 31, 2015. The increase is mainly due to additions to fixed assets and a full year depreciation expense recorded in 2015 compared to 2014, when fixed assets were bought in the second half of 2014.

Net Financial Loss

There was no financial income or loss in 2014. Financial income and financial loss in 2015 of €14,956 and €64,196, respectively, were primarily related to foreign currency transactions gains and losses.

Summary of Significant Differences between French GAAP and U.S. GAAP

The financial information of Annapurna included in this proxy statement has been prepared and presented in accordance with French GAAP. Certain differences exist between French GAAP and U.S. GAAP which might be material to the financial information included in this proxy statement. The differences described below reflect only those differences in accounting policies in force at the time of the preparation of the historical financial information of Annapurna. There has been no attempt to identify future differences between French GAAP and U.S. GAAP, as the result of prescribed changes in accounting standards, transactions or events that may occur in the future.

Share-based compensation expense – There is no stock-based compensation expense recognized in accordance with French GAAP. Expense is recognized in accordance with U.S. GAAP based on the fair value of stock-based assets at the measurement date, which is usually the grant date for employees and the vesting date for non-employees. Refer to the stock-based compensation discussion above in “—Critical Accounting Policies and Significant Judgments and Estimates” for financial impact and further details.

Classification and accounting for convertible preferred stock – Under French GAAP, the issuance of preferred shares is accounted for as equity, similar to the accounting for the issuance of ordinary shares. Under U.S. GAAP, an analysis is performed to determine if issued convertible preferred stock will meet criteria to be classified as equity, temporary (mezzanine) equity or a financial liability. Annapurna’s Series A convertible preferred stock is not mandatorily redeemable and would not meet the definition of a liability. The Series A convertible preferred stock contains certain liquidation features that are not solely within Annapurna’s control; as a result, the Series A convertible preferred shares should be classified as temporary (mezzanine) equity in accordance with U.S. GAAP.

Classification and accounting for warrants to purchase convertible preferred stock – Under French GAAP, warrants are not accounted for until they are exercised. Upon exercise, a share capital increase is recorded, similar to ordinary shares. Under U.S. GAAP, freestanding warrants issued for redeemable preferred stock are classified as liabilities at fair value at the issuance date. Changes in fair values are recorded in consolidated statement of operations as other income/expense until such warrants are exercised or expired.

Research and development expenses – French GAAP does not precisely address the accounting for license agreements. Such agreements can either be accounted for as intangible assets or as rental agreements. In view of the early stage of the research and development programs (these licenses are used for preclinical studies), Annapurna recorded expenses when license payments were made. Under U.S. GAAP, all research and development costs shall be charged to expense when incurred. The cost of intangible assets that are purchased from others for use in research and development activities and that have no alternative future uses (in other research and development projects or otherwise), and therefore no separate economic values, are research and development costs at the time the costs are incurred. Refer to the research and development expenditures discussion above in “—Critical Accounting Policies and Significant Judgments and Estimates” for financial impact and further details.

 

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Under French GAAP, patent and intellectual property filing fees are stated at their acquisition costs and are amortized using the straight-line method based on the estimated useful lives of the patent and intellectual property they relate to. Under U.S. GAAP, such costs are considered as research and development costs and expensed as incurred. As of December 31, 2015, the difference in accounting principles between French and U.S. GAAP resulted in an additional research and development expense of €46,871.

Accounting for convertible interest free debt – In accordance with French GAAP, the convertible debt is accounted for as debt for amount of cash proceeds received. The conversion feature is not separated. Interest expense is recorded in accordance with the contractual interest rate (nil for Annapurna convertible debt). Under U.S. GAAP, the accounting treatment for a convertible debt instrument depends on the terms of the instrument, including the manner in which the instrument is settled upon conversion. Annapurna performed an analysis of the embedded conversion options in the convertible debt in accordance with U.S. GAAP and concluded that net settlement criteria were not met for these options and therefore embedded derivatives were not bifurcated. As the convertible debt does not bear interest and was received from Annapurna’s investors and related parties, Annapurna applied U.S. GAAP guidance, which requires that any given unstated rights or privileges, such as a non-interest bearing loan, be accounted for through the recording of a discount or premium and that such discount or premium be amortized to interest expense over the duration of the debt. An imputed interest rate of 15.5% was applied. As a result, imputed interest was considered a capital contribution of Annapurna’s investors and related parties and was therefore recorded as a debt discount and additional paid-in capital at the date of debt issuance in the amounts of €1.1 million and €188,776 for convertible loan and a conditional advance, respectively. Debt discounts were amortized and recorded to interest expense in the amounts of €255,682 and of €13,473 for a convertible loan and a conditional advance, respectively, for the year ended December 31, 2015.

Liquidity and Capital Resources

Annapurna has not generated any revenue from the sale of products. Annapurna has incurred losses and generated negative cash flows from operations since inception. From inception through December 31, 2015, Annapurna received net cash proceeds of €4.3 million from the sale of convertible preferred stock, €4.5 million from the issuance of convertible financial debt and €0.5 million from other borrowings.

Cash balance was €2.3 million at December 31, 2015. Net working capital was €1.7 million and €0.7 million in 2014 and 2015, respectively.

