Kalaris Therapeutics, Inc 8-K, filed Mar 18, 2025
Kalaris Therapeutics, Inc. (KLRS)
About this 8-K
Kalaris Therapeutics, Inc filed this 8-K on March 18, 2025.
Items reported
- Item 2.01: Completed an acquisition or sale of assets
- Item 2.02: Financial results
- Item 5.01: Change in control
- Item 5.02: Director or officer change, or executive pay
- Item 5.03: Charter or bylaw amendment, or fiscal year change
- Item 5.06: Change in shell company status
- Item 7.01: Regulation FD disclosure
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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(Exact name of registrant as specified in its charter)
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Kalaris Therapeutics, Inc.
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Introductory Note
On March 18, 2025 (the “Closing Date”), AlloVir, Inc., a Delaware corporation (“AlloVir”), consummated the previously announced merger (the “Merger”) pursuant to the terms of the Agreement and Plan of Merger, dated as of November 7, 2024 (the “Merger Agreement”), by and among AlloVir, Aurora Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of AlloVir (“Merger Sub”) and Kalaris Tx, Inc. (formerly Kalaris Therapeutics, Inc.), a Delaware corporation (“Legacy Kalaris”).
In connection with the Merger, (i) at the effective time of the Merger (the “Effective Time”), Merger Sub merged with and into Legacy Kalaris, with Legacy Kalaris continuing as a wholly-owned subsidiary of AlloVir and the surviving corporation of the Merger and, after giving effect to the Merger, Legacy Kalaris became a wholly-owned subsidiary of AlloVir (together with its consolidated subsidiary, the “Combined Company”), and immediately following the Effective Time, AlloVir changed its name to “Kalaris Therapeutics, Inc.” At the Effective Time, the Combined Company’s business became primarily the business conducted by Legacy Kalaris. The Combined Company is now a clinical-stage biopharmaceutical company focused on developing and commercializing innovative therapeutics aimed at becoming the standard of care for prevalent retinal diseases for which there is a major unmet medical need.
Unless the context otherwise requires, as used herein, references to “Kalaris,” “we,” “us,” “our,” and the “Company” refer to the Combined Company. All references herein to the “Board” refer to the board of directors of the Combined Company. All references herein to the “Closing” refer to the closing of the transactions contemplated by the Merger Agreement.
| Item 2.01. | Completion of Acquisition or Disposition of Assets. |
As previously disclosed, on March 12, 2025, AlloVir held a special meeting of stockholders (the “Special Meeting”) at which the AlloVir stockholders considered and approved, among other matters, (i) the issuance of shares of AlloVir common stock, par value $0.0001 per share (“AlloVir Common Stock”), which represented more than 20% of the shares of AlloVir Common Stock outstanding immediately prior to the Merger, to stockholders of Legacy Kalaris, pursuant to the terms of the Merger Agreement (the “Common Stock Issuance”), and (ii) the change of control resulting from the Merger and the Common Stock Issuance pursuant to Nasdaq Listing Rules 5635(a) and 5635(b), respectively.
In accordance with the terms and subject to the conditions of the Merger Agreement, at the Effective Time, each share of Legacy Kalaris preferred stock, par value $0.00001 per share, was converted into one share of Legacy Kalaris common stock, par value $0.00001 per share (“Legacy Kalaris Common Stock” and such conversion, the “Legacy Kalaris Preferred Stock Conversion”), and (ii) (a) each share of Legacy Kalaris Common Stock issued and outstanding (after giving effect to the Legacy Kalaris Preferred Stock Conversion and excluding shares (1) held as treasury stock and automatically cancelled pursuant to the Merger Agreement, (2) owned, directly or indirectly, by AlloVir or Merger Sub immediately prior to the Effective Time or (3) as to which appraisal rights have been properly exercised in accordance with Delaware law, but including restricted shares of Legacy Kalaris Common Stock that were unvested and outstanding immediately prior to the Effective Time and any shares expressly excluded in the definition of Kalaris Outstanding Shares (as defined in the Merger Agreement)) was converted into and became exchangeable for the right to receive a number of shares of AlloVir Common Stock based on a ratio calculated in accordance with the Merger Agreement which was equal to 0.2016 (the “Exchange Ratio”), (b) each award of restricted shares of Legacy Kalaris Common Stock that was unvested and outstanding was converted into and became exchangeable for the right to receive a number of restricted shares of AlloVir Common Stock based on the Exchange Ratio and (c) each outstanding option to purchase shares of Legacy Kalaris Common Stock granted by Legacy Kalaris under Kalaris’ 2019 Equity Incentive Plan, as amended (the “2019 Plan”) whether or not vested, was converted into an option to acquire a number of shares of AlloVir Common Stock on the same terms and conditions (including the same vesting and exercisability terms and conditions) as were applicable under the 2019 Plan and the applicable option award agreement immediately prior to the Effective Time, with necessary adjustments to the number of shares and exercise price to reflect the Exchange Ratio. The Merger is intended to qualify for federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
In addition, immediately prior to the Effective Time, (i) the outstanding principal and accrued but unpaid interest on convertible notes issued by Legacy Kalaris in 2025 (other than the AlloVir Note (as defined below)) converted into shares of Series B-2 Preferred Stock of Legacy Kalaris at a price of $4.7851 per share, which then converted on a one-for-one basis into shares of Legacy Kalaris Common Stock, and (ii) the outstanding principal and accrued but unpaid interest on convertible notes issued by Legacy Kalaris in 2024 converted into shares of Legacy Kalaris Common Stock at a price of $1.25 per share.
In January 2025, Legacy Kalaris issued a convertible promissory note in an aggregate principal amount of up to $7.5 million to AlloVir (the “AlloVir Note”) under which AlloVir funded a principal amount of $3.75 million in January 2025. The AlloVir Note accrued interest on the initial advance commencing on the date of such advance, at an interest rate of 8.0% per annum. At the Effective Time, the AlloVir Note was cancelled.
In addition, immediately prior to the Effective Time, each option to purchase shares of AlloVir Common Stock (each, an “AlloVir Option”) that was outstanding immediately prior to the Effective Time, whether vested or unvested, survived the Closing and remains outstanding in accordance with its terms, provided that (i) each unexercised and outstanding AlloVir Option with an exercise price per share equal to or greater than $92.00 was cancelled for no consideration, and (ii) each AlloVir Option that had an exercise price per share less than $92.00, was unvested and unexercised as of the Effective Time, was accelerated in full.
The aggregate number of shares of Combined Company Common Stock that AlloVir issued to Legacy Kalaris’ securityholders (including all holders of outstanding convertible notes) at the Closing is 13,634,744, resulting in approximately 18,702,413 shares of Combined Company Common Stock, being issued and outstanding immediately following the Effective Time. This number reflects, as of immediately prior to the Effective Time, each outstanding and unvested AlloVir restricted stock unit being accelerated in full and settled in shares of AlloVir Common Stock. As a result, immediately following the Effective Time, (i) Legacy Kalaris securityholders owned approximately 74.47% of the outstanding shares of Combined Company Common Stock on a fully-diluted basis and (2) pre-closing AlloVir securityholders owned approximately 25.53% of the outstanding shares of Combined Company Common Stock on a fully-diluted basis. The Combined Company registered the issuance of the Combined Company Common Stock to Legacy Kalaris securityholders in the Merger on a Registration Statement on Form S-4, as amended (SEC File No. 333-283678) (the “Registration Statement”) that was declared effective by the Securities and Exchange Commission (the “SEC”) on February 10, 2025.
The Combined Company Common Stock, which was previously listed on The Nasdaq Capital Market and traded under the ticker symbol “ALVR” through the close of business on March 18, 2025, will commence trading on The Nasdaq Global Market under the ticker symbol “KLRS” on March 19, 2025, and will be represented by a new CUSIP number: 482929 106.
The material terms and conditions of the Merger Agreement are described in the definitive proxy statement/prospectus (the “Proxy Statement/Prospectus”) included in the Registration Statement, in the section entitled “Merger Agreement” beginning on page 219 of the Proxy Statement/Prospectus, which is incorporated herein by reference. The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by the full text of such agreement, a copy of which is filed hereto as Exhibit 2.1 and is incorporated herein by reference.
FORM 10 INFORMATION
Cautionary Note Regarding Forward-Looking Statements
This Current Report on Form 8-K and the documents incorporated by reference in this Current Report on Form 8-K contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that involve substantial risk and uncertainties.
All statements, other than statements of historical fact, contained or incorporated by reference in this Current Report on Form 8-K, including statements regarding the strategy, future operations, future financial position, projected costs, prospects, plans and objectives of management of the Combined Company, including those relating to the Merger, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,”
“expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are based on current expectations and beliefs of the management of the Combined Company, as well as assumptions made by, and information currently available to, the management of the Combined Company and are subject to risks and uncertainties. There can be no assurance that future developments affecting the Combined Company will be those that we have anticipated. Forward-looking statements include, but are not limited to, statements concerning the following:
| • | the future operations of the Combined Company, including research and development activities; |
| • | the nature, strategy and focus of the Combined Company; |
| • | the development and commercial potential and potential benefits of any product candidate of the Combined Company, including expectations around intellectual property protection; |
| • | anticipated clinical drug development activities and related timelines, including the expected timing for announcement of data and other clinical results; |
| • | the uncertainties associated with the Combined Company’s product candidate, as well as risks associated with the clinical development and regulatory approval of its product candidate, including potential delays in the completion of clinical trials; |
| • | expectations regarding the therapeutic benefits, clinical potential and clinical development of TH103; |
| • | risks related to the inability of the Combined Company to obtain sufficient additional capital to continue to advance its product candidate; |
| • | uncertainties in obtaining successful clinical results for product candidates and unexpected costs that may result therefrom; |
| • | risks related to the failure to realize any value from any product candidates being developed and anticipated to be developed in light of inherent risks and difficulties involved in successfully bringing product candidates to market; |
| • | the ability to obtain, maintain, and protect intellectual property rights related to product candidates; |
| • | changes in regulatory requirements and government incentives; |
| • | the Combined Company’s competitive position and expectations regarding developments and projections relating to its competitors and any competing therapies that are or become available; |
| • | potential adverse reactions or changes to business relationships resulting from the completion of the Merger; |
| • | risks associated with the possible failure to realize, or that it may take longer to realize than expected, certain anticipated benefits of the Merger, including with respect to future financial and operating results; and |
| • | the risk of involvement in litigation, including securities class action litigation, that could divert the attention of the management of the Combined Company, harm the Combined Company’s business and for which the Combined Company may not be sufficient insurance coverage to cover all costs and damages. |
The Combined Company may not actually achieve the plans, intentions or expectations disclosed in its forward-looking statements, and you should not place undue reliance on its forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements the Combined Company makes. The Combined Company has included important factors in this Current Report on Form 8-K under the heading “Risk Factors” that it believes could cause actual results or events to differ materially from the forward-looking statements that it makes. Moreover, the Combined Company operates in a competitive and rapidly changing environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties, nor can management assess the impact of all factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements it may make. You should read this Current Report on Form 8-K and the documents that are filed or incorporated by reference as exhibits to this Current Report on Form 8-K with the understanding that the Combined Company’s actual future results may be materially different from what it expects. The forward-looking statements contained in this Current Report on Form 8-K are made as of the date of this Current Report, and the Combined Company does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Business, Properties and Legal Proceedings
The information set forth in the “Business Section of Kalaris Therapeutics, Inc.” attached as Exhibit 99.3 hereto is incorporated herein by reference.
Risk Factors
The information regarding the risks associated with the Combined Company’s business and operations set forth in the “Risk Factors of Kalaris Therapeutics, Inc.” attached as Exhibit 99.2 hereto is incorporated herein by reference.
Financial Information
Audited Financial Statements
The audited financial statements of Legacy Kalaris as of and for the years ended December 31, 2024 and 2023 and the related notes thereto are set forth in Item 9.01 of this Current Report on Form 8-K and are incorporated herein by reference.
These audited financial statements should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein.
Unaudited Pro Forma Condensed Combined Financial Information
The unaudited pro forma condensed combined financial information of the Combined Company as of and for the year ended December 31, 2024 and the related notes thereto are set forth in Item 9.01 of this Current Report on Form 8-K and are incorporated herein by reference.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Legacy Kalaris as of and for the years ended December 31, 2024 and 2023 is filed as Exhibit 99.4 hereto and is incorporated herein by reference.
Management’s Discussion and Analysis of Financial Condition and Results of Operations of AlloVir as of and for the years ended December 31, 2024 and 2023 is included in AlloVir’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on March 7, 2024 (the “AlloVir Annual Report”) beginning on page 88 and is incorporated herein by reference.
Additional information regarding management’s discussion and analysis of the financial condition and results of operations prior to the Merger for AlloVir and Legacy Kalaris is included in the Proxy Statement/Prospectus, in the sections entitled “AlloVir Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 364 and “Kalaris’ Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 380, which are incorporated herein by reference.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the beneficial ownership of Combined Company Common Stock immediately following the consummation of the Merger, for:
| • | each director of the Combined Company; |
| • | each named executive officer of the Combined Company; |
| • | all of the Combined Company’s directors and executive officers as a group; and |
| • | each person, or group of affiliated persons, who is the beneficial owner of greater than 5% of Combined Company Common Stock. |
The column entitled “Percentage of Shares Beneficially Owned” is based on a total of 18,702,413 shares of Combined Company Common Stock outstanding immediately following the consummation of the Merger.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to Combined Company Common Stock. Shares of Combined Company Common Stock that a person or entity has the right to acquire within 60 days of March 18, 2025 are deemed outstanding for purposes of computing the percentage ownership of the person or entity holding such rights, but are not deemed outstanding for
purposes of computing the percentage ownership of any other person or entity. Unless otherwise indicated, the persons or entities identified in the table below have sole voting power and sole investment power with respect to the shares of Combined Company Common Stock beneficially owned by them, subject to community property laws, where applicable.
| Name of Beneficial Owner | Number of Shares Beneficially Owned |
Percentage of Shares Beneficially Owned |
||||||
| 5% Stockholders: | ||||||||
Samsara BioCapital, L.P. (1) |
11,444,503 | 61.19 | % | |||||
| Named Executive Officers and Directors: | ||||||||
Anthony Adamis, M.D. (2) |
29,090 | * | ||||||
Srinivas Akkaraju, M.D., Ph.D. (3) |
11,444,503 | 61.19 | % | |||||
Michael Dybbs, Ph.D. |
— | — | ||||||
Napoleone Ferrara, M.D. (4) |
504,000 | 2.69 | % | |||||
David Hallal (5) |
855,543 | 4.57 | % | |||||
Morana Jovan-Embiricos, Ph.D. (6) |
1,156,652 | 6.18 | % | |||||
Andrew Oxtoby (7) |
139,011 | * | ||||||
Samir Patel, M.D. (8) |
570,212 | 3.04 | % | |||||
Diana Brainard, M.D. (9) |
31,450 | * | ||||||
Edward Miller (10) |
21,575 | * | ||||||
Brett Hagen (11) |
2,832 | * | ||||||
Vikas Sinha (12) |
774,118 | 4.14 | % | |||||
All Current Executive Officers and Directors as a group (9 persons) (13) |
13,981,411 | 73.91 | % | |||||
| * | Represents beneficial ownership of less than 1%. |
| (1) | Consists of 11,444,503 shares of Combined Company Common Stock held by Samsara BioCapital, LP (“Samsara LP”). Samsara BioCapital GP, LLC (“Samsara LLC”) is the general partner of Samsara LP and may be deemed to beneficially own the shares held by Samsara LP. Dr. Srinivas Akkaraju, MD, Ph.D., has voting and investment power over the shares held by Samsara LLC and, accordingly, may be deemed to beneficially own the shares held by Samsara LP. Samsara LLC disclaims beneficial ownership in these shares except to the extent of its respective pecuniary interest therein. |
| (2) | Consists of 29,090 shares of Combined Company Common Stock underlying options under the 2019 Plan held by Anthony Adamis exercisable within 60 days of March 18, 2025. |
| (3) | Consists of the shares of Combined Company Common Stock held by Samsara LP described in note (1) above. |
| (4) | Consists of 504,000 shares of Combined Company Common Stock held by Napoleone Ferrara. |
| (5) | Consists of (a) 93,202 shares of Combined Company Common Stock held by David Hallal, (b) 31,346 shares of Combined Company Common Stock held by The Hallal Family Irrevocable Trust 2012, (c) 6,006 shares of Combined Company Common Stock held by Terrie A. Hallal Family Irrevocable Trust 2012 and (d) 724,989 shares of Combined Company Common Stock held by ElevateBio LLC. Mr. Hallal is a trustee of the previously listed trusts and may be deemed to beneficially own these securities. Mr. Hallal is the Chairman and Chief Executive Officer of ElevateBio LLC. Mr. Hallal and Morana Jovan-Embiricos, Ph.D., members of the board of directors of ElevateBio LLC, may be deemed to have shared voting and investment power over the shares of Combined Company Common Stock held of record by ElevateBio LLC. Such persons disclaim beneficial ownership of all shares of Combined Company Common Stock held by ElevateBio LLC except to the extent of any indirect pecuniary interests therein. |
| (6) | Consists of (a) 4,356 shares of Combined Company Common Stock held by Morana Jovan-Embiricos, Ph.D., (b) 29,046 shares of Combined Company Common Stock held by F2 TPO Investment, LLC, (c) 89,560 shares of Combined Company Common Stock held by F2 MG Ltd., (d) 88,634 shares of Combined Company Common Stock held by F2 MC, LLC, (e) 182,342 shares of Combined Company Common Stock held by F2 Capital I 2020 LLC, and (f) 37,725 shares of Combined Company Common Stock held by F2 |
| Bioscience AV 2022 LLC and (g) 724,989 shares of Combined Company Common Stock held by ElevateBio LLC. Dr. Jovan-Embiricos is a director of ElevateBio LLC. Dr. Jovan-Embiricos and David Hallal, members of the board of directors of ElevateBio LLC, may be deemed to have shared voting and investment power over the shares of Combined Company Common Stock held of record by ElevateBio LLC. Such persons disclaim beneficial ownership of all shares of Combined Company Common Stock held by ElevateBio LLC except to the extent of any indirect pecuniary interests therein. The mailing address for F2-TPO Investment, LLC, F2 MC, LLC and F2 Capital I 2020 LLC is c/o Singer McKeon, Inc., 8 West 28th Street, Suite 1001, New York, NY 10018. The mailing address for F2 MG Ltd. is PO Box 3175, Road Town, Tortola, BVA, with correspondence address at c/o LJ Fiduciary, 8 Rue Saint-Leger, CH 1205, Geneva, Switzerland. Morana Jovan-Embiricos, Ph.D. is a member of the Board and is the founding director of Globeways Holdings Limited, which is the appointed manager of each F2 MG Ltd., F2-TPO Investments, LLC, F2 MC, LLC and F2 Capital I 2020 LLC and makes investment decisions on behalf of such entities with respect to shares of common stock held by such entities. Morana Jovan-Embiricos, Ph.D. expressly disclaims beneficial ownership of the securities held by F2 MG Ltd., F2-TPO Investments, LLC, F2 MC, LLC and F2 Capital I 2020 LLC. |
| (7) | Consists of 139,011 shares of Combined Company Common Stock underlying options under the 2019 Plan held by Andrew Oxtoby exercisable within 60 days of March 18, 2025. |
| (8) | Consists of (i) 252,000 shares of Combined Company Common Stock held by Samir Patel, (ii) 100,800 shares of Combined Company Common Stock held by S&S New Hampshire Trust (the “S&S Trust”), (iii) 175,489 shares of Combined Company Common Stock held by the Thomas Elden 2021 Ajax Trust (the “Ajax Trust”), of which Dr. Patel is trustee, and (iv) 41,923 shares of Combined Company Common Stock underlying options under the 2019 Plan exercisable within 60 days of March 18, 2025. Dr. Patel may be deemed to beneficially own the shares held by S&S Trust and the Ajax Trust. |
| (9) | Consists of 31,450 shares of Combined Company Common Stock held by Diana Brainard. |
| (10) | Consists of (a) 6,517 shares of Combined Company Common Stock held by Edward Miller and (b) 15,058 shares of Combined Company Common Stock held by The Miller Family 2019 Irrevocable Dynasty Trust. Mr. Miller is a trustee of the previously listed trust and may be deemed to beneficially own these securities. |
| (11) | Consists of 2,832 shares of Combined Company Common Stock held by Brett Hagen. |
| (12) | Consists of (a) 49,129 shares of Combined Company Common Stock held by Vikas Sinha and (b) 724,989 shares of Combined Company Common Stock held by ElevateBio LLC. Mr. Sinha is a director and the Chief Financial Officer of ElevateBio LLC. Mr. Sinha, David Hallal and Morana Jovan-Embiricos, Ph.D., members of the board of directors of ElevateBio LLC, may be deemed to have shared voting and investment power over the shares of Combined Company Common Stock held of record by ElevateBio LLC. Such persons disclaim beneficial ownership of all shares of Combined Company Common Stock held by ElevateBio LLC except to the extent of any indirect pecuniary interests therein. |
| (13) | Consists of (i) 13,768,028 shares of Combined Company Common Stock and (ii) 213,383 shares of Combined Company Common Stock underlying options of the Combined Company exercisable within 60 days of March 18, 2025, each as beneficially owned by the Combined Company’s current executive officers and directors. |
Directors and Executive Officers
The information set forth in Item 5.02 of this Current Report on Form 8-K is incorporated herein by reference.
Director Compensation
A description of the compensation of the directors of AlloVir and Legacy Kalaris before the consummation of the Merger is set forth in the Proxy Statement/Prospectus in the sections titled “AlloVir Director Compensation” beginning on page 260 of the Proxy Statement/Prospectus and “Kalaris Executive and Director Compensation” beginning on page 263 of the Proxy Statement/Prospectus, respectively, and that information is incorporated herein by reference.
The information set forth in Item 5.02 of this Current Report on Form 8-K under the heading “Non-Employee Director Compensation” is incorporated herein by reference.
Executive Compensation
A description of the compensation of the named executive officers of AlloVir and the compensation of the named executive officers of Legacy Kalaris is set forth in the sections titled “AlloVir Executive Compensation” beginning on page 252 of the Proxy Statement/Prospectus and “Kalaris Executive and Director Compensation” beginning on page 263 of the Proxy Statement/Prospectus, respectively, and that information is incorporated herein by reference.
The information set forth in Item 5.02 of this Current Report on Form 8-K under the headings “2019 Equity Incentive Plan” and “2020 Stock Option and Grant Plan” is incorporated herein by reference.
Certain Relationships and Related Party Transactions
The information set forth in the section of the Proxy Statement/Prospectus entitled “Certain Relationships and Related Party Transactions of the Combined Company” beginning on page 407 is incorporated herein by reference.
Director Independence
The information set forth in the section of the Proxy Statement/Prospectus entitled “Management Following the Merger - Director Independence” beginning on page 403 is incorporated herein by reference.
Nasdaq rules require a majority of a listed company’s board of directors to be comprised of independent directors within one year of listing. In addition, Nasdaq rules require that audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act, and compensation committee members must also satisfy the independence criteria set forth in Rule 10C-1 under the Exchange Act. Under applicable Nasdaq rules, a director will only qualify as an “independent director” if, in the opinion of the listed company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries. In order to be considered independent for purposes of Rule 10C-1, the board must consider, for each member of a compensation committee of a listed company, all factors specifically relevant to determining whether a director has a relationship to such company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (1) the source of compensation of the director, including any consulting advisory or other compensatory fee paid by such company to the director; and (2) whether the director is affiliated with the company or any of its subsidiaries or affiliates.
As of the Effective Time, Samsara LP beneficially owned a majority of the voting power of all outstanding shares of Combined Company Common Stock. As a result, the Combined Company is a “controlled company” within the meaning of the corporate governance standards of Nasdaq. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance standards, including the requirements that (i) a majority of the board of directors consist of independent directors; (ii) director nominations be made, or recommended to the full board of directors, by independent directors or by a nominating committee that is composed entirely of independent directors that has adopted a written charter addressing the nominations process; and (iii) the compensation committee be composed entirely of independent directors.
The Board undertook a review of the composition of the Board and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, the Board has determined that David Hallal, Napoleone Ferrara, Anthony Adamis and Morana Jovan-Embiricos are “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing requirements and rules of Nasdaq, including, in the case of the members of the Audit Committee of the Board (the “Audit Committee”), the independence criteria set forth in
Rule 10A-3 under the Exchange Act, and in the case of the members of the Compensation Committee of the Board (the “Compensation Committee”), the independence criteria set forth in Rule 10C-1 under the Exchange Act. In making such determination, the Board considered the relationships that each such non-employee director had with the Combined Company and all other facts and circumstances that the Board deemed relevant in determining his or her independence, including the beneficial ownership of the Combined Company’s capital stock by each non-employee director. As a result, the Combined Company is relying on certain of the exemptions available to a “controlled company”, including that the Compensation Committee and Nominating and Corporate Governance Committee of the Board (the “Nominating and Corporate Governance Committee”) do not consist entirely of independent directors.
Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters
Combined Company Common Stock, which was previously listed on The Nasdaq Capital Market and traded under the ticker symbol “ALVR” through the close of business on March 18, 2025, will commence trading on The Nasdaq Global Market under the ticker symbol “KLRS” on March 19, 2025, and will be represented by a new CUSIP number, 482929 106.
As of immediately following the Closing, there were approximately 72 registered holders of Combined Company Common Stock. The number of holders of record does not include a substantially greater number of “street name” holders or beneficial holders whose shares of Combined Company Common Stock are held of record by banks, brokers and other financial institutions.
The information set forth in the section of the Proxy Statement/Prospectus entitled “Market Price and Dividend Information—Dividends” on page 25 is incorporated herein by reference.
The information set forth in the section of the Proxy Statement/Prospectus entitled “Equity Compensation Plan Information” on page 262 is incorporated herein by reference.
Description of Registrant’s Securities to be Registered
The information set forth in the section of the Proxy Statement/Prospectus entitled “Description of AlloVir Capital Stock” beginning on page 429 is incorporated herein by reference.
Indemnification of Directors and Officers
A description of the Combined Company’s indemnification obligations in respect of its directors and officers is included in the Proxy Statement/Prospectus in the section entitled “The Merger Agreement— Limitations of Liability and Indemnification” beginning on page 233 and is incorporated herein by reference.
The Combined Company maintains a general liability insurance policy that covers specified liabilities of its directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers. The information set forth in Item 5.02 of this Current Report on Form 8-K under the heading “Indemnification Agreements” is incorporated herein by reference.
Financial Statements and Supplementary Data
The information set forth under Item 9.01 of this Current Report on Form 8-K is incorporated herein by reference.
| Item 2.02. | Results of Operations and Financial Condition. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Legacy Kalaris as of and for the years ended December 31, 2024 and 2023 is filed as Exhibit 99.4 hereto and incorporated herein by reference.
The audited financial statements of Legacy Kalaris as of and for the years ended December 31, 2024 and 2023 and the related notes thereto are filed as Exhibit 99.5 hereto and incorporated herein by reference.
Certain unaudited pro forma condensed combined financial information is filed as Exhibit 99.6 hereto and incorporated herein by reference.
| Item 5.01. | Changes in Control of Registrant. |
The information set forth in Item 2.01 of this Current Report on Form 8-K regarding the Merger and the information set forth in Item 5.02 of this Current Report on Form 8-K regarding the Board and executive officers following the Merger are incorporated by reference into this Item 5.01.
| Item 5.02. | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
Directors
Resignation of Directors
In accordance with the terms of the Merger Agreement, at the Effective Time, Vikas Sinha, Derek Adams, Ph.D., Malcom Brenner, M.D., Ph.D., Jeffrey S. Bornstein, Shawn Tomasello and Juan Vera, M.D., resigned from the Board and committees of the Board on which they respectively served, which resignations were not the result of any disagreements with the Combined Company relating to its operations, policies or practices.
Appointment of Directors
In accordance with the terms of the Merger Agreement, as of the Effective Time, the Board was reconstituted as follows: (i) David Hallal and Morana Jovan-Embiricos, Ph.D. (designated by AlloVir), (ii) Andrew Oxtoby, Anthony Adamis, Srinivas Akkaraju, M.D., Ph.D., Michael Dybbs, Ph.D., Napoleone Ferrara, M.D., and Samir Patel, M.D. (designated by Legacy Kalaris) and (iii) one vacancy (selected by the Combined Company) for an additional independent director once identified. The classification of the Board was confirmed as follows: Anthony Adamis, M.D., Michael Dybbs, Ph.D. and Morana Jovan-Embiricos, Ph.D. were appointed as Class I directors; Andrew Oxtoby, Srinivas Akkaraju, M.D., Ph.D. and Samir Patel, M.D. were appointed as Class II directors; and Napoleone Ferrara, M.D. and David Hallal were appointed as Class III directors. The terms of the directors will expire at the annual meeting of stockholders to be held during the year (1) 2027 for Class I directors, (2) 2025 for Class II directors, and (3) 2026 for Class III directors. Also as of the Effective Time, David Hallal was appointed Chair of the Board.
Other than pursuant to the Merger Agreement, there were no arrangements or understandings between the Combined Company’s newly appointed directors and any person pursuant to which they were elected. There are no family relationships between the Combined Company’s newly appointed directors and any director or executive officer of the Combined Company.
Committees of the Board
As of the Effective Time, the Board reconstituted its various standing committees as follows:
Audit Committee
Anthony Adamis, M.D., Morana Jovan-Embiricos, Ph.D. and David Hallal were appointed to the Audit Committee. David Hallal was appointed chair of the Audit Committee and designated as the “audit committee financial expert.”
Compensation Committee
Michael Dybbs, David Hallal and Samir Patel were appointed to the Compensation Committee. Mr. Dybbs was appointed chair of the Compensation Committee.
Nominating and Corporate Governance Committee
Srinivas Akkaraju, M.D., Ph.D., Napoleone Ferrara, M.D. and David Hallal were appointed to the Nominating and Corporate Governance Committee. Dr. Akkaraju was appointed chair of the Nominating and Corporate Governance Committee.
Director Biographical Information
Each of the newly appointed directors’ biographical information is set forth below:
Andrew Oxtoby. Mr. Oxtoby, age 51, has served as the Combined Company’s President and Chief Executive Officer and as a member of the Board since the Closing. Prior to the Closing, Mr. Oxtoby had served as Legacy Kalaris’ President and Chief Executive Officer and as a member of the Legacy Kalaris board of directors since March 2024. Prior to joining Legacy Kalaris, Mr. Oxtoby served as chief commercial officer of Chinook Therapeutics, a biotechnology company that was acquired by Novartis AG, from February 2023 to September 2023. Prior to that, Mr. Oxtoby served as president and chief executive officer of Aimmune Therapeutics, Inc., a biotechnology company, following their acquisition by Nestle Health Science, from October 2020 to December 2022, and as its chief commercial officer from January 2019 to September 2020 prior to the company’s acquisition. Prior to that, Mr. Oxtoby spent 16 years at Eli Lily & Co, a pharmaceutical company, where he held various leadership positions, including most recently as vice president of U.S. Connected Care & Insulins from May 2018 to December 2018. Mr. Oxtoby received a B.S. in Mechanical Engineering from Purdue University and a M.B.A. from Harvard Business School. The Combined Company believes Mr. Oxtoby is qualified to serve as a member of the Board due to his extensive knowledge of Legacy Kalaris based on his former role as its President and Chief Executive Officer, as well as his significant biopharmaceutical industry and management experience.
Anthony Adamis, M.D. Dr. Adamis, age 66, has served as a member of the Board since the Closing. Prior to the Closing, Dr. Adamis had served as a member of the Legacy Kalaris board of directors since November 2021. Dr. Adamis served as the co-founder and director for Eyebiotech Limited, a privately held ophthalmology biotechnology company that was acquired by Merck & Co., Inc., from August 2021 to July 2024, where he also served as its chief scientific officer from August 2022 to July 2024. Prior to EyeBiotech Limited, Dr. Adamis served as co-founder, and chief medical officer at Aiolos Bio, Inc., a biopharmaceutical company that was acquired by GSK plc, from April 2023 to January 2024, and he served as the chief executive officer and chief medical officer at Tier1 Bio Ltd., a private biotechnology company, from January 2022 to March 2023. Dr. Adamis serves as a director of Spiral Therapeutics, Inc, a privately held non-ophthalmic biotechnology company since October 2021 and as a director for the RD Fund, the venture arm of the Foundation Fighting Blindness since October 2021. Previously, Dr Adamis served as a director for EyePoint Pharmaceuticals, Inc. from June 2022 to September 2024 and as a director for Gyroscope Therapeutics Holdings plc, a clinical-stage gene therapy company focused on diseases of the eye, from 2021 until its acquisition by Novartis in 2022. He also served as vice president and senior vice president of Development at Genentech, Inc. (now a wholly owned member of the Roche Group) from 2009 to 2021. He is best known for his co-discovery of the central role of vascular endothelial growth factor (VEGF) in two leading causes of blindness: neovascular age-related macular degeneration (nAMD) and diabetic retinopathy. Conducted at Harvard in the 1990s, this research led to Dr. Adamis’ shared receipt of the Antonio Champalimaud Award, the highest honor in vision science, and to his election to the National Academy of Medicine. Over the course of his career, Dr. Adamis has helped develop 20 medicines across 30 indications, resulting in seven FDA Breakthrough Designations and 32 FDA approvals. Dr. Adamis received his M.D. from the University of Chicago, his ophthalmology training at the University of Michigan, and his fellowship training at Harvard University. Dr. Adamis completed his research training in vascular biology with Judah Folkman, M.D., at Boston Children’s Hospital. The Combined Company believes Dr. Adamis is qualified to serve as a member of the Board due to his extensive leadership experience, his extensive experience in ophthalmology and in the life sciences industry, and his extensive service on the board of other public and private life sciences companies.
Srinivas Akkaraju, M.D., Ph.D. Dr. Akkaraju age 56, has served as a member of the Board since the Closing. Prior to the Closing, Dr. Akkaraju had served as a member of the Legacy Kalaris board of directors since September 2019. Dr. Akkaraju has been a founder and managing general partner at Samsara BioCapital, LP, a venture capital firm, since March 2017. Previously, from April 2013 to February 2016, he served as a general partner of Sofinnova Ventures. From January 2009 until April 2013, he served as managing director of New Leaf Venture Partners. He also previously served as a managing director at Panorama Capital, LLC, a private equity firm. Prior to co-founding Panorama Capital, he was with J.P. Morgan Partners, which he joined in 2001 and of which he became a partner in 2005. From October 1998 to April 2001, he was in Business and Corporate Development at Genentech, Inc. (now a wholly owned member of The Roche Group), a biotechnology company, most recently as senior manager. Dr. Akkaraju has been a member of the Board of Directors for vTv Therapeutics, Inc., since February 2024, Scholar Rock, since July 2022, Mineralys Therapeutics, Inc., since January 2021 and Alumis, Inc., since January 2021. Dr. Akkaraju previously served as director of Chinook Therapeutics, Inc., from October 2020 to August 2023, Syros Pharmaceuticals from June 2017 to November 2024, Intercept Pharmaceuticals, Inc., from October 2012 to November 2023, Jiya Acquisition Corp., from November 2020 to November 2022, Seattle Genetics, Inc. (now, Seagen Inc.), from July 2003 to August 2020, and Principia Biopharma, Inc. from February 2011 to June 2019.
Dr. Akkaraju was a graduate student at Stanford University, where he received his M.D. and a Ph.D. in Immunology from Stanford University. He received his undergraduate degrees in Biochemistry and Computer Science from Rice University. The Combined Company believes Dr. Akkaraju is qualified to serve as a member of the Board due to his strong scientific background and extensive experience in private equity and venture capital investing.
Michael Dybbs, Ph.D. Mr. Dybbs, age 50, has served as a member of the Board since the Closing. Prior to the Closing, Mr. Dybbs had served as a member of the Legacy Kalaris board of directors since March 2022. Dr. Dybbs is currently a partner at Samsara BioCapital, LP, where he has worked since March 2017. Prior to joining Samsara BioCapital, LP, Dr. Dybbs was a partner at New Leaf Venture Partners, where he worked from May 2009 until September 2016. Before joining New Leaf Venture Partners, Dr. Dybbs was a principal at the Boston Consulting Group from August 2005 to May 2009. Dr. Dybbs has served as a member of the Sutro Biopharma, Inc. board of directors since July 2018. He also serves on the board of directors of Nkarta, Inc., a public clinical-stage biopharmaceutical company, since August 2019, and on the boards of directors of several private companies. Dr. Dybbs previously served on the boards of directors of Versartis, Inc., Dimension Therapeutics, Inc., and multiple private companies. Dr. Dybbs received an A.B. in Biochemical Sciences from Harvard College and a Ph.D. in Molecular Biology from University of California, Berkeley, where he was awarded a Howard Hughes Medical Institute fellowship. The Combined Company believes that Dr. Dybbs is qualified to serve as a member of the Board due to his experience in the life sciences industry and the venture capital industry, and his leadership and management experience.
Napoleone Ferrara, M.D. Dr. Ferrara, age 68, has served as a member of the Board and as a consultant of the Combined Company since the Closing. Prior to the Closing, Dr. Ferrara had served as a member of the Legacy Kalaris board of directors since September 2019. Dr. Ferrara also served as a consultant of Legacy Kalaris since 2021. Dr. Ferrara previously served as a director of DelMar Pharmaceuticals, Inc. (now Kintara Therapeutics, Inc.) from June 2018 to August 2020 and as a director of Tuhura Biosciences, Inc., a public immuno-oncology company, from June 2018 to August 2020. Since January 2013 he has served as a professor of pathology and since July 2014 as an adjunct professor of ophthalmology and pharmacology at the University of California, San Diego. Previously, Dr. Ferrara held increasingly senior positions at Genentech, Inc. (now a wholly owned member of The Roche Group), over a 24-year period, including fellow, staff scientist and senior scientist. He is a pioneer in the study of angiogenesis biology and identification of its regulators. Dr. Ferrara’s lab is responsible for discovering the isolation and cDNA cloning of VEGF and demonstrated that VEGF was a major mediator of tumor angiogenesis leading to the development of Avastin® (bevacizumab). Additionally, his lab’s studies led to the clinical development of an anti-VEGF antibody fragment, Lucentis® (ranibizumab), as a highly effective therapy preventing vision loss in intraocular neovascular disorders. Dr. Ferrara has been the recipient of over 60 awards/honors, given more than 300 presentations, authored over 70 patents, and written more than 300 articles, reviews/editorials and published book chapters. Dr. Ferrara is a member of the National Academy of Sciences and the National Academy of Medicine, USA. He received his fellowship training and postdoctoral research from the University of California, San Francisco, his M.D. (cum laude) and residency training from the University of Catania Medical School, and his Maturita’ Classica from Liceo Classico Mario Cutelli. The Combined Company believes Dr. Ferrara is qualified to serve as a member of the Board due to his medical training and extensive knowledge and experience in the fields of ophthalmology, pharmacology and angiogenesis.
Samir Patel, M.D. Dr. Patel, age 64, has served as a member of the Board since the Closing. Prior to the Closing, Dr. Patel had served as a member of the Legacy Kalaris board of directors since September 2019. Dr. Patel is a co-founder of Legacy Kalaris and has served as executive chairman since 2019. Previously, Dr. Patel was a co-founder and President of Ophthotech Corporation (later known as IVERIC bio, Inc.), a biopharmaceutical company specializing in retinal disease, from January 2007 to January 2017. Dr. Patel also served as the chief executive officer of Ophthotech Corporation from January 2007 to April 2013. At Ophthotech Corporation, Dr. Patel was responsible for in-licensing IZERVAY™ (eventually FDA approved for Geographic Atrophy, a dry form of AMD). Prior to Ophthotech Corporation, Dr. Patel was the co-founder and Director of Eyetech Pharmaceuticals, Inc., and served as the Chief Medical Officer, until its acquisition by OSI Pharmaceuticals, Inc. in 2005. Dr. Patel has previously served on the board of directors of Eyetech Pharmaceuticals, Inc., Kiora Pharmaceuticals, Inc. (formerly EyeGate Pharmaceuticals, Inc.) and Mimetogen Pharmaceuticals, Inc. and was on the scientific advisory board of Aerie Pharmaceuticals, Inc. Dr. Patel received a B.A. from Boston University. He received his medical degree from the University of Massachusetts Medical School and ophthalmology training from the University of Chicago. Dr. Patel received his training in retinal surgery from the Massachusetts Eye and Ear Infirmary at Harvard Medical School. The Combined Company believes Dr. Patel is qualified to serve as a member of the Board due to his medical training and extensive knowledge and leadership experience in the field of ophthalmology.
Non-Employee Director Compensation
In connection with the Closing, the Board determined to suspend AlloVir’s non-employee director compensation policy. Following the Closing, the Combined Company expects to adopt a new non-employee director compensation program, pursuant to which non-employee directors will be eligible to receive compensation for service on the Board and its committees.
Executive Officers
Departure of Executive Officers
In accordance with the terms of the Merger Agreement, immediately prior to and effective as of the Effective Time, Vikas Sinha resigned as AlloVir’s Chief Executive Officer, President, Chief Financial Officer, principal executive officer, principal financial officer and principal accounting officer and Edward Miller resigned as AlloVir’s General Counsel and Secretary (together, the “AlloVir Separations”).
In connection with the AlloVir Separations, AlloVir entered into a Separation Agreement and Release with each of Mr. Vikas and Mr. Miller, which provide for, among other things, the severance benefits for each of Mr. Vikas and Mr. Miller that are described in the Proxy Statement/Prospectus in the section entitled “The Merger Agreement—Interests of AlloVir Directors and Executive Officers in the Merger—Employment Agreements with Executive Officers” beginning on page 200 and incorporated herein by reference.
Appointment of Executive Officers and Key Employees
On the Closing Date, the Board appointed Andrew Oxtoby as the Combined Company’s Chief Executive Officer and principal executive officer, Brett Hagen as the Combined Company’s principal financial officer and principal accounting officer and Matthew Feinsod as the Combined Company’s Chief Medical Officer.
Other than pursuant to the Merger Agreement, there were no arrangements or understandings between the Combined Company’s newly appointed directors and any person pursuant to which they were elected. There are no family relationships among any of the Combined Company’s newly appointed executive officers.
Executive Officer and Key Employee Biographical Information
Each of the newly appointed executive officers and key employees’ biographical information is set forth below:
Andrew Oxtoby. Mr. Oxtoby’s biographical information is disclosed in the section above under the heading “Appointment of Directors”.
Matthew Feinsod. Dr. Feinsod, age 54, has served as the Combined Company’s Chief Medical Officer since the Closing. Dr. Feinsod previously served as Legacy Kalaris’ Chief Medical Officer since December 2024. Prior to joining Legacy Kalaris, Dr. Feinsod served as Executive Vice President of Global Strategy and Development of Applied Genetic Technologies Corp. (“AGTC”), a clinical-stage biotechnology company which was acquired by Syncona Limited in December 2022, from August 2019 to May 2022 and as interim Chief Medical Officer of AGTC from September 2017 to August 2019. Dr. Feinsod, a board-certified ophthalmologist, joined AGTC in July 2014 and played key roles in developing and implementing clinical and regulatory strategy, due diligence and licensing. Prior to joining AGTC, Dr. Feinsod co-founded and led Imagen Biotech, Inc., a venture-backed company dedicated to developing ophthalmology treatments for sight-threatening diseases, from 2011 to 2013. Prior to Imagen, Dr. Feinsod served in various roles including Senior Vice President of Strategy and Product Development at Eyetech Pharmaceuticals Inc. from 2003 to 2007. Dr. Feinsod served as a medical officer in the ophthalmology division of the U.S. Food and Drug Administration (FDA) from 2002 to 2003. He holds a B.S. from the Wharton School of Business at the University of Pennsylvania and an M.D. from the George Washington University School of Medicine.
Brett Hagen. Mr. Hagen, age 52, has served as the Combined Company’s Chief Accounting Officer since the Closing. Mr. Hagen previously served as the Chief Accounting Officer of AlloVir since January 2019. Prior to joining AlloVir in 2019, from February 2018 to August 2018, Mr. Hagen served as Senior Director Finance and Accounting at Eloxx Pharmaceuticals, Inc., a clinical-stage biopharmaceutical company. From May 2016 to December 2017, Mr. Hagen served as Vice President, Finance and Controller at Proteostasis Therapeutics, Inc., a clinical stage biopharmaceutical company which was subsequently acquired by Yumanity Therapeutics, Inc.. From July 2014 to May 2016, Mr. Hagen served as Controller at BIND Therapeutics, a biotechnology company. Mr. Hagen received his B.A. from the University of Minnesota, and graduate degrees in accounting and finance from Wright State University and Suffolk University, respectively.
Arrangements with Executive Officers and Directors
Employment Arrangements
A description of the employment related agreement with Mr. Oxtoby is included in the section entitled “Kalaris Executive and Director Compensation - Employment Agreement with Andrew Oxtoby” beginning on page 265 of the Proxy Statement/Prospectus and is incorporated herein by reference.
On December 31, 2024, Legacy Kalaris entered into an offer letter (the “Offer Letter”) with Dr. Feinsod in connection with his employment as Chief Medical Officer, effective December 31, 2024. Under the Offer Letter, Dr. Feinsod is an at-will employee and his employment with the Combined Company can be terminated by Dr. Feinsod or the Combined Company at any time and for no reason. Dr. Feinsod’s annualized base salary may be increased from time to time in accordance with normal business practice and in the sole discretion of the Combined Company. Dr. Feinsod is eligible to receive an annual discretionary bonus of up to a specified percentage of his base salary for the applicable calendar year. Pursuant to the Offer Letter, subject to the Closing and approval by the Board, Dr. Feinsod is expected to receive an option to purchase up to approximately 70,551 shares of Combined Company Common Stock.
The above descriptions of the employment related agreements for Mr. Oxtoby and Dr. Feinsod do not purport to be complete and are subject to and qualified in their entirety by reference to the copies of the employment related agreements for Mr. Oxtoby and Dr. Feinsod included as Exhibits 10.2 and 10.3 to this Current Report on Form 8-K, which are incorporated herein by reference.
2019 Equity Incentive Plan
The Combined Company assumed, effective as of the Effective Time, the 2019 Plan, which is filed as Exhibit 10.4 to this Current Report on Form 8-K and incorporated herein by reference, as well as the outstanding awards granted thereunder, the award agreements evidencing the grants of such awards and the remaining shares available under the 2019 Plan.
2020 Stock Option and Grant Plan
As previously disclosed, at the Special Meeting, AlloVir’s stockholders approved an amendment (the “Plan Amendment”) to AlloVir’s 2020 Stock Option and Grant Plan (as amended, the “2020 Plan”).
The Plan Amendment, which had previously been adopted by AlloVir’s board of directors, subject to stockholder approval, (i) increased the number of shares of Combined Company Common Stock reserved for future issuance under the 2020 Plan by a number of shares of Combined Company Common Stock equal to five (5) percent of the total number of shares of AlloVir Common Stock that were issued and outstanding immediately following the Closing, (ii) established a new maximum aggregate number of shares of Combined Company Common Stock that may be granted subject to incentive stock options under the 2020 Plan, and (iii) extended the term of the 2020 Plan to the tenth (10th) anniversary of the Closing.
A description of the Plan Amendment is included in the section entitled “Proposal No. 2— 2020 Plan Amendment Proposal” beginning on page 274 of the Proxy Statement/Prospectus and is incorporated herein by reference. A complete copy of the 2020 Plan is attached hereto as Exhibit 10.5 and is incorporated herein by reference.
Indemnification Agreements
Effective as of the Closing Date, the Combined Company entered into indemnification agreements with each of its directors and executive officers that provide for indemnification and advancement of certain expenses and costs relating to claims, suits or proceedings arising from each individual’s service as an officer or director of the Combined Company, as applicable, to the maximum extent permitted by applicable law.
The foregoing description of the indemnification agreements does not purport to be complete and is subject to and qualified in its entirety by the full text of the forms of indemnification agreement, which are filed hereto as Exhibits 10.6 and 10.7 and incorporated herein by reference.
Hagen Acknowledgment and Release
In connection with the Closing, AlloVir entered into a Severance Acknowledgment and Release with Mr. Hagen, which provides for, among other things, Mr. Hagen to receive benefits that are substantially similar to the severance benefits to which he would have been entitled under AlloVir’s Executive Severance and Change of Control Policy (the “AlloVir Policy”) if he were terminated by AlloVir without Cause (as defined in the AlloVir Policy) and as described in the Proxy Statement/Prospectus in the section entitled “The Merger Agreement—Executive Severance Policy” beginning on page 202 and incorporated herein by reference.
Certain Relationships and Related Person Transactions
Other than as disclosed in the section of the Proxy Statement/Prospectus entitled “Certain Relationships and Related Party Transactions of the Combined Company,” beginning on page 407 and incorporated herein by reference, none of the Combined Company’s newly appointed officers or directors has a direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
| Item 5.03. | Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. |
To the extent required by this Item, the information included in Item 2.01 of this Current Report on Form 8-K is incorporated herein by reference.
Effective as of 4:02 p.m., Eastern Time on the Closing Date, the Combined Company amended its Third Amended and Restated Certificate of Incorporation, as amended (as may be further amended from time to time, the “Certificate of Incorporation” and such amendment, the “Charter Amendment”), to effect a change of the Combined Company’s name from “AlloVir, Inc.” to “Kalaris Therapeutics, Inc.” (the “Name Change”).
The Board approved the Name Change pursuant to Section 242 of the General Corporation Law of the State of Delaware. The Name Change does not affect the rights of the Combined Company’s stockholders, and there were no other changes to the Certificate of Incorporation.
Effective as of 4:03 p.m., Eastern Time on the Closing Date, the Combined Company restated the Certificate of Incorporation (as restated, the “Restated Charter”) and removed certain provisions that effectuated a reverse stock split of issued and outstanding shares of AlloVir Common Stock on January 15, 2025.
In connection with the Name Change, the Board also approved an amendment and restatement of the Company’s Amended and Restated By-Laws solely to reflect the Name Change (the “Amended and Restated By-Laws”), effective as of the Closing Date.
The foregoing description of the Charter Amendment, the Restated Charter and the Amended and Restated By-Laws do not purport to be complete and are qualified in their entirety by reference to the full text of the Charter Amendment, Restated Charter and the Amended and Restated By-Laws, copies of which are filed as Exhibits 3.1, 3.2 and 3.3, respectively, hereto and are incorporated herein by reference.
| Item 5.06. | Change in Shell Company Status. |
As a result of the Merger, the Combined Company ceased to be a shell company (as defined in Rule 12b-2 of the Exchange Act) as of the Closing.
A description of the Merger and the terms of the Merger Agreement are included in the section entitled “Proposal No. 1— The Nasdaq Stock Issuance Proposal” beginning on page 272 of the Proxy Statement/Prospectus and are incorporated herein by reference. The information contained in Item 2.01 of this Current Report on Form 8-K is incorporated herein by reference.
| Item 7.01. | Regulation FD Disclosure. |
On the Closing Date, the Combined Company issued a press release announcing, among other things, the Closing. The press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
The information in this Item 7.01, including Exhibit 99.1 attached hereto, is furnished under Item 7.01 of Form 8-K, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act, or the Exchange Act, except as expressly set forth by specific reference in such a filing
| Item 9.01. | Financial Statements and Exhibits. |
(a) Financial statements of businesses acquired.
The audited financial statements of Legacy Kalaris as of and for the years ended December 31, 2024 and 2023 and the related notes thereto are attached hereto as Exhibit 99.5 and are incorporated herein by reference.
The audited consolidated financial statements of AlloVir as of and for the years ended December 31, 2024 and 2023 and the related notes are included in the AlloVir Annual Report, and are incorporated herein by reference.
(b) Pro forma financial information.
The unaudited pro forma condensed combined financial information of the Combined Company as of and for the year ended December 31, 2024 and the related notes thereto is filed hereto as Exhibit 99.6 is incorporated herein by reference.
(d) Exhibits.
| + | Indicates management contract or compensatory plan |
| # | Filed previously |
| * | The annexes, schedules, and certain exhibits to the merger agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Combined Company hereby agrees to furnish supplementally a copy of any omitted annex, schedule or exhibit to the Securities and Exchange Commission upon request. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| KALARIS THERAPEUTICS, INC. | ||||||
| Date: March 18, 2025 | By: | /s/ Andrew Oxtoby | ||||
| Name: | Andrew Oxtoby | |||||
| Title: | Chief Executive Officer | |||||
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF THE
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ALLOVIR, INC.
AlloVir, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), certifies that:
FIRST: Article I of the Third Amended and Restated Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”) is hereby amended to read in its entirety as follows:
ARTICLE I
The name of the Corporation is Kalaris Therapeutics, Inc.
SECOND: The foregoing amendment to the Certificate of Incorporation was duly adopted in accordance with Section 242 of the Delaware General Corporation Law.
THIRD: This Certificate of Amendment of the Certificate of Incorporation shall be effective on March 18, 2025 at 4:02 p.m. Eastern Standard Time.
[Signature page follows]
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its duly authorized officer on the date set forth below.
| ALLOVIR, INC. | ||
| By: | /s/ Vikas Sinha | |
| Name: Vikas Sinha | ||
| Title: Chief Executive Officer, President and Chief Financial Officer | ||
| Date: | March 18, 2025 | |
Exhibit 3.2
RESTATED
CERTIFICATE OF INCORPORATION
OF
KALARIS THERAPEUTICS, INC.
(Originally incorporated under the Delaware General Corporation Law (the DGCL”)
on September 17, 2018 under the name ViraCyte, Inc.)
ARTICLE I
The name of the Corporation is Kalaris Therapeutics, Inc.
ARTICLE II
The address of the Corporation’s registered office in the State of Delaware is c/o The Corporation Trust Company, 1209 Orange Street in the City of Wilmington, County of New Castle, 19801. The name of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
The total number of shares of capital stock which the Corporation shall have authority to issue is 310,000,000, of which (i) 300,000,000 shares shall be a class designated as common stock, par value $0.0001 per share (the “Common Stock”), and (ii) 10,000,000 shares shall be a class designated as undesignated preferred stock, par value $0.0001 per share (the “Undesignated Preferred Stock”).
Except as otherwise provided in any certificate of designations of any series of Undesignated Preferred Stock, the number of authorized shares of the class of Common Stock or Undesignated Preferred Stock may from time to time be increased or decreased (but not below the number of shares of such class outstanding) by the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock of the Corporation irrespective of the provisions of Section 242(b)(2) of the DGCL.
The powers, preferences and rights of, and the qualifications, limitations and restrictions upon, each class or series of stock shall be determined in accordance with, or as set forth below in, this Article IV.
A. COMMON STOCK
Subject to all the rights, powers and preferences of the Undesignated Preferred Stock and except as provided by law or in this Certificate (or in any certificate of designations of any series of Undesignated Preferred Stock):
(a) the holders of the Common Stock shall have the exclusive right to vote for the election of directors of the Corporation (the “Directors”) and on all other matters requiring stockholder action, each outstanding share entitling the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate (or on any amendment to a certificate of designations of any series of Undesignated Preferred Stock) that alters or changes the powers, preferences, rights or other terms of one or more outstanding series of Undesignated Preferred Stock if the holders of such affected series of Undesignated Preferred Stock are entitled to vote, either separately or together with the holders of one or more other such series, on such amendment pursuant to this Certificate (or pursuant to a certificate of designations of any series of Undesignated Preferred Stock) or pursuant to the DGCL;
(b) dividends may be declared and paid or set apart for payment upon the Common Stock out of any assets or funds of the Corporation legally available for the payment of dividends, but only when and as declared by the Board of Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the net assets of the Corporation shall be distributed pro rata to the holders of the Common Stock.
B. UNDESIGNATED PREFERRED STOCK
The Board of Directors or any authorized committee thereof is expressly authorized, to the fullest extent permitted by law, to provide by resolution or resolutions for, out of the unissued shares of Undesignated Preferred Stock, the issuance of the shares of Undesignated Preferred Stock in one or more series of such stock, and by filing a certificate of designations pursuant to applicable law of the State of Delaware, to establish or change from time to time the number of shares of each such series, and to fix the designations, powers, including voting powers, full or limited, or no voting powers, preferences and the relative, participating, optional or other special rights of the shares of each series and any qualifications, limitations and restrictions thereof.
ARTICLE V
STOCKHOLDER ACTION
1. Action without Meeting. Any action required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders and may not be taken or effected by a written consent of stockholders in lieu thereof.
2. Special Meetings. Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the Board of Directors acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office, and special meetings of stockholders may not be called by any other person or persons. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation.
ARTICLE VI
DIRECTORS
1. General. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided herein or required by law.
2. Election of Directors. Election of Directors need not be by written ballot unless the By-laws of the Corporation (the “By-laws”) shall so provide.
3. Number of Directors; Term of Office. The number of Directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors. The Directors, other than those who may be elected by the holders of any series of Undesignated Preferred Stock, shall be classified, with respect to the term for which they severally hold office, into three classes. The initial Class I Directors of the Corporation shall be Juan Vera, Ansbert Gadicke and Morana Jovan-Embiricos; the initial Class II Directors of the Corporation shall be Vikas Sinha, Malcolm Brenner and John Wilson; and the initial Class III Directors of the Corporation shall be Jeffrey Bornstein, Diana Brainard and David Hallal. The initial Class I Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2021, the initial Class II Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2022 and the initial Class III Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2023. The mailing address of each person who is to serve initially as a director is c/o AlloVir, Inc., 139 Main Street, Suite 500, Cambridge, Massachusetts 02142. At each annual meeting of stockholders, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Notwithstanding the foregoing, the Directors elected to each class shall hold office until their successors are duly elected and qualified or until their earlier resignation, death or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of Article IV of this Certificate, the holders of any one or more series of Undesignated Preferred Stock shall have the right, voting separately as a series or together with holders of other such series, to elect Directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate and any certificate of designations applicable to such series.
4. Vacancies. Subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock to elect Directors and to fill vacancies in the Board of Directors relating thereto, any and all vacancies in the Board of Directors, however occurring, including, without limitation, by reason of an increase in the size of the Board of Directors, or the death, resignation, disqualification or removal of a Director, shall be filled solely and exclusively by the affirmative vote of a majority of the remaining Directors then in office, even if less than a quorum of the Board of Directors, and not by the stockholders. Any Director appointed in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy occurred and until such Director’s successor shall have been duly elected and qualified or until his or her earlier resignation, death or removal. Subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock to elect Directors, when the number of Directors is increased or decreased, the Board of Directors shall, subject to Article VI.3 hereof, determine the class or classes to which the increased or decreased number of Directors shall be apportioned; provided, however, that no decrease in the number of Directors shall shorten the term of any incumbent Director. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, shall exercise the powers of the full Board of Directors until the vacancy is filled.
5. Removal. Subject to the rights, if any, of any series of Undesignated Preferred Stock to elect Directors and to remove any Director whom the holders of any such series have the right to elect, any Director (including persons elected by Directors to fill vacancies in the Board of Directors) may be removed from office (i) only with cause and (ii) only by the affirmative vote of the holders of 75% or more of the outstanding shares of capital stock then entitled to vote at an election of Directors. At least forty-five (45) days prior to any annual or special meeting of stockholders at which it is proposed that any Director be removed from office, written notice of such proposed removal and the alleged grounds thereof shall be sent to the Director whose removal will be considered at the meeting.
ARTICLE VII
LIMITATION OF LIABILITY
A Director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (a) for any breach of the Director’s duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL or (d) for any transaction from which the Director derived an improper personal benefit. If the DGCL is amended after the effective date of this Certificate to authorize corporate action further eliminating or limiting the personal liability of Directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
Any amendment, repeal or modification of this Article VII by either of (i) the stockholders of the Corporation or (ii) an amendment to the DGCL, shall not adversely affect any right or protection existing at the time of such amendment, repeal or modification with respect to any acts or omissions occurring before such amendment, repeal or modification of a person serving as a Director at the time of such amendment, repeal or modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
1. Amendment by Directors. Except as otherwise provided by law, the By-laws of the Corporation may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the Directors then in office.
2. Amendment by Stockholders. The By-laws of the Corporation may be amended or repealed at any annual meeting of stockholders, or special meeting of stockholders called for such purpose, by the affirmative vote of at least 75% of the outstanding shares of capital stock entitled to vote on such amendment or repeal, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment or repeal, voting together as a single class.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend or repeal this Certificate in the manner now or hereafter prescribed by statute and this Certificate, and all rights conferred upon stockholders herein are granted subject to this reservation. Whenever any vote of the holders of capital stock of the Corporation is required to amend or repeal any provision of this Certificate, and in addition to any other vote of holders of capital stock that is required by this Certificate or by law, such amendment or repeal shall require the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment or repeal, and the affirmative vote of the majority of the outstanding shares of each class entitled to vote thereon as a class, at a duly constituted meeting of stockholders called expressly for such purpose; provided, however, that the affirmative vote of not less than 75% of the outstanding shares of capital stock entitled to vote on such amendment or repeal, and the affirmative vote of not less than 75% of the outstanding shares of each class entitled to vote thereon as a class, shall be required to amend or repeal any provision of Article V, Article VI, Article VII, Article VIII or Article IX of this Certificate.
ARTICLE X
This Restated Certificate of Incorporation shall be effective on March 18, 2025 at 4:03 p.m. Eastern Standard Time.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which restates and integrates and does not further amend the provisions of the Third Amended and Restated Certificate of Incorporation of the Corporation, as amended, and which has been duly adopted in accordance with Section 245 of the DGCL, has been executed by a duly authorized officer of the Corporation this 18th day of March, 2025.
| KALARIS THERAPEUTICS, INC. |
| By: /s/ Vikas Sinha |
| Name: Vikas Sinha |
| Title: Chief Executive Officer, President and Chief Financial Officer |
Exhibit 3.3
AMENDED AND RESTATED
BY-LAWS
OF
KALARIS THERAPEUTICS, INC.
(the “Corporation”)
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of stockholders (any such meeting being referred to in these By-laws as an “Annual Meeting”) shall be held at the hour, date and place within or without the United States which is fixed by the Board of Directors, which time, date and place may subsequently be changed at any time by vote of the Board of Directors. If no Annual Meeting has been held for a period of thirteen (13) months after the Corporation’s last Annual Meeting, a special meeting in lieu thereof may be held, and such special meeting shall have, for the purposes of these By-laws or otherwise, all the force and effect of an Annual Meeting. Any and all references hereafter in these By-laws to an Annual Meeting or Annual Meetings also shall be deemed to refer to any special meeting(s) in lieu thereof.
SECTION 2. Notice of Stockholder Business and Nominations.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of other business to be considered by the stockholders may be brought before an Annual Meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this By-law, who is entitled to vote at the meeting, who is present (in person or by proxy) at the meeting and who complies with the notice procedures set forth in this By-law as to such nomination or business. For the avoidance of doubt, the foregoing clause (ii) shall be the exclusive means for a stockholder to bring nominations or business properly before an Annual Meeting (other than matters properly brought under Rule 14a-8 (or any successor rule) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), and such stockholder must comply with the notice and other procedures set forth in Article I, Section 2(a)(2) and (3) of this By-law to bring such nominations or business properly before an Annual Meeting. In addition to the other requirements set forth in this By-law, for any proposal of business to be considered at an Annual Meeting, it must be a proper subject for action by stockholders of the Corporation under Delaware law.
(2) For nominations or other business to be properly brought before an Annual Meeting by a stockholder pursuant to clause (ii) of Article I, Section 2(a)(1) of this By-law, the stockholder must (i) have given Timely Notice (as defined below) thereof in writing to the Secretary of the Corporation, (ii) have provided any updates or supplements to such notice at the times and in the forms required by this By-law and (iii) together with the beneficial owner(s), if any, on whose behalf the nomination or business proposal is made, have acted in accordance with the representations set forth in the Solicitation Statement (as defined below) required by this By-law. To be timely, a stockholder’s written notice shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the one-year anniversary of the preceding year’s Annual Meeting; provided, however, that in the event the Annual Meeting is first convened more than thirty (30) days before or more than sixty (60) days after such anniversary date, or if no Annual Meeting were held in the preceding year, notice by the stockholder to be timely must be received by the Secretary of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made (such notice within such
time periods shall be referred to as “Timely Notice”). Notwithstanding anything to the contrary provided herein, for the first Annual Meeting following the initial public offering of common stock of the Corporation, a stockholder’s notice shall be timely if received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such Annual Meeting is first made or sent by the Corporation. Such stockholder’s Timely Notice shall set forth:
(A) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected);
(B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, and any material interest in such business of each Proposing Person (as defined below);
(C) (i) the name and address of the stockholder giving the notice, as they appear on the Corporation’s books, and the names and addresses of the other Proposing Persons (if any) and (ii) as to each Proposing Person, the following information: (a) the class or series and number of all shares of capital stock of the Corporation which are, directly or indirectly, owned beneficially or of record by such Proposing Person or any of its affiliates or associates (as such terms are defined in Rule 12b-2 promulgated under the Exchange Act), including any shares of any class or series of capital stock of the Corporation as to which such Proposing Person or any of its affiliates or associates has a right to acquire beneficial ownership at any time in the future, (b) all Synthetic Equity Interests (as defined below) in which such Proposing Person or any of its affiliates or associates, directly or indirectly, holds an interest including a description of the material terms of each such Synthetic Equity Interest, including without limitation, identification of the counterparty to each such Synthetic Equity Interest and disclosure, for each such Synthetic Equity Interest, as to (x) whether or not such Synthetic Equity Interest conveys any voting rights, directly or indirectly, in such shares to such Proposing Person, (y) whether or not such Synthetic Equity Interest is required to be, or is capable of being, settled through delivery of such shares and (z) whether or not such Proposing Person and/or, to the extent known, the counterparty to such Synthetic Equity Interest has entered into other transactions that hedge or mitigate the economic effect of such Synthetic Equity Interest, (c) any proxy (other than a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance with, the Exchange Act), agreement, arrangement, understanding or relationship pursuant to which such Proposing Person has or shares a right to, directly or indirectly, vote any shares of any class or series of capital stock of the Corporation, (d) any rights to dividends or other distributions on the shares of any class or series of capital stock of the Corporation, directly or indirectly, owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, and (e) any performance-related fees (other than an asset based fee) that such Proposing Person, directly or indirectly, is entitled to based on any increase or decrease in the value of shares of any class or series of capital stock of the Corporation or any Synthetic Equity Interests (the disclosures to be made pursuant to the foregoing clauses (a) through (e) are referred to, collectively, as “Material Ownership Interests”) and (iii) a description of the material terms of all agreements, arrangements or understandings (whether or not in writing) entered into by any Proposing Person or any of its affiliates or associates with any other person for the purpose of acquiring, holding, disposing or voting of any shares of any class or series of capital stock of the Corporation;
(D) (i) a description of all agreements, arrangements or understandings by and among any of the Proposing Persons, or by and among any Proposing Persons and any other person (including with any proposed nominee(s)), pertaining to the nomination(s) or other business proposed to be brought before the meeting of stockholders (which description shall identify the name of each other person who is party to such an agreement, arrangement or understanding), and (ii) identification of the names and addresses of other stockholders (including beneficial owners) known by any of the Proposing Persons to support such nominations or other business proposal(s), and to the extent known the class and number of all shares of the Corporation’s capital stock owned beneficially or of record by such other stockholder(s) or other beneficial owner(s); and
(E) a statement whether or not the stockholder giving the notice and/or the other Proposing Person(s), if any, will deliver a proxy statement and form of proxy to holders of, in the case of a business proposal, at least the percentage of voting power of all of the shares of capital stock of the Corporation required under applicable law to approve the proposal or, in the case of a nomination or nominations, at least the percentage of voting power of all of the shares of capital stock of the Corporation reasonably believed by such Proposing Person to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder (such statement, the “Solicitation Statement”).
For purposes of this Article I of these By-laws, the term “Proposing Person” shall mean the following persons: (i) the stockholder of record providing the notice of nominations or business proposed to be brought before a stockholders’ meeting, and (ii) the beneficial owner(s), if different, on whose behalf the nominations or business proposed to be brought before a stockholders’ meeting is made. For purposes of this Section 2 of Article I of these By-laws, the term “Synthetic Equity Interest” shall mean any transaction, agreement or arrangement (or series of transactions, agreements or arrangements), including, without limitation, any derivative, swap, hedge, repurchase or so-called “stock borrowing” agreement or arrangement, the purpose or effect of which is to, directly or indirectly: (a) give a person or entity economic benefit and/or risk similar to ownership of shares of any class or series of capital stock of the Corporation, in whole or in part, including due to the fact that such transaction, agreement or arrangement provides, directly or indirectly, the opportunity to profit or avoid a loss from any increase or decrease in the value of any shares of any class or series of capital stock of the Corporation, (b) mitigate loss to, reduce the economic risk of or manage the risk of share price changes for, any person or entity with respect to any shares of any class or series of capital stock of the Corporation, (c) otherwise provide in any manner the opportunity to profit or avoid a loss from any decrease in the value of any shares of any class or series of capital stock of the Corporation, or (d) increase or decrease the voting power of any person or entity with respect to any shares of any class or series of capital stock of the Corporation.
(3) A stockholder providing Timely Notice of nominations or business proposed to be brought before an Annual Meeting shall further update and supplement such notice, if necessary, so that the information (including, without limitation, the Material Ownership Interests information) provided or required to be provided in such notice pursuant to this By-law shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to such Annual Meeting, and such update and supplement shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the fifth (5th) business day after the record date for the Annual Meeting (in the case of the update and supplement required to be made as of the record date), and not later than the close of business on the eighth (8th) business day prior to the date of the Annual Meeting (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting).
(4) Notwithstanding anything in the second sentence of Article I, Section 2(a)(2) of this By-law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least ten (10) days before the last day a stockholder may deliver a notice of nomination in accordance with the second sentence of Article I, Section 2(a)(2), a stockholder’s notice required by this By-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.
(b) General.
(1) Only such persons who are nominated in accordance with the provisions of this By-law shall be eligible for election and to serve as directors and only such business shall be conducted at an Annual Meeting as shall have been brought before the meeting in accordance with the provisions of this By-law or in accordance with Rule 14a-8 under the Exchange Act. The Board of Directors or a designated committee thereof shall have the power to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the provisions of this By-law. If neither the Board of Directors nor such designated committee makes a determination as to whether any stockholder proposal or nomination was made in accordance with the provisions of this By-law, the presiding officer of the Annual Meeting shall have the power and duty to determine whether the stockholder proposal or nomination was made in accordance with the provisions of this By-law. If the Board of Directors or a designated committee thereof or the presiding officer, as applicable, determines that any stockholder proposal or nomination was not made in accordance with the provisions of this By-law, such proposal or nomination shall be disregarded and shall not be presented for action at the Annual Meeting.
(2) Except as otherwise required by law, nothing in this Article I, Section 2 shall obligate the Corporation or the Board of Directors to include in any proxy statement or other stockholder communication distributed on behalf of the Corporation or the Board of Directors information with respect to any nominee for director or any other matter of business submitted by a stockholder.
(3) Notwithstanding the foregoing provisions of this Article I, Section 2, if the nominating or proposing stockholder (or a qualified representative of the stockholder) does not appear at the Annual Meeting to present a nomination or any business, such nomination or business shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Article I, Section 2, to be considered a qualified representative of the proposing stockholder, a person must be authorized by a written instrument executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such written instrument or electronic transmission, or a reliable reproduction of the written instrument or electronic transmission, to the presiding officer at the meeting of stockholders.
(4) For purposes of this By-law, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(5) Notwithstanding the foregoing provisions of this By-law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-law. Nothing in this By-law shall be deemed to affect any rights of (i) stockholders to have proposals included in the Corporation’s proxy statement pursuant to Rule 14a-8 (or any successor rule), as applicable, under the Exchange Act and, to the extent required by such rule, have such proposals considered and voted on at an Annual Meeting or (ii) the holders of any series of Undesignated Preferred Stock to elect directors under specified circumstances.
SECTION 3. Special Meetings. Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the Board of Directors acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office. The Board of Directors may postpone or reschedule any previously scheduled special meeting of stockholders. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation and stockholder proposals of other business shall not be brought before a special meeting of stockholders to be considered by the stockholders unless such special meeting is held in lieu of an annual meeting of stockholders in accordance with Article I, Section 1 of these By-laws, in which case such special meeting in lieu thereof shall be deemed an Annual Meeting for purposes of these By-laws and the provisions of Article I, Section 2 of these By-laws shall govern such special meeting.
SECTION 4. Notice of Meetings; Adjournments.
(a) A notice of each Annual Meeting stating the hour, date and place, if any, of such Annual Meeting and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given not less than ten (10) days nor more than sixty (60) days before the Annual Meeting, to each stockholder entitled to vote thereat by delivering such notice to such stockholder or by mailing it, postage prepaid, addressed to such stockholder at the address of such stockholder as it appears on the Corporation’s stock transfer books. Without limiting the manner by which notice may otherwise be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law (“DGCL”).
(b) Notice of all special meetings of stockholders shall be given in the same manner as provided for Annual Meetings, except that the notice of all special meetings shall state the purpose or purposes for which the meeting has been called.
(c) Notice of an Annual Meeting or special meeting of stockholders need not be given to a stockholder if a waiver of notice is executed, or waiver of notice by electronic transmission is provided, before or after such meeting by such stockholder or if such stockholder attends such meeting, unless such attendance is for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened.
(d) The Board of Directors may postpone and reschedule any previously scheduled Annual Meeting or special meeting of stockholders and any record date with respect thereto, regardless of whether any notice or public disclosure with respect to any such meeting has been sent or made pursuant to Section 2 of this Article I of these By-laws or otherwise. In no event shall the public announcement of an adjournment, postponement or rescheduling of any previously scheduled meeting of stockholders commence a new time period for the giving of a stockholder’s notice under this Article I of these By-laws.
(e) When any meeting is convened, the presiding officer may adjourn the meeting if (i) no quorum is present for the transaction of business, (ii) the Board of Directors determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to stockholders, or (iii) the Board of Directors determines that adjournment is otherwise in the best interests of the Corporation. When any Annual Meeting or special meeting of stockholders is adjourned to another hour, date or place, notice need not be given of the adjourned meeting other than an announcement at the meeting at which the adjournment is taken of the hour, date and place, if any, to which the meeting is adjourned and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting; provided, however, that if the adjournment is for more than thirty (30) days from the meeting date, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting shall be given to each stockholder of record entitled to vote thereat and each stockholder who, by law or under the Certificate of Incorporation of the Corporation (as the same may hereafter be amended and/or restated, the “Certificate”) or these By-laws, is entitled to such notice.
SECTION 5. Quorum. A majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders. If less than a quorum is present at a meeting, the holders of voting stock representing a majority of the voting power present at the meeting or the presiding officer may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 4 of this Article I. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly constituted meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
SECTION 6. Voting and Proxies. Stockholders shall have one vote for each share of stock entitled to vote owned by them of record according to the stock ledger of the Corporation as of the record date, unless otherwise provided by law or by the Certificate. Stockholders may vote either (i) in person, (ii) by written proxy or (iii) by a transmission permitted by Section 212(c) of the DGCL. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission permitted by Section 212(c) of the DGCL may be substituted for or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Proxies shall be filed in accordance with the procedures established for the meeting of stockholders. Except as otherwise limited therein or as otherwise provided by law, proxies authorizing a person to vote at a specific meeting shall entitle the persons authorized thereby to vote at any adjournment of such meeting, but they shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by or on behalf of any one of them unless at or prior to the exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them.
SECTION 7. Action at Meeting. When a quorum is present at any meeting of stockholders, any matter before any such meeting (other than an election of a director or directors) shall be decided by a majority of the votes properly cast for and against such matter, except where a larger vote is required by law, by the Certificate or by these By-laws. Any election of directors by stockholders shall be determined by a plurality of the votes properly cast on the election of directors.
SECTION 8. Stockholder Lists. The Secretary or an Assistant Secretary (or the Corporation’s transfer agent or other person authorized by these By-laws or by law) shall prepare and make, at least ten (10) days before every Annual Meeting or special meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for a period of at least ten (10) days prior to the meeting in the manner provided by law. The list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.
SECTION 9. Presiding Officer. The Board of Directors shall designate a representative to preside over all Annual Meetings or special meetings of stockholders, provide that if the Board of Directors does not so designate such a presiding officer, then the Chairman of the Board, if one is elected, shall preside over such meetings. If the Board of Directors does not so designate such a presiding officer and there is no Chairman of the Board or the Chairman of the Board is unable to so preside or is absent, then the Chief Executive Officer, if one is elected, shall preside over such meetings, provided further that if there is no Chief Executive Officer or the Chief Executive Officer is unable to so preside or is absent, then the President shall preside over such meetings. The presiding officer at any Annual Meeting or special meeting of stockholders shall have the power, among other things, to adjourn such meeting at any time and from time to time, subject to Sections 4 and 5 of this Article I. The order of business and all other matters of procedure at any meeting of the stockholders shall be determined by the presiding officer.
SECTION 10. Inspectors of Elections. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the presiding officer shall appoint one or more inspectors to act at the meeting. Any inspector may, but need not, be an officer, employee or agent of the Corporation. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall perform such duties as are required by the DGCL, including the counting of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. The presiding officer may review all determinations made by the inspectors, and in so doing the presiding officer shall be entitled to exercise his or her sole judgment and discretion and he or she shall not be bound by any determinations made by the inspectors. All determinations by the inspectors and, if applicable, the presiding officer, shall be subject to further review by any court of competent jurisdiction.
ARTICLE II
Directors
SECTION 1. Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided by the Certificate or required by law.
SECTION 2. Number and Terms. The number of directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors. The directors shall hold office in the manner provided in the Certificate.
SECTION 3. Qualification. No director need be a stockholder of the Corporation.
SECTION 4. Vacancies. Vacancies in the Board of Directors shall be filled in the manner provided in the Certificate.
SECTION 5. Removal. Directors may be removed from office only in the manner provided in the Certificate.
SECTION 6. Resignation. A director may resign at any time by giving written notice to the Chairman of the Board, if one is elected, the President or the Secretary. A resignation shall be effective upon receipt, unless the resignation otherwise provides.
SECTION 7. Regular Meetings. The regular annual meeting of the Board of Directors shall be held, without notice other than this Section 7, on the same date and at the same place as the Annual Meeting following the close of such meeting of stockholders. Other regular meetings of the Board of Directors may be held at such hour, date and place as the Board of Directors may by resolution from time to time determine and publicize by means of reasonable notice given to any director who is not present at the meeting at which such resolution is adopted.
SECTION 8. Special Meetings. Special meetings of the Board of Directors may be called, orally or in writing, by or at the request of a majority of the directors, the Chairman of the Board, if one is elected, or the President. The person calling any such special meeting of the Board of Directors may fix the hour, date and place thereof.
SECTION 9. Notice of Meetings. Notice of the hour, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary or an Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the Chairman of the Board, if one is elected, or the President or such other officer designated by the Chairman of the Board, if one is elected, or the President. Notice of any special meeting of the Board of Directors shall be given to each director in person, by telephone, or by facsimile, electronic mail or other form of electronic communication, sent to his or her business or home address, at least twenty-four (24) hours in advance of the meeting, or by written notice mailed to his or her business or home address, at least forty-eight (48) hours in advance of the meeting. Such notice shall be deemed to be delivered when hand-delivered to such address, read to such director by telephone, deposited in the mail so addressed, with postage thereon prepaid if mailed, dispatched or transmitted if sent by facsimile transmission or by electronic mail or other form of electronic communications. A written waiver of notice signed before or after a meeting by a director and filed with the records of the meeting shall be deemed to be equivalent to notice of the meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because such meeting is not lawfully called or convened. Except as otherwise required by law, by the Certificate or by these By-laws, neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.
SECTION 10. Quorum. At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business, but if less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice. Any business which might have been transacted at the meeting as originally noticed may be transacted at such adjourned meeting at which a quorum is present. For purposes of this section, the total number of directors includes any unfilled vacancies on the Board of Directors.
SECTION 11. Action at Meeting. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of the directors present shall constitute action by the Board of Directors, unless otherwise required by law, by the Certificate or by these By-laws.
SECTION 12. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the records of the meetings of the Board of Directors. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. Such consent shall be treated as a resolution of the Board of Directors for all purposes.
SECTION 13. Manner of Participation. Directors may participate in meetings of the Board of Directors by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting for purposes of these By-laws.
SECTION 14. Presiding Director. The Board of Directors shall designate a representative to preside over all meetings of the Board of Directors, provided that if the Board of Directors does not so designate such a presiding director or such designated presiding director is unable to so preside or is absent, then the Chairman of the Board, if one is elected, shall preside over all meetings of the Board of Directors. If both the designated presiding director, if one is so designated, and the Chairman of the Board, if one is elected, are unable to preside or are absent, the Board of Directors shall designate an alternate representative to preside over a meeting of the Board of Directors.
SECTION 15. Committees. The Board of Directors, by vote of a majority of the directors then in office, may elect one or more committees, including, without limitation, a Compensation Committee, a Nominating & Corporate Governance Committee and an Audit Committee, and may delegate thereto some or all of its powers except those which by law, by the Certificate or by these By-laws may not be delegated. Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these By-laws for the Board of Directors. All members of such committees shall hold such offices at the pleasure of the Board of Directors. The Board of Directors may abolish any such committee at any time. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors.
SECTION 16. Compensation of Directors. Directors shall receive such compensation for their services as shall be determined by a majority of the Board of Directors, or a designated committee thereof, provided that directors who are serving the Corporation as employees and who receive compensation for their services as such, shall not receive any salary or other compensation for their services as directors of the Corporation.
ARTICLE III
Officers
SECTION 1. Enumeration. The officers of the Corporation shall consist of a President, a Treasurer, a Secretary and such other officers, including, without limitation, a Chairman of the Board of Directors, a Chief Executive Officer and one or more Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of Directors may determine.
SECTION 2. Election. At the regular annual meeting of the Board of Directors following the Annual Meeting, the Board of Directors shall elect the President, the Treasurer and the Secretary. Other officers may be elected by the Board of Directors at such regular annual meeting of the Board of Directors or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a director. Any person may occupy more than one office of the Corporation at any time.
SECTION 4. Tenure. Except as otherwise provided by the Certificate or by these By-laws, each of the officers of the Corporation shall hold office until the regular annual meeting of the Board of Directors following the next Annual Meeting and until his or her successor is elected and qualified or until his or her earlier resignation or removal.
SECTION 5. Resignation. Any officer may resign by delivering his or her written resignation to the Corporation addressed to the President or the Secretary, and such resignation shall be effective upon receipt, unless the resignation otherwise provides.
SECTION 6. Removal. Except as otherwise provided by law, the Board of Directors may remove any officer with or without cause by the affirmative vote of a majority of the directors then in office.
SECTION 7. Absence or Disability. In the event of the absence or disability of any officer, the Board of Directors may designate another officer to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.
SECTION 9. President. The President shall, subject to the direction of the Board of Directors, have such powers and shall perform such duties as the Board of Directors may from time to time designate.
SECTION 10. Chairman of the Board. The Chairman of the Board, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.
SECTION 11. Chief Executive Officer. The Chief Executive Officer, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.
SECTION 12. Vice Presidents and Assistant Vice Presidents. Any Vice President (including any Executive Vice President or Senior Vice President) and any Assistant Vice President shall have such powers and shall perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
SECTION 13. Treasurer and Assistant Treasurers. The Treasurer shall, subject to the direction of the Board of Directors and except as the Board of Directors or the Chief Executive Officer may otherwise provide, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. The Treasurer shall have custody of all funds, securities, and valuable documents of the Corporation. He or she shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
SECTION 14. Secretary and Assistant Secretaries. The Secretary shall record all the proceedings of the meetings of the stockholders and the Board of Directors (including committees of the Board of Directors) in books kept for that purpose. In his or her absence from any such meeting, a temporary secretary chosen at the meeting shall record the proceedings thereof. The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation). The Secretary shall have custody of the seal of the Corporation, and the Secretary, or an Assistant Secretary shall have authority to affix it to any instrument requiring it, and, when so affixed, the seal may be attested by his or her signature or that of an Assistant Secretary. The Secretary shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. In the absence of the Secretary, any Assistant Secretary may perform his or her duties and responsibilities. Any Assistant Secretary shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.
SECTION 15. Other Powers and Duties. Subject to these By-laws and to such limitations as the Board of Directors may from time to time prescribe, the officers of the Corporation shall each have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors or the Chief Executive Officer.
ARTICLE IV
Capital Stock
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by the Chairman of the Board, the President or a Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. The Corporation seal and the signatures by the Corporation’s officers, the transfer agent or the registrar may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. Notwithstanding anything to the contrary provided in these Bylaws, the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares (except that the foregoing shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation), and by the approval and adoption of these Bylaws the Board of Directors has determined that all classes or series of the Corporation’s stock may be uncertificated, whether upon original issuance, re-issuance, or subsequent transfer.
SECTION 2. Transfers. Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock that are represented by a certificate may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate theretofore properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require. Shares of stock that are not represented by a certificate may be transferred on the books of the Corporation by submitting to the Corporation or its transfer agent such evidence of transfer and following such other procedures as the Corporation or its transfer agent may require.
SECTION 3. Record Holders. Except as may otherwise be required by law, by the Certificate or by these By-laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws.
SECTION 4. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting and (b) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss, destruction or mutilation of a certificate of stock of the Corporation, a duplicate certificate may be issued in place thereof, upon such terms as the Board of Directors may prescribe.
ARTICLE V
Indemnification
SECTION 1. Definitions. For purposes of this Article:
(a) “Corporate Status” describes the status of a person who is serving or has served (i) as a Director of the Corporation, (ii) as an Officer of the Corporation, (iii) as a Non-Officer Employee of the Corporation, or (iv) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, foundation, association, organization or other legal entity which such person is or was serving at the request of the Corporation. For purposes of this Section 1(a), a Director, Officer or Non-Officer Employee of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation. Notwithstanding the foregoing, “Corporate Status” shall not include the status of a person who is serving or has served as a director, officer, employee or agent of a constituent corporation absorbed in a merger or consolidation transaction with the Corporation with respect to such person’s activities prior to said transaction, unless specifically authorized by the Board of Directors or the stockholders of the Corporation;
(b) “Director” means any person who serves or has served the Corporation as a director on the Board of Directors of the Corporation;
(c) “Disinterested Director” means, with respect to each Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;
(d) “Expenses” means all attorneys’ fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices, costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;
(e) “Liabilities” means judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement;
(f) “Non-Officer Employee” means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;
(g) “Officer” means any person who serves or has served the Corporation as an officer of the Corporation appointed by the Board of Directors of the Corporation;
(h) “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and
(i) “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) fifty percent (50%) or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) fifty percent (50%) or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.
SECTION 2. Indemnification of Directors and Officers.
(a) Subject to the operation of Section 4 of this Article V of these By-laws, each Director and Officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), and to the extent authorized in this Section 2.
(1) Actions, Suits and Proceedings Other than By or In the Right of the Corporation. Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses and Liabilities that are incurred or paid by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein (other than an action by or in the right of the Corporation), which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.
(2) Actions, Suits and Proceedings By or In the Right of the Corporation. Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses that are incurred by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein by or in the right of the Corporation, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made under this Section 2(a)(2) in respect of any claim, issue or matter as to which such Director or Officer shall have been finally adjudged by a court of competent jurisdiction to be liable to the Corporation, unless, and only to the extent that, the Court of Chancery or another court in which such Proceeding was brought shall determine upon application that, despite adjudication of liability, but in view of all the circumstances of the case, such Director or Officer is fairly and reasonably entitled to indemnification for such Expenses that such court deems proper.
(3) Survival of Rights. The rights of indemnification provided by this Section 2 shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives.
(4) Actions by Directors or Officers. Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding (including any parts of such Proceeding not initiated by such Director or Officer) was authorized in advance by the Board of Directors of the Corporation, unless such Proceeding was brought to enforce such Officer’s or Director’s rights to indemnification or, in the case of Directors, advancement of Expenses under these By-laws in accordance with the provisions set forth herein.
SECTION 3. Indemnification of Non-Officer Employees. Subject to the operation of Section 4 of this Article V of these By-laws, each Non-Officer Employee may, in the discretion of the Board of Directors of the Corporation, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses and Liabilities that are incurred by such Non-Officer Employee or on such Non-Officer Employee’s behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employee’s Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 3 shall exist as to a Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators. Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized in advance by the Board of Directors of the Corporation.
