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Preferred Stock

12 Months Ended

Dec. 31, 2018

(10)	Preferred Stock

Preferred Stock of Synlogic, Inc.

The Company’s preferred stock may be issued from time to time in one or more series, with each such series to consist of such number of shares and to have such terms as adopted by the board of directors. Authority is given to the board of directors to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitation or restrictions thereof, including without limitation, dividend rights, conversion rights, redemption privileges and liquidation preferences.

Preferred Stock of Private Synlogic

Prior to the Merger, Private Synlogic had contingently redeemable preferred stock and three series of convertible preferred stock. On the Merger Closing Date, Mirna issued shares of its common stock to holders of these shares, at an exchange rate of 0.5532 shares of common stock, after taking into account the Reverse Stock Split, in exchange for each share of preferred stock outstanding immediately prior to the Merger.

Pursuant to, and at the time of, the 2017 Reorganization, preferred stock was granted to all holders of preferred units. The Synlogic preferred stock had substantially similar rights and preferences as the preferred units, except that the preferred stock was convertible into common stock at the option of the holder, on a one-for-one basis, subject to an antidilution adjustment. Conversion of the preferred stock would have been automatically triggered upon a firm-commitment underwritten public offering or upon a supermajority preferred interest vote (see (a)(v) below).

After the 2017 Reorganization, in May 2017, the Company sold and issued 2,882,679 shares of Series C preferred stock at $8.06 per share to investors for total consideration of approximately $40.4 million, net of offering costs of approximately $1.6 million. The Series C preferred stock was issued with the same terms as the then-existing preferred stock.

Rights and Preferences

Preferred stock had the following rights and preferences:

(i)

Voting

The holders of the preferred stock were entitled to vote, together with the holders of common stock, on all matters submitted to stockholders for a vote, except with respect to matters on which Delaware General Corporation Law required that a vote would be by a separate class, in which case the holders of the preferred stock would have voted separately as a class. Each holder of preferred stock was entitled to the number of votes equal to the number of shares of common stock into which each share of preferred stock was convertible at the time of such vote.

(ii)

Dividends

In the event that a dividend was declared for the holders of common stock, the holders of the preferred stock would have been entitled to the amount of dividends on an as-converted basis. Through December 31, 2018 and December 31, 2017, no dividends were declared or paid.

(iii)

Liquidation Preference

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of preferred stock then outstanding would have been entitled to be paid, on a pari passu basis, out of the assets of the Company available for distribution to its stockholders before any payment was made to the holders of common stock by reason of their ownership thereof, with respect to each series of preferred stock, an amount per share equal to the greater of (i) the applicable original issue price, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares been converted into common stock immediately prior to such liquidation, dissolution or winding up of the Company.

If upon any such liquidation, dissolution or winding up of the Company, the assets of the Company available for distribution to its stockholders were insufficient to pay the holders of shares of preferred stock the full amount to which they should have been entitled, the holders of shares of preferred stock would share ratably in any distribution of the assets available for distribution in proportion to the respective amounts that would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

(iv)

Par Value

Par value was assigned as $0.0001.

(v)

Conversion

Each share of preferred stock, at the option of the holder, was convertible into that number of fully paid shares of common stock as determined by dividing the sum of the original issue price, plus any declared but unpaid dividends, by the conversion price in effect at the time of conversion. The initial conversion price for each share of preferred stock would have been the original issue price, subject to adjustment in accordance with antidilution provisions. Each share of preferred stock would have been automatically converted upon (i) the closing of a firm commitment underwritten public offering in which the public offering price exceeded $12.09 (adjusted to reflect subsequent stock dividends, stock splits or recapitalization) and the aggregate proceeds raised were not less than $50,000,000, or (ii) upon the vote or written consent of a supermajority preferred interest (or a majority preferred interest in the event of a public offering that did not result in the offering price or aggregate proceeds amount set forth in clause (i) above).

(vi)

Redemption

The preferred stock was not redeemable except upon a deemed liquidation event. Deemed liquidation events included a merger or acquisition in which the majority of the stock of the pre-merger corporation was not owned by the majority of the stockholders of the post-merger entity or the sale of all or substantially all of the Company’s assets. All holders of equally and more subordinated equity instruments of the Company would have been entitled to receive the same form of consideration upon the occurrence of a deemed liquidation event, consequently, the preferred stock was classified as permanent equity.

In September 2014, the Company entered into a letter agreement with the Bill & Melinda Gates Foundation (“the Gates Foundation”) with respect to the Gates Foundation purchase of 781,693 shares of the Company’s Series A Preferred Stock. The Gates Foundation investment was made in three tranches of 201,163 shares in September 2014, 218,646 shares in May 2015 and 361,884 shares in February 2016. Under the letter agreement, the Company was required to spend the approximately $5.0 million invested by the Gates Foundation for research on a particular disease, further develop the Company’s proprietary technology platform and provide assistance with access to use of such technology in developing countries. If the Company failed to spend the amount appropriately, or defaulted under certain other commitments in the agreement and the Company did not cure such default within 90 days of notice, if requested by the Gates Foundation, the Company would have been obligated to redeem the shares of Series A Preferred Stock or shares of common stock into which they had converted then held by the Gates Foundation or find a third-party to purchase such shares at a price equal to the greater of the initial purchase price and the then current fair value of such shares. In either case, if the Company, over the 6 months following such redemption, had sold substantially all of its equity or assets or completed an initial public offering at a value greater than 200% of the price paid upon redemption, then the Company would have had to reimburse the Gates Foundation for the difference. As of December 31, 2017, all obligations with respect to the Gates Foundation investment have been satisfied.

Participation Rights in Future Equity Issuances

For series of preferred stock that were issued in multiple tranches, all holders of preferred stock had a pro rata right and obligation, based on their percentage equity ownership within the series, to participate in subsequent issuances within the same series of equity securities of the Company approved by 70% vote of holders of preferred stock. Should any such holder have chosen not to purchase its full pro rata share, they would have been deemed a defaulting purchaser and all preferred stock held by a defaulting purchaser would have been automatically converted into common stock of the Company.