On January 28, 2016, Annapurna signed an amendment with the lenders to its convertible loan agreement and increased the amount available for borrowings by an additional €2.7 million. Annapurna expects to borrow remaining funds available under this agreement of €7.2 million to fund operations.

On January 29, 2016, Annapurna announced its proposed acquisition by Avalanche. The transaction is expected to close in the second quarter of 2016. After the close, Annapurna will become a wholly owned subsidiary of Avalanche.

The following table summarizes the primary sources and uses of cash for each of the periods presented below:

 

In Euros

   2014      2015      % Change  

Net cash used in operating activities

     (2,091,539      (4,662,836      (123 %) 

Net cash used for investing activities

     (107,102      (211,055      (97 %) 

Net cash provided by financing activities

     4,349,827         5,000,000         15

Effect of exchange rate changes on cash

     10,905         13,160         21

Change in Cash

     2,162,092         139,269         (94 %) 
  

 

 

    

 

 

    

 

 

 

Cash

        

Beginning

     —           2,162,092      

Ending

     2,162,092         2,301,361      

 

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The primary use of cash in operating activities for the years ended December 31, 2015 and 2014 was to fund operating activities related to the development of ANN-001 and additional product candidates. Net cash used in operating activities for the year ended December 31, 2015 of €4.7 million primarily related to the net loss of €5.8 million offset by €39,238 for non-cash depreciation and amortization expense and €1.1 million increase in working capital. Net cash used in operating activities of €2.1 million for the year ended December 31, 2014 primarily related to the net loss of €2.6 million offset by €0.5 million increase in working capital.

Net cash used in investing activities primarily related to the purchase of intangible assets of €46,871 in 2015, a deposit for an equipment lease of €50,000 in 2014, and the purchases of property, plant and equipment of €57,102 and €164,184 in 2014 and 2015, respectively.

Net cash provided by financing activities for the year ended December 31, 2015, was related to a receipt of €4.5 million in convertible debt and €0.5 million in other borrowings. Net cash provided by financing activities for the year ended December 31, 2014 was related to proceeds from the sale of preferred and common stock of €4.3 million, net of issuance costs of €0.1 million.

Future Funding Requirements

Based on Annapurna’s operating plans, it does not currently have sufficient working capital to fund planned operating expenses through December 31, 2016 without additional sources of cash. Annapurna will likely need to obtain additional financing to fund its future operations, including the development, approval and commercialization of ANN-001 and its additional product candidates. Annapurna’s future funding requirements will depend on many factors, including:

 

    the initiation, progress, timing, scope and costs of its nonclinical studies and clinical trials, including the ability to timely enroll patients in its planned and potential future clinical trials;

 

    the time and cost necessary to obtain regulatory approvals;

 

    the costs of manufacturing clinical and commercial supplies of ANN-001 and its additional product candidates;

 

    payments of milestones and royalties to third parties;

 

    the time and cost necessary to respond to technological and market developments;

 

    the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and

 

    any changes made to, or new developments in, its current licensing and collaboration agreements or any new collaborative, licensing and other commercial relationships that it may establish.

Annapurna has not generated any revenue from the sale of any products. It does not know when, or if, it will generate any revenue. Annapurna expects its continuing operating losses to result in increases in cash used in operations over the next several years. It may raise additional funds within this period of time through collaborations and public or private debt or equity financings. Additional financing may not be available when it is needed or may not be available on terms that are favorable to Annapurna. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting its ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends.

If adequate funds are not available to it on a timely basis, or at all, Annapurna may be required to terminate or delay future clinical trials or other development activities for ANN-001 or its additional product candidates. Annapurna may elect to raise additional funds even before it needs them if the conditions for raising capital are favorable.

 

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Contractual Obligations and Commitments

Annapurna does not lease any significant facility or equipment under an operating or capital lease other than its offices in Paris, France (monthly rent payment of €400) and in the United States (monthly rent of €1,750) and equipment (monthly rent payment of €3,500 ended in November 2015). The office leases can be terminated by Annapurna upon 30 days’ prior written notice.

Licenses

Annapurna’s agreements to license intellectual property are in U.S. dollars and include annual maintenance fees of approximately $135,000 in 2016, $140,000 in 2017, $155,000 in 2018, $237,000 in 2019, $375,000 in 2020, and $525,000 in 2021 through the termination of these agreements.

The agreements also provide for potential milestone payments that are dependent upon the development of products using the intellectual property licensed under the agreements and contingent upon the achievement of clinical trial or regulatory approval milestones. The maximum aggregate potential milestone payments payable by Annapurna total approximately $35.1 million. Additionally, under the terms of two agreements, Annapurna has options to license intellectual property to be used in the development of therapies for two disease indications. If Annapurna exercises all of its options under the agreements, it would be obligated to pay aggregate upfront fees of up to approximately $1.2 million, milestone payments that are contingent upon clinical trial results and regulatory approval of up to $15.2 million in total, and additional annual maintenance fees of $105,000.

Off-Balance Sheet Arrangements

Annapurna does not currently have any off-balance sheet arrangements (as defined by applicable SEC regulations) that are reasonably likely to have current or future material effect on its financial conditions, results of operations, liquidity, capital expenditures or capital resources.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT ANNAPURNA’S MARKET RISK

Foreign Currency Risk

Annapurna’s primary exposure to market risk is foreign currency risk. Its financial statements are expressed in euros, which is its reporting currency. Annapurna incurs the majority of its expenses in U.S. dollars, while a substantial portion (approximately two-thirds) of its cash holdings is denominated in euros. Accordingly, Annapurna is exposed to fluctuations in foreign currency exchange rates in connection with its operations, which can affect Annapurna’s financial results.