SECTION 4. Determination. Unless ordered by a court, no indemnification shall be provided pursuant to this Article V to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. Such determination shall be made by (a) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (b) a committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (c) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (d) by the stockholders of the Corporation.
SECTION 5. Advancement of Expenses to Directors Prior to Final Disposition.
(a) The Corporation shall advance all Expenses incurred by or on behalf of any Director in connection with any Proceeding in which such Director is involved by reason of such Director’s Corporate Status within thirty (30) days after the receipt by the Corporation of a written statement from such Director requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Director and shall be preceded or accompanied by an undertaking by or on behalf of such Director to repay any Expenses so advanced if it shall ultimately be determined that such Director is not entitled to be indemnified against such Expenses. Notwithstanding the foregoing, the Corporation shall advance all Expenses incurred by or on behalf of any Director seeking advancement of expenses hereunder in connection with a Proceeding initiated by such Director only if such Proceeding (including any parts of such Proceeding not initiated by such Director) was (i) authorized by the Board of Directors of the Corporation, or (ii) brought to enforce such Director’s rights to indemnification or advancement of Expenses under these By-laws.
(b) If a claim for advancement of Expenses hereunder by a Director is not paid in full by the Corporation within thirty (30) days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Article V shall not be a defense to an action brought by a Director for recovery of the unpaid amount of an advancement claim and shall not create a presumption that such advancement is not permissible. The burden of proving that a Director is not entitled to an advancement of expenses shall be on the Corporation.
(c) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Director has not met any applicable standard for indemnification set forth in the DGCL.
SECTION 6. Advancement of Expenses to Officers and Non-Officer Employees Prior to Final Disposition.
(a) The Corporation may, at the discretion of the Board of Directors of the Corporation, advance any or all Expenses incurred by or on behalf of any Officer or any Non-Officer Employee in connection with any Proceeding in which such person is involved by reason of his or her Corporate Status as an Officer or Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Officer or Non-Officer Employee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Officer or Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such person to repay any Expenses so advanced if it shall ultimately be determined that such Officer or Non-Officer Employee is not entitled to be indemnified against such Expenses.
(b) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Officer or Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.
SECTION 7. Contractual Nature of Rights.
(a) The provisions of this Article V shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Article V is in effect, in consideration of such person’s past or current and any future performance of services for the Corporation. Neither amendment, repeal or modification of any provision of this Article V nor the adoption of any provision of the Certificate of Incorporation inconsistent with this Article V shall eliminate or reduce any right conferred by this Article V in respect of any act or omission occurring, or any cause of action or claim that accrues or arises or any state of facts existing, at the time of or before such amendment, repeal, modification or adoption of an inconsistent provision (even in the case of a proceeding based on such a state of facts that is commenced after such time), and all rights to indemnification and advancement of Expenses granted herein or arising out of any act or omission shall vest at the time of the act or omission in question, regardless of when or if any proceeding with respect to such act or omission is commenced. The rights to indemnification and to advancement of expenses provided by, or granted pursuant to, this Article V shall continue notwithstanding that the person has ceased to be a director or officer of the Corporation and shall inure to the benefit of the estate, heirs, executors, administrators, legatees and distributes of such person.
(b) If a claim for indemnification hereunder by a Director or Officer is not paid in full by the Corporation within sixty (60) days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such indemnification under this Article V shall not be a defense to an action brought by a Director or Officer for recovery of the unpaid amount of an indemnification claim and shall not create a presumption that such indemnification is not permissible. The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.
(c) In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.
SECTION 8. Non-Exclusivity of Rights. The rights to indemnification and to advancement of Expenses set forth in this Article V shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate or these By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise.
SECTION 9. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non-Officer Employee, or arising out of any such person’s Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Article V.
SECTION 10. Other Indemnification. The Corporation’s obligation, if any, to indemnify or provide advancement of Expenses to any person under this Article V as a result of such person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification or advancement of Expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or enterprise (the “Primary Indemnitor”). Any indemnification or advancement of Expenses under this Article V owed by the Corporation as a result of a person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall only be in excess of, and shall be secondary to, the indemnification or advancement of Expenses available from the applicable Primary Indemnitor(s) and any applicable insurance policies.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.
SECTION 2. Seal. The Board of Directors shall have power to adopt and alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by the Chairman of the Board, if one is elected, the President or the Treasurer or any other officer, employee or agent of the Corporation as the Board of Directors or the executive committee of the Board may authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors otherwise provides, the Chairman of the Board, if one is elected, the President or the Treasurer may waive notice of and act on behalf of the Corporation, or appoint another person or persons to act as proxy or attorney in fact for the Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by the Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.
SECTION 6. Corporate Records. The original or attested copies of the Certificate, By-laws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock transfer books, which shall contain the names of all stockholders, their record addresses and the amount of stock held by each, may be kept outside the State of Delaware and shall be kept at the principal office of the Corporation, at an office of its counsel, at an office of its transfer agent or at such other place or places as may be designated from time to time by the Board of Directors.
SECTION 7. Certificate. All references in these By-laws to the Certificate shall be deemed to refer to the Amended and Restated Certificate of Incorporation of the Corporation, as amended and/or restated and in effect from time to time.
SECTION 8. Exclusive Jurisdiction of Delaware Courts or the United States District Court for the District of Massachusetts. Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any state law claims for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Corporation’s Certificate of Incorporation or By-laws, or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine. Unless the Corporation consents in writing to the selection of an alternative forum, the United States District Court for the District of Massachusetts shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Section 8
SECTION 9. Amendment of By-laws.
(a) Amendment by Directors. Except as provided otherwise by law, these By-laws may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These By-laws may be amended or repealed at any Annual Meeting, or special meeting of stockholders called for such purpose in accordance with these By-Laws, by the affirmative vote of at least seventy-five percent (75%) of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class. Notwithstanding the foregoing, stockholder approval shall not be required unless mandated by the Certificate, these By-laws, or other applicable law.
SECTION 10. Notices. If mailed, notice to stockholders shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. Without limiting the manner by which notice otherwise may be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the DGCL.
SECTION 11. Waivers. A written waiver of any notice, signed by a stockholder or director, or waiver by electronic transmission by such person, whether given before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such person. Neither the business to be transacted at, nor the purpose of, any meeting need be specified in such a waiver.
Adopted March 2025
Exhibit 10.3
December 31, 2024
Matthew Feinsod, MD
[***]
[***]
[***] [***]
| Re: | Offer of Employment by Kalaris Therapeutics, Inc. |
Dear Matt:
I am very pleased to confirm our offer to you of employment with Kalaris Therapeutics, Inc. (the “Company”). The terms of our offer and the benefits currently provided by the Company are as follows:
1. Position, Start Date, Board Service and Duties. You are being offered the position of Chief Medical Officer (“CMO”), reporting to the Chief Executive Officer (“CEO”). As CMO, you will have such duties and responsibilities commensurate with those customarily associated with that position, including such duties and responsibilities as reasonably assigned by your manager and the Board of Directors of the Company (the “Board”). You will primarily work remotely from your home office in Florida, until the Company establishes a company office, after which time you will continue to primarily work remotely from your home office in Florida but will be expected to travel to the Company’s office from time to time, depending on business need. Your anticipated start date will be December 31, 2024. You will devote substantially all of your full working time and attention to your Company job duties, except as provided below. Prior to executing this letter agreement, you are required to disclose to the Company all other material professional or business activities (leadership expertise, consulting, investment, and Board membership) that you are currently engaged in, whether or not such contributions are competitive and/or represent a conflict of interest with the Company. Further, you are required to inform the Company prior to engaging in any further such contributions. Unless as otherwise agreed upon between you and the Company, and subject to the other terms in this letter agreement, you will be permitted to hold one (1) Board membership position outside of the Company. Further, while you render services to the Company, you will not engage in any other employment, consulting or other business activity (whether full-time or part-time) that would create a conflict of interest with the Company or that is in any way competitive with the business or proposed business of the Company, nor will you assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company. Notwithstanding the foregoing, you may (i) manage your personal and family investments and (ii) engage in religious, charitable or other community activities, each as long as such services and activities are disclosed in writing to the Board and do not interfere with your performance of your duties to the Company or otherwise represent a conflict of interest with the Company. By signing this letter agreement, you confirm to the Company that you have no contractual commitments or other legal obligations that would prohibit you from performing your duties for the Company.
Matthew Feinsod, MD
Employment Offer
Page 2
2. Base Salary. Your base salary will be $425,000.00 per year, subject to applicable withholding. Your base salary shall be reviewed at least annually by the Company. You will be paid in accordance with the Company’s regular payroll schedule, which is subject to change.
3. Annual Bonus. You will be eligible to receive an annual discretionary bonus of up to 35% of your annual base salary (your “target bonus”) for the year with respect to which you are receiving the bonus, prorated based on your start date. The determination of such bonus will be based upon performance, as determined by the Board in good faith, against specific milestones to be defined or such discretionary factors as the Board chooses to use in good faith. Payment of the bonus, if any, will be made upon the approval of the Board. No amount of annual bonus is guaranteed and you must be employed on the bonus payment date, to be determined by the Company (but in no event later than March 15 of the calendar year after the bonus year to which it relates), in order to be eligible to earn and receive the bonus payment, as it also serves as an incentive for you to remain employed by the Company. You will not be eligible for an annual bonus in connection with the 2024 calendar year.
4. Benefits. In addition, you will be eligible to participate in regular health insurance, bonus and other employee benefit plans established by the Company for its employees from time to time, on terms no less favorable to those provided to other senior executives of the Company. The benefit programs made available by the Company, and the rules, terms and conditions for participation in such benefit plans, may be changed by the Company at any time without advance notice.
5. Expenses. You will be reimbursed for your actual, necessary and reasonable business expenses pursuant to Company policy, subject to the provisions of Section 3 of Exhibit A attached hereto.
6. Stock Option. Subject to and contingent upon the closing of the transaction contemplated by the Company with Allovir, Inc. (the “Transaction”) and the approval of the Board of Directors of Allovir, Inc. (the “Acquiror”) in the Transaction, or the compensation committee thereof, it is anticipated that you will be granted, subject to your continued service to the Company through the effective date of grant, an option to purchase up to a number of shares of the Acquiror’s common stock equivalent in amount, on a Transaction adjusted basis, as determined in good faith by the Board of Directors of the Acquiror, to the number of shares that would have been subject to the Kalaris Option (as defined below) had the Transaction not occurred, with an exercise price equal to the fair market value of such common stock on the date of grant, under a stock incentive plan maintained by the Acquiror (the “Acquiror Plan”) and a form of option award agreement issued thereunder (the “Acquiror Option”). The Acquiror Option will vest over four years with 1/4 of the shares vesting on the first anniversary of your employment commencement, and an additional 1/48 of the shares vesting each full month thereafter until all of the shares are vested, assuming your continued service to the Company, the Acquiror or another affiliate thereof through each vesting date.
Matthew Feinsod, MD
Employment Offer
Page 3
If the Transaction does not close, instead of receiving the Acquiror Option and subject to approval by the Company’s Board of Directors and your continued service to the Company through the effective date of grant, you will be granted an option to purchase 349,958 shares of the Company’s common stock, with an exercise price equal to the fair market value of such common stock on the date of grant (as determined by the Company’s Board of Directors) under the Company’s 2019 Equity Incentive Plan, as amended (the “Kalaris Plan”) and a form of option award agreement issued thereunder (the “Kalaris Option”). The Kalaris Option will vest over four years with 1/4 of the shares vesting on the first anniversary of your employment commencement, and an additional 1/48 of the shares vesting each full month thereafter until all of the shares are vested, assuming your continued service to the Company through each vesting date. You will remain eligible for future grants as the Board shall deem appropriate.
In no event shall you receive both the Acquiror Option and the Kalaris Option and neither the Acquiror Option nor the Kalaris Option shall confer any right to continue vesting or employment.
You currently hold an option to acquire Company shares, granted on July 23, 2024 (the “Prior Option”). The Prior Option will remain outstanding with the same exercise price and vesting schedule as described in the original award; provided, however, that the Prior Option will be treated in the same manner as the Acquiror Option or the Kalaris Option (as applicable), upon your termination pursuant to and subject to Section 7 or 8 below.
7. Termination and Severance Benefits. In the event of termination of your employment for any reason the Company shall pay you or provide you any and all Accrued Obligations; provided that, in the event that the Company terminates your employment without Cause or you resign from your employment for Good Reason, in addition to any Accrued Obligations and provided that you deliver to the Company a signed separation agreement and general release of claims in favor of the Company in a form to be provided by the Company (which will include, at a minimum, a release of all releasable claims, non-disparagement and cooperation obligations, and a reaffirmation of applicable continuing obligations pursuant to any existing restrictive covenant agreement(s)) (the “Release”), and satisfy all conditions to make the Release effective within sixty (60) days following your employment termination date, then, subject to the terms of Exhibit A, the Company shall provide you with the following severance benefits:
(a) Continued payment of your base salary for a period of six (6) months following your employment termination date (the “Severance Period”), payable in installments in accordance with the Company’s normal payroll practices; and
(b) Provided that you are then eligible for and timely elect continued coverage under COBRA, the Company shall directly pay, or reimburse you for, the monthly COBRA premiums to continue your coverage (including coverage for eligible dependents, if applicable) through the period starting on your employment termination date and ending on the earliest to occur of: (i) the end of the Severance Period; (ii) the date you become eligible for group health insurance coverage through a new employer; or (iii) the date you cease to be eligible for COBRA continuation coverage for any reason, including plan termination. In the event you become covered under another employer’s group health plan or otherwise cease to be eligible for COBRA during this time period, you must immediately notify the Company of such event. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot
Matthew Feinsod, MD
Employment Offer
Page 4
pay the COBRA premiums without a substantial risk of violating applicable law, the Company shall instead pay you a fully taxable cash payment equal to the applicable COBRA premiums for each month for the remainder of the COBRA premium period, subject to applicable tax withholdings. In such event, you may, but will not be obligated to, use such payments toward the cost of COBRA premiums.
8. Change in Control Severance Benefits. In the event that the Company terminates your employment without Cause or you resign from your employment for Good Reason, and provided such separation from employment occurs within the three (3) months prior to or the twelve (12) months following a Change in Control, and further provided that you deliver to the Company a Release and satisfy all conditions to make the Release effective within sixty (60) days following your employment termination date then, subject to the terms of Exhibit A, the Severance Period set forth in paragraph 7 shall be increased to nine (9) months; and (ii) 100% of the then unvested equity grants previously granted to you by the Company and/or the Acquiror, including, for the avoidance of doubt, both the option granted to you by the Company on July 23, 2024 and the Kalaris Option or the Acquiror Option, as applicable, will immediately vest and become exercisable upon the date of such termination.
9. Definitions. For purposes of this offer letter:
(a) “Accrued Obligations” means (i) any earned but unpaid base salary and accrued, unused vacation time per the Company policy and applicable law; (ii) any employee benefits to which you are entitled in accordance with the terms and conditions of the applicable plans or policies of the Company; and (iii) any expense reimbursement payments owed to you for expenses incurred prior to the date of termination in accordance with the terms and conditions of any policies of the Company related thereto in effect from time to time.
(b) “Cause” means, as determined by the Company in good faith: (i) your unauthorized use or disclosure of the Company’s confidential information or trade secrets; (ii) your material breach of the Company’s Non-Competition and Non-Solicitation Agreement or the Invention and Non-Disclosure Agreement; (iii) your material breach of any other agreement between you and the Company; (iv) your material failure to comply with the Company’s written policies or rules provided the Company shall give you written notice of the alleged failure and thirty days to cure if the Company determines cure is possible; (iv) your conviction of, or your plea of “guilty” or “no contest” to, any crime involving moral turpitude or any felony under the laws of the United States or any State; (v) your willful misconduct that results in, or would reasonably be expected to result in, in material injury or reputational harm to the Company; or (vi) your failure to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employee, if the Company has requested your cooperation. Prior to termination for Cause pursuant to any event listed in (i) through (vi) above, to the extent such event(s) is capable of being cured, (A) the Company shall give you notice of such event(s) within sixty (60) days of the Company having actual knowledge of such event or condition, which notice shall specify in reasonable detail the circumstances constituting Cause, (B) the Company shall give you an opportunity to be heard by the Board, and (C) there shall be no Cause with respect to any such event(s) if you cure such event(s) within thirty (30) days after the delivery of such notice or, if later, such hearing at the Board.
Matthew Feinsod, MD
Employment Offer
Page 5
(c) A “Change in Control” shall mean the consummation of (i) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, other than any such consolidation, merger or reorganization in which the shares of capital stock of the Company immediately prior to such consolidation, merger or reorganization, continue to represent a majority of the voting power of the surviving entity (or, if the surviving entity is a wholly owned subsidiary, its parent) immediately after such consolidation, merger or reorganization; (ii) any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company’s voting power is transferred to a non-affiliate of the Company; or (iii) any sale or other disposition of all or substantially all of the assets of the Company; provided that a Change in Control shall not include any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or any successor or indebtedness of the Company is cancelled or converted or a combination thereof; and provided, further, that, a transaction shall only constitute a “Change in Control” to the extent such transaction also constitutes a “change in control event” as defined under Treasury Regulation Section 1.409A-3(i).
(d) “Good Reason” means any of the following actions taken by the Company without your prior written consent, and provided (i) the Company receives, within sixty ( 60) days following the occurrence of any of the events set forth in clauses (A), (B), or (C) below, written notice from you specifying the specific basis for your belief that you are entitled to terminate employment for Good Reason; (ii) the Company fails to cure the event constituting Good Reason within thirty (30) days after receipt of such written notice thereof; and (iii) you terminate employment within the earlier of thirty (30) days following expiration of such cure period or receipt from the Company that such deficiencies will not be cured: (A) a decrease in your then-current target bonus by more than 10% or your base salary by more than 10% (other than in connection with a general decrease in the salary of all other executive officers); (B) a material adverse change in your position, title, authority, office or duties; or (C) your required relocation to a location more than fifty (50) miles from your then current location; or (D) a material breach by the Company of this offer letter or any other agreement between you and the Company regarding your services to the Company.
10. Protection of Confidential and Proprietary Information. As an employee of the Company, you will have access to certain confidential information of the Company and you may, during the course of your employment, develop certain information or inventions that will be the property of the Company. To protect the Company’s interests, as a condition of employment, you must sign and abide by the Company’s Invention and Non-Disclosure Agreement and the Company’s Non-Competition and Non-Solicitation Agreement, attached hereto as Exhibit B and Exhibit C, respectively.
11. No Breach of Obligations to Prior Employers. We wish to impress upon you that we do not want you to, and we hereby direct you not to, bring with you any confidential or proprietary material of any former employer or violate any other obligations you may have to any former employer. You represent that your signing of this offer letter, agreement(s) concerning stock options granted to you, if any, under the Plan and the Company’s Employee Invention Assignment and Confidentiality Agreement and your commencement of employment with the Company will not violate any agreement currently in place between yourself and current or past employers.
Matthew Feinsod, MD
Employment Offer
Page 6
12. No Competition During Employment. During the period that you render services to the Company, you agree to not engage in any employment, business or activity that is in any way competitive with the business or proposed business of the Company. You will disclose to the Company in writing any other gainful employment, business or activity that you are currently associated with or participate in that competes with the Company. You will not assist any other person or organization in competing with the Company or in preparing to engage in competition with the business or proposed business of the Company.
13. At Will Employment. Employment with the Company is for no specific period of time. Should you accept our offer, you will be an at-will employee of the Company, which means the employment relationship can be terminated by either of us for any reason, at any time, with or without prior notice and with or without cause, subject to the provisions of this letter agreement. Any statements or representations to the contrary (and, indeed, any statements contradicting any provision in this letter) are superseded by this agreement. Similarly, nothing in this letter shall be construed as an agreement, either express or implied, to pay you any compensation or grant you any benefit beyond the end of your employment with the Company, except to the extent set forth in Section 7 or 8 hereof. Further, your participation in any stock option or benefit program is not to be regarded as assuring you of continuing employment for any particular period of time. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and practices, may change from time to time, the “at-will” nature of your employment may be changed only in an express, written employment agreement signed by you and a duly authorized officer of the Company (other than you).
14. Tax Matters. All forms of compensation referred to in this agreement are subject to reduction to reflect applicable withholding and payroll taxes and other deductions required by law.
15. Authorization to Work. Please note that because of employer regulations adopted in the Immigration Reform and Control Act of 1986, within three (3) business days of starting your new position you will need to present documentation demonstrating that you have authorization to work in the United States. If you have questions about this requirement, which applies to U.S. citizens and non-U.S. citizens alike, you may contact our personnel office.
16. Governing Law. The terms of this offer and the resolution of any disputes as to the meaning, effect, performance or validity of this offer or arising out of, related to, or in any way connected with this offer, your employment with the Company or any other relationship between you and the Company will be governed by Florida law, excluding laws relating to conflicts or choice of law.
Matthew Feinsod, MD
Employment Offer
Page 7
17. Arbitration and Class and Collective Action Waiver. To the fullest extent permitted by law, you and the Company agree to submit to mandatory binding arbitration, pursuant to and governed by the Federal Arbitration Act (the “FAA”), any and all claims that (a) you may have against the Company and its directors, officers, owners, employees, agents, successors and assigns, and (b) the Company may have against you, arising out of or related to your employment with the Company and the termination thereof, including, but not limited to, claims for unpaid wages, wrongful termination, torts, stock or stock options or other ownership interest in the Company, discrimination, harassment and/or retaliation based upon any federal, state or local ordinance, statute, regulation or constitutional provision, and individual claims under the California Private Attorneys General Act (California Labor Code Section 2698, et seq.) (“PAGA”) (collectively, “Arbitrable Claims”). Further, to the fullest extent permitted by law, you and the Company agree that no class or collective actions can be asserted in arbitration, court or any other forum. All claims must be brought solely in your or the Company’s individual capacity, and not as a plaintiff or class member in any purported class or collective proceeding.
Notwithstanding the foregoing, nothing in this arbitration provision restricts: (w) your right under the FAA to elect to pursue claims for sexual harassment and/or sexual assault in court, on an individual, class action or collective action basis; (x) your right, if any, to file in court a non-individual, representative action under PAGA, if you have standing to pursue such an action and it is permitted under applicable law; (y) your right to file administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict the employee’s ability to file such claims (including, but not limited to, the National Labor Relations Board, the Equal Employment Opportunity Commission and the Department of Labor, and before state agencies in connection with claims for workers’ compensation, unemployment and/or disability insurance benefits); or (z) a party’s right to seek injunctive or other provisional relief in court, where permitted by applicable law, including, but not limited to, in connection with the misappropriation of a party’s private, proprietary, confidential or trade secret information.
SUBJECT TO THE ABOVE, THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS. THE PARTIES FURTHER WAIVE ANY RIGHTS THEY MAY HAVE TO PURSUE OR PARTICIPATE IN A CLASS OR COLLECTIVE ACTION PERTAINING TO ANY CLAIMS BETWEEN YOU AND THE COMPANY.
The arbitration shall be conducted through JAMS before a single neutral arbitrator, in accordance with the JAMS employment arbitration rules then in effect, provided however, that the FAA, including its procedural provisions for compelling arbitration, shall govern and apply to this arbitration provision. The JAMS rules may be found at https://www.jamsadr.com/rulesemployment. If you are unable to access these rules, please let me know and I will provide you with a hard copy. Unless the parties agree otherwise, the arbitration hearing shall take place in the JAMS office nearest to your current or most recent former place of work. The arbitrator shall issue a written decision that contains the essential findings and conclusions on which the decision is based. The Company shall pay any filing fee and the fees and costs of the arbitrator; provided, however, that if you are the party initiating the arbitration, you will pay an amount equivalent to the filing fee that you would have paid to file a civil action or initiate a claim in a court of competent jurisdiction. Otherwise, the parties shall each pay for their own costs and attorneys’ fees during the pendency of the arbitration proceeding. This arbitration provision is governed by and will be construed in accordance with the FAA, and it shall only apply to claims that are subject to mandatory binding arbitration under applicable law.
Matthew Feinsod, MD
Employment Offer
Page 8
If, for any reason, any term of this arbitration provision is held to be invalid or unenforceable, all other valid terms and conditions herein shall be severable in nature and remain fully enforceable.
18. Background Check. This offer is contingent upon a satisfactory verification of criminal, education, driving and/or employment background. This offer can be rescinded based upon data received in the verification or your failure to provide sufficient information for the Company to complete such verification. In the event that you commence employment with the Company prior to its receipt of a background check report that the Company determines, in good faith, is not satisfactory, any termination of your employment within thirty (30) days’ following the Company’s receipt of such background check report shall be considered a termination for Cause.
19. Entire Agreement. This offer, once accepted, constitute the entire agreement between you and the Company with respect to the subject matter hereof and supersedes all prior offers, negotiations and agreements, if any, whether written or oral, relating to such subject matter; and further provided, that upon commencement of employment, you and the Company agree that your services as a consultant to the Company shall be terminated in accordance with Section 5 of the Consulting Agreement by and between you and the Company; provided, however, that nothing herein shall nullify the stock option granted to you by the Company on July 23, 2024. You acknowledge that neither the Company nor its agents have made any promise, representation or warranty whatsoever, either express or implied, written or oral, which is not contained in this agreement for the purpose of inducing you to execute the agreement, and you acknowledge that you have executed this agreement in reliance only upon such promises, representations and warranties as are contained herein.
20. Indemnification. The Company agrees to provide you with indemnification rights pursuant to and subject to the Company’s Certificate of Incorporation and By-laws. In addition, the Company agrees to maintain customary directors and officers insurance coverage for its officers and directors.
21. Acceptance. This offer will remain open until December 31, 2024. If you decide to accept our offer, and I hope you will, please sign the enclosed copy of this letter in the space indicated and return it to me. Your signature will acknowledge that you have read and understood and agreed to the terms and conditions of this offer letter and the attached documents, if any. Should you have anything else that you wish to discuss, please do not hesitate to call me.
We look forward to the opportunity to welcome you to the Company.
| Very truly yours, |
| /s/ Andrew Oxtoby |
| Andrew Oxtoby, Chief Executive Officer |
| Kalaris Therapeutics, Inc. |
Matthew Feinsod, MD
Employment Offer
Page 9
I have read and understood this offer letter and hereby acknowledge, accept and agree to the terms as set forth above and further acknowledge that no other commitments were made to me as part of my employment offer except as specifically set forth herein.
| /s/ Matthew Feinsod |
12/31/2024 | |||||
| Matthew Feinsod, MD | Date |
Matthew Feinsod, MD
Employment Offer
Page 10
EXHIBIT A
Payments Subject to Section 409A
1. Subject to this Exhibit A, any severance payments or benefits that may be due under the letter agreement shall begin only upon the date of the Executive’s “separation from service” (determined as set forth below) which occurs on or after the termination of the Executive’s employment. The following rules shall apply with respect to distribution of the severance payments or benefits, if any, to be provided to the Executive under the letter agreement, as applicable:
(a) It is intended that each installment of the severance payments or benefits provided under the letter agreement shall be treated as a separate “payment” for purposes of Section 409A of the Internal Revenue Code (“Section 409A”). Neither the Company nor the Executive shall have the right to accelerate or defer the delivery of any such payments except to the extent specifically permitted or required by Section 409A.
(b) If, as of the date of the Executive’s “separation from service” from the Company, the Executive is not a “specified employee” (within the meaning of Section 409A), then each installment of the severance payments or benefits shall be made on the dates and terms set forth in the letter agreement.
(c) If, as of the date of the Executive’s “separation from service” from the Company, the Executive is a “specified employee” (within the meaning of Section 409A), then:
| (i) | Each installment of the severance payments or benefits due under the letter agreement that, in accordance with the dates and terms set forth herein, will in all circumstances, regardless of when the Executive’s separation from service occurs, be paid within the short-term deferral period (as defined under Section 409A) shall be treated as a short-term deferral within the meaning of Treasury Regulation Section 1.409A-1(b)(4) to the maximum extent permissible under Section 409A and shall be paid on the dates and terms set forth in the letter agreement; and |
| (ii) | Each installment of the severance payments or benefits due under the letter agreement that is not described in this Exhibit A, Section 1(c)(i) and that would, absent this subsection, be paid within the six-month period following the Executive’s “separation from service” from the Company shall not be paid until the date that is six months and one day after such separation from service (or, if earlier, as soon as practicable, as permitted by Section 409A, following the Executive’s death), with any such installments that are required to be delayed being accumulated during the six-month period and paid in a lump sum on the date that is six months and |
Matthew Feinsod, MD
Employment Offer
Page 11
| one day following the Executive’s separation from service and any subsequent installments, if any, being paid in accordance with the dates and terms set forth herein; provided, however, that the preceding provisions of this sentence shall not apply to any installment of payments or benefits if and to the maximum extent that that such installment is deemed to be paid under a separation pay plan that does not provide for a deferral of compensation by reason of the application of Treasury Regulation 1.409A-1(b)(9)(iii) (relating to separation pay upon an involuntary separation from service). Any installments that qualify for the exception under Treasury Regulation Section 1.409A-1(b)(9)(iii) must be paid no later than the last day of the Executive’s second taxable year following the taxable year in which the separation from service occurs. |
2. The determination of whether and when the Executive’s separation from service from the Company has occurred shall be made in a manner consistent with, and based on the presumptions set forth in, Treasury Regulation Section 1.409A-1(h). Solely for purposes of Section 2 of this Exhibit A, “Company” shall include all persons with whom the Company would be considered a single employer under Section 414(b) and 414(c) of the Code.
3. All reimbursements and in-kind benefits provided under the letter agreement shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A, including, where applicable, the requirements that (i) any reimbursement is for expenses incurred during the Executive’s lifetime (or during a shorter period of time specified in the letter agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred and (iv) the right to reimbursement is not subject to set off or liquidation or exchange for any other benefit.
4. The Company makes no representation or warranty and shall have no liability to the Executive or to any other person if any of the provisions of the letter agreement (including this Exhibit A) are determined to constitute deferred compensation subject to Section 409A but that do not satisfy an exemption from, or the conditions of, that section.
5. The letter agreement is intended to comply with, or be exempt from, Section 409A and shall be interpreted accordingly.
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Exhibit 10.4
NAPOCO, INC.
2019 EQUITY INCENTIVE PLAN
As Adopted on September 30, 2019
1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries by offering eligible persons an opportunity to participate in the Company’s future performance through the grant of Awards covering Shares. Capitalized terms not defined in the text are defined in Section 14 hereof. Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701, grants may be made pursuant to this Plan that do not qualify for exemption under Rule 701 or Section 25102(o). Any requirement of this Plan that is required in law only because of Section 25102(o) need not apply if the Committee so provides.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2 and 11 hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 500,000 Shares. Subject to Sections 2.2 and 11 hereof, Shares subject to Awards that are cancelled, forfeited, settled in cash, used to pay withholding obligations or pay the exercise price of an Option or that expire by their terms at any time will again be available for grant and issuance in connection with other Awards. In the event that Shares previously issued under the Plan are reacquired by the Company pursuant to a forfeiture provision, right of first refusal, or repurchase by the Company, such Shares shall be added to the number of Shares then available for issuance under the Plan. At all times the Company will reserve and keep available a sufficient number of Shares as will be required to satisfy the requirements of all Awards granted and outstanding under this Plan. In no event shall the total number of Shares issued (counting each reissuance of a Share that was previously issued and then forfeited or repurchased by the Company as a separate issuance) under the Plan upon exercise of ISOs exceed 1,000,000 Shares (adjusted in proportion to any adjustments under Section 2.2 hereof) over the term of the Plan (the “ISO Limit”). Subject to Sections 2.2 and 11 hereof, in the event that the number of Shares reserved for issuance under the Plan is increased, the ISO Limit shall be automatically increased by such number of Shares such that the ISO Limit equals (a) two (2) multiplied by (b) the number of Shares reserved for issuance under the Plan.
2.2 Adjustment of Shares. In the event that the number of outstanding shares of the Company’s Common Stock is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or other change in the capital structure of the Company affecting Shares without consideration, then in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan (a) the number of Shares reserved for issuance under this Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options and SARs, and (c) the Purchase Prices of and/or number of Shares subject to other outstanding Awards will (to the extent appropriate) be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share will not be issued but will either be paid in cash at the Fair Market Value of such fraction of a Share or will be rounded down to the nearest whole Share, as determined by the Committee.
3. PLAN FOR BENEFIT OF SERVICE PROVIDERS.
3.1 Eligibility. The Committee will have the authority to select persons to receive Awards. ISOs (as defined in Section 4 hereof) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in Section 4 hereof) and all other types of Awards may be granted to employees, officers, directors and consultants of the Company or any Parent or Subsidiary of the Company; provided such consultants render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction when Rule 701 is to apply to the Award granted for such services. A person may be granted more than one Award under this Plan.
3.2 No Obligation to Employ. Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary or limit in any way the right of the Company or any Parent or Subsidiary to terminate Participant’s employment or other relationship at any time, with or without Cause.
4. OPTIONS. The Committee may grant Options to eligible persons described in Section 3 hereof and will determine whether such Options will be Incentive Stock Options within the meaning of the Code (“ISOs”) or Nonqualified Stock Options (“NQSOs”), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following.
4.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO (“Stock Option Agreement”), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan.
4.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless a later date is otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option.
4.3 Exercise Period. Options may be exercisable within the time or upon the events determined by the Committee in the Award Agreement and may be awarded as immediately exercisable but subject to repurchase pursuant to Section 10 hereof or may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that (a) no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and (b) no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary (“Ten Percent Stockholder”) will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines.
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4.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and shall not be less than the Fair Market Value per Share unless expressly determined in writing by the Committee on the Option’s date of grant; provided that the Exercise Price of an ISO granted to a Ten Percent Stockholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased must be made in accordance with Section 8 hereof.
4.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the “Exercise Agreement”) in a form approved by the Committee (which need not be the same for each Participant). The Exercise Agreement will state (a) the number of Shares being purchased, (b) the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and (c) such representations and agreements regarding Participant’s investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws. Each Participant’s Exercise Agreement may be modified by (i) agreement of Participant and the Company or (ii) substitution by the Company, upon becoming a public company, in order to add the payment terms set forth in Section 8.1 that apply to a public company and such other terms as shall be necessary or advisable in order to exercise a public company option. Upon exercise of an Option, Participant shall execute and deliver to the Company the Exercise Agreement then in effect, together with payment in full of the Exercise Price for the number of Shares being purchased and payment of any applicable taxes. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 2.2 of the Plan. Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
4.6 Termination. Subject to earlier termination pursuant to Sections 11 and 13.3 hereof and notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following terms and conditions.
4.6.1 Other than Death or Disability or for Cause. If the Participant is Terminated for any reason other than death, Disability or for Cause, then the Participant may exercise such Participant’s Options only to the extent that such Options are exercisable as to Vested Shares upon the Termination Date or as otherwise determined by the Committee. Such Options must be exercised by the Participant, if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within three (3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days, or within such longer time period after the Termination Date as may be determined by the Committee, with any exercise beyond three (3) months after the date Participant ceases to be an employee deemed to be an NQSO) but in any event, no later than the expiration date of the Options.
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4.6.2 Death or Disability. If the Participant is Terminated because of Participant’s death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause), then Participant’s Options may be exercised only to the extent that such Options are exercisable as to Vested Shares by Participant on the Termination Date or as otherwise determined by the Committee. Such options must be exercised by Participant (or Participant’s legal representative or authorized assignee), if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within twelve (12) months after the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time period, after the Termination Date as may be determined by the Committee, with any exercise beyond (a) three (3) months after the date Participant ceases to be an employee when the Termination is for any reason other than the Participant’s death or disability, within the meaning of Section 22(e)(3) of the Code, or (b) twelve (12) months after the date Participant ceases to be an employee when the Termination is for Participant’s disability, within the meaning of Section 22(e)(3) of the Code, deemed to be an NQSO) but in any event no later than the expiration date of the Options.
4.6.3 For Cause. If the Participant is terminated for Cause, the Participant may exercise such Participant’s Options, but not to an extent greater than such Options are exercisable as to Vested Shares upon the Termination Date and Participant’s Options shall expire on such Participant’s Termination Date, or at such later time and on such conditions as are determined by the Committee.
4.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable.
4.8 Limitations on ISOs. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under this Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary of the Company) will not exceed One Hundred Thousand Dollars ($100,000). If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds One Hundred Thousand Dollars ($100,000), then the Options for the first One Hundred Thousand Dollars ($100,000) worth of Shares to become exercisable in such calendar year will be ISOs and the Options for the amount in excess of One Hundred Thousand Dollars ($100,000) that become exercisable in that calendar year will be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date (as defined in Section 13.1 hereof) to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, then such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.
4.9 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant’s rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with
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Section 424(h) of the Code. Subject to Section 4.10 hereof, the Committee may reduce the Exercise Price of outstanding Options without the consent of Participants by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 4.4 hereof for Options granted on the date the action is taken to reduce the Exercise Price.
4.10 No Disqualification. Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant, to disqualify any Participant’s ISO under Section 422 of the Code.
5. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to certain specified restrictions. The Committee will determine to whom an offer will be made, the number of Shares the person may purchase, the Purchase Price, the restrictions to which the Shares will be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following terms and conditions.
5.1 Form of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to this Plan will be evidenced by an Award Agreement (“Restricted Stock Purchase Agreement”) that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. The Restricted Stock Award will be accepted by the Participant’s execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within such thirty (30) days, then the offer will terminate, unless otherwise determined by the Committee.
5.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award will be determined by the Committee on the date the Restricted Stock Award is granted or at the time the purchase is consummated. Payment of the Purchase Price must be made in accordance with Section 8 hereof.
5.3 Dividends and Other Distributions. Participants holding Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares, unless the Committee provides otherwise at the time of award. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.
5.4 Restrictions. Restricted Stock Awards may be subject to the restrictions set forth in Sections 9 and 10 hereof or, with respect to a Restricted Stock Award to which Section 25102(o) is to apply, such other restrictions not inconsistent with Section 25102(o).
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6. RESTRICTED STOCK UNITS.
6.1 Awards of Restricted Stock Units. A Restricted Stock Unit (“RSU”) is an Award covering a number of Shares that may be settled in cash, or by issuance of those Shares at a date in the future. No Purchase Price shall apply to an RSU settled in Shares. All grants of Restricted Stock Units will be evidenced by an Award Agreement that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan. No RSU will have a term longer than ten (10) years from the date the RSU is granted.
6.2 Form and Timing of Settlement. To the extent permissible under applicable law, the Committee may permit a Participant to defer payment under a RSU to a date or dates after the RSU is earned, provided that the terms of the RSU and any deferral satisfy the requirements of Section 409A of the Code (or any successor) and any regulations or rulings promulgated thereunder. Payment may be made in the form of cash or whole Shares or a combination thereof, all as the Committee determines.
6.3 Dividend Equivalent Payments. The Board may permit Participants holding RSUs to receive dividend equivalent payments on outstanding RSUs if and when dividends are paid to stockholders on Shares. In the discretion of the Board, such dividend equivalent payments may be paid in cash or Shares and they may either be paid at the same time as dividend payments are made to stockholders or delayed until when Shares are issued pursuant to the RSU grants and may be subject to the same vesting requirements as the RSUs. If the Board permits dividend equivalent payments to be made on RSUs, the terms and conditions for such payments will be set forth in the Award Agreement.
7. STOCK APPRECIATION RIGHTS.
7.1 Awards of SARs. Stock Appreciation Rights (“SARs”) may be settled in cash, or Shares (which may consist of Restricted Stock or RSUs), having a value equal to the value determined by multiplying the difference between the Fair Market Value on the date of exercise over the Exercise Price and the number of Shares with respect to which the SAR is being settled. All grants of SARs made pursuant to this Plan will be evidenced by an Award Agreement that will be in such form (which need not be the same for each Participant) as the Committee will from time to time approve, and will comply with and be subject to the terms and conditions of this Plan.
7.2 Exercise Period and Expiration Date. A SAR will be exercisable within the times or upon the occurrence of events determined by the Committee and set forth in the Award Agreement governing such SAR. The Award Agreement shall set forth the Expiration Date; provided that no SAR will be exercisable after the expiration of ten years from the date the SAR is granted.
7.3 Exercise Price. The Committee will determine the Exercise Price of the SAR when the SAR is granted, and which may not be less than the Fair Market Value on the date of grant and may be settled in cash or in Shares.
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7.4 Termination. Subject to earlier termination pursuant to Sections 11 and 13.1 hereof and notwithstanding the exercise periods set forth in the Award Agreement, exercise of SARs will always be subject to the following terms and conditions.
7.4.1 Other than Death or Disability or for Cause. If the Participant is Terminated for any reason other than death, Disability or for Cause, then the Participant may exercise such Participant’s SARs only to the extent that such SARs are exercisable as to Vested Shares upon the Termination Date or as otherwise determined by the Committee. SARs must be exercised by the Participant, if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within three (3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days, or within such longer time period after the Termination Date as may be determined by the Committee) but in any event, no later than the expiration date of the SARs.
7.4.2 Death or Disability. If the Participant is Terminated because of Participant’s death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause), then Participant’s SARs may be exercised only to the extent that such SARs are exercisable as to Vested Shares by Participant on the Termination Date or as otherwise determined by the Committee. Such SARs must be exercised by Participant (or Participant’s legal representative or authorized assignee), if at all, as to all or some of the Vested Shares calculated as of the Termination Date or such other date determined by the Committee, within twelve (12) months after the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time period after the Termination Date as may be determined by the Committee) but in any event no later than the expiration date of the SARs.
7.4.3 For Cause. If the Participant is terminated for Cause, the Participant may exercise such Participant’s SARs, but not to an extent greater than such SARs are exercisable as to Vested Shares upon the Termination Date and Participant’s SARs shall expire on such Participant’s Termination Date, or at such later time and on such conditions as are determined by the Committee.
8. PAYMENT FOR PURCHASES AND EXERCISES.
8.1 Payment in General. Payment for Shares acquired pursuant to this Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company owed to the Participant;
(b) by surrender of shares of the Company that are clear of all liens, claims, encumbrances or security interests and: (i) for which the Company has received “full payment of the purchase price” within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (ii) that were obtained by Participant in the public market;
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(c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees or directors of the Company will not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; provided, further, that the portion of the Exercise Price or Purchase Price, as the case may be, equal to the par value (if any) of the Shares must be paid in cash or other legal consideration permitted by the laws under which the Company is then incorporated or organized;
(d) by waiver of compensation due or accrued to the Participant from the Company for services rendered;
(e) by participating in a formal cashless exercise program implemented by the Committee in connection with the Plan;
(f) subject to compliance with applicable law, provided that a public market for the Company’s Common Stock exists, by exercising through a “same day sale” commitment from the Participant and a broker-dealer whereby the Participant irrevocably elects to exercise the Award and to sell a portion of the Shares so purchased sufficient to pay the total Exercise Price or Purchase Price, and whereby the broker-dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price or Purchase Price directly to the Company; or
(g) by any combination of the foregoing or any other method of payment approved by the Committee.
8.2 Withholding Taxes.
8.2.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy applicable tax withholding requirements prior to the delivery of any certificate or certificates for such Shares. Whenever, under this Plan, payments in satisfaction of Awards are to be made in cash by the Company, such payment will be net of an amount sufficient to satisfy applicable tax withholding requirements.
8.2.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion allow the Participant to satisfy the minimum tax withholding obligation by electing to have the Company withhold from the Shares to be issued up to the minimum number of Shares having a Fair Market Value on the date that the amount of tax to be withheld is to be determined that is not more than the minimum amount to be withheld; or to arrange a mandatory “sell to cover” on Participant’s behalf (without further authorization) but in no event will the Company withhold Shares or “sell to cover” if such withholding would result in adverse accounting consequences to the Company. Any elections to have Shares withheld or sold for this purpose will be made in accordance with the requirements established by the Committee for such elections and be in writing in a form acceptable to the Committee.
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9. RESTRICTIONS ON AWARDS.
9.1 Transferability. Except as permitted by the Committee, Awards granted under this Plan, and any interest therein, will not be transferable or assignable by Participant, other than by will or by the laws of descent and distribution, and, with respect to NQSOs, by instrument to an inter vivos or testamentary trust in which the NQSOs are to be passed to beneficiaries upon the death of the trustor (settlor), or by gift to “family member” as that term is defined in Rule 701, and may not be made subject to execution, attachment or similar process. For the avoidance of doubt, the prohibition against assignment and transfer applies to a stock option and, prior to exercise, the shares to be issued on exercise of a stock option, and pursuant to the foregoing sentence shall be understood to include, without limitation, a prohibition against any pledge, hypothecation, or other transfer, including any short position, any “put equivalent position” or any “call equivalent position” (in each case, as defined in Rule 16a-1 promulgated under the Exchange Act). Unless an Award is transferred pursuant to the terms of this Section, during the lifetime of the Participant an Award will be exercisable only by the Participant or Participant’s legal representative and any elections with respect to an Award may be made only by the Participant or Participant’s legal representative. The terms of an Option shall be binding upon the executor, administrator, successors and assigns of the Participant who is a party thereto.
9.2 Securities Law and Other Regulatory Compliance. Although this Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act, grants may be made pursuant to this Plan that do not qualify for exemption under Rule 701 or Section 25102(o). Any requirement of this Plan which is required in law only because of Section 25102(o) need not apply with respect to a particular Award to which Section 25102(o) will not apply. An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) compliance with any exemption, completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the exemption, registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure so do.
9.3 Exchange and Buyout of Awards. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. Without prior stockholder approval the Committee may reprice Options or SARs (and where such repricing is a reduction in the Exercise Price of outstanding Options or SARs, the consent of the affected Participants is not required provided written notice is provided to them). The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant may agree.
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10. RESTRICTIONS ON SHARES.
10.1 Privileges of Stock Ownership. No Participant will have any of the rights of a stockholder with respect to any Shares until such Shares are issued to the Participant. After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock. The Participant will have no right to retain such stock dividends or stock distributions with respect to Unvested Shares that are repurchased as described in this Section 10.
10.2 Rights of First Refusal and Repurchase. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement (a) a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, provided that such right of first refusal terminates upon the Company’s initial public offering of Common Stock pursuant to an effective registration statement filed under the Securities Act and (b) a right to repurchase Unvested Shares held by a Participant for cash and/or cancellation of purchase money indebtedness owed to the Company by the Participant following such Participant’s Termination at any time.
10.3 Escrow; Pledge of Shares. To enforce any restrictions on a Participant’s Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated. The Committee may cause a legend or legends referencing such restrictions to be placed on the certificate. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant’s obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant’s Shares or other collateral. In connection with any pledge of the Shares, Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid.
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10.4 Securities Law Restrictions. All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted.
11. CORPORATE TRANSACTIONS.
11.1 Acquisitions or Other Combinations. In the event that the Company is subject to an Acquisition or Other Combination, outstanding Awards acquired under the Plan shall be subject to the agreement evidencing the Acquisition or Other Combination, which need not treat all outstanding Awards in an identical manner. Such agreement, without the Participant’s consent, shall provide for one or more of the following with respect to all outstanding Awards as of the effective date of such Acquisition or Other Combination:
(a) The continuation of such outstanding Awards by the Company (if the Company is the successor entity).
(b) The assumption of outstanding Awards by the successor or acquiring entity (if any) in such Acquisition or Other Combination (or by any of its Parents, if any), which assumption, will be binding on all Participants; provided that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) and Section 409A of the Code. For the purposes of this Section 11, an Award will be considered assumed if, following the Acquisition or Other Combination, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Acquisition or Other Combination, the consideration (whether stock, cash, or other securities or property) received in the Acquisition or Other Combination by holders of Shares for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Acquisition or Other Combination is not solely common stock of the successor corporation or its Parent, the Committee may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation Right or upon the payout of a Restricted Stock Unit, for each Share subject to such Award, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Acquisition or Other Combination.
(c) The substitution by the successor or acquiring entity in such Acquisition or Other Combination (or by any of its Parents, if any) of equivalent awards with substantially the same terms for such outstanding Awards (except that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) and Section 409A of the Code).
(d) The full or partial exercisability or vesting and accelerated expiration of outstanding Awards.
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(e) The settlement of the full value of such outstanding Award (whether or not then vested or exercisable) in cash, cash equivalents, or securities of the successor entity (or its Parent, if any) with a Fair Market Value equal to the required amount, followed by the cancellation of such Awards; provided however, that such Award may be cancelled without consideration if such Award has no value, as determined by the Committee, in its discretion. Subject to Section 409A of the Code, such payment may be made in installments and may be deferred until the date or dates when the Award would have become exercisable or vested. Such payment may be subject to vesting based on the Participant’s continued service, provided that without the Participant’s consent, the vesting schedule shall not be less favorable to the Participant than the schedule under which the Award would have become vested or exercisable. For purposes of this Section 11.1(e), the Fair Market Value of any security shall be determined without regard to any vesting conditions that may apply to such security.
(f) The cancellation of outstanding Awards in exchange for no consideration.
Immediately following an Acquisition or Other Combination, outstanding Awards shall terminate and cease to be outstanding, except to the extent such Awards, have been continued, assumed or substituted, as described in Sections 11.1(a), (b) and/or (c).
11.2 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another entity, whether in connection with an acquisition of such other entity or otherwise, by either (a) granting an Award under this Plan in substitution of such other entity’s award or (b) assuming and/or converting such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan. Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other entity had applied the rules of this Plan to such grant. In the event the Company assumes an award granted by another entity, the terms and conditions of such award will remain unchanged (except that the exercise price and the number and nature of shares issuable upon exercise of any such option or stock appreciation right, or any award that is subject to Section 409A of the Code, will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option or SAR rather than assuming an existing option or stock appreciation right, such new Option or SAR may be granted with a similarly adjusted Exercise Price.
12. ADMINISTRATION.
12.1 Committee Authority. This Plan will be administered by the Committee or the Board if no Committee is created by the Board. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;
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(b) prescribe, amend, expand, modify and rescind or terminate rules and regulations relating to this Plan;
(c) approve persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to Awards granted under this Plan;
(f) determine the Fair Market Value in good faith and interpret the applicable provisions of this Plan and the definition of Fair Market Value in connection with circumstances that impact the Fair Market Value, if necessary;
(g) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or awards under any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company;
(h) grant waivers of any conditions of this Plan or any Award;
(i) determine the terms of vesting, exercisability and payment of Awards to be granted pursuant to this Plan;
(j) correct any defect, supply any omission, or reconcile any inconsistency in this Plan, any Award, any Award Agreement, any Exercise Agreement or any Restricted Stock Purchase Agreement;
(k) determine whether an Award has been earned;
(l) extend the vesting period beyond a Participant’s Termination Date;
(m) adopt rules and/or procedures (including the adoption of any subplan under this Plan) relating to the operation and administration of the Plan to accommodate requirements of local law and procedures outside of the United States;
(n) delegate any of the foregoing to a subcommittee consisting of one or more executive officers pursuant to a specific delegation as may otherwise be permitted by applicable law;
(o) change the vesting schedule of Awards under the Plan prospectively in the event that the Participant’s service status changes between full and part time status in accordance with Company policies relating to work schedules and vesting of awards; and
(p) make all other determinations necessary or advisable in connection with the administration of this Plan.
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12.2 Committee Composition and Discretion. The Board may delegate full administrative authority over the Plan and Awards to a Committee consisting of at least one member of the Board (or such greater number as may then be required by applicable law). Unless in contravention of any express terms of this Plan or Award, any determination made by the Committee with respect to any Award will be made in its sole discretion either (a) at the time of grant of the Award, or (b) subject to Section 4.9 hereof, at any later time. Any such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. To the extent permitted by applicable law, the Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan, provided that each such officer is a member of the Board.
12.3 Nonexclusivity of the Plan. Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and other equity awards otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.
12.4 Governing Law. This Plan and all agreements hereunder shall be governed by and construed in accordance with the laws of the State of California, without giving effect to that body of laws pertaining to conflict of laws.
13. EFFECTIVENESS, AMENDMENT AND TERMINATION OF THE PLAN.
13.1 Adoption and Stockholder Approval. This Plan will become effective on the date that it is adopted by the Board (the “Effective Date”). This Plan will be approved by the stockholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve (12) months before or after the Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to this Plan; provided, however, that: (a) no Option or SAR may be exercised prior to initial stockholder approval of this Plan; (b) no Option or SAR granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the stockholders of the Company; (c) in the event that initial stockholder approval is not obtained within the time period provided herein, all Awards for which only the exemption from California’s securities qualification requirements provided by Section 25102(o) can apply shall be canceled, any Shares issued pursuant to any such Award shall be canceled and any purchase of such Shares issued hereunder shall be rescinded; and (d) Awards (to which only the exemption from California’s securities qualification requirements provided by Section 25102(o) can apply) granted pursuant to an increase in the number of Shares approved by the Board which increase is not approved by stockholders within the time then required under Section 25102(o) shall be canceled, any Shares issued pursuant to any such Awards shall be canceled, and any purchase of Shares subject to any such Award shall be rescinded.
13.2 Term of Plan. Unless earlier terminated as provided herein, this Plan will automatically terminate ten (10) years after the later of (i) the Effective Date, or (ii) the most recent increase in the number of Shares reserved under Section 2 that was approved by stockholders.
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13.3 Amendment or Termination of Plan. Subject to Section 4.9 hereof, the Board may at any time (a) terminate or amend this Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan and (b) terminate any and all outstanding Options, SARs or RSUs upon a dissolution or liquidation of the Company, followed by the payment of creditors and the distribution of any remaining funds to the Company’s stockholders; provided, however, that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval pursuant to Section 25102(o) or pursuant to the Code or the regulations promulgated under the Code as such provisions apply to ISO plans. The termination of the Plan, or any amendment thereof, shall not affect any Share previously issued or any Award previously granted under the Plan.
14. DEFINITIONS. For all purposes of this Plan, the following terms will have the following meanings.
“Acquisition,” for purposes of Section 11, means:
(a) any consolidation or merger in which the Company is a constituent entity or is a party in which the voting stock and other voting securities of the Company that are outstanding immediately prior to the consummation of such consolidation or merger represent, or are converted into, securities of the surviving entity of such consolidation or merger (or of any Parent of such surviving entity) that, immediately after the consummation of such consolidation or merger, together possess less than fifty percent (50%) of the total voting power of all voting securities of such surviving entity (or of any of its Parents, if any) that are outstanding immediately after the consummation of such consolidation or merger;
(b) a sale or other transfer by the holders thereof of outstanding voting stock and/or other voting securities of the Company possessing more than fifty percent (50%) of the total voting power of all outstanding voting securities of the Company, whether in one transaction or in a series of related transactions, pursuant to an agreement or agreements to which the Company is a party and that has been approved by the Board, and pursuant to which such outstanding voting securities are sold or transferred to a single person or entity, to one or more persons or entities who are Affiliates of each other, or to one or more persons or entities acting in concert; or
(c) the sale, lease, transfer or other disposition, in a single transaction or series of related transactions, by the Company and/or any Subsidiary or Subsidiaries of the Company, of all or substantially all the assets of the Company and its Subsidiaries taken as a whole, (or, if substantially all of the assets of the Company and its Subsidiaries taken as a whole are held by one or more Subsidiaries, the sale or disposition (whether by consolidation, merger, conversion or otherwise) of such Subsidiaries of the Company), except where such sale, lease, transfer or other disposition is made to the Company or one or more wholly owned Subsidiaries of the Company (an “Acquisition by Sale of Assets”).
“Affiliate” of a specified person means a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified (where, for purposes of this definition, the term “control” (including the terms controlling, controlled by and under common control with) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.
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“Award” means any award pursuant to the terms and conditions of this Plan, including any Option, Restricted Stock Unit, Stock Appreciation Right or Restricted Stock Award.
“Award Agreement” means, with respect to each Award, the signed written or electronic agreement between the Company and the Participant setting forth the terms and conditions of the Award as approved by the Committee. For purposes of the Plan, the Award Agreement may be executed via written or electronic means.
“Board” means the Board of Directors of the Company.
“Cause” means Termination because of (a) Participant’s unauthorized misuse of the Company or a Parent or Subsidiary of the Company’s trade secrets or proprietary information, (b) Participant’s conviction of or plea of nolo contendere to a felony or a crime involving moral turpitude, (c) Participant’s committing an act of fraud against the Company or a Parent or Subsidiary of the Company or (d) Participant’s gross negligence or willful misconduct in the performance of his or her duties that has had or will have a material adverse effect on the Company or Parent or Subsidiary of the Company’ reputation or business.
“Code” means the Internal Revenue Code of 1986, as amended.
“Committee” means the committee created and appointed by the Board to administer this Plan, or if no committee is created and appointed, the Board.
“Company” means Theia Therapeutics, Inc., or any successor corporation.
“Disability” means that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Exercise Price” means the price per Share at which a holder of an Option may purchase Shares issuable upon exercise of the Option.
“Fair Market Value” means, as of any date, the value of a share of the Company’s Common Stock determined as follows:
(a) if such Common Stock is then publicly traded on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal;
(b) if such Common Stock is publicly traded but is not listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported by The Wall Street Journal (or, if not so reported, as otherwise reported by any newspaper or other source as the Committee may determine); or
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(c) if none of the foregoing is applicable to the valuation in question, by the Committee in good faith.
“Option” means an award of an option to purchase Shares pursuant to Section 4 of this Plan.
“Other Combination” for purposes of Section 11 means any (a) consolidation or merger in which the Company is a constituent entity and is not the surviving entity of such consolidation or merger or (b) any conversion of the Company into another form of entity; provided that such consolidation, merger or conversion does not constitute an Acquisition.
“Parent” of a specified entity means, any entity that, either directly or indirectly, owns or controls such specified entity, where for this purpose, “control” means the ownership of stock, securities or other interests that possess at least a majority of the voting power of such specified entity (including indirect ownership or control of such stock, securities or other interests).
“Participant” means a person who receives an Award under this Plan.
“Plan” means this 2019 Equity Incentive Plan, as amended from time to time.
“Purchase Price” means the price at which a Participant may purchase Restricted Stock pursuant to this Plan.
“Restricted Stock” means Shares purchased pursuant to a Restricted Stock Award under this Plan.
“Restricted Stock Award” means an award of Shares pursuant to Section 5 hereof.
“Restricted Stock Unit” or “RSU” means an award made pursuant to Section 6 hereof.
“Rule 701” means Rule 701 et seq. promulgated by the Commission under the Securities Act.
“SEC” means the Securities and Exchange Commission.
“Section 25102(o)” means Section 25102(o) of the California Corporations Code.
“Securities Act” means the Securities Act of 1933, as amended.
“Shares” means shares of the Company’s Common Stock reserved for issuance under this Plan, as adjusted pursuant to Sections 2.2 and 11 hereof, and any successor security.
“Stock Appreciation Right” or “SAR” means an award granted pursuant to Section 7 hereof.
“Subsidiary” means any entity (other than the Company) in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain owns stock or other equity securities representing fifty percent (50%) or more of the total combined voting power of all classes of stock or other equity securities in one of the other entities in such chain.
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“Termination” or “Terminated” means, for purposes of this Plan with respect to a Participant, that the Participant has for any reason ceased to provide services as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company. A Participant will not be deemed to have ceased to provide services while the Participant is on a bona fide leave of absence, if such leave was approved by the Company in writing. In the case of an approved leave of absence, the Committee may make such provisions respecting crediting of service, including suspension of vesting of the Award (including pursuant to a formal policy adopted from time to time by the Company) it may deem appropriate, except that in no event may an Option be exercised after the expiration of the term set forth in the Stock Option Agreement. The Committee will have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the “Termination Date”).
“Unvested Shares” means “Unvested Shares” as defined in the Award Agreement for an Award.
“Vested Shares” means “Vested Shares” as defined in the Award Agreement.
* * * * * * * * * * *
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EARLY EXERCISE FORM
STOCK OPTION EXERCISE NOTICE AND AGREEMENT
NAPOCO, INC.
2019 EQUITY INCENTIVE PLAN
*NOTE: You must sign this Notice on Page 3 before submitting it to NapoCo, Inc. (the “Company”).
OPTIONEE INFORMATION: Please provide the following information about yourself (“Optionee”):
| Name: |
|
Social Security Number: |
| |||||
| Address: |
|
Employee Number: Email Address: |
|
OPTION INFORMATION: Please provide this information on the option being exercised (the “Option”):
| Grant No. | ||
| Date of Grant: | Type of Stock Option: | |
| Option Price per Share: $____ | ☐ Nonqualified (NQSO) | |
| Total number of shares of Common Stock of the Company subject to the Option: | ☐ Incentive (ISO) |
EXERCISE INFORMATION:
| Number of shares of Common Stock of the Company for which the Option is now being exercised [________________]. (These shares are referred to below as the “Purchased Shares.”) |
| Total Exercise Price Being Paid for the Purchased Shares: $____________ |
| Form of payment enclosed [check all that apply]: |
| ☐ Check for $____________, payable to “NapoCo, Inc.” |
| ☐ Certificate(s) for ________________ shares of Common Stock of the Company. These shares will be valued as of the date this notice is received by the Company. [Requires Company consent.] |
AGREEMENTS, REPRESENTATIONS AND ACKNOWLEDGMENTS OF OPTIONEE: By signing this Stock Option Exercise Notice and Agreement, Optionee hereby agrees with, and represents to, the Company as follows:
| 1. | Terms Governing. I acknowledge and agree with the Company that I am acquiring the Purchased Shares by exercise of this Option subject to all other terms and conditions of the Notice of Stock Option Grant and the Stock Option Agreement that govern the Option, including without limitation the terms of the Company’s 2019 Equity Incentive Plan, as it may be amended (the “Plan”). |
| 2. | Investment Intent; Securities Law Restrictions. I represent and warrant to the Company that I am acquiring and will hold the Purchased Shares for investment for my account only, and not with a view to, or for resale in connection with, any “distribution” of the Purchased Shares within the meaning of the Securities Act of 1933, as amended (the “Securities Act”). I understand that the Purchased Shares have not been registered under the Securities Act by reason of a specific exemption from such |
EARLY EXERCISE FORM
| registration requirement and that the Purchased Shares must be held by me indefinitely, unless they are subsequently registered under the Securities Act or I obtain an opinion of counsel (in form and substance satisfactory to the Company and its counsel) that registration is not required. I acknowledge that the Company is under no obligation to register the Purchased Shares under the Securities Act or under any other securities law. |
| 3. | Restrictions on Transfer: Rule 144. I will not sell, transfer or otherwise dispose of the Purchased Shares in violation of the Securities Act, the Securities Exchange Act of 1934, or the rules promulgated thereunder (including Rule 144 under the Securities Act described below (“Rule 144”)) or of any other applicable securities laws. I am aware of Rule 144, which permits limited public resales of securities acquired in a non-public offering, subject to satisfaction of certain conditions, which include (without limitation) that: (a) certain current public information about the Company is available; (b) the resale occurs only after the holding period required by Rule 144 has been met; (c) the sale occurs through an unsolicited “broker’s transaction;” and (d) the amount of securities being sold during any three-month period does not exceed specified limitations. I understand that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company has no plans to satisfy these conditions in the foreseeable future. |
| 4. | Access to Information; Understanding of Risk in Investment. I acknowledge that I have received and had access to such information as I consider necessary or appropriate for deciding whether to invest in the Purchased Shares and that I had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the issuance of the Purchased Shares. I am aware that my investment in the Company is a speculative investment that has limited liquidity and is subject to the risk of complete loss. I am able, without impairing my financial condition, to hold the Purchased Shares for an indefinite period and to suffer a complete loss of my investment in the Purchased Shares. |
| 5. | Rights of First Refusal; Repurchase Options; Market Stand-off. I acknowledge that the Purchased Shares remain subject to the Company’s Right of First Refusal, the Company’s Repurchase Option (with respect to unvested Purchased Shares) and the market stand-off covenants (sometimes referred to as the “lock-up”), all in accordance with the applicable Notice of Stock Option Grant and the Stock Option Agreement that govern the Option |
| 6. | Form of Ownership. I acknowledge that the Company has encouraged me to consult my own adviser to determine the form of ownership of the Purchased Shares that is appropriate for me. In the event that I choose to transfer my Purchased Shares to a trust, I agree to sign a Stock Transfer Agreement. In the event that I choose to transfer my Purchased Shares to a trust that is not an eligible revocable trust, I also acknowledge that the transfer will be treated as a “disposition” for tax purposes. As a result, the favorable ISO tax treatment will be unavailable and other unfavorable tax consequences may occur. |
| 7. | Investigation of Tax Consequences. I acknowledge that the Company has encouraged me to consult my own adviser to determine the tax consequences of acquiring the Purchased Shares at this time. |
| 8. | Other Tax Matters. I agree that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes my tax liabilities. I will not make any claim against the Company or its Board, officers or employees related to tax liabilities arising from my options or my other compensation. In particular, I acknowledge that my options (including the Option) are exempt from Section 409A of the Internal Revenue Code only if the exercise price per share is at least equal to the fair market value per share of the Common Stock at the time the option was granted by the Board. Since shares of the Common Stock are not traded on an established securities market, the determination of their fair market value was made by the Board and/or by an independent valuation firm retained by the Company. I acknowledge that there is no guarantee in either case that the Internal Revenue Service will agree with the valuation, and I will not make any claim against the Company or its Board of Directors, officers or employees in the event that the Internal Revenue Service asserts that the valuation was too low. |
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EARLY EXERCISE FORM
| 9. | Spouse Consent. I agree to seek the consent of my spouse to the extent required by the Company to enforce the foregoing. |
| 10. | Tax Withholding. As a condition of exercising this Option, I agree to make adequate provision for foreign, federal, state or other tax withholding obligations, if any, which arise upon the grant, vesting or exercise of this Option, or disposition of the Purchased Shares, whether by withholding, direct payment to the Company, or otherwise. |
IMPORTANT NOTE: UNVESTED PURCHASED SHARES ARE SUBJECT TO REPURCHASE BY THE COMPANY. PLEASE CONSULT WITH YOUR TAX ADVISER CONCERNING THE ADVISABILITY OF FILING AN 83(b) ELECTION WITH THE INTERNAL REVENUE SERVICE WHICH MUST BE FILED WITHIN THIRTY (30) DAYS AFTER THE PURCHASE OF SHARES TO BE EFFECTIVE.
A form of Election under Section 83(b) is attached hereto as Exhibit 1 for reference. Unless an 83(b) election is timely filed with the Internal Revenue Service (and, if necessary, the proper state taxing authorities), electing pursuant to Section 83(b) of the Internal Revenue Code (and similar state tax provisions, if applicable) to be taxed currently on any difference between the purchase price of the Unvested Purchased Shares and their fair market value on the date of purchase, there may be a recognition of taxable income (including, where applicable, alternative minimum taxable income) to you, measured by the excess, if any, of the Fair Market Value of the Unvested Purchased Shares at the time they cease to be Unvested Purchased Shares, over the purchase price of the Unvested Purchased Shares.
The undersigned hereby executes and delivers this Stock Option Exercise Notice and Agreement and agrees to be bound by its terms
| SIGNATURE: | DATE: | |||
|
|
||||
| Optionee’s Name: | ||||
Attachments:
Exhibit 1 – Section 83(b) Election Form
[Signature Page to Stock Option Exercise Notice and Agreement]
3
EARLY EXERCISE FORM
EXHIBIT 1
SECTION 83(b) ELECTION
ELECTION UNDER SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property, as compensation for services in the calculation of: (1) regular gross income; (2) alternative minimum taxable income; or (3) disqualifying disposition gross income, as the case may be.
| 1. | TAXPAYER’S NAME: | |
| TAXPAYER’S ADDRESS: | ||
| SOCIAL SECURITY NUMBER: | ||
| 2. | The property with respect to which the election is made is described as follows: _______ shares of Common Stock, par value $0.00001 per share, of NapoCo, Inc., a Delaware corporation (the “Company”), which were transferred upon exercise of an option by the Company, which is Taxpayer’s employer or the corporation for whom the Taxpayer performs services. | |
| 3. | The date on which the shares were transferred was pursuant to the exercise of the option was ____________________, _____ and this election is made for calendar year ____. | |
| 4. | The shares are subject to the following restrictions: The Company may repurchase all or a portion of the shares at the Taxpayer’s original purchase price under certain conditions at the time of Taxpayer’s termination of employment or services. | |
| 5. | The fair market value of the shares (without regard to restrictions other than restrictions which by their terms will never lapse) was $_____ per share x _______ shares = $_______ at the time of exercise of the option. | |
| 6. | The amount paid for such shares upon exercise of the option was $____ per share x ________ shares = $________. | |
| 7. | The Taxpayer has submitted a copy of this statement to the Company. | |
| 8. | The amount to include in gross income is $______________. [The result of the amount reported in Item 5 minus the amount reported in Item 6.] | |
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE (“IRS”), AT THE OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER THE DATE OF TRANSFER OF THE SHARES, AND MUST ALSO BE FILED WITH THE TAXPAYER’S INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS.
| Dated: |
| |||
| Taxpayer’s Signature |
EARLY EXERCISE FORM
OPTION GRANT NO. ___
NOTICE OF STOCK OPTION GRANT
NAPOCO, INC.
2019 EQUITY INCENTIVE PLAN
The Optionee named below (“Optionee”) has been granted an option (this “Option”) to purchase shares of Common Stock, $0.00001 par value per share (the “Common Stock”), of NapoCo, Inc., a Delaware corporation (the “Company”), pursuant to the Company’s 2019 Equity Incentive Plan, as amended from time to time (the “Plan”) on the terms, and subject to the conditions, described below and in the Stock Option Agreement attached hereto as Exhibit A, including its annexes (the “Stock Option Agreement”).
| Optionee: | ||
| Maximum Number of Shares Subject to this Option (the “Shares”): | ||
| Exercise Price Per Share: | $____ per share | |
| Date of Grant: | ||
| Vesting Start Date: | ||
| Exercise Schedule: | This Option is immediately exercisable for all of the Shares, subject to the terms of the Stock Option Agreement | |
| Expiration Date: | The date ten (10) years after the Date of Grant set forth above, subject to earlier expiration in the event of Termination as provided in Section 3 of the Stock Option Agreement. | |
| Tax Status of Option: (Check Only One Box): |
☐ Incentive Stock Option (To the fullest extent permitted by the Code) ☐ Nonqualified Stock Option. (If neither box is checked, this Option is a Nonqualified Stock Option). | |
Vesting Schedule [EXAMPLE ONLY]: For so long as Optionee continuously provides services to the Company (or any Subsidiary or Parent of the Company) as an employee, officer, director, contractor or consultant, the Shares subject to this Option will vest as follows: (a) prior to the first one (1) year anniversary of the Vesting Start Date, none of the Shares will be vested; (b) [1/4th] of the Shares will be vested on the one (1) year anniversary of the Vesting Start Date; and (c) thereafter, this Option will become vested and exercisable with respect to an additional [1/48th] of the Shares when Optionee completes each month of continuous service following the first one (1) year anniversary of the Vesting Start Date.
General; Agreement: By their signatures below, Optionee and the Company agree that this Option is granted under and governed by this Notice of Stock Option Grant (this “Grant Notice”) and by the provisions of the Plan and the Stock Option Agreement. The Plan and the Stock Option Agreement are incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings given to them in the Plan or in the Stock Option Agreement, as applicable. By signing below, Optionee acknowledges receipt of a copy of this Grant Notice, the Plan and the Stock Option Agreement, represents that Optionee has carefully read and is familiar with their provisions, and hereby accepts the Option subject to all of their respective terms and conditions. Optionee acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares and that Optionee should consult a tax adviser prior to such exercise or disposition. Optionee agrees and acknowledges that the Vesting Schedule may change prospectively in the event that Optionee’s service status changes between full and part time status in accordance with Company policies relating to work schedules and vesting of equity awards.
Execution and Delivery: This Grant Notice may be executed and delivered electronically whether via the Company’s intranet or the Internet site of a third party or via email or any other means of electronic delivery specified by the Company. By Optionee’s acceptance hereof (whether written, electronic or otherwise), Optionee agrees, to the fullest extent permitted by law, that in lieu of receiving documents in paper format, Optionee accepts the electronic delivery of any documents that the Company (or any third party the Company may designate), may deliver in connection with this grant (including the Plan, this Grant Notice, the Stock Option Agreement, the information described in Rules 701(e)(2), (3), (4) and (5) under the Securities Act (the “701 Disclosures”), account statements, or other communications or information) whether via the Company’s intranet or the Internet site of such third party or via email or such other means of electronic delivery specified by the Company.
| NAPOCO, INC. | ||||||
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Optionee Signature: |
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Optionee’s Name: | ||||
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| ATTACHMENT: | Exhibit A – Stock Option Agreement | |||||
Exhibit A
Stock Option Agreement
EXHIBIT A
EARLY EXERCISE FORM
STOCK OPTION AGREEMENT
NAPOCO, INC.
2019 EQUITY INCENTIVE PLAN
This Stock Option Agreement (this “Agreement”) is made and entered into as of the date of grant (the “Date of Grant”) set forth on the Notice of Stock Option Grant attached as the facing page to this Agreement (the “Grant Notice”) by and between NapoCo, Inc., a Delaware corporation (the “Company”), and the optionee named on the Grant Notice (“Optionee”). Capitalized terms not defined in this Agreement shall have the meaning ascribed to them in the Company’s 2019 Equity Incentive Plan, as amended from time to time (the “Plan”), or in the Grant Notice, as applicable.
1. GRANT OF OPTION. The Company hereby grants to Optionee an option (this “Option”) to purchase up to the total number of shares of Common Stock of the Company, $0.00001 par value per share (the “Common Stock”), set forth in the Grant Notice as the Shares (the “Shares”) at the Exercise Price Per Share set forth in the Grant Notice (the “Exercise Price”), subject to all of the terms and conditions of the Grant Notice, this Agreement and the Plan. If designated as an Incentive Stock Option in the Grant Notice, this Option is intended to qualify as an incentive stock option (the “ISO”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), except that if on the Date of Grant Optionee is not subject to U.S. income tax, then this Option shall be a NQSO.
2. EXERCISE PERIOD.
2.1. Exercise Period of Option. Subject to the conditions set forth in this Agreement, all or part of this Option may be exercised at any time after the Date of Grant. Shares purchased by exercising this Option may be subject to the Repurchase Option as set forth in Section 7 below. This Option will become vested during its term as to portions of the Shares in accordance with the Vesting Schedule set forth in the Grant Notice. Notwithstanding any provision in the Plan or this Agreement to the contrary, on or after Optionee’s Termination Date, this Option may not be exercised with respect to any Shares that are Unvested Shares on Optionee’s Termination Date.
2.2. Vesting of Option Shares. Shares with respect to which this Option is vested at a given time pursuant to the Vesting Schedule set forth in the Grant Notice are “Vested Shares.” Shares with respect to which this Option is not vested at a given time pursuant to the Vesting Schedule set forth in the Grant Notice are “Unvested Shares.”
2.3. Expiration. The Option shall expire on the Expiration Date set forth in the Grant Notice or earlier as provided in Section Error! Reference source not found. below.
3. TERMINATION.
3.1. Termination for Any Reason Except Death, Disability or Cause. Except as provided in subsection 3.2 in a case in which Optionee dies within three (3) months after Optionee is Terminated other than for Cause, if Optionee is Terminated for any reason (other than Optionee’s death or Disability or for Cause), then (a) on and after Optionee’s Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionee’s Termination Date and (b) this Option to the extent (and only to the extent) that it is exercisable with respect to Vested Shares on Optionee’s Termination Date, may be exercised by Optionee no later than three (3) months after Optionee’s Termination Date (but in no event may this Option be exercised after the Expiration Date).
3.2. Termination Because of Death or Disability. If Optionee is Terminated because of Optionee’s death or Disability (or if Optionee dies within three (3) months of the date of Optionee’s Termination for any reason other than for Cause), then (a) on and after Optionee’s Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionee’s Termination Date and (b) this Option, to the extent (and only to the extent) that it is exercisable with respect to Vested Shares on Optionee’s Termination Date, may be exercised by Optionee (or Optionee’s legal representative) no later than twelve (12) months after Optionee’s Termination Date, but in no event later than the Expiration Date. Any exercise of this Option beyond (i) three (3) months after the date Optionee ceases to be an employee when Optionee’s Termination is for any reason other than Optionee’s death or disability, within the meaning of Section 22(e)(3) of the Code; or (ii) twelve (12) months after the date Optionee ceases to be an employee when the termination is for Optionee’s disability, within the meaning of Section 22(e)(3) of the Code, is deemed to be an NQSO.
3.3. Termination for Cause. If Optionee is Terminated for Cause, then Optionee may exercise this Option, but only with respect to any Shares that are Vested Shares on Optionee’s Termination Date, and this Option shall expire on Optionee’s Termination Date, or at such later time and on such conditions as may be affirmatively determined by the Committee. On and after Optionee’s Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionee’s Termination Date.
3.4. No Obligation to Employ. Nothing in the Plan or this Agreement shall confer on Optionee any right to continue in the employ of, or other relationship with, the Company or any Parent or Subsidiary of the Company, or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Optionee’s employment or other relationship at any time, with or without Cause.
4. MANNER OF EXERCISE.
4.1. Stock Option Exercise Notice and Agreement. To exercise this Option, Optionee (or in the case of exercise after Optionee’s death or incapacity, Optionee’s executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed Stock Option Exercise Notice and Agreement in the form attached hereto as Annex A, or in such other form as may be approved by the Committee from time to time (the “Exercise Agreement”) and payment for the shares being purchased in accordance with this Agreement. The Exercise Agreement shall set forth, among other things, (i) Optionee’s election to exercise this Option, (ii) the number of Shares being purchased, (iii) any representations, warranties and agreements regarding Optionee’s investment intent and access to information as may be required by the Company to comply with applicable securities laws in connection with any exercise of this Option and (iv) any other agreements required by the Company. If someone other than Optionee exercises this Option, then such person must submit documentation reasonably acceptable to the Company verifying that such person has the legal right to exercise this Option and such person shall be subject to all of the restrictions contained herein as if such person were Optionee.
4.2. Limitations on Exercise. This Option may not be exercised unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise.
4.3. Payment. The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the shares being purchased in cash (by check or wire transfer), or where permitted by law:
(a) by cancellation of indebtedness of the Company owed to Optionee;
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(b) by surrender of shares of the Company that are free and clear of all security interests, pledges, liens, claims or encumbrances and: (i) for which the Company has received “full payment of the purchase price” within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (ii) that were obtained by Optionee in the public market;
(c) by participating in a formal cashless exercise program implemented by the Committee in connection with the Plan;
(d) provided that a public market for the Common Stock exists, subject to compliance with applicable law, by exercising as set forth below, through a “same day sale” commitment from Optionee and a broker-dealer whereby Optionee irrevocably elects to exercise this Option and to sell a portion of the Shares so purchased sufficient to pay the total Exercise Price, and whereby the broker-dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or
(e) by any combination of the foregoing or any other method of payment approved by the Committee that constitutes legal consideration for the issuance of Shares.
4.4. Tax Withholding. Prior to the issuance of the Shares upon exercise of the Option, Optionee must pay or provide for any applicable federal, state and local withholding obligations of the Company. If the Committee permits, Optionee may provide for payment of withholding taxes upon exercise of the Option by requesting that the Company retain the minimum number of Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld; or to arrange a mandatory “sell to cover” on Participant’s behalf (without further authorization); but in no event will the Company withhold Shares or “sell to cover” if such withholding would result in adverse accounting consequences to the Company. In case of stock withholding or a sell to cover, the Company shall issue the net number of Shares to Optionee by deducting the Shares retained from the Shares issuable upon exercise.
4.5. Issuance of Shares. Provided that the Exercise Agreement and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares issuable upon a valid exercise of this Option registered in the name of Optionee, Optionee’s authorized assignee, or Optionee’s legal representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto.
5. COMPLIANCE WITH LAWS AND REGULATIONS. The Plan and this Agreement are intended to comply with Section 25102(o) and Rule 701. Any provision of this Agreement that is inconsistent with Section 25102(o) or Rule 701 shall, without further act or amendment by the Company or the Committee, be reformed to comply with the requirements of Section 25102(o) and/or Rule 701. The exercise of this Option and the issuance and transfer of Shares shall be subject to compliance by the Company and Optionee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Common Stock may be listed at the time of such issuance or transfer. Optionee understands that the Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance.
6. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any manner other than by will or by the laws of descent and distribution, and, with respect to NQSOs, by instrument to a testamentary trust in which the options are to be passed to beneficiaries upon the death of the trustor (settlor) or a revocable trust, or by gift to “immediate family” as that term is defined in 17 C.F.R. 240.16a-1(e), and may be exercised during the lifetime of Optionee only by Optionee or in the event of Optionee’s incapacity, by Optionee’s legal representative. The terms of this Option shall be binding upon the executors, administrators, successors and assigns of Optionee.
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7. COMPANY’S REPURCHASE OPTION FOR UNVESTED SHARES. If Optionee is Terminated for any reason, or no reason, including without limitation, Optionee’s death, Disability, voluntary resignation or termination by the Company with or without Cause and Optionee has acquired Unvested Shares by exercising this Option, then the Company and/or its assignee(s) shall have the option to repurchase all or a portion of Optionee’s Unvested Shares (as defined in Section 2.2 of this Agreement) as of the Termination Date on the terms and conditions set forth in this Section 7 (the “Repurchase Option”).
7.1. Termination and Termination Date. In case of any dispute as to whether Optionee is Terminated, the Committee shall have discretion to determine whether Optionee has been Terminated and the effective date of such Termination (the “Termination Date”).
7.2. Exercise of Repurchase Option. Subject to the foregoing provisions of this Section, at any time within ninety (90) days after Optionee’s Termination Date, the Company and/or its assignee(s), may elect to repurchase any or all of Optionee’s Unvested Shares by giving Optionee written notice of exercise of the Repurchase Option.
7.3. Calculation of Repurchase Price for Unvested Shares. The Company or its assignee shall have the option to repurchase from Optionee (or from Optionee’s personal representative as the case may be) the Unvested Shares at Optionee’s Exercise Price, as such may be proportionately adjusted for any stock split or similar change in the capital structure of the Company as set forth in Section 2.2 of the Plan (the “Repurchase Price”).
7.4. Payment of Repurchase Price. The Repurchase Price shall be payable, at the option of the Company or its assignee, by check or by cancellation of all or a portion of any outstanding indebtedness owed by Optionee to the Company and/or such assignee, or by any combination thereof. The Repurchase Price shall be paid without interest within the term of the Repurchase Option as described in Section 7.2.
7.5. Right of Termination Unaffected. Nothing in this Agreement shall be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company (or any Parent or Subsidiary of the Company) to terminate Optionee’s employment or other relationship with Company (or any Parent or Subsidiary of the Company) at any time, for any reason or no reason, with or without Cause.
8. RESTRICTIONS ON TRANSFER.
8.1. Disposition of Shares. Optionee hereby agrees that Optionee shall make no disposition of any of the Shares (other than as permitted by this Agreement) unless and until:
(a) Optionee shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition;
(b) Optionee shall have complied with all requirements of this Agreement applicable to the disposition of the Shares;
(c) Optionee shall have provided the Company with written assurances, in form and substance satisfactory to counsel for the Company, that (i) the proposed disposition does not require registration of the Shares under the Securities Act or under any applicable state securities laws or (ii) all appropriate actions necessary for compliance with the registration requirements of the Securities Act or of any exemption from registration available under the Securities Act (including Rule 144) or applicable state securities laws have been taken; and
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(d) Optionee shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that the proposed disposition will not result in the contravention of any transfer restrictions applicable to the Shares pursuant to the provisions of the regulations promulgated under Section 25102(o), Rule 701 or under any other applicable securities laws or adversely affect the Company’s ability to rely on the exemption(s) from registration under the Securities Act or under any other applicable securities laws for the grant of the Option, the issuance of Shares thereunder or any other issuance of securities under the Plan.
8.2. Restriction on Transfer. Optionee shall not transfer, assign, grant a lien or security interest in, pledge, hypothecate, encumber or otherwise dispose of any of the Shares which are subject to the Company’s Repurchase Option or the Right of First Refusal described below, except as permitted by this Agreement. In addition, Optionee acknowledges and agrees that the Shares shall be subject to the restrictions on transferability and resale set forth in the Company’s Bylaws in effect on the date of exercise (the “Bylaws”).
8.3. Transferee Obligations. Each person (other than the Company) to whom the Shares are transferred by means of one of the permitted transfers specified in this Agreement must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Agreement and that the transferred Shares are subject to (i) both the Company’s Repurchase Option and the Company’s Right of First Refusal granted hereunder and (ii) the market stand-off provisions of Section 9 below, to the same extent such Shares would be so subject if retained by Optionee.
9. MARKET STANDOFF AGREEMENT. Optionee agrees that, subject to any early release provisions that apply pro rata to stockholders of the Company according to their holdings of Common Stock (determined on an as-converted into Common Stock basis), Optionee will not, for a period of up to one hundred eighty (180) days (plus up to an additional thirty five (35) days to the extent reasonably requested by the Company or such underwriter(s) to accommodate regulatory restrictions on the publication or other distribution of research reports or earnings releases by the Company, including NASD and NYSE rules) following the effective date of the registration statement filed with the SEC relating to the initial underwritten sale of Common Stock of the Company to the public under the Securities Act (the “IPO”), directly or indirectly sell, offer to sell, grant any option for the sale of, or otherwise dispose of any Common Stock or securities convertible into Common Stock, except for: (i) transfers of Shares permitted under Section 10.6 hereof so long as such transferee furnishes to the Company and the managing underwriter their written consent to be bound by this Section 9 as a condition precedent to such transfer; and (ii) sales of any securities to be included in the registration statement for the IPO. For the avoidance of doubt, the provisions of this Section shall only apply to the IPO. The restricted period shall in any event terminate two (2) years after the closing date of the IPO. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the Shares subject to this Section and to impose stop transfer instructions with respect to the Shares until the end of such period. Optionee further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing restrictions on transfer. For the avoidance of doubt, the foregoing provisions of this Section shall not apply to any registration of securities of the Company (a) under an employee benefit plan or (b) in a merger, consolidation, business combination or similar transaction.
10. COMPANY’S RIGHT OF FIRST REFUSAL. Unvested Shares may not be sold or otherwise transferred, or pledged by Optionee or made subject to a security interest, pledge or other lien without the Company’s prior written consent, which may be withheld in the Company’s sole and absolute discretion. Subject to the restrictions on transfer set forth in the Bylaws, before any Vested Shares held by Optionee or any transferee of such Vested Shares (either sometimes referred to herein as the “Holder”) may be sold or otherwise transferred (including, without limitation, a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Vested Shares to be sold or transferred (the “Offered Shares”) on the terms and conditions set forth in this Section (the “Right of First Refusal”).
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10.1. Notice of Proposed Transfer. The Holder of the Offered Shares will deliver to the Company a written notice (the “Notice”) stating: (i) the Holder’s bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name and address of each proposed purchaser or other transferee (the “Proposed Transferee”); (iii) the number of Offered Shares to be transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the “Offered Price”); and (v) that the Holder acknowledges this Notice is an offer to sell the Offered Shares to the Company and/or its assignee(s) pursuant to the Company’s Right of First Refusal at the Offered Price as provided for in this Agreement.
10.2. Exercise of Right of First Refusal. At any time within thirty (30) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (or, with the consent of the Holder, less than all) the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price, determined as specified below.
10.3. Purchase Price. The purchase price for the Offered Shares purchased under this Section will be the Offered Price, provided that if the Offered Price consists of no legal consideration (as, for example, in the case of a transfer by gift) then the purchase price will be the fair market value of the Offered Shares as determined in good faith by the Committee. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration, as determined in good faith by the Committee, will conclusively be deemed to be the cash equivalent value of such non-cash consideration.
10.4. Payment. Payment of the purchase price for the Offered Shares will be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding purchase money indebtedness owed by the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Company’s receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice.
10.5. Holder’s Right to Transfer. If all of the Offered Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to each Proposed Transferee at the Offered Price or at a higher price, provided that (i) such sale or other transfer is consummated within ninety (90) days after the date of the Notice, (ii) any such sale or other transfer is effected in compliance with all applicable securities laws, and (iii) each Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to each Proposed Transferee within such ninety (90) day period, then a new Notice must be given to the Company pursuant to which the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
10.6. Exempt Transfers. Notwithstanding anything to the contrary in this Section, the following transfers of Vested Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Vested Shares during Optionee’s lifetime by gift or on Optionee’s death by will or intestacy to any member(s) of Optionee’s “Immediate Family” (as defined below) or to a trust for the benefit of Optionee and/or member(s) of Optionee’s Immediate Family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Vested Shares in the hands of such transferee or other recipient; (ii) any transfer of Vested Shares made pursuant to a statutory merger, statutory consolidation of the Company with or into another corporation or corporations or a conversion of the Company into another form of
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legal entity (except that the Right of First Refusal will continue to apply thereafter to such Vested Shares, in which case the surviving corporation of such merger or consolidation or the resulting entity of such conversion shall succeed to the rights of the Company under this Section unless the agreement of merger or consolidation or conversion expressly otherwise provides); or (iii) any transfer of Vested Shares pursuant to the winding up and dissolution of the Company. As used herein, the term “Immediate Family” will mean Optionee’s spouse, the lineal descendant or antecedent, father, mother, brother or sister, child, adopted child, grandchild or adopted grandchild of Optionee or Optionee’s spouse, or the spouse of any of the above or Spousal Equivalent, as defined herein. As used herein, a person is deemed to be a “Spousal Equivalent” provided the following circumstances are true: (i) irrespective of whether or not Optionee and the Spousal Equivalent are the same sex, they are the sole spousal equivalent of the other for the last twelve (12) months, (ii) they intend to remain so indefinitely, (iii) neither are married to anyone else, (iv) both are at least 18 years of age and mentally competent to consent to contract, (v) they are not related by blood to a degree of closeness that which would prohibit legal marriage in the state in which they legally reside, (vi) they are jointly responsible for each other’s common welfare and financial obligations, and (vii) they reside together in the same residence for the last twelve (12) months and intend to do so indefinitely.
10.7. Termination of Right of First Refusal. The Right of First Refusal will terminate as to all Shares: (i) on the effective date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the Securities Act (other than a registration statement relating solely to the issuance of Common Stock pursuant to a business combination or an employee incentive or benefit plan); (ii) on any transfer or conversion of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations if the common stock of the surviving corporation or any direct or indirect parent corporation thereof is registered under the Exchange Act; or (iii) on any transfer or conversion of Shares made pursuant to a statutory conversion of the Company into another form of legal entity if the common equity (or comparable equity security) of entity resulting from such conversion is registered under the Exchange Act.
10.8. Encumbrances on Vested Shares. Optionee may grant a lien or security interest in, or pledge, hypothecate or encumber Vested Shares only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that: (i) such lien, security interest, pledge, hypothecation or encumbrance will not adversely affect or impair the Right of First Refusal or the rights of the Company and/or its assignee(s) with respect thereto and will not apply to such Vested Shares after they are acquired by the Company and/or its assignees under this Section; and (ii) the provisions of this Agreement will continue to apply to such Vested Shares in the hands of such party and any transferee of such party. Optionee may not grant a lien or security interest in, or pledge, hypothecate or encumber, any Unvested Shares.
11. RIGHTS AS A STOCKHOLDER. Optionee shall not have any of the rights of a stockholder with respect to any Shares unless and until such Shares are issued to Optionee. Subject to the terms and conditions of this Agreement, Optionee will have all of the rights of a stockholder of the Company with respect to the Shares from and after the date that Shares are issued to Optionee pursuant to, and in accordance with, the terms of the Exercise Agreement until such time as Optionee disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Repurchase Option or the Right of First Refusal. Upon an exercise of the Repurchase Option or the Right of First Refusal, Optionee will have no further rights as a holder of the Shares so purchased upon such exercise, other than the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Optionee will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation.
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12. ESCROW. As security for Optionee’s faithful performance of this Agreement, Optionee agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s) to the Secretary of the Company or other designee of the Company (the “Escrow Holder”), who is hereby appointed to hold such certificate(s) and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Agreement. Optionee and the Company agree that Escrow Holder will not be liable to any party to this Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Agreement. Escrow Holder may rely upon any letter, notice or other document executed with any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement and will not be liable for any act or omission taken by Escrow Holder in good faith reliance on such documents, the advice of counsel or a court order. The Shares will be released from escrow upon termination of both the Repurchase Option and the Right of First Refusal.
13. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
13.1. Legends. Optionee understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or U.S. Federal securities laws, the Company’s Certificate of Incorporation or Bylaws, any other agreement between Optionee and the Company, or any agreement between Optionee and any third party (and any other legend(s) that the Company may become obligated to place on the stock certificate(s) evidencing the Shares under the terms of any agreement to which the Company is or may become bound or obligated):
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON RESALE AND TRANSFER, INCLUDING THE REPURCHASE OPTION AND RIGHT OF FIRST REFUSAL HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A STOCK OPTION AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH SALE AND TRANSFER RESTRICTIONS, INCLUDING THE REPURCHASE OPTION AND RIGHT OF FIRST REFUSAL, ARE BINDING ON TRANSFEREES OF THESE SHARES.
(c) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A MARKET STANDOFF RESTRICTION AS SET FORTH IN A CERTAIN STOCK OPTION AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF CERTAIN PUBLIC OFFERINGS OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SHARES.
13.2. Stop-Transfer Instructions. Optionee agrees that, to ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate “stop-transfer” instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
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13.3. Refusal to Transfer. The Company will not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares have been so transferred.
14. CERTAIN TAX CONSEQUENCES. Set forth below is a brief summary as of the Effective Date of the Plan of some of the federal tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.
14.1. Exercise of ISO. If the Option qualifies as an ISO, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for federal alternative minimum tax purposes and may subject Optionee to the alternative minimum tax in the year of exercise.
14.2. Exercise of Nonqualified Stock Option. If the Option does not qualify as an ISO, there may be a regular federal income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is a current or former employee of the Company, the Company may be required to withhold from Optionee’s compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise.
14.3. Disposition of Shares. The following tax consequences may apply upon disposition of the Shares.
(a) Incentive Stock Options. If the Shares are held for more than twelve (12) months after the date of purchase of the Shares pursuant to the exercise of an ISO and are disposed of more than two (2) years after the Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for federal income tax purposes. If Vested Shares purchased under an ISO are disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates in the year of the disposition) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. To the extent the Shares were exercised prior to vesting coincident with the filing of an 83(b) Election, the amount taxed because of a disqualifying disposition will be based upon the excess, if any, of the fair market value on the date of vesting over the exercise price.
(b) Nonqualified Stock Options. If the Shares are held for more than twelve (12) months after the date of purchase of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long term capital gain.
14.4. Section 83(b) Election for Unvested Shares. With respect to Unvested Shares, which are subject to the Repurchase Option, unless an election is filed by Optionee with the Internal Revenue Service (and, if necessary, the proper state taxing authorities), within thirty (30) days of the purchase of the Unvested Shares, electing pursuant to Section 83(b) of the Code (and similar state tax provisions, if applicable) to be taxed currently on any difference between the Exercise Price of the Unvested Shares and their Fair Market Value on the date of purchase, there may be a recognition of taxable income (including, where applicable, alternative minimum taxable income) to Optionee, measured by the excess, if any, of the Fair Market Value of the Unvested Shares at the time they cease to be Unvested Shares, over the Exercise Price of the Unvested Shares.
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15. GENERAL PROVISIONS.
15.1. Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Optionee or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Optionee.
15.2. Entire Agreement. The Plan, the Grant Notice and the Exercise Agreement are each incorporated herein by reference. This Agreement, the Grant Notice, the Plan and the Exercise Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede all prior undertakings and agreements with respect to such subject matter.
16. NOTICES. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) at the time an electronic confirmation of receipt is received, if delivery is by email; (iii) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (iv) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (v) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. Any notice for delivery outside the United States will be sent by email, facsimile or by express courier. Any notice not delivered personally or by email will be sent with postage and/or other charges prepaid and properly addressed to Optionee at the last known address or facsimile number on the books of the Company, or at such other address or facsimile number as such other party may designate by one of the indicated means of notice herein to the other parties hereto or, in the case of the Company, to it at its principal place of business. Notices to the Company will be marked “Attention: Chief Financial Officer.” Notices by facsimile shall be machine verified as received.
17. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement including its rights to purchase Shares under both the Right of First Refusal and Repurchase Option. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Optionee and Optionee’s heirs, executors, administrators, legal representatives, successors and assigns.
18. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.
19. FURTHER ASSURANCES. The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.
20. TITLES AND HEADINGS. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to “sections” and “exhibits” will mean “sections” and “exhibits” to this Agreement.
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21. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.
22. SEVERABILITY. If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.
* * * * *
Attachments:
Annex A: Form of Stock Option Exercise Notice and Agreement
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ANNEX A
FORM OF STOCK OPTION EXERCISE NOTICE AND AGREEMENT
STOCK OPTION EXERCISE NOTICE AND AGREEMENT
NAPOCO, INC.
2019 EQUITY INCENTIVE PLAN
*NOTE: You must sign this Notice on Page 3 before submitting it to NapoCo, Inc. (the “Company”).
OPTIONEE INFORMATION: Please provide the following information about yourself (“Optionee”):
| Name: |
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Social Security Number: |
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| Address: |
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Employee Number: |
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Email Address: |
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OPTION INFORMATION: Please provide this information on the option being exercised (the “Option”):
| Grant No. | ||
| Date of Grant: | Type of Stock Option: | |
| Option Price per Share: $____ | ☐ Nonqualified (NQSO) | |
| Total number of shares of Common Stock of the Company subject to the Option: | ☐ Incentive (ISO) | |
EXERCISE INFORMATION:
| Number of shares of Common Stock of the Company for which the Option is now being exercised [________________]. (These shares are referred to below as the “Purchased Shares.”) |
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Total Exercise Price Being Paid for the Purchased Shares: $____________ |
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Form of payment enclosed [check all that apply]: |
| ☐ Check for $____________, payable to “NapoCo, Inc.” |
| ☐ Certificate(s) for ________________ shares of Common Stock of the Company. These shares will be valued as of the date this notice is received by the Company. [Requires Company consent.] |
AGREEMENTS, REPRESENTATIONS AND ACKNOWLEDGMENTS OF OPTIONEE: By signing this Stock Option Exercise Notice and Agreement, Optionee hereby agrees with, and represents to, the Company as follows:
| 1. | Terms Governing. I acknowledge and agree with the Company that I am acquiring the Purchased Shares by exercise of this Option subject to all other terms and conditions of the Notice of Stock Option Grant and the Stock Option Agreement that govern the Option, including without limitation the terms of the Company’s 2019 Equity Incentive Plan, as it may be amended (the “Plan”). |
| 2. | Investment Intent; Securities Law Restrictions. I represent and warrant to the Company that I am acquiring and will hold the Purchased Shares for investment for my account only, and not with a view to, or for resale in connection with, any “distribution” of the Purchased Shares within the meaning of the Securities Act of 1933, as amended (the “Securities Act”). I understand that the Purchased Shares have not been registered under the Securities Act by reason of a specific exemption from such registration requirement and that the Purchased Shares must be held by me indefinitely, unless they are subsequently registered under the Securities Act or I obtain an opinion of counsel (in form and substance satisfactory to the Company and its counsel) that registration is not required. I acknowledge that the Company is under no obligation to register the Purchased Shares under the Securities Act or under any other securities law. |
| 3. | Restrictions on Transfer: Rule 144. I will not sell, transfer or otherwise dispose of the Purchased Shares in violation of the Securities Act, the Securities Exchange Act of 1934, or the rules promulgated thereunder (including Rule 144 under the Securities Act described below (“Rule 144”)) or of any other applicable securities laws. I am aware of Rule 144, which permits limited public resales of securities acquired in a non-public offering, subject to satisfaction of certain conditions, which include (without limitation) that: (a) certain current public information about the Company is available; (b) the resale occurs only after the holding period required by Rule 144 has been met; (c) the sale occurs through an unsolicited “broker’s transaction”; and (d) the amount of securities being sold during any three-month period does not exceed specified limitations. I understand that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company has no plans to satisfy these conditions in the foreseeable future. |
| 4. | Access to Information; Understanding of Risk in Investment. I acknowledge that I have received and had access to such information as I consider necessary or appropriate for deciding whether to invest in the Purchased Shares and that I had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the issuance of the Purchased Shares. I am aware that my investment in the Company is a speculative investment that has limited liquidity and is subject to the risk of complete loss. I am able, without impairing my financial condition, to hold the Purchased Shares for an indefinite period and to suffer a complete loss of my investment in the Purchased Shares. |
| 5. | Rights of First Refusal; Market Stand-off. I acknowledge that the Purchased Shares remain subject to the Company’s Right of First Refusal and the market stand-off covenants (sometimes referred to as the “lock-up”), all in accordance with the applicable Notice of Stock Option Grant and the Stock Option Agreement that govern the Option. |
| 6. | Form of Ownership. I acknowledge that the Company has encouraged me to consult my own adviser to determine the form of ownership of the Purchased Shares that is appropriate for me. In the event that I choose to transfer my Purchased Shares to a trust, I agree to sign a Stock Transfer Agreement. In the event that I choose to transfer my Purchased Shares to a trust that is not an eligible revocable trust, I also acknowledge that the transfer will be treated as a “disposition” for tax purposes. As a result, the favorable ISO tax treatment will be unavailable and other unfavorable tax consequences may occur. |
| 7. | Investigation of Tax Consequences. I acknowledge that the Company has encouraged me to consult my own adviser to determine the tax consequences of acquiring the Purchased Shares at this time. |
| 8. | Other Tax Matters. I agree that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes my tax liabilities. I will not make any claim against the Company or its Board, officers or employees related to tax liabilities arising from my options or my other compensation. In particular, I acknowledge that my options (including the Option) are exempt from section 409A of the Internal Revenue Code only if the exercise price per share is at least equal to the fair market value per share of the Common Stock at the time the option was granted by the Board. Since shares of the Common Stock are not traded on an established securities market, the determination of their fair market value was made by the Board and/or by an independent valuation firm retained by the Company. I acknowledge that there is no guarantee in either case that the Internal Revenue Service will agree with the valuation, and I will not make any claim against the Company or its Board, officers or employees in the event that the Internal Revenue Service asserts that the valuation was too low. |
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| 9. | Spouse Consent. I agree to seek the consent of my spouse to the extent required by the Company to enforce the foregoing. |
| 10. | Tax Withholding. As a condition of exercising this Option, I agree to make adequate provision for foreign, federal, state or other tax withholding obligations, if any, which arise upon the grant, vesting or exercise of this Option, or disposition of the Purchased Shares, whether by withholding, direct payment to the Company, or otherwise. |
The undersigned hereby executes and delivers this Stock Option Exercise Notice and Agreement and agrees to be bound by its terms
| SIGNATURE:
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DATE: | |||
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Optionee’s Name: |
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[Signature Page to Stock Option Exercise Notice and Agreement]
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OPTION GRANT NO. ___
NOTICE OF STOCK OPTION GRANT
NAPOCO, INC.
2019 EQUITY INCENTIVE PLAN
The Optionee named below (“Optionee”) has been granted an option (this “Option”) to purchase shares of Common Stock, $0.00001 par value per share (the “Common Stock”), of NapoCo, Inc., a Delaware corporation (the “Company”), pursuant to the Company’s 2019 Equity Incentive Plan, as amended from time to time (the “Plan”) on the terms, and subject to the conditions, described below and in the Stock Option Agreement attached hereto as Exhibit A, including its annexes (the “Stock Option Agreement”).
| Optionee: | ||
| Maximum Number of Shares Subject to this Option (the “Shares”): | ||
| Exercise Price Per Share: | $____ per share | |
| Date of Grant: | ||
| Vesting Start Date: | ||
| Exercise Schedule: | This Option will become exercisable during its term with respect to portions of the Shares in accordance with the Vesting Schedule set forth below. | |
| Expiration Date: | The date ten (10) years after the Date of Grant set forth above, subject to earlier expiration in the event of Termination as provided in Section 3 of the Stock Option Agreement. | |
| Tax Status of Option: (Check Only One Box): |
☐ Incentive Stock Option (To the fullest extent permitted by the Code) ☐ Nonqualified Stock Option. (If neither box is checked, this Option is a Nonqualified Stock Option). | |
Vesting Schedule [EXAMPLE ONLY]: For so long as Optionee continuously provides services to the Company (or any Subsidiary or Parent of the Company) as an employee, officer, director, contractor or consultant, this Option will vest (that is, become exercisable) with respect to the Shares as follows: (a) prior to the first one (1) year anniversary of the Vesting Start Date this Option will not be vested or exercisable as to any of the Shares; (b) this Option will become vested and exercisable with respect to [1/4th] of the Shares on the one (1) year anniversary of the Vesting Start Date; and (c) thereafter, this Option will become vested and exercisable with respect to an additional [1/48th] of the Shares when Optionee completes each month of continuous service following the first one (1) year anniversary of the Vesting Start Date.
General; Agreement: By their signatures below, Optionee and the Company agree that this Option is granted under and governed by this Notice of Stock Option Grant (this “Grant Notice”) and by the provisions of the Plan and the Stock Option Agreement. The Plan and the Stock Option Agreement are incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings given to them in the Plan or in the Stock Option Agreement, as applicable. By signing below, Optionee acknowledges receipt of a copy of this Grant Notice, the Plan and the Stock Option Agreement, represents that Optionee has carefully read and is familiar with their provisions, and hereby accepts the Option subject to all of their respective terms and conditions. Optionee acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares and that Optionee should consult a tax adviser prior to such exercise or disposition. Optionee agrees and acknowledges that the Vesting Schedule may change prospectively in the event that Optionee’s service status changes between full and part time status in accordance with Company policies relating to work schedules and vesting of equity awards.
Execution and Delivery: This Grant Notice may be executed and delivered electronically whether via the Company’s intranet or the Internet site of a third party or via email or any other means of electronic delivery specified by the Company. By Optionee’s acceptance hereof (whether written, electronic or otherwise), Optionee agrees, to the fullest extent permitted by law, that in lieu of receiving documents in paper format, Optionee accepts the electronic delivery of any documents that the Company (or any third party the Company may designate), may deliver in connection with this grant (including the Plan, this Grant Notice, the Stock Option Agreement, the information described in Rules 701(e)(2), (3), (4) and (5) under the Securities Act (the “701 Disclosures”), account statements, or other communications or information) whether via the Company’s intranet or the Internet site of such third party or via email or such other means of electronic delivery specified by the Company.
| NapoCo, Inc. | ||||||
| By /Signature: |
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Optionee Signature: |
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| Typed Name: |
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Optionee’s Name: |
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| Title: |
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| ATTACHMENT: Exhibit A – Stock Option Agreement | ||||||
Exhibit A
Stock Option Agreement
EXHIBIT A
STOCK OPTION AGREEMENT
NAPOCO, INC.
2019 EQUITY INCENTIVE PLAN
This Stock Option Agreement (this “Agreement”) is made and entered into as of the date of grant (the “Date of Grant”) set forth on the Notice of Stock Option Grant attached as the facing page to this Agreement (the “Grant Notice”) by and between NapoCo, Inc., a Delaware corporation (the “Company”), and the optionee named on the Grant Notice (“Optionee”). Capitalized terms not defined in this Agreement shall have the meaning ascribed to them in the Company’s 2019 Equity Incentive Plan, as amended from time to time (the “Plan”), or in the Grant Notice, as applicable.
1. GRANT OF OPTION. The Company hereby grants to Optionee an option (this “Option”) to purchase up to the total number of shares of Common Stock of the Company, $0.00001 par value per share (the “Common Stock”), set forth in the Grant Notice as the Shares (the “Shares”) at the Exercise Price Per Share set forth in the Grant Notice (the “Exercise Price”), subject to all of the terms and conditions of the Grant Notice, this Agreement and the Plan. If designated as an Incentive Stock Option in the Grant Notice, this Option is intended to qualify as an incentive stock option (the “ISO”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), except that if on the Date of Grant Optionee is not subject to U.S. income tax, then this Option shall be a NQSO.
2. EXERCISE PERIOD.
2.1 Exercise Period of Option. This Option is considered to be “vested” with respect to any particular Shares when this Option is exercisable with respect to such Shares. This Option will become vested during its term as to portions of the Shares in accordance with the Vesting Schedule set forth in the Grant Notice. Notwithstanding any provision in the Plan or this Agreement to the contrary, on or after Optionee’s Termination Date, this Option may not be exercised with respect to any Shares that are Unvested Shares on Optionee’s Termination Date.
2.2 Vesting of Option Shares. Shares with respect to which this Option is vested and exercisable at a given time pursuant to the Vesting Schedule set forth in the Grant Notice are “Vested Shares.” Shares with respect to which this Option is not vested and exercisable at a given time pursuant to the Vesting Schedule set forth in the Grant Notice are “Unvested Shares.”
2.3 Expiration. The Option shall expire on the Expiration Date set forth in the Grant Notice or earlier as provided in Section Error! Reference source not found. below.
3. TERMINATION.
3.1 Termination for Any Reason Except Death, Disability or Cause. Except as provided in subsection 3.2 in a case in which Optionee dies within three (3) months after Optionee is Terminated other than for Cause, if Optionee is Terminated for any reason (other than Optionee’s death or Disability or for Cause), then (a) on and after Optionee’s Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionee’s Termination Date and (b) this Option to the extent (and only to the extent) that it is exercisable with respect to Vested Shares on Optionee’s Termination Date, may be exercised by Optionee no later than three (3) months after Optionee’s Termination Date (but in no event may this Option be exercised after the Expiration Date).
3.2 Termination Because of Death or Disability. If Optionee is Terminated because of Optionee’s death or Disability (or if Optionee dies within three (3) months of the date of Optionee’s Termination for any reason other than for Cause), then (a) on and after Optionee’s Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionee’s Termination Date and (b) this Option, to the extent (and only to the extent) that it is exercisable with respect to Vested Shares on Optionee’s Termination Date, may be exercised by Optionee (or Optionee’s legal representative) no later than twelve (12) months after Optionee’s Termination Date, but in no event later than the Expiration Date. Any exercise of this Option beyond (i) three (3) months after the date Optionee ceases to be an employee when Optionee’s Termination is for any reason other than Optionee’s death or disability, within the meaning of Section 22(e)(3) of the Code; or (ii) twelve (12) months after the date Optionee ceases to be an employee when the termination is for Optionee’s disability, within the meaning of Section 22(e)(3) of the Code, is deemed to be an NQSO.
3.3 Termination for Cause. If Optionee is Terminated for Cause, then Optionee may exercise this Option, but only with respect to any Shares that are Vested Shares on Optionee’s Termination Date, and this Option shall expire on Optionee’s Termination Date, or at such later time and on such conditions as may be affirmatively determined by the Committee. On and after Optionee’s Termination Date, this Option shall expire immediately with respect to any Shares that are Unvested Shares and may not be exercised with respect to any Shares that are Unvested Shares on Optionee’s Termination Date.
3.4 No Obligation to Employ. Nothing in the Plan or this Agreement shall confer on Optionee any right to continue in the employ of, or other relationship with, the Company or any Parent or Subsidiary of the Company, or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Optionee’s employment or other relationship at any time, with or without Cause.
4. MANNER OF EXERCISE.
4.1 Stock Option Exercise Notice and Agreement. To exercise this Option, Optionee (or in the case of exercise after Optionee’s death or incapacity, Optionee’s executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed Stock Option Exercise Notice and Agreement in the form attached hereto as Annex A, or in such other form as may be approved by the Committee from time to time (the “Exercise Agreement”) and payment for the shares being purchased in accordance with this Agreement. The Exercise Agreement shall set forth, among other things, (i) Optionee’s election to exercise this Option, (ii) the number of Shares being purchased, (iii) any representations, warranties and agreements regarding Optionee’s investment intent and access to information as may be required by the Company to comply with applicable securities laws in connection with any exercise of this Option and (iv) any other agreements required by the Company. If someone other than Optionee exercises this Option, then such person must submit documentation reasonably acceptable to the Company verifying that such person has the legal right to exercise this Option and such person shall be subject to all of the restrictions contained herein as if such person were Optionee.
4.2 Limitations on Exercise. This Option may not be exercised unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise.
4.3 Payment. The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the shares being purchased in cash (by check or wire transfer), or where permitted by law:
(a) by cancellation of indebtedness of the Company owed to Optionee;
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(b) by surrender of shares of the Company that are free and clear of all security interests, pledges, liens, claims or encumbrances and: (i) for which the Company has received “full payment of the purchase price” within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares) or (ii) that were obtained by Optionee in the public market;
(c) by participating in a formal cashless exercise program implemented by the Committee in connection with the Plan;
(d) provided that a public market for the Common Stock exists and subject to compliance with applicable law, by exercising as set forth below, through a “same day sale” commitment from Optionee and a broker-dealer whereby Optionee irrevocably elects to exercise this Option and to sell a portion of the Shares so purchased sufficient to pay the total Exercise Price, and whereby the broker-dealer irrevocably commits upon receipt of such Shares to forward the total Exercise Price directly to the Company; or
(e) by any combination of the foregoing or any other method of payment approved by the Committee that constitutes legal consideration for the issuance of Shares.
4.4 Tax Withholding. Prior to the issuance of the Shares upon exercise of the Option, Optionee must pay or provide for any applicable federal, state and local withholding obligations of the Company. If the Committee permits, Optionee may provide for payment of withholding taxes upon exercise of the Option by requesting that the Company retain the minimum number of Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld; or to arrange a mandatory “sell to cover” on Participant’s behalf (without further authorization); but in no event will the Company withhold Shares or “sell to cover” if such withholding would result in adverse accounting consequences to the Company. In case of stock withholding or a sell to cover, the Company shall issue the net number of Shares to Optionee by deducting the Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares issuable upon a valid exercise of this Option registered in the name of Optionee, Optionee’s authorized assignee, or Optionee’s legal representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto.
5. COMPLIANCE WITH LAWS AND REGULATIONS. The Plan and this Agreement are intended to comply with Section 25102(o) and Rule 701. Any provision of this Agreement that is inconsistent with Section 25102(o) or Rule 701 shall, without further act or amendment by the Company or the Committee, be reformed to comply with the requirements of Section 25102(o) and/or Rule 701. The exercise of this Option and the issuance and transfer of Shares shall be subject to compliance by the Company and Optionee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Common Stock may be listed at the time of such issuance or transfer. Optionee understands that the Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance.
6. NONTRANSFERABILITY OF OPTION. This Option may not be transferred in any manner other than by will or by the laws of descent and distribution, and, with respect to NQSOs, by instrument to a testamentary trust in which the options are to be passed to beneficiaries upon the death of the trustor (settlor) or a revocable trust, or by gift to “immediate family” as that term is defined in 17 C.F.R. 240.16a-1(e), and may be exercised during the lifetime of Optionee only by Optionee or in the event of Optionee’s incapacity, by Optionee’s legal representative. The terms of this Option shall be binding upon the executors, administrators, successors and assigns of Optionee.
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7. RESTRICTIONS ON TRANSFER.
7.1 Disposition of Shares. Optionee hereby agrees that Optionee shall make no disposition of any of the Shares (other than as permitted by this Agreement) unless and until:
(a) Optionee shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition;
(b) Optionee shall have complied with all requirements of this Agreement applicable to the disposition of the Shares;
(c) Optionee shall have provided the Company with written assurances, in form and substance satisfactory to counsel for the Company, that (i) the proposed disposition does not require registration of the Shares under the Securities Act or under any applicable state securities laws or (ii) all appropriate actions necessary for compliance with the registration requirements of the Securities Act or of any exemption from registration available under the Securities Act (including Rule 144) or applicable state securities laws have been taken; and
(d) Optionee shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that the proposed disposition will not result in the contravention of any transfer restrictions applicable to the Shares pursuant to the provisions of the regulations promulgated under Section 25102(o), Rule 701 or under any other applicable securities laws or adversely affect the Company’s ability to rely on the exemption(s) from registration under the Securities Act or under any other applicable securities laws for the grant of the Option, the issuance of Shares thereunder or any other issuance of securities under the Plan.
7.2 Restriction on Transfer. Optionee shall not transfer, assign, grant a lien or security interest in, pledge, hypothecate, encumber or otherwise dispose of any of the Shares which are subject to the Company’s Right of First Refusal described below, except as permitted by this Agreement. In addition, Optionee acknowledges and agrees that the Shares shall be subject to the restrictions on transferability and resale set forth in the Company’s Bylaws in effect on the date of exercise (the “Bylaws”).
7.3 Transferee Obligations. Each person (other than the Company) to whom the Shares are transferred by means of one of the permitted transfers specified in this Agreement must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Agreement and that the transferred Shares are subject to (i) the Company’s Right of First Refusal granted hereunder and (ii) the market stand-off provisions of Section 8 below, to the same extent such Shares would be so subject if retained by Optionee.
8. MARKET STANDOFF AGREEMENT. Optionee agrees that, subject to any early release provisions that apply pro rata to stockholders of the Company according to their holdings of Common Stock (determined on an as-converted into Common Stock basis), Optionee will not, for a period of up to one hundred eighty (180) days (plus up to an additional thirty five (35) days to the extent reasonably requested by the Company or such underwriter(s) to accommodate regulatory restrictions on the publication or other distribution of research reports or earnings releases by the Company, including NASD and NYSE rules) following the effective date of the registration statement filed with the SEC relating to the initial underwritten sale of Common Stock of the Company to the public under the Securities Act (the “IPO”), directly or indirectly sell, offer to sell, grant any option for the sale of, or otherwise dispose of any Common Stock or securities convertible into Common Stock, except for: (i) transfers of Shares permitted under Section 9.6 hereof so long as such transferee furnishes to the Company and the managing underwriter their written consent to be bound by this Section 8 as a condition precedent to such transfer; and (ii) sales of any securities to be included in the registration statement for the IPO. For the avoidance of doubt, the provisions of this Section shall only apply to the IPO. The
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restricted period shall in any event terminate two (2) years after the closing date of the IPO. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the Shares subject to this Section and to impose stop transfer instructions with respect to the Shares until the end of such period. Optionee further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing restrictions on transfer. For the avoidance of doubt, the foregoing provisions of this Section shall not apply to any registration of securities of the Company (a) under an employee benefit plan or (b) in a merger, consolidation, business combination or similar transaction.
9. COMPANY’S RIGHT OF FIRST REFUSAL. Subject to the restrictions on transfer set forth in the Bylaws, before any Shares held by Optionee or any transferee of such Shares (either sometimes referred to herein as the “Holder”) may be sold or otherwise transferred (including, without limitation, a transfer by gift or operation of law), the Company and/or its assignee(s) will have a right of first refusal to purchase the Shares to be sold or transferred (the “Offered Shares”) on the terms and conditions set forth in this Section (the “Right of First Refusal”).
9.1 Notice of Proposed Transfer. The Holder of the Offered Shares will deliver to the Company a written notice (the “Notice”) stating: (i) the Holder’s bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name and address of each proposed purchaser or other transferee (the “Proposed Transferee”); (iii) the number of Offered Shares to be transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the “Offered Price”); and (v) that the Holder acknowledges this Notice is an offer to sell the Offered Shares to the Company and/or its assignee(s) pursuant to the Company’s Right of First Refusal at the Offered Price as provided for in this Agreement.
9.2 Exercise of Right of First Refusal. At any time within thirty (30) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all (or, with the consent of the Holder, less than all) the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price, determined as specified below.
9.3 Purchase Price. The purchase price for the Offered Shares purchased under this Section will be the Offered Price, provided that if the Offered Price consists of no legal consideration (as, for example, in the case of a transfer by gift) then the purchase price will be the fair market value of the Offered Shares as determined in good faith by the Committee. If the Offered Price includes consideration other than cash, then the value of the non-cash consideration, as determined in good faith by the Committee, will conclusively be deemed to be the cash equivalent value of such non-cash consideration.
9.4 Payment. Payment of the purchase price for the Offered Shares will be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding purchase money indebtedness owed by the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Company’s receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice.
9.5 Holder’s Right to Transfer. If all of the Offered Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to each Proposed Transferee at the Offered Price or at a higher price, provided that (i) such sale or other transfer is consummated within ninety (90) days after the date of the Notice, (ii) any such sale or other transfer is effected in compliance with all applicable securities laws, and (iii) each Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to each Proposed Transferee within such ninety (90) day period, then a new Notice must be given to the Company pursuant to which the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
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9.6 Exempt Transfers. Notwithstanding anything to the contrary in this Section, the following transfers of Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Shares during Optionee’s lifetime by gift or on Optionee’s death by will or intestacy to any member(s) of Optionee’s “Immediate Family” (as defined below) or to a trust for the benefit of Optionee and/or member(s) of Optionee’s Immediate Family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Shares in the hands of such transferee or other recipient; (ii) any transfer of Shares made pursuant to a statutory merger, statutory consolidation of the Company with or into another corporation or corporations or a conversion of the Company into another form of legal entity (except that the Right of First Refusal will continue to apply thereafter to such Shares, in which case the surviving corporation of such merger or consolidation or the resulting entity of such conversion shall succeed to the rights of the Company under this Section unless the agreement of merger or consolidation or conversion expressly otherwise provides); or (iii) any transfer of Shares pursuant to the winding up and dissolution of the Company. As used herein, the term “Immediate Family” will mean Optionee’s spouse, the lineal descendant or antecedent, father, mother, brother or sister, child, adopted child, grandchild or adopted grandchild of Optionee or Optionee’s spouse, or the spouse of any of the above or Spousal Equivalent, as defined herein. As used herein, a person is deemed to be a “Spousal Equivalent” provided the following circumstances are true: (i) irrespective of whether or not Optionee and the Spousal Equivalent are the same sex, they are the sole spousal equivalent of the other for the last twelve (12) months, (ii) they intend to remain so indefinitely, (iii) neither are married to anyone else, (iv) both are at least 18 years of age and mentally competent to consent to contract, (v) they are not related by blood to a degree of closeness that which would prohibit legal marriage in the state in which they legally reside, (vi) they are jointly responsible for each other’s common welfare and financial obligations, and (vii) they reside together in the same residence for the last twelve (12) months and intend to do so indefinitely.
9.7 Termination of Right of First Refusal. The Right of First Refusal will terminate as to all Shares: (i) on the effective date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the Securities Act (other than a registration statement relating solely to the issuance of Common Stock pursuant to a business combination or an employee incentive or benefit plan); (ii) on any transfer or conversion of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations if the common stock of the surviving corporation or any direct or indirect parent corporation thereof is registered under the Exchange Act; or (iii) on any transfer or conversion of Shares made pursuant to a statutory conversion of the Company into another form of legal entity if the common equity (or comparable equity security) of entity resulting from such conversion is registered under the Exchange Act.
9.8 Encumbrances on Shares. Optionee may grant a lien or security interest in, or pledge, hypothecate or encumber Shares only if each party to whom such lien or security interest is granted, or to whom such pledge, hypothecation or other encumbrance is made, agrees in a writing satisfactory to the Company that: (i) such lien, security interest, pledge, hypothecation or encumbrance will not adversely affect or impair the Right of First Refusal or the rights of the Company and/or its assignee(s) with respect thereto and will not apply to such Shares after they are acquired by the Company and/or its assignees under this Section; and (ii) the provisions of this Agreement will continue to apply to such Shares in the hands of such party and any transferee of such party.
10. RIGHTS AS A STOCKHOLDER. Optionee shall not have any of the rights of a stockholder with respect to any Shares unless and until such Shares are issued to Optionee. Subject to the terms and conditions of this Agreement, Optionee will have all of the rights of a stockholder of the Company with respect to the Shares from and after the date that Shares are issued to Optionee pursuant
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to, and in accordance with, the terms of the Exercise Agreement until such time as Optionee disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Right of First Refusal. Upon an exercise of the Right of First Refusal, Optionee will have no further rights as a holder of the Shares so purchased upon such exercise, other than the right to receive payment for the Shares so purchased in accordance with the provisions of this Agreement, and Optionee will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation.
11. ESCROW. As security for Optionee’s faithful performance of this Agreement, Optionee agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s) to the Secretary of the Company or other designee of the Company (the “Escrow Holder”), who is hereby appointed to hold such certificate(s) in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Agreement. Optionee and the Company agree that Escrow Holder will not be liable to any party to this Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Agreement. Escrow Holder may rely upon any letter, notice or other document executed with any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement and will not be liable for any act or omission taken by Escrow Holder in good faith reliance on such documents, the advice of counsel or a court order. The Shares will be released from escrow upon termination of the Right of First Refusal.
12. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
12.1 Legends. Optionee understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or U.S. Federal securities laws, the Company’s Certificate of Incorporation or Bylaws, any other agreement between Optionee and the Company, or any agreement between Optionee and any third party (and any other legend(s) that the Company may become obligated to place on the stock certificate(s) evidencing the Shares under the terms of any agreement to which the Company is or may become bound or obligated):
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON RESALE AND TRANSFER, INCLUDING THE RIGHT OF FIRST REFUSAL HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A STOCK OPTION AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH SALE AND TRANSFER RESTRICTIONS, INCLUDING THE RIGHT OF FIRST REFUSAL, ARE BINDING ON TRANSFEREES OF THESE SHARES.
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(c) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A MARKET STANDOFF RESTRICTION AS SET FORTH IN A CERTAIN STOCK OPTION AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF CERTAIN PUBLIC OFFERINGS OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SHARES.
12.2 Stop-Transfer Instructions. Optionee agrees that, to ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate “stop-transfer” instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
12.3 Refusal to Transfer. The Company will not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares have been so transferred.
13. CERTAIN TAX CONSEQUENCES. Set forth below is a brief summary as of the Effective Date of the Plan of some of the federal tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.
13.1 Exercise of ISO. If the Option qualifies as an ISO, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for federal alternative minimum tax purposes and may subject Optionee to the alternative minimum tax in the year of exercise.
13.2 Exercise of Nonqualified Stock Option. If the Option does not qualify as an ISO, there may be a regular federal income tax liability upon the exercise of the Option. Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is a current or former employee of the Company, the Company may be required to withhold from Optionee’s compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise.
13.3 Disposition of Shares. The following tax consequences may apply upon disposition of the Shares.
(a) Incentive Stock Options. If the Shares are held for more than twelve (12) months after the date of purchase of the Shares pursuant to the exercise of an ISO and are disposed of more than two (2) years after the Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for federal income tax purposes. If Shares purchased under an ISO are disposed of within the applicable one (1) year or two (2) year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates in the year of the disposition) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price.
(b) Nonqualified Stock Options. If the Shares are held for more than twelve (12) months after the date of purchase of the Shares pursuant to the exercise of an NQSO, any gain realized on disposition of the Shares will be treated as long term capital gain.
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14. GENERAL PROVISIONS.
14.1 Interpretation. Any dispute regarding the interpretation of this Agreement shall be submitted by Optionee or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Optionee.
14.2 Entire Agreement. The Plan, the Grant Notice and the Exercise Agreement are each incorporated herein by reference. This Agreement, the Grant Notice, the Plan and the Exercise Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede all prior undertakings and agreements with respect to such subject matter.
15. NOTICES. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (i) at the time of personal delivery, if delivery is in person; (ii) at the time an electronic confirmation of receipt is received, if delivery is by email; (iii) at the time of transmission by facsimile, addressed to the other party at its facsimile number specified herein (or hereafter modified by subsequent notice to the parties hereto), with confirmation of receipt made by both telephone and printed confirmation sheet verifying successful transmission of the facsimile; (iv) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States, with proof of delivery from the courier requested; or (v) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. Any notice for delivery outside the United States will be sent by email, facsimile or by express courier. Any notice not delivered personally or by email will be sent with postage and/or other charges prepaid and properly addressed to Optionee at the last known address or facsimile number on the books of the Company, or at such other address or facsimile number as such other party may designate by one of the indicated means of notice herein to the other parties hereto or, in the case of the Company, to it at its principal place of business. Notices to the Company will be marked “Attention: Chief Financial Officer.” Notices by facsimile shall be machine verified as received.
16. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement including its rights to purchase Shares under the Right of First Refusal. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Optionee and Optionee’s heirs, executors, administrators, legal representatives, successors and assigns.
17. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.
18. FURTHER ASSURANCES. The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.
19. TITLES AND HEADINGS. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to “sections” and “exhibits” will mean “sections” and “exhibits” to this Agreement.
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20. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.
21. SEVERABILITY. If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.
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Attachment: Annex A: Form of Stock Option Exercise Notice and Agreement
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ANNEX A
FORM OF STOCK OPTION EXERCISE NOTICE AND AGREEMENT
Exhibit 10.5
KALARIS THERAPEUTICS, INC.
2020 STOCK OPTION AND GRANT PLAN, AS AMENDED
| SECTION 1. | GENERAL PURPOSE OF THE PLAN; DEFINITIONS |
The name of the plan is the Kalaris Therapeutics, Inc. 2020 Stock Option and Grant Plan (the “Plan”). The purpose of the Plan is to encourage and enable the officers, employees, Non-Employee Directors and Consultants of Kalaris Therapeutics, Inc. (the “Company”) and its Affiliates upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
“Act” means the U.S. Securities Act of 1933, as amended, and the rules and regulations thereunder.
“Administrator” means either the Board or the compensation committee of the Board or a similar committee performing the functions of the compensation committee and which is comprised of not less than two Non-Employee Directors who are independent.
“Affiliate” means, at the time of determination, any “parent” or “subsidiary” of the Company as such terms are defined in Rule 405 of the Act. The Board will have the authority to determine the time or times at which “parent” or “subsidiary” status is determined within the foregoing definition.
“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Units, Restricted Stock Awards, Unrestricted Stock Awards, Cash-Based Awards, and Dividend Equivalent Rights.
“Award Agreement” means a written or electronic document setting forth the terms and provisions applicable to an Award granted under the Plan. Each Award Agreement is subject to the terms and conditions of the Plan.
“Board” means the Board of Directors of the Company.
“Cash-Based Award” means an Award entitling the recipient to receive a cash-denominated payment.
“Cause” means, unless otherwise set forth in any employment agreement between the Company or a grantee or in the applicable Award Agreement, (i) the grantee’s dishonest statements or acts with respect to the Company or any Affiliate of the Company, or any current or prospective customers, suppliers, vendors or other third parties with which such entity does business; (ii) the grantee’s commission of (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud; (iii) the grantee’s failure to perform his assigned duties and responsibilities to the reasonable satisfaction of the Company, which failure continues, in the reasonable judgment of the Company, after written notice given to the grantee by the Company; (iv) the grantee’s gross negligence, willful misconduct or insubordination with respect to the Company or any Affiliate of the Company; or (v) the grantee’s material violation of any provision of any agreement(s) between the grantee and the Company relating to noncompetition, non-solicitation, nondisclosure and/or assignment of inventions.
“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.
“Consultant” means a consultant or adviser who provides bona fide services to the Company or an Affiliate as an independent contractor and who qualifies as a consultant or advisor under Instruction A.1.(a)(1) of Form S-8 under the Act.
“Dividend Equivalent Right” means an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the grantee.
“Effective Date” means the date on which the Plan becomes effective as set forth in Section 19.
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
“Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Administrator; provided, however, that if the Stock is listed on The Nasdaq Global Market, The New York Stock Exchange or another national securities exchange or traded on any established market, the determination shall be made by reference to market quotations. If there are no market quotations for such date, the determination shall be made by reference to the last date preceding such date for which there are market quotations; provided further, however, that if the date for which Fair Market Value is determined is the Registration Date, the Fair Market Value shall be the “Price to the Public” (or equivalent) set forth on the cover page for the final prospectus relating to the Company’s initial public offering.
“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.
“Non-Employee Director” means a member of the Board who is not also an employee of the Company or any Subsidiary.
“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.
“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.
“Registration Date” means the date upon which the registration statement on Form S-1 that is filed by the Company with respect to its initial public offering is declared effective by the U.S. Securities and Exchange Commission.
“Restricted Shares” means the shares of Stock underlying a Restricted Stock Award that remain subject to a risk of forfeiture or the Company’s right of repurchase.
“Restricted Stock Award” means an Award of Restricted Shares subject to such restrictions and conditions as the Administrator may determine at the time of grant.
“Restricted Stock Units” means an Award of stock units subject to such restrictions and conditions as the Administrator may determine at the time of grant.
“Sale Event” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.
“Sale Price” means the value as determined by the Administrator of the consideration payable, or otherwise to be received by stockholders, per share of Stock pursuant to a Sale Event.
“Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.
“Service Relationship” means any relationship as an employee, Non-Employee Director or Consultant of the Company or any Affiliate. Unless as otherwise set forth in the Award Agreement, a Service Relationship shall be deemed to continue without interruption in the event a grantee’s status changes from full-time employee to part-time employee or a grantee’s status changes from employee to Consultant or Non-Employee Director or vice versa, provided that there is no interruption or other termination of Service Relationship in connection with the grantee’s change in capacity.
“Stock” means the Common Stock, par value $0.0001 per share, of the Company, subject to adjustments pursuant to Section 3.
“Stock Appreciation Right” means an Award entitling the recipient to receive shares of Stock (or cash, to the extent explicitly provided for in the applicable Award Agreement) having a value equal to the excess of the Fair Market Value of the Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised.
“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has at least a 50 percent interest, either directly or indirectly.
“Ten Percent Owner” means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation.
“Unrestricted Stock Award” means an Award of shares of Stock free of any restrictions.
| SECTION 2. | ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS |
(a) Administration of Plan. The Plan shall be administered by the Administrator.
(b) Powers of Administrator. The Administrator shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:
(i) to select the individuals to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Unrestricted Stock Awards, Cash-Based Awards, and Dividend Equivalent Rights, or any combination of the foregoing, granted to any one or more grantees;
(iii) to determine the number of shares of Stock to be covered by any Award;
(iv) to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the forms of Award Agreements;
(v) to accelerate at any time the exercisability or vesting of all or any portion of any Award;
(vi) subject to the provisions of Section 5(c), to extend at any time the period in which Stock Options may be exercised; and
(vii) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be final, binding, and conclusive on all persons, including the Company and Plan grantees.
(c) Delegation of Authority to Grant Awards. Subject to applicable law, the Administrator, in its discretion, may delegate to a committee consisting of one or more officers of the Company including the Chief Executive Office of the Company all or part of the Administrator’s authority and duties with respect to the granting of Awards to individuals who are (i) not subject to the reporting and other provisions of Section 16 of the Exchange Act and (ii) not members of the delegated committee. Any such delegation by the Administrator shall include a limitation as to the amount of Stock underlying Awards that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price and the vesting criteria. The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrator’s delegate or delegates that were consistent with the terms of the Plan.
(d) Award Agreement. Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award which may include, without limitation, the term of an Award and the provisions applicable in the event the Service Relationship terminates.
(e) Indemnification. Neither the Board nor the Administrator, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Administrator (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s articles or bylaws or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.
(f) Foreign Award Recipients. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Subsidiaries operate or have employees or other individuals eligible for Awards, the Administrator, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries shall be covered by the Plan; (ii) determine which individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent the Administrator determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Section 3(a) hereof; and (v) take any action, before or after an Award is made, that the Administrator determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act or any other applicable United States securities law, the Code, or any other applicable United States governing statute or law.
| SECTION 3. | STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION |
(a) Stock Issuable. The maximum number of shares of Stock reserved and available for issuance under the Plan shall be (i) 8,008,734 shares (the “Initial Limit”), subject to adjustment as provided in this Section 3, plus (ii) effective as of the closing date of the merger contemplated by that certain Agreement and Plan of Merger by and among the Company, Aurora Merger Sub, Inc. and Kalaris Therapeutics, Inc., dated as of November 7, 2024 (the “Merger”), a number of shares of Stock as is equal to 5 percent of the total number of shares of Stock that are issued and outstanding immediately following the closing of the Merger, plus (iii) on January 1, 2021 and on each January 1 thereafter, the number of shares of Stock reserved and available for issuance under the Plan shall be cumulatively increased by 5 percent of the number of shares of Common Stock issued and outstanding on the immediately preceding December 31, or such lesser number of shares as approved by the Administrator, in all cases subject to
adjustment as provided in this Section 3(c) (the “Annual Increase”). Subject to such overall limitation, the maximum aggregate number of shares of Stock that may be issued in the form of Incentive Stock Options shall not exceed 15,250,000, subject to adjustment as provided in this Section 3. For purposes of this limitation, the shares of Stock underlying any awards under the Plan and the shares of Common Stock of the Company underlying the Company’s 2018 Equity Incentive Plan that are forfeited, canceled, held back upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of Stock, expire or are otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan and, to the extent permitted under Section 422 of the Code and the regulations promulgated thereunder, to the shares of Stock that may be issued as Incentive Stock Options. In the event the Company repurchases shares of Stock on the open market, such shares shall not be added to the shares of Stock available for issuance under the Plan. Subject to such overall limitations, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company.
(b) Maximum Awards to Non-Employee Directors. Notwithstanding anything to the contrary in this Plan, the value of all Awards awarded under this Plan and all other cash compensation paid by the Company to any Non-Employee Director in any calendar year for services as a Non-Employee Director shall not exceed: (i) $1,000,000 in the first calendar year an individual becomes a Non-Employee Director and (ii) $750,000 in any other calendar year. For the purpose of this limitation, the value of any Award shall be its grant date fair value, as determined in accordance with ASC 718 or successor provision but excluding the impact of estimated forfeitures related to service-based vesting provisions.
(c) Changes in Stock. Subject to Section 3(d) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for securities of the Company or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, including the maximum number of shares that may be issued in the form of Incentive Stock Options, (ii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, (iii) the repurchase price, if any, per share subject to each outstanding Restricted Stock Award, and (iv) the exercise price for each share subject to any then outstanding Stock Options and Stock Appreciation Rights under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of shares subject to Stock Options and Stock Appreciation Rights) as to which such Stock Options and Stock Appreciation Rights remain exercisable. The Administrator shall also make equitable or proportionate adjustments in the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration cash dividends paid other than in the ordinary course or any other extraordinary corporate event. The adjustment by the Administrator shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Administrator in its discretion may make a cash payment in lieu of fractional shares.
(d) Mergers and Other Transactions. In the case of and subject to the consummation of a Sale Event, the parties thereto may cause the assumption or continuation of Awards theretofore granted by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree. To the extent the parties to such Sale Event do not provide for the assumption, continuation or substitution of Awards, upon the effective time of the Sale Event, the Plan and all outstanding Awards granted hereunder shall terminate. In such case, except as may be otherwise provided in the relevant Award Agreement, all Options and Stock Appreciation Rights with time-based vesting conditions or restrictions that are not vested and/or exercisable immediately prior to the effective time of the Sale Event shall become fully vested and exercisable as of the effective time of the Sale Event, all other Awards with time-based vesting, conditions or restrictions shall become fully vested and nonforfeitable as of the effective time of the Sale Event, and all Awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in connection with a Sale Event in the Administrator’s discretion or to the extent specified in the relevant Award Agreement. In
the event of such termination, (i) the Company shall have the option (in its sole discretion) to make or provide for a payment, in cash or in kind, to the grantees holding Options and Stock Appreciation Rights, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the Sale Price multiplied by the number of shares of Stock subject to outstanding Options and Stock Appreciation Rights (to the extent then exercisable at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options and Stock Appreciation Rights (provided that, in the case of an Option or Stock Appreciation Right with an exercise price equal to or greater than the Sale Price, such Option or Stock Appreciation Right shall be cancelled for no consideration); or (ii) each grantee shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the Administrator, to exercise all outstanding Options and Stock Appreciation Rights (to the extent then exercisable) held by such grantee. The Company shall also have the option (in its sole discretion) to make or provide for a payment, in cash or in kind, to the grantees holding other Awards in an amount equal to the Sale Price multiplied by the number of vested shares of Stock under such Awards.
| SECTION 4. | ELIGIBILITY |
Grantees under the Plan will be such employees, Non-Employee Directors or Consultants of the Company and its Affiliates as are selected from time to time by the Administrator in its sole discretion; provided that Awards may not be granted to employees, Non-Employee Directors or Consultants who are providing services only to any “parent” of the Company, as such term is defined in Rule 405 of the Act, unless (i) the stock underlying the Awards is treated as “service recipient stock” under Section 409A or (ii) the Company has determined that such Awards are exempt from or otherwise comply with Section 409A.
| SECTION 5. | STOCK OPTIONS |
(a) Award of Stock Options. The Administrator may grant Stock Options under the Plan. Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.
Stock Options granted pursuant to this Section 5 shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable. If the Administrator so determines, Stock Options may be granted in lieu of cash compensation at the optionee’s election, subject to such terms and conditions as the Administrator may establish.
(b) Exercise Price. The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5 shall be determined by the Administrator at the time of grant but shall not be less than 100 percent of the Fair Market Value on the date of grant. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the exercise price of such Incentive Stock Option shall be not less than 110 percent of the Fair Market Value on the date of grant. Notwithstanding the foregoing, Stock Options may be granted with an exercise price per share that is less than 100 percent of the Fair Market Value on the date of grant (i) pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code, (ii) to individuals who are not subject to U.S. income tax on the date of grant or (iii) if the Stock Option is otherwise compliant with Section 409A.
(c) Option Term. The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable more than ten years after the date the Stock Option is granted. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the date of grant.
(d) Exercisability; Rights of a Stockholder. Stock Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Administrator at or after the date of grant. The Administrator may at any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.
(e) Method of Exercise. Stock Options may be exercised in whole or in part, by giving written or electronic notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods except to the extent otherwise provided in the Award Agreement:
(i) In cash, by certified or bank check or other instrument acceptable to the Administrator;
(ii) Through the delivery (or attestation to the ownership following such procedures as the Company may prescribe) of shares of Stock that are not then subject to restrictions under any Company plan. Such surrendered shares shall be valued at Fair Market Value on the exercise date;
(iii) By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Company shall prescribe as a condition of such payment procedure; or
(iv) With respect to Stock Options that are not Incentive Stock Options, by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price.
Payment instruments will be received subject to collection. The transfer to the optionee on the records of the Company or of the transfer agent of the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Award Agreement or applicable provisions of laws (including the satisfaction of any withholding taxes that the Company or an Affiliate is obligated to withhold with respect to the optionee). In the event an optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock Option shall be net of the number of attested shares. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the exercise of Stock Options, such as a system using an internet website or interactive voice response, then the paperless exercise of Stock Options may be permitted through the use of such an automated system.
(f) Annual Limit on Incentive Stock Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.
| SECTION 6. | STOCK APPRECIATION RIGHTS |
(a) Award of Stock Appreciation Rights. The Administrator may grant Stock Appreciation Rights under the Plan. A Stock Appreciation Right is an Award entitling the recipient to receive shares of Stock (or cash, to the extent explicitly provided for in the applicable Award Agreement) having a value equal to the excess of the Fair Market Value of a share of Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised.
(b) Exercise Price of Stock Appreciation Rights. The exercise price of a Stock Appreciation Right shall not be less than 100 percent of the Fair Market Value of the Stock on the date of grant.
(c) Grant and Exercise of Stock Appreciation Rights. Stock Appreciation Rights may be granted by the Administrator independently of any Stock Option granted pursuant to Section 5 of the Plan.
(d) Terms and Conditions of Stock Appreciation Rights. Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined on the date of grant by the Administrator. The term of a Stock Appreciation Right may not exceed ten years. The terms and conditions of each such Award shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.
| SECTION 7. | RESTRICTED STOCK AWARDS |
(a) Nature of Restricted Stock Awards. The Administrator may grant Restricted Stock Awards under the Plan. A Restricted Stock Award is any Award of Restricted Shares subject to such restrictions and conditions as the Administrator may determine at the time of grant. Conditions may be based on continuing employment (or other Service Relationship) and/or achievement of pre-established performance goals and objectives.
(b) Rights as a Stockholder. Upon the grant of the Restricted Stock Award and payment of any applicable purchase price, a grantee shall have the rights of a stockholder with respect to the voting of the Restricted Shares and receipt of dividends; provided that if the lapse of restrictions with respect to the Restricted Stock Award is tied to the attainment of performance goals, any dividends paid by the Company during the performance period shall accrue and shall not be paid to the grantee until and to the extent the performance goals are met with respect to the Restricted Stock Award. Unless the Administrator shall otherwise determine, (i) uncertificated Restricted Shares shall be accompanied by a notation on the records of the Company or the transfer agent to the effect that they are subject to forfeiture until such Restricted Shares are vested as provided in Section 7(d) below, and (ii) certificated Restricted Shares shall remain in the possession of the Company until such Restricted Shares are vested as provided in Section 7(d) below, and the grantee shall be required, as a condition of the grant, to deliver to the Company such instruments of transfer as the Administrator may prescribe.
(c) Restrictions. Restricted Shares may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award Agreement. Except as may otherwise be provided by the Administrator either in the Award Agreement or, subject to Section 16 below, in writing after the Award is issued, if a grantee’s employment (or other Service Relationship) with the Company and its Affiliates terminates for any reason, any Restricted Shares that have not vested at the time of termination shall automatically and without any requirement of notice to such grantee from or other action by or on behalf of, the Company be deemed to have been reacquired by the Company at its original purchase price (if any) from such grantee or such grantee’s legal representative simultaneously with such termination of employment (or other Service Relationship), and thereafter shall cease to represent any ownership of the Company by the grantee or rights of the grantee as a stockholder. Following such deemed reacquisition of Restricted Shares that are represented by physical certificates, a grantee shall surrender such certificates to the Company upon request without consideration.
(d) Vesting of Restricted Shares. The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Shares and the Company’s right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Shares and shall be deemed “vested.”
| SECTION 8. | RESTRICTED STOCK UNITS |
(a) Nature of Restricted Stock Units. The Administrator may grant Restricted Stock Units under the Plan. A Restricted Stock Unit is an Award of stock units that may be settled in shares of Stock (or cash, to the extent explicitly provided for in the Award Agreement) upon the satisfaction of such restrictions and conditions at the time of grant. Conditions may be based on continuing employment (or other Service Relationship) and/or achievement of pre-established performance goals and objectives. The terms and conditions of each such Award shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees. Except in the case of Restricted Stock Units with a deferred settlement date that complies with Section 409A, at the end of the vesting period, the Restricted Stock Units, to the extent vested, shall be settled in the form of shares of Stock.
Restricted Stock Units with deferred settlement dates are subject to Section 409A and shall contain such additional terms and conditions as the Administrator shall determine in its sole discretion in order to comply with the requirements of Section 409A.
(b) Election to Receive Restricted Stock Units in Lieu of Compensation. The Administrator may, in its sole discretion, permit a grantee to elect to receive a portion of future cash compensation otherwise due to such grantee in the form of an award of Restricted Stock Units. Any such election shall be made in writing and shall be delivered to the Company no later than the date specified by the Administrator and in accordance with Section 409A and such other rules and procedures established by the Administrator. Any such future cash compensation that the grantee elects to defer shall be converted to a fixed number of Restricted Stock Units based on the Fair Market Value of Stock on the date the compensation would otherwise have been paid to the grantee if such payment had not been deferred as provided herein. The Administrator shall have the sole right to determine whether and under what circumstances to permit such elections and to impose such limitations and other terms and conditions thereon as the Administrator deems appropriate. Any Restricted Stock Units that are elected to be received in lieu of cash compensation shall be fully vested, unless otherwise provided in the Award Agreement.
(c) Rights as a Stockholder. A grantee shall have the rights as a stockholder only as to shares of Stock acquired by the grantee upon settlement of Restricted Stock Units; provided, however, that the grantee may be credited with Dividend Equivalent Rights with respect to the stock units underlying his or her Restricted Stock Units, subject to the provisions of Section 11 and such terms and conditions as the Administrator may determine.
(d) Termination. Except as may otherwise be provided by the Administrator either in the Award Agreement or, subject to Section 16 below, in writing after the Award is issued, a grantee’s right in all Restricted Stock Units that have not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of Service Relationship) with the Company and its Subsidiaries for any reason.
| SECTION 9. | UNRESTRICTED STOCK AWARDS |
Grant or Sale of Unrestricted Stock. The Administrator may grant (or sell at par value or such higher purchase price determined by the Administrator) an Unrestricted Stock Award under the Plan. An Unrestricted Stock Award is an Award pursuant to which the grantee may receive shares of Stock free of any restrictions under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.
| SECTION 10. | CASH-BASED AWARDS |
Grant of Cash-Based Awards. The Administrator may grant Cash-Based Awards under the Plan. A Cash-Based Award is an Award that entitles the grantee to a payment in cash upon the attainment of specified performance goals, including continued employment (or other Service Relationship). The Administrator shall determine the maximum duration of the Cash-Based Award, the amount of cash to which the Cash-Based Award pertains, the conditions upon which the Cash-Based Award shall become vested or payable, and such other provisions as the Administrator shall determine. Each Cash-Based Award shall specify a cash-denominated payment amount, formula or payment ranges as determined by the Administrator. Payment, if any, with respect to a Cash-Based Award shall be made in accordance with the terms of the Award and may be made in cash.
| SECTION 11. | DIVIDEND EQUIVALENT RIGHTS |
(a) Dividend Equivalent Rights. The Administrator may grant Dividend Equivalent Rights under the Plan. A Dividend Equivalent Right is an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other Award to which it relates) if such shares had been issued to the grantee. A Dividend Equivalent Right may be granted hereunder to any grantee as a component of an award of Restricted Stock Units or as a freestanding award. The terms and conditions of Dividend Equivalent Rights shall be specified in the Award Agreement. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value
on the date of reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled in cash or shares of Stock or a combination thereof, in a single installment or installments. A Dividend Equivalent Right granted as a component of an Award of Restricted Stock Units shall provide that such Dividend Equivalent Right shall be settled only upon settlement or payment of, or lapse of restrictions on, such other Award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other Award.
(b) Termination. Except as may otherwise be provided by the Administrator either in the Award Agreement or, subject to Section 16 below, in writing after the Award is issued, a grantee’s rights in all Dividend Equivalent Rights shall automatically terminate upon the grantee’s cessation of Service Relationship for any reason.
| SECTION 12. | TRANSFERABILITY OF AWARDS |
(a) Transferability. Except as provided in Section 12(b) below, during a grantee’s lifetime, his or her Awards shall be exercisable only by the grantee, or by the grantee’s legal representative or guardian in the event of the grantee’s incapacity. No Awards shall be sold, assigned, transferred or otherwise encumbered or disposed of by a grantee other than by will or by the laws of descent and distribution or pursuant to a domestic relations order. No Awards shall be subject, in whole or in part, to attachment, execution, or levy of any kind, and any purported transfer in violation hereof shall be null and void.
(b) Administrator Action. Notwithstanding Section 12(a), the Administrator, in its discretion, may provide either in the Award Agreement regarding a given Award or by subsequent written approval that the grantee (who is an employee or director) may transfer his or her Non-Qualified Stock Options to his or her immediate family members, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award. In no event may an Award be transferred by a grantee for value.
(c) Family Member. For purposes of Section 12(b), “family member” shall mean a grantee’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the grantee’s household (other than a tenant of the grantee), a trust in which these persons (or the grantee) have more than 50 percent of the beneficial interest, a foundation in which these persons (or the grantee) control the management of assets, and any other entity in which these persons (or the grantee) own more than 50 percent of the voting interests.
(d) Designation of Beneficiary. To the extent permitted by the Company, each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Administrator and shall not be effective until received by the Administrator. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.
| SECTION 13. | TAX WITHHOLDING |
(a) Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld by the Company with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver evidence of book entry (or stock certificates) to any grantee is subject to and conditioned on tax withholding obligations being satisfied by the grantee.
(b) Payment in Stock. The Administrator may require the Company’s tax withholding obligation to be satisfied, in whole or in part, by the Company withholding from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due; provided, however, that the amount withheld does not exceed the maximum statutory tax rate or such lesser amount as is necessary to avoid liability accounting treatment. For purposes of share withholding, the Fair Market Value of withheld shares shall be determined in the same manner as the value of Stock includible in income of the grantees. The Administrator may also require the Company’s tax withholding obligation to be satisfied, in whole or in part, by an arrangement whereby a certain number of shares of Stock issued pursuant to any Award are immediately sold and proceeds from such sale are remitted to the Company in an amount that would satisfy the withholding amount due.
| SECTION 14. | SECTION 409A AWARDS |
Awards are intended to be exempt from Section 409A to the greatest extent possible and to otherwise comply with Section 409A. The Plan and all Awards shall be interpreted in accordance with such intent. To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “409A Award”), the Award shall be subject to such additional rules and requirements as specified by the Administrator from time to time in order to comply with Section 409A. In this regard, if any amount under a 409A Award is payable upon a “separation from service” (within the meaning of Section 409A) to a grantee who is then considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A. Further, the settlement of any 409A Award may not be accelerated except to the extent permitted by Section 409A.
| SECTION 15. | TERMINATION OF SERVICE RELATIONSHIP, TRANSFER, LEAVE OF ABSENCE, ETC. |
(a) Termination of Service Relationship. If the grantee’s Service Relationship is with an Affiliate and such Affiliate ceases to be an Affiliate, the grantee shall be deemed to have terminated his or her Service Relationship for purposes of the Plan.
(b) For purposes of the Plan, the following events shall not be deemed a termination of a Service Relationship:
(i) a transfer to the employment of the Company from an Affiliate or from the Company to an Affiliate, or from one Affiliate to another; or
(ii) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.
| SECTION 16. | AMENDMENTS AND TERMINATION |
The Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall materially and adversely affect rights under any outstanding Award without the holder’s consent. The Administrator is specifically authorized to exercise its discretion to reduce the exercise price of outstanding Stock Options or Stock Appreciation Rights or effect the repricing of such Awards through cancellation and re-grants. To the extent required under the rules of any securities exchange or market system on which the Stock is listed, to the extent determined by the Administrator to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code, or to the extent otherwise required by applicable laws, Plan amendments shall be subject to approval by Company stockholders. Nothing in this Section 16 shall limit the Administrator’s authority to take any action permitted pursuant to Section 3(c) or 3(d).
| SECTION 17. | STATUS OF PLAN |
With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Administrator shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Administrator may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence.
| SECTION 18 | GENERAL PROVISIONS |
(a) No Distribution. The Administrator may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.
(b) Issuance of Stock. To the extent certificated, stock certificates to grantees under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a Stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records). Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any evidence of book entry or certificates evidencing shares of Stock pursuant to the exercise or settlement of any Award, unless and until the Administrator has determined, with advice of counsel (to the extent the Administrator deems such advice necessary or advisable), that the issuance and delivery is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed, quoted or traded. Any Stock issued pursuant to the Plan shall be subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with federal, state or foreign jurisdiction, securities or other laws, rules and quotation system on which the Stock is listed, quoted or traded. The Administrator may place legends on any Stock certificate or notations on any book entry to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Administrator may require that an individual make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems necessary or advisable in order to comply with any such laws, regulations, or requirements. The Administrator shall have the right to require any individual to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Administrator.
(c) Stockholder Rights. Until Stock is deemed delivered in accordance with Section 18(b), no right to vote or receive dividends or any other rights of a stockholder will exist with respect to shares of Stock to be issued in connection with an Award, notwithstanding the exercise of a Stock Option or any other action by the grantee with respect to an Award.
(d) Other Compensation Arrangements; No Rights to Continued Service Relationship. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of this Plan and the grant of Awards do not confer upon any grantee any right to continued Service Relationship.
(e) Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to the Company’s insider trading policies and procedures, as in effect from time to time.
(f) Clawback Policy. Awards under the Plan shall be subject to the Company’s clawback policy, as the same be adopted or in effect from time to time.
| SECTION 19. | EFFECTIVE DATE OF PLAN |
This Plan shall become effective upon the date immediately preceding the Registration Date subject to prior stockholder approval in accordance with applicable state law, the Company’s bylaws and articles of incorporation, and applicable stock exchange rules. No grants of Stock Options and other Awards may be made hereunder after the tenth anniversary of the date of the closing of the Merger.
| SECTION 20. | GOVERNING LAW |
This Plan and all Awards and actions taken thereunder shall be governed by, and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts applied without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR COMPANY CONSULTANTS
UNDER THE KALARIS THERAPEUTICS, INC.
2020 STOCK OPTION AND GRANT PLAN
| Name of Optionee: | ||
| No. of Option Shares: | ||
| Option Exercise Price per Share: | $ | |
| [FMV on Grant Date] | ||
| Grant Date: | ||
| Expiration Date: | ||
| [No more than 10 years] | ||
Pursuant to the Kalaris Therapeutics, Inc. 2020 Stock Option and Grant Plan (the “Plan”), Kalaris Therapeutics, Inc. (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.0001 per share (the “Stock”) of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.
1. Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as Optionee continues to have a Service Relationship with the Company or a Subsidiary on such dates:
| Incremental Number of Option Shares Exercisable |
Exercisability Date | |
| ( %) | ||
| ( %) | ||
| ( %) | ||
| ( %) | ||
| ( %) |
Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.
2. Manner of Exercise.
(a) The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement
pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above. Payment instruments will be received subject to collection.
The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.
(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.
(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.
(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.
3. Termination of Service Relationship. Except as may otherwise be provided by the Administrator, if the Optionee’s Service Relationship with the Company or a Subsidiary (as defined in the Plan) is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.
(a) Termination Due to Death. If the Optionee’s Service Relationship with the Company or a Subsidiary terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.
(b) Termination Due to Disability. If the Optionee’s Service Relationship with the Company or a Subsidiary terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such termination, may thereafter be exercised by the Optionee for a period of 12 months from the date of disability or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.
(c) Termination for Cause. If the Optionee’s Service Relationship with the Company or a Subsidiary terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect. Other Termination. If the Optionee’s Service Relationship with the Company or a Subsidiary terminates for any reason other than the Optionee’s death, the Optionee’s disability or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.
The Administrator’s determination of the reason for termination of the Optionee’s Service Relationship with the Company or a Subsidiary shall be conclusive and binding on the Optionee and his or her representatives or legatees.
4. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
5. Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.
6. Responsibility for Taxes.
(a) The Optionee acknowledges that, regardless of any action taken by the Company or, if different, the Subsidiary for which the Optionee provides services Optionee (the “Service Recipient”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the Optionee’s participation in the Plan and legally applicable to the Optionee (“Tax-Related Items”) is and remains the Optionee’s responsibility and may exceed the amount, if any, actually withheld by the Company or the Service Recipient. The Optionee further acknowledges that the Company and/or the Service Recipient (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Stock Option, including, but not limited to, the grant, vesting or exercise of this Stock Option, the subsequent sale of shares of Stock acquired pursuant to such exercise and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of this Stock Option to reduce or eliminate the Optionee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Optionee is subject to Tax-Related Items in more than one jurisdiction, the Optionee acknowledges that the Company and/or the Service Recipient (or former service recipient, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b) Prior to any relevant taxable or tax withholding event, as applicable, the Optionee agrees to make adequate arrangements satisfactory to the Company and/or the Service Recipient to satisfy all Tax-Related Items. In this regard, the Optionee authorizes the Company and/or the Service Recipient, or their respective agents, at their discretion, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by one or a combination of the following: (i) withholding from the Optionee’s wages or other cash compensation paid to the Optionee by the Company and/or the Service Recipient; (ii) allowing or requiring the Optionee to make a cash payment to cover the Tax-Related Items; (iii) withholding from proceeds of the sale of shares of Stock acquired upon exercise of this Stock Option either through a voluntary sale or through a mandatory sale arranged by the Company (on the Optionee’s behalf pursuant to this authorization without further consent); (iv) withholding from the shares of Stock to be issued to the Optionee upon exercise of this Stock Option; or (v) any other method of withholding determined by the Company and permitted by applicable law; provided, however, that that if the Optionee is a Section 16 officer of the Company under the Exchange Act, in which case, the obligation for Tax-Related Items may be satisfied only by one or a combination of methods (i), (ii) and (iii) above.
(c) Depending on the withholding method, the Company and/or the Service Recipient may withhold or account for Tax-Related Items by considering applicable statutory withholding amounts or other applicable withholding rates, including maximum rates applicable in the Optionee’s jurisdiction, in which case the Optionee may receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent amount in shares of Stock. If the obligation for Tax-Related Items is satisfied by withholding in shares of Stock, for tax purposes, the Optionee is deemed to have been issued the full number of shares of Stock subject to the exercised Stock Option, notwithstanding that a number of the shares of Stock is held back solely for the purpose of paying the Tax-Related Items.
(d) The Optionee agrees to pay to the Company or the Service Recipient any amount of Tax-Related Items that the Service Recipient or the Employer may be required to withhold or account for as a result of the Optionee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares of Stock, or the proceeds of the sale of shares of Stock, if the Optionee fails to comply with his or her obligations in connection with the Tax-Related Items.
7. No Obligation to Continue Service Relationship. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee’s Service Relationship with the Company or a Subsidiary and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the Optionee’s Service Relationship with the Company or a Subsidiary at any time.
8. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.
9. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.
10. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
11. Waivers. The Optionee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Optionee or any other Optionee.
12. Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
13. Electronic Delivery and Acceptance of Documents. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Optionee hereby consents to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
| Kalaris Therapeutics, Inc. | ||||||
| By: |
| |||||
| Title: | ||||||
The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.
| Dated: |
| Optionee’s Signature |
| Optionee’s name and address: |
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
UNDER THE KALARIS THERAPEUTICS, INC.
2020 STOCK OPTION AND GRANT PLAN
| Name of Optionee: | ||
| No. of Option Shares: | ||
| Option Exercise Price per Share: | $ | |
| [FMV on Grant Date] | ||
| Grant Date: | ||
| Expiration Date: | ||
| [No more than 10 years] | ||
Pursuant to the Kalaris Therapeutics, Inc. 2020 Stock Option and Grant Plan (the “Plan”), Kalaris Therapeutics, Inc. (the “Company”) hereby grants to the Optionee named above, who is a Non-Employee Director of the Company, an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.0001 per share (the “Stock”), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.
1. Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee remains in service as a member of the Board on such dates:
| Incremental Number of Option Shares Exercisable |
Exercisability Date | |
| ( %) | ||
| ( %) | ||
| ( %) | ||
| ( %) | ||
| ( %) |
[Notwithstanding the foregoing, in the event of a Sale Event, 100% of the then-outstanding and unvested Option Shares shall immediately be deemed vested and exercisable on the date of such Sale Event; provided, that the Optionee remains in service as a member of the Board until the date of such Sale Event]. Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.
2. Manner of Exercise.
(a) The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above. Payment instruments will be received subject to collection.
The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.
(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.
(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.
(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.
3. Termination as Non-Employee Director. If the Optionee ceases to be a Non-Employee Director of the Company, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.
(a) Termination Due to Death. If the Optionee’s service as a Non-Employee Director terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.
(b) Other Termination. If the Optionee ceases to be a Non-Employee Director for any reason other than the Optionee’s death, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date the Optionee ceased to be a Non-Employee Director, for a period of six months from the date the Optionee ceased be a Non-Employee Director or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date the Optionee ceases to be a Non-Employee Director shall terminate immediately and be of no further force or effect.
4. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
5. Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.
6. No Obligation to Continue as a Non-Employee Director. Neither the Plan nor this Stock Option confers upon the Optionee any rights with respect to continuance as a Non-Employee Director.
7. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.
8. Tax Withholding. The Optionee shall, not later than the date as of which the receipt of this Award becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Company shall have the authority to cause the required tax withholding obligation to be satisfied, in whole or in part, by (i) withholding from shares of Stock to be issued to the Optionee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due; or (ii) causing its transfer agent to sell from the number of shares of Stock to be issued to the Optionee, the number of shares of Stock necessary to satisfy the Federal, state and local taxes required by law to be withheld from the Optionee on account of such transfer.
9. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.
10. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
11. Waivers. The Optionee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Optionee or any other Optionee.
12. Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
13. Electronic Delivery and Acceptance of Documents. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Optionee hereby consents to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
| Kalaris Therapeutics, Inc. | ||||||
| By: |
| |||||
| Title: | ||||||
The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.
| Dated: |
| Optionee’s Signature |
| Optionee’s name and address: |
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR COMPANY EMPLOYEES
UNDER THE KALARIS THERAPEUTICS, INC.
2020 STOCK OPTION AND GRANT PLAN
| Name of Optionee: | ||
| No. of Option Shares: | ||
| Option Exercise Price per Share: | $ | |
| [FMV on Grant Date] | ||
| Grant Date: | ||
| Expiration Date: | ||
| [No more than 10 years] | ||
Pursuant to the Kalaris Therapeutics, Inc. 2020 Stock Option and Grant Plan as amended through the date hereof (the “Plan”), Kalaris Therapeutics, Inc. (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.0001 per share (the “Stock”) of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.
1. Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as Optionee continues to have a [Service Relationship] with the Company or a Subsidiary on such dates:
| Incremental Number of Option Shares Exercisable |
Exercisability Date | |
| ( %) | ||
| ( %) | ||
| ( %) | ||
| ( %) | ||
| ( %) |
Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.
2. Manner of Exercise.
(a) The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as
the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above. Payment instruments will be received subject to collection.
The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.
(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.
(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.
(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.
3. Termination of Service Relationship. If the Optionee’s Service Relationship with the Company or a Subsidiary (as defined in the Plan) is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.
(a) Termination Due to Death. If the Optionee’s Service Relationship with the Company or a Subsidiary terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.
(b) Termination Due to Disability. If the Optionee’s Service Relationship with the Company or a Subsidiary terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such termination, may thereafter be exercised by the Optionee for a period of 12 months from the date of disability or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.
(c) Termination for Cause. If the Optionee’s Service Relationship with the Company or a Subsidiary terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect.
(d) Other Termination. If the Optionee’s Service Relationship with the Company or a Subsidiary terminates for any reason other than the Optionee’s death, the Optionee’s disability or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.
The Administrator’s determination of the reason for termination of the Optionee’s Service Relationship with the Company or a Subsidiary shall be conclusive and binding on the Optionee and his or her representatives or legatees.
4. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
5. Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.
6. Responsibility for Taxes.
(a) The Optionee acknowledges that, regardless of any action taken by the Company or, if different, the Subsidiary employing the Optionee (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the Optionee’s participation in the Plan and legally applicable to the Optionee (“Tax-Related Items”) is and remains the Optionee’s responsibility and may exceed the amount, if any, actually withheld by the Company or the Employer. The Optionee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Stock Option, including, but not limited to, the grant, vesting or exercise of this Stock Option, the subsequent sale of shares of Stock acquired pursuant to such exercise and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of this Stock Option to reduce or eliminate the Optionee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Optionee is subject to Tax-Related Items in more than one jurisdiction, the Optionee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b) Prior to any relevant taxable or tax withholding event, as applicable, the Optionee agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Optionee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by one or a combination of the following: (i) withholding from the Optionee’s wages or other cash compensation paid to the Optionee by the Company and/or the Employer; (ii) allowing or requiring the Optionee to make a cash payment to cover the Tax-Related Items; (iii) withholding from proceeds of the sale of shares of Stock acquired upon exercise of this Stock Option either through a voluntary sale or through a mandatory sale arranged by the Company (on the Optionee’s behalf pursuant to this authorization without further consent); (iv) withholding from the shares of Stock to be issued to the Optionee upon exercise of this Stock Option; or (v) any other method of withholding determined by the Company and permitted by applicable law; provided, however, that if the Optionee is a Section 16 officer of the Company under the Exchange Act, in which case, the obligation for Tax-Related Items may be satisfied only by one or a combination of methods (i), (ii) and (iii) above.
(c) Depending on the withholding method, the Company and/or the Employer may withhold or account for Tax-Related Items by considering applicable statutory withholding amounts or other applicable withholding rates, including maximum rates applicable in the Optionee’s jurisdiction, in which case the Optionee may receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent amount in shares of Stock. If the obligation for Tax-Related Items is satisfied by withholding in shares of Stock, for tax
purposes, the Optionee is deemed to have been issued the full number of shares of Stock subject to the exercised Stock Option, notwithstanding that a number of the shares of Stock is held back solely for the purpose of paying the Tax-Related Items.
(d) The Optionee agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Optionee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares of Stock, or the proceeds of the sale of shares of Stock, if the Optionee fails to comply with his or her obligations in connection with the Tax-Related Items.
7. No Obligation to Continue Service Relationship. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee in a Service Relationship with the Company or a Subsidiary and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the Optionee’s Service Relationship with the Company or a Subsidiary at any time.
8. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.
9. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.
10. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
11. Waivers. The Optionee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Optionee or any other Optionee.
12. Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
13. Electronic Delivery and Acceptance of Documents. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Optionee hereby consents to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
| Kalaris Therapeutics, Inc. | ||||||
| By: |
| |||||
| Title: | ||||||
The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.
| Dated: |
|
| Optionee’s Signature |
| Optionee’s name and address:
|
RESTRICTED STOCK AWARD AGREEMENT
UNDER THE KALARIS THERAPEUTICS, INC.
2020 STOCK OPTION AND GRANT PLAN
| Name of Grantee: |
| No. of Option Shares: |
| Grant Date: |
Pursuant to the Kalaris Therapeutics, Inc. 2020 Stock Option and Grant Plan (the “Plan”), Kalaris Therapeutics, Inc. (the “Company”) hereby grants a Restricted Stock Award (an “Award”) to the Grantee named above. Upon acceptance of this Award, the Grantee shall receive the number of shares of Common Stock, par value $0.0001 per share (the “Stock”) of the Company specified above, subject to the restrictions and conditions set forth herein and in the Plan. The Company acknowledges the receipt from the Grantee of consideration with respect to the par value of the Stock in the form of cash, past or future services rendered to the Company by the Grantee or such other form of consideration as is acceptable to the Administrator.
1. Award. The shares of Restricted Stock awarded hereunder shall be issued and held by the Company’s transfer agent in book entry form, and the Grantee’s name shall be entered as the stockholder of record on the books of the Company. Thereupon, the Grantee shall have all the rights of a stockholder with respect to such shares, including voting and dividend rights, subject, however, to the restrictions and conditions specified in Paragraph 2 below. The Grantee shall (i) sign and deliver to the Company a copy of this Award Agreement and (ii) deliver to the Company a stock power endorsed in blank.
2. Restrictions and Conditions.
(a) Any book entries for the shares of Restricted Stock granted herein shall bear an appropriate legend, as determined by the Administrator in its sole discretion, to the effect that such shares are subject to restrictions as set forth herein and in the Plan.
(b) Shares of Restricted Stock granted herein may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee prior to vesting.
(c) If the Grantee’s Service Relationship with the Company or a Subsidiary is voluntarily or involuntarily terminated for any reason (including death) prior to vesting of shares of Restricted Stock granted herein, all shares of Restricted Stock shall immediately and automatically be forfeited and returned to the Company.
3. Vesting of Restricted Stock. The restrictions and conditions in Paragraph 2 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee continues to have a [Service Relationship] with the Company or a Subsidiary on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 2 shall lapse only with respect to the number of shares of Restricted Stock specified as vested on such date.
| Incremental Number of Shares Vested |
Vesting Date | |
| ( %) | ||
| ( %) | ||
| ( %) | ||
| ( %) | ||
| ( %) |
Subsequent to such Vesting Date or Dates, the shares of Stock on which all restrictions and conditions have lapsed shall no longer be deemed Restricted Stock. The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 3.
4. Dividends. Dividends on shares of Restricted Stock shall be paid currently to the Grantee.
5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Award shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
6. Transferability. This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.
7. Responsibility for Taxes.
(a) The Grantee acknowledges that, regardless of any action taken by the Company or, if different, the Subsidiary employing the Grantee (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”) is and remains the Grantee’s responsibility and may exceed the amount, if any, actually withheld by the Company or the Employer. The Grantee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock, the subsequent sale of shares of Stock and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Grantee is subject to Tax-Related Items in more than one jurisdiction, the Grantee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b) Prior to any relevant taxable or tax withholding event, as applicable, the Grantee agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Grantee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by one or a combination of the following: (i) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer; (ii) withholding from proceeds of the sale of shares of vested Restricted Stock either through a voluntary sale or through a mandatory sale arranged by the Company (on the Grantee’s behalf pursuant to this authorization without further consent); (iii) withholding from shares of Stock to be issued or released by the transfer agent to the Grantee; or (iv) any other method of withholding determined by the Company and permitted by applicable law; provided, however, that if the Grantee is a Section 16 officer of the Company under the Exchange Act, then the Administrator shall establish the method of withholding from alternatives (i)-(iv) herein and, if the Administrator does not exercise its discretion prior to the applicable withholding event, then the Grantee shall be entitled to elect the method of withholding from the alternatives above.
(c) The Company and/or the Employer may withhold or account for Tax-Related Items by considering applicable statutory withholding amounts or other applicable withholding rates, including maximum rates applicable in the Grantee’s jurisdiction, in which case the Grantee may receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent amount in shares of Stock, for tax purposes, the Grantee is deemed to have been issued the full number of shares of Stock, notwithstanding that a number of the shares of Stock is held back solely for the purpose of paying the Tax-Related Items.
(d) The Grantee agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue, deliver or release the shares of Stock, or the proceeds of the sale of shares of Stock, if the Grantee fails to comply with his or her obligations in connection with the Tax-Related Items.
8. Election Under Section 83(b). The Grantee and the Company hereby agree that the Grantee may, within 30 days following the Grant Date of this Award, file with the Internal Revenue Service and the Company an election under Section 83(b) of the Internal Revenue Code. In the event the Grantee makes such an election, he or she agrees to provide a copy of the election to the Company. The Grantee acknowledges that he or she is responsible for
obtaining the advice of his or her tax advisors with regard to the Section 83(b) election and that he or she is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with regard to such election.
9. No Obligation to Continue Service Relationship. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee in a Service Relationship with the Company or a Subsidiary and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the Grantee’s Service Relationship with the Company or a Subsidiary at any time.
10. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.
11. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.
12. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
13. Waivers. The Grantee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Grantee or any other Grantee.
14. Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
15. Electronic Delivery and Acceptance of Documents. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
| Kalaris Therapeutics, Inc. | ||||||
| By: |
| |||||
| Title: | ||||||
The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.
| Dated: |
|
| Grantee’s Signature |
| Grantee’s name and address: |
RESTRICTED STOCK UNIT AWARD AGREEMENT
FOR CONSULTANTS
UNDER THE KALARIS THERAPEUTICS, INC.
2020 STOCK OPTION AND GRANT PLAN
| Name of Grantee: |
| No. of Restricted Stock Units: |
| Grant Date: |
Pursuant to the Kalaris Therapeutics, Inc. 2020 Stock Option and Grant Plan (the “Plan”), Kalaris Therapeutics, Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the Grantee named above. Each Restricted Stock Unit shall relate to one share of Class A Common Stock, par value $0.0001 per share (the “Stock”) of the Company.
1. Restrictions on Transfer of Award. This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.
2. Vesting of Restricted Stock Units. The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee continues to have a Service Relationship with the Company or a Subsidiary on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.
| Incremental Number of Restricted Stock Units Vested |
Vesting Date | |
| ( %) | ||
| ( %) | ||
| ( %) | ||
| ( %) |
The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.
3. Termination of Service Relationship. If the Grantee’s Service Relationship with the Company or a Subsidiary terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Restricted Stock Units.
4. Issuance of Shares of Stock. As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.
5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
6. Responsibility for Taxes.
(a) The Grantee acknowledges that, regardless of any action taken by the Company or, if different, the Subsidiary for which the Grantee provides services (the “Service Recipient”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”) is and remains the Grantee’s responsibility and may exceed the amount, if any, actually withheld by the Company or the Service Recipient. The Grantee further acknowledges that the Company and/or the Service Recipient (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, the subsequent sale of shares of Stock acquired pursuant to such settlement and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Grantee is subject to Tax-Related Items in more than one jurisdiction, the Grantee acknowledges that the Company and/or the Service Recipient (or former service recipient, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b) Prior to any relevant taxable or tax withholding event, as applicable, the Grantee agrees to make adequate arrangements satisfactory to the Company and/or the Service Recipient to satisfy all Tax-Related Items. In this regard, the Grantee authorizes the Company and/or the Service Recipient, or their respective agents, at their discretion, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by one or a combination of the following: (i) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Service Recipient; (ii) withholding from proceeds of the sale of shares of Stock upon settlement of the Restricted Stock Units either through a voluntary sale or through a mandatory sale arranged by the Company (on the Grantee’s behalf pursuant to this authorization without further consent); (iii) withholding from shares of Stock to be issued to the Grantee upon settlement of the Restricted Stock Units; or (iv) any other method of withholding determined by the Company and permitted by applicable law; provided, however, that if the Grantee is a Section 16 officer of the Company under the Exchange Act, then the Administrator shall establish the method of withholding from alternatives (i)-(iv) herein and, if the Administrator does not exercise its discretion prior to the applicable withholding event, then the Grantee shall be entitled to elect the method of withholding from the alternatives above.
(c) The Company and/or the Service Recipient may withhold or account for Tax-Related Items by considering applicable statutory withholding amounts or other applicable withholding rates, including maximum rates applicable in the Grantee’s jurisdiction, in which case the Grantee may receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent amount in shares of Stock, for tax purposes, the Grantee is deemed to have been issued the full number of shares of Stock subject to the vested Restricted Stock Units, notwithstanding that a number of the shares of Stock is held back solely for the purpose of paying the Tax-Related Items.