Any appreciation of the U.S. dollar against the euro could have the effect of increasing Annapurna’s reported expenses, whereas any depreciation of the U.S. dollar against the euro could have the effect of decreasing Annapurna’s reported expenses. Annapurna has not entered into any agreements and does not hold any derivative financial instruments to protect it from the exchange rate risk associated with the U.S. dollar and the euro. As of December 31, 2015, a 5% change in the euro/U.S. dollar exchange rate would not have a significant impact on Annapurna’s net loss.

Interest Rate Risk

Annapurna is also exposed to market risk through interest rate sensitivity, which is affected by changes in the general level of interest rates in the United States and Europe.

Annapurna’s convertible loan facility agreement with certain investors does not bear interest and its convertible promissory notes with Cornell University bear interest at fixed rates. As a result, a change in interest rates would not have an impact upon Annapurna’s future earnings and cash flow. If, however, any promissory

 

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note with Cornell is prepaid prior to conversion and additional debt is acquired to fund this debt prepayment, future earnings and cash flow may be affected by changes in interest rates. This effect would be realized in the periods subsequent to the periods when the notes are prepaid. Increases in interest rates would also impact Annapurna’s ability to borrow on favorable terms in the future.

Annapurna’s cash and cash equivalents as of December 31, 2015 consisted entirely of cash held in savings and checking accounts, and a sudden change in market interest rates would not be expected to have a material impact on its financial condition and/or results of operations.

 

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DIRECTORS AND EXECUTIVE OFFICERS OF AVALANCHE FOLLOWING THE TRANSACTION

Our Board is currently comprised of five directors. Pursuant to the Acquisition Agreement, upon the closing of the Transaction, the size of our Board will expand to seven directors and our Board will appoint three directors initially designated by Annapurna. All of the new directors will serve in staggered classes to be designated prior to closing. Our fifth current director, Paul D. Wachter, intends to resign as a member of our Board and Audit Committee upon the closing of the Transaction. If the Acquisition Agreement is terminated prior to the closing, his resignation will not become effective.

Following the closing of the Transaction, Amber Salzman, Ph.D., the current President and Chief Executive Officer of Annapurna, and Carlo Russo, M.D., the current Chief Medical Officer and Head of Development at Annapurna, will be appointed as executive officers of Avalanche, and have entered into employment and change in control and severance agreements with us, effective as of the date of the closing of the Transaction. Copies of Dr. Salzman’s offer letter and change in control and severance agreement are filed as Exhibits 10.2 and 10.3, respectively, to our Current Report on Form 8-K filed with the SEC on February 1, 2016.

The following table sets forth information regarding our executive officers and directors following the closing of the Transaction:

 

NAME

   AGE   

POSITION(S)

Executive Officers

     

Paul B. Cleveland

   59    Chief Executive Officer and Director

Amber Salzman, Ph.D.

   54    President, Chief Operating Officer and Director

Carlo Russo, M.D.

   63    Executive Vice President and Chief Medical Officer

Samuel B. Barone, M.D.

   42   

Senior Vice President, Clinical Development

Mehdi Gasmi, Ph.D.

   49    Chief Technology Officer

Shirley Braun, Ph.D.

   51    Vice President, Human Resources

Directors

     

Mark S. Blumenkranz, M.D.

   65    Chairman of the Board

Paul B. Cleveland

   59    Chief Executive Officer and Director

John P. McLaughlin

   64    Director

Steven D. Schwartz, M.D.

   54    Director

Amber Salzman, Ph.D.

   54    President, Chief Operating Officer and Director

Mitchell H. Finer, Ph.D.

   57    Director

Thomas Woiwode, Ph.D.

   44    Director

Executive Officers

The following is a brief biography of each of our executive officers, except for Mr. Cleveland, whose biographical information appears above under the section “Proposal No. 2—Election of Directors” beginning on page 32 and Dr. Salzman, whose biographical information appears below in this section:

Carlo Russo, M.D. has served as the Executive Vice President and Chief Medical Officer of Annapurna since July 2015. Prior to joining Annapurna, Dr. Russo worked at GlaxoSmithKline, plc since 2005, and most recently served there as a Senior Vice President in various research and development capacities, including as Head of the Alternative Development Programs, Head of the Cardiovascular & Metabolic Medicine Development Center, Founding Member and Head of Development of the Biopharm Unit and as Head of R&D of the Rare Diseases Unit. Under his leadership, GlaxoSmithKline filed and launched in the U.S. Tanzeum® for Type 2 diabetes, Benlysta® for Lupus, and more recently filed a Market Authorization Application in Europe for the gene therapy treatment of severe combined immunodeficiency syndrome (ADA-SCID) patients. Previously, Dr. Russo was President and Chief Executive Officer of VaxInnate Corporation, a vaccine company that

 

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developed products to prevent pandemic-flu and the Head of the Department of Global Strategic Regulatory Development, Vaccines and Biologics, including human papilloma virus and rotavirus vaccines, at Merck Research Laboratories. He has held academic appointments at Cornell University and is an author on 72 research papers. Dr. Russo received his M.D. from the University of Genoa Medical School.