(d) The Grantee agrees to pay to the Company or the Service Recipient any amount of Tax-Related Items that the Company or the Service Recipient may be required to withhold or account for as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares of Stock, or the proceeds of the sale of shares of Stock, if the Grantee fails to comply with his or her obligations in connection with the Tax-Related Items.
7. Section 409A of the Code. This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.
8. No Obligation to Continue Service Relationship. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee in a Service Relationship with the Company or a Subsidiary and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the Service Relationship of the Grantee at any time.
9. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.
10. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.
11. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
12. Waivers. The Grantee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Grantee or any other Grantee.
13. Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
13. Electronic Delivery and Acceptance of Documents. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
| Kalaris Therapeutics, Inc. | ||||||
| By: |
| |||||
| Title: | ||||||
The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.
| Dated: |
| Grantee’s Signature |
| Grantee’s name and address: |
RESTRICTED STOCK UNIT AWARD AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
UNDER THE KALARIS THERAPEUTICS, INC.
2020 STOCK OPTION AND GRANT PLAN
| Name of Grantee: |
| No. of Restricted Stock Units: |
| Grant Date: |
Pursuant to the Kalaris Therapeutics, Inc. 2020 Stock Option and Incentive Plan (the “Plan”), Kalaris Therapeutics, Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the Grantee named above. Each Restricted Stock Unit shall relate to one share of Common Stock, par value $0.0001 per share (the “Stock”) of the Company.
1. Restrictions on Transfer of Award. This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.
2. Vesting of Restricted Stock Units. The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains in service as a member of the Board on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.
| Incremental Number of Restricted Stock Units Vested |
Vesting Date | |
| ( %) | ||
| ( %) | ||
| ( %) | ||
| ( %) |
[Notwithstanding the foregoing, in the event of a Sale Event, 100% of the then-outstanding and unvested Restricted Stock Units shall immediately be deemed vested on the date of such Sale Event; provided, that the Grantee remains in service as a member of the Board until the date of such Sale Event. The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.]
3. Termination of Service as a Non-Employee Director. If the Grantee’s service with the Company and its Subsidiaries as a member of the Board terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Restricted Stock Units.
4. Issuance of Shares of Stock. As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.
5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
6. Section 409A of the Code. This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A OF THE CODE.
7. No Obligation to Continue as a Non-Employee Director. Neither the Plan nor this Award confers upon the Grantee any rights with respect to continuance as a Non-Employee Director.
8. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.
9. Tax Withholding. The Grantee shall, not later than the date as of which the receipt of this Award becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be withheld on account of such taxable event. The Company shall have the authority to cause the required tax withholding obligation to be satisfied, in whole or in part, by (i) withholding from shares of Stock to be issued to the Grantee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the withholding amount due; or (ii) causing its transfer agent to sell from the number of shares of Stock to be issued to the Grantee, the number of shares of Stock necessary to satisfy the Federal, state and local taxes required by law to be withheld from the Grantee on account of such transfer.
(a) The Grantee acknowledges that, regardless of any action taken by the Company or, if different, the Subsidiary for which the Grantee provides services (the “Service Recipient”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”) is and remains the Grantee’s responsibility and may exceed the amount, if any, actually withheld by the Company or the Service Recipient. The Grantee further acknowledges that the Company and/or the Service Recipient (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, the subsequent sale of shares of Stock acquired pursuant to such settlement and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Grantee is subject to Tax-Related Items in more than one jurisdiction, the Grantee acknowledges that the Company and/or the Service Recipient (or former service recipient, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b) Prior to any relevant taxable or tax withholding event, as applicable, the Grantee agrees to make adequate arrangements satisfactory to the Company and/or the Service Recipient to satisfy all Tax-Related Items. In this regard, the Grantee authorizes the Company and/or the Service Recipient, or their respective agents, at their discretion, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by one or a combination of the following: (i) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Service Recipient; (ii) withholding from proceeds of the sale of shares of Stock upon settlement of the Restricted Stock Units either through a voluntary sale or through a mandatory sale arranged by the Company (on the Grantee’s behalf pursuant to this authorization without further consent); (iii) withholding from shares of Stock to be issued to the Grantee upon settlement of the Restricted Stock Units; or (iv) any other method of withholding determined by the Company and permitted by applicable law; provided, however, that if the Grantee is a Section 16 officer of the Company under the Exchange Act, then the Administrator shall establish the method of withholding from alternatives (i)-(iv) herein and, if the Administrator does not exercise its discretion prior to the applicable withholding event, then the Grantee shall be entitled to elect the method of withholding from the alternatives above.
(c) The Company and/or the Service Recipient may withhold or account for Tax-Related Items by considering applicable statutory withholding amounts or other applicable withholding rates, including maximum rates applicable in the Grantee’s jurisdiction, in which case the Grantee may receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent amount in shares of Stock, for tax purposes, the Grantee is deemed to have been issued the full number of shares of Stock subject to the vested Restricted Stock Units, notwithstanding that a number of the shares of Stock is held back solely for the purpose of paying the Tax-Related Items.
(d) The Grantee agrees to pay to the Company or the Service Recipient any amount of Tax-Related Items that the Company or the Service Recipient may be required to withhold or account for as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares of Stock, or the proceeds of the sale of shares of Stock, if the Grantee fails to comply with his or her obligations in connection with the Tax-Related Items.
10. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.
11. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
12. Waivers. The Grantee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Grantee or any other Grantee.
13. Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
14. Electronic Delivery and Acceptance of Documents. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
| Kalaris Therapeutics, Inc. | ||||||
| By: |
| |||||
| Title: | ||||||
The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.
| Dated: |
| Grantee’s Signature |
| Grantee’s name and address: |
RESTRICTED STOCK UNIT AWARD AGREEMENT
FOR COMPANY EMPLOYEES
UNDER THE KALARIS THERAPEUTICS, INC.
2020 STOCK OPTION AND GRANT PLAN
| Name of Grantee: |
| No. of Restricted Stock Units: |
| Grant Date: |
Pursuant to the Kalaris Therapeutics, Inc. 2020 Stock Option and Grant Plan (the “Plan”), Kalaris Therapeutics, Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the Grantee named above. Each Restricted Stock Unit shall relate to one share of Common Stock, par value $0.0001 per share (the “Stock”) of the Company.
1. Restrictions on Transfer of Award. This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.
2. Vesting of Restricted Stock Units. The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee continues to have a [Service Relationship] with the Company or a Subsidiary on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.
| Incremental Number of Restricted Stock Units Vested |
Vesting Date | |
| ( %) | ||
| ( %) | ||
| ( %) | ||
| ( %) |
The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.
3. Termination of Service Relationship. If the Grantee’s Service Relationship with the Company or a Subsidiary terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Restricted Stock Units.
4. Issuance of Shares of Stock. As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.
5. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
6. Responsibility for Taxes.
(a) The Grantee acknowledges that, regardless of any action taken by the Company or, if different, the Subsidiary employing the Grantee (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”) is and remains the Grantee’s responsibility and may exceed the amount, if any, actually withheld by the Company or the Employer. The Grantee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, the subsequent sale of shares of Stock acquired pursuant to such settlement and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Grantee is subject to Tax-Related Items in more than one jurisdiction, the Grantee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b) Prior to any relevant taxable or tax withholding event, as applicable, the Grantee agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Grantee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by one or a combination of the following: (i) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer; (ii) withholding from proceeds of the sale of shares of Stock upon settlement of the Restricted Stock Units either through a voluntary sale or through a mandatory sale arranged by the Company (on the Grantee’s behalf pursuant to this authorization without further consent); (iii) withholding from shares of Stock to be issued to the Grantee upon settlement of the Restricted Stock Units; or (iv) any other method of withholding determined by the Company and permitted by applicable law; provided, however, that if the Grantee is a Section 16 officer of the Company under the Exchange Act, then the Administrator shall establish the method of withholding from alternatives (i)-(iv) herein and, if the Administrator does not exercise its discretion prior to the applicable withholding event, then the Grantee shall be entitled to elect the method of withholding from the alternatives above.
(c) The Company and/or the Employer may withhold or account for Tax-Related Items by considering applicable statutory withholding amounts or other applicable withholding rates, including maximum rates applicable in the Grantee’s jurisdiction, in which case the Grantee may receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent amount in shares of Stock, for tax purposes, the Grantee is deemed to have been issued the full number of shares of Stock subject to the vested Restricted Stock Units, notwithstanding that a number of the shares of Stock is held back solely for the purpose of paying the Tax-Related Items.
(d) The Grantee agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares of Stock, or the proceeds of the sale of shares of Stock, if the Grantee fails to comply with his or her obligations in connection with the Tax-Related Items.
7. Section 409A of the Code. This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.
8. No Obligation to Continue Service Relationship. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee’s Service Relationship with the Company or a Subsidiary and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the Grantee’s Service Relationship with the Company or a Subsidiary at any time.
9. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.
10. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or
other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Grantee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Grantee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Grantee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.
11. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
12. Waivers. The Grantee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Grantee or any other Grantee.
13. Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
14. Electronic Delivery and Acceptance of Documents. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
| Kalaris Therapeutics, Inc. | ||||||
| By: |
| |||||
| Title: | ||||||
The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.
| Dated: |
| Grantee’s Signature |
| Grantee’s name and address: |
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE KALARIS THERAPEUTICS, INC.
2020 STOCK OPTION AND GRANT PLAN
| Name of Optionee: | ||
| No. of Option Shares: | ||
| Option Exercise Price per Share: | $ | |
| [FMV on Grant Date (110% of FMV if a 10% owner)] | ||
| Grant Date: | ||
| Expiration Date: | ||
| [up to 10 years (5 if a 10% owner)] | ||
Pursuant to the Kalaris Therapeutics, Inc. 2020 Stock Option and Grant Plan (the “Plan”), Kalaris Therapeutics, Inc. (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.0001 per share (the “Stock”), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan.
1. Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee continues to have a Service Relationship with the Company or a Subsidiary on such dates:
| Incremental Number of |
Exercisability Date | |
| ( %) | ||
| ( %) | ||
| ( %) | ||
| ( %) | ||
| ( %) |
| * | Max. of $100,000 per yr. |
Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.
2. Manner of Exercise.
(a) The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or
that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; or (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or (iv) a combination of (i), (ii) and (iii) above. Payment instruments will be received subject to collection.
The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.
(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.
(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.
(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.
3. Termination of Service Relationship. If the Optionee’s Service Relationship with the Company or a Subsidiary (as defined in the Plan) is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.
(a) Termination Due to Death. If the Optionee’s Service Relationship with the Company or a Subsidiary terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.
(b) Termination Due to Disability. If the Optionee’s Service Relationship with the Company or a Subsidiary terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such termination, may thereafter be exercised by the Optionee for a period of 12 months from the date of disability or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of disability shall terminate immediately and be of no further force or effect.
(c) Termination for Cause. If the Optionee’s Service Relationship with the Company or a Subsidiary terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect. For purposes hereof, “Cause” shall mean, unless otherwise provided in an employment or service agreement between the Company and the Optionee, a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company.
(d) Other Termination. If the Optionee’s Service Relationship with the Company or a Subsidiary terminates for any reason other than the Optionee’s death, the Optionee’s disability, or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.
The Administrator’s determination of the reason for termination of the Optionee’s Service Relationship with the Company or a Subsidiary shall be conclusive and binding on the Optionee and his or her representatives or legatees.
4. Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.
5. Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.
6. Status of the Stock Option. This Stock Option is intended to qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), but the Company does not represent or warrant that this Stock Option qualifies as such. The Optionee should consult with his or her own tax advisors regarding the tax effects of this Stock Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements and that this Stock Option must be exercised within three months after termination of employment as an employee (or 12 months in the case of death or disability) to qualify as an “incentive stock option.” To the extent any portion of this Stock Option does not so qualify as an “incentive stock option,” such portion shall be deemed to be a non-qualified stock option. If the Optionee intends to dispose or does dispose (whether by sale, gift, transfer or otherwise) of any Option Shares within the one-year period beginning on the date after the transfer of such shares to him or her, or within the two-year period beginning on the day after the grant of this Stock Option, he or she will so notify the Company within 30 days after such disposition.
7. Responsibility for Taxes.
(a) The Optionee acknowledges that, regardless of any action taken by the Company or, if different, the Subsidiary employing the Optionee (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the Optionee’s participation in the Plan and legally applicable to the Optionee (“Tax-Related Items”) is and remains the Optionee’s responsibility and may exceed the amount, if any, actually withheld by the Company or the Employer. The Optionee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Stock Option, including, but not limited to, the grant, vesting or exercise of this Stock Option, the subsequent sale of shares of Stock acquired pursuant to such exercise and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of this Stock Option to reduce or eliminate the Optionee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Optionee is subject to Tax-Related Items in more than one jurisdiction, the Optionee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b) Prior to any relevant taxable or tax withholding event, as applicable, the Optionee agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Optionee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by one or a combination of the following: (i) withholding from the Optionee’s wages or other cash compensation paid to the Optionee by the Company and/or the Employer; (ii) allowing or requiring the Optionee to make a cash payment to cover the Tax-Related Items; (iii) withholding from proceeds of the sale of shares of Stock acquired upon exercise of this Stock Option either through a voluntary sale or through a mandatory sale arranged by the Company (on the Optionee’s behalf pursuant to this authorization without further consent); (iv) withholding from the shares of Stock to be issued to the Optionee upon exercise of this Stock Option; or (v) any other method of withholding determined by the Company and permitted by applicable law; provided, however, that that if the Optionee is a Section 16 officer of the Company under the Exchange Act, in which case, the obligation for Tax-Related Items may be satisfied only by one or a combination of methods (i), (ii) and (iii) above.
(c) Depending on the withholding method, the Company and/or the Employer may withhold or account for Tax-Related Items by considering applicable statutory withholding amounts or other applicable withholding rates, including maximum rates applicable in the Optionee’s jurisdiction, in which case the Optionee may receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent amount in shares of Stock. If the obligation for Tax-Related Items is satisfied by withholding in shares of Stock, for tax purposes, the Optionee is deemed to have been issued the full number of shares of Stock subject to the exercised Stock Option, notwithstanding that a number of the shares of Stock is held back solely for the purpose of paying the Tax-Related Items.
(d) The Optionee agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Optionee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares of Stock, or the proceeds of the sale of shares of Stock, if the Optionee fails to comply with his or her obligations in connection with the Tax-Related Items.
8. No Obligation to Continue Service Relationship. Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee in a Service Relationship with the Company or a Subsidiary and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the Optionee’s Service Relationship with the Company or a Subsidiary at any time.
9. Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.
10. Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the “Relevant Companies”) may process any and all personal or professional data, including but not limited to Social Security or other identification number, home address and telephone number, date of birth and other information that is necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process, register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to, and the right to change, the Relevant Information. Relevant Information will only be used in accordance with applicable law.
11. Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
12. Waivers. The Optionee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Optionee or any other Optionee.
13. Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
14. Electronic Delivery and Acceptance of Documents. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Optionee hereby consents to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
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The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.
| Dated: |
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| Optionee’s Signature | ||||
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Exhibit 10.6
KALARIS THERAPEUTICS, INC.
[FORM OF] DIRECTOR INDEMNIFICATION AGREEMENT
This Indemnification Agreement (“Agreement”) is made as of [Date] by and between Kalaris Therapeutics, Inc., a Delaware corporation (the “Company”), and [Director Name] (“Indemnitee”).
RECITALS
WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company;
WHEREAS, in order to induce Indemnitee to provide or continue to provide services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Amended and Restated Certificate of Incorporation (as amended and in effect from time to time, the “Charter”) and the Amended and Restated Bylaws (as amended and in effect from time to time, the “Bylaws”) of the Company require indemnification of the officers and directors of the Company, and Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “DGCL”);
WHEREAS, the Charter, the Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;
WHEREAS, the Board of Directors of the Company (the “Board”) has determined that the increased difficulty in attracting and retaining highly qualified persons such as Indemnitee is detrimental to the best interests of the Company’s stockholders;
WHEREAS, it is reasonable and prudent for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law, regardless of any amendment or revocation of the Charter or the Bylaws, so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;
WHEREAS, this Agreement is a supplement to and in furtherance of the indemnification provided in the Charter, the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and
[WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by [ ] (“[ ]”) which Indemnitee and [ ] intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided in this Agreement, with the Company’s acknowledgment and agreement to the foregoing being a material condition to Indemnitee’s willingness to serve or continue to serve on the Board.]
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
Section 1. Services to the Company. Indemnitee agrees to [continue to] serve as a director of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee.
Section 2. Definitions.
As used in this Agreement:
(a) “Change in Control” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.
(b) “Corporate Status” describes the status of a person as a current or former director of the Company or current or former director, manager, partner, officer, employee, agent or trustee of any other Enterprise which such person is or was serving at the request of the Company.
(c) “Enforcement Expenses” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with an action to enforce indemnification or advancement rights, or an appeal from such action. Expenses, however, shall not include fees, salaries, wages or benefits owed to Indemnitee.
(d) “Enterprise” shall mean any corporation (other than the Company), partnership, joint venture, trust, employee benefit plan, limited liability company, or other legal entity of which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee.
(e) “Expenses” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding or an appeal resulting from a Proceeding. Expenses, however, shall not include amounts paid in settlement by Indemnitee, the amount of judgments or fines against Indemnitee or fees, salaries, wages or benefits owed to Indemnitee.
(f) “Independent Counsel” means a law firm, or a partner (or, if applicable, member or shareholder) of such a law firm, that is experienced in matters of Delaware corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company, any subsidiary of the Company, any Enterprise or Indemnitee in any matter material to any such party; or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(g) The term “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, and whether formal or informal, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director of the Company or is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise or by reason of any action taken by Indemnitee or of any action taken on his or her part while acting as a director of the Company or while serving at the request of the Company
as a director, manager, partner, officer, employee, agent or trustee of any Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement; provided, however, that the term “Proceeding” shall not include any action, suit or arbitration, or part thereof, initiated by Indemnitee to enforce Indemnitee’s rights under this Agreement as provided for in Section 12(a) of this Agreement.
Section 3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee to the extent set forth in this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties, excise taxes, and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful.
Section 4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee to the extent set forth in this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery (the “Delaware Court”) shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court shall deem proper.
Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement and except as provided in Section 7, to the extent that Indemnitee is a party to or a participant in any Proceeding and is successful in such Proceeding or in defense of any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
Section 6. Reimbursement for Expenses of a Witness or in Response to a Subpoena. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee, by reason of his or her Corporate Status, (i) is a witness in any Proceeding to which Indemnitee is not a party and is not threatened to be made a party or (ii) receives a subpoena with respect to any Proceeding to which Indemnitee is not a party and is not threatened to be made a party, the Company shall reimburse Indemnitee for all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.
Section 7. Exclusions. Notwithstanding any provision in this Agreement to the contrary, the Company shall not be obligated under this Agreement:
(a) to indemnify for amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such amounts under any insurance policy, contract, agreement or otherwise; provided that the foregoing shall not affect the rights of Indemnitee or the Secondary Indemnitors as set forth in Section 13(c);
(b) to indemnify for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law, or from the purchase or sale by Indemnitee of such securities in violation of Section 306 of the Sarbanes Oxley Act of 2002 (“SOX”);
(c) to indemnify with respect to any Proceeding, or part thereof, brought by Indemnitee against the Company, any legal entity which it controls, any director or officer thereof or any third party, unless (i) the Board has consented to the initiation of such Proceeding or part thereof and (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; provided, however, that this Section 7(c) shall not apply to (A) counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee or (B) any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought as described in Section 12; or
(d) to provide any indemnification or advancement of expenses that is prohibited by applicable law (as such law exists at the time payment would otherwise be required pursuant to this Agreement).
Section 8. Advancement of Expenses. Subject to Section 9(b), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made as incurred, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s (i) ability to repay the expenses, (ii) ultimate entitlement to indemnification under the other provisions of this Agreement, and (iii) entitlement to and availability of insurance coverage, including advancement, payment or reimbursement of defense costs, expenses of covered loss under the provisions of any applicable insurance policy (including , without limitation, whether such advancement, payment or reimbursement is withheld, conditioned or delayed by the insurer(s)). Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement which shall constitute an undertaking providing that Indemnitee undertakes to the fullest extent required by law to repay the advance if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. The right to advances under this paragraph shall in all events continue until final disposition of any Proceeding, including any appeal therein. Nothing in this Section 8 shall limit Indemnitee’s right to advancement pursuant to Section 12(e) of this Agreement.
Section 9. Procedure for Notification and Defense of Claim.
(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor specifying the basis for the claim, the amounts for which Indemnitee is seeking payment under this Agreement, and all documentation related thereto as reasonably requested by the Company.
(b) In the event that the Company shall be obligated hereunder to provide indemnification for or make any advancement of Expenses with respect to any Proceeding, the Company shall be entitled to assume the defense of such Proceeding, or any claim, issue or matter therein, with counsel approved by Indemnitee (which approval shall not be unreasonably withheld or delayed) upon the delivery to Indemnitee of written notice of the Company’s election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee shall have the right to employ separate counsel in any such Proceeding at Indemnitee’s expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of such defense, or (C) the Company shall not continue to retain such counsel to defend such Proceeding, then the fees and expenses actually and reasonably incurred by Indemnitee with respect to his or her separate counsel shall be Expenses hereunder.
(c) In the event that the Company does not assume the defense in a Proceeding pursuant to paragraph (b) above, then the Company will be entitled to participate in the Proceeding at its own expense.
(d) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed). The Company shall not, without the prior written consent of Indemnitee (which consent shall not be unreasonably withheld or delayed), enter into any settlement which (i) includes an admission of fault of Indemnitee, any non-monetary remedy imposed on Indemnitee or any monetary damages for which Indemnitee is not wholly and actually indemnified hereunder or (ii) with respect to any Proceeding with respect to which Indemnitee may be or is made a party or may be otherwise entitled to seek indemnification hereunder, does not include the full release of Indemnitee from all liability in respect of such Proceeding.
Section 10. Procedure Upon Application for Indemnification.
(a) Upon written request by Indemnitee for indemnification pursuant to Section 9(a), a determination, if such determination is required by applicable law, with respect to Indemnitee’s entitlement to indemnification hereunder shall be made in the specific case by one of the following methods: (x) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board; or (y) if a Change in Control shall not have occurred: (i) by a majority vote of the disinterested directors, even though less than a quorum; (ii) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum; or (iii) if there are no disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board. For purposes hereof, disinterested directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought. In the case that such determination is made by Independent Counsel, a copy of Independent Counsel’s written opinion shall be delivered to Indemnitee and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty (30) days after such determination. Indemnitee shall cooperate with the Independent Counsel or the Company, as applicable, in making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such counsel or the Company, upon reasonable advance request, any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any out-of-pocket costs or expenses (including reasonable attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the Independent Counsel or the Company shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(b) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(a), the Independent Counsel shall be selected by the Board if a Change in Control shall not have occurred or, if a Change in Control shall have occurred, by Indemnitee. Indemnitee or the Company, as the case may be, may, within ten (10) days after written notice of such selection, deliver to the Company or Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within twenty (20) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 9(a), and (ii) the final disposition of the Proceeding, including any appeal therein, no Independent Counsel shall have been selected without objection, either Indemnitee or the Company may petition the Delaware Court for resolution of any objection which shall have been made by Indemnitee or the Company to the selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate. The person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
(a) To the extent permitted by applicable law, in making a determination with respect to entitlement to indemnification hereunder, it shall be presumed that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption. Neither (i) the failure of the Company or of Independent Counsel to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor (ii) an actual determination by the Company or by Independent Counsel that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of guilty, nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
(c) The knowledge and/or actions, or failure to act, of any director, manager, partner, officer, employee, agent or trustee of the Company, any subsidiary of the Company, or any Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
Section 12. Remedies of Indemnitee.
(a) Subject to Section 12(f), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(a) of this Agreement within sixty (60) days after receipt by the Company of the request for indemnification for which a determination is to be made other than by Independent Counsel, (iv) payment of indemnification or reimbursement of expenses is not made pursuant to Section 5 or 6 or the last sentence of Section 10(a) of this Agreement within thirty (30) days after receipt by the Company of a written request therefor (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) or (v) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Delaware Court of his or her entitlement to such indemnification or advancement. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided, however, that the foregoing time limitation shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 5 of this Agreement. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement, as the case may be.
(c) If a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.
(e) The Company shall indemnify Indemnitee to the fullest extent permitted by law against any and all Enforcement Expenses and, if requested by Indemnitee, shall (within thirty (30) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Enforcement Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought. Such written request for advancement shall include invoices received by Indemnitee in connection with such Enforcement Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law need not be included with the invoice.
(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding, including any appeal therein.
Section 13. Non-exclusivity; Survival of Rights; Insurance; Primacy of Indemnification; Subrogation.
(a) The rights of indemnification and to receive advancement as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement than would be afforded currently under the Charter, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, managers, partners, officers, employees, agents or trustees of the Company or of any other Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, manager, partner, officer, employee, agent or trustee under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(c) [The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by [ ] and certain of its affiliates (collectively, the “Secondary Indemnitors”). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Secondary Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Charter and/or Bylaws (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Secondary Indemnitors, and (iii) that it irrevocably waives, relinquishes
and releases the Secondary Indemnitors from any and all claims against the Secondary Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Secondary Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Secondary Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Secondary Indemnitors are express third party beneficiaries of the terms of this Section 13(c).]
(d) [Except as provided in paragraph (c) above,] in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee [(other than against the Secondary Indemnitors)], who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(e) [Except as provided in paragraph (c) above,] the Company’s obligation to provide indemnification or advancement hereunder to Indemnitee who is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement from such other Enterprise.
Section 14. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director of the Company or (b) one (1) year after the final termination of any Proceeding, including any appeal, then pending in respect of which Indemnitee is granted rights of indemnification or advancement hereunder and of any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his or her heirs, executors and administrators. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
Section 15. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
Section 16. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve or continue to serve as a director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director of the Company.
(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Charter, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.
Section 17. Modification and Waiver. No supplement, modification or amendment, or waiver of any provision, of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver. No supplement, modification or amendment of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee prior to such supplement, modification or amendment.
Section 18. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification, reimbursement or advancement as provided hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.
Section 19. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (iii) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (iv) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:
| (a) | If to Indemnitee, at such address as Indemnitee shall provide to the Company. |
| (b) | If to the Company to: |
Kalaris Therapeutics, Inc.
628 Middlefield Rd.
Palo Alto, California 94301
Attention: President
or to any other address as may have been furnished to Indemnitee by the Company.
Section 20. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Proceeding in such proportion as is deemed fair and reasonable in light of all of the circumstances in order to reflect (i) the relative benefits received by the Company and Indemnitee in connection with the event(s) and/or transaction(s) giving rise to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transactions.
Section 21. Internal Revenue Code Section 409A. The Company intends for this Agreement to comply with the Indemnification exception under Section 1.409A-1(b)(10) of the regulations promulgated under the Internal Revenue Code of 1986, as amended (the “Code”), which provides that indemnification of, or the purchase of an insurance policy providing for payments of, all or part of the expenses incurred or damages paid or payable by Indemnitee with respect to a bona fide claim against Indemnitee or the Company do not provide for a deferral of compensation, subject to Section 409A of the Code, where such claim is based on actions or failures to act by Indemnitee in his or her capacity as a service provider of the Company. The parties intend that this Agreement be interpreted and construed with such intent.
Section 22. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive
jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) consent to service of process at the address set forth in Section 19 of this Agreement with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
Section 23. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
Section 24. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.
| KALARIS THERAPEUTICS, INC. | ||
| By: |
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| Name: |
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| Title: |
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|
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| [Name of Indemnitee] |
Exhibit 10.7
KALARIS THERAPEUTICS, INC.
[FORM OF] OFFICER INDEMNIFICATION AGREEMENT
This Indemnification Agreement (“Agreement”) is made as of [Date] by and between Kalaris Therapeutics, Inc., a Delaware corporation (the “Company”), and [Officer Name] (“Indemnitee”).
RECITALS
WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company;
WHEREAS, in order to induce Indemnitee to provide or continue to provide services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Amended and Restated Certificate of Incorporation (as amended and in effect from time to time, the “Charter”) and the Amended and Restated Bylaws (as amended and in effect from time to time, the “Bylaws”) of the Company require indemnification of the officers and directors of the Company, and Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “DGCL”);
WHEREAS, the Charter, the Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;
WHEREAS, the Board of Directors of the Company (the “Board”) has determined that the increased difficulty in attracting and retaining highly qualified persons such as Indemnitee is detrimental to the best interests of the Company’s stockholders;
WHEREAS, it is reasonable and prudent for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law, regardless of any amendment or revocation of the Charter or the Bylaws, so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance of the indemnification provided in the Charter, the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
Section 1. Services to the Company. Indemnitee agrees to [continue to] serve as [a director and] an officer of the Company. Indemnitee may at any time and for any reason resign from [any] such position (subject to any other contractual obligation or any obligation imposed by law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee.
Section 2. Definitions.
As used in this Agreement:
(a) “Change in Control” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.
(b) “Corporate Status” describes the status of a person as a current or former [director or] officer of the Company or current or former director, manager, partner, officer, employee, agent or trustee of any other Enterprise which such person is or was serving at the request of the Company.
(c) “Enforcement Expenses” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with an action to enforce indemnification or advancement rights, or an appeal from such action. Expenses, however, shall not include fees, salaries, wages or benefits owed to Indemnitee.
(d) “Enterprise” shall mean any corporation (other than the Company), partnership, joint venture, trust, employee benefit plan, limited liability company, or other legal entity of which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee.
(e) “Expenses” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding or an appeal resulting from a Proceeding. Expenses, however, shall not include amounts paid in settlement by Indemnitee, the amount of judgments or fines against Indemnitee or fees, salaries, wages or benefits owed to Indemnitee.
(f) “Independent Counsel” means a law firm, or a partner (or, if applicable, member or shareholder) of such a law firm, that is experienced in matters of Delaware corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company, any subsidiary of the Company, any Enterprise or Indemnitee in any matter material to any such party; or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(g) The term “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, and whether formal or informal, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was [a director or] an officer of the Company or is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise or by reason of any action taken by Indemnitee or of any action taken on his or her part while acting as [a director or] an officer of the Company or while serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement; provided, however, that the term “Proceeding” shall not include any action, suit or arbitration, or part thereof, initiated by Indemnitee to enforce Indemnitee’s rights under this Agreement as provided for in Section 12(a) of this Agreement.
Section 3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee to the extent set forth in this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties, excise taxes, and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful.
Section 4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee to the extent set forth in this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery (the “Delaware Court”) shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court shall deem proper.
Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement and except as provided in Section 7, to the extent that Indemnitee is a party to or a participant in any Proceeding and is successful in such Proceeding or in defense of any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
Section 6. Reimbursement for Expenses of a Witness or in Response to a Subpoena. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee, by reason of his or her Corporate Status, (i) is a witness in any Proceeding to which Indemnitee is not a party and is not threatened to be made a party or (ii) receives a subpoena with respect to any Proceeding to which Indemnitee is not a party and is not threatened to be made a party, the Company shall reimburse Indemnitee for all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.
Section 7. Exclusions. Notwithstanding any provision in this Agreement to the contrary, the Company shall not be obligated under this Agreement:
(a) to indemnify for amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such amounts under any insurance policy, contract, agreement or otherwise;
(b) to indemnify for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law, or from the purchase or sale by Indemnitee of such securities in violation of Section 306 of the Sarbanes-Oxley Act of 2002 (“SOX”);
(c) to indemnify for any reimbursement of, or payment to, the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company pursuant to Section 304 of SOX or any formal policy of the Company adopted by the Board (or a committee thereof), or any other remuneration paid to Indemnitee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law;
(d) to indemnify with respect to any Proceeding, or part thereof, brought by Indemnitee against the Company, any legal entity which it controls, any director or officer thereof or any third party, unless (i) the Board has consented to the initiation of such Proceeding or part thereof and (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; provided, however, that this Section 7(d) shall not apply to (A) counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee or (B) any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought as described in Section 12; or
(e) to provide any indemnification or advancement of expenses that is prohibited by applicable law (as such law exists at the time payment would otherwise be required pursuant to this Agreement).
Section 8. Advancement of Expenses. Subject to Section 9(b), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made as incurred, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s (i) ability to repay the expenses, (ii) ultimate entitlement to indemnification under the other provisions of this Agreement, and (iii) entitlement to and availability of insurance coverage, including advancement, payment or reimbursement of defense costs, expenses of covered loss under the provisions of any applicable insurance policy (including , without limitation, whether such advancement, payment or reimbursement is withheld, conditioned or delayed by the insurer(s)). Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement which shall constitute an undertaking providing that Indemnitee undertakes to the fullest extent required by law to repay the advance if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. The right to advances under this paragraph shall in all events continue until final disposition of any Proceeding, including any appeal therein. Nothing in this Section 8 shall limit Indemnitee’s right to advancement pursuant to Section 12(e) of this Agreement.
Section 9. Procedure for Notification and Defense of Claim.
(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor specifying the basis for the claim, the amounts for which Indemnitee is seeking payment under this Agreement, and all documentation related thereto as reasonably requested by the Company.
(b) In the event that the Company shall be obligated hereunder to provide indemnification for or make any advancement of Expenses with respect to any Proceeding, the Company shall be entitled to assume the defense of such Proceeding, or any claim, issue or matter therein, with counsel approved by Indemnitee (which approval shall not be unreasonably withheld or delayed) upon the delivery to Indemnitee of written notice of the Company’s election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee shall have the right to employ separate counsel in any such Proceeding at Indemnitee’s expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of such defense, or (C) the Company shall not continue to retain such counsel to defend such Proceeding, then the fees and expenses actually and reasonably incurred by Indemnitee with respect to his or her separate counsel shall be Expenses hereunder.
(c) In the event that the Company does not assume the defense in a Proceeding pursuant to paragraph (b) above, then the Company will be entitled to participate in the Proceeding at its own expense.
(d) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed). The Company shall not, without the prior written consent of Indemnitee (which consent shall not be unreasonably withheld or delayed), enter into any settlement which (i) includes an admission of fault of Indemnitee, any non-monetary remedy imposed on Indemnitee or any monetary damages for which Indemnitee is not wholly and actually indemnified hereunder or (ii) with respect to any Proceeding with respect to which Indemnitee may be or is made a party or may be otherwise entitled to seek indemnification hereunder, does not include the full release of Indemnitee from all liability in respect of such Proceeding.
Section 10. Procedure Upon Application for Indemnification.
(a) Upon written request by Indemnitee for indemnification pursuant to Section 9(a), a determination, if such determination is required by applicable law, with respect to Indemnitee’s entitlement to indemnification hereunder shall be made in the specific case by one of the following methods: [(x) if a Change in Control shall have occurred and indemnification is being requested by Indemnitee hereunder in his or her capacity as a director of the Company, by Independent Counsel in a written opinion to the Board; or (y) in any other case,] (i) by a majority vote of the disinterested directors, even though less than a quorum; (ii) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum; or (iii) if there are no disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board. For purposes hereof, disinterested directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought. In the case that such determination is made by Independent Counsel, a copy of Independent Counsel’s written opinion shall be delivered to Indemnitee and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty (30) days after such determination. Indemnitee shall cooperate with the Independent Counsel or the Company, as applicable, in making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such counsel or the Company, upon reasonable advance request, any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any out-of-pocket costs or expenses (including reasonable attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the Independent Counsel or the Company shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(b) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(a), the Independent Counsel shall be selected by the Board[; provided that, if a Change in Control shall have occurred and indemnification is being requested by Indemnitee hereunder in his or her capacity as a director of the Company, the Independent Counsel shall be selected by Indemnitee]. Indemnitee [or the Company, as the case may be,] may, within ten (10) days after written notice of such selection, deliver to the Company [or Indemnitee, as the case may be,] a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within twenty (20) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 9(a), and (ii) the final disposition of the Proceeding, including any appeal therein, no Independent Counsel shall have been selected without objection, either Indemnitee or the Company may petition the Delaware Court for resolution of any objection which shall have been made by Indemnitee or the Company to the selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate. The person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
Section 11. Presumptions and Effect of Certain Proceedings.
(a) To the extent permitted by applicable law, in making a determination with respect to entitlement to indemnification hereunder, it shall be presumed that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption. Neither (i) the failure of the Company or of Independent Counsel to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor (ii) an actual determination by the Company or by Independent Counsel that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of guilty, nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
(c) The knowledge and/or actions, or failure to act, of any director, manager, partner, officer, employee, agent or trustee of the Company, any subsidiary of the Company, or any Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
Section 12. Remedies of Indemnitee.
(a) Subject to Section 12(f), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(a) of this Agreement within sixty (60) days after receipt by the Company of the request for indemnification for which a determination is to be made other than by Independent Counsel, (iv) payment of indemnification or reimbursement of expenses is not made pursuant to Section 5 or 6 or the last sentence of Section 10(a) of this Agreement within thirty (30) days after receipt by the Company of a written request therefor (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) or (v) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Delaware Court of his or her entitlement to such indemnification or advancement. Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided, however, that the foregoing time limitation shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 5 of this Agreement. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement, as the case may be.
(c) If a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.
(e) The Company shall indemnify Indemnitee to the fullest extent permitted by law against any and all Enforcement Expenses and, if requested by Indemnitee, shall (within thirty (30) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Enforcement Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought. Such written request for advancement shall include invoices received by Indemnitee in connection with such Enforcement Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law need not be included with the invoice.
(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding, including any appeal therein.
Section 13. Non-exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement than would be afforded currently under the Charter, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, managers, partners, officers, employees, agents or trustees of the Company or of any other Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, manager, partner, officer, employee, agent or trustee under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company’s obligation to provide indemnification or advancement hereunder to Indemnitee who is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement from such other Enterprise.
Section 14. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as [both a director and] an officer of the Company or (b) one (1) year after the final termination of any Proceeding, including any appeal, then pending in respect of which Indemnitee is granted rights of indemnification or advancement hereunder and of any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his or her heirs, executors and administrators. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
Section 15. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
Section 16. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve or continue to serve as [a director and] an officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as [a director and] an officer of the Company.
(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Charter, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.
Section 17. Modification and Waiver. No supplement, modification or amendment, or waiver of any provision, of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver. No supplement, modification or amendment of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee prior to such supplement, modification or amendment.
Section 18. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification, reimbursement or advancement as provided hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.
Section 19. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (iii) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (iv) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:
(a) If to Indemnitee, at such address as Indemnitee shall provide to the Company.
(b) If to the Company to:
Kalaris Therapeutics, Inc.
628 Middlefield Rd.
Palo Alto, California 94301
Attention: President and Chief Executive Officer
or to any other address as may have been furnished to Indemnitee by the Company.
Section 20. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Proceeding in such proportion as is deemed fair and reasonable in light of all of the circumstances in order to reflect (i) the relative benefits received by the Company and Indemnitee in connection with the event(s) and/or transaction(s) giving rise to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transactions.
Section 21. Internal Revenue Code Section 409A. The Company intends for this Agreement to comply with the Indemnification exception under Section 1.409A-1(b)(10) of the regulations promulgated under the Internal Revenue Code of 1986, as amended (the “Code”), which provides that indemnification of, or the purchase of an insurance policy providing for payments of, all or part of the expenses incurred or damages paid or payable by Indemnitee with respect to a bona fide claim against Indemnitee or the Company do not provide for a deferral of compensation, subject to Section 409A of the Code, where such claim is based on actions or failures to act by Indemnitee in his or her capacity as a service provider of the Company. The parties intend that this Agreement be interpreted and construed with such intent.
Section 22. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) consent to service of process at the address set forth in Section 19 of this Agreement with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
Section 23. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
Section 24. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.
| KALARIS THERAPEUTICS, INC. | ||
| By: |
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| Name: |
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| Title: |
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| INDEMNITEE | ||
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| Name: |
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| Address: |
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Exhibit 10.8
LEASE
between
THE CONNELL COMPANY
Landlord
and
KALARIS THERAPEUTICS, INC.
Tenant
400 Connell Drive
TABLE OF CONTENTS
| PAGE | ||||||
| ARTICLE I BASIC LEASE INFORMATION |
1 | |||||
| Section 1.01 |
Building and Land; Real Estate | 1 | ||||
| Section 1.02 |
Demised Premises | 1 | ||||
| Section 1.03 |
Base Rent | 1 | ||||
| Section 1.04 |
Letter of Credit: | 2 | ||||
| Section 1.05 |
Term | 3 | ||||
| Section 1.06 |
Tenant’s Pro Rata Share | 3 | ||||
| Section 1.07 |
Intentionally Deleted | 3 | ||||
| ARTICLE II DEFINITIONS |
3 | |||||
| ARTICLE III PREPARATION OF THE DEMISED PREMISES |
6 | |||||
| Section 3.01 |
Tenant Work | 6 | ||||
| Section 3.02 |
Tenant’s Early Access | 8 | ||||
| Section 3.03 |
No Representation | 8 | ||||
| ARTICLE IV OPTION TO RENEW; TERMINATION OPTION |
8 | |||||
| Section 4.01 |
Option to Renew | 8 | ||||
| Section 4.02 |
Termination Option | 9 | ||||
| ARTICLE V RENT |
9 | |||||
| Section 5.01 |
Base Rent | 9 | ||||
| Section 5.02 |
Tax Increase Amount | 9 | ||||
| Section 5.03 |
Building Operating Costs; Adjustments | 10 | ||||
| Section 5.04 |
Payment of Rent | 14 | ||||
| ARTICLE VI SIGNS |
15 | |||||
| Section 6.01 |
Directory | 15 | ||||
| Section 6.02 |
Signs | 15 | ||||
| ARTICLE VII REPAIRS, ALTERATIONS, COMPLIANCE, SURRENDER |
15 | |||||
| Section 7.01 |
Repairs by Landlord | 15 | ||||
| Section 7.02 |
Repairs, Maintenance and Improvements by Tenant | 15 | ||||
| Section 7.03 |
Approval by Landlord of Improvements | 16 | ||||
| Section 7.04 |
Emergency Repairs | 18 | ||||
| Section 7.05 |
Electrical Lines | 18 | ||||
| Section 7.06 |
Surrender of Premises | 18 | ||||
| ARTICLE VIII SERVICES AND UTILITIES |
19 | |||||
| Section 8.01 |
Landlord’s Services | 19 | ||||
| Section 8.02 |
Electricity | 19 | ||||
i
| ARTICLE IX USE AND OPERATION |
20 | |||||
| Section 9.01 |
Use | 20 | ||||
| Section 9.02 |
Rules and Regulations Established by Landlord | 20 | ||||
| Section 9.03 |
Restriction on Tenant’s Activities | 20 | ||||
| Section 9.04 |
Illegal Purposes | 21 | ||||
| ARTICLE X TRANSFER OF INTEREST; PRIORITY OF LIEN |
21 | |||||
| Section 10.01 |
Assignment, Subletting, etc. | 21 | ||||
| Section 10.02 |
Subordination | 23 | ||||
| Section 10.03 |
Attornment | 23 | ||||
| Section 10.04 |
Transfer of Landlord’s Interest | 23 | ||||
| Section 10.05 |
Mortgagee’s Rights | 24 | ||||
| ARTICLE XI COMMON AREA |
24 | |||||
| Section 11.01 |
Use of Common Area | 24 | ||||
| Section 11.02 |
Landlord’s Rights | 24 | ||||
| Section 11.03 |
License Numbers | 25 | ||||
| Section 11.04 |
Landlord’s Obligation with Respect to Parking Area: | 25 | ||||
| ARTICLE XII DESTRUCTION OR DAMAGE |
25 | |||||
| Section 12.01 |
Rent Abatement | 25 | ||||
| Section 12.02 |
Option to Terminate | 25 | ||||
| Section 12.03 |
Landlord’s Obligation to Rebuild | 26 | ||||
| Section 12.04 |
Landlord’s Liability: | 26 | ||||
| ARTICLE XIII CONDEMNATION |
26 | |||||
| Section 13.01 |
Definitions | 26 | ||||
| Section 13.02 |
Taking of Demised Premises | 26 | ||||
| Section 13.03 |
Taking for Temporary Use: | 26 | ||||
| Section 13.04 |
Disposition of Awards: | 27 | ||||
| ARTICLE XIV TENANT’S INSURANCE |
27 | |||||
| Section 14.01 |
General Insurance | 27 | ||||
| Section 14.02 |
Liability Insurance | 27 | ||||
| Section 14.03 |
Property Insurance | 28 | ||||
| Section 14.04 |
Worker’s Compensation Insurance | 28 | ||||
| Section 14.05 |
Other Insurance | 28 | ||||
| Section 14.06 |
Waiver of Subrogation | 28 | ||||
| Section 14.07 |
Insurance Rate | 28 | ||||
| ARTICLE XV INDEMNIFICATION AND LIABILITY |
28 | |||||
| Section 15.01 |
Indemnification | 28 | ||||
| Section 15.02 |
Waiver and Release | 29 | ||||
| Section 15.03 |
Liability of Landlord | 29 | ||||
| ARTICLE XVI DEFAULT; REMEDIES |
30 | |||||
| Section 16.01 |
Default | 30 | ||||
| Section 16.02 |
Landlord’s Remedy | 31 | ||||
ii
| Section 16.03 |
Landlord’s Re-Entry | 31 | ||||
| Section 16.04 |
Landlord’s Additional Remedies | 31 | ||||
| Section 16.05 |
Agreed Final Damages | 32 | ||||
| Section 16.06 |
Waiver of Right of Redemption | 32 | ||||
| Section 16.07 |
Landlord’s Right to Perform for Account of Tenant; | |||||
| Letter of Credit: | 32 | |||||
| Section 16.08 |
Additional Remedies, Waivers, etc. | 33 | ||||
| Section 16.09 |
Intentionally Deleted | 34 | ||||
| ARTICLE XVII TENANT’S ESTOPPEL CERTIFICATE |
34 | |||||
| ARTICLE XVIII RIGHT OF ACCESS |
34 | |||||
| ARTICLE XIX COVENANT OF QUIET ENJOYMENT |
34 | |||||
| ARTICLE XX MISCELLANEOUS |
34 | |||||
| Section 20.01 |
Interpretation | 34 | ||||
| Section 20.02 |
Construction of Words and Phrases | 35 | ||||
| Section 20.03 |
Written Agreement Required | 35 | ||||
| Section 20.04 |
Notice: | 36 | ||||
| Section 20.05 |
Survival of Provisions upon Termination of Lease | 36 | ||||
| Section 20.06 |
Successors and Assigns | 36 | ||||
| Section 20.07 |
Intentionally Deleted | 36 | ||||
| Section 20.08 |
Tenant at Sufferance | 36 | ||||
| Section 20.09 |
Interest | 37 | ||||
| Section 20.10 |
Late Charge | 37 | ||||
| Section 20.11 |
Non-Waiver | 37 | ||||
| Section 20.12 |
Broker | 37 | ||||
| Section 20.13 |
Short Form Lease | 37 | ||||
| Section 20.14 |
Mechanics’ Liens | 37 | ||||
| Section 20.15 |
Corporate Authority | 38 | ||||
| Section 20.16 |
Force Majeure | 38 | ||||
| Section 20.17 |
Governing Law | 38 | ||||
| Section 20.18 |
Financial Statements | 38 | ||||
| Section 20.19 |
Flood Risk Notice | 38 | ||||
| ARTICLE XXI ENVIRONMENTAL MATTERS |
39 | |||||
| Section 21.01 |
Industrial Site Recovery Act | 39 | ||||
| Section 21.02 |
Spill Act | 41 | ||||
| Section 21.03 |
Toxic and Hazardous Materials | 42 | ||||
| Section 21.04 |
Other Environmental Laws: | 42 | ||||
| Section 21.05 |
Survival of Environmental Terms and Conditions. | 42 | ||||
| Section 21.06 |
Landlord Representation. | 42 | ||||
EXHIBITS
| Exhibit A | Legal Description of the Land and Site Layout | |
| Exhibit B | Rental Plan showing the Demised Premises | |
| Exhibit C-1 | Space Plan | |
| Exhibit C-2 | Tenant Workletter | |
| Exhibit D | Rules and Regulations | |
| Exhibit E | Building Janitorial Specifications | |
| Exhibit F | Commencement Date Addendum | |
| Exhibit G | Form of Letter of Credit | |
| Exhibit G-1 | Approved Form of Letter of Credit |
iii
THIS IS A CONFIDENTIAL DOCUMENT
LEASE
THIS AGREEMENT OF LEASE (together with all Exhibits and Schedules attached or to be attached hereto, this “Lease”) is dated as of February 4, 2025 between THE CONNELL COMPANY, a New Jersey corporation, whose address is 300 Connell Drive, Berkeley Heights, New Jersey 07922 (subject to Section 10.04 hereof, “Landlord”) and KALARIS THERAPEUTICS, INC., Delaware corporation whose address is 628 Middlefield Road, Palo Alto, California 94301 (“Tenant”).
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Demised Premises (hereinafter defined) for the Term (hereinafter defined) at the rent and subject to all of the terms and conditions set forth herein. Intending to be legally bound hereunder and in consideration of $1.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree with each other as follows:
ARTICLE I. BASIC LEASE INFORMATION.
Section 1.01 Building and Land; Real Estate:
The “Building” is 400 Connell Drive, Berkeley Heights, New Jersey 07922. The “Land” shall mean all that real property which is more particularly described in Exhibit A attached hereto and made a part hereof (such Exhibit A containing both a legal description of the Land and a site layout thereof). The Building and the Land are sometimes referred to collectively herein as the “Real Estate.”
Section 1.02 Demised Premises:
The Demised Premises is the portion of the Building leased to Tenant, consisting of 5,201 usable square feet of floor area converted to 6,371 rentable square feet of floor area by multiplying the usable square feet by 122.5%, and located on the fifth (5th) floors and designated as “Demised Premises” on the “Rental Plan” (which is attached hereto as Exhibit B). The Demised Premises includes any alterations, additions, improvements or repairs of any nature made thereto. This computation of rentable square footage shall be binding and conclusive on the parties and their successors and assigns.
Section 1.03 Base Rent:
“Base Rent” in the applicable period of the Term of this Lease shall equal the applicable amount set forth below.
| (i) | Months 1 through 4: $0.00 per month; |
| (ii) | Months 5 through 16: $27,873.13 per month ($52.50 per rentable square foot of the Demised Premises per annum); |
| (iii) | Months 17 through 28: $28,430.59 per month ($53.55 per rentable square foot of the Demised Premises per annum); |
| (iv) | Months 29 through 40: $28,998.67 per month ($54.62 per rentable square foot of the Demised Premises per annum); |
| (v) | Months 41 through 52: $29,577.37 per month ($55.71 per rentable square foot of the Demised Premises per annum); |
| (vi) | Months 53 through 64: $30,166.69 per month ($56.82 per rentable square foot of the Demised Premises per annum); |
| (vii) | Months 65 through 76: $30,771.93 per month ($57.96 per rentable square foot of the Demised Premises per annum); |
In all cases, Base Rent during any renewal term shall be governed by Section 4.01 hereof. Base Rent shall be payable per Section 5.01 hereof (it being understood that payment for electricity per Section 8.02 hereof is an amount in addition to Base Rent).
The parties agree that in the event Tenant receives any days of free Base Rent pursuant to Section 3.01(f) hereof, then the month references set forth above in clauses (i) through (vii) of this Section 1.03 shall be calculated with reference to the period starting immediately after the conclusion of the Free Base Rent Period (as defined in Section 3.01(f)); by way of example, if Tenant were entitled under Section 3.01(f) to a Free Base Rent Period of ten (10) days starting at the Commencement Date, then the Month 1 through 4 period set forth in clause (i) above would start immediately after the conclusion of such ten (10) day Free Base Rent Period.
Section 1.04 Letter of Credit:
(a) Tenant shall cause an irrevocable, transferable letter of credit, substantially in the form of Exhibit G attached hereto (the “Letter of Credit”), to be issued and outstanding in favor of Landlord, at all times from the date this Lease is fully executed and delivered by Landlord and Tenant until sixty (60) days after the expiration or earlier termination of this Lease. Each Letter of Credit shall, unless otherwise agreed by Landlord in a signed writing, (i) be issued by a domestic United States financial institution with a credit rating of at least A1 by Moody’s Investors Service, Inc. (“Moody’s”) (or upon modification or replacement of such financial rating system, its then equivalent rating) (the “Required Credit Rating”) and otherwise reasonably acceptable to Landlord (the “Letter of Credit Provider”), (ii) have an expiration date of not earlier than one calendar year following the date of issue, (iii) at all times be in an available amount of not less than the Required Letter of Credit Amount (as defined in Section 1.04(c) hereof), and (iv) provide that during the Term it shall be automatically extended for an additional period of one year from the scheduled expiration date unless at least thirty (30) days prior to such date Landlord receives from the Letter of Credit Provider thereof notice in writing that such Letter of Credit Provider elects not to renew such Letter of Credit for such additional period. If the Letter of Credit Provider elects not to renew such Letter of Credit for such additional period, then Tenant shall cause a new Letter of Credit to be issued in replacement thereof from a Letter of Credit Provider at least fifteen (15) days prior to the expiration date of the existing Letter of Credit. Landlord hereby approves (i) First Citizen’s Bank & Trust Company, which is rated BBB+ by S&P, as the issuer of the Letter of Credit, and (ii) the form of letter of credit attached hereto as Exhibit G-1.
(b) If, while a Letter of Credit is required to be outstanding hereunder, the financial rating of the Letter of Credit Provider providing the Letter of Credit is less than the Required Credit Rating, then Landlord may require Tenant to provide, and Tenant shall provide, a replacement Letter of Credit issued by a Letter of Credit Provider with a credit rating that meets the Required Credit Rating within thirty (30) days of demand therefor by Landlord, which replacement Letter of Credit shall comply with the terms of Section 1.04(a) hereof, provided that nothing in this Section 1.04(b) shall affect the obligations of Tenant under Section 1.04(a) hereof. Promptly following receipt of such replacement Letter of Credit, Landlord shall surrender the Letter of Credit being replaced to the Letter of Credit Provider thereof. Notwithstanding anything to the contrary contained herein, this paragraph 1.04(b) shall not apply to (x) First Citizen’s Bank & Trust Company, so long as its credit rating remains at or above the BBB+ S&P rating stated in Section 1.04(a) or (y) any issuer of a Letter of Credit approved by Landlord in writing pursuant to this Lease, so long as such issuer’s credit rating remains at or above its credit rating at the time of Landlord’s approval of the applicable Letter of Credit.
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(c) “Required Letter of Credit Amount” shall mean an amount equal to $500,000.00, as adjusted pursuant to the following sentence. So long as no Event of Default has occurred and is then continuing, the Required Letter of Credit Amount may be reduced to the following amounts (on the applicable dates set forth below):
(i) On the first day of the twenty-ninth (29th) full calendar month after the Commencement Date: $425,000.00;
(ii) On the first day of the fortieth (40th) full calendar month after the Commencement Date: $350,000.00;
(iii) On the first day of the fifty-second (52nd) full calendar month after the Commencement Date: $275,000.00; and
(iv) On the first day of the sixty-fourth (64th) full calendar month after the Commencement Date: $200,000.00.
The Required Letter of Credit shall not be further reduced below $200,000.00; provided that the foregoing sentence shall not in any manner limit the rights of Landlord as provided in Section 16.07 of this Lease.
Section 1.05 Term:
The “Term” of this Lease shall commence on the Commencement Date and shall continue for six (6) years and four (4) months, or seventy six (76) months in the aggregate, thereafter (provided that if the Commencement Date is not the first day of a month, then in addition to such seventy six (76) month period, the Term shall include an additional number of days equal to the number of days in the period from and including the Commencement Date to and including the last day of the month (of the same year) on which the Commencement Date occurred), unless sooner terminated or renewed in accordance with the provisions of this Lease.
Section 1.06 Tenant’s Pro Rata Share:
For purposes of this Lease, Tenant’s Pro Rata Share shall be the ratio of the total rentable square footage of the Demised Premises to the total rentable square footage of the Building. Landlord and Tenant have determined that Tenant’s Pro Rata Share is 2.429%, calculated as follows: Demised Premises of 6,371 rentable sq. ft. divided by the rental Area of Building of 262,294 sq. ft. = 0.02429 x 100 = 2.429%. This determination of Tenant’s Pro Rata Share shall be binding and conclusive on the parties, and their successors and assigns.
Section 1.07 Intentionally Deleted:
ARTICLE II. DEFINITIONS.
Section 2.01 As used herein, the terms below shall have the following meanings:
(a) “Appraisal Procedure” shall mean the following: within ten (10) days after the expiration of the fifteen (15) day period specified in Section 4.01(b) hereof, each party shall appoint a disinterested, independent appraiser who is a member of the American Institute of Real Estate Appraisers (or a successor organization or, if none exists, the closest similar organization) and has at least five years experience appraising rental properties in New Jersey of the general location, type and character as the Demised Premises (an “Appraiser”). Within twenty (20) days after their appointment, the two Appraisers so appointed shall appoint a third Appraiser. If no such third Appraiser is appointed within thirty (30) days after the appointment of the two Appraisers, then either party may apply to the American Arbitration Association (“AAA”) to make such appointment, and both parties shall be bound by such appointment.
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Each Appraiser appointed pursuant to the foregoing procedure shall be instructed to determine the amount of Market Rent within twenty (20) days after his or her appointment. Each of the three Appraisers shall determine the value of Market Rent applying the parameters set forth in Section 4.01(b). The values of the Market Rent determined by each of the three Appraisers shall then be averaged, the determination which differs most from such average shall be excluded, the remaining two values shall then be averaged, and such average shall be the Market Rent, which shall be final and binding on the parties. The expenses and fees of all such Appraisers shall be shared equally between Landlord and Tenant.
(b) “Assessed Valuation” shall mean (i) the assessed valuation of the Building plus (ii) one-third (1/3) of the assessed valuation of the Land, in each case including any added and/or omitted assessments, and in each case as determined by the real estate tax records of the Township of Berkeley Heights.
(c) “Base Rent” shall have the meaning set forth in Section 1.03 of this Lease.
(d) “Base Tax Rate” shall mean the real estate tax rate in effect for the calendar year 2025.
(e) “Building” shall have the meaning set forth in Section 1.01 of this Lease.
(f) “Building 300” shall mean the building located at 300 Connell Drive, Berkeley Heights, New Jersey 07922, as designated on Exhibit A attached hereto. For purposes of clarification, any parking lots, roadways or courtyards located anywhere on the Land are not included within the definition of Building 300.
(g) “Building 500” shall mean the building previously anticipated to be located at 500 Connell Drive, Berkeley Heights, New Jersey 07922 as designated on Exhibit A attached hereto (it being understood that only the foundations of Building 500 previously were constructed). For purposes of clarification, any parking lots, roadways or courtyards located anywhere on the Land are not included within the definition of Building 500.
(h) “Building Operating Costs” shall have the meaning set forth in Section 5.03(c),(d) and (e) of this Lease.
(i) The “Commencement Date” of this Lease shall be the earliest of (i) the day on which Landlord, having substantially completed the Tenant Work, obtains a Certificate of Occupancy or Temporary Certificate of Occupancy for the Demised Premises and delivers the Demised Premises to Tenant, provided that with respect to a Temporary Certificate of Occupancy, (x) Tenant can operate its business under such Temporary Certificate of Occupancy and (y) Landlord covenants not to let the Temporary Certificate of Occupancy lapse prior to issuance of a permanent Certificate of Occupancy; or (ii) the day on which Tenant commences to do business in the Demised Premises. Notwithstanding the foregoing, if and to the extent that there is any delay in the completion of the Tenant Work which is attributable to the act(s) or omission(s) of Tenant or Tenant’s Agents (each, a “Tenant Delay”), then the “Commencement Date” for all purposes under this Lease shall be deemed to be the day on which the Commencement Date would have occurred but for such Tenant Delay. The parties agree that, without limiting the generality of what constitutes a Tenant Delay, any of the following events that delay the Commencement Date shall be treated as a Tenant Delay: (I) special equipment, fixtures or materials requested by Tenant; (II) changes, alterations or additions to the Tenant Work after the parties have agreed on the Plans and Specifications, or (III) the delay or failure of Tenant in supplying information or approving or authorizing any applicable plans, specifications, or other matters as required under this Lease or any other act or omission of Tenant not in compliance with this Lease. Promptly following the Commencement Date, Landlord and Tenant shall execute a Commencement Date Addendum in the form attached hereto as Exhibit F which shall confirm the Commencement Date (it being agreed that the failure of either party to execute the Commencement Date Addendum shall not in any way affect the Commencement Date or any other terms of this Lease).
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(j) The “Common Area” shall mean, collectively, without limitation, the hallways, entryways, stairs, cafeteria (in Building 300), elevators, driveway, sidewalks, parking areas, loading areas, trash facilities, and all other areas and facilities of the Building and the Land provided from time to time by Landlord for the general use and convenience of Tenant with other tenants and their respective employees, servants, invitees, licensees or other visitors; provided, however, that for purposes of clarification, Common Area (i) shall not include Building 300 (other than the cafeteria located therein and reasonable accessways thereto) or Building 500 but (ii) shall include any parking lots, roadways or courtyards located anywhere on the Land.
(k) “Connell Park” shall mean the corporate park located in Berkeley Heights, New Jersey which is commonly known as “The Park” (f/k/a “Connell Park” and “Connell Corporate Park”).
(l) “Demised Premises” shall have the meaning set forth in Section 1.02 of this Lease.
(m) “Expiration Date” shall be the last day of the Term. If this Lease shall have been renewed, the Expiration Date shall be the last day of the Term as so renewed.
(n) “Extra Taxes” shall have the meaning set forth in Section 5.02(b) of this Lease.
(o) “Land” shall have the meaning set forth in Section 1.01 of this Lease.
(p) “Letter of Credit” shall have the meaning set forth in Section 1.04 of this Lease.
(q) “Letter of Credit Provider” shall have the meaning set forth in Section 1.04 of this Lease.
(r) “Mortgage” shall mean any mortgage, deed to secure debt, trust indenture, deed of trust or other security document or instrument which may now or hereafter affect, encumber or be a lien upon the Demised Premises, the Building, the Land, and any spreading agreements, including, without limitation, any renewals, modifications, consolidations, replacements and extensions thereof.
(s) “Mortgagee” shall mean the holder of any Mortgage at any time.
(t) “Operating Increase Amount” shall have the meaning set forth in Section 5.03(a) of this Lease.
(u) “Operating Year” shall mean any calendar year. The “First Operating Year” is the calendar year 2025.
(v) “Parking Area” shall mean those portions of the Land which are designated for parking by Landlord, from time to time. Up to 10% of the parking spaces may be designated reserved by the Landlord; it being understood that Section 8.01(c) hereof sets forth the number of parking spaces designated as reserved for Tenant and the parking ratio for Tenant’s access to parking spaces.
(w) “Plans and Specifications” shall have the meaning set forth in Section 3.01 hereof.
(x) “Real Estate” shall have the meaning set forth in Section 1.01 hereof.
(y) “Real Estate Tax Base” shall mean the dollar amount of real estate tax payable with respect to the Real Estate on an annual basis, determined by multiplying the Assessed Valuation by the Base Tax Rate plus any charges or assessments imposed upon the Real Estate which are reasonably anticipated to continue thereafter (it being understood that the Real Estate Tax Base shall not include any real estate tax which may be imposed on the building value (as opposed to the land value) of Building 300 or Building 500 (if and when such building is constructed).
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(z) “Rent” shall mean the aggregate of Base Rent, Tax Increase Amount, Extra Taxes, Operating Increase Amount (each as defined herein) and any other charges payable to Landlord hereunder, including utility charges.
(aa) “Security Deposit” shall have the meaning set forth in Section 16.07 hereof.
(bb) “Tax Increase Amount” shall have the meaning set forth in Section 5.02(a) of this Agreement.
(cc) “Tax Year” shall mean any calendar year.
(dd) “Taxes” shall mean all real estate taxes, charges and assessments imposed upon the Real Estate (it being understood that (i) Taxes shall not include any real estate taxes, charges and assessments imposed upon the building portion, as opposed to the land portion, of Building 300 or Building 500 if and when such building is constructed and (ii) subject to any Extra Taxes, in determining Taxes attributable to the Land (as opposed to the Building) which shall be allocated to this Lease, one-third (1/3) of the assessed valuation of the Land (times the applicable real estate tax rate), as determined by the real estate tax records of the Township of Berkeley Heights, shall be allocated to this Lease). If any franchise, capital stock, capital gains, rent, income, profit or any other tax or charge of any nature whatsoever shall be substituted in whole or in part for the current ad valorem taxes now or hereafter imposed upon the Real Estate due to a change in the method of taxation or assessment, such franchise, capital stock, capital gains, rent, income, profit or other tax or charge shall be deemed included as Taxes.
(ee) “Tenant’s Agents” shall mean, without limitation Tenant’s employees, servants, representatives, agents, licensees, permitted subtenants and assignees, contractors, heirs, successors, legatees, and devisees.
(ff) “Tenant’s Pro Rata Share” shall have the meaning set forth in Section 1.06 of this Lease.
(gg) “Tenant Work” shall have the meaning set forth in Section 3.01 of this Lease.
(hh) “Term” shall have the meaning set forth in Section 1.05 of this Lease.
ARTICLE III. PREPARATION OF THE DEMISED PREMISES.
Section 3.01 Tenant Work:
(a) The parties agree that the space plan attached hereto as Exhibit C-1 (the “Space Plan”) shall form the starting point for the design and construction of the Tenant Work. The parties agree that Landlord shall retain an architect (the “Architect”) to design the interior of the Demised Premises and prepare complete interior construction drawings, including layouts and interior specifications and, as necessary, mechanical, electrical, plumbing and fire protection drawings for the preparation of the Demised Premises, in each case substantially consistent with the Space Plan (the “Plans and Specifications”). Tenant shall cooperate as necessary in connection with the preparation of the Plans and Specifications, in a complete and timely manner and as reasonably requested by Landlord, and without limiting the foregoing, Tenant shall provide to Landlord all reasonable information as shall be reasonably required for the preparation of mechanical drawings and other Plans and Specifications.
(b) Landlord shall cause the Plans and Specifications to be delivered to Tenant for Tenant’s review and consideration as soon as reasonably practicable. Tenant shall inform Landlord of any requested changes as soon as possible, but in no event later than ten (10) business days following Tenant’s receipt of the Plans and Specifications. Any requested changes must be acceptable to Landlord, and the
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final Plans and Specifications must be mutually agreed upon by Landlord and Tenant. Tenant shall act in a reasonable manner in approving or objecting to the Plans and Specifications. The parties agree that once Tenant shall have approved the Plans and Specifications Landlord shall not have any responsibility for such Plans and Specifications (including the functionality thereof), other than to have the construction performed in accordance with such Plans and Specifications pursuant to the terms of this Lease. For purposes of clarification, it is agreed that Tenant shall be responsible, at its own cost, for all furniture and for the installation of any data cabling, telecommunications wiring, and any access control systems (including, without limitation, any card readers or other access control features at the entrance of the Demised Premises) within the Demised Premises (and any such installations must be done by Tenant in compliance with the terms of this Lease). With respect to all aspects of the Tenant Work, Tenant agrees to reasonably cooperate with Landlord in an effort to have the Tenant Work completed as soon as possible. Any material change or modification of the Plans and Specifications shall not be valid or binding unless consented to by Landlord in writing.
(c) The Tenant Workletter, annexed hereto as Exhibit C-2, sets forth in detail the parties’ understanding regarding building standards, Tenant Work and certain other aspects of Tenant Work in the Building (including, without limitation, the respective responsibilities of the parties with respect to the cost of the Tenant Work).
(d) Construction, according to the Plans and Specifications (“Tenant Work” and sometimes referred to herein as “initial Tenant Work”) shall be carried out and pursued to completion by Landlord with the cooperation of Tenant. In that connection:
(i) Landlord shall have the sole right to designate general contractors and subcontractors for the Tenant Work; provided, however, that Landlord will competitively bid the Tenant Work to at least three (3) qualified general contractors selected by Landlord. Landlord will provide Tenant with appropriate information concerning bids received from such general contractors and shall, prior to selecting a general contractor to perform the Tenant Work, reasonably consult with Tenant concerning such decision.
(ii) Landlord shall apply for all approvals and permits legally required in connection with the performance of initial Tenant Work. If necessary, Tenant shall join in the execution of the applications, and at Landlord’s request, shall cooperate with the prosecution of the application. Landlord shall be responsible for the actual fees and costs of any such applications, it being understood for purposes of clarification that any such fees and costs shall be part of the total cost of the construction of the Tenant Work for purposes of calculating any allowances to Tenant (and reimbursement obligations of Tenant) described in Exhibit C-2 this Lease.
(e) Unless otherwise specifically stated in the Plans and Specifications, all materials for the Tenant Work shall be in accordance with Building standards. Landlord shall cause the Tenant Work to be completed in a good and workman-like manner and in conformance with applicable building codes and laws.
(f) The parties anticipate that the Tenant Work, as described in this Section 3.01, will be substantially complete and that the Commencement Date shall have occurred within one hundred twenty (120) days from the date construction permits for the Tenant Work are issued by the Township of Berkeley Heights (the “Target Commencement Date”), and Landlord agrees to use reasonable good faith efforts to cause the Tenant Work to be substantially complete and the Commencement Date to occur by the Target Commencement Date. In the event that the Tenant Work is not substantially complete and the Commencement Date has not occurred by the Target Commencement Date, then Landlord shall continue to use reasonable good faith efforts to cause the Tenant Work to be substantially complete and the Commencement Date to occur promptly thereafter; provided, however, that Landlord shall not have any liability for the failure of the Tenant Work to be substantially complete and the Commencement Date to have occurred by any particular date, except as expressly set forth in this Section 3.01(f). Notwithstanding
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the foregoing, the parties agree that if the Commencement Date shall not have occurred by the date which is sixty (60) days immediately following the Target Commencement Date (the last day of such sixty (60) day period being referred to as the “Completion End Date”), then as Tenant’s exclusive remedy for such failure, Tenant shall receive for each day beyond the Completion End Date until the Commencement Date occurs, one (1) day of free Base Rent (the number of days of free Base Rent that Tenant receives pursuant to this sentence is referred to as the “Free Base Rent Period”), with such Free Base Rent Period starting on the Commencement Date; provided, however, that: (A) Tenant shall not be entitled to receive any given day of such free Base Rent to the extent that the Commencement Date did not occur by the Completion End Date or any date thereafter, by reason of any Tenant Delay or Force Majeure; and (B) the Term of this Lease shall be extended by the number of days equal to the Free Base Rent Period.
(g) Tenant acknowledges that the Building is a multi-tenant building, and that Landlord and other tenants in the Building and their respective contractors will be performing tenant fit-up work and other construction in the Building from time to time, during both Business Hours and non-Business Hours.
Section 3.02 Tenant’s Early Access:
(a) Landlord shall permit Tenant to enter the Demised Premises before Tenant Work is substantially completed for the purposes of inspection and, during the period which is thirty (30) days immediately prior to the date the Tenant Work is substantially completed, for the purposes of installation of Tenant’s furniture, fixtures, equipment and data/telephone cabling (including, without limitation, security, audio/visual equipment and white noise), in each case during normal Business Hours. All of the foregoing work and installations (including the contractors selected by Tenant to perform such work) are subject to the terms of, and shall be performed by Tenant, at Tenant’s cost, in accordance with the terms of this Lease (including Section 7.03 hereof).
(b) If Tenant is permitted access to the Demised Premises prior to the Commencement Date (including, without limitation, pursuant to Section 3.02(a) hereof), it shall be at Tenant’s sole risk. The foregoing license is conditioned upon Tenant and Tenant’s Agents not interfering with Landlord or Landlord’s completion of the Tenant Work, Landlord’s employees, agents, servants, representatives or licensees, or the workmen of any other tenant. This license may be withdrawn by Landlord at any time, upon written notice to Tenant. Landlord shall not be liable in any way for any injury, loss or damage of any nature whatsoever occurring as a result of early access to the Demised Premises by Tenant or any employee, agent, servant, contractor or representative thereof. Landlord shall have the right to impose such additional conditions on tenant’s early entry as Landlord, in its reasonable discretion, deems appropriate.
Section 3.03 No Representation
Landlord has made and makes no representations, covenants or warranties with respect to the Demised Premises, the Building or the Land, except as expressly set forth in this Lease. Notwithstanding the foregoing, Landlord represents that there are no title encumbrances on or affecting the Demised Premises which prevent Landlord from leasing the Demised Premises to Tenant in accordance with, and subject to, the terms and conditions of this Lease.
ARTICLE IV. OPTION TO RENEW; TERMINATION OPTION.
Section 4.01 Option to Renew:
(a) Tenant shall have two (2) options to renew this Lease (each, a “Renewal Option”) for all (but not less than all) of the Demised Premises on the same terms and conditions of this Lease and in the manner provided below, each for a term of three (3) years (the first three (3) year renewal being sometimes referred to herein as the “First Renewal Term” and the second three (3) year renewal being sometimes referred to herein as the “Second Renewal Term”), provided that there has been no Event of Default (or event or condition which, with the passage of time or giving of notice, or both, would constitute an Event
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of Default) that has occurred and is continuing at the time of exercise of a Renewal Option or as of the commencement of the applicable renewal term and that there have not been repeated recurring Events of Default (whether or not previously cured) during the Term. In the event Tenant desires to elect to exercise the first Renewal Option, Tenant shall give Landlord written notice of its exercise of the first Renewal Option no more than fifteen (15) and no less than twelve (12) months prior to the Expiration Date of the Term. Assuming the first Renewal Option is exercised, and in the event Tenant desires to elect to exercise the second Renewal Option, Tenant shall give Landlord written notice of its exercise of the second Renewal Option no more than fifteen (15) and no less than twelve (12) months prior to the expiration date of the First Renewal Term. If Tenant fails to timely notify Landlord of its exercise of a Renewal Option, then all Renewal Options shall expire.
(b) Base Rent during a renewal term shall equal the prevailing market rental rate for office space of comparable quality, design and location for tenants occupying an amount of space comparable to the amount then leased by Tenant, taking into consideration any concessions (e.g., rent abatement, tenant improvement and other allowances) then being offered by landlords to prospective tenants for comparable space (“Market Rent”), but in no case less than the then existing Base Rent. The parties shall negotiate in good faith to establish the Market Rent. If the parties are unable to agree on Market Rent within fifteen (15) days after Tenant gives Landlord its notice exercising the Renewal Option (the “Notice Date”), then the Appraisal Procedure (as defined in Section 2.01) shall be utilized.
Section 4.02 Termination Option:
Tenant shall have one (1) option to terminate this Lease (the “Termination Option”) with respect to all (but not less than all) of the Demised Premises, with such termination being effective on the date which is four (4) years and four (4) months after the Commencement Date (the “Termination Date”), provided that (i) there has been no Event of Default that has occurred and is continuing at the time of exercise of the option or as of the effective date of the termination, and (ii) Tenant pays Landlord, at least thirty (30) days before the Termination Date, an amount equal to the Termination Amount (as defined below). In the event Tenant desires to elect the Termination Option, Tenant shall give Landlord written notice of its exercise of the Termination Option at least twelve (12) months prior to the Termination Date (the date which is twelve (12) months prior to the Termination Date is referred to herein as the “Termination Notice Final Date”). If Tenant fails to timely notify Landlord of its exercise of the Termination Option by the Termination Notice Final Date, then the Termination Option shall immediately expire and Tenant shall have no further right to exercise same. The termination of this Lease pursuant to this Section 4.02 shall have the same force and effect as if the Termination Date were the originally scheduled Expiration Date of this Lease (it being understood for purposes of clarification that, if Tenant exercises the Termination Option, Tenant’s obligation to pay Landlord the Termination Amount shall survive the early termination and expiration of this Lease). The term “Termination Amount” means $339,019.50.
ARTICLE V. RENT.
Section 5.01 Base Rent:
Tenant shall pay Base Rent to Landlord, in the amount set forth in Section 1.03, without notice or demand, in monthly installments in advance beginning on the Commencement Date. Each subsequent installment shall be due to and received by the Landlord on or before the first day of each month during the Term. Notwithstanding the foregoing, in the event the Commencement Date is not the first day of the month, on the first day of the first month of the Term in which Base Rent is not $0.00, Tenant shall pay Landlord an amount equal to $929.10 for each day of such first “partial” month of the Term. Base Rent for all other partial months shall be pro-rated.
Section 5.02 Tax Increase Amount:
(a) In addition to Base Rent and all other charges Tenant is required to pay hereunder, Tenant shall pay the Tax Increase Amount (as hereinafter defined) to Landlord as follows:
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(i) If the Taxes for any Tax Year during the Term of this Lease shall be greater than the Real Estate Tax Base, then Tenant shall pay to Landlord, as a component of Rent and as provided in Section 5.02(a)(ii) below, the amount (the “Tax Increase Amount”) determined by multiplying the difference between the Taxes for the applicable Tax Year and the Real Estate Tax Base by Tenant’s Pro Rata Share.
(ii) Within one hundred and eighty (180) days after the commencement of each Tax Year after and including the year in which the Assessed Valuation has been established, or as soon as practicable thereafter, Landlord shall submit to Tenant a copy of the bill(s) for the Taxes for such Tax Year and a statement (the “Tax Statement”), which shall indicate: (i) any annual increase in the Taxes, (ii) the effective date of such increase, (iii) the Tax Increase Amount due, if any, and (iv) any Extra Taxes due as set forth below. Tenant shall pay the Tax Increase Amount to Landlord within thirty (30) days after the issuance of the Tax Statement. Any Tax Increase Amount for a period of less than a full Tax Year shall be ratably apportioned.
(b) Tenant shall be liable for any portion of the Taxes, charges and assessments imposed upon the Real Estate during the Term of this Lease which are attributable to extraordinary improvements in the Demised Premises or the Building constructed at Tenant’s expense or for Tenant’s specific benefit and for which the taxing authority has assigned a distinguishable increase in valuation in computing the Assessed Valuation (“Extra Taxes”). Tenant shall pay to Landlord such Extra Taxes within thirty (30) days after issuance of the Tax Statement as set forth above. Any Extra Taxes due for a period of less than a full year shall be ratably apportioned. Tenant shall not be liable for any Extra Taxes attributable to the improvements of any other tenant in the Building.
(c) Tenant’s obligations for payment of Tax Increase Amount or Extra Taxes during the Term shall survive the expiration or early termination of this Lease.
Section 5.03 Building Operating Costs; Adjustments:
(a) Tenant hereby agrees that for each Operating Year during the Term of this Lease for which the Building Operating Costs (as hereinafter defined) budgeted for such Operating Year exceeds the Building Operating Costs for the First Operating Year, Tenant shall pay to Landlord as a component of Rent and in the manner further provided in this Section 5.03, an amount (the “Operating Increase Amount”) determined by multiplying the difference between the budgeted Building Operating Costs for the applicable Operating Year and the Building Operating Costs in the First Operating Year by Tenant’s Pro Rata Share. Within one hundred and eighty (180) days after the commencement of each Operating Year, or as soon as practicable thereafter, except for the First Operating Year, Landlord shall present to Tenant a statement (the “Operating Statement”) showing, inter alia, the Operating Increase Amount, if any, due hereunder (the date upon which the Operating Statement is presented to Tenant being hereinafter referred to as the “Billing Date”). Tenant shall pay the Operating Increase Amount no less frequently than monthly in advance in an amount determined by multiplying the Operating Increase Amount for the applicable Operating Year by one-twelfth (1/12). These monthly payments of the Operating Increase Amount shall be added to and paid simultaneously with the Base Rent. If the total of such monthly payments made by Tenant during any Operating Year is less than the Operating Increase Amount, as shown on the next Operating Statement presented to Tenant, Tenant shall pay the difference to Landlord within thirty (30) days after the Billing Date. If the total of such monthly payments made by Tenant during any year is greater than the Operating Increase Amount, as shown on the next Operating Statement presented to Tenant, Landlord shall refund the excess amount to Tenant within thirty (30) days after the Billing Date. Each Operating Statement shall indicate (i) the Operating Increase Amount for the current year; (ii) the difference between the actual dollar amount of Building Operating Costs and the budgeted Building Operating Costs for the preceding Operating Year; (iii) the total of the monthly payments made by Tenant hereunder for the account of the preceding Operating Year, if applicable; and (iv) the amount of any overpayment or underpayment by Tenant on account of the Operating Increase Amount for the preceding year.
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(b) If Tenant disputes the amount or characterization of any item contained in the Operating Statement by giving written notice thereof to Landlord within ninety (90) days of the Billing Date, Tenant shall have the right, provided that there has been no Event of Default (or event or condition which, with the passage of time or giving of notice, or both, would constitute an Event of Default) that has occurred and is continuing at such time, to designate a firm of independent certified public accountants reasonably acceptable to Landlord (and whose compensation is not, directly or indirectly, contingent in whole or in part on the results of the audit) to audit Landlord’s records upon which the Operating Statement is based, provided Tenant first pays all sums due as shown on the Operating Statement first and such notice identifies with specificity the particular item(s) in the Operating Statement that Tenant believes is/are incorrect. Such audit shall be conducted promptly after Tenant’s notice of dispute is given to Landlord and, unless otherwise specified by Landlord, shall be conducted during regular business hours at the office where Landlord maintains its books and records. The fee for any audit conducted on Tenant’s behalf shall be borne solely by Tenant (subject to the last sentence of this Section 5.03(b)). Landlord shall have the right, at its sole expense (subject to the last sentence of this Section 5.03(b)), to have Tenant’s audit reviewed by a mutually agreed upon third party nationally recognized certified public accountant, whose determination shall be conclusive and binding on both Landlord and Tenant. If, as a result of Tenant’s inspection of Landlord’s books or the audit of Landlord’s records and review by independent certified public accountants, an error is discovered in the Operating Statement, Landlord shall revise the Operating Statement accordingly and any overpayment by Tenant shall be refunded by Landlord to Tenant forthwith and any underpayment shall be paid by Tenant on demand. Any audit and subsequent adjustment in payment shall be deemed to be conclusive of settlement of the dispute. If Tenant does not notify Landlord of a dispute within ninety (90) days of receipt of any Operating Statement, Tenant shall be deemed to have accepted such Operating Statement. Landlord’s records and any information provided by Landlord to auditors pursuant to this Section 5.03(b), and the results of any such audit, shall be and remain confidential and shall not be made available by the auditors or Tenant to any other person or entity. If requested by Landlord, Tenant and its auditor shall, prior to any such audit, execute and deliver to Landlord a confidentiality agreement prepared by Landlord, in favor of Landlord. Notwithstanding anything to the contrary contained in this Section 5.03(b), (i) if the final audit discloses an error in Landlord’s determination of the Building Operating Costs in excess of five percent (5%) in Landlord’s favor, then all costs of the audits shall be borne by Landlord and (ii) if the final audit discloses that Landlord’s determination of the Building Operating Costs was not in error in excess of five percent (5%) in Landlord’s favor, then all costs of the audits shall be borne by Tenant.
(c) The “Building Operating Costs” shall include each and every expense incurred in connection with the ownership, administration, management, operation, insurance, maintenance and repair of the Real Estate, or reasonably charged by Landlord if Landlord performs management services in connection with the Real Estate, including management, consulting, reasonable legal and accounting fees, and, further, including but not limited to, wages, salaries and fees paid to persons either employed by Landlord or engaged as independent contractors in performing or managing the services related to the Real Estate, and such other typical items of expense as indicated in Subsection (d) below. If any person or independent contractor is employed with respect to more properties than the Real Estate, the wages, salaries or fees paid therefor shall be allocated based on time spent by such person or Contractor on matters relating to the Real Estate or the degree of responsibility for the Real Estate compared to the other properties involved.
(d) Some of the typical items of expense which comprise or may comprise the Building Operating Costs are or may be the following, but only to the extent that they relate solely or are properly allocated to the Real Estate:
(i) Repairs and maintenance;
(ii) Utility costs (including meter reading and certification service fees), including but not limited to the cost of electricity to power HVAC units and to heat the Building (both Tenant premises and Common Area) and to light the Common Area;
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(iii) Cleaning costs, including but not limited to windows, tenant premises and Common Areas;
(iv) Service contracts including but not limited to elevator, HVAC, janitorial and window cleaning, rubbish removal, exterminating and towel service;
(v) Costs of landscaping and snow removal;
(vi) Cost of redecorating Common Area;
(vii) Wages, salaries and other compensation, including taxes, insurance, retirement, fringe benefits, uniforms payable to employees performing services related to the Real Estate;
(viii) Reasonable fees and other compensation payable to independent contractors or other agents of Landlord performing services related to the Real Estate;
(ix) Cost of Landlord’s insurance, including but not limited to, fire and extended coverage, public liability and property, rental value insurance (including Base Rent, estimated Tax Increase Amount and estimated Operating Increase Amount), elevator, worker’s compensation, boiler and machinery insurance;
(x) Reasonable auditing, accounting, attorneys’ and consultants’ fees and disbursements incurred in connection with the maintenance and operation of the Real Estate;
(xi) A reasonable management fee to compensate Landlord for management services, if Landlord, its employees, agents or servants, perform same, or reasonable and customary fees for management services provided by an independent management company; provided, however, that any such management fees shall be comparable to management fees charged by landlords of office space of comparable quality, design, and location;
(xii) Any other expenses of any kind whatsoever reasonably incurred in managing, operating, maintaining and repairing the Real Estate;
(xiii) The cost, if any, of non-Tenant area capital improvements installed by Landlord after the completion of the Building as amortized over the useful life of such improvements, with only the annual amortized amount attributable to any Operating Year to be included in the Building Operating Costs for that Operating Year; and
(xiv) The costs, charges and expenses, if any, incurred by Landlord in connection with any change of any company providing electric service to the Real Estate, including, without limitation, maintenance, repair, installation, and service costs associated therewith.
(e) The term “Building Operating Costs” shall not include or be deemed or construed to include:
(i) Costs incurred in connection with the construction of the Building or the initial development of the Real Estate;
(ii) Costs for which Landlord is reimbursed by its insurer, any tenant’s insurer or any tenant;
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(iii) Costs attributable to leasing of and improvements to the premises of other tenants in the Building;
(iv) Costs, expenses or expenditures relating to the duties, liabilities or obligations of other tenants in the Building;
(v) Interest, principal or other payments on mortgages or other debt costs, if any;
(vi) Depreciation on the Building;
(vii) Taxes;
(viii) marketing costs, including leasing commissions, attorneys’ fees (in connection with the negotiation and preparation of letters, deal memos, letters of intent, leases, subleases and/or assignments), space planning costs, and other costs and expenses incurred, in any of the foregoing cases, in connection with the lease, sublease and/or assignment negotiations with present or prospective tenants or other occupants of the Building;
(ix) Costs which are paid directly by any tenant;
(x) Costs incurred in connection with the construction, if applicable, of Building 500;
(xi) Rents paid by Landlord under any ground lease of the Land;
(xii) Expenditures that would properly be categorized as capital expenditures under generally accepted accounting principles applied to commercial office properties, except as so permitted by Section 5.03(d)(xiii) hereof;
(xiii) Legal, accounting, and other professional fees with paid in connection with Landlord’s negotiation of, or disputes arising out of, any lease with a tenant or prospective tenant for space in the Building;
(xiv) Wages, salaries, and other compensation paid to any executive employee of Landlord or Landlord’s managing agent that is above the grade of property manager;
(xv) Rent for any office space occupied by Building management personnel to the extent the size or rental rate for of such office space exceeds the size or fair market rental value of office space occupied by management personnel of comparable buildings in the vicinity of the Building;
(xvi) Costs incurred due solely to the gross negligence or willful misconduct of Landlord, and costs incurred as a result of breaches by other tenants in the Building under their respective leases to the extent such costs are recoverable from such tenants in accordance with the terms of the applicable leases;
(xvii) Landlord’s general corporate overhead and administrative expenses, including accounting fees, in each case which are not directly attributable to the operation and management of the Real Estate;
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(xviii) Costs of constructing improvements, replacements, and other installations necessary to comply with any fire, safety or other laws or regulations imposed by any governmental authority applicable to the Building or Common Area during the Term, but only to the extent that such laws or regulations were in existence, and applicable to the Building and/or Common Areas (as applicable), on and as of the effective date of this Lease;
(xix) Costs, fees, dues, contributions or similar expenses for Landlord’s voluntary participation in, or contributions to, political, charitable, or industry organizations;
(xx) Acquisition costs for sculptures, paintings, and other objects of fine art in the Building; provided that the cost oof routine maintenance of such art may be included within Building Operating Costs; and
(xxi) Costs associated with the operation of the business of the entity which constitutes Landlord as the same are distinguished from the costs of operation of the Real Estate, including costs of defending any lawsuits with any mortgagee (except as the actions of Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord’s interest in the Building, costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Building management, or between Landlord and other tenants or occupants.