Samuel B. Barone, M.D. Dr. Barone has served as Chief Medical Officer since June 2015. From October 2009 until June 2014, Dr. Barone served as a Medical Officer in the Office of Cellular, Tissue and Gene Therapies at the FDA. From October 2010 to June 2014, Dr. Barone also practiced ophthalmology as part of Retina Associates P.C., an eye-care provider. Prior to working at the FDA, between July and October 2009, Dr. Barone served as a staff physician practicing ophthalmology at the VA Medical Center in San Diego (part of the VA San Diego Healthcare System). Prior to that, Dr. Barone had a residency in ophthalmology at The New York Eye and Ear Infirmary, as well as a medical and surgical retina fellowship at the University of California, San Diego. Previously, Dr. Barone served on active duty as a flight surgeon for the United States Air Force service members at Andrews Air Force Base and at bases in Korea, Afghanistan and Iraq. He also performed ophthalmology consulting services for Ophthalmology Consultants, P.C., an ophthalmology consultancy, in October 2013 and January 2014. Dr. Barone received his B.S. in Biology from Boston College and his M.D. from The Pennsylvania State University College of Medicine.

Mehdi Gasmi, Ph.D. Dr. Gasmi has served as our interim Chief Scientific Officer since July 2015. Previously, he served as our Senior Vice President, Pharmaceutical Development from May 2015 to July 2015 and as Vice President, Pharmaceutical Development from November 2013 to May 2015. From December 2011 to November 2013, as principal of ClinVec Solutions, LLC, Dr. Gasmi provided AAV and lentiviral gene therapy consulting services to various companies, including to Avalanche between June 2013 to October 2013. Prior to that, Dr. Gasmi oversaw production of clinical batches of recombinant AAV and lentiviral gene therapy products for both Généthon, a gene therapy company, where he served as Vice President of Biomanufacturing from July 2009 to December 2011, and for Ceregene, a gene therapy company, where he served as Senior Director, Product Development from December 2001 to June 2009. Dr. Gasmi obtained his M.S. and his Ph.D. in Biochemistry from the Claude Bernard University in Lyon, France. He is a member of the American Society of Gene and Cell Therapy.

Shirley Braun, Ph.D. Dr. Braun has served as our Vice President of Human Resources since April 2015. Previously, she served at PlayStation Network - Sony Network Entertainment International, a software company, as a Senior Director of Transformation and Organization Development from February 2013 through April 2015. From November 2011 to April 2012, she served as Vice President, Human Resources at Magma Design Automation, a software company. Prior to that, she served as Vice President, Human Resources, at Cash Edge, a software company, between January 2011 to June 2011, and as a consultant and executive coach for companies such as Microsoft, Novafora and Guided Delivery between May 2009 and December 2010. Earlier in her career, Mrs. Braun served as a Managing Director of Human Resources at Lam Research, an engineering company, from May 2005 to April of 2009. Ms. Braun holds a Ph.D.in Organization Psychology from the California School of Professional Psychology, San Francisco, an M.A. in Industrial and Social Psychology, and a B.A. in Psychology from Bar Ilan University, Israel.

Directors

Upon the closing of the Transaction, our Board will expand to seven directors, comprised of four of Avalanche’s current directors – Mark S. Blumenkranz, M.D., Paul B. Cleveland, John P. McLaughlin and Steven D. Schwartz, M.D. – and three new directors initially designated by Annapurna – Amber Salzman, Ph.D., Mitchell Finer, Ph.D. and Thomas Woiwode, Ph.D. Our fifth current director, Paul D. Wachter, intends to resign as a member of our Board and Audit Committee upon the closing of the Transaction. If the Acquisition Agreement is terminated prior to closing, Mr. Wachter’s resignation will not become effective.

 

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The following is a brief biography of each person who will be a director of Avalanche at the closing of the Transaction, except for Drs. Blumenkranz and Schwartz and Messrs. Cleveland and McLaughlin, whose biographical information appears above under the section “Proposal No. 2: Election of Directors”:

Amber Salzman, Ph.D., has served as a director and the President and Chief Executive Officer of Annapurna since January 2014. Prior to founding Annapurna, Dr. Salzman served as chief executive officer of Alophera Therapeutics, Inc., a rare disease company, from January 2012 to December 2013 and as a director and the president and chief executive officer of Cardiokine, Inc., a specialty pharmaceutical company, from May 2009 until its acquisition by Cornerstone Therapeutics, Inc. in December 2011. Prior to that, as a member of GlaxoSmithKline plc’s R&D executive team, Dr. Salzman led an organization of around 2,000 employees and consultants that planned and managed GlaxoSmithKline’s drug-development projects and was accountable for clinical trials that were comprised of more than 30,000 patients worldwide. Dr. Salzman is also the president of the Stop ALD Foundation, a patient-advocacy group focused on driving improvements in treatments for patients with adrenoleukodystrophy and has led initiatives to accelerate drug development and moderate costs, as well as establish a Development Support Center, in India. She is on the board of directors of the Drexel University Dornsife School of Public Health and ALD Connect, Inc., which is a consortium of academic, industry and patient advocates. Dr. Salzman received a B.A. from Temple University and a Ph.D. from Bryn Mawr College. Based on Dr. Salzman’s knowledge of the research, development and commercialization of pharmaceutical products in a variety of therapeutic areas that she gained as a former executive at both startup and global pharmaceutical companies, Annapurna and we believe that Dr. Salzman brings experience and proven leadership in the pharmaceutical industry to the board of the combined company, as well as strong ties to patient advocates and the rare disease community, which will collectively offer great value to the board of combined company.

Mitchell H. Finer, Ph.D. has served as the managing director of MPM Capital, a venture capital firm, since September 2015, and is a founder of and a distinguished research fellow at Avalanche. Previously, he served as Chief Scientific Officer of bluebird bio, Inc., a biopharmaceutical company, from March 2010 through July 2015. Prior to joining bluebird, Dr. Finer served as senior vice president of development and operations for Novocell, Inc. (now ViaCyte, Inc.), a stem cell engineering company researching treatments for diabetes and other chronic diseases from November 2008 through March 2010. From July 2005 through November 2008, Dr. Finer served as chief executive officer of Intracel Holdings LLC. He was also a founder and vice president of research for Cell Genesys Inc., and a founder of Abgenix, Inc. Dr. Finer received his B.A. in biochemistry and bacteriology from the University of California at Berkeley and his Ph.D. in biochemistry and molecular biology from Harvard University. He completed a postdoctoral fellowship at the Whitehead Institute for Biomedical Research. Because of Dr. Finer’s operational, strategic and corporate leadership experience and his experience as a founder of numerous biopharmaceutical companies, Annapurna and we believe that Dr. Finer will bring experience and scientific expertise to the board of the combined company.

Thomas Woiwode, Ph.D. has served as a director of Annapurna since April 2014. Dr. Woiwode has been with Versant Ventures, a venture capital firm, since 2002 in various capacities, serving as a Venture Partner since 2011 and a Managing Director since 2014. He has served in a number of operating roles over this time, most recently as the chief operating officer of Okairos AG, a biopharmaceutical company developing genetic vaccines for major infectious diseases from April 2011 until May 2013. Dr. Woiwode led the process that culminated in the sale of Okairos to GlaxoSmithKline plc for $325 million. Prior to his role with Okairos, Dr. Woiwode co-founded EuroVentures, a wholly owned biotech incubator within Versant Ventures, and in this role, served as the founding chief business officer for three biotech companies created within Versant. Prior to his role as a Venture Partner, Dr. Woiwode was a Principal at Versant Ventures and served on the board of directors of Antipodean Pharmaceuticals, Inc., Metabolex, Inc. and Saegis Pharmaceuticals, Inc. Dr. Woiwode was a research scientist at XenoPort, Inc. before joining Versant. He earned his Ph.D. in organic chemistry as an NSF Fellow from Stanford University and graduated summa cum laude with a B.A. in English and received the Departmental Citation for his B.S. in Chemistry from the University of California, Berkeley. Dr. Woiwode also serves on the board of directors of Anokion SA, Audentes Therapeutics, Inc., CRISPR Therapeutics AG, Gritstone Oncology, Inc., Inception IBD, Inc., Kanyos Bio, Inc. and Therachon Holding AG. Dr. Woiwode was chosen to serve on the

 

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board of the combined company effective as of the closing of the Transaction because of his educational background, his experience as a board member and senior executive of biotechnology and pharmaceutical companies, and his experience as an investor in new life sciences companies. Annapurna and we believe that Dr. Woiwode brings experience and proven leadership in the pharmaceutical industry to the board of Annapurna and will do likewise to the board of combined company.

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS REFLECTING THE TRANSACTION

The following unaudited pro forma condensed combined balance sheet as of December 31, 2015 and the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 give effect to the Transaction and are based upon and derived from:

 

    Avalanche’s consolidated balance sheet and statement of operations information as of and for the year ended December 31, 2015 included in its audited consolidated financial statements as of and for the year ended December 31, 2015 included in the Annual Report on Form 10-K for the year ended December 31, 2015, filed by the Company with the SEC on March 3, 2016.

 

    Annapurna’s consolidated balance sheet and statement of operations as of and for the year ended December 31, 2015 included in its audited consolidated financial statements prepared in accordance with French GAAP as of and for the year ended December 31, 2015 included elsewhere in this proxy statement. The reconciliation of Annapurna’s consolidated balance sheet and statement of operations under French GAAP to U.S. GAAP is included in Note 3 – French GAAP to U.S. GAAP Reconciliation, in these unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial statements have been prepared using the acquisition method of accounting under accounting principles generally accepted in the United States. Avalanche has not completed a full, detailed valuation analysis necessary to determine the fair values of Annapurna’s identifiable assets to be acquired and liabilities to be assumed. For purposes of the pro forma balance sheet, as Avalanche has not yet determined fair values of acquired assets and liabilities, Avalanche estimated the fair value of Annapurna’s in-process research and development intangible assets to be acquired to be equal to the excess of the acquisition price over the book value of Annapurna’s net assets on December 31, 2015. The acquisition consideration was estimated assuming that the Transaction closes on March 14, 2016, the closing price of Avalanche common shares is $5.28 at that date, none of the vested outstanding Annapurna Options are exercised prior to the closing of the Transaction, Annapurna’s outstanding common stock and Series A preferred stock are exchanged into Avalanche common stock and Annapurna’s Series O preferred stock shares are canceled prior to the closing of the Transaction. Accordingly, the unaudited pro forma condensed combined financial statements include only preliminary estimates. The amounts of acquisition consideration, assets acquired and liabilities assumed that will be used in acquisition accounting will be based on their respective fair values as determined at the time of closing, and may differ significantly from these preliminary estimates.