(f) Landlord and Tenant agree that with respect to all Building Operating Costs, the actual costs thereof for the First Operating Year and for each Operating Year thereafter shall be adjusted to reflect all Building Operating Costs for a full year. Landlord and Tenant further agree that in the event occupancy in the Building during the First Operating Year or any Operating Year thereafter is less than ninety five percent (95%), then Building Operating Costs for the First Operating Year or any other Operating Year, as applicable, shall be “grossed up” to the amount of Building Operating Costs that, using Landlord’s reasonable projections, would normally be expected to be incurred during the First Operating Year or other Operating Year, as applicable, if the Building were 95% occupied during such First Operating Year or other Operating Year.
(g) Tenant’s obligations for payment of Building Operating Costs during the Term shall survive the expiration or early termination of this Lease for costs incurred during the Term.
(h) The amounts due with respect to any Operating Year pursuant to Sections 5.02 and 5.03 of this Lease shall be aggregated or netted, as applicable, so that only one payment is made, if any, with respect to such amounts.
Section 5.04 Payment of Rent:
(a) Rent shall be paid without notice, demand, counterclaim, offset, deduction, defense, or, except as expressly provided herein, abatement.
(b) Unless otherwise directed by Landlord to Tenant in writing, all Rent payable under this Lease shall be payable to Landlord by wire transfer in immediately available funds in U.S. Dollars, to the following account: Wells Fargo Bank, N.A., 190 River Road, Summit, NJ 07901, Attn: Ms. Kathy Murphy, Senior Vice President; ABA: 121000248; For Credit to the A/C of: The Connell Company; Account Number: 2000010817252.
(c) If Tenant shall fail to pay any Tax Increase Amount, Operating Increase Amount, Extra Taxes, or any other charges payable hereunder, whether or not the same are called Rent, Landlord shall have all remedies provided for in the Lease or at law as in the case of nonpayment of Base Rent. Tenant’s obligations (accruing during the Term) under Article V and Article XXI hereof shall survive the expiration or earlier termination of this Lease.
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ARTICLE VI. SIGNS.
Section 6.01 Directory:
If Landlord provides a directory of tenants in the first floor lobby area of the Building, then such directory shall display Tenant’s name.
Section 6.02 Signs:
(a) Tenant shall have no right to install and maintain a sign on the entrance doorway of the Demised Premises without Landlord’s prior written consent which shall not be unreasonably withheld or delayed. Landlord may permit Tenant to identify its business name by lettering on the exterior of the Demised Premises with Landlord’s prior written consent as to dimensions, material, content, location and design.
(b) Tenant shall obtain and pay for all required permits and licenses relating to such sign, if same are required. Copies of all such permits and licenses shall be delivered to Landlord within a reasonable time after they are issued.
(c) Tenant shall not have the right to install or maintain any signs in or at the Real Estate or visible from the outside of the Demised Premises.
(d) Landlord shall have the right to temporarily remove any sign in order to paint, or to make repairs, alterations or improvements in or upon the Building or Demised Premises, at its expense. At the expiration of the Term, Tenant shall, at Tenant’s sole cost and expense, remove all signs and restore the area in which they were affixed to its prior condition.
ARTICLE VII. REPAIRS, ALTERATIONS, COMPLIANCE, SURRENDER.
Section 7.01 Repairs by Landlord:
Landlord shall make or cause to be made necessary repairs to the Common Area. Landlord shall make or cause to be made necessary repairs to the roof of the Building and structural repairs to the foundation, exterior walls, windows, electrical, HVAC, plumbing and mechanical systems of the Building (other than the electrical, HVAC, plumbing, and mechanical systems serving solely the Demised Premises), and any load-bearing interior walls of the Demised Premises; provided, however that Landlord’s obligations shall exclude anything caused by (a) any act, omission or negligence of Tenant, Tenant’s Agents or invitees; (b) the failure of Tenant to perform or comply with any terms, conditions or covenants in this Lease; or (c) any alterations, installations, additions or improvements made or to be made by Tenant. Damage set forth in clauses (a), (b) and (c) in this Section 7.01 will be repaired by Landlord at Tenant’s expense.
Section 7.02 Repairs, Maintenance and Improvements by Tenant:
(a) Tenant shall maintain and take good care of the Demised Premises. Except for repairs Landlord is specifically obligated to make, Tenant, at its expense, shall be responsible for all repairs, maintenance and replacements within the Demised Premises. Notwithstanding the foregoing, Landlord shall make all repairs required by the occurrence of fire and other casualty as more particularly set forth in Section 12.03 hereof; provided, however, that Tenant shall be responsible for the repair and restoration of Tenant’s improvements to the Demised Premises. Tenant shall notify Landlord in advance of all repairs to
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be made by Tenant exceeding an amount equal to Twenty Thousand Dollars ($20,000) in cost. Tenant shall not remove blinds from windows. In making repairs, Tenant shall observe and comply with the insurance and other requirements of Section 7.03 hereof and all requirements, laws or regulations of any applicable public authority and the terms and conditions of all insurance policies required by Article XIV relating to or affecting the Real Estate.
(b) Tenant shall be responsible and liable for all damages to the Demised Premises the Building or the Land or any part thereof attributable to the fault, negligence, or misuse of Tenant, Tenant’s Agents, or Tenant’s guests or invitees.
Section 7.03 Approval by Landlord of Improvements:
(a) Tenant may not make repairs, alterations, additions or improvements to the Demised Premises, or any part thereof, without the prior written consent of Landlord, if the reasonable cost of such repairs, alterations, additions or improvements are estimated to exceed an amount equal to Twenty Thousand Dollars ($20,000) or are structural in nature or require a building permit, provided such consent shall not be unreasonably withheld, conditioned or delayed. Any permitted alterations shall be performed in a good and workmanlike manner in accordance with all requirements of any applicable governmental authority, the terms and conditions of all required insurance policies and any other provisions of this Lease relating to repairs, alterations, additions, or improvements by Tenant. In no event shall Tenant make any alterations of the outside dimensions of the Building or the existing load-bearing walls and columns, exterior walls, roof, structural ceiling or foundations. Landlord shall have the right to require Tenant to restore the Demised Premises (at the expiration or earlier termination of the Term) to the conditions existing prior to any alterations or as of the Commencement Date or completion of Tenant Work, provided, if Tenant so requests in writing at the time of Tenant’s request for Landlord’s approval of such alterations, Landlord shall confirm in writing if Tenant is required to remove some or all such alterations at the expiration or earlier termination of the Term; provided further, however, that notwithstanding Landlord’s statement that Tenant will be required to remove a particular alteration (in response to a request from Tenant as provided in the preceding clause), Landlord shall have the right to notify Tenant in writing at any time at least sixty (60) days prior to the expiration of the Term that an alteration which Landlord previously determined must be removed shall remain in the Demised Premises, and in such event Tenant shall not remove such alteration.
(b) Without limiting anything contained in Section 7.03(a) hereof, any permitted repairs, alterations, additions or improvements described in Section 7.03(a) that require Landlord’s consent shall be on the terms and conditions set forth below (and at Tenant’s cost and expense) and otherwise in compliance with the terms and conditions set forth in Exhibit C-2, attached hereto for Tenant Work (including, without limitation, compliance with Item 3 of such Exhibit C-2) and such other terms and conditions set forth by Landlord for its approval of any such work:
(i) Tenant shall be responsible for the design of such work and the plans and specifications for the same, and such plans and specification must comply with the same requirements applicable to the Plans and Specifications for the Tenant Work set forth in this Lease, including those set forth in Exhibit C-2. Such plans and specifications must be approved by Landlord, and Tenant shall not commence any such work until such plans and specifications have been approved by Landlord.
(ii) Prior to commencing any such work, Tenant shall furnish to Landlord a written list of general contractors who are proposed to perform such work. Such general contractors (and all contractors) shall be first-class union contractors and shall maintain current licenses with applicable governmental and/or other enforcement authorities. Tenant shall furnish to Landlord copies of such general contractors’ and other contractors’ insurance policies, including workers compensation, public liability and property damage, all in amounts and with companies acceptable to Landlord. Landlord shall have the right to reject such proposed general contractors by written notice to Tenant within ten days of Landlord’s receipt of the above information. Such contractor must coordinate all final connections to any Building systems with Landlord and must use the Building maintenance subcontractors for the final connections to the Building management system, fire alarm system and security system.
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(iii) Tenant shall promptly apply for all approvals and permits legally required in connection with the performance of such work. If necessary, Landlord shall join in the execution of the applications, and at Tenant’s request, shall cooperate with the prosecution of the application. Tenant shall bear all fees, costs and expenses in connection with the applications including any legal or other expenses incurred by Landlord. Tenant shall prosecute the applications diligently and use its best efforts to seek the approvals and permits applied for and shall provide Landlord with copies of all permits and approvals upon receipt thereof. Tenant shall advise Landlord of its progress from time to time and upon request by Landlord.
(iv) Promptly after all requisite approvals and permits have been granted, Tenant shall commence the performance of such work and shall diligently prosecute such work to completion.
(v) Tenant shall perform or cause to be performed all of such work in accordance with the plans and specifications, all requirements of regulations of any applicable public authority and in accordance with all applicable building codes and all other applicable laws and regulations, all other terms set forth in this Lease, all building design rules and construction rules reasonably required by Landlord and the terms and conditions of all insurance policies, and shall do so in a good and workmanlike manner. Such work shall in no event interfere with building systems or with any other tenant’s use and quiet enjoyment of such tenant’s leased space in the Building. Notwithstanding any failure by Landlord to object to any such work (or drawings or specifications relating thereto), Landlord shall have no responsibility therefor (and any approval of or consent to the same by Landlord shall not relieve Tenant from its obligation to construct the work in compliance with the terms of this Lease). Tenant agrees to save and hold Landlord harmless as provided in the Lease for said work.
(vi) Tenant shall provide Landlord with “as built drawings” upon completion of such work.
(vii) If any governmental authority requires that a certificate of occupancy be issued with respect to the Demised Premises as a result of such work, Tenant shall apply for, obtain such certificate of occupancy and provide a copy thereof to Landlord prior to Tenant’s occupancy of the Demised Premises.
(viii) Tenant shall not make or cause to be made any alterations, repairs or installations, or perform any other work to or on the Demised Premises or otherwise in connection with this Lease unless Tenant shall obtain, and shall require all its contractors to obtain, and have in force during the performance of such work, public liability and worker’s compensation insurance to cover every contractor to be employed as set forth in this Section 7.03. Such policies shall be in such amounts and on such terms as Landlord deems appropriate; they shall be non-cancellable without thirty (30) days’ prior notice to Landlord by the insurance company. In accordance with Section 7.03 hereof, Tenant shall supply Landlord with copies of the insurance policies prior to commencing any work and Landlord shall be named as an additional insured on any such policy.
(c) The parties agree that all permitted alterations and improvements made to the Demised Premises (including, without limitation, any alterations or improvements made in connection with the Tenant Work) shall become the property of Landlord upon their installation without compensation to Tenant.
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Section 7.04 Emergency Repairs:
If, in an emergency, it shall become necessary to make any repairs or replacements otherwise required to be made by Tenant, Landlord may enter the Demised Premises, and proceed to make or cause such repairs or replacements to be made at Tenant’s expense. Landlord shall give Tenant telephone notice of such emergency. Within thirty (30) days after Landlord renders a bill for such repairs or replacements, Tenant shall reimburse Landlord for the cost of making such repairs.
Section 7.05 Electrical Lines:
(a) Tenant may not install any electrical equipment that overloads the lines in the Demised Premises, the Building or the Real Estate or which will interfere with the use thereof by other tenants of the Building unless Landlord approves same in the Plans and Specifications or as provided for in Section 7.03 above. If Tenant makes such installation, Landlord may require Tenant, at Tenant’s sole cost and expense, to make whatever alterations and/or repairs are necessary and which are in compliance with the terms and conditions of all required insurance policies and all requirements of applicable governmental authorities. Tenant shall be responsible or liable for all damages anywhere in the Building or with respect to the Real Estate caused by any electrical overload attributable to Tenant.
(b) At all times, Tenant shall provide access for Landlord to trench headers provided that Landlord’s work shall not prevent the conduct of Tenant’s business.
Section 7.06 Surrender of Premises:
On the Expiration Date, Tenant shall quit and surrender the Demised Premises together with all alterations, fixtures (except trade fixtures, it being understood that, if Tenant removes trade fixtures, Tenant shall exercise reasonable care in doing so, and the Demised Premises shall be restored to the condition it was in prior to the installation of the trade fixtures, reasonable wear and tear excepted), installations, additions and improvements which may have been made in, annexed or otherwise attached thereto, broom clean, and in good condition and repair, ordinary wear and tear excepted, and except for damage by fire or other casualty which Landlord is required to repair hereunder, unless Landlord provides otherwise in writing. Notwithstanding anything contained in this Lease, unless otherwise requested by Landlord to Tenant in writing at least sixty (60) days prior to the end of the Term, Tenant shall be required, on or before the end of the Term and at Tenant’s cost and expense, to remove all Atypical Alterations (as defined below) made in connection with the initial Tenant Work for any of the Demised Premises and to restore such portion of the Demised Premises affected by such Atypical Alterations, and the removal thereof, to the condition prior to such initial Tenant Work and otherwise in the condition required under this Lease; provided, however, that if Tenant so requests in writing, Landlord shall confirm in writing whether any particular alterations or improvements constitute Atypical Alterations which Tenant will be required to remove (unless otherwise directed by Landlord in writing as provided in this Section 7.06). Any personal property of Tenant, or any subtenant or occupant, which shall remain in or on the Demised Premises after the termination of this Lease and the removal of such Tenant, subtenant or occupant from the Demised Premises, may, at the option of Landlord and without notice, be deemed to have been abandoned by such Tenant, subtenant or occupant, and may either be retained by Landlord as its property or be disposed of, without accountability, in such manner as Landlord may see fit (it being understood that nothing contained in this sentence shall be construed as giving Tenant any right to leave such personal property in the Demised Premises). Tenant shall reimburse Landlord for any reasonable cost or expense incurred by Landlord in carrying out the foregoing which obligation shall survive the Expiration Date. Landlord shall not be responsible for any loss or damage occurring to any such property owned by Tenant or any subtenant or occupant. An “Atypical Alteration” means, collectively, any alterations, additions or improvements to the Demised Premises which are not typical alterations, additions or improvements found in similar, Class A office buildings occupied by more than one tenant, including by way of illustration only and not of limitation, (i) any wet laboratories or (ii) anything which could materially adversely affect the Robertson underfloor duct system installed in the Building.
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ARTICLE VIII. SERVICES AND UTILITIES.
Section 8.01 Landlord’s Services:
(a) Landlord shall furnish: (i) during Business Hours, base building heat and air conditioning required for the Demised Premises and the electricity to power same; (ii) access and elevator service including one weekend elevator; (iii) restroom supplies; (iv) cleaning services as set forth in the “Building Janitorial Specifications” (hereinafter so called), annexed hereto as Exhibit E, on weekdays, excluding Holidays and weekends, and (v) such other services as Landlord may set forth from time to time. Landlord shall have the right to reasonably modify the terms and/or frequency of the services so long as Landlord gives at least five (5) days’ notice of any changes.
(b) Upon notice to Landlord (in the event Tenant desires access to or use of Building services), Tenant shall have the right to use the Demised Premises beyond Business Hours and on weekends and Holidays upon the express condition that Tenant shall be responsible, at its sole cost and expense, for any and all building services required and attributable to such excess use charged at the rates set forth in Landlord’s Rules and Regulations; provided, however, that notwithstanding anything contained in the Rules and Regulations, Tenant shall not be charged for any such excess use of building services during the period between 9:00 a.m. and 1:00 p.m. on Saturdays. Payment for excess use of services shall be deemed Rent and shall be paid to Landlord monthly, together with Base Rent.
(c) Landlord shall maintain and provide services for the Land and Common Area, including lobbies, stairs, elevators, corridors, restrooms, and Parking Area. Access to the parking in the Parking Area shall be granted 4 cars per each 1,000 rentable square feet (i.e. 25 cars for 6,371 rentable square feet). Landlord will designate ten percent (10%) of the number of parking spaces to which Tenant is granted access pursuant to the preceding sentence (i.e., 3 spaces) as “reserved” for Tenant.
(d) Landlord shall not be liable for any losses or damages caused by interruption of services due to repair, inspection or causes beyond its reasonable control. Tenant shall continue to be responsible for payment of Rent during any period of such interruption. Landlord shall use its best efforts to restore services after interruption. Notwithstanding the foregoing, if the Demised Premises is rendered totally untenantable for five (5) consecutive business days after written notice thereof from Tenant to Landlord due to an interruption of services, the Rent shall be abated during the period of such interruption of services unless such interruption was caused by (i) Tenant, or (ii) by circumstances beyond Landlord’s reasonable control.
Section 8.02 Electricity:
(a) The Demised Premises shall be submetered to measure the electricity actually consumed in the Demised Premises (including in connection with any supplemental HVAC system for the Demised Premises under this Lease), and Tenant shall pay to Landlord, as a component of Rent at all times during the Term (including, for purposes of emphasis, during any period during the Term, if any, where Base Rent is $0.00), for its electric usage based upon such submetering on a monthly basis, at the rate applicable to Landlord (including any meter certification and meter reading service fees charged by any third party engaged by Landlord to measure and invoice Tenant for such electric usage; it being understood that it is contemplated that Landlord shall have a third party measure and invoice Tenant for such electric usage). This sum shall represent the cost of all electricity furnished to Tenant at the Demised Premises.
(b) Landlord currently uses a certain company to provide electricity for the Real Estate (the “Current Energy Provider”). Notwithstanding the foregoing, if permitted by applicable law, Landlord shall have the right at any time and from time to time during the Term of this Lease to either contract for services from a different company or companies providing electricity (each such company being referred to as an “Alternate Energy Provider”) or continue to contract for service from the Current Energy Provider. Landlord currently uses a local distribution company (the “Utility”) to deliver electricity and other services
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for the Real Estate. Tenant shall cooperate with Landlord, the Utility, the Current Electric Service Provider, and any Alternate Service Provider at all times and, as reasonably necessary, shall allow Landlord and such other entities reasonable access to the Building’s electric lines, feeders, risers, wiring, and any other Landlord machinery within the Demised Premises; provided, Landlord shall provide Tenant with at least twenty four (24) hours prior notice of such access (which may be via email), except in the case of an emergency, in which case Landlord shall provide only such notice (if any) as is reasonable under the circumstances. In any event, Landlord shall use commercially reasonable efforts to not to materially interrupt Tenant’s business operations.
ARTICLE IX. USE AND OPERATION.
Section 9.01 Use:
Tenant shall use the Demised Premises for general, administrative and executive offices \and for no other purpose (it being agreed that Tenant may install microwave ovens (for the heating of food), coffee pots and similar appliances in employee break areas within the Demised Premises). Tenant shall comply with all applicable zoning regulations or requirements and all other laws, rules, regulations and ordinances of any governmental entity having jurisdiction over the Real Estate (including, without limitation, environmental laws and regulations), as well as all the requirements set forth in Article XXI.
Notwithstanding the foregoing or any other provision of this Lease, however, and except where necessary due to the unique nature of Tenant’s business or particular manner of use (as opposed to office use generally), Tenant shall not be responsible for compliance with any such laws, regulations, or the like to the extent such compliance would require: (a) repairs (including structural repairs), installations or modifications of the Building otherwise constituting Landlord obligations pursuant to Section 7.01 of this Lease; or (b) the installation of new Building service equipment in the Demised Premises, such as fire detection or suppression equipment, unless the applicable requirement, law, rule, regulation and/or ordinance requiring same took effect after the date of this Lease.
Subject to the terms, conditions, and provisions of this Lease, Tenant shall have access to and the right to use the Demised Premises at all times, twenty-four (24) hours per day and three hundred sixty-five (365) days per year during the Term of this Lease.
Section 9.02 Rules and Regulations Established by Landlord:
The rules and regulations of the Landlord in effect as of this date are set forth in Exhibit D annexed hereto. Tenant shall observe all such rules and regulations, and all other reasonable rules and regulations established by Landlord from time to time for the Building and the Real Estate (collectively, the “Rules and Regulations”). Tenant shall be given at least five (5) days’ prior written notice of any changes therein. In the event of any conflict between the terms of this Lease and the Rules and Regulations (or any other Exhibit attached hereto), this Lease shall control.
Section 9.03 Restriction on Tenant’s Activities:
(a) Garbage:
(i) Tenant shall handle and dispose of all rubbish and garbage in accordance with the Rules and Regulations established by Landlord.
(ii) Landlord shall provide rubbish and garbage removal in accordance with the cleaning specifications incorporated as part of Exhibit E.
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(iii) Tenant shall arrange for the prompt removal of any rubbish and garbage in excess of the quantity to be disposed of by Landlord pursuant to the cleaning specifications set forth in Exhibit E at Tenant’s sole expense.
(b) Plumbing Facility Use: Tenant shall not use the plumbing facilities of the Demised Premises or the Building for any purpose other than those for which they are intended. Tenant may not dispose of any substances therein which may clog, erode or damage the pipelines and conduits of the Demised Premises, the Building or the Land.
(c) Floor Load: Tenant shall not install, operate of maintain in the Demised Premises any heavy item of equipment which exceeds the floor load of one hundred (100) pounds per square foot without Landlord’s written consent.
(d) Exterior Walls or Roof: Tenant shall not use all or any portion of the roof or exterior walls of the Demised Premises or the Building for any purpose.
Section 9.04 Illegal Purposes:
Tenant shall not use or permit the use of the Demised Premises for any illegal trade, manufacture, or other business, or for any other illegal purpose.
ARTICLE X. TRANSFER OF INTEREST; PRIORITY OF LIEN.
Section 10.01 Assignment, Subletting, etc.:
(a) Tenant may sublet the Demised Premises or assign this Lease to its parent corporation or any affiliate or subsidiary of Tenant without Landlord’s consent so long as Tenant continues to be primarily liable and responsible for the performance of all obligations under this Lease. Notwithstanding anything to the contrary contained in this Lease, Tenant may, without Landlord’s prior written consent, but upon written notice to Landlord, (i) sublet all or any portion of the Demised Premises or assign Tenant’s interest in this Lease to (A) a subsidiary, affiliate, or parent to Tenant which controls, is controlled by, or is under common control with, Tenant; or (B) a purchaser of all or substantially all of Tenant’s assets or (ii) undergo or assign this Lease to a successor entity resulting from merger, consolidation, non-bankruptcy reorganization, or government action; provided, however, that in each of the foregoing cases, Tenant shall continue to be primarily liable and responsible for the performance of all obligations under this Lease.
(b) Tenant shall not sublet the Demised Premises or any part thereof, nor assign, transfer, mortgage or hypothecate, or otherwise encumber this Lease or any interest therein, nor grant concessions or licenses for the occupancy of the Demised Premises or any part thereof to any unaffiliated company without Landlord’s prior written consent, which consent shall not be unreasonably withheld condition or delayed, and any unauthorized subletting, assignment, transfer or other similar such action shall be deemed null and void and of no effect. Except as set forth in Section 10.01(a) above, for purposes of this Article X, the transfer by sale, assignment, operation of law or other disposition of any part or all of the ownership of the Tenant so as to result in a change in the effective voting control of Tenant that had existed on the date of this Lease shall be deemed to be an “assignment” of this Lease. Upon the return of the Demised Premises, all terms and conditions of this Lease shall be null and void, except for those provisions of the Lease which shall survive the Expiration Date, as herein provided.
(c) Without limiting the foregoing, Landlord may, in its sole determination, withhold approval to a transfer, assignment or subletting under Paragraph (b) above, under the following conditions:
(i) The financial condition of the subtenant or other user is unsatisfactory.
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(ii) The proposed use of the Demised Premises by the subtenant or other user would be prejudicial to the safety, character, reputation and interests of the Building and its tenants or contrary to any zoning ordinance or law, rule, regulatory or ordinance promulgated by any governmental authority.
(iii) The subtenant’s or other user’s occupancy of the Demised Premises will cause excessive demands on the Real Estate.
(iv) The subtenant or other user is already a Tenant in the Building.
(d) Tenant shall remain primarily liable for all obligations of this Lease in the event it sublets or assigns all or any portion of the Demised Premises.
(e) A subtenant or assignee shall not have the rights to renewal of the Lease of the Demised Premises provided herein.
(f) Any Excess Assignment Consideration (as defined below) or Excess Sublease Rentals (as defined below) in connection with an assignment or sublease permitted under this Lease shall be shared equally between Tenant and Landlord. For purposes of this Section 10.10(f), (i) “Excess Assignment Consideration” shall mean all consideration paid or to be paid by the assignee of Tenant to Tenant after deducting actual out-of-pocket expenses incurred by Tenant in connection with such assignment (including but not limited to third party leasing commissions, concessions, outside attorneys’ fees and tenant improvements) and (ii) “Excess Sublease Rentals” shall mean all consideration paid or to be paid by the sublessee of Tenant in excess of all Rent paid or to be paid by the Tenant for the Demised Premises subleased for the same period, after deducting expenses incurred by Tenant in connection with such sublease (including but not limited to third party leasing commissions, concessions, outside attorneys’ fees and tenant improvements), it being understood that if only a portion of the Demised Premised are sublet, then only the portion of the space so sublet shall be taken into account for purposes of such calculation. Notwithstanding anything to the contrary contained herein, this Section 10.01(f) shall not apply if Landlord’s consent to such assignment or sublease is not required under the terms of this Lease.
(g) In the event Tenant requests Landlord’s consent to assign this Lease or sublease the entire Demised Premises, then Landlord shall have the right, to be exercised by Landlord in its sole discretion by giving written notice to Tenant within fifteen (15) days after receipt of Tenant’s notice, to recapture the entire Demised Premises and terminate this Lease. For the avoidance of doubt, this Section 10.01(g) shall not apply if Landlord’s consent to such assignment or sublease is not required under the terms of this Lease.
(h) Notwithstanding anything contained in Section 10.01 hereof, any subtenancy arrangement permitted under this Section 10.01 shall be pursuant to a written agreement in form and substance reasonably satisfactory to the Landlord and subject to Landlord’s written approval (the “Sublease”) containing terms not inconsistent with the terms of this Lease and complying with the following requirements:
(i) The Sublease shall be subject and subordinate to the terms of this Lease. Subtenant shall acknowledge that it has reviewed and agreed to all of the terms of this Lease, and shall agree in the Sublease not to do, or fail to do, anything that would cause Tenant to violate any of its obligations under this Lease.
(ii) The Sublease shall contain a waiver of subrogation against Landlord and shall require the subtenant’s insurance policies to acknowledge such waiver of subrogation.
(iii) The Sublease shall prohibit a sub-sublease of the Demised Premises or the assignment of the Sublease by subtenant, without first obtaining Landlord’s written consent, which consent may be granted or withheld in Landlord’s sole discretion.
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(iv) The Sublease shall provide that, at Landlord’s option, the Sublease shall not terminate in the event that this Lease terminates prior to its scheduled expiration date. The Sublease shall require subtenant to execute an attornment agreement, if Landlord, in its sole discretion, shall elect to have the Sublease continue beyond the date of termination this Lease. Such attornment agreement shall be in form and content acceptable to Landlord.
(v) The Sublease shall provide that unless and until such time as an attornment agreement is executed by subtenant pursuant to clause (iv) above, nothing contained in the Sublease shall create or shall be construed or deemed to create privity of contract of privity of estate between Landlord and subtenant.
(vi) The Sublease shall provide that (x) nothing in the Sublease shall amend or shall be construed or deemed to amend this Lease and (y) Tenant and subtenant shall not amend the Sublease without Landlord’s written consent.
(vii) The Sublease shall contain such other terms as Landlord may reasonably require.
Section 10.02 Subordination:
(a) At Landlord’s election, this Lease shall be subordinate or superior to the lien of any present or future mortgage irrespective of the time of recording of such mortgage. Landlord may exercise such election by giving notice thereof to Tenant. At the election of Landlord, this clause shall be self-operative and no further instrument shall be required. Upon Landlord’s request, at any time and from time to time, Tenant shall (a) confirm in writing and in recordable form that this Lease is so subordinate or so paramount to the lien of any mortgage and/or (b) execute an instrument making this Lease so subordinate or so paramount (as Landlord may elect) to the lien of any mortgage, in such form as may be required by an applicable mortgagee. The exercise of any of the elections provided in this Section shall not exhaust Landlord’s right to elect differently thereafter, from time to time.
(b) Landlord shall endeavor to obtain from any Mortgagee a non-disturbance agreement in favor of the Tenant for so long as the Tenant is not in default under this Lease, and provided the Tenant agrees to attorn to the said Mortgagee in the event it comes into possession of the premises. In the event Tenant requests any changes to the form of non-disturbance agreement provided by the applicable Mortgagee, then Tenant shall reimburse Landlord for all amounts charged by such Mortgagee to Landlord in connection with the negotiation of such non-disturbance agreement.
(c) Landlord shall have the right to assign Tenant’s Rent payments to any Mortgagee. Upon prior written notice from Landlord, Tenant shall make payments directly to such assignee.
Section 10.03 Attornment:
If the Demised Premises, the Building or the Land are encumbered by a Mortgage and such Mortgage is foreclosed, or if same are sold pursuant to such foreclosure or by reason of a default under said Mortgage, (a) Tenant shall not disaffirm this Lease or any of its obligations hereunder, and (b) at the request of the applicable Mortgagee or purchaser at such foreclosure or sale, Tenant shall attorn to such Mortgagee or purchaser and may execute a new lease for the Demised Premises setting forth all of the provisions of this Lease except that the term of such new lease shall be for the balance of the Term.
Section 10.04 Transfer of Landlord’s Interest:
The term “Landlord” as used in this Lease means only the owner or the mortgagee in possession of the Demised Premises, the Building or the Real Estate for the time being. In the event of any sale (including any sale-leaseback) of the Demised Premises, the Building or the Real Estate, Landlord shall be and hereby is entirely freed and relieved of all of its covenants, obligations and liability hereunder, provided the transferee assumes all of Landlord’s obligations hereunder. This subsection shall be applicable to each owner from time to time, and shall not be limited to the first owner of the Demised Premises, the Building or the Real Estate.
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Section 10.05 Mortgagee’s Rights:
If Landlord shall notify Tenant that the Demised Premises, the Building or the Land are encumbered by a Mortgage and in such notice set forth the name and address of the Mortgagee thereof, then, notwithstanding anything to the contrary contained herein, no notice of a Landlord default under this Lease intended for Landlord shall be deemed properly given unless a copy thereof is simultaneously sent to such Mortgagee by certified or registered mail, return receipt requested. If any Mortgagee shall perform any obligation that Landlord is required to perform hereunder, such performance by Mortgagee, insofar as Tenant is concerned, shall be deemed performance on behalf of Landlord and shall be accepted by Tenant as if performed by Landlord.
ARTICLE XI. COMMON AREA.
Section 11.01 Use of Common Area:
During the Term, the following privileges to use certain portions of the Real Estate in common with Landlord and any designee of Landlord, subject to the terms of this Lease and Landlord’s Rules and Regulations, are hereby granted to Tenant:
(a) the non-exclusive license to permit its employees, agents and invitees to use the Common Area as defined under 2.01; and
(b) the non-exclusive privilege to permit its employees, agents and invitees to use the entrance and exit ways designated by Landlord from time to time for access to the Demised Premises from a public street or highway adjacent to the Real Estate through the appropriate entrances and exits so designated.
Section 11.02 Landlord’s Rights:
Notwithstanding anything to the contrary contained herein, Landlord shall have the right:
(a) to close all or any portion of the Common Area including the Parking Area to such extent as may, in the opinion of Landlord’s counsel, be necessary to prevent a dedication thereof or the accrual of any rights of any person or the public therein;
(b) to close all or any portion of the Common Area, provided such closure does not prevent Tenant’s access to or use of the Demised Premises;
(c) to prohibit parking or passage of motor vehicles in areas previously designated for such and to change the location of exclusively marked parking spaces provided Landlord provides substitute parking on the Land, if required;
(d) to temporarily close any of the Common Area for repair, maintenance, alteration or improvements;
(e) to build additions to the Building or erect additional buildings on the Common Area or the Land;
(f) to build new improvements or modify or demolish existing improvements within the Building or the Land;
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(g) to create paths, walks or other means of cross access through the Land
Section 11.03 License Numbers:
In order to restrict the use by Tenant’s employees of areas designated or which may be designated by Landlord as handicapped, reserved or restricted Parking Areas, Tenant agrees that it will, at any time requested by Landlord, furnish Landlord with the License numbers of any vehicle of Tenant and Tenant’s employees or agents.
Section 11.04 Landlord’s Obligation with Respect to Parking Area:
Throughout the Term, Landlord shall keep the Parking Area properly paved and in good order and repair, properly drained and shall provide painted stripes to designated parking spaces. After the end of a snowfall, Landlord will commence to remove accumulated snow and ice from the Parking Area and diligently prosecute the same to completion so that, to the extent practicable, the Parking Area shall be reasonably free of snow and ice. Landlord may deposit accumulated snow on such portions of the Common Area as may be necessary under the circumstances. If any ice cannot be removed with reasonable effort on the part of Landlord, it will be sufficient for Landlord to spread sand and other abrasive substances over the ice.
ARTICLE XII. DESTRUCTION OR DAMAGE.
Section 12.01 Rent Abatement:
If the Demised Premises shall be partially damaged or destroyed by fire or other casualty not attributable to the fault, negligence or misuse of Tenant, its agents or employees, the Rent payable hereunder shall be abated to the extent that the Demised Premises shall have been rendered untenantable and for the period from the date Tenant shall have provided Landlord with written notice of such damage or destruction to the date the Demised Premises is rendered tenantable. Should Tenant reoccupy a portion of the Demised Premises during the period any restoration work is taking place and prior to the date same is made completely tenantable, Rent allocable to such portion shall be payable by Tenant from the date of such partial occupancy.
Section 12.02 Option to Terminate:
If the Building or the Demised Premises shall be damaged or destroyed by fire or other casualty (in the former case, whether or not the Demised Premises are damaged or destroyed) so as to require an expenditure in Landlord’s reasonable opinion of more than 40% of the full insurable value (determined prior to the casualty) of the Building or Demised Premises as the case may be, then in either such case, Landlord may terminate this Lease by giving Tenant written notice within ninety (90) days after the date of the casualty, specifying the date of termination of this Lease, provided, Landlord shall only be permitted to terminate this Lease in such case if Landlord similarly terminates all other leases in the Building that are for similarly sized spaces that were affected by the applicable fire or other casualty. In such event, Tenant shall forthwith quit, surrender and vacate the premises without prejudice, however, to Landlord’s rights and remedies against Tenant as of the date of termination or as to those rights which survive such termination. In the event of termination, the Rent payable hereunder shall be abated from the date of damage or destruction.
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Section 12.03 Landlord’s Obligation to Rebuild:
If all or any portion of the Demised Premises or access thereto is damaged by fire or other casualty and if Landlord has not elected to terminate this Lease, Landlord shall, within a reasonable time after such occurrence, use reasonable efforts to repair or rebuild the Demised Premises, such portion or access thereto to substantially its condition immediately prior to the Commencement Date to the extent permitted by applicable laws. Tenant may terminate this Lease by giving written notice to Landlord, if Landlord has not commenced the required repairs within one hundred twenty (120) days or has not restored and rebuilt the Demised Premises as herein provided within twelve (12) months from the date of such damage or destruction and such delay is due to Landlord’s fault. Landlord shall not be obligated to expend in such repair or rebuilding any sums greater than the proceeds of any insurance policy carried by Landlord or for Landlord’s benefit.
Section 12.04 Landlord’s Liability:
Landlord shall not be obligated to pay any damages, compensation or claim for inconvenience, loss of business or annoyance arising from any casualty, or repair or restoration of any portion of the Demised Premises or of the Building pursuant to this Article.
ARTICLE XIII. CONDEMNATION.
Section 13.01 Definitions:
As used herein, the following words have the following meanings:
(a) Taking: The deprivation of or damage to the Demised Premises, the Building or the Land or any portion thereof, as the result of the exercise by a governmental authority of any power of eminent domain, condemnation, or the purchase by purchaser under threat thereof.
(b) Taking Date: With respect to any Taking, the date on which the condemning authority or purchaser under threat shall have the right to possession of the Demised Premises, the Building or the Land or any portion thereof.
(c) Award: The proceeds of any Taking, less all expense in connection therewith, including reasonable attorneys’ fees.
Section 13.02 Taking of Demised Premises:
(a) In the event of a Taking of the whole of the Building, Land or Demised Premises, other than a Taking for temporary use, this Lease shall automatically terminate as of the Taking Date.
(b) In the event of a Taking of 40% of the Building, 40% of the Land or 50% of the Demised Premises, Landlord, at its sole option, may terminate this Lease by giving written notice to the other party anytime between the period three (3) months prior to the Taking Date and three months after such date. The termination of the Lease shall be effective three months after such notice is received.
In the event this Lease is not terminated by Landlord pursuant to this Section 13.02(b), and the Taking at issue involved 50% or more of the Demised Premises, then in such event Tenant shall have the right, exercisable upon written notice to Landlord delivered not more than thirty (30) days after Landlord’s election (or deemed election) not to terminate the Lease, which termination shall be effective three months after such notice is received.
Section 13.03 Taking for Temporary Use:
If there is a Taking of the Demised Premises for temporary use, this Lease shall continue in full force and effect, and Tenant shall continue to comply with all the provisions thereof, except as such compliance shall be rendered impossible or impracticable by reason of such Taking. Rent shall be abated during the course of such Taking to the extent and for the period of time that the Demised Premises shall have been rendered untenantable.
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Section 13.04 Disposition of Awards:
All Awards shall belong to Landlord without any participation by Tenant; provided, however, Tenant may prosecute in any condemnation proceedings a claim for the value of any of Tenant’s removable property installed by Tenant at Tenant’s expense and for relocation expenses, provided such action shall not affect the amount of compensation otherwise recoverable by Landlord from the taking authority.
ARTICLE XIV. TENANT’S INSURANCE.
Section 14.01 General Insurance:
(a) At all times during the Term of this Lease, Tenant shall carry and maintain, at Tenant’s expense, the insurance required hereunder, in the amounts specified in this Article (and without any deductible) or such other amounts and in form and substance as Landlord may from time to time reasonably request, issued by an insurance company reasonably satisfactory to Landlord. Upon the execution of this Lease, and from time to time as requested by Landlord, Tenant shall deliver to Landlord certificates of all insurance policies required to be carried hereunder with evidence of payment of applicable premium. All policies shall include an additional insured endorsement naming Landlord, Landlord’s direct and indirect subsidiaries, divisions and affiliates, Landlord’s members, if applicable, and all mortgagees, as additional insureds.
(b) Each policy so issued shall include a notice of cancellation endorsement stating that the insurance carrier shall send a cancellation notice to Landlord at least thirty (30) days prior to the policy being cancelled or otherwise terminated. Each policy so issued shall expressly provide: (i) that the insurance company shall not fail to renew the policy without thirty (30) days’ advance written notice to Landlord; (ii) that no material change may be made in the policy; (iii) that it is not subject to invalidation as to Landlord’s interest by reason of any act or omission of Tenant; and (iv) that it is primary without right of contribution.
(c) The term “insurance policy” shall include any extensions or renewals of such insurance policy.
(d) Landlord shall maintain insurance coverage for the Building and Land as it deems necessary, and Tenant shall not do or permit to be done any act or thing upon the Real Estate which would (i) jeopardize or be in conflict with property insurance policies covering the Building and fixtures and property on the Land, (ii) increase the rate of property or other casualty insurance applicable to the Real Estate to a rate higher than it otherwise would be for general office use of the Building, or (iii) subject Landlord to any liability or responsibility for injury to any person or persons or to property by reason of any business or operation Tenant carries on upon the Real Estate.
Section 14.02 Liability Insurance:
Tenant shall provide on or before it enters the Demised Premises for any reason and shall keep in force during the Term for the benefit of Landlord and Tenant, liability insurance naming Landlord and any designee of Landlord as additional insureds. The policy shall protect Landlord, Tenant and any designee of Landlord against any liability occasioned by any occurrence on or about the Demised Premises or any appurtenance thereto or arising from any of the items indicated in Section 15.01 against which Tenant is required to indemnify Landlord. Such policy is to be at least $1,000,000 per occurrence, $1,000,000 personal and advertising injury and bodily injury and property damage and $3,000,000 in the general aggregate, per location. In addition, Tenant shall maintain and provide a $10,000,000/per location umbrella policy on terms Landlord specifies.
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Section 14.03 Property Insurance:
Tenant shall insure and keep its equipment, personal property and all leasehold improvements benefiting the Demised Premises or elsewhere on the Real Estate insured at replacement cost against damage by fire, water, terrorism and other casualties and risks covered by “All Risk” property insurance. Landlord will not carry insurance of any kind on Tenant’s equipment or personal property, and, except as provided by law or by reason of its sole negligence or its breach of any of its obligations hereunder, shall not be obligated to repair any damage thereto or replace the same.
Section 14.04 Worker’s Compensation Insurance:
Tenant shall maintain worker’s compensation insurance insuring against and satisfying Tenant’s obligations and liabilities under the applicable worker’s compensation laws, including without limitation, employer’s liability insurance in the amounts of $1,000,000 each accident/$1,000,000 disease per person/$1,000,000 disease policy limit.
Section 14.05 Other Insurance:
Tenant shall carry insurance against such other hazards and in such amounts as may be customarily carried by tenants of similar properties, as Landlord may reasonably require for its protection from time to time.
Section 14.06 Waiver of Subrogation:
Landlord and Tenant each hereby releases the other, its officers, directors, employees and agents from liability or responsibility (to the other or anyone claiming through or under them by way of subrogation or otherwise) for any loss or damage to property covered by valid and collectible special form property insurance policy with standard extended coverage endorsement, even if such loss or damage shall have been caused by the fault or negligence of the other party, or anyone for, whom such party may be responsible to the extent of insurance proceeds. Landlord and Tenant each agrees that any special form property insurance policies carried by each of them respectively and covering the Demised Premises or their contents will include such a clause or endorsement.
Section 14.07 Insurance Rate:
If, as a result of (a) any act or omission by Tenant or violation of any terms of this Lease; (b) the use to which Tenant has put Demised Premises; or (c) Tenant’s failure to comply with Landlord’s insurance requirements, Landlord’s insurance rates applicable to the Real Estate are raised, Tenant shall reimburse Landlord, on demand, for the increased cost of Landlord’s insurance premiums, which comprise part of Rent. For the purposes of this Section, any finding or schedule of the fire insurance rating organization having jurisdiction over the Real Estate shall be deemed to be conclusive.
ARTICLE XV. INDEMNIFICATION AND LIABILITY.
Section 15.01 Indemnification:
(a) Except to the extent arising out of Landlord’s (or an Indemnified Party’s) gross negligence or willful misconduct, Tenant hereby indemnifies and agrees to defend and hold Landlord, its affiliates and each of their respective shareholders, members, officials, directors, employees, representatives, servants and agents, and any Mortgagee (each, an “Indemnified Party”, and collectively, the “Indemnified Parties”) harmless from and against any and all claims, suits, proceedings, fees, penalties, actions, causes of action, responsibilities, liabilities, payments, demands and expenses (including attorneys’ fees and disbursements) of any nature whatsoever relating to or arising from:
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(i) Tenant’s (or Tenant’s Agents, invitees or visitors) possession, use, occupation, management, repair, maintenance or control of the Demised Premises, the Building or the Land (including, without limitation, use of any helistops at Connell Park or any fitness center, locker room or game room area which may be located in the Building), or any portion thereof (including, without limitation, any injury or damages to person(s) or property or loss of life sustained in or about the Demised Premises, the Building or the Land);
(ii) any act, omission or negligence of Tenant, Tenant’s Agents, invitees or visitors;
(iii) any default, breach, violation or nonperformance of this Lease or any provision therein by Tenant.
Tenant shall defend any actions, suits and proceedings which may be brought against any Indemnified Party with respect to the foregoing or in which they may be impleaded. Tenant shall pay, satisfy and discharge any judgments, orders and decrees which may be recovered against any Indemnified Party in connection with the foregoing.
(b) The rights to indemnification set forth in this Section 15.01 shall be in addition to and not in lieu of any other rights to indemnification set forth in this Lease, and shall survive the Expiration Date or other termination hereof. Landlord (on behalf of itself and any applicable Indemnified Party) shall notify Tenant of any claims for which Landlord seeks indemnification pursuant to this Section 15.01.
Section 15.02 Waiver and Release:
(a) Tenant hereby waives and releases all claims against Landlord with respect to all matters for which Landlord has disclaimed liability pursuant to the provisions of this Lease.
(b) Tenant will not be entitled to make, nor will Tenant make, any claim, and Tenant waives any claim, for money damages (nor will Tenant claim any money damages by way of setoff, counterclaim or defense) based upon any claim or assertion by Tenant that Landlord has unreasonably withheld or unreasonably delayed its consent or providing for such consent or approval. Tenant’s sole remedy will be an action or proceeding to enforce any such provision, or for specific performance, injunction or declaratory judgment.
Section 15.03 Liability of Landlord:
(a) Neither Landlord nor any agent or employee of Landlord shall be liable to Tenant for (i) any injury or damage to Tenant or to any other person or (ii) any damage to, or loss (by theft or otherwise) of, any property of Tenant or any other person, irrespective of the cause of such injury, damage, or loss, unless caused by or due to the willful misconduct or gross negligence of Landlord, its agents or employees without contributory negligence on the apart of Tenant.
(b) Landlord, and (in case Landlord shall be a joint venture, limited liability company, partnership, tenancy-in-common, association or other form of joint ownership) the members of any joint venture, limited liability company, partnership, tenancy-in-common, association or other form of joint ownership shall have absolutely no personal liability with respect to any provision of this Lease, or any obligation or liability arising therefrom or in connection therewith. Tenant shall look solely to the equity of the owner in the Real Estate or to any insurance which Landlord is obligated to provide under the terms of this Lease for the satisfaction of any remedies of Tenant in the event of a breach by Landlord of any of its obligations. Such exculpation of liability shall be absolute and without any exception whatsoever.
(c) All property (whether real, personal or mixed) at any time located in or upon the Demised Premises shall be at the risk of Tenant only, and Landlord shall not become liable for any damage
(d)
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to said property or to Tenant, or to any other property, caused by water, leakage, steam, sewerage, gas or odors or for any damage whatsoever done or occasioned by or from any boiler, plumbing, gas, water, steam or other pipes, or any fixtures or equipment or appurtenances whatsoever, or for any damage arising from any act or neglect or arising by reason of the use of, or any defect in, the Demised Premises or any of the fixtures, equipment or appurtenances therein contained, or by the Act or neglect of any other person or caused in any other manner whatsoever or occasioned by theft, Act of God, riot, strike or other labor difficulty.
(e) Except as otherwise expressly provided herein, this Lease and the obligations of Tenant hereunder shall be in no way affected, impaired or excused because Landlord is unable to fulfill, or is delayed in fulfilling, any of its obligations under this Lease.
ARTICLE XVI. DEFAULT; REMEDIES.
Section 16.01 Default:
Each of the following shall constitute an Event of Default:
(a) the filing by Tenant of a bankruptcy petition, or the commencement of a proceeding under the insolvency laws of any State naming Tenant as the debtor;
(b) the filing by anyone other than Tenant of a bankruptcy petition or a proceeding under the insolvency laws of any State naming Tenant as the debtor, which case shall not have been discharged within 60 days of the commencement thereof;
(c) the making by Tenant of any assignment for the benefit of creditors or any other arrangement involving all or substantially all of its assets under any state statute;
(d) the appointment of a receiver or trustee for the Tenant or for all or any portion of the property of Tenant in any proceeding, which receivership shall not have been set aside within 30 days of such appointment;
(e) the refusal by Tenant to take possession of the Demised Premises upon completion of Tenant Work or the abandonment of the Demised Premises by Tenant, permitting the same to remain unoccupied and unattended (provided Tenant’s vacating the Premises shall not be deemed an abandonment of the Demised Premises if Tenant maintains the Demised Premises and performs all other obligations of Tenant under this Lease, including without limitation all monetary obligations);
(f) an assignment, sublease, or other transfer by Tenant in violation of Article X of this Lease;
(g) the failure of Tenant to pay: (i) any Base Rent when the same shall become due and payable; provided, however that with respect to the first time during any calendar year in which Tenant fails to pay Base Rent when due and payable, such failure to pay shall not constitute an Event of Default under this clause (g)(i) until such failure to pay continues for a period of five (5) days after written notice from Landlord to Tenant that such payment has not been received; and/or (ii) the failure of Tenant to pay any Rent (other than Base Rent), or any other charge required to be paid by Tenant hereunder, when the same shall become due and payable, and such failure shall continue for five (5) days after written notice from Landlord to Tenant that such payment has not been received;
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(h) the failure of Tenant to maintain insurance in force in full compliance with and to the extent required by Article XIV hereof;
(i) the Letter of Credit shall for any reason whatsoever cease to be in full force and effect, or Tenant shall otherwise be in breach of Section 1.04 hereof, or the Letter of Credit Provider (or any party on behalf of the Letter of Credit Provider) shall contest the obligation to pay under the Letter of Credit in accordance with its terms; and
(j) the failure by Tenant to perform or observe any requirement of this Lease not specifically referred to in this Section, and such failure continuing for thirty (30) days after written notice from Landlord to Tenant specifying the items in default; provided, however, that if the failure reasonably requires more than thirty (30) days to cure, is capable of being cured, and Tenant has commenced such cure within such initial thirty (30) day period, then so long as Tenant is prosecuting the cure to completion with due diligence and in good faith, Tenant shall be permitted an additional ninety (90) days to cure before such failure constitutes an Event of Default under this clause (i).
Section 16.02 Landlord’s Remedy:
At any time after the occurrence of an Event of Default, Landlord may give written notice to Tenant specifying such Event(s) of Default and stating that the Lease and Term shall terminate upon the giving of such written notice, at which time this Lease and the Term and all of the right, title and interest of Tenant hereunder shall wholly cease and expire, and Tenant shall quit and surrender the Demised Premises to Landlord. Notwithstanding such termination, surrender, and the expiration of Tenant’s right, title, and interest, Tenant’s liability and responsibility under all of the provisions of this Lease shall continue.
Section 16.03 Landlord’s Re-Entry:
If this Lease shall be terminated as provided in Section 16.02, above, Landlord, or its agents or employees, may re-enter the Demised Premises at any time and remove therefrom Tenant, Tenant’s Agents, and any subtenants, licensees, concessionaires or invitees, together with any of its or their property, either by summary dispossession proceedings or by any suitable action or proceeding at law or otherwise. In the event of such termination, Landlord may repossess and enjoy the Demised Premises. Landlord shall be entitled to the benefits of all provisions of law respecting the speedy recovery of lands and tenements, or proceedings in forcible entry and detainer. Tenant waives any rights to the service of any notice of Landlord’s intention to re-enter provided for by any present or future law. Landlord shall not be liable in any way in connection with any action it takes pursuant to the foregoing. Notwithstanding any such re-entry, repossession, dispossession or removal, Tenant’s liability and responsibility under all of the provisions of this Lease shall continue.
Section 16.04 Landlord’s Additional Remedies:
(a) In case of re-entry, repossession or termination of this Lease, whether the same is the result of the institution of summary or other proceedings, Tenant shall remain liable (in addition to accrued liabilities) to the extent legally permissible for: (i) the Rent, and all other charges provided for herein until the date this Lease would have expired had such termination, re-entry or repossession not occurred; and all commercially reasonable expenses which Landlord may have incurred in re-entering the Demised Premises, repossessing the same; making good any Event of Default; painting, altering or dividing the Demised Premises; combining or placing the same in proper repair; protecting and preserving the same
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by placing therein watchmen and caretakers; re-letting the same (including attorneys’ fees and disbursements, marshall’s fees, brokerage fees, in so doing; less (ii) the net proceeds of any re-letting. Tenant agrees to pay to Landlord the difference between items (i) and (ii) hereinabove with respect to each month, at the end of such month. Any suit brought by Landlord to enforce collection of such difference for any one month shall not prejudice Landlord’s right to enforce the collection of any difference for any subsequent month. In addition to the foregoing, Tenant shall pay to Landlord such sums as the court may adjudge reasonable as attorneys’ fees with respect to any successful lawsuit or action instituted by Landlord to enforce the provisions hereof.
(b) Landlord may re-lease the whole or any part of the Demised Premises for the whole of the unexpired period of this Lease, or longer, or from time to time for shorter periods, for any rental then obtainable, giving such commercially reasonable concessions of rent and making such special repairs, alterations, decorations and paintings for any new tenant as it may reasonably deem advisable and may collect and receive the rents therefor. Landlord agrees to take commercially reasonable steps to re-let the Demised Premises.
Section 16.05 Agreed Final Damages:
If Landlord so elects, Tenant shall pay Landlord, on demand, as liquidated and agreed final damages, the Rent and all other charges which would have been payable by Tenant from the date of such demand to the date when this Lease would have expired if it had not been terminated as aforesaid. Upon payment of such liquidated and agreed final damages, Tenant shall be under no further liability with respect to the period after the date of such demand. In the event Landlord makes the election under this Section 16.05 and Tenant has paid all amounts required under this Section 16.05, Landlord’s duty to take commercially reasonable steps to re-let the Demised Premises (to mitigate its damages), as provided in Section 16.04(b) hereof, shall continue, and if Landlord shall succeed in such efforts to re-let the Demised Premises, Landlord shall return to Tenant the net proceeds of any re-letting of the Demised Premises during such period under this Section 16.05 (but in no event for any period beyond the originally scheduled expiration of the base Term of this Lease) that are recovered by Landlord; provided, however, that the amounts so returned to Tenant shall in no event exceed the amounts paid by Tenant to Landlord under this Section 16.05.
Section 16.06 Waiver of Right of Redemption:
Tenant hereby expressly waives (to the extent legally permissible), for itself and all persons claiming by, through, or under it, any right of redemption or for the restoration of the operation of this Lease under any present or future law in case Tenant shall be dispossessed for any cause, or in case Landlord shall obtain possession of the Demised Premises as herein provided.
Section 16.07 Landlord’s Right to Perform for Account of Tenant; Letter of Credit:
(a) If an Event of Default shall occur hereunder, Landlord may, at any time, cure said Event of Default for the account and at the expense of Tenant. Tenant shall pay, on demand, to Landlord, with interest as required by Section 20.09 hereof, the amount so paid, expended, or incurred by Landlord and any expense of Landlord, including reasonable attorneys’ fees, incurred in connection with such Event of Default; and all of the same shall be deemed to be Additional Rent.
(b) If an Event of Default shall occur hereunder, without limiting any other remedy Landlord otherwise may have under this Lease, Landlord shall be entitled to draw upon all or any portion of the Letter of Credit in order to satisfy any obligations of Tenant owing under this Lease.
(c) In the event (i) Landlord shall have received notice that an existing Letter of Credit has not been renewed and Tenant shall not have provided a replacement Letter of Credit as required by Section 1.04 hereof or (ii) Tenant is in breach of Section 1.04(b) hereof, then in each case, without limiting any other remedy Landlord otherwise may have under this Lease, Landlord shall also be entitled to draw upon all or any portion of the Letter of Credit and hold such amounts drawn as security for Tenant’s
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obligations under the Lease. Any amount drawn as provided in the immediately preceding sentence shall be held by Landlord as security for the full and faithful performance by Tenant of all of its obligations under this Lease or in connection with this Lease, and such amount shall be referred to herein as the “Security Deposit.” If an Event of Default has occurred, Landlord may use, apply or retain the whole or any part of the Security Deposit for the payment of (i) Rent or any other sums of money which Tenant may not have paid or which may become due after the occurrence of the Event of Default; (ii) any sum expended by Landlord on Tenant’s behalf in accordance with the provisions of this Lease; or (iii) any sum which Landlord may expend or be required to expend by reason of such Event of Default, including any damages or deficiency in the re-letting of the Demised Premises in connection with Article XVI hereof. Landlord may use, apply or retain the whole or any part of the Security Deposit for the repair of damage to the Demised Premises upon Tenant’s surrender of the Demised Premises on Expiration Date. The use, application or retention of the Security Deposit or portion thereof by Landlord shall not prevent Landlord from exercising any other right or remedy provided for hereunder or at law shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled. The Security Deposit shall bear no interest; and if legally permissible, Landlord shall be entitled to commingle the Security Deposit with Landlord’s other funds. If Tenant shall fully and faithfully comply with all of the provisions of this Lease, the Letter of Credit and the Security Deposit or any balance thereof (including interest earned thereon) shall be returned to Tenant within sixty (60) days after the Expiration Date or upon any later date after which Tenant has vacated the Demised Premises. In the absence of evidence satisfactory to Landlord of any assignment of the right to receive the Security Deposit or the remaining balance thereof (including interest earned thereon), Landlord may return the Security Deposit to the original Tenant regardless of one or more assignments of Tenant’s interest in such Security Deposit. In such event, upon the return of such Security Deposit or balance thereof to the original Tenant, Landlord shall be completely relieved of liability hereunder. Tenant covenants and agrees that it shall not assign, pledge, hypothecate, mortgage or otherwise encumber the Security Deposit during the Term of the Lease. The Security Deposit may be transferred to any purchaser of Landlord’s interest in the Building or the Real Estate, provided as a condition of such transfer, the transferee assumes, in writing, the obligation to hold the same pursuant to this Section 16.07 and upon such transfer, Landlord shall be relieved of any obligation with respect thereto.
Section 16.08 Additional Remedies, Waivers, etc.:
With respect to the rights and remedies of and waivers by Landlord:
(a) The rights and remedies of Landlord set forth herein shall be in addition to any other right and remedy now and hereafter provided by law. All such rights and remedies shall be cumulative and not exclusive of each other. Landlord may exercise such rights and remedies at such times, in such order, to such extent, and as often as Landlord deems advisable without regard to whether the exercise of one right or remedy proceeds, concurs with or succeeds the exercise of another.
(b) A single or partial exercise of a right or remedy shall not preclude (i) a further exercise thereof, or (ii) the exercise of another right or remedy, from time to time.
(c) No delay or omission by Landlord in exercising a right or remedy shall exhaust or impair the same or constitute a waiver of, or acquiescence to an Event of Default.
(d) No waiver of an Event of Default shall extend to or affect any other Event of Default or impair any right or remedy with respect thereto.
(e) No action or inaction by Landlord shall constitute a waiver of an Event of Default.
(f) No waiver of an Event of Default shall be effective unless it is in writing and signed by Landlord.
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Section 16.09 Intentionally Deleted:
ARTICLE XVII. TENANT’S ESTOPPEL CERTIFICATE.
At any time within thirty (30) days after written request by Landlord, Tenant shall certify to Landlord, any mortgagee, assignee of a mortgagee, any purchaser, or any other person, specified by Landlord, by written instrument, duly executed and acknowledged, (a) whether or not Tenant is in possession of the Demised Premises; (b) whether or not this Lease is unmodified and in full force and effect (or if there has been modification, that the same is in full force and effect as modified and setting forth such modification); (c) whether or not there are then existing set-offs or defenses against the enforcement of any right or remedy of Landlord, or any duty or obligation of Tenant (and if so, specifying the same); (d) the dates, if any, to which any Rent or other charges have been paid in advance; and (e) such other factual matters relating to this Lease as may be reasonably requested by Landlord, any mortgagee or any of their designees.
ARTICLE XVIII. RIGHT OF ACCESS.
Landlord, its employees, agents, representatives, may enter upon the Demised Premises, or any portion thereof (with people and materials, if required), with not less than 24 hours prior notice to Tenant (except in the case of emergency, in which event Landlord shall provide such advance notice, and in such form, as is reasonable under the circumstances) and at reasonable times, for the purpose of: (a) inspecting same; (b) making such repairs, replacements or alterations which it may be required to perform as herein provided or which it may deem desirable for the Demised Premises; (c) showing the Demised Premises to prospective purchasers; and (d) at any time within the twelve (12) months immediately preceding the expiration of the Term (provided Tenant has not exercised its next ensuing Renewal Option, if any) showing the Demised Premises to prospective tenants.
ARTICLE XIX. COVENANT OF QUIET ENJOYMENT.
Landlord covenants that if Tenant pays the Rent and all other fees, charges and expenses provided for herein in a timely manner as and when due, duly performs all of its other obligations provided for hereunder, and observes all of the other provisions hereof, Tenant shall, at all times during the Term, peaceably and quietly have, hold and enjoy the Demised Premises, without any interruption or disturbance from Landlord, subject to the terms hereof.
ARTICLE XX. MISCELLANEOUS.
Section 20.01 Interpretation:
(a) Every term, condition, agreement or provision contained in this Lease which imposes an obligation on Tenant shall be deemed to be also a covenant by Tenant.
(b) Any reference herein to subtenants or licensees shall not be deemed to imply that any subtenants or licensees are permitted hereunder. Any reference herein to any extension or renewal of the Term or any period during which Tenant may be in possession after the Expiration Date shall not be deemed to imply that any extension or renewal of the Term is contemplated hereby or that Tenant shall be permitted to remain in possession after the expiration of the Term.
(c) If any provision of this Lease or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.
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(d) The captions and headings used throughout this Lease are for convenience of reference only and shall not affect the interpretation of this Lease.
(e) Anything in this Lease to the contrary notwithstanding:
(i) Any provision which permits or requires a party to take any particular action shall also be deemed to permit or require a party to cause such action to be taken; and
(ii) Any provision which requires any party not to take any particular action shall be deemed to require the party not to permit such action to be taken by any person or by operation by law.
(f) This Lease may be executed in several counterparts; and in such case the counterparts shall constitute but one and the same instrument.
(g) Wherever a requirement is imposed on any party hereto, it shall be deemed that such party shall be required to perform such requirement at its own expense unless it is specifically otherwise provided herein.
(h) The singular includes the plural and the plural includes the singular.
(i) All Exhibits and Schedules hereto are hereby incorporated by reference in and form an integral part of this Lease, and all references to the Lease shall be deemed to include such Exhibits and Schedules.
Section 20.02 Construction of Words and Phrases:
(a) Wherever it is provided herein that a party may perform an act or do anything, it shall be construed that such party may, but shall not be obligated to, so perform or so do.
(b) The words “re-enter” and “re-entry” as used herein are not restricted to their technical legal meaning.
(c) The word “person” shall be construed as an individual, fiduciary, estate, trust, partnership, firm, association, corporation, other organization, or a government or governmental authority.
(d) The following words and phrases shall be construed as follows:
(i) “At any time” shall be construed as, “at any time or from time to time.”
(ii) “Any” shall be construed as “any and all.”
(iii) “Including” shall be construed as “including but not limited to.”
Section 20.03 Written Agreement Required:
This Lease contains the entire agreement between the parties hereto concerning the subject matter hereof, and supercedes all other agreements, written or oral, with respect thereto. No amendment, alteration, modification of or addition to the Lease will be valid or binding unless expressed in writing and signed by Landlord and Tenant.
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Section 20.04 Notice:
Every notice, request, consent, approval, waiver or other communication under this Lease shall be deemed to have been given if in writing and upon mailing by registered, overnight express/courier service, or certified mail, return receipt requested, postage prepaid, addressed:
(a) If to Landlord, to the address designated as Landlord’s Notice Address, or such other address as Landlord designates, with a copy thereof to such other person or party as Landlord shall designate;
(b) If to Tenant, to the address designated as Tenant’s Notice Address, or such other address as Tenant designates, with a copy thereof to the address designated as Tenant’s Notice Copy Address or to such other person or party as Tenant shall designate.
| (i) | Landlord’s Notice Address: |
The Connell Company 300
Connell Drive Berkeley
Heights, New Jersey 07922
Attention: President
| (ii) | Tenant’s Notice Address: |
Kalaris Therapeutics
628 Middlefield Rd.
Palo Alto, CA 94301
Section 20.05 Survival of Provisions upon Termination of Lease:
This Lease shall survive the expiration or termination of the Term to the extent necessary that any term, covenant or condition of this Lease requires the performance of obligations or the forbearance of an act by either party hereto after the expiration or termination of the Lease. Such survival shall be to the extent reasonably necessary to fulfill the intent thereof, or if specified, to the extent of such specification, as same is reasonably necessary to perform the obligations and/or forbearance of an act set forth in such term, covenant or condition.
Section 20.06 Successors and Assigns:
Subject to the provisions hereof, this Lease shall bind and inure to the benefit of the parties and their respective successors, representatives, heirs and permitted assigns.
Section 20.07 Intentionally Deleted:
Section 20.08 Tenant at Sufferance:
If Tenant shall remain in possession of the Demised Premises after the end of the Term (including if the Demised Premises have not been surrendered in accordance with the terms of this Lease), such holding over shall cause the Tenant to be deemed a tenant-at-sufferance, subject to all of the provisions, conditions and obligations of this Lease, except that the Rent to be charged Tenant during such hold over period shall be two times the monthly Rent in effect for the last month of the Term or any renewal periods. Any acceptance of hold over Rent by Landlord shall not be deemed a waiver of any rights or remedies available to Landlord arising out of Tenant’s failure to have vacated the Demised Premises upon the end of the Term, or an acquiescence to Tenant’s tenant-at-sufferance period.
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Section 20.09 Interest:
Any payment required to be made by Tenant under the provisions of this Lease not made by Tenant when and as due shall be payable by Tenant to Landlord on demand with interest thereon at three (3%) percent over the rate designated by the Bank of New York, New York (or its successor) from time to time as the prime rate, but not to exceed the highest legal rate, computed from the date said sum became due to and including the date of payment thereof to Landlord.
Section 20.10 Late Charge:
In order to cover the extra expense involved in handling delinquent payments, Tenant, at Landlord’s option, shall pay a “late charge” of five (5%) percent of the amount due when any payment of Rent hereunder is received by Landlord more than five (5) days after the due date thereof. It is understood and agreed that this charge is for additional expense incurred by Landlord, shall not be considered interest, and shall be due in addition to the interest required under Section 20.09 hereof. Notwithstanding the foregoing, before assessing a late charge for the first time in any calendar year, Landlord shall notify Tenant in writing of the delinquent payment and if Tenant pays such delinquent amount within five (5) days of such notice, Landlord shall waive such late charge.
Section 20.11 Non-Waiver:
The failure of Landlord to insist upon strict performance of any covenants or conditions of this Lease or Landlord’s failure to exercise any option herein conferred in any one or more instances shall not be construed as a waiver or relinquishment of any such covenants, conditions or options, but the same shall be and remain in full force and effect. If Landlord pursues any remedy granted by the terms of this Lease or pursuant to applicable law, it shall not be construed as a waiver or relinquishment of any other remedy afforded thereby.
Section 20.12 Broker:
Each party hereto represents and warrants that there was no broker other than CBRE, Inc. (the “Broker”) responsible for bringing about or negotiating this Lease. Each party agrees to defend, indemnify, and hold the other party harmless against any and all claims for brokerage commission or compensation with regard to the Demised Premises by any other broker claiming or alleging to have acted on behalf of or to have dealt with such party. Landlord will pay any fees or commissions due the Broker pursuant to a separate written agreement between Landlord and Broker.
Section 20.13 Short Form Lease:
Landlord and Tenant agree that neither party shall record the Lease. Upon request of either party the other shall execute a document in recordable form, or a short form lease or memorandum of lease in proper form for recording, setting forth the Commencement Date and any provision hereof other than Sections 5.01, 5.02, 5.03 and 5.05. The requesting party shall pay all recording fees and costs in connection with any such short form or memorandum of lease.
Section 20.14 Mechanics’ Liens:
Tenant shall not do or cause anything to be done whereby the Demised Premises may be encumbered by a mechanic’s lien. If any mechanic’s or materialman’s lien is filed against the Demised Premises, the Building or the Land as a result of any Tenant Work being performed by Tenant or any additions, alterations, repairs, installations, improvements or any other work or act of Tenant, Tenant shall discharge or bond same within twenty days from the date of filing of the lien. If Tenant shall fail to discharge or bond the lien, Landlord may bond or pay the lien or claim for the account of Tenant without inquiring into the validity of the lien or claim and Tenant shall reimburse Landlord upon demand.
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Section 20.15 Corporate Authority:
(a) Tenant represents that the undersigned officer(s) has (have) been duly authorized to enter into this Lease and that the execution and consummation of this Lease by Tenant does not and shall not violate any provision of any bylaws, certificate of incorporation, agreement, order, judgment, governmental regulation or any other obligations to which Tenant is a party or is subject.
(b) Landlord represents that the undersigned officer of Landlord has been duly authorized to enter into this lease and that the execution and consummation of this Lease by Landlord does not and shall not violate any provision of any bylaw, certificate of incorporation, agreement, order judgment, governmental regulation or any other obligation to which Landlord is a party or is subject.
Section 20.16 Force Majeure:
Except as otherwise provided herein, Landlord shall not be liable for any delays and other events beyond the reasonable control of a party (each, a “Force(s) Majeure)” including, without limitation: acts of God; strikes, lock-outs or other labor difficulties; explosion, sabotage, accident, riot or civil commotion; act of war; fire or other casualty; requirements of governing authorities or inability to obtain necessary governmental permits and approvals.
Section 20.17 Governing Law:
This Lease shall be governed by and construed pursuant to the laws of the State of New Jersey.
Section 20.18 Financial Statements:
If requested by Landlord, Tenant shall, within 120 days after the close of each of its fiscal years, deliver to Landlord Tenant’s balance sheet and profit and loss statement certified to by a recognized firm of certified public accountants; provided, however, that this Section 20.18 shall not be applicable so long as Tenant is a publicly traded company and the financial statements of Tenant are otherwise publicly available to Landlord. Except to the extent same are publicly available, the foregoing financial statements and information shall be treated by Landlord as confidential information belonging to Tenant.
Section 20.19 Flood Risk Notice:
In accordance with N.J.S.A. 46:8-50 (“Flood Risk Notice Law”), Landlord hereby notifies Tenant of the following matters (collectively, the “Flood Risk Notice”): (1) portions of the Land (not including the Building footprint), on or to the south of the east-bound traffic lane of Connell Drive, are located in the 100-year floodplain (a “Special Flood Hazard Area”) as determined by the Federal Emergency Management Agency (“FEMA”); and (2) portions of the Land (not including the Building footprint), on or to the south of the east-bound traffic lane of Connell Drive, are located in the 500-year floodplain (a “Moderate Risk Flood Hazard Area”) as determined by FEMA. Further, to Landlord’s actual knowledge, prior to the date of this Lease, neither the Building nor any portion of the adjacent parking areas on the Land have been subjected to or experienced any flooding, including any material flood damage, water seepage, or pooled water, as a result of a natural flood event; provided, however, that portions of the Land (primarily to the south of the east-bound traffic lane of Connell Drive, as noted above) that are adjacent to the existing Green Brook waterway, which traverses the southern part of the Land in an easterly direction and forms the municipal boundary between Berkeley Heights and Watchung Borough, are sometimes subjected to natural flooding. Because any natural flooding which occurs in these areas of the Land is both
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expected and inconsequential from Landlord’s property maintenance perspective, Landlord has not tracked the frequency of such flooding and therefore cannot, as the Flood Risk Notice Law anticipates, advise Tenant concerning the precise number of times such flooding has occurred prior to the date of this Lease. Tenant acknowledges receipt of this Flood Risk Notice, which shall satisfy Landlord’s obligations of notice as set forth in N.J.S.A. 46:8-50. Tenant further acknowledges that it has had the opportunity to independently review available information concerning the contents of the Flood Risk Notice and of the flood risks associated with the Land generally and has elected to enter into this Lease based on such independent investigations, and not based on Landlord’s representations contained in this Flood Risk Notice. Tenant hereby waives, to the fullest extent permitted by law, any and all rights and remedies available to Tenant under N.J.S.A. 46:8-50 as a consequence of any failure or purported failure by Landlord to provide Tenant notice of the matters contained therein.
ARTICLE XXI. ENVIRONMENTAL MATTERS.
Section 21.01 Industrial Site Recovery Act:
(a) Tenant represents and warrants that it is not an “Industrial Establishment” as that term is defined in the Industrial Site Recovery Act, formerly known as the Environmental Cleanup Responsibility Act, N.J.S.A. 13:1K-6 et seq., as same may be amended from time to time (together with all rules, regulations, ordinances, opinions, orders and directives issued or promulgated pursuant to or in connection with said Act by the New Jersey Department of Environmental Protection (“DEP”), or any subdivision or bureau thereof or any other governmental or quasi-governmental agency, authority or body having jurisdiction thereof, referred to herein as the “Act” or “ISRA”). Tenant shall not do or suffer anything that will cause it to become an Industrial Establishment under the Act during the Term of this Lease. Landlord may from time to time require Tenant at Tenant’s sole expense to provide proof satisfactory to Landlord that Tenant is not an Industrial Establishment. In the event that Tenant now is or hereafter becomes an Industrial Establishment or is required by the DEP, Tenant shall comply with all conditions as set forth in subparagraphs (b) and (d) of this Section 21.01. It is understood and agreed that reference herein to an “Industrial Establishment” under this Lease shall mean with respect to the Demised Premises.
(b) Tenant agrees that it shall, at its sole cost and expense, fulfill, observe and comply with all of the terms and provisions of the Act. Without limiting the foregoing, upon Landlord’s request therefor, and in all events no later than sixty (60) days prior to “closing, terminating or transferring operations” (as said terms are defined and used in the Act) out of the Demised Premises, Tenant at its sole cost and expense, shall provide Landlord with a true copy of:
(i) a letter of non-applicability from DEP (or such other agency or body which shall then have jurisdiction over ISRA matters), stating that ISRA does not apply to Tenant, Tenant’s use and occupancy of the Demised Premises and to the closing, terminating or transferring of operations at the Demised Premises; or
(ii) a Negative Declaration (as said term is defined in ISRA) duly approved by DEP or such other agency or body then having jurisdiction over ISRA matters; or
(iii) a Cleanup Plan (as said term is defined in ISRA) duly approved by DEP (or such other agency or body which shall then have jurisdiction over ISRA matters), the intent of which will be to obtain from the DEP a “No Further Action” (“NFA”) determination with respect to the Demised Premises.
(c) Nothing in this Section shall be construed as limiting Tenant’s obligation to comply with ISRA.
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(d) In the event Tenant complies with paragraph (b) (iii) of this Section by obtaining an approved Cleanup Plan, Tenant agrees that it shall, at its sole cost and expense:
(i) post any financial guarantee or other bond required to secure implementation and completion of such Cleanup Plan; and
(ii) promptly and diligently implement and prosecute to completion said Cleanup Plan by obtaining an NFA determination, in accordance with the schedules contained therein or as may otherwise be ordered or directed by DEP or such other agency or body which shall then have jurisdiction over such Cleanup Plan. Tenant expressly understands, acknowledges and agrees that Tenant’s compliance with the provisions of subparagraphs (b) and (d) may require Tenant to expend funds or do acts after the expiration or termination of the Lease Term and Tenant shall not be excused therefrom.
(e) Within thirty (30) days after a written request by Landlord or any mortgagee of Landlord (or sooner, if required by the DEP), Tenant shall deliver to Landlord and Landlord’s Mortgagee, if any, a duly executed and acknowledged affidavit of Tenant’s chief executive officer, certifying:
(i) the proper classification under the North American Industry Classification System relating to Tenant’s then current use of the Demised Premises; and
(ii) (A) that Tenant’s then current use of the Demised Premises does not involve the generation, manufacture, refining, transportation treatment, storage, handling or disposal of hazardous substances or waste (as hazardous substances and hazardous waste are defined in ISRA) on site, above ground or below ground (all of the foregoing are hereinafter collectively referred to as the “Presence of Hazardous Substances”; it being understood that the “Presence of Hazardous Substances” does not, subject to Tenant’s compliance with the express terms and conditions of Section 21.03, include de minimis quantities of Hazardous materials contained in ordinary cleaning solutions and ordinary office supplies to the extent used and stored in compliance with all applicable laws), or, (B) that Tenant’s then current use does involve the Presence of Hazardous Substances, in which event, said affidavit shall describe in complete detail that portion of Tenant’s operations which involves the Presence of Hazardous Substances. Such description shall, inter alia, identify each hazardous substance and describe the manner in which Tenant generated, handled, manufactured, refined, transported, treated, stored and/or disposed of same. Tenant shall supply Landlord and Landlord’s mortgagee, if any, with such additional information relating to the Presence of Hazardous Substances as Landlord or Landlord’s mortgagee requests.
(f) Without limiting the foregoing, Tenant agrees:
(i) at its sole cost and expense, to promptly discharge and remove any lien or encumbrance against the Demised Premises, the Building, the Real Estate or any other property owned or controlled, in whole or in part, by Tenant imposed due to Tenant’s failure to comply with ISRA, and
40
(ii) to defend, indemnify and hold Landlord harmless from and against any and all liability, penalty, loss, expenses, damages, costs, claims, causes of action, judgments and/or the like, of whatever nature, including but not limited to attorneys’ fees and disbursements and other costs of litigation or preparation therefor, to the extent such costs arise from or in connection with Tenant’s failure or inability, for any reason whatsoever, to observe or comply with ISRA and/or the provisions of this Section 21.01.
Section 21.02 Spill Act:
(a) Tenant agrees in connection with Tenant’s use of, or presence in, the Demised Premises or any other part of the Real Estate, that it shall, at its sole cost and expense, observe, comply and fulfill all of the terms and provisions of the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et. seq., as the same may be amended from time to time and all rules, regulations, ordinances, opinions, orders and directives issued or promulgated pursuant to or in connection with said Act by DEP, any subdivision or bureau thereof or governmental or quasi-governmental agency or body having jurisdiction thereof. (Said act and all said rules, regulations, ordinances, opinions, orders and directives are hereinafter in this Section 21.02 collectively referred to as “Spill Act”).
(b) Without limiting the foregoing, Tenant agrees:
(i) that it shall not do, omit to do or suffer the commission or omission of any act which is prohibited by or may result in any liability under the Spill Act, including without limitation the discharge of petroleum products or other hazardous substances (as said terms are defined in the Spill Act); and
(ii) whenever the Spill Act requires the “owner or operator” to do any act in connection with Tenant’s use of, or presence in, the Demised Premises or any other part of the Real Estate, or otherwise in connection with any act by Tenant or any other party acting on Tenant’s behalf or at Tenant’s direction in connection with Tenant’s use of, or presence in, the Demised Premises or any other part of the Real Estate, Tenant shall do such act and fulfill, all such obligations at its sole cost and expense, it being the intention of the parties hereto that Landlord shall be free of all expense and obligations arising from or in connection with such compliance with the Spill Act.
(c) Without limiting the foregoing, Tenant agrees:
(i) at its sole cost and expense, to promptly discharge and remove any lien or any encumbrance against the Demised Premises, the Building, the Real Estate or any other property owned or controlled, in whole or in part, by Tenant, imposed by Tenant’s failure to comply with the Spill Act; and
(ii) to defend, indemnify and hold Landlord harmless from and against any and all liabilities, penalties, losses, expenses, damages, costs, claims, causes of action, judgments, suits and/or the like, of whatever nature, (including but not limited to attorneys’ fees and other expenses of litigation or preparation therefor) which may at any time be imposed on, incurred by or asserted against any Indemnified Party and which in any way relate to or arise from or in connection with Tenant’s failure or inability, for any reason whatsoever, to observe or comply with the Spill Act and/or the provisions of this Section 21.02.
41
Section 21.03 Toxic and Hazardous Materials:
Without limiting any of its other obligations hereunder, Tenant agrees that it shall not store, use, generate, manufacture, produce, release, discharge or dispose of any toxic or Hazardous Materials in, on, or about the Demised Premises or the Real Estate (and Tenant shall notify Landlord in writing immediately upon any violation of this sentence); provided, however, that Tenant may, in compliance with all applicable laws, use and store reasonable quantities of ordinary cleaning solutions and office supplies containing de minimis amounts of Hazardous Materials in the Demised Premises to the extent reasonably necessary for the conduct of Tenant’s ordinary business therein. Tenant will be solely responsible for and will defend, indemnify and hold Indemnified Parties (as defined in Section 15.01(a) of this Lease) from and against all claims, judgments, actions, costs, penalties, damages and liabilities, including attorneys’ fees and costs, arising out of or in connection with Tenant’s (and Tenant’s Agents, invitees or visitors) storage, use and disposal of toxic material or Hazardous Materials. Tenant will be solely responsible for and will defend, indemnify and hold Indemnified Parties harmless from and against any and all claims, costs and liabilities, including attorneys’ fees and costs, arising out of or in connection with the removal, clean-up and restoration work and materials necessary to return the Demised Premises and any other property of whatever nature located on the Real Estate to the condition existing prior to such storage, use, generation, manufacture, production, release, discharge or disposal of toxic materials or Hazardous Materials by Tenant.
For purposes of this Lease, the term “Hazardous Materials” includes but is not limited to: (a) those substances included within the definitions of “hazardous substances,” “hazardous materials,” “toxic substances,” “hazardous wastes,” “solid waste” or similar terms in any Environmental Law; (b) petroleum products and petroleum byproducts; (c) polychlorinated biphenyls; and (d) chlorinated solvents. The term “Environmental Law” includes any federal, state, municipal or local law, statute, ordinance, regulation, order, rule or requirement (in each case as may be amended from time to time) pertaining to health, industrial hygiene, environmental conditions (including, without limitation, air, ground, water pollution and protection and/or preservation of the environment), or hazardous materials or substances.
Section 21.04 Other Environmental Laws:
Without limiting any of its other obligations hereunder, Tenant agrees that with respect to the Demised Premises and/or to any conditions or matters introduced, caused or created by Tenant (or by anyone acting by, through, or on behalf of Tenant), Tenant shall, at its sole cost and expense, promptly comply and keep continually in full compliance with all federal, state and local laws, ordinances, rules, regulations and requirements relating to air, ground and water pollution and protection and/or preservation of the environment. Notwithstanding anything to the contrary, Tenant shall not have responsibility or liability for any Hazardous Materials to the extent existing on or in the Demised Premises or the Real Estate prior to the date of this Lease (“Pre-Existing Hazardous Materials”).
Landlord shall defend, indemnify, and hold Tenant harmless from and against any claims, damages, penalties, costs, or liabilities imposed against Tenant by any third party to the extent arising out of any Pre-Existing Hazardous Materials.
Section 21.05 Survival of Environmental Terms and Conditions:
Tenant and Landlord agree that each and every provision of this Article XXI shall survive the termination of this Lease. The parties hereto expressly acknowledge and agree that Landlord would not enter into this Lease but for the provisions of this Article XXI and the aforesaid survival thereof.
Section 21.06 Landlord Representation:
Landlord represents and warrants that as of the date of this Lease, to Landlord’s knowledge, the Demised Premises are free from Hazardous Materials (other than standard office products and construction materials, otherwise defined as hazardous, which are used in compliance with applicable law).
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed as of the day and year first above written.
| LANDLORD: | ||
| THE CONNELL COMPANY | ||
| By: | /s/ Duane Connell | |
| Name: | Duane Connell | |
| Title: | Executive Vice President | |
| TENANT: | ||
| KALARIS THERAPEUTICS, INC. | ||
| By: | /s/ Andrew Oxtoby | |
| Name: | Andrew Oxtoby | |
| Title: | President & CEO | |
43
EXHIBIT A
LEGAL DESCRIPTION OF LAND
LEGAL DESCRIPTION
LOT 1, BLOCK 4102”
TOWNSHIP OF BERKELEY HEIGHTS
UNION COUNTY, NEW JERSEY
A parcel of land described herein, being known and designated as Lot 1, Block 4102, Township of Berkeley Heights, Union County, New Jersey (and formerly being known and designated as Lots 1 & 2.01, Block 4102, Lots 1 & 2, Block 4103, and Old Colonial Road, Township of Berkeley Heights, Union County, New Jersey, as shown on a certain map entitled, “Minor Subdivision Plan, Minor Subdivision for Block 4101 Lot 2, Block 4102 - Lots 1 & 2, Block 4103 - Lots 1 & 2 and Block 4301 - Lot 1.01, Township of Berkeley Heights, Union County, New Jersey,” prepared by Schoor DePalma, dated March 29, 2007 and revised to June 25, 2007) and being more particularly described as follows:
Beginning at a point in the easterly sideline of Plainfield Avenue (50 ft. wide right-of-way) distant 885.28 feet the various courses along said sideline from the northerly sideline of Valley Road, said point being the beginning point of a description of land described as Tract II, in a deed recorded in the Union County Clerk’s Office in Deed Book 4260, Page 6 and running; thence,
Along said easterly sideline of Plainfield Avenue, the following eleven (11) courses;
| 1. | North 70 degrees 34 minutes 47 seconds West, 76.51 feet to a point of non-tangent curvature; thence, |
| 2. | Along a curve to the right having a radius of 611.79 feet, a central angle of 10 degrees 32 minutes 59 seconds and an arc length of 112.65 feet to a point of tangency; thence, |
| 3. | North 60 degrees 01 minutes 47 seconds West, 94.58 feet; thence, |
| 4. | North 58 degrees 58 minutes 16 seconds West, 168.11 feet to a point of curvature; thence, |
| 5. | Along a curve to the right having a radius of 622.00 feet, a central angle of 20 degrees 32 minutes 28 seconds and an arc length of 222.99 feet to a point of tangency; thence, |
| 6. | North 38 degrees 25 minutes 48 seconds West, 592.47 feet to a point of curvature; thence, |
| 7. | Along a curve to the right having a radius of 1005.09 feet, a central angle of 06 degrees 28 minutes 36 seconds and an arc length of 113.61 feet to a point of tangency; thence, |
| 8. | North 31 degrees 57 minutes 12 seconds West, 137.31 feet to a point of curvature; thence, |
| 9. | Along a curve to the left having a radius of 373.00 feet, a central angle of 47 degrees 00 minutes 06 seconds and an arc length of 305.98 feet to a point of tangency; thence, |
| 10. | North 78 degrees 57 minutes 18 seconds West, 18.43 feet; thence, |
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| 11. | North 79 degrees 08 minutes 40 seconds West, 7.56 feet to a point of intersection with the southerly sideline of Interstate Highway Route 78; thence, |
Along said southerly sideline, the following five (5) courses;
| 12. | North 88 degrees 10 minutes 39 seconds East, 15.23 feet; thence, |
| 13. | North 62 degrees 14 minutes 02 seconds East, 274.69 feet; thence, |
| 14. | North 66 degrees 41 minutes 45 seconds East, 606.26 feet; thence, |
| 15. | North 64 degrees 53 minutes 46 seconds East, 665.08 feet; thence, |
| 16. | North 56 degrees 06 minutes 40 seconds East, 63.13 feet to the northwest corner of Lot 1.012, Block 4301 as shown on the aforementioned map; thence, |
Along the southwesterly line of said Lot 1.012, the following four (4) courses;
| 17. | South 30 degrees 37 minutes 11 seconds East, 813.47 feet to a point of curvature; thence, |
| 18. | Along a curve to the left having a radius of 40.00 feet, a central angle of 82 degrees 38 minutes 32 seconds, an arc length of 57.70 feet and a chord bearing and distance of South 71 degrees 56 minutes 27 seconds East, 52.82 feet to a point of tangency; thence, |
| 19. | North 66 degrees 44 minutes 17 seconds East, 79.10 feet to a point of curvature; thence, |
| 20. | Along a curve to the left having a radius of 388.00 feet, a central angle of 19 degrees 37 minutes 13 seconds, an arc length of 132.87 feet and a chord bearing and distance of North 56 degrees 55 minutes 40 seconds East, 132.22 feet to a point of non-tangency at an intersection with the southwesterly line of Lot 1.011, Block 4301; thence, |
| 21. | Along said line, South 42 degrees 47 minutes 56 seconds East, 252.35 feet to a point in the municipal boundary line dividing the Township of Berkeley Heights, Union County and the Borough of Watchung, Somerset County; thence, |
Along said municipal boundary line, being the approximate centerline of Green Brook, the following twenty-three (23) courses;
| 22. | North 79 degrees 30 minutes 47 seconds West, 9.38 feet; thence, |
| 23. | North 40 degrees 03 minutes 25 seconds West, 12.12 feet; thence, |
| 24. | North 84 degrees 27 minutes 53 seconds West, 96.00 feet; thence, |
| 25. | South 80 degrees 42 minutes 06 seconds West, 25.14 feet; thence, |
| 26. | South 55 degrees 25 minutes 02 seconds West, 40.43 feet; thence, |
| 27. | South 56 degrees 58 minutes 39 seconds West, 119.85 feet; thence, |
| 28. | South 56 degrees 34 minutes 30 seconds West, 41.59 feet; thence, |
A-2
| 29. | South 42 degrees 12 minutes 02 seconds West, 61.20 feet; thence, |
| 30. | South 39 degrees 24 minutes 33 seconds West, 161.37 feet; thence, |
| 31. | South 17 degrees 49 minutes 34 seconds West, 20.59 feet; thence, |
| 32. | South 18 degrees 05 minutes 48 seconds East, 16.55 feet; thence, |
| 33. | South 33 degrees 44 minutes 50 seconds East, 98.31 feet; thence, |
| 34. | South 04 degrees 08 minutes 49 seconds West, 107.56 feet; thence, |
| 35. | South 03 degrees 17 minutes 01 seconds West, 58.00 feet; thence, |
| 36. | South 27 degrees 40 minutes 25 seconds West, 69.89 feet; thence, |
| 37. | South 52 degrees 30 minutes 14 seconds West, 61.29 feet; thence, |
| 38. | South 45 degrees 14 minutes 25 seconds West, 174.07 feet; thence, |
| 39. | South 39 degrees 07 minutes 16 seconds West, 22.20 feet; thence, |
| 40. | South 37 degrees 43 minutes 26 seconds West, 31.40 feet; thence, |
| 41. | South 59 degrees 58 minutes 42 seconds West, 44.15 feet; thence, |
| 42. | South 49 degrees 38 minutes 04 seconds West, 250.29 feet; thence, |
| 43. | South 49 degrees 12 minutes 28 seconds West, 74.06 feet; thence, |
| 44. | South 19 degrees 25 minutes 13 seconds West, 46.21 feet to the point or place of beginning. |
Containing 2,077,363 square feet more or less / 47.6897 acres of land more or less as described herein.