The unaudited pro forma condensed combined financial statements have been prepared in accordance with the regulations of the SEC and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had Avalanche and Annapurna been a combined company during the specified periods. The unaudited pro forma condensed combined financial statements do 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 Transaction. The unaudited pro forma condensed combined financial statements also do not include any future integration costs.

 

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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 as well as the historical consolidated financial statements and related notes of Avalanche and Annapurna.

Unaudited Pro Forma Condensed Combined Balance Sheet

As of December 31, 2015

 

(in thousands)    Historical
Avalanche
    Historical
Annapurna
(Note 3)
    Pro Forma
Adjustments
    Notes     Avalanche
Unaudited Pro Forma
Combined
 

ASSETS

          

Current assets:

          

Cash and cash equivalents

   $ 221,348      $ 2,514      $ 7,877        (a   $ 231,739   

Marketable securities

     37,732        —          —            37,732   

Receivable from collaborative partner

     449        —          —            449   

Prepaid expenses and other current assets

     1,463        831        —            2,294   
  

 

 

   

 

 

   

 

 

     

 

 

 

Total current assets

     260,992        3,345        7,877          272,214   

Property and equipment, net

     3,187        197        —            3,384   

In-process research and development

     —          —          76,205        (k     76,205   

Deposit and other long-term assets

     140        —          —            140   
  

 

 

   

 

 

   

 

 

     

 

 

 

Total assets

   $ 264,319      $ 3,542      $ 84,082        $ 351,943   
  

 

 

   

 

 

   

 

 

     

 

 

 

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

          

Current liabilities:

          

Accounts payable

   $ 605      $ 1,533        —          $ 2,138   

Restructuring liabilities

     1,013        —          —            1,013   

Accrued expenses and other current liabilities

     4,007        3,841        300        (d     10,082   
         444        (e  
         1,490        (e  

Deferred rent, current portion

     66        —          —            66   

Deferred revenue, current portion

     883        —          —            883   

Convertible debt

     —          3,967        7,877        (a     —     
         949        (d  
         (12,793     (c  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total current liabilities

     6,574        9,341        (1,733       14,182   

Long-term liabilities:

          

Deferred rent, net of current portion

     447        —          —            447   

Deferred revenue, net of current portion

     4,706        —          —            4,706   

Other long-term liabilities

     —          355        —            355   
  

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities

     11,727        9,696        (1,733       19,690   

Preferred stock – Series A

     —          4,573        12,793        (c     —     
         (17,366     (k  

Stockholders’ equity (deficit):

          

Preferred Stock – Series O

     —          4        (4     (k     —     

Common stock

     3        3        (3     (k     4   
         1        (k  

Additional paid-in capital

     336,768        4,650        (4,650     (k     419,893   
         1,675        (f  
         81,450        (k  

Accumulated other comprehensive (loss) income

     (11     1        (1     (k     (11

Accumulated deficit

     (84,168     (15,385     (300     (d     (87,633
         (949     (b  
         (444     (e  
         (1,490     (e  
         16,778        (k  
         (1,675     (f  
  

 

 

   

 

 

   

 

 

     

 

 

 

Total stockholders’ equity (deficit)

     252,592        (10,727     90,388          332,253   
  

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities, preferred stock and stockholders’ equity (deficit)

   $ 264,319      $ 3,542      $ 84,082        $                 351,943   
  

 

 

   

 

 

   

 

 

     

 

 

 

See accompanying notes to the unaudited pro forma condensed combined financial statements.

 

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Unaudited Pro Forma Condensed Combined Statement of Operations

For the year ended December 31, 2015

(in thousands, except per share amounts)

 

     Historical
Avalanche
    Historical
Annapurna
(Note 3)
    Pro Forma
Adjustments
    Notes     Avalanche
Unaudited
Pro Forma
Combined
 

Revenues:

          

Collaboration revenue

   $ 2,319      $ —        $ —          $ 2,319   
  

 

 

   

 

 

   

 

 

     

 

 

 

Total revenues

     2,319        —          —            2,319   

Operating expenses:

          

Research and development

     25,462        10,996        3,680        (g     40,346   
         208        (h  

General and administrative

     22,107        1,397        259        (g     23,498   
         395        (h  
         (660     (j  

Restructuring charges

     2,573        —          —            2,573   
  

 

 

   

 

 

   

 

 

     

 

 

 

Total operating expenses

     50,142        12,393        3,882          66,417   
  

 

 

   

 

 

   

 

 

     

 

 

 

Operating loss

     (47,823     (12,393     (3,882       (64,098

Other income, net

          

Interest expense

     —          (370     284        (i     (86

Other income, net

     370        573        (501     (i     442   
  

 

 

   

 

 

   

 

 

     

 

 

 

Total other income, net

     370        203        (217       356   
  

 

 

   

 

 

   

 

 

     

 

 

 

Net loss attributable to common stockholders

   $ (47,453   $ (12,190   $ (4,099     $ (63,742
  

 

 

   

 

 

   

 

 

     

 

 

 

Net loss per share attributable to common stockholders – basic and diluted

   $ (1.86         $ (1.65
  

 

 

         

 

 

 

Weighted-average common shares outstanding – basic and diluted

     25,479          13,135        (k     38,614   
  

 

 

     

 

 

     

 

 

 

See accompanying notes to the unaudited pro forma condensed combined financial statements.