Subject to all existing easements, rights-of-way and reservations of record.
A-3
A-4
EXHIBIT B
RENTAL PLAN
(SHOWING DEMISED PREMISES)
B-1
EXHIBIT C-1
Space Plan
C-1-1
EXHIBIT C-2
400 Connell Drive
Berkeley Heights, New Jersey
TENANT WORKLETTER
The Connell Company (subject to Section 10.04 of the Lease, “Landlord”) and Tenant are simultaneously executing a lease of the space mentioned therein (the “Demised Premises”). To induce Tenant to enter into the Lease (which is hereby incorporated by reference to the extent that the provisions of this agreement apply thereto) and in consideration of the covenants hereinafter contained, Landlord and Tenant mutually agrees as follows:
| 1. | All terms defined in the Lease shall have the same meaning when used herein. The term “Usable Square Feet” shall refer to the square footage of the floor of the Demised Premises computed by measuring the area enclosed by: the finished surface of the office side of corridor and other permanent walls; the dominant portion or a major vertical penetration; and the center of partitions that separate the area being measured from adjoining office areas, store areas and/or Building Common Areas. No deductions shall be made for columns and projections necessary to the Building, and the above computation shall be made as if alcoves, recessed entrances or similar deviations from the corridor line were not present. |
| 2. | Landlord shall provide Tenant an allowance of up to $70.00 per rentable square foot of the Demised Premises (the “Tenant Work Allowance”) against the total cost of the Tenant Work requested by Tenant in, and in connection with, the Demised Premises. The total cost of the Tenant Work shall include, without limitation, all demolition costs, all hard construction costs, all costs to connect new or newly constructed equipment to existing Building systems, as well as costs of the architects, mechanical and electrical engineers, consultants and contractors, special consultants, the solicitation and securing (including, without limitation, applications and inspections thereof) of all building permits, and all other out-of-pocket costs and expenses incurred by Landlord in connection with the Tenant Work. In the event that the total cost of Tenant Work exceeds $70.00 per rentable square foot of the Demised Premises, Landlord shall invoice Tenant for the difference, and Tenant shall pay such amount to Landlord within thirty (30) days of receipt of such invoice. The parties agree that for federal income tax purposes, with respect to all portions of the Tenant Work for which the Tenant Work Allowance was utilized, Landlord holds the depreciable interest therein and Landlord (and not Tenant) shall be entitled to take depreciation deductions in respect of the same. |
| 3. | Tenant shall cause to be prepared: (i) all interior architectural design and engineering drawings, layouts and material specifications and schedules for the Demised Premises,; (ii) an estimate of the total cost of Tenant Work; (iii) all working, finished, detailed architectural and engineering construction drawings (including “as-built” drawings) and specifications for the Tenant Work and any revisions thereto (and for purposes of clarification, to the extent not encompassed by any of the foregoing, the Plans and Specifications), all to be in compliance with all applicable building codes and all other applicable laws and regulations. Except for “as-built” drawings, a copy of the foregoing shall be submitted to Landlord (prior to submission for application for construction permits) for general review and consent (which consent will not be unreasonably withheld), and Tenant shall not commence the Tenant Work until it shall have received Landlord’s consent and all required construction permits. All Tenant Work will be completed in accordance with these approved drawings and specifications, but in all cases such work |
C-2-1
| will be completed in accordance with all applicable building codes and all other applicable laws and regulations, all other terms set forth in this Lease (including, without limitation, those set forth in this Exhibit C-2), and all building design rules and construction rules reasonably required by Landlord. The Tenant Work shall in no event interfere with building systems or with any other tenant’s use and quiet enjoyment of such tenant’s leased space in the Building. Notwithstanding any failure by Landlord to object to any such Tenant Work (or drawings or specifications relating thereto, including without limitation the Plans and Specifications), Landlord shall have no responsibility therefor (and any approval of or consent to the same by Landlord shall not relieve Tenant from its obligation to construct the Tenant Work in compliance with the terms of this Lease). Tenant agrees to save and hold Landlord harmless as provided in the Lease for said Tenant Work. At the request of Landlord, Tenant shall (i) furnish, in writing, Landlord with both the estimate and actual cost of the Tenant Work and the various components thereof, and (ii) instruct the various contractors to furnish, in writing, such information to Landlord. Tenant shall, at its own expense (but which cost can be included within the Tenant Work Allowance), provide Landlord with (a) one electronic set of drawings on a CD (preferably in AutoCAD) of 50% and/or 75% progress drawings, if issued, (b) three signed and sealed sets of drawings, one unsealed set of drawings and one electronic set of drawings on a CD (preferably in AutoCAD) when such drawings are issued for construction permits, (c) one unsealed set of drawings and one electronic set of drawings on a CD (preferably in AutoCAD) when such drawings are issued for each of (i) bid, (ii) construction and (iii) any revision or addition, and (d) one signed set and one electronic set of drawings on a CD (preferably in AutoCAD) when such drawings are as-built drawings. In connection with the Tenant Work, upon Landlord’s request, Tenant shall also provide Landlord with a copy of each payment requisition/application and all supporting documentation (including, without limitation, schedules of values, continuation sheets, evidence of progress of work and prior payments, lien waivers/releases and downstream requisitions). |
Notwithstanding anything contained in this Section 3, the parties understand that with respect to the initial Tenant Work contemplated in Section 3.01 of the Lease, the design and construction thereof shall be carried out by Landlord as described in Section 3.01 of the Lease and the provisions of Section 3.01 of the Lease shall govern the preparation of such Tenant Work (and Tenant shall not be required to provide Landlord with the drawings referenced in the immediately preceding paragraph with respect to the initial Tenant Work).
| 4. (a) | Subject to subparagraph (b) below and the other provisions hereof, Tenant shall have the right to perform its Tenant Work, provided that the Tenant uses a first- class union general contractor. Said contractor must coordinate all final connections to any Building systems with Landlord and must use the Building maintenance subcontractors for the final connections to the Building management system, fire alarm system and security system. |
| (b) | Tenant will obtain all permits and arrange for all inspections required for occupancy, in connection with all Tenant Work. The cost of all such permits and inspections shall be included in determining the cost of Tenant Work. |
| (c) | Notwithstanding anything contained in this Section 4, the parties understand that with respect to the initial Tenant Work contemplated in Section 3.01 of Lease, the design and construction thereof shall be carried out by Landlord as described in Section 3.01 of the Lease. |
C-2-2
| 5. | The Building shall be made available by Landlord, as is, for Tenant Work with the following improvements as part of the base building construction contract. The cost of any changes required by Tenant in said improvements shall be a portion of the cost of Tenant Work. |
| a. | Electric Load/Wattage: |
| (i) | The Building is designed for a capacity of 2.5 watts per square foot for lights and 4 watts per square foot for business machines. |
| (ii) | Tenant will be responsible for construction and obtaining all necessary approval for all special wiring and power distribution for Tenant’s equipment including but not limited to computer equipment and separate air conditioning related thereto. |
| b. | Floor Decking: |
Robertson Under-Floor Duct Systems for electrical and telephone/computers with presets at one per 6.25 square feet is provided in all Tenant areas.
| c. | Window Coverings: |
The Building is supplied with installed thin line blinds on all exterior windows. Tenant shall not remove these blinds.
| d. | Sprinklers: |
Sprinkler heads are provided in all Tenant areas in accordance with Code.
| e. | Heating, Ventilating and Air Conditioning: |
The Building design provides sufficient capacity to maintain the following conditions in all occupied areas occupied for typical office occupancy: Indoor summer temperature of 75 degrees F.D.B., at an outside temperature of 94 degrees F.D.B.; Indoor winter temperatures of 72 degrees F.D.B. at outside temperature of 10 degrees F.D.B. Any special or supplemental exhaust or air conditioning required due to Tenant’s equipment or abnormally high occupant density will be installed only at Tenant’s expense and subject to the prior written approval of the Landlord.
| 6. | The Tenant’s interior design shall provide for at least the following Landlord minimum standards for Tenant Work: |
| a. | Partitions: |
| (i) | Interior partitions - Such partitions shall be 3 5/8 inch metal studs @ 24 inches o.c. with 1/2 inch gypsum wall board on each side, ceiling height. |
| (ii) | Demising partitions - Such partitions shall be 3 5/8 inch metal studs @ 16 inches o.c. with sound-deadening insulation and 1/2 inch gypsum wallboard. |
| b. | Doors: |
All doors are to be set in 16 ga hollow metal frames.
C-2-3
| (i) | Tenant interior doors to be solid core, flush, birch stain grade. |
| (ii) | Suite entry door(s) to be solid core, wood flush, stain grade veneer and/or glass entrance doors. The number of doors will be in accordance with Code. |
| c. | Door Hardware: |
All hardware shall be Schlage or equal. Locksets shall be keyed with the Building master system.
| d. | Flooring: |
Carpeting shall be an 18” x 18” module over the trench headers in areas not requiring tile, due to the Building’s Robertson Under-Floor Duct System. Carpet in balance of space may be at Tenant’s option.
| e. | Painting: |
(i) Walls - two coats of paint.
(ii) Doors and Frames - two coats of paint.
| 7. | Tenant shall also comply with each of the following: |
(a) As of the date of this Lease, the Building is controlled by a Honeywell XL-5000 Direct Digital Control (DDC) Building Management System that allows facility personnel to monitor and control the environmental HVAC systems. Unless otherwise directed by Landlord to Tenant in writing, all mechanical systems, including, without limitation, central and supplemental heating and cooling plants, air handlers and cooling exhaust fans and VAV boxes must be networked together to optimize system operation and environmental comfort.
(b) Each of the following must be properly wired back to the Building’s fire alarm panel: alarms, strobe speakers, security card readers, electronic locks to any door, HVAC systems, and any other items which building code requires to be wired to such panel or is required by the Berkeley Heights Township inspector or fire marshall. Additional/auxiliary fire suppression devices may (subject to the terms of this Lease) be installed by Tenant but must be compatible and match existing Building fire alarm panel/system manufacturer and be wired to the Building’s main fire alarm panel. Final test/device function verification shall be performed and certified by the current building alarm system vendor and billed to Tenant.
(c) The Building has a Robertson Under-Floor electrical system. No fastenings or hard connections shall be made to the trench header or to the system that exists on each floor. The bolts and steel beams must be used for the connections referenced above. Carpet tiles must be used and trench cover plates covered to allow access.
(d) No core boring through floors shall be permitted unless authorized by Landlord.
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(e) All other tenant design specifications and construction rules that Landlord may from time to time furnish to Tenant.
C-2-5
EXHIBIT D
400 Connell Drive
Rules and Regulations
1. Landlord reserves the right to control and operate the Common Area.
2. Tenant shall not obstruct the entrances, exits, corridors, elevators and stairways of the Building and Tenant shall not use or permit their use for any purpose other than ingress to or egress from the Demised Premises. Fire exits are for emergency use only.
3. Landlord may, from time to time, adopt appropriate procedures for the security or safety of the Building and Tenant shall comply with such procedures. Landlord may refuse admission to the Building to any person not properly identified, or to any person whose presence, in Landlord’s judgment, would be prejudicial to the safety, character, reputation and interests of the Building or its tenants. Landlord may limit or restrict access to the Building outside Business Hours (as herein defined) and Tenant shall comply with such off-hours procedures as Landlord may establish. Landlord shall in no way be liable to any Tenant for damages or loss arising from the admission, exclusion or ejection of any person to or from the Building or the Demised Premises.
4. Tenant shall not install awnings, shades or other coverings on or in any window of the Building or on any terrace. Tenant shall use only such window blinds as Landlord has supplied and Tenant shall not remove them. Tenant shall cooperate with Landlord in the efficient operation of the Building’s air conditioning system by lowering the window blinds in the Demised Premises, as required. Tenant shall keep window sills in the Demised Premises in a neat and orderly appearance and shall not hang items from the ceilings so as to be visible from the exterior of the Building.
5. The Building “Business Hours” (hereinafter so called), excluding the cafeteria, shall be 8 AM to 6 PM on all days except weekends and Holidays. The following days shall be considered Building Holidays:
New Year’s Day
Presidents’ Day
Martin Luther King Jr. Day
Memorial Day
Fourth of July
Labor Day
Thanksgiving Day
Day after Thanksgiving
Christmas Day
Landlord reserves the right to modify the list of Building Holidays.
Landlord shall not furnish janitorial and other services on Building Holidays. At Tenant’s request, Landlord shall provide such services on Building Holidays at Tenant’s sole expense.
6. During Business Hours, Landlord shall provide, at Landlord’s expense and as part of the Rent, electricity for Tenant’s HVAC and Common Area usage. On weekends and Holidays, the Building will be heated or cooled for Tenant only upon special request of Tenant. If Tenant requires electricity for HVAC or Common Area usage outside Business Hours or on weekends or Holidays, Landlord shall furnish same at Tenant’s request and at Tenant’s expense as follows. Each
D-1
hour or fraction thereof shall be charged to Tenant at the rate of seventy-five dollars ($75.00) per hour for Tenant premises of 40,000 square feet or less and an additional seventy-five dollars ($75.00) per hour for each additional 40,000 rentable square feet or fraction thereof, with a minimum charge of four (4) hours. Tenant shall pay such charges to Landlord monthly together with Rent. The hourly rate may be adjusted if the utility’s charge to Landlord is increased. If Tenant does not notify Landlord prior to its usage of electricity as set forth in this paragraph, Landlord shall estimate Tenant’s usage and shall charge Tenant accordingly.
7. Tenant shall not use or permit the use of hand trucks in the Common Area unless they are equipped with rubber tires and side guards.
8. The entrance doors to the Demised Premises shall not be left open at any time and shall be locked when Tenant is not in the Demised Premises.
9. Tenant shall not make or permit to be made any noise, including the playing of musical instruments, radio or television, which in the Landlord’s judgment may disturb other tenants. Tenant shall not bring into or keep in the Demised Premises anything which may impair or interfere with any of the Building services, heating or cleaning of the Building, including, without limitation, ventilating, air conditioning, electrical or other equipment. Tenant shall not bring any dangerous, inflammable, combustible or explosive objects or materials into the Building or any Common Area.
10. Tenant shall not permit any cooking on the Demised Premises.
11. Tenant shall not discharge or permit any acids, vapors or other materials to be discharged into the waste lines, vents or flues of the Building. Tenant shall not use the water, wash closets and other plumbing fixtures in or servicing the Demised Premises for any purpose other than for which they were designed and constructed nor shall Tenant deposit any sweepings, rubbish, rags, acids or other foreign substances therein. Tenant shall be liable for any damage resulting from negligence or misuse by Tenant, its agents, employees, servants, permitted subtenants and assignees, contractors or subcontractors, visitors or licensees.
12. Tenant may not install or maintain any sign, advertisement or notice in or at the Real Estate or visible from the outside of the Real Estate without the prior written consent of the Landlord. If Tenant installs such sign, advertisement or notice, Landlord may remove same at Tenant’s expense. Tenant may identify its business name by lettering on the entrance door to the Demised Premises pursuant to the terms of the Lease. Tenant may display its name, location and such reasonable number of the principal officers and employees of Tenant as Landlord in its sole discretion may approve in the Building directory provided by Landlord in the first-floor Lobby of the Building.
13. Neither the Demised Premises, nor the Common Areas shall be used by Tenant, any affiliates thereof or any of their respective employees, representatives, agents or servants, at any time, as a store, restaurant, shoe-shine or other stand, or for manufacturing or other similar purposes or otherwise in any manner prohibited by the Lease.
14. Tenant’s requirements will be attended to upon application at Landlord’s offices. Landlord’s employees shall not perform any work or do anything outside their regular duties for Tenant unless under special instructions from Landlord’s office and at the expense of Tenant.
15. Tenant shall be responsible for providing electricity and other utility services (excluding HVAC) for Landlord’s agents, employees, representatives, servants or contractors who are performing janitorial and cleaning services or repairs or alterations to the Demised Premises.
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16. Tenant’s employees, representatives, agents or servants shall not loiter in and around the Parking Area, halls, stairways, elevators, entrances, roof or any other part of the Building or Common Areas.
17. Landlord shall provide periodic extermination services throughout the Building, and Tenant shall provide Landlord with access to the Demised Premises during Business Hours upon reasonable prior notice for the purpose of performing such services. If, in the sole opinion of the Landlord additional extermination is required in the Demised Premises, Landlord shall arrange for exterminators, at Tenant’s expense.
18. Landlord shall provide, at its expense, those cleaning services set forth in the Building Janitorial Specifications during weekdays (excluding Holidays) between the hours of 6 PM and 11 PM. Upon Tenant’s request, Landlord shall provide cleaning services on weekends, Holidays or at other hours, at Tenant’s sole expense.
19. Tenant shall not in any way deface any part of the Building or the Demised Premises. Tenant shall not install linoleum or other similar floor covering without affixing an interlining of builder’s deadening felt to the floor by paste or other water soluble material; the use of cement or similar adhesive is expressly prohibited. Tenant shall not place equipment, desks, files or other heavy objects on any trench header in the floor in the Demised Premises.
20. Tenant shall not place any additional locks or bolts on the doors of the Demised Premises nor shall Tenant change or replace any existing locks. Upon Tenant’s request, new locks will be installed or changed by Landlord at Tenant’s expense; any new locks will remain operable by Landlord’s Master Key. Upon termination of the tenancy, Tenant shall deliver to Landlord all keys to the Demised Premises and Building which Landlord has furnished to Tenant. In the event of loss, Tenant shall pay to Landlord the cost of replacing the keys.
21. Canvassing, peddling, soliciting and distributing handbills or other written materials are prohibited in the Building.
22. Landlord may designate certain places in the Parking Area for visitor, reserved, handicapped or emergency parking.
23. Landlord may create paths, walks or other means of cross access through the Real Estate to other properties of the Landlord.
24. Tenant, its employees, agents or servants, shall not conduct itself in any manner inconsistent with the character of the Building or which will impair the comfort and convenience of other tenants in the Building.
25. The following apply to use of the fitness center, locker rooms, game room area, and related amenity areas located in the Building (the “Fitness Area”):
| (i) | BY HIS/HER USE OF THE FITNESS AREA, THE USER (A) ACKNOWLEDGES THAT USE OF THE FITNESS AREA MAY INVOLVE THE RISK OF SERIOUS BODILY INJURY OR EVEN DEATH, AND THAT THE USER HAS HAD SUCH PHYSICAL EXAMINATIONS AS DEEMED NECESSARY AND THAT THE USER HAS DETERMINED THAT HE/SHE IS IN SUCH PHYSICAL CONDITION AS TO PERMIT HIS/HER SAFE USE OF THE FITNESS AREA AND (B) ACKNOWLEDGES THAT HIS/HER USE OF THE FITNESS AREA IS AT HIS/HER OWN RISK. |
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| (ii) | The Fitness Area may be used only by employees of tenants and subtenants of the Building and Building 300 who, in either case, work in the Building or Building 300 and who have executed a Release and Waiver Form described below. Guests are not permitted to use the Fitness Area, nor are independent contractors of a tenant or subtenant. No persons under the age of 18 may use the Fitness Area. For purposes of emphasis, and notwithstanding anything to the contrary in the foregoing, nothing in these Rules and Regulations shall limit Landlord’s right to allow persons who are not tenants (or employees of tenants) at either the Building or Building 300 from using the Fitness Center on terms determined by Landlord in its sole discretion. |
| (iii) | Access to the Fitness Area is via access card. Card access for a particular employee of a tenant in the Building and/or Building 300 will be enabled when the office manager of such tenant advises Landlord of such employee’s name and provides such employee’s existing building access card number (or, if they do not have an existing key card, Landlord will furnish one), but only if and after such employee has executed the release and waiver form furnished by Landlord to Tenant (the “Release and Waiver Form”). Tenant is responsible for retaining all the Release and Waiver Forms executed by its employees. If Landlord requests a copy of any executed Release and Waiver Form, Tenant shall promptly furnish the same to Landlord. If any employee of a Tenant who has received card access to the Fitness Area as provided above thereafter is no longer employed by Tenant or no longer works in either the Building or Building 300, Tenant shall be responsible for informing Landlord of such termination to ensure that card access to the Fitness Area can be revoked. |
| (iv) | Users of the Fitness Area must check in at the membership scan located in the Fitness Area before each use. |
| (v) | The Fitness Area is open Monday-Friday from 5:00 a.m. to 10:00 p.m., and on Saturdays and Sundays from 6:00 a.m. to 7:00 p.m. (in each case excluding Building Holidays). Notwithstanding the foregoing, the hours the Fitness Area is open may be modified by Landlord from time to time in Landlord’s sole discretion (and any such change in hours may be communicated in such manner as Landlord chooses, including the posting of signage at the Fitness Area). |
| (vi) | Appropriate attire and footwear must be worn in the Fitness Area. |
| (vii) | Smoking is not permitted in the Fitness Area. |
| (viii) | No food or beverages, except water, are permitted in the Fitness Area. |
| (ix) | Alcoholic beverages are prohibited in the Fitness Area. |
| (x) | No glass containers are permitted in the Fitness Area. |
| (xi) | No person shall leave any litter, trash, debris or articles of clothing in the Fitness Area. |
| (xii) | Any conduct which unreasonably interferes with the use or enjoyment of the Fitness Area by other users, or disrupts or interferes with the normal, safe, orderly and efficient operation of the Fitness Area, is prohibited. Radios, tape recorders or other similar personal audio equipment may not be used without headphones (except by class instructors in connection with classes approved by Landlord). Use of cameras and recording devices is prohibited in the Fitness Area. |
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| (xiii) | Equipment and machines in the Fitness Area are to be utilized in only the manner and for the purpose which they are designed. |
| (xiv) | The Fitness Area may be unmanned and unsupervised. Users of the Fitness Area should not rely in any way on any employees or agents of Landlord, who may be present at any time in the Fitness Area or otherwise, for health, fitness or medical assistance or advice. |
| (xv) | Locks are provided on the lockers in the locker rooms. Notwithstanding the foregoing, Landlord and its agents assume no responsibility for personal possessions left in the Fitness Area, including in any lockers (locked or otherwise), and assume no responsibility for lost or stolen property. Lockers shall be used during exercise sessions only. Landlord reserves the right to remove possessions left in the Fitness Area overnight. |
| (xvi) | Each user is responsible for any damage to the Fitness Area caused by such user. |
| (xvii) | Users must abide by the provisions of any posted signs in the Fitness Area. |
| (xviii) | Users must immediately notify Building security, at (908) 771-0245 in the event they discover any unsafe or hazardous defect or condition relating to equipment in the Fitness Area, or any breakage, fire or disorder at the Fitness Area. |
| (xix) | Landlord reserves the right to remove anyone from the Fitness Area or terminate access if the rules set forth herein are not followed. |
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EXHIBIT E
BUILDING JANITORIAL SPECIFICATIONS
TENANT OFFICE AREAS
| Daily: | (Monday through Friday, HOLIDAYS excepted) |
| 1. | Remove all trash to designated area. |
| 2. | Spot clean glass areas to remove soil and smudges. |
| 3. | Clean drinking fountains. |
| 4. | Dust mop or vacuum uncarpeted areas using a large treated dust mop. |
| 5. | Remove fingermarks and smudges from doors and wall surfaces. |
| 6. | Vacuum all carpeted areas using beater bar or brush vacuum cleaner. All carpeted areas policed and all surface debris removed. |
| 7. | Dust exposed areas within hand reach with treated cloths. |
| 8. | Damp mop floor and wash counters in kitchenettes. |
| 9. | Replace trash bags in garbage cans. |
Weekly:
| 1. | Spot clean walls, carpeting, partitions, fixtures, and doors. |
Monthly:
| 1. | Wipe wastepaper baskets to remove evident soil. |
Quarterly:
| 1. | Dust all areas above hand-high reach with treated cloths, excluding ceilings and light fixtures. |
| 2. | Vacuum all air supply and exhaust diffusers. |
Every Six Months:
| 1. | Dust all blinds. |
| 2. | Wash all exterior windows, inside and outside. |
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Overall:
Tenants requiring services in excess of or more frequently than those described above or services on Holidays, weekends, or before or after the building’s Business Hours shall request same through Landlord. All such services shall be provided at Tenant’s expense.
Lavatories
Sweep and wash all lavatory floors with disinfectant nightly.
Clean mirrors, shelves, brightwork, and plumbing work nightly.
Wash and disinfect basins, bowls and urinals daily.
Empty and clean waste receptacles and fill wash dispensers with appropriate tissues, towels and soap nightly. Sanitary napkin receptacles emptied, cleaned and disinfected.
Wash and disinfect tile walls and dividing partitions weekly.
Janitorial Closets and Storage Areas
Clean and store Mops.
Clean sinks and drains free of mop strings an other debris.
Turn off lights and close and lock doors.
Clean equipment.
Main Lobby, Atrium Areas, Elevators, and Corridors
Wipe and wash all floors in main lobby nightly.
Wipe walls and vacuum elevator floor nightly.
Sweep and/or vacuum all hallway corridors stairwells, landings and handrails daily.
Remove fingermarks and smudges from doors, glass, and wall surfaces nightly.
Shampoo carpeting in public lobbies and corridors monthly and spot clean nightly to remove stains.
Clean compactor room nightly.
Wash walls in corridors and lobbies not reached in general cleaning annually.
E-2
EXHIBIT F
COMMENCEMENT DATE ADDENDUM
Reference is made to the Lease dated as of February 4, 2025 (the “Lease”) between THE CONNELL COMPANY (“Landlord”) and KALARIS THERAPEUTICS, INC. (“Tenant”). Pursuant to Section 2.01 of the Lease, Landlord and Tenant are entering into this addendum to the Lease to confirm the date of the Commencement Date under the Lease.
Landlord and Tenant hereby confirm that the Commencement Date of the Lease is ____________________.
The parties agree that this addendum is intended solely to confirm the date of the Commencement Date under the Lease, and this addendum shall not in any way affect or modify any of the terms of the Lease.
| THE CONNELL COMPANY | ||
| By: |
| |
| Name: |
| |
| Title: |
| |
| Date: |
| |
| KALARIS THERAPEUTICS, INC. | ||
| By: |
| |
| Name: |
| |
| Title: |
| |
| Date: |
| |
F-1
EXHIBIT G
APPROVED FORM OF LETTER OF CREDIT
| Effective Date: | ||||
| L/C No.: |
| Beneficiary: The Connell Company 300 Connell Drive Berkeley Heights, New Jersey 07922 |
Amount: USD $ |
We hereby establish this Irrevocable Letter of Credit No. __________ for U.S. Dollars __________, in your favor as Beneficiary for the account of KALARIS THERAPEUTICS, INC. [insert address] (“Kalaris”). Please be advised that this Letter of Credit supports Kalaris’s obligations under the Lease Agreement dated as of __________, 202[_] (as may be amended from time to time, the “Lease”) between The Connell Company, as Landlord, and Kalaris, as Tenant. This Letter of Credit will have a stated expiration date of [insert date which is one year from the Effective Date], subject to the automatic extension as provided below.
The funds under this Letter of Credit are available to Beneficiary from time to time up to the available amount as provided in this Letter of Credit (less any drawings hereunder) against presentation of your draft at sight drawn on [insert name of issuing bank] when accompanied by the following document:
Beneficiary’s written, signed and dated statement, signed by one of its purported authorized signatories, reading as follows:
“The undersigned being duly authorized to make this statement does hereby state that we are drawing USD……..under Irrevocable Letter of Credit No. __________ because KALARIS THERAPEUTICS, INC. (“Kalaris”)is in default under the terms of the Lease Agreement dated as of __________, 2024 (as amended as of the date hereof) between The Connell Company, as Landlord, and Kalaris, as Tenant (the “Lease”); any period for the cure of such default under the Lease having expired; and the amount being drawn represents but does not exceed the amount due and owing under the Lease.”
You may draw hereunder for the full available amount, or for lesser amounts from time to time, as you may determine.
The expiration date of this Letter of Credit shall be automatically extended for an additional period of one year from the present or each future expiration date, unless at least 30 days prior to such date the Beneficiary receives from us notice in writing by registered mail or hand delivery at the above address, that we elect not to renew this Letter of Credit for such additional period. If the expiration date of this Letter of Credit is extended as provided above, the amount available under this Letter of Credit during such one year period covered by such extension shall equal the amount available immediately prior to such extension. Upon Beneficiary’s receipt of such notice of non-extension, Beneficiary may (within the then applicable expiration date) draw hereunder by presentation to us of your draft, drawn at sight, for an amount not to exceed the balance remaining under this Letter of Credit, accompanied by Beneficiary’s written, signed and dated statement, signed by one of its purported authorized signatories, reading as follows:
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“The undersigned being duly authorized to make this statement does hereby state that we are drawing USD……..under Irrevocable Letter of Credit No. __________ because we have received notice from [insert name of issuing bank] of its decision not to extend Letter of Credit Number __________ for an additional year.”
This Letter of Credit may be transferred by The Connell Company (or its successors or assigns) provided that a transfer form, in the form attached hereto, is provided to [insert name of issuing bank].
All correspondence and any drawings presented in connection with this Letter of Credit must only be presented to us at [insert name and address of issuing bank].
We hereby engage with you that all drafts drawn under and in compliance with the terms of this Letter of Credit will be duly honored if drawn and presented for payment as indicated above on or before the expiration date of [insert date one year from Effective Date] or any automatically extended expiration date as provided herein above.
This Letter of Credit is subject to the Uniform Customs and Practice For Documentary Credits (1993 Revision) International Chamber of Commerce Publication No. 500.
| Yours Truly, |
| [NAME OF ISSUING BANK] |
|
Authorized Signature |
G-2
Transfer form
[Date]
[Insert name and address of issuing bank]
| Re: | Letter of Credit No. ____________ |
Issued by: [name of issuing bank]
Ladies and Gentlemen:
For value received, the undersigned beneficiary hereby irrevocably transfers to:
[name of transferee]
[address]
all rights of the undersigned beneficiary to draw under the above Letter of Credit in its entirety.
By this transfer, all rights of the undersigned beneficiary in such Letter of Credit are transferred to the transferee and the transferee shall have the sole rights as beneficiary thereof, including sole rights relating to any amendments, whether increases or extensions or other amendments and whether now existing or hereafter made. All amendments are to be advised direct to the transferee without necessity of any consent of or notice to the undersigned beneficiary.
The original of such Letter of Credit is returned herewith, and we ask you to endorse the transfer on the reverse hereof, and forward it direct to the transferee with your customary notice of transfer.
| very truly yours |
|
signature of beneficiary |
G-3
EXHIBIT G-1
APPROVED FORM OF LETTER OF CREDIT
IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER ____________
ISSUE DATE: ____________
ISSUING BANK:
FIRST-CITIZENS BANK & TRUST COMPANY
3003 TASMAN DRIVE
2ND FLOOR, MAIL SORT HF210
SANTA CLARA, CALIFORNIA 95054
BENEFICIARY:
THE CONNELL COMPANY
300 CONNELL DRIVE
BERKELEY HEIGHTS
NEW JERSEY 07922
APPLICANT:
KALARIS THERAPEUTICS, INC.
628 MIDDLEFIELD ROAD
PALO ALTO, CA 94301
AMOUNT: US$500,000.00 (FIVE HUNDRED THOUSAND AND 00/100 U.S. DOLLARS)
EXPIRATION DATE: ONE YEAR FROM ISSUANCE DATE
PLACE OF EXPIRATION: ISSUING BANK’S COUNTERS AT ITS ABOVE ADDRESS
DEAR SIR/MADAM:
WE HEREBY ESTABLISH THIS IRREVOCABLE LETTER OF CREDIT NO. SVBFS ____________ FOR U.S. DOLLARS USD$500,000.00 (FIVE HUNDRED THOUSAND AND 00/100 U.S. DOLLARS), IN YOUR FAVOR AS BENEFICIARY FOR THE ACCOUNT OF KALARIS THERAPEUTICS, INC. 628 MIDDLEFIELD ROAD, PALO ALTO, CA. 94301 (“KALARIS”). THIS LETTER OF CREDIT IS ISSUED TO SUPPORTS KALARIS’S OBLIGATIONS UNDER THE LEASE AGREEMENT DATED AS OF ____________, 202[_] (AS MAY BE AMENDED FROM TIME TO TIME, THE “LEASE”) BETWEEN THE CONNELL COMPANY, AS LANDLORD, AND KALARIS, AS TENANT. THIS LETTER OF CREDIT EXPIRES ON ____________, SUBJECT TO THE AUTOMATIC EXTENSION AS PROVIDED BELOW.
THE FUNDS UNDER THIS LETTER OF CREDIT ARE AVAILABLE TO BENEFICIARY FROM TIME TO TIME UP TO THE AVAILABLE AMOUNT AS PROVIDED IN THIS LETTER OF CREDIT (LESS ANY DRAWINGS HEREUNDER) AGAINST PRESENTATION OF YOUR DRAFT(S) AT SIGHT DRAWN ON FIRST-CITIZENS BANK & TRUST COMPANY WHEN ACCOMPANIED BY THE FOLLOWING DOCUMENT:
BENEFICIARY’S WRITTEN, SIGNED AND DATED STATEMENT, SIGNED BY AN AUTHORIZED SIGNATORIES, READING AS FOLLOWS:
G-4
“THE UNDERSIGNED BEING DULY AUTHORIZED TO MAKE THIS STATEMENT DOES HEREBY CERTIFY THAT WE ARE DRAWING USD……..UNDER IRREVOCABLE LETTER OF CREDIT NO. SVBFS ____________ EITHER BECAUSE KALARIS THERAPEUTICS, INC. (“KALARIS”) IS IN DEFAULT UNDER THE TERMS OF, OR BECAUSE THE UNDERSIGNED IS OTHERWISE AUTHORIZED BY THE EXPRESS TERMS OF, THE LEASE AGREEMENT DATED AS OF ____________, 2024 (AS AMENDED AS OF THE DATE HEREOF) BETWEEN THE CONNELL COMPANY, AS LANDLORD, AND KALARIS, AS TENANT (THE “LEASE”); ANY PERIOD FOR THE CURE OF SUCH DEFAULT UNDER THE LEASE, AS APPLICABLE, HAVING EXPIRED; AND THE AMOUNT BEING DRAWN REPRESENTS BUT DOES NOT EXCEED THE AMOUNT DUE AND OWING UNDER, OR WHICH LANDLORD IS AUTHORIZED TO DRAW IN ACCORDANCE WITH, THE LEASE.”
PARTIAL DRAWS AND MULTIPLE PRESENTATIONS ARE ALLOWED.
FACSIMILE PRESENTATIONS ARE ALSO PERMITTED. EACH FACSIMILE TRANSMISSION SHALL BE MADE AT: (408) 496-2418 OR (408) 969-6510; AND UNDER CONTEMPORANEOUS TELEPHONE ADVICE TO: (408) 450-5001 OR (408) 654-7176, ATTENTION: GLOBAL TRADE FINANCE. ABSENCE OF THE AFORESAID TELEPHONE ADVICE SHALL NOT AFFECT OUR OBLIGATION TO HONOR ANY DRAW REQUEST.
THIS LETTER OF CREDIT SHALL BE AUTOMATICALLY EXTENDED FOR ADDITIONAL PERIODS OF ONE YEAR, WITHOUT AMENDMENT, FROM THE PRESENT OR EACH FUTURE EXPIRATION DATE UNLESS AT LEAST THIRTY (30) DAYS PRIOR TO THE THEN CURRENT EXPIRATION DATE WE SEND TO YOU (BENEFICIARY) A NOTICE BY REGISTERED OR CERTIFIED MAIL OR OVERNIGHT COURIER SERVICE AT YOUR ABOVE ADDRESS THAT THIS LETTER OF CREDIT WILL NOT BE EXTENDED BEYOND THE THEN CURRENT EXPIRATION DATE. IN NO EVENT SHALL THIS LETTER OF CREDIT BE AUTOMATICALLY EXTENDED BEYOND [INSERT DATE THAT IS AT LEAST 60 DAYS AFTER THE SCHEDULED EXPIRATION DATE, INCLUDING ANY AVAILABLE RENEWAL TERMS]_[ ____________]. IN THE EVENT WE SEND SUCH NOTICE OF NON-EXTENSION, YOU MAY DRAW THE ENTIRE AMOUNT AVAILABLE HEREUNDER BY YOUR PRESENTATION TO US OF YOUR SIGNED AND DATED STATEMENT STATING THAT YOU HAVE RECEIVED A NON-EXTENSION NOTICE FROM FIRST-CITIZENS BANK & TRUST COMPANY IN RESPECT OF LETTER OF CREDIT NO. SVBFS ____________, YOU ARE DRAWING ON SUCH LETTER OF CREDIT FOR US$ ____________, AND YOU HAVE NOT RECEIVED A REPLACEMENT LETTER OF CREDIT OF SUBSTANTIALLY SIMILAR TERMS.
THIS LETTER OF CREDIT IS TRANSFERABLE IN WHOLE BUT NOT IN PART ONE OR MORE TIMES, BUT IN EACH INSTANCE ONLY TO A SINGLE BENEFICIARY AS TRANSFEREE AND FOR THE THEN AVAILABLE AMOUNT, ASSUMING SUCH TRANSFER TO SUCH TRANSFEREE WOULD BE IN COMPLIANCE WITH THEN APPLICABLE LAW AND REGULATION, INCLUDING BUT NOT LIMITED TO THE REGULATIONS OF THE U.S. DEPARTMENT OF TREASURY AND U.S. DEPARTMENT OF COMMERCE. AT THE TIME OF TRANSFER, THE ORIGINAL LETTER OF CREDIT AND ORIGINALS OR COPIES OF ALL AMENDMENTS, IF ANY, TO THIS LETTER OF CREDIT MUST BE SURRENDERED TO US AT OUR ADDRESS INDICATED IN THIS LETTER OF CREDIT TOGETHER WITH OUR TRANSFER FORM ATTACHED HERETO AS EXHIBIT A DULY EXECUTED. APPLICANT SHALL PAY OUR TRANSFER FEE 1⁄4 OF OF 1% OF THE TRANSFER AMOUNT (MINIMUM US$250.00) UNDER THIS LETTER OF CREDIT, PROVIDED, HOWEVER, THAT ANY FAILURE OR DELAY BY APPLICANT IN PAYING SUCH TRANSFER FEE SHALL NOT AFFECT OR DELAY IN ANY MANNER THE APPLICABLE TRANSFER. EACH TRANSFER SHALL BE EVIDENCED BY EITHER (1) OUR ENDORSEMENT ON THE REVERSE OF THE LETTER OF CREDIT AND WE SHALL FORWARD THE ORIGINAL OF THE LETTER OF CREDIT SO ENDORSED TO THE TRANSFEREE OR (2) OUR ISSUING A REPLACEMENT LETTER OF CREDIT TO THE TRANSFEREE ON SUBSTANTIALLY THE SAME TERMS AND CONDITIONS AS THE TRANSFERRED LETTER OF CREDIT (IN WHICH EVENT THE TRANSFERRED LETTER OF CREDIT SHALL HAVE NO FURTHER EFFECT).
G-5
ALL CORRESPONDENCE AND ANY DRAWINGS PRESENTED IN CONNECTION WITH THIS LETTER OF CREDIT MUST BE PRESENTED TO US AT FIRST-CITIZENS BANK & TRUST COMPANY, 3003 TASMAN DRIVE, 2ND FLOOR, MAILSORT HF-210, SANTA CLARA, CA. 95054 ATTN: GLOBAL TRADE SERVICES. AS USED IN THIS LETTER OF CREDIT, “BUSINESS DAY” SHALL MEAN ANY DAY OTHER THAN A SATURDAY, SUNDAY OR A DAY ON WHICH BANKING INSTITUTIONS IN THE STATE OF CALIFORNIA ARE AUTHORIZED OR REQUIRED BY LAW TO CLOSE.
WE HEREBY ENGAGE WITH YOU THAT ALL DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS LETTER OF CREDIT WILL BE DULY HONORED IF DRAWN AND PRESENTED FOR PAYMENT AS INDICATED ABOVE ON OR BEFORE THE EXPIRATION DATE OF ____________ OR ANY AUTOMATICALLY EXTENDED EXPIRATION DATE AS PROVIDED HEREIN ABOVE.
IF ANY INSTRUCTIONS ACCOMPANYING A DRAWING UNDER THIS LETTER OF CREDIT REQUEST THAT PAYMENT IS TO BE MADE BY TRANSFER TO YOUR ACCOUNT WITH ANOTHER BANK, WE WILL ONLY EFFECT SUCH PAYMENT BY FED WIRE TO A U.S. REGULATED BANK.
THIS LETTER OF CREDIT IS SUBJECT TO THE INTERNATIONAL STANDBY PRACTICES (ISP98), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 590.
FIRST-CITIZENS BANK & TRUST COMPANY
AUTHORIZED SIGNATURE
G-6
IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER
EXHIBIT A
FORM OF TRANSFER FORM
DATE:
| TO: FIRST-CITIZENS BANK & TRUST COMPANY 3003 TASMAN DRIVE SANTA CLARA, CA 95054 ATTN: GLOBAL TRADE FINANCE SANTA CLARA STANDBY LETTERS OF CREDIT |
RE: IRREVOCABLE STANDBY LETTER OF CREDIT NO. ISSUED BY FIRST-CITIZENS BANK & TRUST COMPANY,
L/C AMOUNT: |
LADIES AND GENTLEMEN:
FOR VALUE RECEIVED, THE UNDERSIGNED BENEFICIARY HEREBY IRREVOCABLY TRANSFERS TO:
(NAME OF TRANSFEREE)
(ADDRESS)
ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY TO DRAW UNDER THE ABOVE LETTER OF CREDIT UP TO ITS AVAILABLE AMOUNT AS SHOWN ABOVE AS OF THE DATE OF THIS TRANSFER.
BY THIS TRANSFER, ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY IN SUCH LETTER OF CREDIT ARE TRANSFERRED TO THE TRANSFEREE. TRANSFEREE SHALL HAVE THE SOLE RIGHTS AS BENEFICIARY THEREOF, INCLUDING SOLE RIGHTS RELATING TO ANY AMENDMENTS, WHETHER INCREASES OR EXTENSIONS OR OTHER AMENDMENTS, AND WHETHER NOW EXISTING OR HEREAFTER MADE. ALL AMENDMENTS ARE TO BE ADVISED DIRECTLY TO THE TRANSFEREE WITHOUT NECESSITY OF ANY CONSENT OF OR NOTICE TO THE UNDERSIGNED BENEFICIARY.
THE ORIGINAL OF SUCH LETTER OF CREDIT IS RETURNED HEREWITH, AND WE ASK YOU TO EITHER (1) ENDORSE THE TRANSFER ON THE REVERSE THEREOF, AND FORWARD IT DIRECTLY TO THE TRANSFEREE WITH YOUR CUSTOMARY NOTICE OF TRANSFER, OR (2) ISSUE A REPLACEMENT LETTER OF CREDIT TO THE TRANSFEREE ON SUBSTANTIALLY THE SAME TERMS AND CONDITIONS AS THE TRANSFERRED LETTER OF CREDIT (IN WHICH EVENT THE TRANSFERRED LETTER OF CREDIT SHALL HAVE NO FURTHER EFFECT).
| SINCERELY,
(BENEFICIARY’S NAME)
(SIGNATURE OF BENEFICIARY)
(NAME AND TITLE)
AUTHORIZED SIGNATURE |
SIGNATURE AUTHENTICATED
The name(s), title(s), and signature(s) conform to that/those on file with us for the company and the signature(s) is/are authorized to execute this instrument.
(Name of Bank)
(Address of Bank)
(City, State, ZIP Code)
(Authorized Name and Title)
(Authorized Signature)
(Telephone number) |
G-7
Exhibit 21.1
SUBSIDIARIES
| Subsidiary | Jurisdiction of Incorporation | |
| AlloVir International Designated Activity Company | Ireland | |
| AlloVir Securities Corporation | Massachusetts | |
| AlloVir Italia S.R.L. | Italy | |
| Kalaris Tx, Inc. | Delaware |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-269808 on Form S-3 and Registration Statement Nos. 333-269810, 333-262632, 333-253028 and 333-240259 on Form S-8 of our report dated March 18, 2025, relating to the financial statements of Kalaris Therapeutics, Inc. appearing in this Current Report on Form 8-K dated March 18, 2025.
| /s/ Deloitte & Touche LLP |
| San Francisco, California |
| March 18, 2025 |
Exhibit 99.1
Kalaris Announces Closing of Merger with AlloVir
Kalaris is focused on developing TH103, a novel, differentiated anti-VEGF agent engineered
to potentially provide longer-lasting and increased anti-VEGF activity to treat neovascular
and exudative diseases of the retina
Currently enrolling nAMD patients in a Phase 1 trial, with initial data from Part 1 of the trial
expected in the second half of 2025
Post-transaction cash of approximately $100 million expected to fund
operations into the fourth quarter of 2026
Shares expected to trade on Nasdaq under “KLRS”, effective March 19, 2025
PALO ALTO, Calif., March 18, 2025 (GLOBE NEWSWIRE) — Kalaris Therapeutics, Inc. (Nasdaq: KLRS)(“Kalaris”), a clinical-stage biopharmaceutical company dedicated to the development and commercialization of treatments for prevalent diseases of the retina, today announced the completion of its previously announced merger with AlloVir, Inc. (“AlloVir”). The combined company will operate under the name Kalaris Therapeutics, Inc. and its shares are expected to begin trading on The Nasdaq Global Market on March 19, 2025 under the ticker symbol “KLRS.”
Kalaris is currently developing TH103, a novel, differentiated anti-vascular endothelial growth factor (“VEGF”) agent engineered to potentially provide longer-lasting and increased anti-VEGF activity to treat neovascular and exudative diseases of the retina. TH103 was specifically engineered to address the limitations of current neovascular Age-related Macular Degeneration (“nAMD”) therapies and has demonstrated both potent anti-VEGF activity and sustained ocular residence time in preclinical studies. Kalaris expects to report initial data from Part 1 of its ongoing Phase 1 clinical trial of TH103 in the second half of 2025.
The combined company’s cash and cash equivalents of approximately $100 million as of the closing date is expected to be sufficient to fund its operating expenses and capital expenditure requirements into the fourth quarter of 2026. “We are delighted to close this transaction, which we expect will provide us with the financial resources to continue development of TH103 beyond the initiation of our planned Phase 2 clinical trial”, said Andrew Oxtoby, CEO of Kalaris Therapeutics.
About TH103 Phase 1 Clinical Trial
The ongoing Phase 1 open label clinical trial is evaluating TH103 in treatment-naïve nAMD patients. Enrollment in Part 1 of the trial began in August 2024, with initial data expected in the second half of 2025. The Phase 1 clinical trial is designed to evaluate safety, pharmacodynamics/pharmacokinetics, determine optimal dose, and assess preliminary evidence of treatment effect.
Transaction Details
Immediately following the closing of the merger, there are approximately 18,702,413 shares of the combined company’s common stock outstanding, with pre-merger Kalaris stockholders owning approximately 74.47% and pre-merger AlloVir stockholders owning approximately 25.53% of the combined company’s outstanding common stock on a fully-diluted basis. The combined company will be led by Andrew Oxtoby, CEO of Kalaris, and other members of the Kalaris management.
Leerink Partners acted as exclusive financial advisor to AlloVir, and Goodwin Procter LLP served as legal counsel to AlloVir. Wilmer Cutler Pickering Hale and Dorr LLP is serving as legal counsel to Kalaris.
About Kalaris
Kalaris is a clinical-stage biopharmaceutical company dedicated to the development and commercialization of treatments for prevalent retinal diseases. The company is focused on development of TH103, a novel, differentiated anti-VEGF investigational therapy. Developed by Dr. Napoleone Ferrara, TH103 is a fully humanized, recombinant fusion protein that acts against VEGF as a decoy receptor and has been specifically engineered for potentially improved VEGF inhibition and longer retention in the retina. TH103 is currently being evaluated in an ongoing, Phase 1 clinical trial for the treatment of neovascular Age-related Macular Degeneration (nAMD), with plans to develop TH103 for additional neovascular and exudative diseases of the retina such as Diabetic Macular Edema (DME), and Retinal Vein Occlusion (RVO).
Forward Looking Statements
This press release contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risk and uncertainties.
All statements, other than statements of historical fact, contained in this press release, including statements regarding the strategy, future operations, future financial position, projected costs, prospects, plans and objectives of management of Kalaris, including those relating to the merger, the therapeutic potential of TH103, the anticipated timeline for
reporting data from the ongoing Phase 1 clinical trial of TH103 and the sufficiency of Kalaris’ cash resources for the period anticipated, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are based on current expectations and beliefs of the management of Kalaris as well as assumptions made by, and information currently available to, the management of Kalaris and are subject to risks and uncertainties. There can be no assurance that future developments affecting Kalaris will be those that it has anticipated. Forward-looking statements include, but are not limited to, statements concerning the following: the future operations of Kalaris, including research and development activities; the nature, strategy and focus of Kalaris; the development and commercial potential and potential benefits of any product candidate of Kalaris, including expectations around intellectual property protection; anticipated clinical drug development activities and related timelines, including the expected timing for announcement of data and other clinical results; the uncertainties associated with Kalaris’ product candidate, as well as risks associated with the clinical development and regulatory approval of its product candidate, including potential delays in the completion of clinical trials; expectations regarding the therapeutic benefits, clinical potential and clinical development of TH103; risks related to the inability of Kalaris to obtain sufficient additional capital to continue to advance its product candidate; uncertainties in obtaining successful clinical results for product candidates and unexpected costs that may result therefrom; risks related to the failure to realize any value from any product candidates being developed and anticipated to be developed in light of inherent risks and difficulties involved in successfully bringing product candidates to market; the ability to obtain, maintain, and protect intellectual property rights related to product candidates; changes in regulatory requirements and government incentives; Kalaris’ competitive position and expectations regarding developments and projections relating to its competitors and any competing therapies that are or become available; potential adverse reactions or changes to business relationships resulting from the completion of the merger; risks associated with the possible failure to realize, or that it may take longer to realize than expected, certain anticipated benefits of the merger, including with respect to future financial and operating results; the risk of involvement in current and future litigation, including securities class action litigation, that could divert the attention of the management of Kalaris, harm Kalaris’ business and for which Kalaris may not have sufficient insurance coverage to cover all costs and damages; and such other factors as are set forth in Kalaris’ period public filings with the SEC, including, but not limited to, those described under the heading “Risk Factors”.
Kalaris may not actually achieve the plans, intentions or expectations disclosed in its forward-looking statements, and you should not place undue reliance on its forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements Kalaris makes. The forward-looking statements contained in this press release are made as of the date of this press release, and Kalaris does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Kalaris Therapeutics Investor Contact:
Corey Davis, Ph.D.
LifeSci Advisors
+1 212 915 2577
cdavis@lifesciadvisors.com
ir@kalaristx.com
Exhibit 99.2
RISK FACTORS
On March 18, 2025, AlloVir, Inc. (“AlloVir”), a Delaware corporation and our predecessor company, consummated the previously announced merger (the “Merger”) pursuant to the terms of the Agreement and Plan of Merger, dated as of November 7, 2024 (the “Merger Agreement”), by and among AlloVir, Aurora Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of AlloVir (“Merger Sub”) and Kalaris Tx, Inc. (formerly Kalaris Therapeutics, Inc.), a Delaware corporation (“Legacy Kalaris”). In connection with the completion of the Merger, we changed our name from “AlloVir, Inc.” to “Kalaris Therapeutics, Inc.,” and our business became primarily the business conducted by Legacy Kalaris. We are now a clinical stage biopharmaceutical company focused on developing and commercializing innovative therapeutics aimed at becoming the standard of care for prevalent retinal diseases for which there is a major unmet medical need. The Merger is intended to qualify for federal income tax purposes as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”).
As used in this Risk Factor Section, the words “Company,” “we,” “our,” “us” and “Kalaris” refer, collectively to Kalaris Therapeutics, Inc. and its consolidated subsidiaries following completion of the Merger.
Summary of Risk Factors
| • | We have incurred significant losses since our inception. We expect to continue to incur significant expenses and operating losses for the foreseeable future, and may never achieve or maintain profitability. |
| • | We have never generated revenue from product sales and may never achieve or maintain profitability. |
| • | We are heavily dependent on the success of our lead product candidate, TH103, which will require significant clinical testing before we can seek marketing approval and potentially generate commercial sales. If TH103 does not receive marketing approval or is not successfully commercialized, or if there is significant delay in doing so, our business will be harmed. |
| • | We will need substantial additional funding for our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts. |
| • | Legacy Kalaris has identified material weaknesses in its internal control over financial reporting and we may identify additional material weaknesses in the future or fail to maintain an effective system of internal control over financial reporting, which may result in material misstatements of our financial statements. |
| • | We are early in our development efforts. If we are unable to commercialize TH103 or any product candidate we may develop or experience significant delays in doing so, our business will be materially harmed. |
| • | Even if TH103 or any other product candidate we may develop receives marketing approval, we may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success, and the market opportunity for any of our product candidates, if approved, may be smaller than we estimate. |
| • | We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, which may prevent or delay our ability to seek or obtain marketing approval for or commercialize our product candidates or otherwise harm our business. If we are not able to maintain these third-party relationships or if these arrangements are terminated, we may have to alter our development and commercialization plans and our business could be adversely affected. |
| • | If we are unable to obtain and maintain sufficient intellectual property protection for our technology, our product candidates, and product candidates we may develop, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors or other third parties could develop and commercialize products similar or identical to our, and our ability to successfully develop and, if approved, commercialize our product candidates may be adversely affected. |
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| • | Even if we complete the necessary preclinical studies and clinical trials for our product candidates, the regulatory approval process is expensive, time-consuming and uncertain and we may not receive approvals for the commercialization of some or all of our product candidates in a timely manner, or at all. |
| • | The market price of our common stock is expected to be volatile. |
| • | We may be unable to integrate successfully the businesses of AlloVir and Kalaris and realize the anticipated benefits of the Merger. |
| • | We incur additional costs and increased demands upon management as a result of complying with the laws and regulations affecting public companies. |
| • | We do not know whether an active, liquid and orderly trading market will develop for our common stock or what the market price of our common stock will be and, as a result, it may be difficult for our stockholders to sell shares of our common stock. |
| • | Our executive officers, directors and principal stockholder, Samsara BioCapital, LP (“Samsara LP”), have the ability to control or significantly influence all matters submitted to our stockholders for approval. |
| • | Samsara LP, our principal stockholder, beneficially owns greater than 50% of our outstanding shares of capital stock, which has cause us to be deemed a “controlled company” under the rules of Nasdaq. As a result, we rely on exemptions from certain corporate governance requirements under Nasdaq listing standards afforded to a “controlled company”. Such reliance may result in our stockholders not having the same protections afforded to stockholders of companies that are subject to all of the corporate governance standards of Nasdaq. |
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception. We expect to continue to incur significant expenses and operating losses for the foreseeable future, and may never achieve or maintain profitability.
Since inception, we have incurred significant operating losses. Legacy Kalaris’ net losses were $69.2 and $14.7 for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, Legacy Kalaris had cash and cash equivalents of $1.6 million and an accumulated deficit of $116.6 million.
We do not have any products approved for sale and have not generated any revenue from product sales or otherwise. Prior to the consummation of the Merger, Legacy Kalaris funded its operations primarily from sales of its redeemable convertible preferred stock, issuances of convertible promissory notes and a simple agreement for future equity. Legacy Kalaris has devoted substantially all of its resources to organizing and staffing, business planning, raising capital, acquiring its technology, establishing its intellectual property portfolio and performing research and development of its product candidate. We are in the early stages of development of our lead product candidate, TH103. We received investigational new drug (“IND”), clearance for TH103 for the treatment of patients with neovascular, or wet, age-related macular degeneration (“nAMD”), in June 2024 and, in August 2024, we treated the first patient in our Phase 1 open-label clinical trial to investigate the safety, tolerability, dose range and pharmacokinetic profile or intravitreal injection of TH103 in patients with nAMD.
We expect to continue to incur significant expenses and operating losses for the foreseeable future, including costs associated with operating as a public company. We anticipate that our expenses will increase substantially if and as we:
| • | conduct our ongoing Phase 1 clinical trial of TH103 in patients with nAMD; |
| • | continue to progress the development of TH103 in future preclinical studies and clinical trials; |
| • | advance any future product candidate that we may develop into preclinical and clinical development; |
| • | maintain, expand, enforce and protect our intellectual property portfolio; |
| • | seek regulatory and marketing approvals for TH103 and any other product candidate that successfully completes clinical trials; |
| • | seek to identify and maintain additional collaborations and license agreements, and the success of those collaborations and license agreements; |
| • | make any payments under our existing or future strategic collaboration agreements, licensing agreements or sponsored research agreements, including with the University of California, San Diego (“UCSD”); |
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| • | ultimately establish a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval; |
| • | generate revenue from commercial sales of product candidates that may receive marketing approval; |
| • | hire additional clinical, regulatory, manufacturing, quality control, development and scientific personnel; |
| • | in-license or acquire additional technologies or product candidates; |
| • | establish a commercial manufacturing source and secure supply chain capacity sufficient to provide commercial quantities of any product candidates we may develop for which we obtain regulatory approval; and |
| • | add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts and our operations as a public company. |
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability.
Our expenses could increase beyond our expectations, if, among other things:
| • | we are required by regulatory authorities in the United States, Europe, or other jurisdictions to perform trials or studies in addition to, or different than, those that we currently expect; |
| • | there are any delays in establishing appropriate manufacturing arrangements for or completing the development of TH103 or any other product candidate we may develop; or |
| • | there are any third-party challenges to our intellectual property or we need to defend against any intellectual property-related claim. |
Even if we obtain marketing approval for and are successful in commercializing one or more product candidates, we expect to incur substantial additional product development and other expenditures to develop and market additional product candidates or to expand the approved indications of any marketed product. We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue.
We have never generated revenue from product sales and may never achieve or maintain profitability.
We only recently initiated clinical development of our lead product candidate, TH103, and expect that it will be many years, if ever, before we have a product candidate ready for commercialization. To become and remain profitable, we must succeed in completing development of, obtaining marketing approval for and eventually commercializing, one or more products that generate significant revenue. The ability to achieve this success will require us to be effective in a range of challenging activities, including:
| • | completing preclinical and clinical trials; |
| • | identifying additional product candidates; |
| • | obtaining marketing approval for these product candidates; |
| • | manufacturing, marketing and selling any products for which we may obtain marketing approval; and |
| • | achieving market acceptance of products for which we may obtain marketing approval as viable treatment options. |
We may never succeed in these activities and, even if we do, we may never generate revenues that are significant enough to achieve profitability. Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our product development efforts, diversify our pipeline or even continue our operations.
We are heavily dependent on the success of our lead product candidate, TH103, which will require significant clinical testing before we can seek marketing approval and potentially generate commercial sales. If TH103 does not receive marketing approval or is not successfully commercialized, or if there is significant delay in doing so, our business will be harmed.
We only recently initiated our first clinical trial, have no products that are approved for commercial sale and may never be able to develop marketable products. We expect that a substantial portion of our efforts and expenditures for the foreseeable future will be devoted to TH103. Our business currently depends heavily on the successful development, marketing approval and commercialization of TH103. We cannot be certain that TH103 will achieve success in ongoing or future clinical trials, receive marketing approval or be successfully commercialized.
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If we were required to discontinue development of TH103, or if TH103 does not receive marketing approval for one or more of the indications we pursue, fails to achieve significant market acceptance, or fails to receive adequate reimbursement, we may be delayed by many years in our ability to achieve profitability, if ever, and may not be able to generate sufficient revenue to continue our business.
We will need substantial additional funding for our continuing operations. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
We expect to devote substantial financial resources to our ongoing and planned activities, particularly as we conduct our ongoing clinical trial of TH103; prepare for future preclinical studies and clinical trials of TH103; prepare for, initiate and conduct preclinical studies and clinical trials of other product candidates we may develop; and potentially seek marketing approval for any of the product candidates we may develop. We expect our expenses to increase substantially over time in connection with our ongoing and planned activities, particularly as we advance our preclinical activities and our ongoing and planned clinical trials. In addition, if we obtain marketing approval for TH103 or any other product candidate we may develop, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise additional capital or obtain adequate funds when needed or on acceptable terms, we may be required to delay, limit, reduce or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. In addition, attempting to secure additional financing may divert the time and attention of our management from day-to-day activities and distract from our product development efforts.
Our future capital requirements will depend on many factors, including:
| • | the progress, costs and results of our ongoing Phase 1 clinical trial of TH103 and future preclinical studies and clinical trials of TH103; |
| • | the scope, progress, costs and results of preclinical and clinical development for any product candidates we may develop; |
| • | the success of any collaborations with third parties; |
| • | our ability to scale up our manufacturing processes and capabilities to support clinical trials of TH103 and other product candidates we may develop; |
| • | the costs, timing and outcome of regulatory review of TH103 and other product candidates we may develop; |
| • | potential changes in the regulatory environment and enforcement rules; |
| • | our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such arrangements; |
| • | the payment of license fees and other costs of our technology license arrangements; |
| • | the costs and timing of future commercialization activities, including product manufacturing, sales, marketing and distribution, for TH103 and other product candidates we may develop for which we may receive marketing approval; |
| • | our ability to obtain and maintain acceptance of any approved products by patients, the medical community and third-party payors; |
| • | the amount and timing of revenue, if any, received from commercial sales of TH103 and any other product candidates we may develop for which we receive marketing approval; |
| • | potential changes in pharmaceutical pricing and reimbursement infrastructure; |
| • | the availability of raw materials for use in production of our product candidates; |
| • | the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property-related claims; and |
| • | the extent to which we in-license or acquire additional technologies or product candidates. |
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As of December 31, 2024, Legacy Kalaris had cash and cash equivalents of $1.6 million. Based on our current operating plans, our management expects that our cash and cash equivalents as of December 31, 2024, together with the funding received in connection with convertible promissory notes issued by Legacy Kalaris in January 2025 and AlloVir’s cash and cash equivalents of approximately $106.0 million as of the closing date of the Merger, will be sufficient to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2026. However, we have based these estimates on assumptions that may prove to be wrong, and our operating plans may change as a result of many factors currently unknown to us. In addition, changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more than currently expected because of circumstances beyond our control. As a result, we could deplete our capital resources sooner than we currently expect. In addition, because the successful development of TH103 or other product candidates that we may pursue is highly uncertain, at this time we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the development of any product candidate. Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. We will not generate commercial revenues unless and until we can achieve sales of products, which we do not anticipate for a number of years, if at all. Accordingly, we will need to obtain substantial additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all, and we may be impacted by the economic climate and market conditions. For example, market volatility resulting from general United States or global economic or market conditions, including related to any health epidemics, pandemics or other contagious outbreaks (including any resurgence of the COVID-19 pandemic), could also adversely impact our ability to access capital as and when needed. Alternatively, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate significant revenues from product sales, we expect to finance our operations through a combination of public or private equity offerings or debt financings, or potentially other capital sources, such as collaboration or licensing arrangements with third parties or other strategic transactions. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders’. Any debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, selling or licensing our assets, making capital expenditures, declaring dividends or encumbering our assets to secure future indebtedness.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed or on terms acceptable to us, we would be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess the our future viability.
Legacy Kalaris was incorporated and commenced operations in 2019. We are a clinical-stage company with a limited operating history. Our operations to date have been limited to organizing and staffing, business planning, raising capital, acquiring our technology, establishing our intellectual property portfolio and performing research and development of our product candidate. Our prospects must be considered in light of the uncertainties, risks, expenses and difficulties frequently encountered by companies in their early-stages of operations. We have not yet demonstrated our ability to successfully develop any product candidate, obtain marketing approvals, manufacture a commercial scale product or arrange for a third party to do so on our behalf, or conduct sales, marketing and distribution activities necessary for successful product commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing, obtaining marketing approval for and commercializing products.
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In addition, as our business grows, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown obstacles. We will need to transition at some point from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition. As we continue to build our business, we expect our financial condition and operating results to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.
Legacy Kalaris identified material weaknesses in its internal control over financial reporting and we may identify additional material weaknesses in the future or fail to maintain an effective system of internal control over financial reporting, which may result in material misstatements of our financial statements.
Legacy Kalaris identified material weaknesses in its internal control over financial reporting as of December 31, 2024 and 2023. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements would not be prevented or detected on a timely basis.
Legacy Kalaris did not fully maintain components of the Committee of Sponsoring Organizations of the Treadway Commission framework, including elements of the control environment, risk assessment, monitoring activities, information and communication, and control activities components, relating to: (i) its commitment to attract, develop, and retain competent individuals; (ii) identifying, assessing, and communicating appropriate objectives, (iii) identifying and analyzing risks to achieve these objectives; (iv) selecting, developing, and performing ongoing evaluations to ascertain whether the components of internal controls are present and functioning; (v) communicating accurate information internally and externally, including providing information pursuant to objectives, responsibilities, and functions of internal control; (vi) selecting and developing control activities that contribute to the mitigation of risks and support achievement of objectives and (vii) deploying control activities through policies that establish what is expected and procedures that put policies into action.
These material weaknesses could result in a misstatement of substantially all of our accounts or disclosures that would result in a material misstatement of our annual or interim financial statements that would not be prevented or detected. To remediate these material weaknesses, we are actively recruiting additional accounting personnel with appropriate experience, certification, education and training. Following the closing of the Merger, AlloVir’s Chief Accounting Officer will serve as our Chief Accounting Officer, and AlloVir’s Assistant Controller will serve as our Controller. We are in the process of implementing additional measures and risk assessment procedures designed to improve our disclosure controls and procedures and internal control over financial reporting to address the underlying causes of these material weaknesses, including the implementation of appropriate segregation of duties, formalization of accounting policies and controls, and implementation of accounting systems to automate manual processes. We plan to engage financial consultants to assist with the implementation of internal controls over financial reporting and are actively recruiting an audit committee financial expert. To the extent that we are not able to hire and retain such individuals or is unable to successfully design and implement such controls, the material weaknesses identified may not be remediated and management may be required to record additional adjustments to our financial statements in the future or otherwise not be able to produce timely or accurate financial statements. The material weaknesses will not be considered remediated until management completes the design and implementation of the measures described above, the controls operate for a sufficient period of time, and management has concluded, through testing, that these controls are effective. These remediation measures will be time-consuming and require financial and operational resources. If our management concludes that our internal control over financial reporting is not effective, such a determination could adversely affect investor confidence in us and the valuation of our common stock.
While we are implementing measures to remediate the material weaknesses, we cannot predict the success of such measures or the outcome of our assessment of these measures at this time. We can give no assurance that these measures will remediate the deficiencies in internal control over financial reporting or that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that may lead to a restatement of our financial statements or cause us to fail to meet our reporting obligations.
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Our ability to use our net operating loss carryforwards (“NOLs”) and research and development tax credit carryforwards to offset future taxable income may be subject to certain limitations.
Legacy Kalaris has a history of cumulative losses and we anticipate that we will continue to incur significant losses in the foreseeable future. As a result, we do not know whether or when we will generate taxable income necessary to utilize our NOLs or research and development tax credit carryforwards. As of December 31, 2024, Legacy Kalaris had federal and state NOLs of $34.9 million and $4.2 million, respectively, and federal and state research and development tax credit carryforwards totaling $2.2 million and $0.1 million, respectively.
In general, under Section 382 of the Code and corresponding provisions of state law, a corporation that undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, is subject to limitations on its ability to utilize its pre-change NOLs and research and development tax credit carryforwards to offset future taxable income. As of December 31, 2024, Legacy Kalaris has completed the Section 382 analysis from inception through the year ended December 31, 2024. Legacy Kalaris experienced an ownership change in March 2022 related to a redeemable convertible preferred stock financing. Net operating loss of $3.6 million generated prior to the 2022 change in ownership will be permanently limited for California tax purposes. Net federal operating losses are not limited as they can be carried forward indefinitely. We may experience ownership changes in the future (which may be outside our control). As a result, if and to the extent we earn net taxable income, our ability to use our pre-change NOLs and research and development tax credit carryforwards to offset such taxable income may be subject to limitations.
Risks Related to Research and Development of Our Product Candidates
We are early in our development efforts. If we are unable to commercialize TH103 or any product candidate we may develop or experience significant delays in doing so, our business will be materially harmed.
We are early in our development efforts. We received IND clearance for TH103 for the treatment of patients with nAMD in June 2024 and, in August 2024, we treated the first patient in our Phase 1 clinical trial of TH103 for patients with nAMD. Our ability to generate revenues from product sales, which we do not expect will occur for many years, if ever, will depend heavily on the successful development, marketing approval and eventual commercialization of TH103 or one or more other product candidates, which may never occur. The success of TH103 and any other product candidate we may develop will depend on many factors, including the following:
| • | successfully completing preclinical studies; |
| • | successfully enrolling patients in our Phase 1 clinical trial of TH103 and completing the clinical trial; |
| • | successfully initiating and completing future clinical trials; |
| • | scaling up manufacturing processes and capabilities to support clinical trials of TH103 and any other product candidate we may develop; |
| • | applying for and receiving marketing approvals from applicable regulatory authorities; |
| • | obtaining and maintaining intellectual property protection and regulatory exclusivity for TH103 and any other product candidates we may develop; |
| • | making arrangements with third-party manufacturers, or establishing commercial manufacturing capabilities, for both clinical and commercial supplies of our product candidates; |
| • | establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if and when approved, whether alone or in collaboration with others; |
| • | acceptance of TH103 and any other product candidate we may develop, if and when approved, by patients, the medical community and third-party payors; |
| • | effectively competing with other therapies; |
| • | obtaining and maintaining coverage, adequate pricing and adequate reimbursement from third-party payors, including government payors; |
| • | maintaining, enforcing, defending and protecting our rights in our intellectual property portfolio; |
| • | not infringing, misappropriating or otherwise violating others’ intellectual property or proprietary rights; and |
| • | maintaining a continued acceptable safety profile of our products following receipt of any marketing approvals. |
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If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully develop and commercialize TH103 and any other product candidate we may develop, which would materially harm our business. As a company, we have limited experience in clinical development. Any predictions about the future success or viability of TH103 or any product candidates we may develop in the future may not be as accurate as they could be if we had a history of conducting clinical trials.
Drug development involves a lengthy and expensive process, with an uncertain outcome. The results of preclinical studies and early clinical trials may not be predictive of future results. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of TH103 or any other product candidate we may develop.
We dosed the first patient in our Phase 1 clinical trial of TH103 in August 2024. The risk of failure for TH103 and any other product candidate we may develop is high. It is impossible to predict when or if TH103 or any other product candidate we may develop will prove effective or safe in humans or will receive marketing approval. Before obtaining marketing approval from regulatory authorities for the sale of a product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of such product candidate in humans. Clinical trials may fail to demonstrate that TH103 or any of our other product candidates are safe for humans and effective for indicated uses. Even if the clinical trials are successful, changes in marketing approval policies during the development period, changes in or the enactment or promulgation of additional statutes, regulations or guidance or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an application for marketing approval.
Before we can commence clinical trials for any product candidate we may develop other than TH103, we must complete extensive preclinical testing and studies, manufacturing process development studies, and analytical development studies that support our planned INDs and other applications to regulatory authorities in the United States or similar applications in other jurisdictions. We cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if the outcome of our preclinical testing and studies will ultimately support the further development of our current or future product candidates or whether regulatory authorities will accept our proposed clinical programs. In addition, before we can commence clinical trials of TH103 for Diabetic Macular Edema, diabetic retinopathy, and Retinal Vein Occlusion, or any other intraocular indication, we must submit and clear INDs for the applicable indications in the United States or similar applications in other jurisdictions. As a result, we may not be able to submit applications to initiate clinical development of product candidates on the timelines we expect, if at all, and the submission of these applications may not result in regulatory authorities allowing clinical trials to begin. Furthermore, product candidates are subject to continued preclinical safety studies, which may be conducted concurrently with our clinical testing. The outcomes of these safety studies may delay the launch of or enrollment in future clinical trials and could impact our ability to continue to conduct our clinical trials.
Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to the outcome. We cannot guarantee that any of our clinical trials will be conducted as planned or completed on schedule, or at all. A failure of one or more clinical trials can occur at any stage of testing, which may result from a multitude of factors, including, among other things, flaws in study design, dose selection issues, placebo effects, patient enrollment criteria and failure to demonstrate favorable safety or efficacy traits.
Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. Furthermore, the failure of TH103 or any other product candidate we may develop to demonstrate safety and efficacy in any clinical trial could negatively impact the perception of our other product candidates or cause regulatory authorities to require additional testing before approving any of our product candidates.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize any product candidates, including:
| • | regulators or institutional review boards (“IRBs”) may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site or at all; |
| • | we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites; |
| • | regulators may determine that the planned design of our clinical trials is flawed or inadequate; |
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| • | clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs; |
| • | we may be unable to establish clinical endpoints that applicable regulatory authorities consider clinically meaningful; |
| • | preclinical testing may produce results based on which we may decide, or regulators may require us, to conduct additional preclinical studies before we proceed with certain clinical trials, limit the scope of our clinical trials, halt ongoing clinical trials or abandon product development programs; |
| • | the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate; |
| • | third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; |
| • | we may decide, or regulators or IRBs may require us, to suspend or terminate clinical trials of our product candidates for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks; |
| • | regulators or IRBs may require us to perform additional or unanticipated clinical trials to obtain approval or we may be subject to additional post-marketing testing requirements to maintain marketing approval; |
| • | regulators may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate; |
| • | the cost of clinical trials of our product candidates may be greater than we anticipate; |
| • | the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; |
| • | our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our clinical investigators, regulators or IRBs to suspend or terminate the trials; |
| • | regulators may withdraw their approval of a product or impose restrictions on our distribution; and |
| • | business interruptions resulting from any health epidemics, pandemics or other contagious outbreaks (including any resurgence of the COVID-19 pandemic) may result in adverse effects on our business and operations. |
If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive, if there are safety concerns or if we determine that the observed safety or efficacy profile would not be competitive in the marketplace, we may:
| • | incur unplanned costs; |
| • | be delayed in obtaining marketing approval; |
| • | not obtain marketing approval at all; |
| • | obtain marketing approval in some countries and not in others; |
| • | obtain approval for indications or patient populations that are not as broad as intended or desired; |
| • | obtain approval with labeling that includes significant use or distribution restrictions or safety warnings; |
| • | be subject to additional post-marketing testing requirements; or |
| • | have the product removed from the market after obtaining marketing approval. |
Our product development costs will also increase if we experience delays in preclinical studies or clinical trials or in obtaining marketing or other regulatory approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. We may also determine to change the design or protocol of one or more of our clinical trials, including to add additional patients or arms, which could result in increased costs and expenses or delays. Significant preclinical study or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
We may conduct clinical trials at sites outside the United States. The Food and Drug Administration (the “FDA”) may not accept data from trials conducted in such locations, and the conduct of trials outside the United States could subject us to additional delays and expense.
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We may conduct one or more clinical trials at trial sites that are located outside the United States. The acceptance by the FDA or other regulatory authorities of study data from clinical trials conducted outside their jurisdiction may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (1) the data are applicable to the United States population and United States medical practice; (2) the trials were performed by clinical investigators of recognized competence and pursuant to Good Clinical Practices (“GCP”) regulations; and (3) the data may be considered valid without the need for an on-site inspection by the FDA, or if the FDA considers such inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means.
In addition, even where the foreign study data are not intended to serve as the sole basis for approval, the FDA will not accept the data as support for an application for marketing approval unless the study is well-designed and well-conducted in accordance with GCP requirements and the FDA is able to validate the data from the study through an onsite inspection if deemed necessary. Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA or any comparable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or any comparable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which could be costly and time-consuming, and which may result in TH103 or any other product candidate we may develop not receiving approval for commercialization in the applicable jurisdiction.
Conducting clinical trials outside the United States also exposes us to additional risks, including risks associated with:
| • | additional foreign regulatory requirements; |
| • | foreign exchange fluctuations; |
| • | compliance with foreign manufacturing, customs, shipment and storage requirements; |
| • | cultural differences in medical practice and clinical research; |
| • | diminished protection of intellectual property in some countries; and |
| • | interruptions or delays in our trials resulting from geopolitical events, such as war or terrorism. |
The results of early-stage clinical trials and preclinical studies may not be predictive of future results. Initial success in clinical trials may not be indicative of results obtained when these trials are completed or in later stage trials.
The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and preliminary or interim results of a clinical trial do not necessarily predict final results. In addition, initial success in clinical trials may not be indicative of results obtained when such trials are completed. In particular, the small number of patients in our ongoing or future early clinical trials may make the results of these trials less predictive of the outcome of later clinical trials. For example, even if successful, the results of our Phase 1 clinical trial of TH103 may not be predictive of the results of further clinical trials of TH103 or any other product candidate we may develop. Our product candidates may also fail to show the desired safety and efficacy in clinical development despite positive results in preclinical studies or having successfully advanced through initial clinical trials.
Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. Our current or future clinical trials may not ultimately be successful or support further clinical development of any of our product candidates and we cannot assure you that any clinical trials that we may conduct will demonstrate consistent or adequate efficacy and safety to support marketing approval. There is a high failure rate for product candidates proceeding through clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials, and we cannot be certain that we will not face similar setbacks. Any such setbacks in our clinical development could materially harm our business and results of operations.
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Interim and preliminary results from our clinical trials that we announce or publish from time to time may change as more participant data becomes available and are subject to audit and verification procedures, which could result in material changes in the final data.
From time to time, we may announce or publish interim or preliminary results from our clinical trials. Interim results from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as participant enrollment continues and more participant data become available. We also makes assumptions, estimations, calculations, and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully evaluate all data. Preliminary or interim results also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary or interim data and final data could be material and could significantly harm our reputation and business prospects.
If we experience delays or difficulties in the enrollment of patients in our clinical trials for TH103 or any other product candidate we develop, our receipt of necessary marketing approvals could be delayed or prevented.
Identifying and qualifying patients to participate in our Phase 1 clinical trial for TH103 and any other product candidate we may develop is critical to our success. Successful and timely completion of clinical trials will require that we enroll a sufficient number of patients who remain in the trial until its conclusion. We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside of the United States. In particular, our Phase 1 clinical trial of TH103 is open for enrollment and the first patient was treated in August 2024. In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications as TH103, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates. We cannot predict how successful we will be at enrolling subjects in future clinical trials. Patient enrollment is affected by a variety of other factors, including:
| • | the prevalence and severity of the disease under investigation; |
| • | the eligibility criteria for the trial in question; |
| • | the perceived risks and benefits of the product candidate under trial; |
| • | the requirements of the trial protocols; |
| • | the availability of existing FDA approved or off-label treatments for the indications for which we are conducting clinical trials; |
| • | the ability to recruit clinical trial investigators with the appropriate competencies and experience; |
| • | the efforts to facilitate timely enrollment in clinical trials; |
| • | the patient referral practices of physicians; |
| • | the ability to monitor patients adequately during and after treatment; |
| • | our ability to obtain and maintain patient consents; |
| • | the proximity and availability of clinical trial sites for prospective patients; |
| • | the conduct of clinical trials by competitors for product candidates that treat the same indications or address the same patient populations as our product candidates; |
| • | the cost to, or lack of adequate compensation for, prospective patients; and |
| • | the impact of any health epidemics, pandemics or other contagious outbreaks (including any resurgence of the COVID-19 pandemic). |
Our inability to locate and enroll a sufficient number of patients for our clinical trials would result in significant delays, could require us to abandon one or more clinical trials altogether and could delay or prevent our receipt of necessary marketing approvals. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which could cause the value of our business to decline and limit our ability to obtain additional financing.
If dose limiting toxicities, serious adverse events, undesirable side effects or unexpected characteristics are identified during the development of TH103 or any other product candidate we may develop, we may need to abandon or limit our further clinical development of those product candidates.
Our Phase 1 clinical trial of TH103 is open for enrollment and the first patient was treated in August 2024. If TH103 or any other product candidate we may develop is associated with dose limiting toxicities, serious adverse events or
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undesirable side effects in clinical trials or have characteristics that are unexpected in clinical trials or preclinical testing, we may need to abandon development of such product candidate or limit development to more narrow uses or subpopulations in which the dose limiting toxicities, serious adverse events, undesirable side effects or unexpected characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In pharmaceutical development, many compounds that initially showed promise in early-stage or clinical testing are later found to cause side effects that delay or prevent further development of the compound or decrease the size of the patient population for whom the compound could ultimately be prescribed.
Additionally, if the results of our clinical trials reveal undesirable side effects, we, regulatory authorities or the IRBs at the institutions in which our trials are conducted could suspend or terminate our clinical trials, regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted indications or we could be forced to materially modify the design of our clinical trials. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete any of our clinical trials or result in potential liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff. If we elect or are forced to suspend or terminate any clinical trial of our product candidates, the commercial prospects of such product candidate will be harmed, and our ability to generate revenues from sales of such product candidate will be delayed or eliminated. Any of these occurrences could materially harm our business.
If TH103 or any of other product candidate we may develop receives marketing approval and we, or others, later discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified, our ability to market the drug could be compromised.
We have initiated a Phase 1 clinical trial of TH103 for nAMD. Clinical trials will be conducted in carefully defined subsets of patients who have agreed to enter into clinical trials. Consequently, it is possible that our clinical trials may indicate an apparent positive effect of TH103 that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. If TH103 or any other product candidate we may develop receives marketing approval, and we, or others, later discover that they are less effective than previously believed, or cause undesirable side effects, a number of potentially significant negative consequences could result, including:
| • | withdrawal or limitation by regulatory authorities of approvals of such product; |
| • | seizure of the product by regulatory authorities; |
| • | recall of the product; |
| • | restrictions on the marketing of the product or the manufacturing process for any component thereof; |
| • | requirement by regulatory authorities of additional warnings on the label; |
| • | requirement that we implement a risk evaluation and mitigation strategy or create a medication guide outlining the risks of such side effects for distribution to patients; |
| • | commitment to expensive post-marketing studies as a prerequisite of approval by regulatory authorities of such product; |
| • | the product may become less competitive; |
| • | initiation of regulatory investigations and government enforcement actions; |
| • | initiation of legal action against us to hold it liable for harm caused to patients; and |
| • | harm to our reputation and resulting harm to physician or patient acceptance of our products. |
In particular, we are developing TH103 to be a best-in-class anti-vascular endothelial growth factor (“VEGF”) therapeutic for common retinal neovascular and exudative diseases. Even if TH103 were to receive marketing approval for any such indication, it may fail to demonstrate longer acting and increased VEGF activity that results in improved real-world outcomes for patients. Any of these events could prevent us from achieving or maintaining market acceptance of a particular product candidate, if approved, and could significantly harm our business, financial condition, and results of operations.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on product candidates that we identify for specific indications. As a result, we may forego or delay the pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. We may curtail, pause, delay or cease development of product candidates at any stage of preclinical or clinical development based on a variety of factors,
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including our judgments regarding costs or timing of further development, probability of success of clinical development, regulatory requirements, commercial potential, relative benefits and costs and our overall corporate strategy. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on product development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. Failure to allocate resources or capitalize on strategies in a successful manner will have an adverse impact on our business.
Risks Related to the Commercialization of Our Product Candidates
Even if TH103 or any other product candidate we may develop receives marketing approval, we may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success, and the market opportunity for any of our product candidates, if approved, may be smaller than we estimate.
Even if TH103 or any other product candidate we may develop receives marketing approval, we may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. There is already a large and well-established market for anti-VEGF therapies for retinal diseases, and patients may continue to rely on existing FDA approved or off-label therapies. Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may not be successful. If our product candidates do not achieve an adequate level of acceptance, we may not generate significant revenues from product sales and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:
| • | the efficacy and potential advantages of our product candidates compared to the advantages and relative risks of alternative treatments; |
| • | the effectiveness of sales and marketing efforts; |
| • | our ability to offer our products, if approved, for sale at competitive prices; |
| • | the clinical indications for which the product is approved; |
| • | the cost of treatment in relation to alternative treatments; |
| • | the convenience and ease of administration compared to alternative treatments; |
| • | the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; |
| • | the strength of marketing and distribution support; |
| • | the timing of market introduction of competitive products; |
| • | the availability of third-party coverage and adequate reimbursement, and patients’ willingness to pay out of pocket for required co-payments or in the absence of third-party coverage or adequate reimbursement; |
| • | product labeling or product insert requirements of the FDA, the European Medical Agency (the “EMA”) or other regulatory authorities, including any limitations or warnings contained in a product’s approved labeling; |
| • | the prevalence and severity of any side effects; |
| • | support from patient advocacy groups; and |
| • | any restrictions on the use of our products, if approved, together with other medications. |
Our assessment of the potential market opportunity for our product candidates is based on industry and market data it obtained from industry publications, research, surveys and studies conducted by third parties and our analysis of these data, research, surveys and studies. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data. Our estimates of the potential market opportunities for our product candidates include a number of key assumptions based on our industry knowledge, industry publications and third-party research, surveys and studies, which may be based on a small sample size and fail to accurately reflect market opportunities. While we believe that our internal assumptions
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are reasonable, no independent source has verified such assumptions. If any of our assumptions or estimates, or these publications, research, surveys or studies prove to be inaccurate, then the actual market for any of our product candidates may be smaller than we expect, and as a result our revenues from product sales may be limited and it may be more difficult for us to achieve or maintain profitability.
If we are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing our product candidates if and when they are approved.
We do not have a sales or marketing infrastructure and have no experience as a company in the sale, marketing or distribution of biopharmaceutical products. To achieve commercial success for any product for which we may obtain marketing approval, we will need to establish a sales, marketing and distribution organization, either ourselves or through collaborations or other arrangements with third parties.
We intend to commercialize TH103, if approved in the United States, with our own specialty salesforce. There are risks involved with us establishing our own sales, marketing and distribution capabilities. For example, recruiting and training a sales force is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. These efforts may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel. In general, the cost of establishing and maintaining a sales and marketing organization may exceed the cost-effectiveness of doing so.
Factors that may inhibit our efforts to commercialize our products on our own include:
| • | our inability to recruit, train and retain adequate numbers of effective sales, marketing, market access, distribution, customer service, medical affairs and other support personnel; |
| • | our inability to equip sales personnel with effective materials; |
| • | our inability to effectively manage a geographically dispersed sales and marketing team; |
| • | the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future products; |
| • | the inability of reimbursement professionals to negotiate arrangements for formulary access, reimbursement and other acceptance by payors; |
| • | the inability to price our products at a sufficient price point to ensure an adequate and attractive level of profitability; |
| • | restricted or closed distribution channels that make it difficult to distribute our products to segments of the patient population; |
| • | the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and |
| • | unforeseen costs and expenses associated with creating an independent sales and marketing organization. |
If we are unable to establish our own sales, marketing and distribution capabilities and we enter into arrangements with third parties to perform these services, our revenues from product sales and our profitability, if any, are likely to be lower than if we were to market, sell and distribute any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute our product candidates or may be unable to do so on terms that are acceptable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do, thus rendering our products non-competitive, obsolete or reducing the size of the market for our products.