 

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NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL STATEMENTS

1. Description of the Acquisition and Basis of Presentation

On February 1, 2016, Avalanche Biotechnologies, Inc. (“Avalanche”) announced that it entered into a definitive agreement with Annapurna Therapeutics SAS (“Annapurna”), a privately-held biopharmaceutical company focused on advancing gene therapy for unmet medical needs, providing for the acquisition by Avalanche of all outstanding shares of Annapurna in exchange for approximately 13.1 million newly issued shares of Avalanche’s common stock and the conversion of all outstanding options or other rights to purchase capital stock of Annapurna (the “Annapurna Options”) into options relating to approximately 4.7 million shares of Avalanche’s common stock (the “Avalanche Options”). The number of newly issued shares and the number of shares that the Annapurna Options relate to are subject to adjustment based on the exercise of the Annapurna Options by their holders prior to the closing of the proposed transaction. Completion of the proposed transaction is subject to other customary closing conditions, including, among others, receipt of approval of Avalanche’s stockholders of the issuance of Avalanche common stock to Annapurna’s shareholders.

The unaudited pro forma condensed combined balance sheet at December 31, 2015 gives effect to the proposed transaction as if it had occurred on December 31, 2015. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 is presented as if the proposed transaction had occurred on January 1, 2015. The unaudited pro forma condensed combined financial information was prepared based on the audited historical financial information of Avalanche and Annapurna as of and for the year ended December 31, 2015. Certain reclassifications have been made to the historical financial statements of Annapurna to conform to the financial statement presentation adopted by the combined company. All such reclassifications have been included in the French GAAP reconciliation to U.S. GAAP in Note 3.

The euro-denominated historical statement of operations of Annapurna for the year ended December 31, 2015 has been converted into U.S. dollars using an exchange rate of $1.11 per €1.00, which represents the average U.S. dollar to euro exchange rate for the year. The euro-denominated historical balance sheet of Annapurna as of December 31, 2015 has been converted into U.S. dollars using an exchange rate of $1.09 per €1.00, which represents the U.S. dollar to euro exchange rate on December 31, 2015.

The proposed transaction is accounted for using the acquisition method of accounting, with Avalanche treated as the accounting acquiror. Under the acquisition method of accounting, identifiable assets and liabilities of Annapurna, including identifiable intangible assets, are recorded based on their estimated fair values as of the date of the closing of the proposed transaction. Goodwill is calculated as the difference between the estimated acquisition consideration and fair values of identifiable net assets acquired. For purposes of these unaudited pro forma combined condensed financial statements, the acquisition consideration was based on the market value of Avalanche’s common stock as of March 14, 2016. Total acquisition consideration as of this date is estimated to be $81.5 million. Total acquisition consideration net of Annapurna cash acquired of $10.4 million is estimated to be $71.1 million. The pro forma adjustments described below were developed based on Avalanche’s management’s assumptions and estimates, including assumptions relating to the consideration paid and the fair value of the identifiable assets acquired and liabilities assumed from Annapurna. The amounts of the acquisition consideration, assets acquired and liabilities assumed that will be used in acquisition accounting will be based on their respective fair values as determined at the time of closing, and may differ significantly from these preliminary estimates.

Prior to the closing of the proposed transaction, Annapurna is required to draw upon any unfunded loan amounts available under its approximately $12.8 million convertible loan facility agreement, dated as of July 31, 2015, as amended, and to take all action required to effect the conversion of the entire outstanding convertible notes balance into Annapurna’s preferred stock.

For pro forma purposes we assumed that Avalanche will issue 13.1 million shares of common stock in exchange for all of the issued and outstanding capital stock of Annapurna, including Annapurna unvested

 

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common stock shares issued to founders (vesting of which will be accelerated upon the closing of this Transaction), all currently outstanding Annapurna Options will be converted into the Avalanche Options to purchase 4.7 million of Avalanche’s common stock, and Annapurna’s Series O preferred stock will be canceled prior to the closing of the proposed transaction.

2. Preliminary Acquisition Consideration and Related Allocation

The total preliminary acquisition consideration is estimated as follows (in thousands):

 

     Amount  

Fair value of common stock, including shares issuable to founders

   $ 69,354   

Less: post-combination share-based compensation attributable to fully vested replacement shares issuable to founders

     (1,599

Plus: estimated fair value of the vested Annapurna options

     13,696   
  

 

 

 

Total preliminary acquisition consideration

   $ 81,451   
  

 

 

 

Fair value of newly issued common stock is calculated using the share price of Avalanche’s common stock on March 14, 2016.