The biopharmaceutical industry, and in particular the market for products treating retinal diseases, is characterized by intense investment and competition aimed at rapidly advancing new technologies. Our product candidates are expected to face substantial competition from multiple sources, including large and specialty pharmaceutical and biotechnology companies, academic research institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may emerge in the future within the field of ophthalmology and, furthermore, within the treatment of retinal disease.
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We are aware of a number of companies generally pursuing products to treat retinal diseases, including large pharmaceutical companies that have commercialized or are developing treatments for nAMD include Novartis AG (“Novartis”), Regeneron Pharmaceuticals, Inc. (“Regeneron”), AbbVie Inc. (“AbbVie”) and F. Hoffmann-La Roche AG (“Roche”). Novartis has received FDA approval for brolucizumab; Regeneron has received FDA approval for aflibercept and aflibercept HD; and Roche has received FDA approval for faricimab, ranibizumab and bevacizumab, though bevacizumab is not approved specifically for nAMD. AbbVie is currently collaborating with RegenexBio Inc. (“RegenexBio”) to develop ABBV-RGX-314 as a potential treatment for nAMD. Outlook Therapeutics, Inc. is developing bevacizumab-vikg, an investigational ophthalmic formulation of bevacizumab as a potential treatment for nAMD.
Several companies have received FDA approval for biosimilars to treat nAMD, including: Samsung Bioepis Co., Ltd. and Biogen Inc., which received approval for Byooviz (ranibizumab-nuna), a ranibizumab biosimilar, in September 2021 and Opuviz (aflibercept-yszy) in May 2024; Coherus BioSciences, Inc., which obtained approval for Cimerli (ranibizumab-eqrn), a ranibizumab biosimilar, in August 2022; Formycon AG, which received approval for Ahzantive (aflibercept-mrbb) in June 2024; Sandoz Group AG, which received approval for Enzeevu (aflibercept-abzv) in August 2024; Mylan Laboratories Inc. and Biocon Biologics Limited, which received approval for Yesafili (afliberceptjbvf), an aflibercept biosimilar, in May 2024; and Amgen Inc., which received approval for Pavblu (aflibercept-ayyh) in August 2024. As these biosimilars enter the market they may provide new, cost-effective options for the treatment of nAMD, as well as other retinal conditions mediated by VEGF.
Emerging biopharmaceutical companies advancing therapeutic candidates through clinical trials to treat nAMD include 4D Molecular Therapeutics, Inc. (“4D Molecular Therapeutics”), Adverum Biotechnologies, Inc. (“Adverum”), RegenexBio, Eyepoint Pharmaceuticals, Inc. (“Eyepoint Pharmaceuticals”) and Ocular Therapeutix, Inc. (“Ocular Therapeutix”) among others. 4D Molecular Therapeutics, Adverum and RegenexBio are each advancing anti-VEGF gene therapy candidates to treat nAMD. 4D Molecular Therapeutics’ product candidate is in an ongoing Phase 3 trial for nAMD and a Phase 1 trial for DME, Adverum’s product candidate is in an ongoing Phase 2 trial and RegenexBio’s product candidate is in a pivotal clinical trial for nAMD and a Phase 2 trial for a potential DR treatment. Eyepoint Pharmaceuticals is developing a sustained release, small molecule pan-VEGF inhibitor, which is currently under evaluation in an ongoing Phase 3 trial for nAMD and a Phase 2 trial for DME. Ocular Therapeutix is currently conducting a Phase 3 trial of axitinib intravitreal implant, a small molecule tyrosine kinase inhibitor to treat nAMD, which is also being evaluated in a Phase 1/2 trial for DR.
Many of the companies against which we are competing or against which we may compete in the future, either alone or in combination with their respective strategic partners, have significantly greater financial, technical and human resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, the regulatory approval process, and marketing than we do. These same competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our development programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other marketing approval for their products more rapidly than we may obtain approval for our products, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic and/or biosimilar products. There are biosimilar products currently on the market for certain of the indications that we are pursuing, and additional products are expected to become available on a generic basis over the coming years. If our product candidates are approved, we expect that they will be priced at a significant premium over competitive generic products.
Technology in the biopharmaceutical industry has undergone rapid and significant change, and we expect that it will continue to do so. Any products or processes that we develop may become obsolete or uneconomical before we recover any expenses incurred in connection with their development.
Mergers and acquisition activity in the pharmaceutical, biopharmaceutical and biotechnology sector is likely to result in greater resource concentration among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through sizeable collaborative arrangements with established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our business.
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We have pursued and may in the future pursue the in-license or acquisition of rights to complementary technologies and product candidates on an opportunistic basis. However, we may be unable to in-license or acquire any additional technologies or product candidates from third parties. The acquisition and licensing of technologies and product candidates is a competitive area, and a number of more established companies also have similar strategies to in-license or acquire technologies and product candidates that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to it. We also may be unable to in-license or acquire the relevant technology or product candidate on terms that would allow us to make an appropriate return on our investment.
Clinical trial and product liability lawsuits against us could divert our resources and could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.
We face an inherent risk of clinical trial and product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. While we currently have no products that have been approved for commercial sale, the ongoing, planned and future use of product candidates by us in clinical trials, and the sale of any approved products in the future, may expose us to liability claims. These claims might be made by patients that use the product, healthcare providers, pharmaceutical companies or others selling such products. On occasion, large judgments have been awarded in class action lawsuits based on products that had unanticipated adverse effects. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
| • | decreased demand for any product candidates or products that we may develop; |
| • | termination of clinical trials; |
| • | withdrawal of marketing approval, recall, restriction on the approval or a “black box” warning or contraindication for an approved drug; |
| • | withdrawal of clinical trial participants; |
| • | significant costs to defend any related litigation; |
| • | substantial monetary awards to trial participants or patients; |
| • | loss of revenue; |
| • | injury to our reputation and significant negative media attention; |
| • | reduced resources of our management to pursue our business strategy; |
| • | distraction of management’s attention from our primary business; and |
| • | the inability to commercialize any products that we may develop. |
We may need to increase our insurance coverage as we expands our clinical trials or if we commence commercialization of our product candidates. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. If a successful clinical trial or product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired.
Risks Related to Our Dependence on Third Parties
We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, which may prevent or delay our ability to seek or obtain marketing approval for or commercialize our product candidates or otherwise harm our business. If we are not able to maintain these third-party relationships or if these arrangements are terminated, we may have to alter our development and commercialization plans and our business could be adversely affected.
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We rely, and expect to continue to rely, on third-party clinical research organizations, in addition to other third parties such as research collaboratives, clinical data management organizations, medical institutions and clinical investigators, to conduct our Phase 1 clinical trial of TH103 and any other clinical trials it conducts. We currently have no plans to independently conduct clinical trials of TH103 or any other product candidate that we may develop. These contract research organizations (“CROs”) and other third parties play a significant role in the conduct and timing of these trials and subsequent collection and analysis of data. These third-party arrangements might terminate for a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements, our product development activities might be delayed.
Our reliance on these third parties for product development activities reduces our control over these activities but does not relieve us of our responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with GCPs for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Regulatory authorities in Europe and other jurisdictions have similar requirements. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs or trial sites fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We are also required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully develop and commercialize our product candidates. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA concludes that the financial relationship may have affected the interpretation of the trial, the integrity of the data generated at the applicable clinical trial site may be questioned, and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of any marketing application we submit to the FDA. Any such delay or rejection could prevent us from commercializing our product candidates.
If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative third parties or do so on commercially reasonable terms. Switching or adding more CROs, investigators and other third parties involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays can occur, which could materially impact our ability to meet our desired clinical development timelines. Although we plan to carefully manage our relationships with our CROs, investigators and other third parties, we may nonetheless encounter challenges or delays in the future, which could have a material and adverse impact on our business, financial condition and prospects.
Manufacturing biologics is complex, and we may experience manufacturing problems that result in delays in our development or future commercialization programs.
The manufacturing of biologics is complex and difficult and we may experience production issues or interruptions for TH103 or any other product candidate it may develop, including raw material or starting material variability in terms of quality, cell line viability, productivity or stability issues, shortages of any kind, shipping, distribution, storage and supply chain failures, growth media contamination, equipment malfunctions, operator errors, facility contamination, labor problems, natural disasters, disruption in utility services, terrorist activities, or acts of god that are beyond our control or the control of our contract development and manufacturing organizations (“CDMOs”).
Given the nature of biologics manufacturing, there is a risk of contamination during manufacturing. Any contamination could materially harm our or our CDMOs’ ability to produce TH103 or any other product candidate it may develop on schedule and could harm our results of operations and cause reputational damage. Some of the raw materials that we are required in our manufacturing process are derived from biologic sources. Such raw materials may be difficult to procure and may be subject to contamination or recall.
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Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims, insufficient inventory or potentially delay progression of our preclinical or clinical development of TH103 and any other product candidate it may develop. If we successfully develop TH103 and any other product candidate, we may encounter problems achieving adequate quantities and quality that meet FDA, EMA or other comparable applicable foreign standards or specifications with consistent and acceptable production yields and costs. The ability to scale our manufacturing and maintain the manufacturing process at the same levels of quality and efficiency is yet to be tested. If we or our third-party CDMOs are unable to scale our manufacturing at the same levels of quality and efficiency, we may not be able to supply the required number of doses for clinical trials or commercial supply. A material shortage, contamination or manufacturing failure in the manufacture of TH103 and any other product candidate we may develop or other adverse impact or disruption in the commercial manufacturing or the production of clinical material could materially harm our development timelines and our business, financial condition, results of operations and prospects.
We rely on third-party CDMOs for the manufacture of both drug substance and finished drug product of our product candidates for preclinical and clinical testing and expect to continue to do so for commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.
We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third-party CDMOs for both drug substance and finished drug product, as well as for commercial manufacture if any of our product candidates receive marketing approval. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts. We may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we is able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:
| • | reliance on the third party for regulatory compliance and quality assurance; |
| • | the possible breach of the manufacturing agreement by the third party; |
| • | the potential failure to manufacture our product candidate or product according to our specifications; |
| • | the potential failure to manufacture our product candidate or product according to our schedule or at all; |
| • | the possible misappropriation of our proprietary information, including our trade secrets and know-how; and |
| • | the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. |
We or our third-party manufacturers may encounter shortages in the manufacturing of supplies, raw materials or active pharmaceutical ingredients necessary to produce our product candidates in the quantities needed for our clinical trials or, if our product candidates are approved, in sufficient quantities for commercialization or to meet an increase in demand, as a result of capacity constraints or delays or disruptions in the market for the raw materials or active pharmaceutical ingredients, including shortages caused by the purchase of such raw materials or active pharmaceutical ingredients by our competitors or others. We and our third-party manufacturers’ failure to obtain the raw materials or active pharmaceutical ingredients necessary to manufacture sufficient quantities of our product candidates may have a material adverse effect on our business.
Our third-party manufacturers are subject to inspection and approval by regulatory authorities before we can commence the manufacture and sale of any of our product candidates, and thereafter subject to ongoing inspection from time to time. Third-party manufacturers may not be able to comply with current good manufacturing practices (“cGMP”) regulations or similar regulatory requirements outside of the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products.
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Our product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. As a result, we may not obtain access to these facilities on a priority basis or at all. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us. Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. If any of our current contract manufacturers cannot perform as agreed, we may be required to replace such manufacturers. Although we believe that there are several potential alternative manufacturers who could manufacture our product candidates, we may incur added costs and delays in identifying and qualifying any such replacement or be unable to reach agreement with an alternative manufacturer.
Our current and anticipated future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.
We currently rely, and may in the future rely, on single-source suppliers for certain materials and components used in the manufacturing of our product candidates.
We currently rely, and may in the future rely, on single-source suppliers for certain materials and components used in the manufacturing of our product candidates. There are, for certain of these materials and components, few, if any, alternative sources of supply and there is limited need for multiple suppliers at this stage of our business. We cannot ensure that these suppliers will remain in business, have sufficient capacity or supply to meet our needs, be able to supply materials to us at costs that are acceptable to us, or that they will not be purchased by one of our competitors or another company that is not interested in continuing to work with us. Our use of single-source suppliers of certain materials and components exposes it to several risks, including disruptions in supply, price increases or late deliveries. Our suppliers may be unable or unwilling to meet our future demands for our clinical trials. Establishing additional or replacement suppliers for these materials and components could take a substantial amount of time and it may be difficult to establish replacement suppliers who meet regulatory requirements. Any disruption in supply from these single-source suppliers could lead to supply delays or interruptions which would materially adversely affect our business, financial condition and results of operations.
We may enter into collaborations with third parties for the research, development and commercialization of certain of our product candidates. If our collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates and our business could be adversely affected.
We may enter into third-party collaborators for the research, development and commercialization of certain of our product candidates. Our likely collaborators include large and mid-size pharmaceutical companies and biotechnology companies. Any such arrangements with third parties will likely limit our control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates we may seek to develop with them. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities and efforts to successfully perform the functions assigned to them in these arrangements. We cannot predict the success of any collaboration that we enter into.
Collaborations involving our product candidates we may develop pose the following risks to us:
| • | collaborators have significant discretion in determining the amount and timing of efforts and resources that they will apply to these collaborations; |
| • | collaborators may not perform their obligations as expected; |
| • | collaborators may not pursue development of our product candidates or may elect not to continue or renew development programs based on results of clinical trials or other studies, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition or business combination, that divert resources or create competing priorities; |
| • | collaborators may not pursue development and commercialization of any product candidates that achieve marketing approval or may elect not to continue or renew commercialization programs based on results of clinical trials or other studies, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition or business combination, that may divert resources or create competing priorities; |
| • | collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; |
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| • | we may not have access to, or may be restricted from disclosing, certain information regarding product candidates being developed or commercialized under a collaboration and, consequently, may have limited ability to inform our stockholders about the status of such product candidates on a discretionary basis; |
| • | collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates and products if the collaborators believe that the competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; |
| • | product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates; |
| • | a collaborator may fail to comply with applicable regulatory requirements regarding the development, manufacture, distribution or marketing of a product candidate or product; |
| • | a collaborator may seek to renegotiate or terminate their relationship with us due to unsatisfactory clinical results, manufacturing issues, a change in business strategy, a change of control or other reasons; |
| • | a collaborator with marketing and distribution rights to one or more of our product candidates that achieve marketing approval may not commit sufficient resources to the marketing and distribution of such product or products; |
| • | disagreements with collaborators, including disagreements over intellectual property or proprietary rights, contract interpretation or the preferred course of development, might cause delays or terminations of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive; |
| • | we may lose certain valuable rights under circumstances identified in our collaborations, including if it undergoes a change of control; |
| • | collaborators may not properly obtain, maintain, enforce, defend or protect our intellectual property or proprietary rights or may use our proprietary information in such a way as to potentially lead to disputes or legal proceedings that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; |
| • | disputes may arise with respect to the ownership of intellectual property developed pursuant to our collaborations; |
| • | collaborators may infringe, misappropriate or otherwise violate the intellectual property or proprietary rights of third parties, which may expose us to litigation and potential liability; |
| • | collaborations may be terminated, and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates; and |
| • | collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner, or at all. If a present or future collaborator of ours was to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program under such collaboration could be delayed, diminished or terminated. |
If any collaborations that we enter into does not result in the successful development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, or do not receive it in the timeframe in which we expect to receive it, the development of our product candidates could be delayed, and we may need additional resources to develop our product candidates. All of the risks relating to product development, marketing approval and commercialization described herein also apply to the activities of our collaborators.
We may in the future decide to collaborate with biopharmaceutical companies for the development and potential commercialization of any product candidates we may develop. These relationships, or those like them, may require us to incur non-recurring and other charges, increase our near- and long-term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business. In addition, we could face significant competition in seeking appropriate collaborators, and the negotiation process is time-consuming and complex. Our ability to reach a definitive collaboration agreement will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration, and the proposed collaborator’s evaluation of several factors. If we license rights to any product candidates we or our collaborators may develop, we may not be able to realize the benefit of such transactions if it is unable to successfully integrate them with our existing operations and company culture.
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We may seek to establish additional collaborations. If we are not able to establish or maintain additional collaborations, on commercially reasonable terms, we may have to alter our development and commercialization plans and our business could be adversely affected.
We plan to selectively pursue collaborations with leading biopharmaceutical companies with particular experience, including development and commercial expertise and capabilities. We face significant competition in attracting appropriate collaborators, and a number of more established companies may also be pursuing strategies to license or acquire third-party intellectual property rights that we consider attractive. These established companies may have a competitive advantage over us due to their size, financial resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or other regulatory authorities, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, the terms of any existing collaboration agreements, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate, document and execute. In addition, there have been a significant number of recent business combinations among large biopharmaceutical companies that have resulted in a reduced number of potential future collaborators. Any collaboration we may enter into may limit our ability to enter into future agreements on particular terms or covering similar target indications with other potential collaborators.
If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms or at all, we may have to curtail the development of a product candidate, reduce or delay our development program or one or more of our other development programs, delay our potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we expect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market and generate revenue from product sales, which could have an adverse effect on our business, prospects, financial condition and results of operations.
Any acquisitions or in-license transactions that we complete could disrupt our business, cause dilution to our stockholders or reduce our financial resources.
We may enter into transactions to in-license or acquire other businesses, intellectual property, technologies, product candidates or products. If we determine to pursue a particular transaction, we may not be able to complete the transaction on favorable terms, or at all. Any in-licenses or acquisitions we complete may not strengthen our competitive position, and these transactions may be viewed negatively by investors. We may decide to incur debt in connection with an in-license or acquisition or issue our common stock or other equity securities to the stockholders of the target company, which would reduce the percentage ownership of our existing stockholders. We could incur losses resulting from undiscovered liabilities that are not covered by the indemnification it may obtain from the seller. In addition, we may not be able to successfully integrate the acquired personnel, technologies and operations into our existing business in an effective, timely and nondisruptive manner. In-license and acquisition transactions may also divert management attention from day-to-day responsibilities, increase our expenses and reduce our cash available for operations and other uses. We cannot predict the number, timing or size of additional future in-licenses or acquisitions or the effect that any such transactions might have on our operating results.
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Risks Related to Our Intellectual Property
If we are unable to obtain and maintain sufficient intellectual property protection for our technology, our product candidates, and product candidates we may develop, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors or other third parties could develop and commercialize products similar or identical to ours, and our ability to successfully develop and, if approved, commercialize our product candidates may be adversely affected.
We rely upon a combination of patents, trademarks, trade secret protection, and confidentiality agreements to protect the intellectual property related to our development programs and product candidates. Our success depends in part on our ability to obtain and maintain patent protection in the United States and other countries with respect to TH103 or our other current or future product candidates. If we are unable to obtain or maintain patent protection with respect to TH103 or our other current or future product candidates, and their uses, our business, financial condition, resultant operations and prospects could be materially harmed.
We generally seek to protect our proprietary position by filing patent applications in the United States and abroad related to our development programs, product candidates and novel discoveries that are important to our business, as appropriate. Our pending and future patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless, and until, patents issue from such applications, and then only to the extent the issued claims cover the technology. There can be no assurance that our patent applications will result in patents being issued or that issued patents will afford sufficient protection against competitors with similar technology, nor can there be any assurance that the patents issued will not be infringed, designed around or invalidated by third parties, including generics. The patent prosecution process is expensive and time-consuming, and we may not be able to file, prosecute, enforce or license all necessary or desirable patent applications at a reasonable cost or in a timely manner.
The patents and patent applications that we own may fail to result in issued patents with claims that protect TH103 and our other current or future product candidates in the United States or in other foreign countries. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which can prevent a patent from issuing from a pending patent application, or be used to invalidate a patent. Even if patents do successfully issue and even if such patents cover TH103 or our other current or future product candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, invalidated or held unenforceable. Any successful opposition to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop. Further, the scope and coverage of such patents may be so narrow that a third party could successfully design around our patents without materially impacting the therapeutic effectiveness of the resulting drug product. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced.
The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our potential future collaborators will be successful in protecting our product candidates by obtaining and defending patents. These risks and uncertainties include the following:
| • | the U.S. Patent and Trademark Office (“USPTO”) and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process, the noncompliance with which can result in abandonment or lapse of a patent or patent application, and partial or complete loss of patent rights in the relevant jurisdiction; |
| • | the USPTO requires us to disclose all material references to the Patent Examiner during prosecution of our patent applications at the USPTO, and failure to do so could result in a third party successfully challenging our ability to enforce a patent against an infringer; |
| • | patent applications may not result in any patents being issued; |
| • | granted patents may not have a claim scope that covers TH103 or our other current or future product candidates; |
| • | patents may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide any competitive advantage; |
| • | our competitors, many of whom have substantially greater resources than we do and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with or block our ability to make, use and sell our product candidates; |
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| • | there may be significant pressure on the United States government and international governmental bodies to limit the scope of patent protection both inside and outside the United States for treatments of diseases or conditions that prove successful, as a matter of public policy regarding worldwide health concerns; and |
| • | countries other than the United States may have patent laws less favorable to patentees than those upheld by United States courts, allowing foreign competitors a better opportunity to create, develop and market competing products. |
The patent prosecution process is also expensive and time-consuming, and we may not be able to file, prosecute, maintain, enforce or license all necessary or desirable patent applications or maintain and/or enforce patents that may issue based on our patent applications, at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. Additionally, recent reforms and changes at government agencies of the United States and those of non-U.S. jurisdictions could increase the uncertainties and costs surrounding the prosecution or maintenance of our patent applications, and the maintenance, enforcement, or defense of our issued patents. For example, the ability of the USPTO and other applicable patent authorities to properly administer their functions is highly dependent on the levels of funding available to the agency and their ability to retain key personnel and fill key leadership appointments, among various factors. Termination of employees or delays in replacing or hiring for key positions could significantly impact the ability of the USPTO and other applicable patent authorities to fulfill their functions and could greatly impact our ability to timely and adequately prosecute or maintain our patent applications, and our ability to timely and adequately maintain, enforce, or defend our issued patents. We may not be able to obtain or maintain patent applications and patents due to the subject matter claimed in such patent applications and patents being in disclosures in the public domain. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, for patent rights that we have or will in license from third parties, we may not have the right to control the preparation, filing, and prosecution of such patent applications, or to maintain the patents, directed to technology that we license from those third parties. We may also require the cooperation of our licensor(s) in order to enforce the licensed patent rights, and such cooperation may not be provided. Therefore, any licensed patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. We cannot be certain that patent prosecution and maintenance activities by any of our current or future licensors have been or will be conducted in compliance with applicable laws and regulations, which may affect the validity and enforceability of such patents or any patents that may issue from such applications. If they fail to do so, this could cause us to lose rights in any applicable intellectual property that we in-license, and as a result, our ability to develop and commercialize products or product candidates may be adversely affected and we may be unable to prevent competitors from making, using and selling competing products.
If the patent applications we hold or in-license (or will hold or in-license) with respect to our development programs and product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for TH103 or our other current or future product candidates, it could dissuade other companies from collaborating with us to develop product candidates, and threaten our ability to commercialize TH103 and our other current or future product candidates. Any such outcome could have a materially adverse effect on our business.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been and will continue to be the subject of litigation and new legislation, resulting in court decisions, including Supreme Court decisions, which have increased uncertainties as to the ability to enforce patent rights in the future. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, many countries restrict the patentability of methods of treatment of the human body. Publications in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our own patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result of these and other factors, the issuance, scope, validity, enforceability, and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products.
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Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. For example, the Leahy-Smith America Invents Act created new administrative post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings that allow third parties to challenge the validity of issued patents. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the United States Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
Moreover, we may be subject to a third-party pre-issuance submission of prior art to the USPTO or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. The costs of defending patents or enforcing proprietary rights in post-issuance administrative proceedings and litigation can be substantial and the outcome can be uncertain. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.
The issuance of a patent is not conclusive as to inventorship, scope, validity, or enforceability, and our owned and licensed patents and patent applications may be challenged in the courts or patent offices in the United States and abroad. Even issued patents may later be found invalid or unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent offices or in courts. An adverse decision in any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Generally, issued patents are granted a term of 20 years from the earliest claimed non-provisional filing date. In certain instances, patent term can be adjusted to recapture a portion of delay incurred by the USPTO in examining the patent application (patent term adjustment). The scope of patent protection may also be limited.
Without patent protection for our current or future product candidates, we may be open to competition from generic versions of such products. Given the amount of time required for the development, testing, and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We cannot be certain that the claims in patents or our pending patent applications directed to TH103 and our other current or future product candidates will be considered patentable by the USPTO, by patent offices in foreign countries, by the courts, or by other relevant authority. One aspect of the determination of patentability of our inventions depends on the scope and content of the “prior art,” information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the claimed invention. There may be prior art of which we are not aware that may affect the patentability of our patent claims or, if issued, affect the validity or enforceability of a patent claim relevant to our business. There is no assurance that there is not prior art of which we are aware, but which we do not believe is relevant to our business, which may, nonetheless, ultimately be found to limit our ability to make, use, sell, offer for sale or import our products that may be approved in the future, or impair our competitive position. Even if the patents do issue based on the patent applications we solely own, co-own, or exclusively license, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, patents in our portfolio may not adequately exclude third parties from practicing relevant technology or prevent others from designing around our claims. If the breadth or strength of our intellectual property position with respect to our product candidates is threatened, it could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, our product candidates. In the event of litigation or administrative proceedings, we cannot be certain that the claims in any of our issued patents will be considered valid by courts in the United States or foreign countries.
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Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
We rely on patent, trademark, trade secret and other intellectual property protection in the development, manufacturing and sale of TH103 and our other current and any future product candidates. In particular, patent protection is important in the development and eventual commercialization of TH103 and our other current or any future product candidates. Patents covering TH103 and our other current or any future product candidates normally provide market exclusivity, which is important in order for TH103 and our other current or any future product candidates to become profitable.
Patent rights are of limited duration. In the United States, if all maintenance fees are paid timely, the natural expiration of a patent is generally 20 years after our first effective filing date. Various extensions may be available, but the life of a patent, and the protection it affords is limited. Given the amount of time required for the development, testing, and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such product candidates are commercialized. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from generic products. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing product candidates similar or identical to ours. Upon issuance in the United States, the term of a patent can be increased by patent term adjustment, which is based on certain delays caused by the USPTO, but this increase can be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. The term of a U.S. patent may also be shortened if the patent is terminally disclaimed over an earlier-filed patent.
Depending upon the timing, duration and specifics of FDA marketing approval of TH103 and our other current and future product candidates, one or more of our U.S. patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years beyond the normal expiration of the patent as compensation for patent term lost during drug development and the FDA regulatory review process, which is limited to the approved indication (or any additional indications approved during the period of extension). This extension is based on the first approved use of a product and is limited to only one patent that covers the approved product, the approved use of the product, or a method of manufacturing the product. Such patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval. However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. We may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time-period or the scope of patent protection afforded could be less than we project or request. If we are unable to extend the expiration date of our existing patents or obtain new patents with longer expiry dates, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data to obtain approval of competing products following our patent expiration and launch their product earlier than might otherwise be the case.
Laws governing analogous patent term extension (“PTE”) in foreign jurisdictions vary widely, as do laws governing the ability to obtain multiple patents from a single patent family. Additionally, we may not receive an extension if we fail to exercise due diligence during the testing phase or regulatory review process, fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. If we are unable to obtain PTE or restoration, or the term of any such extension is less than we project or request, the period during which we will have the right to exclusively market our product will be shortened and our competitors may obtain approval of competing products following our patent expiration and may take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data to launch their product earlier than might otherwise be the case, and our revenue could be reduced, possibly materially.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and/or patent applications will be due to be paid to the USPTO and other foreign patent agencies in several stages over the
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lifetime of our patents and patent applications. The USPTO and various foreign national or international patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of patent rights include, but are not limited to, failure to timely file national and regional stage patent applications based on our international patent application, failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. We employ reputable law firms and other professionals to help us comply with these provisions. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business. If we or any of our licensors fail to maintain the patents and patent applications covering TH103 and our other current or any future product candidates, our competitors may be able to enter the market, which would have an adverse effect on our business, financial conditions, results of operations and growth prospects. We do not have granted patents in certain markets and cannot guarantee that we will obtain patent coverage in such markets that cover TH103 and our other current or any future product candidates.
We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent, which might adversely affect our ability to develop and market our products.
TH103 and our other current or any future product candidates may be subject to claims of infringement of the patent rights of third parties. There can be no assurance that our operations do not, or will not in the future, infringe, misappropriate or otherwise violate existing or future third-party patents or other intellectual property rights. Identification of third-party patent rights that may be relevant to our operations is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. We cannot provide any assurances that third-party patents do not exist which might be enforced against our existing products or current technology, including our research programs, TH103 and our other current or future product candidates, their respective methods of use, and manufacture thereof, and could result in either an injunction prohibiting our manufacture or future sales, or, with respect to our future sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties, which could be significant. We cannot guarantee that any of our patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third-party patent and pending application in the United States and abroad that is relevant to or necessary for the commercialization of our current and future product candidates in any jurisdiction.
Numerous U.S. and foreign patents and pending patent applications exist in our market that are owned by third parties. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our product candidates. We do not always conduct independent reviews of pending patent applications and patents issued to third parties. Patent applications in the United States and elsewhere are typically published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Certain U.S. applications that will not be filed outside the United States can remain confidential until patents issue. In addition, patent applications in the United States and elsewhere can be pending for many years before issuance, or unintentionally abandoned patents or applications can be revived. Furthermore, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our product candidates or the use of our product candidates. As such, there may be applications of others now pending or recently revived patents of which we are unaware. These patent applications may later result in issued patents, or the revival of previously abandoned patents, that may be infringed by the manufacture, use or sale of our product candidates or will prevent, limit or otherwise interfere with our ability to make, use or sell our product candidates.
The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our products. For example, we may incorrectly determine that our product candidates are not covered by a third-party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, and our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products.
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We may become involved in third-party claims of intellectual property infringement, which may delay or prevent the development and commercialization of our current and any future product candidates.
Our commercial success depends in part on our ability to develop, manufacture, market and sell TH103 and our other current and any future product candidates, while avoiding infringement and other violations of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, derivation, and administrative law proceedings, inter partes review, and post-grant review before the USPTO, as well as oppositions and similar processes in foreign jurisdictions. We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights who allege that our product candidates, uses and/or other proprietary technologies infringe their intellectual property rights. Numerous United States and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, and as we gain greater visibility and market exposure as a public company, the risk increases that our product candidates or other business activities may be subject to claims of infringement of the patent and other proprietary rights of third parties. Third parties may assert that we are infringing their patents or employing their proprietary technology without authorization.
Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time consuming and, even if resolved in our favor, is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
Also, there may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our current and future product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our current or future product candidates may infringe.
In addition, third parties may obtain patent rights in the future and claim that use of our technologies infringes upon their rights. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any products formed during the manufacturing process, methods of treating certain diseases or conditions that we are pursuing with our product candidates, our formulations including combination therapies, or any final product itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire. Such a license may not be available on commercially reasonable terms or at all. In addition, we may be subject to claims that it is infringing other intellectual property rights, such as trademarks or copyrights, or misappropriating the trade secrets of others, and to the extent that our employees, consultants or contractors use intellectual property or proprietary information owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our current and future product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful infringement or other intellectual property claim against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our affected products, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore,
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even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize one or more of our product candidates, which could harm our business significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced against our product candidates, resulting in either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties or other forms of compensation to third parties.
During the course of any intellectual property litigation, there could be public announcements of the initiation of the litigation as well as results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our existing products, programs or intellectual property could be diminished. Accordingly, the market price of shares of our common stock may decline. Such announcements could also harm our reputation or the market for our future products, which could have a material adverse effect on our business.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property rights, or the patents or other intellectual property rights of any licensors, which could be expensive, time consuming, and unsuccessful, and could result in a court or administrative body finding our patents to be invalid or unenforceable.
Competitors may challenge, infringe, or otherwise violate our patents, the patents of our licensors, or our other intellectual property rights. To counter challenges, infringement, or unauthorized use or misappropriations, we or any licensors may be required to file or defend legal claims, which can be expensive and time-consuming. In addition, in such a proceeding, a court may decide that one or more patents of ours or any of our current or future licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing. The initiation of a claim against a third party may also cause the third party to bring counter claims against us such as claims asserting that our patents are invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness (inventive step), non-enablement, insufficient written description, or failure to claim patent-eligible subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant material information from the USPTO, or made a materially misleading statement, during prosecution. Third parties may also raise similar validity claims before the USPTO in post-grant proceedings such as ex parte reexaminations, inter partes review, or post-grant review, or oppositions or similar proceedings outside the United States, in parallel with litigation or even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. Additionally, we may be subject to claims of patent infringement during those proceedings, and delays caused by the federal agencies may increase the time period that we are subject to such claims. For example, administrative changes, including reduced staff and budgets experienced by the Patent and Trial Appeal Board, could further delay our ability to timely challenge any such patents. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours (or of our licensor(s)) is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our (or any licensors’) patent claims do not cover the invention, or decide that the other party’s use of ours (or any licensors’) patented technology falls under the safe harbor to patent infringement under 35 U.S.C. §271(e)(1). An adverse outcome in a litigation or proceeding involving our or any licensors’ patents could limit our ability to assert our own or any licensors’ patents against those parties or other competitors and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive position, and our business, financial condition, results of operations, and prospects. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.
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We cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. For any patents and patent applications that we may license from third parties in the future, we may have limited or no right to participate in the defense of such licensed patents against challenge by a third party. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our current or future product candidates. Such a loss of patent protection could harm our business.
We may not be able to prevent misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Our business could be harmed if in litigation the prevailing party does not offer us a license on commercially reasonable terms. Any litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful, may result in substantial costs and distract our management and other employees.
Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of our common stock. Moreover, we cannot assure you that it will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.
Because of the expense and uncertainty of litigation, we may not be in a position to enforce our intellectual property rights against third parties.
Because of the expense and uncertainty of litigation, we may conclude that even if a third party is infringing our patents, any patents that may be issued as a result of our future patent applications, or other intellectual property rights, the risk-adjusted cost of bringing and enforcing such a claim or action may be too high or not in the best interest of our company or our stockholders. In such cases, we may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious action or solution.
Changes in United States patent law or the patent law of other countries or jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents relating to TH103 and our other current and any future product candidates. Obtaining, defending, maintaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents, and may diminish our ability to protect our inventions, obtain, maintain, enforce and protect our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our future owned and licensed patents. The United States has enacted and implemented wide-ranging patent reform legislation. The United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on actions by Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might obtain in the future. Similarly, changes in patent law and regulations in other countries or jurisdictions or changes in the governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain in the future. For example, the complexity and uncertainty of European patent laws have also increased in recent years. In Europe, a new unitary patent system took effect June 1, 2023, which significantly impacts European patents, including those granted before the introduction of such a system. Under the unitary patent system, European applications have the option, upon grant of a patent, of becoming a Unitary Patent subject to the jurisdiction of the Unitary Patent Court (“UPC”). As the UPC is a relatively new court system, there is limited precedent for the court, increasing the uncertainty of any litigation. Patents granted before the implementation of the UPC have the option of opting out of the jurisdiction of the UPC over the first seven years of the court’s existence
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and remaining as national patents in the UPC countries. Patents that remain under the jurisdiction of the UPC will be potentially vulnerable to a single UPC-based revocation challenge that, if successful, could invalidate the patent in all countries who are signatories to the UPC. We cannot predict with certainty the long-term effects of any potential changes. We may decide to opt out our future European patents from the UPC, but doing so may preclude us from realizing the benefits of the UPC. Moreover, if we do not meet all of the formalities and requirements for opt-out under the UPC, our future European patents could remain under the jurisdiction of the UPC. The UPC provides our competitors with a new forum to centrally revoke our European patents and allow for the possibility of a competitor to obtain a pan-European injunction. Such a loss of patent protection could have a material adverse impact on our business and our ability to commercialize our technology and product candidates due to increased competition and, resultantly, on our business, financial condition, prospects and results of operations.
We may not be able to protect our intellectual property rights throughout the world, which could impair our business.
Patents are of national or regional effect, and filing, prosecuting, and defending patents covering TH103 and our other current and any future product candidates throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States, even in jurisdictions where we do pursue patent protection. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, even in jurisdictions where we do pursue patent protection, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may have or obtain patent protection, but where patent enforcement is not as strong as that in the United States. These competitors’ products may compete with our products in such jurisdictions and take away our market share where we do not have any issued or licensed patents, and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. In addition, certain jurisdictions do not protect to the same extent (or at all) inventions that constitute new methods of treatment. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market its product candidates. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate, which may have an adverse effect on our ability to successfully commercialize TH103 and our other current or future product candidates in all of our expected significant foreign markets.
Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. As a result, the patent owner may have limited remedies in certain circumstances, which could materially diminish the value of such patent. If we or any of our licensor(s) are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected. Accordingly, our efforts to protect or enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market its product candidates.
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Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate, which may have an adverse effect on our ability to successfully commercialize TH103 and our other current or future product candidates in all of our expected significant foreign markets.
Further, the standards applied by the USPTO and foreign patent offices in granting patents are not always applied uniformly or predictably. As such, we do not know the degree of future protection that we will have on our technologies, products and product candidates. While we will endeavor to try to protect our technologies, products and product candidates with intellectual property rights such as patents, as appropriate, the process of obtaining patents is time-consuming, expensive and unpredictable.
Further, geo-political actions in the United States and in foreign countries (such as the Russia and Ukraine conflict) could increase the uncertainties and costs surrounding the prosecution or maintenance of our patent applications or those of any current or future licensors and the maintenance, enforcement or defense of its issued patents or those of any current or future licensors. Accordingly, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.
Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws within the United States. We may need to share our trade secrets and proprietary know-how with current or future partners, collaborators, contractors and others located in countries at heightened risk of theft of trade secrets, including through direct intrusion by private parties or foreign actors, and those affiliated with or controlled by state actors. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. In addition, some courts inside and outside the United States are sometimes less willing or unwilling to protect trade secrets. If we choose to go to court to stop a third party from using any of our trade secrets, we may incur substantial costs. Even if we are successful, these types of lawsuits may consume our time and other resources. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to the protection afforded by patents, we may seek to rely on trade secret protection to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our product development processes that involve proprietary know-how, information, or technology that is not covered by our patents. We may not be able to meaningfully protect our trade secrets. Although we require all of our employees to assign their inventions to us, and require all of our employees, consultants, advisors and any third parties who have access our its proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed to our competitors or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws within the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, operating results, and financial condition.
Because we expect to rely on third parties to manufacture TH103 and our other current and any future product candidates, and we expect to collaborate with third parties on the continuing development of TH103 and our other current and any future product candidates, we must, at times, share trade secrets with them. We also expect to conduct research and development programs that may require us to share trade secrets under the terms of our partnerships or agreements with CROs. We seek to protect our proprietary technology in part by entering into agreements containing confidentiality and use restrictions and obligations, including material transfer agreements, consulting agreements, manufacturing and supply agreements, confidentiality agreements or other similar agreements with our advisors, employees, contractors, CDMOs, CROs, other service providers and consultants prior to disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets.
Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by its competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements.
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Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect on our business and results of operations.
In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors CDMOs, CROs, other service providers and consultants to publish data potentially relating to our trade secrets, although such agreements may contain certain limited publication rights. Despite our efforts to protect our trade secrets, our competitors may discover such trade secrets, either through breach of our agreements with third parties, independent development, or publication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.
Monitoring unauthorized disclosure and detection of unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate. If we were to enforce a claim that a third party had illegally obtained and was using our trade secrets, it would be expensive and time-consuming, and the outcome would be unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. If we choose to go to court to stop a third party from using any of its trade secrets, we may incur substantial costs. These lawsuits may consume our time and other resources even if we are successful. For example, significant elements of our products, including confidential aspects of sample preparation, methods of manufacturing, and related processes and software, are based on unpatented trade secrets. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of their former employers or other third parties or claims asserting ownership of what we regard as our own intellectual property.
We employ individuals who were previously employed at other biotechnology or pharmaceutical companies, or at research institutions, including our competitors or potential competitors. Although we try to ensure that our employees, consultants, and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these individuals have or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Further, although we seek to protect our ownership of intellectual property rights by ensuring that our agreements with our employees, collaborators, and other third parties with whom we do business include provisions requiring such parties to assign rights in inventions to us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of its employees’ former employers or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. An inability to incorporate such technologies or features would harm our business and may prevent us from successfully commercializing our technologies or product candidates. In addition, we may lose personnel as a result of such claims and any such litigation, or the threat thereof, may adversely affect our ability to hire employees or contract with independent contractors. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our technologies or product candidates, which could adversely affect our business, financial condition, results of operations and prospects. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
In addition, we may also be subject to claims that former employers, consultants or other third parties have an ownership interest in our patents or patent applications as an inventor or co-inventor. The failure to name the proper inventors on a patent application can result in the patents issuing thereon being unenforceable. Inventorship disputes may arise from conflicting views regarding the contributions of different individuals named as inventors, the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations of third parties involved in developing our product candidates or as a result of questions regarding co-ownership of potential joint inventions. Litigation may be necessary to resolve these and other claims challenging inventorship and/or ownership. Alternatively, or additionally, we may enter into agreements to clarify the scope of our rights in such intellectual property. There is no guarantee of success in defending these claims, and if we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such challenges may also result in our inability to develop, manufacture, or commercialize our technologies and product candidates
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without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future technologies and product candidates. Even if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees. Any of the foregoing could adversely affect our business, financial condition, results of operations, and prospects.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
We intend to use registered or unregistered trademarks or trade names to brand and market ourselves and our products. Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. During trademark registration proceedings, we may receive rejections of our applications by the USPTO or in other foreign jurisdictions. Although we are given an opportunity to respond to such rejections, we may be unable to overcome them. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, which may not survive such proceedings.
We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in its markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. We may license our trademarks and trade names to third parties, such as distributors. Though these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and trade names by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names. Our efforts to enforce or protect our proprietary rights related to trademarks, trade names, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our financial condition or results of operations.
In addition, any proprietary name we propose to use with our current or future product candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of the potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable proprietary product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties, and be acceptable to the FDA. Furthermore, in many countries, owning and maintaining a trademark registration may not provide an adequate defense against a subsequent infringement claim asserted by the owner of a senior trademark.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
| • | others may be able to make formulations, compositions, or products that are the same as or similar to our current and future product candidates, but that are not covered by the pending patent applications or patents that we own or any pending patent applications or patents that we in-license; |
| • | others may be able to make product that is similar to our current and future product candidates that we intend to commercialize and that is not covered by the patents that we own or have exclusively licensed and have the right to enforce; |
| • | we, our licensors, or collaborators might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own or in-license; |
| • | we or our licensor(s) might not have been the first to file patent applications covering certain of our or those licensors’ inventions; |
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| • | others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing or otherwise violating our owned intellectual property rights or any patent applications that we have licensed; |
| • | it is possible that our pending patent applications, whether owned or in-licensed, will not lead to issued patents; |
| • | issued patents that we either own or have licensed may be revoked, modified or held valid or unenforceable, as a result of legal challenges by our competitors; |
| • | issued patents that we either own or have licensed may not provide us with any competitive advantages; |
| • | others may have access to the same intellectual property rights licensed to us in the future on a non-exclusive basis; |
| • | our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
| • | we may not develop additional proprietary technologies that are patentable; |
| • | we cannot predict the scope of protection of any patent issuing based on our or our licensor(s) patent applications, including whether the patent applications that we own or in-license will result in issued patents with claims directed to our product candidates or uses thereof in the United States or in other foreign countries; |
| • | the claims of any patent issuing based on our patent applications may not provide protection against competitors or any competitive advantages, or may be challenged by third parties; |
| • | if enforced, a court may not hold that our patents are valid, enforceable or infringed; |
| • | we may need to initiate litigation or administrative proceedings to enforce and/or defend our patent rights which will be costly whether we win or lose; |
| • | we may choose not to file a patent application in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent application covering such intellectual property; |
| • | we may fail to adequately protect and police our trademarks and trade secrets; and |
| • | the patents of others may have an adverse effect on our business, including if others obtain patents claiming subject matter similar to or improving that covered by our patent applications. |
If we fail to comply with our obligations under any license, collaboration or other agreements, such agreements may be terminated, we may be required to pay damages and could lose intellectual property rights that are necessary for developing and protecting our product candidates.
We license rights to current and future product candidates or data from third parties, and may enter into additional licensing agreements in the future. For example, we are party to a purchase and research use agreement relating to the license of a cell line for use in the production of TH103, and we are party to a license agreement pursuant to which we have licensed the intellectual property rights to develop and commercialize TH103. If any licensors fail to prosecute, maintain, enforce, and defend such patents, or lose rights to those patents, the rights we have licensed may be reduced or eliminated, and our right to develop and commercialize future product candidates that may be subject of such licensed rights could be adversely affected. In spite of our efforts, any licensors might conclude that we are in material breach of obligations under our license agreements. If we breach any material obligations, or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages and the licensor may have the right to terminate the license, which could result in us being unable to develop, manufacture, and sell products that are covered by the licensed technology or enable a competitor to gain access to the licensed technology. If such in-licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, our competitors will have the freedom to seek regulatory approval of, and to market, products identical to our product candidates and the licensors to such in-licenses could prevent us from developing or commercializing product candidates that rely upon the patents or other intellectual property rights which were the subject matter of such terminated agreements. Any of these events could adversely affect our business, financial condition, results of operations, and prospects.
Disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including:
| • | the scope of rights granted under the license agreement and other interpretation-related issues; |
| • | either party’s financial or other obligations under the license agreement; |
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| • | whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; |
| • | our right to sublicense patents and other rights under our collaborative development relationships to third parties; |
| • | our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations; |
| • | our right to transfer or assign the license; |
| • | the inventorship or ownership of inventions and know-how resulting from the joint creation or use of intellectual property by any of our licensors and us and our partners; and |
| • | the priority of invention of patented technology. |
If disputes over intellectual property that we license prevent or impair our ability to maintain its licensing arrangements on acceptable terms, we may not be able to successfully develop and commercialize the affected product candidates, which would have a material adverse effect on our business.
In addition, certain of our current or future agreements with third parties may limit or delay our ability to consummate certain transactions, may impact the value of those transactions, or may limit our ability to pursue certain activities.
Further, we or our licensor(s) may fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, we may miss potential opportunities to strengthen our patent position. It is possible that defects of form in the preparation or filing of its patents or patent applications may exist, or may arise in the future, for example with respect to proper priority claims, inventorship, ownership, claim scope, or requests for patent term adjustments. If such defects are identified in a granted patent, we may reissue the granted patent, which would require us to relinquish the patent, and subject the patent to subsequent reissue patent examination. During reissue examination, there is no guarantee that a similar scope of claim would again be granted or that any claim would be granted at all. In addition, if defects in ownership or assignment of rights are identified, there is no guarantee that we would be able to perfect such ownership or assignment of rights. If our licensor(s) are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form, preparation, prosecution, or enforcement of our patents or patent applications, such patents may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on its business.
In addition, even where we have the right to control patent prosecution of patents and patent applications under a license from third parties, we may still be adversely affected or prejudiced by actions or inactions of our predecessors or licensors and their counsel that took place prior to us assuming control over patent prosecution.
Our acquired technologies and current or future licensed technology may be subject to retained rights. Our predecessors or licensors may retain certain rights under their agreements with us, including the right to use the underlying technology for noncommercial academic and research use, to publish general scientific findings from research related to the technology, and to make customary scientific and scholarly disclosures of information relating to the technology. It is difficult to monitor whether our predecessors or future licensors limit their use of the technology to these uses, and we could incur substantial expenses to enforce our rights to our licensed technology in the event of misuse.
If we are limited in our ability to utilize acquired technologies or current or future licensed technologies, or if we lose our rights to critical acquired or in-licensed technology, we may be unable to successfully develop, out-license, market and sell our products, which could prevent or delay new product introductions. Our business strategy depends on the successful development of acquired technologies, and current or future licensed technology, into commercial products. Therefore, any limitations on our ability to utilize these technologies may impair our ability to develop, out-license or market and sell our product candidate.
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We may not be able to license or acquire new or necessary intellectual property rights or technology from third parties.
Because our development programs may require the use of proprietary rights held by third parties, the growth of our business may depend in part on our ability to acquire, in-license, or use these third-party proprietary rights. Further, other parties, including our competitors, may have patents and have filed (or will file) patent applications potentially relevant to its business. In order to avoid infringing these patents, we may find it necessary or prudent to obtain licenses to such patents from such parties. The licensing or acquisition of intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources, and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third party intellectual property rights on terms that would allow us to make an appropriate return on its investment or at all. No assurance can be given that we will be successful in licensing any additional rights or technologies from third parties. Our inability to license the rights and technologies that we have identified, or that we may in the future identify, could have a material adverse impact on our ability to complete the development of our product candidates or to develop additional product candidates. Even if we were able to obtain a license, it could be non-exclusive, thereby giving its competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. Failure to obtain any necessary rights or licenses may detrimentally affect our planned development of our current or future product candidates could be impacted and costs could increase, extending timelines associated with the development of such other product candidates if we fail to acquire necessary rights or licenses. We may even have to abandon the development of the relevant program or product candidate. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
We may enter into license agreements in the future with others to advance our existing or future research or allow commercialization of our existing or future product candidates. These licenses may not provide exclusive rights to use such intellectual property and technology in all relevant fields of use and in all territories in which we may wish to develop or commercialize our technology and product candidates in the future. In that event, we may be required to expend significant time and resources to redesign our product candidates, or the methods for manufacturing them, all of which may not be feasible on a technical or commercial basis. If we are unable to do so, we may be unable to develop or commercialize the affected product candidates, which could harm our business, financial condition, results of operations, and prospects significantly. We cannot provide any assurances that third-party patents do not exist which might be enforced against our current manufacturing methods, product candidates, or future methods or product candidates resulting in either an injunction prohibiting their manufacture or future sales, or, with respect to their future sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties, which could be significant.
Risks Related to Regulatory and Legal Compliance Matters
Even if we complete the necessary preclinical studies and clinical trials for our product candidates, the regulatory approval process is expensive, time-consuming and uncertain and we may not receive approvals for the commercialization of some or all of our product candidates in a timely manner, or at all.
Our long-term success and ability to sustain and grow revenue depends on our ability to continue to successfully develop our product candidates and obtain regulatory approval to market our products both in and outside of the United States. In order to market and sell our products in the European Union and many other jurisdictions, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The FDA and comparable foreign regulatory authorities, whose laws and regulations may differ from country to country, impose substantial requirements on the development of product candidates to become eligible for marketing approval, have substantial discretion in the process, and may refuse to accept any application or may decide that the data are insufficient for approval and require additional preclinical studies, clinical trials or other studies and testing. The time required to obtain approval outside of the United States may differ substantially from that required to obtain FDA approval. For example, in many countries outside of the United States, it is required that the product also be approved for reimbursement before the product can be sold in that country. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside of the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries.
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The process of obtaining marketing approvals, both in the United States and abroad, is lengthy, expensive and uncertain. It may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information, including manufacturing information, to regulatory authorities for each indication to establish the product candidate’s safety and efficacy.
In addition, changes in or the enactment of additional statutes, promulgation of regulations or issuance of guidance during preclinical or clinical development, or comparable changes in the regulatory review process for each submitted product application, may cause delays in the approval or rejection of an application. For example, in December 2022, with the passage of the Food and Drug Omnibus Reform Act of 2022 (“FDORA”), Congress required sponsors to develop and submit a developmentally appropriate practice (“DAP”) for each Phase 3 clinical trial or any other “pivotal study” of a biological product. These plans are meant to encourage the enrollment of more diverse patient populations in late-stage clinical trials of FDA regulated products. In June 2024, as mandated by FDORA, the FDA issued draft guidance outlining the general requirements for DAPs. Unlike most guidance documents issued by the FDA, the DAP guidance when finalized will have the force of law because FDORA specifically dictates that the form and manner for submission of DAPs are specified in FDA guidance.
Further, on January 31, 2022, the new Clinical Trials Regulation (EU) No 536/2014 became applicable in the European Union and replaced the prior Clinical Trials Directive 2001/20/EC. The new regulation aims at simplifying and streamlining the authorization, conduct and transparency of clinical trials in the European Union. Under the new coordinated procedure for the approval of clinical trials, the sponsor of a clinical trial to be conducted in more than one European Union Member State will only be required to submit a single application for approval. The submission will be made through the Clinical Trials Information System, a new clinical trials portal overseen by the EMA, and available to clinical trial sponsors, competent authorities of the European Union Member States and the public. We have not previously secured authorization to conduct clinical studies in the European Union pursuant to this new regulation and, accordingly, there is a risk that we may be delayed in commencing such studies.
Moreover, principal investigators for our future clinical trials may serve as scientific advisors or consultants to us and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or a comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates.
The FDA or other regulatory authorities may determine that (1) our product candidates are not safe and effective, are only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics that preclude us obtaining marketing approval or prevent or limit commercial use; (2) the dose used in a clinical trial has not been optimized and require us to conduct additional dose optimization studies; or (3) the comparator arm in a trial is no longer the appropriate comparator due to the evolution of the competitive landscape or subsequent data of the comparator product, even if the FDA or other regulatory authority had previously approved the trial design, and we may be required to amend the trial or we may not receive approval of the indication.
Under the Pediatric Research Equity Act, a Biologics License Application (“BLA”) or supplement to a BLA for certain biological products must contain data to assess the safety and effectiveness of the biological product in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective, unless the sponsor receives a deferral or waiver from the FDA. A deferral may be granted for several reasons, including a finding that the product or therapeutic candidate is ready for approval for use in adults before pediatric trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric trials begin. The applicable legislation in the European Union also requires sponsors to either conduct clinical trials in a pediatric population in accordance with a Pediatric Investigation Plan approved by the Pediatric Committee of the EMA, or to obtain a waiver or deferral from the conduct of these studies by this Committee. For any of our product candidates for which we are seeking regulatory approval in the United States or the European Union, we cannot guarantee that we will be able to obtain a waiver or alternatively complete any required studies and other requirements in a timely manner, or at all, which could result in associated reputational harm and subject us to enforcement action.
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In addition, we could be adversely affected by several significant administrative law cases decided by the United States Supreme Court in 2024. In Loper Bright Enterprises v. Raimondo, for example, the court overruled Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., which for 40 years required federal courts to defer to permissible agency interpretations of statutes that are silent or ambiguous on a particular topic. The United States Supreme Court stripped federal agencies of this presumptive deference and held that courts must exercise their independent judgment when deciding whether an agency such as the FDA acted within its statutory authority under the Administrative Procedure Act (the “APA”). Additionally, in Corner Post, Inc. v. Board of Governors of the Federal Reserve System, the court held that actions to challenge a federal regulation under the APA can be initiated within six years of the date of injury to the plaintiff, rather than the date the rule is finalized. The decision appears to give prospective plaintiffs a personal statute of limitations to challenge longstanding agency regulations. Another decision, Securities and Exchange Commission v. Jarkesy, overturned regulatory agencies’ ability to impose civil penalties in administrative proceedings. These decisions could introduce additional uncertainty into the regulatory process and may result in additional legal challenges to actions taken by federal regulatory agencies, including the FDA and the Centers for Medicare & Medicaid Services (“CMS”) that we rely on. In addition to potential changes to regulations as a result of legal challenges, these decisions may result in increased regulatory uncertainty and delays and other impacts, any of which could adversely impact our business and operations.
Finally, our ability to develop and market new products may be impacted if litigation challenging the FDA’s approval of mifepristone continues. In April 2023, the U.S. District Court for the Northern District of Texas invalidated the approval by the FDA of mifepristone, a drug product which was originally approved in 2000 and whose distribution is governed by various measures adopted under a Risk Evaluation and Mitigation Strategy (“REMS”). The Court of Appeals for the Fifth Circuit declined to order the removal of mifepristone from the market but did hold that plaintiffs were likely to prevail in their claim that changes allowing for expanded access of mifepristone, which the FDA authorized in 2016 and 2021, were arbitrary and capricious. In June 2024, the Supreme Court reversed that decision after unanimously finding that the plaintiffs (anti-abortion doctors and organizations) did not have standing to bring this legal action against the FDA. On October 11, 2024, the Attorneys General of three states filed an amended complaint in the district court in Texas challenging FDA’s actions. Depending on the outcome of this litigation, our ability to develop new drug product candidates and to maintain approval of existing drug products could be delayed, undermined or subject to protracted litigation.
The approval of our product candidates for commercial sale could also be delayed, limited or denied or we may be required to conduct additional studies for a number of reasons, including, but not limited to, the following:
| • | regulatory authorities may determine that our product candidates do not demonstrate safety and effectiveness in accordance with regulatory agency standards based on a number of considerations, including adverse events that are reported during clinical trials; |
| • | regulatory authorities could analyze and/or interpret data from clinical trials and preclinical testing in different ways than we interpret them and determine that our data is insufficient for approval; |
| • | regulatory authorities may require more information, including additional preclinical or clinical data or the conduct of new trials, to support approval; |
| • | regulatory authorities could determine that our manufacturing processes are not properly designed, are not conducted in accordance with federal or other laws or otherwise not properly managed, and we may be unable to obtain regulatory approval for a commercially viable manufacturing process for our product candidates in a timely manner, or at all; |
| • | the supply or quality of our product candidates for our clinical trials may be insufficient, inadequate or delayed; |
| • | the size of the patient population required to establish the efficacy of our product candidates to the satisfaction of regulatory agencies may be larger than we anticipated; |
| • | our failure or the failure of clinical sites, and the records kept at the respective locations, including records containing clinical trial data, to be in compliance with the FDA’s GCP, requirements or comparable regulations outside of the United States; |
| • | regulatory authorities may change their approval policies or adopt new regulations; |
| • | regulatory authorities may not be able to undertake reviews of our marketing applications, conduct applicable inspections or proceed through their approval processes in a timely manner; |
| • | the results of our earlier clinical trials may not be representative of our future, larger trials; |
| • | regulatory authorities may not agree with our regulatory approval strategies or components of our regulatory filings, such as the design or implementation of the relevant clinical trials; or |
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| • | a product may not be approved for the indications that we request or may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable. |
Accordingly, we may not be able to submit applications for marketing approvals/authorizations and may not receive necessary approvals to commercialize our products in any market. Any failure, delay or setback in obtaining regulatory approval for our product candidates could materially adversely affect our ability to generate revenue from a particular product candidate, which could result in significant harm to our financial position.
Failure to obtain marketing approval in foreign jurisdictions would prevent our medicines from being marketed in such jurisdictions and any of its medicines that are approved for marketing in such jurisdiction will be subject to risk associated with foreign operations.
In order to market and sell our medicines in the European Union and many other foreign jurisdictions, we or our collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, a product must be approved for reimbursement before the product can be approved for sale in that country. We or our collaborators may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Moreover, approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA.
Additionally, we could face heightened risks with respect to obtaining marketing authorization in the United Kingdom as a result of the withdrawal of the United Kingdom from the European Union, commonly referred to as Brexit. The United Kingdom is no longer part of the European Single Market and EU Customs Union. As of January 1, 2025, the Medicines and Healthcare Products Regulatory Agency (“MHRA”), is responsible for approving all medicinal products destined for the United Kingdom market (i.e., Great Britain and Northern Ireland). At the same time, a new international recognition procedure (“IRP”) will apply, which intends to facilitate approval of pharmaceutical products in the United Kingdom. The IRP is open to applicants that have already received an authorization for the same product from one of the MHRA’s specified Reference Regulators (“RRs”). The RRs notably include EMA and regulators in the EU/European Economic Area (“EEA”) member states for approvals in the European Union centralized procedure and mutual recognition procedure as well as the FDA (for product approvals granted in the United States). However, the concrete functioning of the IRP is currently unclear. Any delay in obtaining, or an inability to obtain, any marketing approvals may force us or our collaborators to restrict or delay efforts to seek regulatory approval in the UK for our product candidates, which could significantly and materially harm our business.
In addition, foreign regulatory authorities may change their approval policies and new regulations may be enacted. For instance, the European Union pharmaceutical legislation is currently undergoing a complete review process, in the context of the Pharmaceutical Strategy for Europe initiative, launched by the European Commission in November 2020. The European Commission’s proposal for revision of several legislative instruments related to medicinal products (potentially reducing the duration of regulatory data protection, revising the eligibility for expedited pathways, etc.) was published on April 26, 2023. The proposed revisions remain to be agreed and adopted by the European Parliament and European Council and the proposals may therefore be substantially revised before adoption, which is not anticipated before early 2026. The revisions may, however, have a significant impact on the pharmaceutical industry and our business in the long term.
We expect that we will be subject to additional risks in commercializing any of our product candidates that receive marketing approval outside the United States, including tariffs, trade barriers and regulatory requirements; economic weakness, including inflation, or political instability in particular foreign economies and markets; compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; and workforce uncertainty in countries where labor unrest is more common than in the United States. In addition, we do not have experience commercializing products outside of the United States and such efforts may depend on our ability to find a suitable collaborator.
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Any of our product candidates for which we obtain marketing approval in the future may be subject to post-marketing regulatory requirements and could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to substantial penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products following approval.
Once marketing approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation. Any of our product candidates for which we obtain marketing clearance or approval in the future, as well as the manufacturing processes, post-approval studies and measures, labeling, advertising and promotional activities for such products, among other things, will be subject to continual requirements of and review by the FDA and other United States and foreign regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, and related compliance requirements such as price reporting, transparency reporting and requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing authorization is granted, it may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including in the case of biological products, the requirement to implement a REMS, which could include requirements for a restricted distribution system.
The FDA and comparable foreign regulatory authorities may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a biological product. There are similar potential requirements for medical devices. In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive requirements by the FDA and comparable foreign regulatory authorities, including ensuring that quality control and manufacturing procedures conform to cGMP regulations, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We and our contract manufacturers could be subject to periodic unannounced inspections by the FDA or foreign regulatory authorities to monitor and ensure compliance with cGMPs (and similar foreign requirements) or other regulations.
If the FDA or another regulatory authority discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, such regulatory authorities may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory authority or enforcement authority may, among other things:
| • | refuse to approve pending applications or supplements to approved applications; |
| • | require us to change the way a product is distributed, conduct additional clinical trials, change the labeling of a product or require us to conduct additional post-marketing studies or surveillance; |
| • | restrict our ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned trials; |
| • | require additional warnings on the product label, such as a “black box” warning or a contraindication; |
| • | impose restrictions on the products, manufacturers or manufacturing process; |
| • | require warning or untitled letters; |
| • | seek injunctions or civil or criminal penalties; |
| • | suspend or withdraw regulatory approvals; |
| • | seize or detain products or implement import bans; |
| • | impose voluntary or mandatory product recalls and publicity requirements; |
| • | totally or partially suspend production; and |
| • | impose restrictions on operations, including costly new manufacturing requirements. |
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may adversely affect our ability to commercialize and generate revenue from its products. If regulatory sanctions are applied or if regulatory approval is withdrawn, our business will be seriously harmed.
Assuming we receive marketing approval for one or more of our product candidates, we and our contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control. If we are not able to comply with post-approval regulatory requirements, our ability to market any future products could be limited, which could adversely affect our ability to sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.
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The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If we are found or alleged to have improperly promoted off-label uses, it may become subject to significant liability.
The FDA and other United States or foreign agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of biological products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use, and if we communicate about any of our product candidates for which we receive marketing approval in a way that regulators assert goes beyond their approved indications, we may be subject to warnings or enforcement action for off-label marketing. Alleged violations of the Federal Food, Drug and Cosmetic Act or other statutes, including the False Claims Act (the “FCA”), relating to the promotion and advertising of prescription products may lead to investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws.
In September 2021, the FDA published final regulations which describe the types of evidence that the agency will consider in determining the intended use of a biologic. If we are found to have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The government has also required companies to enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of our products and any product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition.
Notwithstanding the regulatory restrictions on off-label promotion, the FDA and other regulatory authorities allow companies to engage in truthful, non-misleading, and non-promotional scientific communications concerning their products in certain circumstances. For example, in January 2025, the FDA published final guidance outlining its policies governing the distribution of scientific information to healthcare providers about unapproved uses of approved products. The final guidance calls for such communications to be truthful, non-misleading and scientifically sound and to include all information necessary for healthcare providers to interpret the strengths and weaknesses and validity and utility of the information about the unapproved use of the approved product. If a company engages in such communications consistent with the guidance’s recommendations, the FDA indicated that it will not treat such communications as evidence of unlawful promotion of a new intended use for the approved product.
In addition, under some relatively recent guidance from the FDA and the Pre-Approval Information Exchange Act (“PIE Act”), signed into law as part of the Consolidated Appropriations Act of 2023, companies may also promote information that is consistent with the prescribing information and proactively speak to formulary committee members of payors regarding data for an unapproved drug or unapproved uses of an approved drug. We may engage in these discussions and communicate with healthcare providers, payors and other constituencies in compliance with all applicable laws, regulatory guidance and industry best practices. We will need to carefully navigate the FDA’s various regulations, guidance and policies, along with recently enacted legislation, to ensure compliance with restrictions governing promotion of our products.
If approved, our product candidates that are licensed and regulated as biologics may face competition from biosimilars approved through an abbreviated regulatory pathway.
The Biologics Price Competition and Innovation Act of 2009 (the “BPCIA”) was enacted as part of the Patient Protection and the Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act Health Information Technology for Economic and Clinical Health Act (the “ACA”), to establish an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an approved biologic.
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Under the BPCIA, a reference biological product is granted 12 years of data exclusivity from the time of first licensure of the product, and the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product. In addition, the licensure of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still develop and receive licensure of a competing biologic, so long as its BLA does not rely on the reference product, sponsor’s data or submit the application as a biosimilar application.
We believe that any of the product candidates it develops as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of the reference products in a way that is similar to traditional generic substitution for non-biological products will depend on a number of marketplace and regulatory factors that are still developing. Nonetheless, the approval of a biosimilar to our product candidates would have a material adverse impact on our business due to increased competition and pricing pressure.
Our relationships with healthcare providers, physicians and third-party payors will be subject to applicable anti-kickback, fraud and abuse, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare professionals, including but not limited to physicians, nurses, medical directors, hospitals, pharmacies, pharmacy benefit managers, group purchasing organizations, wholesalers, insurers, and all individuals employed by such entities, which we refer to collectively as HCPs, may influence the recommendation and prescription of our approved products. Our arrangements with HCPs and others who have the ability to improperly influence the recommendation and prescription of its products may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our approved products. Restrictions under applicable federal, state and foreign healthcare laws and regulations include the following:
| • | the federal healthcare Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order, arranging for or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation; |
| • | the FCA imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting or causing to be presented, to the federal government, claims for payment or approval from Medicare, Medicaid or other government payors that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government, with potential liability including mandatory treble damages and significant per-claim penalties. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti- Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA; |
| • | the federal false statements statute, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or service. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; |
| • | the federal transparency requirements under the federal Physician Payment Sunshine Act, which requires manufacturers of drugs, devices, biologics and medical supplies to report to the United States Department of Health and Human Services (“HHS”) information related to payments and other transfers of value to physicians (as defined by statute), other healthcare providers and teaching hospitals and ownership and investment interests held by physicians and their immediate family members and applicable group purchasing organizations; and |
| • | analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and certain state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring product manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures. |
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Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the laws described above or any other government regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, imprisonment and the curtailment or restructuring of its operations, any of which could adversely affect our business, financial condition, results of operations and prospects.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Liabilities they incur pursuant to these laws could result in significant costs or an interruption in operations, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
Disruptions at the FDA and other government agencies caused by funding shortages, global health concerns, personnel losses, or regulatory reform could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact our business.
The ability of the FDA and comparable foreign regulatory authorities (or notified bodies) to review and approve or certify new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. Disruptions at the FDA, other agencies, and authorities (or notified bodies) may also slow the time necessary for new product candidates to be reviewed and/or approved (or certified), which would adversely affect our business. In addition, government funding of the Securities and Exchange Commission (the “SEC”) and other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable. For example, while the FDA’s review of BLAs and other applications is funded through the user fee program established under PDUFA, the Trump Administration has indicated that it will be reviewing that program and its implementation.
Disruptions at the FDA, other agencies, and authorities (or notified bodies) may also slow the time necessary for new product candidates to be reviewed and/or approved (or certified) by necessary government agencies, foreign regulatory authorities (or notified bodies), which would adversely affect our business. For example, over the last several years the United States government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical employees and stop critical activities.
In addition, disruptions may result from events similar to the COVID-19 pandemic. During the COVID-19 pandemic, a number of companies announced receipt of complete response letters due to the FDA’s inability to complete required inspections for their applications. In the event of a similar public health emergency in the future, the FDA may not be able to continue its current pace and review timelines could be extended. Regulatory authorities outside the United States facing similar circumstances may adopt similar restrictions or other policy measures in response to a similar public health emergency and may also experience delays in their regulatory activities.
There is also substantial uncertainty as to how measures being implemented by the new Trump Administration across the government will impact the FDA, CMS and other federal agencies with jurisdiction over our activities. For example, since taking office, President Trump has issued a number of executive orders, which could have a significant impact on the manner in which the FDA conducts its operations and engages in regulatory and oversight activities.
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If these or other orders or executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted. In addition, the loss of FDA personnel could lead to further disruptions and delays in the FDA review and oversight of our product candidates. Similarly, efforts by the new administration to substantially reduce or delay research funding by the National Institutes of Health of medical research could have substantial direct or indirect impacts on our research activities.
If a prolonged government shutdown or other disruption occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.
Recently enacted and future legislation may increase the difficulty and cost for us to commercialize our product candidates, if approved, and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, restrict or regulate post-approval activities and affect our ability to profitably sell or commercialize any product candidate for which we obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or any collaborators, may receive for any approved products. If reimbursement of our products is unavailable or limited in scope, our business could be materially harmed.
In March 2010, the ACA was enacted. The ACA established an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents; extended manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; expanded eligibility criteria for Medicaid programs; expanded the entities eligible for discounts under the 340B pricing program; increased the statutory minimum rebates a manufacturer must pay under the Medicaid Rebate Program; established a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and established a Center for Medicare & Medicaid Innovation at the CMS, an agency within the HHS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending.
Since its enactment, there have been executive, judicial, and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the United States Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results. During the first Trump Administration, the Congress and administration sought to overturn the ACA and related measures. Shortly after taking office in January 2025, President Trump revoked numerous executive orders issued by President Biden, including at least two executive orders (e.g.,EO 14009, Strengthening Medicaid and the Affordable Care Act, and EO 14070, Continuing to Strengthen Americans’ Access to Affordable, Quality Health Coverage) where were designed to further implement the ACA. We anticipate similar efforts to undermine the ACA, and the accompanying uncertainty, for the foreseeable future.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least US$1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. These changes included aggregate reductions to Medicare payments to providers, which went into effect in April 2013 and will remain in effect through 2032. The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Further, with the passage of the Inflation Reduction Act (the “IRA”) in August 2022, Congress extended the expansion of ACA premium tax credits through 2025.
These and other laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our products or product candidates for which we may obtain regulatory approval or the frequency with which any such product is prescribed or used. For example, on March 11, 2021, the American Rescue Plan Act of 2021 was signed into law, which eliminates the statutory cap on the Medicaid drug rebate, beginning January 1, 2024. The rebate was previously capped at 100% of a product’s average manufacturer price.
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In the European Union, on December 13, 2021, Regulation No 2021/2282 on Health Technology Assessment (“HTA”), amending Directive 2011/24/EU, was adopted. While the Regulation entered into force in January 2022, it will only begin to apply from January 2025 onwards, with preparatory and implementation-related steps to take place in the interim. Once applicable, it will have a phased implementation depending on the concerned products. The Regulation intends to boost cooperation among European Union Member States in assessing health technologies, including new medicinal products as well as certain high-risk medical devices, and provide the basis for cooperation at the European Union level for joint clinical assessments in these areas. It will permit European Union member states to use common HTA tools, methodologies, and procedures across the European Union, working together in four main areas, including joint clinical assessment of the innovative health technologies with the highest potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas. Individual European Union Member States will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and reimbursement.
We expect that these healthcare reforms, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria and new payment methodologies that govern any approved product and/or the level of reimbursement physicians receive for administering any approved product we might bring to market. Reductions in reimbursement levels may negatively impact the prices we receive or the frequency with which our products are prescribed or administered. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. Accordingly, such reforms, if enacted, could have an adverse effect on anticipated revenue from product candidates for which we may obtain marketing approval and may affect our overall financial condition and ability to develop or commercialize product candidates.
The insurance coverage and reimbursement status of newly approved products is uncertain. Product candidates, if approved, may become subject to unfavorable pricing regulations, third-party coverage and reimbursement practices, or healthcare reform initiatives, which would harm our business. Failure to obtain or maintain coverage and adequate reimbursement for any product candidates for which we obtain approval could limit our ability to market those products and decrease our ability to generate revenue.
The regulations that govern marketing approvals, pricing, coverage, and reimbursement for new drugs and other medical products vary widely from country to country. In the United States, healthcare reform legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenue we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more products or product candidates, even if any product candidates we may develop obtain marketing approval.
Our ability to successfully commercialize our products and product candidates also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers, and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. The availability of coverage and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford treatments such as gene therapy products. Sales of these or other product candidates that we may identify will depend substantially, both domestically and abroad, on the extent to which the costs of our products and product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If coverage and adequate reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our products or product candidates. Even if coverage is provided, the
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approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment. A primary trend in the United States healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In general, the prices of medicines under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for medicines, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our products and product candidates. Accordingly, in markets outside the United States, the reimbursement for products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.
There is also significant uncertainty related to the insurance coverage and reimbursement of newly approved products and coverage may be more limited than the purposes for which the medicine is approved by the FDA or comparable foreign regulatory authorities. In the United States, the principal decisions about reimbursement for new medicines are typically made by CMS. CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. No uniform policy of coverage and reimbursement for products exists among third-party payors and coverage and reimbursement levels for products can differ significantly from payer to payer. As a result, the coverage determination process is often a time consuming and costly process that may require us to provide scientific and clinical support for the use of our products to each payer separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. It is difficult to predict what CMS will decide with respect to reimbursement for fundamentally novel products such as ours, as there is no body of established practices and precedents for these new products.
Reimbursement agencies in Europe may be more conservative than CMS. For example, a number of cancer products have been approved for reimbursement in the United States and have not been approved for reimbursement in certain European countries. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale, and distribution. Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products and may be incorporated into existing payments for other services. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products we may develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize product candidates, and our overall financial condition.
Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. Our inability to promptly obtain coverage and profitable reimbursement rates from third-party payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
Increasingly, third-party payors are requiring that pharmaceutical companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product candidate that we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product or product candidate for which we obtain marketing approval. In order to obtain reimbursement, physicians may need to show that patients have superior treatment outcomes with our products compared to standard-of-care products, including lower-priced generic versions of standard-of-care products. We expect to experience pricing pressures in connection with the sale of any of our product candidates, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription products and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
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The prices of prescription pharmaceuticals in the United States and foreign jurisdictions are subject to considerable legislative and executive actions and could impact the prices we obtain for our products, if and when approved.
The prices of prescription pharmaceuticals have also been the subject of considerable discussion in the United States. There have been congressional inquiries, as well as proposed and enacted state and federal legislation designed to, among other things, bring more transparency to pharmaceutical pricing, review the relationship between pricing and manufacturer patient programs, and reduce the costs of pharmaceuticals under Medicare and Medicaid.
In addition, in October 2020, the HHS and the FDA published a final rule allowing states and other entities to develop a Section 804 Importation Program (“SIP”) to import certain prescription products from Canada into the United States. That regulation was challenged in a lawsuit by the Pharmaceutical Research and Manufacturers of America (“PhRMA”) but the case was dismissed by a federal district court in February 2023 after the court found that PhRMA did not have standing to sue the HHS. Seven states (Colorado, Florida, Maine, New Hampshire, New Mexico, Texas and Vermont) have passed laws allowing for the importation of products from Canada. North Dakota and Virginia have passed legislation establishing workgroups to examine the impact of a state importation program. As of May 2024, five states (Colorado, Florida, Maine, New Hampshire and New Mexico) had submitted Section 804 Importation Program proposals to the FDA. On January 5, 2023, the FDA approved Florida’s plan for Canadian importation.
Further, on November 20, 2020, the HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The final rule would also eliminate the current safe harbor for Medicare rebates and create new safe harbors for beneficiary point-of-sale discounts and pharmacy benefit manager service fees. It was originally set to go into effect on January 1, 2022, but with passage of the IRA, has been delayed by Congress to January 1, 2032.
On August 16, 2022, the IRA was enacted. The new legislation has implications for Medicare Part D, which is a program available to individuals who are entitled to Medicare Part A or enrolled in Medicare Part B to give them the option of paying a monthly premium for outpatient prescription product coverage. Among other things, the IRA requires manufacturers of certain products to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap and it replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). In addition, the IRA established inflation rebate programs under Medicare Part B and Part D. These programs require manufacturers to pay rebates to Medicare if they raise their prices for certain Part B and Part D drugs faster than the rate of inflation. On December 9, 2024, with issuance of its 2025 Physician Fee Schedule final regulation, CMS finalized its rules governing the IRA inflation rebate programs. The IRA permits the Secretary of the HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years.
Specifically, with respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source drug and biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B and Part D. CMS may negotiate prices for ten high-cost products paid for by Medicare Part D starting in 2026, followed by 15 Part D drugs in 2027, 15 Part B or Part D drugs in 2028, and 20 Part B or Part D drugs in 2029 and beyond. This provision applies to drug products that have been approved for at least nine years and biologics that have been licensed for 13 years. Since CMS may establish a maximum price for these products in price negotiations, we would be fully at risk of government action if our products are the subject of Medicare price negotiations. Moreover, given the risk that could be the case, these provisions of the IRA may also further heighten the risk that we would not be able to achieve the expected return on our drug products or full value of our patents protecting our products if prices are set after such products have been on the market for nine years.
The first cycle of negotiations for the Medicare Drug Price Negotiation Program commenced in the summer of 2023. On August 15, 2024, the HHS published the results of the first Medicare drug price negotiations for ten selected drugs that treat a range of conditions, including diabetes, chronic kidney disease, and rheumatoid arthritis. The prices of these ten drugs will become effective January 1, 2026. On January 17, 2025, CMS announced its selection of 15 additional drugs covered by Part D for the second cycle of negotiations. Thereafter, following the change in administrations, CMS issued a public statement on January 29, 2025, declaring that lowering the cost of prescription drugs is a top priority of the new administration and CMS is committed to considering opportunities to bring greater transparency in the negotiation program. The second cycle of negotiations with participating drug companies will occur during 2025, and any negotiated prices for this second set of drugs will be effective starting January 1, 2027.
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Further, the legislation subjects drug manufacturers to civil monetary penalties and a potential excise tax for failing to comply with the legislation by offering a price that is not equal to or less than the negotiated “maximum fair price” under the law or for taking price increases that exceed inflation. The legislation also requires manufacturers to pay rebates for drugs in Medicare Part D whose price increases exceed inflation. The new law also caps Medicare out-of-pocket drug costs at an estimated US$4,000 a year in 2024 and, thereafter beginning in 2025, at US$2,000 a year. The first cycle of negotiations for the Medicare Drug Price Negotiation Program commenced in the summer of 2023 and the second cycle will commence in the Fall 2024.
On June 6, 2023, Merck & Co. filed a lawsuit against the HHS and CMS asserting that, among other things, the IRA’s Drug Price Negotiation Program for Medicare constitutes an uncompensated taking in violation of the Fifth Amendment of the Constitution. Subsequently, a number of other parties also filed lawsuits in various courts with similar constitutional claims against the HHS and CMS. There have been various decisions by the courts considering these cases since they were filed. We expect that litigation involving these and other provisions of the IRA will continue, with unpredictable and uncertain results. Accordingly, while it is currently unclear how the IRA will be effectuated, we cannot predict with certainty what impact any federal or state health reforms will have on us, but such changes could impose new or more stringent regulatory requirements on our activities or result in reduced reimbursement for our products, any of which could adversely affect our business, results of operations and financial condition.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. This is increasingly true with respect to products approved pursuant to the accelerated approval pathway. State Medicaid programs and other payers are developing strategies and implementing significant coverage barriers, or refusing to cover these products outright, arguing that accelerated approval drugs have insufficient or limited evidence despite meeting the FDA’s standards for accelerated approval. In addition, regional healthcare organizations and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription product and other healthcare programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
Finally, outside of the United States, in some countries, including those of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control and access. In these countries, official list price country pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies.
These measures, as well as others adopted in the future, may result in additional downward pressure on the price that we receive for any approved product it or its collaborators might bring to market. Accordingly, such reforms, if enacted, could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain marketing approval and may affect our overall financial condition and ability to develop or commercialize product candidates.
We are subject to stringent privacy laws, information security laws, regulations, policies and contractual obligations related to data privacy and security and changes in such laws, regulations, policies, contractual obligations and failure to comply with such requirements could subject us to significant fines and penalties, which may have a material adverse effect on our business, financial condition or results of operations.
We are subject to data privacy and protection laws and regulations that apply to the collection, transmission, storage and use of personally-identifying information, which among other things, impose certain requirements relating to the privacy, security and transmission of personal information, including comprehensive regulatory systems in the United States, European Union, United Kingdom and other countries in which we may conduct business. The legislative and regulatory landscape for privacy and data protection continues to evolve in jurisdictions worldwide,
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and there has been an increasing focus on privacy and data protection issues with the potential to affect our business. Failure to comply with any of these laws and regulations could result in enforcement action against us, including fines, imprisonment of company officials and public censure, claims for damages by affected individuals, damage to its reputation and loss of goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations or prospects.
There are numerous United States federal and state laws and regulations related to the privacy and security of personal information. In particular, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act establish privacy and security standards that limit the use and disclosure of individually identifiable health information, or protected health information, and require the implementation of administrative, physical and technological safeguards to protect the privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected health information. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can be complex and may be subject to changing interpretation. These obligations may be applicable to some or all of our business activities now or in the future.
If we are unable to properly protect the privacy and security of protected health information, we could be found to have breached its contracts. Further, if we fail to comply with applicable privacy laws, including applicable HIPAA privacy and security standards, we could face civil and criminal penalties. HHS enforcement activity can result in financial liability and reputational harm, and responses to such enforcement activity can consume significant internal resources. In addition, state attorneys general are authorized to bring civil actions seeking either injunctions or damages in response to violations that threaten the privacy of state residents. We cannot be sure how these regulations will be interpreted, enforced or applied to its operations in the future. In addition to the risks associated with enforcement activities and potential contractual liabilities, our ongoing efforts to comply with evolving laws and regulations at the federal and state level may be costly and require ongoing modifications to our policies, procedures and systems.
In 2018, California passed into law the California Consumer Privacy Act (“CCPA”), which took effect on January 1, 2020 and imposed many requirements on businesses that process the personal information of California residents. Many of the CCPA’s requirements are similar to those found in the General Data Protection Regulation 2016/679 (“EU GDPR”) (regarding individuals in the EEA) and, the UK General Data Protection Regulation (“UK GDPR”) (regarding individuals in the United Kingdom (“UK”)), as well as applicable data protection laws in effect in the Member States of the EEA and in the UK (including the UK Data Protection Act 2018), including requiring businesses to provide notice to data subjects regarding the information collected about them and how such information is used and shared, and providing data subjects the right to request access to such personal information and, in certain cases, request the erasure of such personal information. The EU and UK data protection regimes are independent of each other but remain largely aligned. In this Current Report on Form 8-K, “GDPR” refers to both the EU GDPR and the UK GDPR, unless specified otherwise, and applies to any company established in the EEA/UK and to companies established outside the EEA/UK that process personal data in connection with the offering of goods or services to data subjects in the EEA/UK or the monitoring of the behavior of data subjects in the EEA/UK. The CCPA also affords California residents the right to opt-out of the “sale” of their personal information. The CCPA contains significant penalties for companies that violate its requirements. In November 2020, California voters passed a ballot initiative for the California Privacy Rights Act (the “CPRA”), which went into effect on January 1, 2023 and significantly expanded the CCPA to incorporate additional GDPR-like provisions including requiring that the use, retention, and sharing of personal information of California residents be reasonably necessary and proportionate to the purposes of collection or processing, granting additional protections for sensitive personal information, and requiring greater disclosures related to notice to residents regarding retention of information. The CPRA also created a new enforcement agency - the California Privacy Protection Agency - whose sole responsibility is to enforce the CPRA and other California privacy laws, which will further increase compliance risk. The provisions in the CPRA may apply to some of our business activities.
In addition to California, at least 18 other states have passed comprehensive privacy laws similar to the CCPA and CPRA. These laws are either in effect or will go into effect sometime before the end of 2026. Like the CCPA and CPRA, these laws create obligations related to the processing of personal information, as well as special obligations for the processing of “sensitive” data, which includes health data in some cases. Some of the provisions of these laws may apply to our business activities. There are also states that are strongly considering or have already passed comprehensive privacy laws that will go into effect in 2025 and beyond. Congress has also been debating passing a federal privacy law. These laws may impact our business activities, including our identification of research subjects, relationships with business partners and ultimately the marketing and distribution of our products.
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Similar to the laws in the United States, there are significant privacy and data security laws that apply in Europe and other countries. The collection, use, disclosure, transfer, or other processing of personal data, including personal health data, regarding individuals who are located in the European Economic Area (“EEA”), and the processing of personal data that takes place in the EEA, is regulated by the GDPR, which went into effect in May 2018 and which imposes obligations on companies that operate in our industry with respect to the processing of personal data and the cross-border transfer of such data. The GDPR imposes onerous accountability obligations requiring data controllers and processors to maintain a record of their data processing and policies. If we or our partners’ or service providers’ privacy or data security measures fail to comply with the GDPR requirements, we may be subject to litigation, regulatory investigations, enforcement notices requiring it to change the way we use personal data and/or fines of up to 20 million Euros or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, as well as compensation claims by affected individuals, negative publicity, reputational harm and a potential loss of business and goodwill.
The GDPR places restrictions on the cross-border transfer of personal data from the European Union to countries that have not been found by the European Commission to offer adequate data protection legislation, such as the United States. There are ongoing concerns about the ability of companies to transfer personal data from the European Union to other countries. In July 2020, the Court of Justice of the European Union (the “CJEU”) invalidated the EU-U.S. Privacy Shield, one of the mechanisms used to legitimize the transfer of personal data from the EEA to the United States. The CJEU decision also drew into question the long-term viability of an alternative means of data transfer, the standard contractual clauses, for transfers of personal data from the EEA to the United States. This CJEU decision may lead to increased scrutiny on data transfers from the EEA to the United States generally and increase our costs of compliance with data privacy legislation as well as its costs of negotiating appropriate privacy and security agreements with its vendors and business partners.
Additionally, in October 2022, President Biden signed an executive order to implement the EU-U.S. Data Privacy Framework, which serves as a replacement to the EU-U.S. Privacy Shield. The European Union initiated the process to adopt an adequacy decision for the EU-U.S. Data Privacy Framework in December 2022, and the European Commission adopted the adequacy decision on July 10, 2023. The adequacy decision permits United States companies who self-certify to the EU-U.S. Data Privacy Framework to rely on it as a valid data transfer mechanism for data transfers from the European Union to the United States. However, some privacy advocacy groups have already suggested that they will be challenging the EU-U.S. Data Privacy Framework. If these challenges are successful, they may not only impact the EU-U.S. Data Privacy Framework, but also further limit the viability of the standard contractual clauses and other data transfer mechanisms. The uncertainty around this issue has the potential to impact our business. Following the withdrawal of the United Kingdom from the European Union, the United Kingdom Data Protection Act 2018 applies to the processing of personal data that takes place in the United Kingdom and includes parallel obligations to those set forth by GDPR. In relation to data transfers, both the United Kingdom and the European Union have determined, through separate “adequacy” decisions, that data transfers between the two jurisdictions are in compliance with the U.K. Data Protection Act and the GDPR, respectively. The United Kingdom and the United States have also agreed to a U.S.-U.K. “Data Bridge,” which functions similarly to the EU-U.S. Data Privacy Framework and provides an additional legal mechanism for companies to transfer data from the United Kingdom to the United States. In addition to the United Kingdom, Switzerland is also in the process of approving an adequacy decision in relation to the Swiss-U.S. Data Privacy Framework (which would function similarly to the EU-U.S. Data Privacy Framework and the U.S.-U.K. Data Bridge in relation to data transfers from Switzerland to the United States). Any changes or updates to these developments have the potential to impact our business.