Avalanche will issue options to purchase 4.7 million shares of Avalanche’s common stock in exchange for all outstanding Annapurna options to purchase 0.5 million shares of Annapurna common stock with an exercise price of €1.76, which represents an exchange ratio of 9.5615 of Avalanche Options for one Annapurna Option. Issued Avalanche Options will continue to have the same terms and conditions as the original Annapurna Options. The exercise price of Avalanche Options will be determined at the closing of the Transaction based on the market value of Avalanche’s common stock. For the purposes of these unaudited pro forma combined condensed financial statements, the exercise price of the Avalanche Options was estimated as $0.20.

The estimated fair values of unvested options and accelerated equity awards to be issued by Avalanche upon the Transaction are approximately $14.3 million, of which $1.7 million will be recognized as operating expenses immediately upon the closing of the proposed transaction and $12.6 million will be recorded as operating expenses over the remaining requisite service periods.

Tangible assets and liabilities: Tangible assets and liabilities were valued at their respective carrying amounts. Management believes that these amounts approximate their current fair values as of the deemed acquisition date of December 31, 2015.

Identifiable intangible assets: Identifiable intangible assets acquired include mainly in-process research and development projects. For pro forma purposes, management estimated fair value of acquired in-process research and development assets as $76.2 million, which represents the difference between the preliminary acquisition consideration and estimated fair value of acquired net assets as of December 31, 2015. As the acquisition closes and fair values of acquired tangible and intangible assets and liabilities assumed are determined, the excess of the acquisition consideration over the fair value of net assets acquired will be recorded to goodwill. Goodwill will relate to expected synergies of combining Avalanche and Annapurna technologies in gene therapy fields. Acquired in-process research and development intangible assets will be capitalized as of the acquisition date and will be subsequently accounted for as indefinite-lived intangible assets until completion or abandonment of the associated research and development efforts. Goodwill and indefinite-life intangible assets will be subject to periodic impairment testing, at least annually. Upon successful completion of the development process for an acquired in-process research and development project, determination as to the useful life of the asset will be made. The asset would then be considered a finite-lived intangible asset and amortization of the asset into earnings would begin over the remaining estimated useful life of the asset.

 

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Pre-acquisition contingencies: Avalanche has not currently identified any pre-acquisition contingencies where a liability is probable and the amount of the liability can be reasonably estimated. If information becomes available to management prior to the end of the measurement period (no longer than 12 months after the closing of the proposed transaction) which would indicate that a liability is probable and the amount can be reasonably estimated, such items will be reflected in the acquisition accounting.

The following table summarizes the preliminary allocation of the assets acquired and liabilities assumed based on their fair values on the assumed acquisition date (in thousands):

 

     Amount  

Cash and cash equivalents

   $ 10,391   

Prepaid expenses and other current assets

     831   

Property and equipment

     197   

Accounts payable, accrued expenses and other current liabilities

     (5,818

Other long-term liabilities

     (355
  

 

 

 

Total tangible assets acquired and liabilities assumed

   $ 5,246   
  

 

 

 

Indefinite-lived intangible assets:

  

In-process research and development

     76,205   
  

 

 

 

Total acquisition consideration

   $ 81,451   
  

 

 

 

3. French GAAP to U.S. GAAP Reconciliation and Presentation Reclassifications

The historical financial statements of Annapurna are presented in euros and have been prepared in accordance with French GAAP. Accordingly, certain adjustments have been made in order to (i) reconcile the financial statements to U.S. GAAP and conform with Avalanche’s presentation and classifications and (ii) translate the financial statements to U.S. dollars.

 

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Annapurna Condensed Consolidated Balance Sheet

As of December 31, 2015 (in thousands)

 

     Under French
GAAP

in EUR
    Adjustments to
reconcile to
U.S. GAAP and
to conform to
Avalanche’s
presentation

in EUR
    Notes     Under U.S.
GAAP

in EUR
    Under U.S.
GAAP
Converted in USD
at €1:$1.09 and
shareholders’
deficit at
historical rates
 

ASSETS

          

Current assets:

          

Cash and cash equivalents

   2,301      —          2,301      $ 2,514   

Accounts receivable

     8        (8     (vi     —          —     

Prepaid expenses

     8        (8     (vi     —          —     

Other receivables

     695        (695     (vi     —          —     

Prepaid expenses and other current assets

     —          761        (vi     761        831   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     3,012        50          3,062        3,345   

Property and equipment, net

     180        —            180        197   

Intangible assets

     47        (47     (v     —          —     

Deposits

     50        (50     (vi     —          —     
  

 

 

   

 

 

     

 

 

   

 

 

 

Total assets

   3,289      (47     3,242      $ 3,542   
  

 

 

   

 

 

     

 

 

   

 

 

 

LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS’ DEFICIT

          

Current liabilities:

          

Accounts payable and accrued expenses

   1,924      (1,924     (vi   —        $ —     

Other current liabilities

     347        (347     (vi     —          —     

Accounts payable

     —          1,403        (vi     1,403        1,533   

Accrued expense and other liabilities

     —          2,648        (iii     3,516        3,841   
       868        (vi    

Convertible loan

     4,500        (869     (iv     3,631        3,967   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     6,771        1,779          8,550        9,341   

Long-term liabilities:

          

Financial liabilities

     500        (175     (iv     325        355   
  

 

 

   

 

 

     

 

 

   

 

 

 

Total liabilities

     7,271        1,604          8,875