Beyond GDPR, there are privacy and data security laws in a growing number of countries around the world. While many loosely follow GDPR as a model, other laws contain different or conflicting provisions. These laws will impact our ability to conduct its business activities, including both our clinical trials and the sale and distribution of commercial products, through increased compliance costs, costs associated with contracting and potential enforcement actions.
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While we continue to address the implications of the recent changes to data privacy regulations, data privacy remains an evolving landscape at both the domestic and international level, with new regulations coming into effect and continued legal challenges, and our efforts to comply with the evolving data protection rules may be unsuccessful. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. We must devote significant resources to understanding and complying with this changing landscape. Failure to comply with laws regarding data protection would expose us to risk of enforcement actions taken by data protection authorities in the EEA and elsewhere and carries with it the potential for significant penalties if we are found to be non-compliant. Similarly, failure to comply with federal and state laws in the United States regarding privacy and security of personal information could expose us to penalties under such laws. Any such failure to comply with data protection and privacy laws could result in government-imposed fines or orders requiring that we change our practices, claims for damages or other liabilities, regulatory investigations and enforcement action, litigation and significant costs for remediation, any of which could adversely affect our business. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our business, financial condition, results of operations or prospects.
Risks Related to Employee Matters and Managing Growth
Our future success depends on our ability to retain key executives and experienced scientists and to attract, retain and motivate qualified personnel.
We are highly dependent on the research and development, clinical, financial, operational and other business expertise of our executive officers, as well as the other principal members of our management, scientific and clinical teams. Although we entered into employment agreements with certain of our executive officers, each of them may terminate their employment with us at any time. We do not maintain “key person” insurance for any of its executives or other employees. Recruiting and retaining qualified scientific, clinical, manufacturing, accounting, legal and sales and marketing personnel is also critical to our success.
We do not currently have a chief financial officer. We have commenced a search for a chief financial officer, and Brett Hagen, our Chief Accounting Officer, is expected to serve as our principal financial officer and principal accounting officer until we hire a chief financial officer. There can be no assurance that our search will be successful, or if so, that there will not be delay in the search. The inability to adequately and timely fill this position could have a material adverse impact on our business and results of operations. In addition, the loss of the services of our executive officers or other key employees, including temporary loss due to illness, could impede the achievement of our development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. For example, Jeffrey Nau, Ph.D., our Chief Operating Officer, has notified us of his decision to resign, effective April 1, 2025. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain marketing approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous biopharmaceutical companies for similar personnel.
We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. Failure to succeed in clinical trials may make it even more challenging to recruit and retain qualified scientific personnel. Our success as a public company also depends on implementing and maintaining internal controls and the accuracy and timeliness of its financial reporting. If we are unable to continue to attract and retain high quality personnel, our ability to pursue its growth strategy will be limited.
We expect to expand our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We expect to experience significant growth in the number of our employees and the scope of our operations, particularly as we function as a public company and in the areas of product development, clinical, regulatory affairs, manufacturing and quality control and, if any of our product candidates receives marketing approval, sales, marketing, and distribution. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional
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qualified personnel. Future growth will impose significant added responsibilities on members of our management, including:
| • | identifying, recruiting, integrating, maintaining and motivating additional employees; |
| • | managing our internal development efforts effectively, including the clinical and regulatory review process for TH103 and other product candidates we may develop, while complying with our contractual obligations to contractors and other third parties; and |
| • | improving our operational, financial and management controls, reporting systems and procedures. |
Our future financial performance and our ability to advance development of and, if approved, commercialize TH103 and any other product candidate we are developing or may develop in the future will depend, in part, on our ability to effectively manage any future growth. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. If we do not effectively manage the expansion of our operations, we could experience weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The expansion of our operations could also lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
Many of the biopharmaceutical companies that we compete against for qualified personnel and consultants have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we have to offer. If we are unable to continue to attract and retain high-quality personnel and consultants, the rate and success at which we can develop product candidates and operate our business will be limited.
Our internal computer systems, or those of our collaborators, vendors, suppliers, contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.
Our internal computer systems and those of any of our collaborators, vendors, suppliers, contractors or consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Such systems are also vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees, third-party vendors and/or business partners, or from cyber-attacks by malicious third parties. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyber-attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, unauthorized access to or deletion of files, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information. Cyber-attacks also could include phishing attempts or email fraud to cause payments or information to be transmitted to an unintended recipient.
If we experience any material system failure, accident, cyber-attack or security that causes interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of its trade secrets or other proprietary information or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our marketing approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed, and the further development and commercialization of our product candidates could be delayed.
Our employees, independent contractors, including principal investigators, consultants and vendors and any third parties we may engage in connection with research, development, regulatory, manufacturing, quality assurance and other pharmaceutical functions and commercialization may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.
We are exposed to the risk of fraud or other misconduct by our employees, independent contractors, including principal investigators, consultants and vendors and any other third parties we engage. Misconduct by these parties could include intentional, reckless or negligent conduct or unauthorized activities that include failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, provide complete and
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accurate information to the FDA or comparable foreign regulatory authorities, comply with manufacturing standards, comply with federal and state data privacy, security, fraud and other healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, report complete financial information or data accurately or disclose unauthorized activities to us. Misconduct by employees and other third parties could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. This could include violations of HIPAA, other United States federal and state law, and requirements of non-United States jurisdictions, including the European Union Data Protection Directive. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws, standards, regulations, guidance or codes of conduct. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid, other United States federal healthcare programs or healthcare programs in other jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, individual imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations.
General Risks Related to Us
Changes in tax law may adversely affect us or our investors.
The rules dealing with United States federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service, and the United States Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. It cannot be predicted whether, when, in what form or with what effective dates tax laws, regulations and rulings may be enacted, promulgated or issued, which could result in an increase in ours or our stockholders’ tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law. Prospective investors should consult their tax advisors regarding the potential consequences of changes in tax law on our business and on the ownership and disposition of our common stock.
Risks Related to the Ownership of Our Common Stock
The market price of our common stock is expected to be volatile.
The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussed in this “Risk Factors” section, these factors include:
| • | results of clinical trials and preclinical studies of our product candidate, or those of our competitors or our existing or future collaborators; |
| • | failure to meet or exceed financial and development projections we may provide to the public; |
| • | failure to meet or exceed the financial and development projections of the investment community; |
| • | if we do not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or industry analysts; |
| • | announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by us or our competitors; |
| • | actions taken by regulatory agencies with respect to our product candidate, clinical studies, manufacturing process or sales and marketing terms; |
| • | disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies; |
| • | additions or departures of qualified scientific and management personnel; |
| • | significant lawsuits, including patent or stockholder litigation; |
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| • | if securities or industry analysts do not publish research or reports about our business, or if they issue adverse or misleading opinions regarding our business and stock; |
| • | changes in the market valuations of similar companies; |
| • | general market or macroeconomic conditions or market conditions in the biopharmaceutical sector; |
| • | sales of securities by us or our stockholders in the future; |
| • | if we fail to raise an adequate amount of capital to fund our operations and continued development of our product candidate; |
| • | trading volume of our common stock; |
| • | announcements by competitors of new commercial products, clinical progress or lack thereof, significant contracts, commercial relationships or capital commitments; |
| • | adverse publicity relating to product candidates, including with respect to other products in such markets; |
| • | the introduction of technological innovations or new therapies that compete with the products and services of ours; |
| • | period-to-period fluctuations in our financial results; and |
| • | general economic, industry and market conditions, such as those caused by the ongoing conflict between Russia and Ukraine, the war between Israel and Hamas, inflation and fluctuations in interest rates. |
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 our common stock. In addition, a recession, depression or other sustained adverse market event could materially and adversely affect our business and the value of our common stock. 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 such companies. Furthermore, market volatility may lead to increased shareholder activism if we experience a market valuation that activists believe is not reflective of its intrinsic value. Activist campaigns that contest or conflict with our strategic direction or seek changes in the composition of our board of directors could have an adverse effect on our operating results and financial condition.
We may be unable to integrate successfully the businesses of AlloVir and Legacy Kalaris and realize the anticipated benefits of the Merger.
The Merger involved the combination of two companies which operated as independent companies. We are required to devote significant management attention and resources to integrating our business practices and operations. We may fail to realize some or all of the anticipated benefits of the Merger if the integration process takes longer than expected or is more costly than expected. Potential difficulties we may encounter in the integration process include the following:
| • | the inability to successfully combine the businesses of AlloVir and Legacy Kalaris in a manner that permits us to achieve the anticipated benefits from the Merger, which would result in the anticipated benefits of the Merger not being realized partly or wholly in the time frame currently anticipated or at all; |
| • | creation of uniform standards, controls, procedures, policies and information systems; and |
| • | potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Merger. |
In addition, AlloVir and Legacy Kalaris operated independently. It is possible that the integration process could result in the diversion of management’s attention, the disruption or interruption of, or the loss of momentum in, our business or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect our ability to maintain our relationships with customers, suppliers and employees or the ability to achieve the anticipated benefits of the Merger, or could otherwise adversely affect our business and financial results.
We incur additional costs and increased demands upon management as a result of complying with the laws and regulations affecting public companies.
As a public company, we incur significant legal, accounting and other expenses as a public company that Legacy Kalaris did not incur as a private company. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which requires, among other things, that we file with the SEC annual, quarterly, and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and
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maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas, such as “say on pay” and proxy access. Recent legislation permits emerging growth companies to implement many of these requirements over a longer period and up to five years from the pricing of AlloVir’s initial public offering (“IPO”). We intend to take advantage of this new legislation but cannot guarantee that it will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment, and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.
Our executive officers and other personnel need to devote substantial time to gaining expertise related to public company reporting requirements and compliance with applicable laws and regulations to ensure that we comply with all of these requirements. Any changes we make to comply with these obligations may not be sufficient to allow it to satisfy its obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on the board of directors or on board committees or to serve as executive officers, or to obtain certain types of insurance, including directors’ and officers’ insurance, on acceptable terms.
We are an “emerging growth company” and a “smaller reporting company,” and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.
We are an “emerging growth company” (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We may remain an EGC until December 31, 2025, although if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of any June 30 before that time or if we have annual gross revenues of $1.235 billion or more in any fiscal year, we would cease to be an EGC as of December 31 of the applicable year. We also would cease to be an EGC if we issue more than $1.0 billion of non-convertible debt over a three-year period. For so long as we remain an EGC, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not EGCs. These exemptions include:
| • | not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting; |
| • | not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; |
| • | reduced disclosure obligations regarding executive compensation; and |
| • | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
Even after we no longer qualify as an emerging growth company, we may continue to qualify as a smaller reporting company, which would allow us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. In addition, if we are a smaller reporting company with less than $100 million in annual revenue, we would not be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002.
We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, the JOBS Act permits an EGC to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We intend to take advantage of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either irrevocably elect to “opt out” of such extended transition period or no longer qualifies as an EGC. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.
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The unaudited pro forma condensed combined financial data for AlloVir and Legacy Kalaris included in this Current Report on Form 8-K are preliminary, and our actual financial position and operations may differ materially from the unaudited pro forma financial data included in this Current Report on Form 8-K.
The unaudited pro forma financial data for AlloVir and Legacy Kalaris included in this Current Report on Form 8-K are presented for illustrative purposes only and is not necessarily indicative of our actual financial condition or results of operations of future periods, or the financial condition or results of operations that would have been realized had the entities been combined during the periods presented. Our actual results and financial position may differ materially and adversely from the unaudited pro forma financial data included in this Current Report on Form 8-K. For more information see the section titled “Unaudited Pro Forma Condensed Combined Financial Information” in this Current Report on Form 8-K.
Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control, which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.
Our restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change of control of us or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:
| • | a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time; |
| • | a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders; |
| • | a requirement that special meetings of stockholders be called only by the board of directors acting pursuant to a resolution approved by the affirmative vote of a majority of the directors then in office; |
| • | advance notice requirements for stockholder proposals and nominations for election to our board of directors; |
| • | a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than two-thirds of all outstanding shares of our voting stock then entitled to vote in the election of directors; |
| • | a requirement of approval of not less than two-thirds of all outstanding shares of our voting stock to amend any bylaws by stockholder action or to amend specific provisions of our certificate of incorporation; and |
| • | the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the holders of common stock. |
In addition, because we are incorporated in Delaware, we will be governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These antitakeover provisions and other provisions in our restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer, or proxy contest involving us. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing or cause us to take other corporate actions they desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.
Our amended and restated bylaws designates certain courts as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any state law claim for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers, and employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our restated certificate of incorporation or our amended
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and restated bylaws or (iv) any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein (the “Delaware Forum Provision”). The Delaware Forum Provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. Our amended and restated bylaws further provide that, unless we consent in writing to the selection of an alternative forum, the United States District Court for the District of Massachusetts shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (the “Federal Forum Provision”). In addition, our amended and restated bylaws will provide that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing provisions; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.
The Delaware Forum Provision and the Federal Forum Provision that are in our amended and restated bylaws may impose additional litigation costs on stockholders in pursuing any such claims, particularly if the stockholders do not reside in or near the State of Delaware or the Commonwealth of Massachusetts. Additionally, the forum selection clauses in our amended and restated bylaws may limit our stockholders’ ability to bring a claim in a forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and employees even though an action, if successful, might benefit our stockholders. In addition, while the Delaware Supreme Court and other state courts have upheld the validity of forum selection provisions purporting to require claims under the Securities Act be brought in federal court, there is uncertainty as to whether other courts will enforce our Federal Forum Provision. If the Federal Forum Provision is found to be unenforceable, we may incur additional costs associated with resolving such matters. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of Delaware and the United States District Court for the District of Massachusetts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us and our stockholders.
We do not anticipate paying any cash dividends in the foreseeable future.
We currently anticipate that we will retain our future earnings, if any, to fund the growth of our business as opposed to paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain, if any, for the foreseeable future.
We do not know whether an active, liquid and orderly trading market will develop for our common stock or what the market price of our common stock will be and, as a result, it may be difficult for our stockholders to sell shares of our common stock.
AlloVir’s IPO closed on August 3, 2020. Prior to AlloVir’s IPO, there was no public market for shares of its common stock. Prior to the Merger, there had been no public market for shares of Legacy Kalaris capital stock. Although AlloVir completed its IPO and the Merger has closed, and shares of our common stock are listed and trading on The Nasdaq Global Market, an active trading market for our shares may never develop or be sustained. Our stockholders may not be able to sell shares quickly or at the market price if trading in shares of our common stock is not active. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration.
Transfers of our securities utilizing Rule 144 of the Securities Act may be limited.
A significant portion of our securities are restricted from immediate resale. Holders should be aware that transfers of our securities pursuant to Rule 144 may be limited as Rule 144 is not available, subject to certain exceptions, for the resale of securities initially issued by shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company. Our possible disposal of certain of AlloVir’s historical assets and operations in connection with the Merger made AlloVir subject to the SEC requirements applicable to reporting shell company business combinations. Following the consummation of the Merger, we are no longer a shell company. As a result, we anticipate that holders will not be able to sell their restricted securities of ours pursuant to Rule 144 without registration until one year after the filing of this Current Report on Form 8-K, which reflects that we are no longer a shell company.
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Our possible disposal of certain of AlloVir’s historical assets and operations, the discontinuation of AlloVir’s product development programs and the Merger made AlloVir subject to the SEC requirements applicable to reporting shell company business combinations. As a result, we are subject to more stringent reporting requirements, offering limitations and resale restrictions.
According to SEC guidance, the requirements applicable to reporting shell company business combinations apply to any company that sells or otherwise disposes of its historical assets or operations in connection with or as part of a plan to combine with a non-shell private company in order to convert the private company into a public one. AlloVir discontinued the development of its product candidates and we may seek to dispose of certain of AlloVir’s historical assets and operations. As such, the Merger was subject to the SEC requirements applicable to reporting shell company business combinations, which are as follows:
| • | the filing of this Current Report on Form 8-K to report the Form 10 type information after closing with the SEC reflecting our status as an entity that is not a shell company; |
| • | we are not eligible to use a Form S-3 until 12 full calendar months after the date of this this Current Report on Form 8-K; |
| • | we need to wait at least 60 calendar days after the date of this this Current Report on Form 8-K to file a Form S-8 for any equity plans or awards such as the 2020 Stock Option and Grant Plan, as amended (the “2020 Plan”) and the 2019 Equity Incentive Plan, as amended (the “2019 plan”); |
| • | we are an “ineligible issuer” for three years following the closing the Merger, which will prevent us from (i) incorporating by reference in our Form S-1 filings, (ii) use a free writing prospectus, or (iii) take advantage of the well-known seasoned issuer (WKSI) status despite our public float; |
| • | investors who (i) were affiliates of Legacy Kalaris at the time the Merger was submitted for the vote or consent of Legacy Kalaris’ stockholders, (ii) received securities of us in the Merger (i.e., Rule 145(c) securities) and (iii) publicly offer or sell such securities will be deemed to be engaged in a distribution of such securities, and therefore to be underwriters with respect to resales of those securities; and |
| • | Rule 144(i)(2) will limit the ability to publicly resell Rule 145(c) securities per Rule 145(d), as well as any other “restricted” or “control” securities of ours per Rule 144 (e.g., holders of restricted securities and any affiliates of the public company are also affected) until one year after the date this Current Report on Form 8-K with Form 10 information is filed with the SEC. |
The foregoing SEC requirements will increase our time and cost of raising capital, offering stock under equity plans, and compliance with securities laws. Further, such requirements will add burdensome restrictions on the resale of our shares by affiliates of Legacy Kalaris and any holders of “restricted” or “control” securities.
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to the 2020 Plan or the 2019 Plan, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We expect that significant additional capital may be needed in the future to continue our planned operations, including conducting clinical trials, expanded research and development activities, and costs associated with operating as a public company. To raise capital, we may sell common stock, convertible securities, or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities, or other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences, and privileges senior to the holders of our common stock.
Pursuant to the 2020 Plan and the 2019 Plan, our management is authorized to grant stock options to our employees, directors, and consultants.
The number of shares of common stock reserved for issuance under the 2020 Plan increased on January 1, 2025 and shall be cumulatively increased each January 1 thereafter by 5% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year or a lesser number of shares determined by our board of directors. Unless our board of directors elects not to increase the number of shares available for future grant each year, our stockholders may experience additional dilution, which could cause our stock price to fall.
Additionally, at a special meeting of our stockholders held on March 12, 2025, our stockholders approved an amendment to the 2020 Plan which increased the number of shares of our common stock reserved and available for future issuance under the 2020 Plan by a number of shares of common stock equal to five percent of the total number of shares of common stock that were issued and outstanding immediately following the closing of the Merger.
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Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock price to fall.
If our securityholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after legal restrictions on resale discussed in the he definitive proxy statement/prospectus (the “Proxy Statement/Prospectus”) included in a Registration Statement on Form S-4, as amended (SEC File No. 333-283678), lapse, the trading price of our common stock could decline. Approximately 13,768,028 shares will be available for sale in the public market beginning 180 days after the closing of the Merger as a result of the expiration of lock-up agreements between AlloVir and Legacy Kalaris on the one hand and certain securityholders of AlloVir and Legacy Kalaris on the other hand. All other outstanding shares of common stock, other than shares held by our affiliates, will be freely tradable, without restriction, in the public market. In addition, shares of common stock that are subject to outstanding options of Legacy Kalaris will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements and Rules 144 and 701 under the Securities Act. If these shares are sold, the trading price of our common stock could decline.
Our executive officers, directors and principal stockholder, Samsara LP, will have the ability to control or significantly influence all matters submitted to our stockholders for approval.
Our executive officers, directors and principal stockholders, in the aggregate, beneficially own approximately 73.91% of our outstanding shares of common stock. As a result, if these stockholders were to choose to act together (or, in the case of Samsara LP, alone), they would be able to control or significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together (or, in the case of Samsara LP, alone), they would be able to control or significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of us on terms that other stockholders may desire. In addition, as a result of this concentration of ownership, there may be a limited number of shares of our common stock that are not held by officers, directors and the principal stockholder, thereby adversely impacting the liquidity of our common stock and potentially depressing the price at which stockholders may be able to sell shares of common stock.
Samsara LP, our principal stockholder, beneficially owns greater than 50% of our outstanding shares of capital stock, which has caused us to be deemed a “controlled company” under the rules of Nasdaq.
Samsara LP currently controls approximately 61.19% of the voting power of our capital stock. As a result, Samsara LP owns more than 50% of our outstanding capital stock, and as such, we are a “controlled company” under the rules of Nasdaq. Under these rules, a company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” and, as such, can elect to be exempt from certain corporate governance requirements, including requirements that:
| • | a majority of the board of directors consist of independent directors; |
| • | director nominations be made, or recommended to the full board of directors, by independent directors or by a nominating committee that is composed entirely of independent directors that has adopted a written charter addressing the nominations process; and |
| • | the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibility. |
We rely on certain of these exemptions. As a result, our stockholders will not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.
If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that equity research analysts publish about us and our business. Equity research analysts may elect not to provide research coverage of our common stock, and such lack of research coverage may adversely affect the market price of our common stock. In the event we do have equity research analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our common stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which in turn could cause our stock price or trading volume to decline.
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We have broad discretion in the use of our cash and cash equivalents and may invest or spend the proceeds in ways with which you do not agree and in ways that may not increase the value of your investment.
We have broad discretion over the use of our cash and cash equivalents. You may not agree with our decisions, and our use of our cash and cash equivalents may not yield any return on your investment. Our failure to apply these resources effectively could compromise our ability to pursue our growth strategy and we might not be able to yield a significant return, if any, on our investment of our cash and cash equivalents. You will not have the opportunity to influence our decisions on how to use our cash resources.
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Exhibit 99.3
BUSINESS
On March 18, 2025, AlloVir, Inc., a Delaware corporation and our predecessor company, consummated the previously announced merger (the “Merger”) pursuant to the terms of the Agreement and Plan of Merger, dated as of November 7, 2024 (the “Merger Agreement”), by and among AlloVir, Aurora Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of AlloVir (“Merger Sub”) and Kalaris Tx, Inc. (formerly Kalaris Therapeutics, Inc.), a Delaware corporation (“Legacy Kalaris”). In connection with the completion of the Merger, we changed our name from “AlloVir, Inc.” to “Kalaris Therapeutics, Inc.,” and our business became primarily the business conducted by Legacy Kalaris. We are now a clinical stage biopharmaceutical company focused on developing and commercializing innovative therapeutics aimed at becoming the standard of care for prevalent retinal diseases for which there is a major unmet medical need. The Merger is intended to qualify for federal income tax purposes as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”).
As used in this Business Section, the words “Company,” “we,” “our,” “us” and “Kalaris” refer, collectively to Kalaris Therapeutics, Inc. and its consolidated subsidiaries following completion of the Merger.
Overview
We are a clinical stage biopharmaceutical company focused on developing and commercializing innovative therapeutics aimed at becoming the standard of care for prevalent retinal diseases for which there is a major unmet medical need.
We are developing TH103, a novel, clinical stage anti-vascular endothelial growth factor (“VEGF”) drug, engineered to potentially provide longer lasting and increased anti-VEGF activity in patients with exudative and neovascular retinal diseases. TH103 is a fully humanized recombinant fusion protein, functioning as a “decoy receptor” (a VEGF trap), leveraging salient molecular properties of the human body’s native, highest affinity VEGF receptor 1. In head-to-head preclinical studies, TH103 showed more anti-VEGF activity and longer duration of activity compared to aflibercept, the current market-leading anti-VEGF agent, which also functions as a decoy receptor VEGF trap but differs from TH103 in key molecular elements.
We are enrolling an open label Phase 1 clinical trial of TH103 in patients with neovascular Age-related Macular Degeneration (“nAMD”), a leading cause of blindness in the United States and Europe that affected an estimated 1.6 million adults in the United States in 2023, and we expect to report initial clinical data from Part 1 of the Phase 1 clinical trial in the second half of 2025. We also plan to expand the development of TH103 beyond nAMD into other prevalent VEGF-mediated retinal diseases, such as Diabetic Macular Edema (“DME”), diabetic retinopathy (“DR”), and Retinal Vein Occlusion (“RVO”).
Over the past 20 years, anti-VEGF therapeutics have revolutionized the treatment of prevalent exudative and neovascular retinal diseases, which represented, based on publicly available SEC filings and publicly available regulatory documents reporting 2023 global net revenues for Eylea, Vabysmo, Lucentis and Eylea HD, an estimated $14 billion global branded market in 2023. While clinical trials for these drugs have shown improvements in mean visual acuity, these results often are not reproduced in real-world settings. Many patients find the treatment burden to be challenging because it requires a demanding schedule of clinic visits and years of monitoring and treatments. This onerous treatment burden can lead to a lack of adherence to the frequent visit regimen and a decline in vision after initial gains. Although newer anti-VEGF drugs and a higher-dose version of an existing drug have been approved for treatment, registrational studies for these drugs were not designed to demonstrate a reduction in treatment burden compared to existing therapies, and there remains a significant unmet need for a longer acting anti-VEGF agent.
TH103 was developed by Dr. Napoleone Ferrara, a Lasker Award-winning scientist known for isolating the genetic sequence for three human VEGF-A isoforms. He also was involved in determining the various isoforms’ differential interactions with their related receptor tyrosine kinases, VEGF receptor 1 (“VEGFR-1”) and VEGF receptor 2 (“VEGFR-2”). While at Genentech Inc., he supported the discovery and development of approved anti-VEGF therapeutics such as Lucentis ® and Avastin ® for neovascular/exudative retinal diseases and multiple cancers. Millions of patients worldwide have benefited from enhanced function or longevity because of these therapies.
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Pursuant to a consulting agreement with us, Dr. Ferrara currently provides an average of one to three hours per week of scientific, technical and medical advice to us to support our research and development activities.
Our board of directors, management team and investors include co-founders, scientists and leaders and investors from companies that have played pivotal roles in developing retina therapeutics, including Macugen, the first-in-class U.S. Food and Drug Administration (“FDA”)-approved anti-VEGF agent launched in ophthalmology. We believe this expertise could also be applicable to other therapeutic areas.
Background
Vascular endothelial growth factor A (“VEGF-A”) is the primary signaling molecule that promotes vascular permeability and stimulates the growth of abnormal new blood vessels. This pathologic process is referred to as “neovascularization”. Neovascularization plays a central role in retinal diseases characterized by exudation (fluid leakage) and/or neovascularization such as nAMD, DME, DR, and RVO. Fluid leakage is visible with high resolution and quantified by clinicians using optical coherence tomography (“OCT”), a non-invasive imaging modality which is the current standard to guide diagnosis and therapy for neovascular diseases. All four of the currently FDA approved and marketed therapeutics for the treatment of these diseases, which are ranibizumab, faricimab, aflibercept, and brolucizamab and sold under the brand names Lucentis®, Vabysmo®, Eylea®, and Beovu ®, respectively, as well as the off-label, compounded anti-VEGF oncology drug bevacizumab, are biologic anti-VEGF agents. They bind to the ligand VEGF at the extracellular level, inhibiting its subsequent binding to the cognate receptor on the endothelial cells and its downstream signaling and biologic activity. On-label anti-VEGF agents together generated approximately $14 billion in global revenue during 2023 for VEGF-mediated retinal diseases, which estimate is based on publicly available SEC filings and publicly available regulatory documents reporting 2023 global net revenues for Eylea, Vabysmo, Lucentis and Eylea HD.
Anti-VEGF agents for the management of retinal diseases are typically administered by intravitreal injection, an in-office procedure routinely performed by a trained retina specialist and generally well-tolerated by patients. Existing therapies have made great strides in preserving or improving vision for patients with those neovascular eye diseases, but for many patients the onerous treatment burden of frequent clinic visits as often as every one to two months over many years is intractable. To ease this treatment burden on patients and their caregivers, some physicians attempt to extend the dosing interval, and some patients delay or miss appointments, together resulting in suboptimal clinical outcomes compared with those seen in registrational trials for these treatments.
Recently approved agents have attempted to address the treatment burden by including a second target or by increasing the dose of an existing drug. However, registrational trials for these agents were not designed to compare study agent treatment burden to the active control group because the trials required monthly patient visits. Therefore, any potential reduction in treatment burden provided by these agents is difficult to ascertain. Other design features in these registrational trials that presented inherent limitations to data interpretation included: treatment intervals differed between study agent and active control groups, precluding direct interval comparisons; within-trial treatment interval reassignments introduced confounding biases including selection bias and unmasking; and interval reassignments were based on unvalidated clinical criteria. A significant unmet need remains for an anti-VEGF agent that can demonstrate longer acting anti-VEGF activity and provide for extended intervals between patient visits while maintaining optimal vision outcomes.
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Our Product Candidate
We are evaluating TH103 in an ongoing, open-label Phase 1 clinical trial for nAMD and plan to develop TH103 for a number of other exudative and neovascular retinal diseases. Our development pipeline for TH103 is shown in the image below.
TH103 is a decoy receptor VEGF trap engineered for increased anti-VEGF activity and longer duration of activity and has a high affinity for both VEGF and heparan sulfate proteoglycans (“HSPG”). HSPG are macromolecules that are present throughout the eye, including the vitreous and all retinal layers. We believe HSPG macromolecules act as molecular anchors for TH103, potentially extending its intraocular retention and reducing the frequency of anti-VEGF injections.
To achieve high affinity for both VEGF and HSPG, TH103 is engineered by fusing extracellular VEGF receptor binding elements, namely domain 2 (“D2”) and domain 3 (“D3”) of the native VEGFR1 with the constant region (Fc portion) of human Immunoglobulin G1 (“IgG1”), as VEGF-A binds to VEGFR1 with higher affinity than VEGFR2. D2 provides high affinity VEGF binding and D3 enhances VEGF functional affinity and also binds HSPG with high affinity. In contrast, aflibercept, the current market-leading VEGF trap, uses domain 3 from VEGF receptor 2 (“VEGFR2”), which has much lower affinity for HSPG. Therefore, TH103 is designed for increased VEGF binding and increased intraocular retention, as demonstrated in head-to-head preclinical experiments against aflibercept. The image below compares TH103 and aflibercept’s designs, where VEGFR1 extracellular elements are represented in blue and elements of VEGFR2 are represented in red.
TH103 extracellular domains 2 and 3 of native VEGFR1;
Aflibercept extracellular domains 2 and 3 derived from VEGFR1 and VEGFR2
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Preclinical Studies of TH103
Dr. Ferrara and his team conducted a series of in vitro and in vivo preclinical experiments comparing TH103 to aflibercept. In nAMD, abnormal growth of choroidal blood vessels occurs in the macula, known as choroidal neovascularization (“CNV”), making it important to evaluate TH103’s ability to inhibit choroidal cell proliferation in an animal model through its anti-VEGF activity. In an in vitro study of bovine choroidal endothelial cells (“BCEC”), TH103 demonstrated 100% inhibition of proliferation of BCEC at a 1 nanomolar (“nM”) concentration (maximum effect, Emax), while aflibercept achieved only 80% inhibition, even at higher tested concentrations.
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To determine if these findings translated in vivo, Dr. Ferrara used the standard rodent laser-induced CNV model. In this model, focused laser energy is applied to the mouse retina one day after administration of the study agent to cause thermal retinal damage which induces CNV lesion growth that is measured seven days later. When compared to aflibercept and a control at equimolar concentrations (2.5 µg), TH103 demonstrated an approximately two-fold reduction in the mean CNV area (p<0.01 compared with IgG control). Additionally, the reduction in CNV with TH103 was equal to or greater than that achieved with a 10-fold higher concentration of aflibercept (25 µg).
To determine if anti-VEGF activity was sustained over a longer period, the mouse experiment was repeated with the study agents administered 14 days before the laser application. At day 7 post-laser (21 days after administration of the study agents), TH103 showed a significant reduction in mean CNV growth, whereas aflibercept showed no reduction compared to the control, suggesting that TH103 had longer lasting and increased anti-VEGF activity compared with aflibercept.
Clinical
Based on the preclinical study results and favorable preclinical toxicology data, we advanced TH103 into clinical development. We are currently enrolling treatment-naïve nAMD patients in an ongoing Phase 1 clinical trial of TH103. Part 1 of the trial is a single ascending dose study focused on safety and pharmacokinetics, enrolling patients across a series of ascending dose cohorts. Part 1 of the trial is designed to evaluate up to five dose cohorts (currently planned as 0.5 mg/eye, 1.5 mg/eye, 2.5 mg/eye, 5.0 mg/eye and 10.0 mg/eye) with the escalation to each higher dose cohort subject to the results observed in the prior dose cohort(s). Each cohort in Part 1 is expected to enroll at least three and up to six patients and dose escalation is planned to proceed until the maximum tolerable dosage has been attained per trial protocol. Part 2 of the Phase 1 trial was originally designed to enroll and treat with TH103 up to 12 treatment-naïve patients who initially received aflibercept. However, we are reviewing the original design of the trial and anticipate modifying the design to help accelerate the development of TH103.We expect to report initial data from Part 1 of the Phase 1 clinical trial in the second half of 2025, with additional follow-up data expected in 2026. Assuming successful completion of the ongoing Phase 1 clinical trial of TH103, and subject to the favorable results from such trial and discussions with regulators, we also plan to initiate a Phase 2 clinical trial of TH103 for nAMD in 2026.
Our Board and Management Team
Our management team and members of our board of directors have been involved at other companies in the development of a number of FDA approved anti-VEGF therapies (including ranibizumab, faricimab and pegaptanib), as well as co-founding and in-licensing the complement inhibitor avacincaptad pegol intravitreal solution (FDA approved for the treatment geographic atrophy in a dry form of AMD and sold under the brand name Izervay®). Samsara LP, a venture capital investment firm with deep ophthalmic experience and expertise was the principal financial sponsor and co-founder of Legacy Kalaris.
Our management team consists of executives with extensive pharmaceutical industry experience, including specific experience in anti-VEGF therapeutic development. Our management team includes ophthalmologists and a retinal specialist with experience in the development of retinal therapeutics and who have cofounded companies that obtained FDA approval of new molecular entities for dry and wet forms of macular degeneration. Our Chief Executive Officer is Andrew Oxtoby, who has over two decades of experience in the pharmaceutical and biotech industries and has held a variety of leadership roles across multiple therapeutic areas during his career. Prior to joining Legacy Kalaris in March 2024, Andrew was the Chief Commercial Officer of Chinook Therapeutics, Inc. and has also held multiple executive leadership roles at Aimmune Therapeutics, Inc. and Eli Lilly & Co. Matthew Feinsod, M.D., our Chief Medical Officer, is a board-certified ophthalmologist who has played key roles in a number of private and public ophthalmology biotech companies over 20 years, including Eyetech Pharmaceuticals Inc. (“Eyetech”) and Imagen Biotech Inc., from early-stage candidate development through product commercialization involving therapeutics targeting the retina. Dr. Feinsod has also served as a medical officer in the ophthalmology division of the FDA. Complementing our executive management is our scientific founder,
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Napoleone Ferrara, M.D., distinguished Professor of Pathology at the University of California San Diego and Lasker Award winner who co-discovered and isolated VEGF-A and its isoforms, along with its receptors, and while at Genentech, Inc. was an inventor of both Avastin® and Lucentis®. Dr. Ferrara is also a member of our board of directors. Also on our board of director is Samir Patel, M.D., who served as Executive Chairman of Legacy Kalaris and co-founder of Legacy Kalaris. Dr. Patel was previously President of Ophthotech Corporation and co-founder of Eyetech, which developed the first FDA-approved anti-VEGF agent (Macugen®) for the treatment of nAMD and was acquired by OSI Pharmaceuticals, Inc. (now Takeda Pharmaceuticals Company Limited). Anthony Adamis, M.D., the former head of ophthalmology, immunology and infectious disease at Genentech, Inc. and a co-founder of Eyetech and Eyebiotech Limited (acquired by Merck & Co., Inc.), is also on our board of directors. Dr. Adamis was a pioneer in demonstrating the role of anti-VEGF in mediating ischemic and exudative diseases in the eye while a professor at Harvard University.
Also on our board of directors are Srinivas Akkaraju, M.D., PhD, and Mike Dybbs, PhD, who are partners at Samsara LP. Dr. Akkaraju served on Legacy Kalaris’ board of directors from the formation of the company in 2019 until the closing of the Merger, following which he began to serving on our board of directors, and is the managing general partner at Samsara LP. He has extensive investing experience in ophthalmology biotechnology companies, including Eyetech, the company behind the development and launch of Macugen, the first anti-VEGF agent to be approved for the treatment of nAMD in 2004. Dr. Akkaraju currently serves on the board of directors of vTv Therapeutics, Inc., Scholar Rock Holding Corporation, Mineralys Therapeutics, Inc., and Alumis Inc., and he previously served as director of Chinook Therapeutics, Inc., Syros Pharmaceuticals, Inc., Intercept Pharmaceuticals, Inc., Jiya Acquisition Corp., Seattle Genetics, Inc. (now, Seagen Inc.), and Principia Biopharma, Inc. Dr. Dybbs served Legacy Kalaris’ board of directors from March of 2022 until the closing of the Merger, following which he began to serving on our board of directors, and is a partner at Samsara LP where he has worked since March 2017. Dr. Dybbs has extensive experience in the life sciences industry and currently serves on the board of directors of two publicly traded biotechnology companies, Sutro Biopharma, Inc. and Nkarta, Inc.
Our Strategy
Our objective is to become a leading biopharmaceutical company focused on developing and commercializing innovative therapeutics aimed at becoming the standard of care for prevalent retinal diseases for which there is a major unmet medical need.
Key components of our strategy to achieve this objective include:
| • | Advance the clinical development of TH103 as a potential treatment for nAMD. |
Our product candidate TH103 is being evaluated in an ongoing Phase 1 clinical trial for patients with nAMD. TH103 is a fully humanized, recombinant fusion protein designed to combine increased anti-VEGF activity with prolonged intraocular retention. Our open label Phase 1 clinical trial of TH103 is designed to assess the initial safety data and maximum tolerated dose. We expect to report initial data from Part 1 of the Phase 1 clinical trial in the second half of 2025 with additional follow up data expected in 2026. Assuming successful completion of the ongoing Phase 1 clinical trial of TH103, and subject to the favorable results from such trial and discussions with regulators, we also plan to initiate a Phase 2 clinical trial of TH103 for nAMD in 2026.
| • | Pursue the development of TH103 as a treatment for other neovascular, exudative retinal diseases. |
We are also evaluating the potential development of TH103 to treat additional VEGF-mediated neovascular and/or exudative diseases of the retina including DME, DR, RVO and retinopathy of prematurity (“ROP”). DME and RVO together impact an estimated 40 million people worldwide and patients with DME/DR and RVO face similar treatment challenges as nAMD patients, particularly the treatment burden of frequent clinic visits incurred by aged patients. We believe that TH103 has the potential to significantly reduce this burden and provide meaningful benefits to patients with DME/DR and RVO. We may also evaluate TH103 to treat ROP. ROP is a rare retinal disorder affecting an estimated 14,000 to 16,000 newborns in the United States each year.
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| • | Commercialize TH103 in the United States, if approved, and potentially expand into other ophthalmic therapeutics. |
We have retained worldwide development and commercialization rights to TH103. We intend to commercialize TH103, if approved, in the United States with our own specialty salesforce. We also anticipate commercializing TH103 in markets outside of the United States through third-party collaboration and/or distribution agreements. We envision expanded use of our commercial organization to distribute additional retinal and/or ophthalmologic therapeutics that we may market through future licensing, partnership or acquisition activity.
Our executive team and board of directors has deep expertise in drug development and commercialization, particularly related to ophthalmology and retina therapeutics, and have collectively contributed to the discovery, development and commercialization of multiple approved products in this therapeutic category.
| • | Strengthen our development pipeline through licensing and acquisition activities. |
We intend to opportunistically complement our ongoing development programs by accessing additional product candidates and technologies through in-licensing, strategic collaborations and acquisitions. We believe that the significant ophthalmic drug development expertise of our management team and board of directors provides us with a differentiated set of capabilities to identify, access and advance product candidates for diseases of the eye and potentially other therapeutic areas.
The Human Retina
Light enters the human eye and is refracted by the cornea and lens before penetrating through the vitreous humor to the neurosensory retina which lines the posterior of the eye. The central region of the retina is the macula, and the central 1mm of the macula is called the fovea which is responsible for color and high acuity central vision. The peripheral retina is responsible for the peripheral field of vision. The retina contains photoreceptors, which are specialized light-sensing cells called rods and cones; these cells convert light into signals that are transmitted to the visual cortex of the brain through the millions of nerve fibers which make up the optic nerve.
The composition of the human eye
Source: National Eye Institute Media Library
Diseases of the Retina
Based on available third-party epidemiologic studies, we expect that the prevalence of retinal diseases, such as age-related macular degeneration (“AMD”), DME/DR and RVO, which are primarily age-related, will continue to grow and that there remains a significant unmet need for these indications despite the availability of approved treatment options. More than three million people in the United States are currently impacted by significant visual impairment or blindness resulting from these retinal diseases, and the branded market for therapeutics used to treat them was estimated, based on publicly available SEC filings and publicly available regulatory documents reporting 2023 global net revenues for Eylea, Vabysmo, Lucentis and Eylea HD, to be $14 billion worldwide in 2023.
Neovascular Age-Related Macular Degeneration
AMD is an eye disease that results in visual distortion and loss of central vision. It generally affects people over 50 years of age and is a leading cause of blindness among older adults. In the United States, approximately 20 million people have AMD, including more than 35% of adults over 80 years of age, and an estimated 1.6 million adults had nAMD in 2023. Worldwide, an estimated 200 million people have AMD, with the patient population expected to increase to 300 million by 2040, largely due to an aging population.
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Atrophic, or dry, AMD (“dAMD”) accounts for up to 90% of all AMD cases and is usually a slowly progressive condition that involves the accumulation of deposits, known as drusen, which causes a thickening of Bruch’s membrane that disrupts the cytoarchitecture of the overlying retinal pigmentation epithelium (“RPE”). This disruption, coupled with oxidative stress and inflammation, is thought to result in compromised RPE function and eventually cell death or dysfunction of the RPE and overlying neurosensory retina. Symptoms of dAMD, which may be unrecognizable to patients in the earlier stages of the disease, advance slowly over several years. Late-stage dAMD, also referred to as geographic atrophy (“GA”), may affect as many as 2 million people in the United States.
nAMD is a severe, advanced form of the disease caused by the aberrant growth of abnormal new blood vessels, known as neovascularization, in the highly vascularized choroid layer under the macula. These aberrant and abnormal vessels leak fluid and bleed into the macula, leading to acute or subacute vision loss, associated retinal cell dysfunction and death, and scar tissue, or “fibrosis”. While nAMD makes up only 10% to 15% of all AMD patients, it is responsible for approximately 90% of AMD-related blindness. Left untreated, loss of central vision is irreversible, and patients may be unable to read, drive or perform other activities of daily living, contributing to a significant decline in quality of life. Patients with dAMD at any stage can progress to nAMD.
VEGF and its role in the pathology of nAMD
VEGF is the core signaling protein involved in the development of the abnormal growth of blood vessels under the retina in patients with nAMD. Binding of VEGF to its cognate receptors on the endothelial cell surface results in the activation of signaling pathways, which initiates endothelial cell division, migration and proliferation. VEGF also promotes vascular permeability. As such, upregulation of VEGF is implicated in retinal diseases characterized by abnormal vessel growth (neovascularization) and leakage (exudation), such as nAMD, diabetic eye disease and RVO. Pharmaceutical inhibition of VEGF has been proven to result in significant therapeutic benefit in patients with nAMD and for approximately 20 years anti-VEGF agents have been the standard of care for patients with nAMD.
VEGF-A is the primary mediator and the key target for pathologic angiogenesis and exudation (permeability) in retinal disease
In humans, the VEGF superfamily includes five related members, VEGF-A, VEGF-B, VEGF-C, VEGF-D and placental growth factor (“PlGF”). Members of the VEGF superfamily bind to specific receptor tyrosine kinases, VEGFRs, which includes VEGFR1, VEGFR2 and VEGFR3. VEGF-A and VEGF-B both bind to VEGFR1. VEGF-A also binds to VEGFR2. VEGF-C and VEGF-D interact primarily with VEGFR3.
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VEGFR1 and VEGFR2 are expressed predominantly on vascular endothelial cells, while VEGFR3 is expressed primarily on lymphatic endothelial cells. VEGFR2 is a key signaling receptor for VEGF-A and mediates cellular responses to VEGF-A. VEGFR1, which has a ten-fold higher binding affinity for VEGF-A compared to VEGFR2, triggers endothelial cell and monocyte migration, and is also responsible for the modulation of VEGFR2 signaling activity. The interactions between the different VEGF superfamily members and their corresponding receptors are illustrated in the simplified schematic presented below.
VEGF-A is the growth factor primarily involved in retinal neovascularization and exudation
Similar to other VEGFRs, the extracellular portion of VEGFR1 consists of seven immunoglobulin-like domains. D2 on VEGFR1 is the primary binding element for VEGF and is responsible for ligand specificity while D3 plays an important role in binding affinity and stability. Moreover, D3 of VEGFR1 provides a molecular interface which aligns more closely with VEGF than the corresponding domain on VEGFR2, a distinction which might contribute to its higher VEGF binding functional affinity. In addition, D3 on VEGFR1, though not the corresponding D3 of VEGFR2, is a prominent heparin binding site because of an aggregation of basic charged amino acids. As a result, D3 of VEGFR1 binds to HSPG molecules, which are located on the cell surface or extracellular matrix of various tissues throughout the body including the vitreous and retinal layers.
Currently Approved Therapeutics to Treat nAMD
We are aware of six reference biologic (non-biosimilar) drugs that the FDA has approved for the treatment of exudative and neovascular retinal diseases to date, all of which are designed to inhibit the activity of VEGF. The approved reference biologic drugs include: pegaptanib, a pegylated aptamer under the brand name Macugen®; ranibizumab, a VEGF-targeted antibody fragment approved in 2006 and marketed by F. Hoffmann-La Roche AG (“Roche”) as Lucentis®; aflibercept, a fusion protein consisting of extracellular binding domains of VEGFR1 and VEGFR2, initially approved in 2011 and approved at a higher dose in 2023, is commercialized by Regeneron Pharmaceuticals, Inc. under the brand names Eylea® and EyleaHD®; brolucizumab, a single chain antibody fragment approved in 2019 and sold by Novartis AG under the brand name Beovu®; and faricimab, a bispecific antibody targeting both VEGF and angiopoietin-2, approved in 2022 and sold by Roche under the brand name Vabysmo®. In addition,bevacizumab, a full-length monoclonal antibody targeting VEGF sold by Roche under the brand name Avastin® that was initially approved in 2004 to treat colon cancer and subsequently approved to treat multiple additional cancers, is used off-label to treat exudative and neovascular retina diseases. Commercial distribution of pegaptinib has been discontinued in the United States and brolucizumab is used infrequently due to safety concerns. The remaining four approved reference biologic anti-VEGF drugs for the treatment of nAMD generated, based on publicly available SEC filings and publicly available regulatory documents reporting 2023 global net revenues for Eylea, Vabysmo, Lucentis and Eylea HD, an estimated worldwide revenue of $14 billion in
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2023 with aflibercept alone generating worldwide sales of approximately $9 billion. In addition to these figures, off-label use of bevacizumab is estimated to represent approximately 30% of additional injections to the total generated by approved therapies. Lastly, biosimilars for both ranibizumab and aflibercept have more recently entered the U.S. market.
Because nAMD is a heterogenous disease, patients exhibit a range of baseline presentations and responses to anti-VEGF therapy. For example, patients may present at different disease stages (acute, sub-acute and chronic), severities and neovascular types based on lesion location and features. The wide variability of presenting baseline functional and anatomical variables such as visual acuity, lesion characteristics and retinal integrity often limit the ability to predict treatment response.
The recent FDA approvals of anti-VEGF agents faricimab and high-dose (8mg) aflibercept involved registrational clinical trials that studied longer treatment intervals. The FDA labels for these agents describe the range of dosing intervals that were tested and reached non-inferiority with active controls. However, these clinical trials were not designed to provide evidence of superior, clinically meaningful durability or reduction in patient burden compared with already existing agents for several reasons: (1) asymmetric dosing intervals between treatment and active controls precluded direct comparisons; (2) mid-study treatment interval reassignments introduced multiple confounding biases that limit data interpretability; and (3) patients were required to return for monthly monitoring visits in order to identify which patients needed supplemental injections, thereby precluding any assessment of reduced patient burden. Compounding these issues, the criteria upon which supplemental injection decisions were made (i.e., mid-study interval reassignments) were not validated, may not have reflected clinical practice, and varied between trials. Despite the availability of newer treatment options, we believe a significant unmet need remains for an anti-VEGF therapeutic with more durable efficacy to allow for an extended interval of time between visits for a higher percentage of patients.
A description of the reference biologic therapeutics currently used to treat nAMD and the FDA-approved range of dosing frequencies are detailed in the table below.
Our Solution: TH103
Our product candidate, TH103, is an intravitreally administered, fully humanized, recombinant anti-VEGF fusion protein that incorporates novel molecular modifications designed to optimize VEGF binding and potentially prolong its retention in the retina. Preclinical study results suggest that TH103 may extend treatment durability and reduce treatment burden. Similar to the chimeric fusion protein and leading branded agent, aflibercept, TH103 fuses two
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VEGF extracellular binding domains to the Fc portion of an IgG1 molecule and is expected to be able to bind VEGF-A, VEGF-B and PlGF. However, in contrast to aflibercept, which utilizes the D2 binding domain of VEGFR1 and the D3 binding domain of VEGFR2, TH103 contains D2 and D3 binding domains of onlyVEGFR1. We believe this configuration of domains, intended to mimic their orientation on the most potent VEGF binding receptor, VEGFR1, as well as binding to HSPG, which is present in all retinal layers and may confer improved VEGF inhibition and prolonged duration of action for TH103. A comparison of the molecular design of TH103 and aflibercept is presented in the image below.
D2 and D3 extracellular binding domains of VEGFR1 for TH103 and Aflibercept
Given its high affinity for HSPG that are present in all retinal layers, inclusion of VEGFR1 D3 has been shown in preclinical experiments to increase TH103 residence time in ocular tissues, such as the vitreous and retina. In contrast, aflibercept contains VEGFR2 D3 for its lower tissue sequestration which improves its pharmacokinetic profile in systemic indications, such as cancer, where it is marketed as Zaltrap® (FDA approved to treat metastatic colorectal cancer) but may limit retinal tissue sequestration.
Preclinical Evaluation of TH103 compared to aflibercept
In both in vitro and in vivo preclinical studies comparing the anti-VEGF activity of TH103 and aflibercept, TH103 demonstrated longer lasting and increased anti-VEGF activity. In an in vitro study designed to compare their inhibitory effects, TH103 demonstrated 100% inhibition of VEGF-induced proliferation of bovine choroidal endothelial cells (“BCEC”) at approximately 1 nM, the half-maximal inhibitory concentration of TH103. In contrast, aflibercept only inhibited up to 80% of BCEC proliferation at 1 nM and at all higher concentrations tested. These results are illustrated in the images below.
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TH103 demonstrated greater inhibition of VEGF-induced BCEC proliferation as compared to aflibercept.
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To translate these data in vivo, a rodent laser-induced choroidal neovascularization (‘CNV”) experiment was conducted, which is commonly used in evaluating investigational therapies for the treatment of nAMD during preclinical development. As shown in the image below, TH103 or aflibercept were administered by intravitreal injection to the mouse eye one day prior to laser-induced CNV growth, and CNV area was measured seven days later.
Laser-induced choroidal neovascularization is a well-characterized model of nAMD.
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As is shown in the image below, in the preclinical study, TH103 demonstrated an approximately two-fold reduction in mean CNV area compared with equimolar concentrations of aflibercept. Moreover, mean CNV reduction achieved with 2.5 µg TH103 compared favorably even with a 10-fold higher concentration of aflibercept (25 µg).
TH103 demonstrated reduced mean CNV area as compared to aflibercept
TH103 exhibited high affinity HSPG binding D3 for increased intraocular retention
Based on data generated by us, inclusion of VEGFR1 D3 conferred an approximately 780-fold higher affinity than aflibercept for HSPG, as measured by the equilibrium dissociation constant (“KD”). As depicted in the cross-sectional image of the retina presented below, HSPG are found in all layers of the retina and choroid, including the internal limiting membrane, nerve fiber layer, ganglion cell layer, neurosensory retina, RPE and Bruch’s membrane. Importantly in AMD, published third-party preclinical animal data indicated that expression of HSPG is increased and parallels the area of CNV lesions. We believe the high affinity of TH103 for HSPG may prolong retinal tissue sequestration and prolonged anti-VEGF activity.
Heparan sulfate is present across all retinal layers and choroid.
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An in vivo rabbit study compared retinal retention of TH103 to aflibercept. As shown in the images below, immunofluorescent staining conducted 14 days after intravitreal administration demonstrated that TH103 had greater retinal retention compared to aflibercept, with darker staining indicating higher levels of TH103 in the retina.
14 days post-injection, TH103 showed darker immunofluorescent staining compared with aflibercept in rabbit retina cross section
To test the hypothesis that TH103 would maintain bioactivity longer than aflibercept, the mouse laser-induced CNV experiment was repeated, administering the doses 14 days (instead of one day) prior to the laser treatment. This allowed for the assessment of treatment effects 21 days post-injection.
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As shown in the bar graph below, 21 days after administration TH103 demonstrated a statistically significant, greater mean reduction in CNV area (p<0.001 compared to aflibercept or control) at the same equimolar concentrations.
As depicted in the representative images below, with green fluorescence indicative of CNV area, at day 21 TH103 exhibited continued anti-VEGF activity with CNV reduction compared to aflibercept and control IgG. We believe that these results are indicative of TH103’s strong HSPG binding characteristics in the retina resulting in longer-acting anti-VEGF activity.
At Day 21, TH103 demonstrated reduced CNV area compared to aflibercept
The sustained retina retention of TH103 following intravitreal injection is also supported by the pharmacokinetic data shown below. Serum levels of aflibercept and TH103 were measured in mice at 1, 3, 7, 14, and 21 days after intravitreal injection. Each molecule was injected in both eyes in equimolar amounts (2.4 µg). As illustrated in the image below, aflibercept administration resulted in higher serum levels as compared to TH103 at all time points throughout the experiment, suggesting TH103 was retained in the eye for longer than the aflibercept. Overall systemic exposure (“AUC”) was lower for TH103 as compared to aflibercept.
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TH103 demonstrated lower serum levels compared to aflibercept following IVT administration in a preclinical in vivo experiment
Preclinical safety evaluations
TH103 has undergone single-dose and repeat-dose preclinical toxicity studies in Dutch Belted rabbits and Göttingen minipigs in support of IND clearance and preparation for a single ascending dose, first-in-human clinical trial. Anti-drug antibody (“ADA”) generation was observed in most animals and was not unexpected following intravitreal administration of humanized biologic agents in animals due to cross-species reactivity. This phenomenon has also been reported in preclinical toxicology studies of other anti-VEGF biologic therapies.
Single Dose Toxicology Studies
In both the rabbit and minipig studies, there were no observed TH103-related effects on body weight, food consumption, clinical observations, intraocular pressure, electroretinogram (“ERG”), clinical pathology parameters (hematology, coagulation and clinical chemistry), organ weights, or macroscopic examinations. Toxicokinetic parameters indicated that systemic exposure for TH103 increased with increasing dose in an approximately dose proportional manner and in general was extremely low.
In the Dutch-belted rabbit toxicology study, a single intravitreal injection of one of three doses of TH103 (0.6 mg, 1.2 mg and 2.3 mg) was administered in one eye. All treated animals were positive for ADA by day 8 and remained positive through day 29. There was a dose-dependent and time-dependent intraocular inflammation that coincided with ADA levels. The intraocular inflammation improved in most eyes over time. Based on the recoverable nature of inflammation and absence of degenerative findings, the No Observed Adverse Effect Level (“NOAEL”) in this study was determined to be 1.2 mg per eye, which is equivalent to approximately 3.2 mg per eye in a human eye based on average vitreous volumes.
In the Göttingen minipig toxicology study, a single intravitreal injection of one of three doses of TH103 (0.9 mg, 2.3 mg and 3.7mg per eye) was administered in both eyes. Similar to the study in rabbits, most treated animals were positive for ADA by day 8 and remained positive through day 29. ADA levels and intraocular inflammation coincided in most animals across all dose levels, but a dose-related response was not observed.
Repeat Dose Toxicology Studies
Göttingen minipigs were administered repeat doses of TH103 by intravitreal injection into both eyes at 4-week intervals for six months (doses of 1.0 mg, 2.1 mg and 3.6 mg per eye) at seven time points through day 169 followed by an 8-week recovery period after the last dose to evaluate the potential reversibility of any finding. There were no observed TH103-related effects on body weight, electrocardiology, ERG, clinical pathology parameters (hematology, coagulation and clinical chemistry) or organ weights. Toxicokinetic parameters indicated that systemic exposure for TH103 generally increased with increasing dose. In general, at all dose levels there was a direct and dose-dependent relationship between intraocular inflammation and ADA levels, with increasing severity from day 22 to day 183. Intraocular inflammation improved in nearly all animals after administration of systemic and topical steroids.
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Our ongoing Phase 1 clinical trial of TH103
We are developing TH103 as a first-line treatment for nAMD. We are actively enrolling an open label, Phase 1 clinical trial of TH103 designed to assess the safety, tolerability and pharmacokinetics of the therapeutic candidate as well as provide preliminary indications of anti-VEGF activity. Part 1 of the Phase 1 clinical trial is a single ascending dose study in treatment naïve nAMD patients, 50 years or older, who have a central subfield thickness (“CST”), a cross-sectional measurement of central macular thickness that is obtained using OCT imaging, exceeding 325 microns. Part 1 of the trial is enrolling patients across a series of ascending dose cohorts. Part 1 of the trial is designed to evaluate up to five dose cohorts (currently planned as 0.5 mg/eye, 1.5 mg/eye, 2.5 mg/eye, 5.0 mg/eye and 10.0 mg/eye) with the escalation to each higher dose cohort subject to the results observed in the prior dose cohort(s). Each cohort in Part 1 is expected to enroll at least three and up to six patients and dose escalation is planned to proceed until the maximum tolerable dosage has been attained per trial protocol. Part 2 of the Phase 1 trial was originally designed to enroll and treat with TH103 up to 12 treatment-naïve patients who initially received aflibercept. However, we are reviewing the original design of the trial and anticipate modifying the design to help accelerate the development of TH103.
Anticipated future clinical trials of TH103 as a treatment for nAMD.
Assuming successful completion of the ongoing Phase 1 clinical trial of TH103, and subject to the results of such trial and discussions with regulators, we plan to initiate a Phase 2 clinical trial in 2026 to further evaluate the safety and efficacy of TH103 for nAMD, which subject to favorable results and discussions with regulators, could be followed by a registrational Phase 3 clinical trial of TH103. Assuming the data from the ongoing Phase 1 and planned Phase 2 clinical trials of TH103 support the advancement of TH103 to a registrational clinical trial and subject to discussions with the FDA, we expect to design our registrational trials of TH103 for nAMD with a comparator arm with the standard of care that has a dosing frequency, criterion for dosing adjustments, and criterion for interventions that is the same as the TH103 arm(s). We believe such a trial design would allow for comparison of visual acuity benefit as well as dosing frequency or treatment burden.
Potential Indication Expansion Opportunities for TH103
In addition to nAMD, we believe TH103 may also offer therapeutic benefit to patients with other VEGF-mediated retinal diseases marked by exudation and/or neovascularization, such as DME/DR, RVO and ROP. We plan to pursue clinical development for these indications. We believe that the preclinical studies conducted to date for the development of TH103 for nAMD and the results, if favorable, from our ongoing Phase 1 clinical trial of TH103 for nAMD will support IND submissions to the FDA for these additional intraocular indications and, subject to IND submission and clearance for the applicable indication, allow us to proceed to Phase 2 clinical development of TH103 for such follow-on intraocular indication. Descriptions of these diseases and the limitations of currently used therapeutics are presented below.
Diabetic Macular Edema / Diabetic Retinopathy
DR is a condition in which the small blood vessels of the retina are damaged as a result of a sustained elevation of blood glucose levels. The earlier stages of DR involve the emergence of microaneurysms in the blood vessels and the formation of lipid deposits. In more advanced stages, patients with DR may experience the abnormal proliferation of the weakened blood vessels throughout the retina, resulting in fluid leakage and vision disruption. An estimated 9.6 million people in the United States have DR and 1.8 million have vision threatening disease. A majority of people who have had diabetes for 20 or more years also have DR. DME, a complication associated with DR, is caused by leakage of fluid into the macula from the retinal microvasculature, which can result in significant visual decline and contribute to the risk of blindness. It is a leading cause of blindness among the U.S. adult population, with an estimated 1.4 million people living with the disease in the United States Worldwide, the market for DME/DR treatments is estimated to currently exceed $12 billion.
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Limitations of current treatments for DME/DR
In both DME and DR, initial disease onset often goes unnoticed, which contributes to a large undiagnosed population. Among those diagnosed, recommended treatment for patients with early-stage disease or mild visual impairment is observation only largely to avoid the associated treatment burden. For patients with more advanced disease, the standard of care includes laser treatment, intravitreal injections of steroids or anti-VEGF therapies. However, many patients fail to display a sustained response to therapy, necessitating repeat injections to maintain therapeutic effectiveness. In consequence, these patients experience clinic visit burden and related compliance challenges similar to those with nAMD.
Retinal Vein Occlusion
RVO occurs when there is a partial or complete blockage of the central retinal vein, or more commonly, a peripheral retinal vein that drains blood from the retina. The occlusion increases venous pressure and causes intraretinal hemorrhages, edema, and ischemia, triggering a complex cascade of molecular events that upregulate VEGF and other proinflammatory mediators. While there is no cure for RVO, treatment focuses on managing the complications that lead to vision loss. Macular edema and neovascularization, which occur in approximately 25% of RVO cases, are common complications. RVO is estimated to affect about 16 million people worldwide.
Limitations of current treatments for RVO
The introduction of anti-VEGF therapies has significantly improved patient outcomes in the treatment of RVO. However, a primary challenge in managing RVO-similar to nAMD and DME-is the chronic nature of the disease, which requires ongoing monitoring and repeated intravitreal injections to maintain visual function. Adherence to clinic visit regimens can be difficult, leading to suboptimal outcomes.
Retinopathy of Prematurity
ROP, which involves the abnormal growth of blood vessels in the retina of newborns, affects between 14,000 and 16,000 infants each year in the United States. Infants born prior to 31 weeks gestation or at a birth weight of approximately 3 pounds or less are at highest risk for developing ROP. Resolution of the condition occurs without further medical intervention in 90% of cases, though an estimated 1,100 to 1,500 infants are born with a more severe form of the disorder that requires treatment. ROP causes legal blindness in as many as 600 children annually.
Limitations of current treatments for ROP
Standard of care treatment for ROP involves the intravitreal administration of anti-VEGF therapeutics. However, significant systemic exposure to these agents may have detrimental neurodevelopmental effects in newborns. The increased binding affinity of TH103 to HSPG, which results in significantly lower systemic levels compared to aflibercept, may prove particularly useful in treating ROP as it may reduce potential risks to infants associated with systemic anti-VEGF exposure.
Manufacturing
We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely on third-party contract manufacturers for the manufacture of our product candidate for our ongoing and planned clinical trials, and, if we receive marketing approval, we intend to rely on such third parties for commercial manufacture. Our principal contract manufacturers are STC Biologics, Inc. and Sharp Sterile Manufacturing (formerly, Berkshire Sterile Manufacturing Inc.). We believe that these contract manufacturers are capable of producing sufficient quantities of our product candidate to support our ongoing and planned clinical trials. We also believe that there are a number of alternative third-party manufacturers that have similar capabilities that would be capable of providing sufficient quantities of our product candidate for our ongoing and planned clinical trials. However, should our contract manufacturers not be able to provide sufficient quantities of our product candidate for our ongoing and planned clinical trials, we would be required to seek alternative contract manufacturers to provide our product candidate, likely resulting in delays of our ongoing and planned clinical trials.
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TH103 is produced through well-established biological manufacturing processes. TH103 is produced in Chinese hamster ovary K1 cells by recombinant DNA technology using a conventional fusion protein manufacturing process. We believe our existing supply of TH103 is sufficient to satisfy our near-term development requirements.
In addition, we rely on third parties to package, label, store and distribute TH103, and we intend to rely on third parties for our commercial products if marketing approval is obtained. We expect this strategy will enable us to maintain a more efficient infrastructure, avoiding dependence on our own manufacturing facility and equipment, while simultaneously enabling us to focus our expertise and resources on the clinical development and future commercialization activities.
Competition
The biopharmaceutical industry, and in particular the market for products treating retinal diseases, is characterized by intense investment and competition aimed at rapidly advancing new technologies. Our product candidates are expected to face substantial competition from multiple sources, including large and specialty pharmaceutical and biotechnology companies, academic research institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will complete with existing therapies and new therapies that may emerge in the future within the field of ophthalmology and, furthermore, within the treatment of retinal diseases. Many of the companies against which We are competing or against which we may compete in the future, either alone or in combination with their respective strategic partners, have significantly greater financial, technical and human resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, the regulatory approval process, and marketing than we do.
In addition to the current standard of care treatments for patients with nAMD, numerous commercial and academic preclinical studies and clinical trials are being undertaken by a large number of parties to assess novel technologies and product candidates. Large pharmaceutical companies that have commercialized or are developing treatments for nAMD include Novartis AG (“Novartis”), Regeneron Pharmaceuticals, Inc. (“Regeneron”), AbbVie Inc. (“AbbVie”) and Roche. Novartis has received FDA approval for brolucizumab; Regeneron has received FDA approval for aflibercept and aflibercept HD; and Roche has received FDA approval for faricimab, ranibizumab and bevacizumab, though bevacizumab is not approved specifically for nAMD. AbbVie is currently collaborating with RegenexBio Inc. (“RegenexBio”) to develop ABBV-RGX-314 as a potential treatment for nAMD. Outlook Therapeutics, Inc. is developing bevacizumab-vikg, an investigational ophthalmic formulation of bevacizumab as a potential treatment for nAMD.
Several companies have received FDA approval for biosimilars to treat nAMD, including: Samsung Bioepis Co., Ltd. and Biogen Inc., which received approval for Byooviz (ranibizumab-nuna), a ranibizumab biosimilar, in September 2021 and Opuviz (aflibercept-yszy) in May 2024; Coherus BioSciences, Inc., which obtained approval for Cimerli (ranibizumab-eqrn), a ranibizumab biosimilar, in August 2022; Formycon AG, which received approval for Ahzantive (aflibercept-mrbb) in June 2024; Sandoz Group AG, which received approval for Enzeevu (aflibercept-abzv) in August 2024; Mylan Laboratories Inc. and Biocon Biologics Limited, which received approval for Yesafili (afliberceptjbvf), an aflibercept biosimilar, in May 2024; and Amgen Inc., which received approval for Pavblu (aflibercept-ayyh) in August 2024. Should these biosimilars enter the market they may provide new, cost-effective options for the treatment of nAMD, as well as other retinal conditions mediated by VEGF.
Emerging biopharmaceutical companies advancing therapeutic candidates through clinical trials to treat nAMD include 4D Molecular Therapeutics, Inc. (“4D Molecular Therapeutics”), Adverum Biotechnologies, Inc. (“Adverum”), RegenexBio, Eyepoint Pharmaceuticals, Inc. (“Eyepoint Pharmaceuticals”) and Ocular Therapeutix, Inc. (“Ocular Therapeutix”) among others. 4D Molecular Therapeutics, Adverum and RegenexBio are each advancing anti-VEGF gene therapy candidates to treat nAMD. 4D Molecular Therapeutics’ drug candidate is in an ongoing Phase 3 trial for nAMD and a Phase 1 trial for DME, Adverum’s drug candidate is in an ongoing Phase 2 trial and RegenexBio’s drug candidate is in a pivotal clinical trial for nAMD and a Phase 2 trial for a potential DR treatment. Eyepoint Pharmaceuticals is developing a sustained release, small molecule pan-VEGF inhibitor, which is currently under evaluation in an ongoing Phase 3 trial for nAMD and a Phase 2 trial for DME. Ocular Therapeutix is currently conducting a Phase 3 trial of axitinib intravitreal implant, a small molecule tyrosine kinase inhibitor to treat nAMD, which is also being evaluated in a Phase 1/2 trial for DR.
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We also compete with third parties for retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. We may pursue the in-license or acquisition of rights to complementary technologies and product candidates on an opportunistic basis. The acquisition and licensing of technologies and product candidates is a competitive area, and a number of more established companies also have similar strategies to in-license or acquire technologies and product candidates that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to in-license or acquire the relevant technology or product candidate on terms that would allow us to make an appropriate return on our investment.
Mergers and acquisition activity in the pharmaceutical, biopharmaceutical and biotechnology sector is likely to result in greater resource concentration among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through sizeable collaborative arrangements with established companies. These competitors also compete with us in recruiting and retain qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our business.
Our commercial opportunity could be reduced or eliminated if one or more of our competitors develop and commercialize products that are safer, more effective, better tolerated, or of greater convenience or economic benefit than our proposed product offering. Our competitors also may be in a position to obtain FDA or other regulatory approval for their products more rapidly, resulting in a stronger or dominant market position before we are able to enter the market. The key competitive factors affecting the success of all of our programs are likely to be product safety, efficacy, convenience and treatment cost.
Intellectual Property
The proprietary nature of, and protection for, our product candidates and their methods of use are an important part of our strategy to develop and commercialize novel medicines, as described in more detail below. We have obtained patents and filed patent applications in the United States and other countries relating to certain of our proprietary technology, inventions, improvements, and product candidates, and we are pursuing additional patent protection for them. We strive to protect the proprietary technologies that we believe are important to our business, including pursuing and maintaining patent protection intended to cover TH103, its methods of use, related technologies, and other inventions that are important to our business. In addition to patent protection, we also rely on trade secret to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. We will also seek to rely on regulatory protection afforded through inclusion in expedited development and review, data exclusivity, market exclusivity and patent term extensions where available.
As of March 5, 2025, we own or have an exclusive license to three live patent families. These families include 29 issued/allowed patents (4 issued U.S. patents and 25 issued/allowed foreign patents) and 33 other pending applications (3 pending U.S. non-provisional patent applications, one U.S. provisional patent application, and 29 foreign patent applications).
As of March 5, 2025, we have an exclusive license to two patent families licensed from the Regents of the University of California (“UCSD”). The first patent family includes issued patents in Australia, China, Europe (broad validation in progress), Colombia, Eurasia, Israel, Japan, Macau, and the United States and pending applications in Australia, Europe, China, Brazil, Canada, Colombia, Eurasia, Hong Kong, India, Israel, Japan, South Korea, Mexico, New Zealand, Singapore, and United States. Counting each European validation separately, this patent family gives us rights to twenty-four ex-U.S. issued/allowed patents in Europe, Australia, North America, South America, and Asia relating to TH103 that are expected to expire in 2039 (excluding patent term extension). The second patent family includes three granted U.S. cases and is also pending in Australia, Brazil, Canada, China, Eurasia, Europe, Hong Kong, Israel, Japan, South Korea, Mexico, New Zealand, Singapore, and the United States. This second family includes two issued U.S. patents (expected to expire in 2040 excluding patent term extension) with claims covering the TH103 composition of matter and corresponding methods for treating VEGF-related conditions in the eye. We solely own the third patent family, which currently consists of one U.S. provisional application that is not directed to TH103 or its use.
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Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of TH103, future product candidates, and the methods used to develop and manufacture them, as well as successfully defending any such patents against third-party challenges, preserving the confidentiality of our trade secrets, and operating without infringing on the proprietary rights of others. Our ability to stop third parties from making, using, selling, offering to sell or importing our product candidates will depend on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any patents that may be granted to us in the future will be commercially useful in protecting our product candidates, discovery programs and processes.
The terms of individual patents depend upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, including the United States, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the United States Patent and Trademark Office (“USPTO”) in examining and granting a patent or may be shortened if a patent is terminally disclaimed over an earlier filed patent. In the United States, the term of a patent that covers an FDA-approved drug may also be eligible for extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the subject drug candidate is under regulatory review. Patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to an approved drug may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. Similar provisions to extend the term of a patent that covers an approved drug are available in Europe and other foreign jurisdictions. In the future, if and when our products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We plan to seek patent term extensions to any issued patents we may obtain in any jurisdiction where such patent term extensions are available, however there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment that such extensions should be granted, and if granted, the length of such extensions.
In certain foreign jurisdictions similar extensions as compensation for regulatory delays are also available. The actual protection afforded by a patent varies on a claim by claim and country by country basis and depends upon many factors, including the type of patent, the scope of its coverage, the availability of any patent term extensions or adjustments, the availability of legal remedies in a particular country and the validity and enforceability of the patent. In particular, up to a five-year extension may be available in the Europe and Japan. We plan to seek such extensions as appropriate.
In addition to patent protection, we also rely on trade secret protection for our proprietary information that is not amenable to, or that we do not consider appropriate for, patent protection, including, for example, aspects of our manufacturing processes for TH103. However, trade secrets can be difficult to protect. Although we take steps to protect our proprietary information, including restriction to our premises and our confidential information, as well as entering into agreements with our employees, consultants, advisors, and potential collaborators, such individuals may breach such agreements and disclose our proprietary information including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. In addition, third parties may independently develop the same or similar proprietary information or may otherwise gain access to our proprietary information. As a result, we may be unable to meaningfully protect our trade secrets and proprietary information.
License Agreement with The Regents of the University of California
In April 2021, we entered into a license agreement with UCSD, which was amended in June 2022 (the “UCSD license agreement”). Pursuant to the UCSD license agreement, UCSD granted us (1) an exclusive, worldwide license, with specified rights to sublicense, under UCSD’s interest in specified patent rights related to VEGF inhibitors (the “patent rights”) to make, have made, use, sell, offer for sale, and import products (the “licensed products”) that are covered by the patent rights or that incorporate or are developed using certain technical information (the “technology”), and (2) a nonexclusive, worldwide license, with specified rights to sublicense, to use the technology. The patent rights and technology incorporate inventions made in the course of research conducted by Dr. Napoleone Ferrara and his associates at the University of California, San Diego (the “inventions”). The
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foregoing licenses are subject to rights retained by UCSD to use the inventions for educational and research purposes, publish or disseminate information about the Inventions, and allow other nonprofit institutions to use, publish or disseminate information about the Inventions for educational and research purposes. Under the UCSD license agreement, we are obligated to use commercially reasonable efforts to develop, seek and obtain regulatory approval for, sell, and fill the market demand for at least one licensed product in the United States or another specified major market, as well as to annually spend an amount in the low hundreds of thousands of dollars for the development of licensed products, until the earlier of (1) receipt of regulatory approval of a licensed product or (2) abandonment of development of the licensed product due to efficacy or safety, and to carry out a specified development plan within specified time periods. We are also obligated to use certain diligence benchmarks within specified deadlines.
We are required to pay UCSD a nominal annual license maintenance fee, which may be credited against royalties due for the calendar year. We are also required to pay UCSD milestone payments upon achievement of specified clinical and regulatory milestone events for each indication, in an amount not to exceed $4.6 million in the aggregate, and low single digit tiered royalties on annual net sales, which may be subject to reduction if we are required to pay royalties to third parties for patent rights that cover the licensed products. Our obligation to pay royalties continues on a licensed product-by-licensed product and country-by-country basis until expiration of the last to expire patent rights in such country. In addition, we must pay to UCSD a percentage of non-royalty sublicensing income we receive from sublicensees. We are obligated to pay an “assignment fee” upon a specified change of control of us based on the valuation of the change of control transaction. We also paid UCSD an upfront fee of $150,000 in connection with our entry into the UCSD license agreement and were obligated to issue shares of common stock of Legacy Kalaris equal to a percentage in the mid-single digits of outstanding equity securities of Legacy Kalaris on a fully diluted basis as of the date a specified funding threshold of Legacy Kalais was attained, as consideration for the licenses granted by UCSD. In June 2022, after the closing of Legacy Kalaris’ Series A financing, Legacy Kalaris issued 680,725 shares of its common stock to UCSD. Under the UCSD license agreement, UCSD was also granted a participation right in certain future securities offerings of Legacy Kalaris, which was exercisable for a maximum of two years following the effective date of the UCSD license agreement and which has terminated. We are also responsible for reimbursement of all expenses for the preparation, filing, prosecution, and maintenance of patents under the patent rights. To date, we have paid an aggregate of $0.1 million in milestone payments to UCSD under the UCSD license agreement.
The UCSD license agreement remains in effect until the expiration or abandonment of the last licensed patent or patent application. UCSD may terminate the UCSD license agreement for our material breach, subject to a specified cure period, or in the event we become the subject of a specified insolvency event. We may terminate the UCSD license agreement for convenience upon sixty days’ prior notice.
Government Regulation
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union (“EU”), extensively regulate, among other things, the research, development, testing, manufacture, pricing, reimbursement, sales, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products, including biological products. The processes for obtaining marketing approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources and may have a significant impact on our business.
Licensure and Regulation of Biologics in the United States
In the United States, our product candidates are regulated as biological products, or biologics, under the Public Health Service Act (“PHSA”) and the Federal Food, Drug and Cosmetic Act (“FDCA”) and its implementing regulations and guidance. A company, institution, or organization which takes responsibility for the initiation and management of a clinical development program for such products, and for their regulatory approval, is typically referred to as a sponsor. The failure of a sponsor to comply with the applicable United States requirements at any time during the product development process, including preclinical testing, clinical testing, the approval process, or post-approval process, may subject a sponsor to delays in the conduct of the study, regulatory review, and approval, and/or administrative or judicial sanctions.
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A sponsor seeking approval to market and distribute a new biologic in the United States generally must satisfactorily complete each of the following steps:
| • | preclinical laboratory tests, animal studies, and formulation studies all performed in accordance with the FDA’s Good Laboratory Practice (“GLP”) regulations and standards and other applicable regulations; |
| • | completion of the manufacture, under current Good Manufacturing Practices (“cGMP”) conditions, of the drug substance and product that the sponsor intends to use in human clinical trials along with required analytical and stability testing; |
| • | design of clinical protocol and submission to the FDA of an investigational new drug application (“IND”) for human clinical testing, which must become effective before human clinical trials may begin; |
| • | approval by an independent institutional review board (“IRB”) representing each clinical site before each clinical trial may be initiated; |
| • | performance of adequate and well-controlled human clinical trials to establish the safety, potency, and purity of the product candidate for each proposed indication, in accordance with current Good Clinical Practices (“GCP”); |
| • | preparation and submission to the FDA of a biologics license application (“BLA”), for a biologic product requesting marketing for one or more proposed indications, including submission of detailed information on the manufacture and composition of the product in clinical development and proposed labelling; |
| • | review of the product by an FDA advisory committee, where appropriate or if applicable; |
| • | satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities, including those of third parties, at which the product, or components thereof, are produced to assess compliance with cGMP requirements and to assure that the chemistry, methods, and controls (“CMC”) are adequate to preserve the product’s identity, strength, quality, and purity; |
| • | satisfactory completion of any FDA audits of the preclinical studies and clinical trial sites to assure compliance with GLP, as applicable, and GCP, and the integrity of clinical data in support of the BLA; |
| • | payment of substantial application and program fees pursuant to the Prescription Drug User Fee Act (“PDUFA”); |
| • | approval of a BLA licensing the biologic product for marketing for particular indications in the United States; and |
| • | compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy (“REMS”) and any post-approval studies or other post-marketing commitments required by the FDA. |
Preclinical Studies
Before testing any biologic product candidate in humans, the product candidate must undergo preclinical testing. Preclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate the potential for efficacy and toxicity in animals. These studies are generally referred to as IND-enabling studies. The conduct of the preclinical tests and formulation of the compounds for testing must comply with federal regulations and requirements, including GLP regulations and standards and the United States Department of Agriculture’s Animal Welfare Act, if applicable. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND application.
Investigational New Drug Application
An IND is a request for FDA authorization to administer an investigational product candidate to humans. Such authorization must be secured prior to interstate shipment and administration of any new biologic that is not the subject of an approved BLA. In support of a request for an IND, sponsors must submit a protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND.
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The FDA requires a 30-day waiting period after the filing of each IND before clinical trials may begin. This waiting period is designed to allow the FDA to review the IND to determine whether human research subjects and patients will be exposed to unreasonable health risks. The FDA’s primary objectives in reviewing an IND are to assure the safety and rights of patients and to help assure that the quality of the investigation will be adequate to permit an evaluation of the biological product’s safety, purity and potency. At any time during this 30-day period, or thereafter, the FDA may raise concerns or questions about the conduct of the trials as outlined in the IND and impose a clinical hold or partial clinical hold. Occasionally, clinical holds are imposed due to manufacturing issues that may present safety issues for the clinical study subjects.
A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of only part of the clinical protocol or protocols under the IND. For example, a specific protocol or part of a protocol is not allowed to proceed, while other protocols or parts of the protocols may do so. Following issuance of a clinical hold or partial clinical hold, an investigation may only resume after the FDA has notified the sponsor that the investigation may proceed. The FDA will base that determination on information provided by the sponsor correcting the deficiencies previously cited or otherwise demonstrating to the satisfaction of the FDA that the investigation can proceed.
In addition to the foregoing IND requirements, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the trial at least annually. The IRB must review and approve, among other things, the trial protocol and informed consent information to be provided to trial subjects. An IRB must operate in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients.
Finally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data monitoring committee (“DMC”). This group provides authorization for whether a trial may move forward at designated check points based on access that only the group maintains to available data from the trial. Suspension or termination of development during any phase of clinical trials can occur if it is determined that the participants or patients are being exposed to an unacceptable health risk or for other reasons.
Expanded Access
Expanded access, sometimes called “compassionate use,” is the use of investigational products outside of clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options. The rules and regulations related to expanded access are intended to improve access to investigational products for patients who may benefit from investigational therapies. FDA regulations allow access to investigational products under an IND by the company or the treating physician for treatment purposes on a case-by-case basis for: individual patients (single-patient IND applications for treatment in emergency settings and non-emergency settings); intermediate-size patient populations; and larger populations for use of the investigational product under a treatment protocol or treatment IND application.
When considering an IND application for expanded access to an investigational product with the purpose of treating a patient or a group of patients, the sponsor and treating physicians or investigators will determine suitability when all of the following criteria apply: patient(s) have a serious or immediately life-threatening disease or condition, and there is no comparable or satisfactory alternative therapy to diagnose, monitor, or treat the disease or condition; the potential patient benefit justifies the potential risks of the treatment and the potential risks are not unreasonable in the context or condition to be treated; and the expanded use of the investigational drug for the requested treatment will not interfere initiation, conduct, or completion of clinical investigations that could support marketing approval of the product or otherwise compromise the potential development of the product.
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There is no obligation for a sponsor to make its products available for expanded access; however, as required by the 21st Century Cures Act (the “Cures Act”), passed in 2016, if a sponsor has a policy regarding how it evaluates and responds to expanded access requests, sponsors are required to make such policies publicly available upon the earlier of initiation of a Phase 2 or Phase 3 clinical trial, or 15 days after the investigational biologic receives designation as a breakthrough therapy, fast track product, or regenerative medicine advanced therapy.
In addition to and separate from expanded access, on May 30, 2018, the Right to Try Act was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a manufacturer to make its investigational products available to eligible patients as a result of the Right to Try Act.
Human Clinical Trials
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written trial protocols detailing, among other things, the inclusion and exclusion criteria, the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated.
The clinical investigation of an investigational biological product is generally divided into three phases. Although the phases are usually conducted sequentially, they may overlap or be combined. The three phases of an investigation are as follows:
| • | Phase 1. Phase 1 studies include the initial introduction of an investigational biological product into humans. These studies are designed to evaluate the safety, dosage tolerance, metabolism and |
pharmacologic actions of the investigational biological product in humans, the side effects associated with increasing doses, and if possible, to gain early evidence on effectiveness.
| • | Phase 2. Phase 2 includes the controlled clinical trials conducted to preliminarily or further evaluate the effectiveness of the investigational biological product for a particular indication(s) in patients with the disease or condition under trial, to determine dosage tolerance and optimal dosage, and to identify possible adverse side effects and safety risks associated with the biological product. Phase 2 clinical trials are typically well-controlled, closely monitored, and conducted in a limited patient population. |
| • | Phase 3. Phase 3 clinical trials are generally controlled clinical trials conducted in an expanded patient population generally at geographically dispersed clinical trial sites. They are performed after preliminary evidence suggesting effectiveness of the biological product has been obtained, and are intended to further evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the investigational biological product, and to provide an adequate basis for product approval. |
A clinical trial may combine the elements of more than one phase and the FDA often requires more than one Phase 3 trial to support marketing approval of a product candidate. A company’s designation of a clinical trial as being of a particular phase is not necessarily indicative that the study will be sufficient to satisfy the FDA requirements of that phase because this determination cannot be made until the protocol and data have been submitted to and reviewed by the FDA. Generally, pivotal trials are Phase 3 trials, but they may be Phase 2 trials if the design provides a well-controlled and reliable assessment of clinical benefit, particularly in an area of unmet medical need.
In some cases, the FDA may approve a BLA for a product but require the sponsor to conduct additional clinical trials to further assess the product’s safety and effectiveness after approval. Such trials are typically referred to as post-approval clinical trials. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of biologics approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any post-approval clinical trial requirement or to request a change in the product labeling. The failure to exercise due diligence with regard to conducting post-approval clinical trials could result in withdrawal of approval for products.
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In December 2022, with the passage of Food and Drug Omnibus Reform Act (“FDORA”), Congress required sponsors to develop and submit a Diversity Action Plan (“DAP”) for each Phase 3 clinical trial or any other “pivotal study” of a new biological product. These plans are meant to encourage the enrollment of more diverse patient populations in late-stage clinical trials of FDA-regulated products. Specifically, action plans must include the sponsor’s goals for enrollment, the underlying rationale for those goals, and an explanation of how the sponsor intends to meet them. In June 2024, as mandated by FDORA, the FDA issued draft guidance outlining the general requirements for DAPs. Unlike most guidance documents issued by the FDA, the DAP guidance when finalized will have the force of law because FDORA specifically dictates that the form and manner for submission of DAPs are specified in FDA guidance.
In June 2023, the FDA issued draft guidance with updated recommendations for GCPs aimed at modernizing the design and conduct of clinical trials. The updates are intended to help pave the way for more efficient clinical trials to facilitate the development of medical products. The draft guidance is adopted from the International Council for Harmonisation’s (“ICH”) recently updated E6(R3) draft guideline that was developed to enable the incorporation of rapidly developing technological and methodological innovations into the clinical trial enterprise. That guideline was finalized by the ICH on January 6, 2025. In addition, the FDA issued draft guidance outlining recommendations for the implementation of decentralized clinical trials.
Sponsors of clinical trials are required to register and disclose certain clinical trial information on a public registry (clinicaltrials.gov) maintained by the National Institute of Health. In particular, information related to the product, patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is made public as part of the registration of the clinical trial. Although the FDA has historically not enforced these reporting requirements, the FDA has, as of December 19, 2024, issued six notices of non-compliance, thereby signaling the government’s willingness to begin enforcing these requirements against non-compliant clinical trial sponsors. While these notices of non-compliance did not result in civil monetary penalties, the failure to submit clinical trial information to clinicaltrials.gov is a prohibited act under the FDCA with violations subject to potential civil monetary penalties of up to $10,000 for each day the violation continues. Violations may also result in injunctions and/or criminal prosecution or disqualification from federal grants.
Clinical Studies Outside the United States
In connection with a clinical development program, a sponsor may conduct trials at sites outside the United States. When a foreign clinical study is conducted under an IND, all IND requirements must be met unless waived. When a foreign clinical study is not conducted under an IND, the sponsor must ensure that the study complies with certain regulatory requirements of the FDA in order to use the study as support for an IND or application for marketing approval. Specifically, the studies must be conducted in accordance with GCP, including undergoing review and receiving approval by an independent ethics committee (“IEC”), and seeking and receiving informed consent from subjects. GCP requirements encompass both ethical and data integrity standards for clinical studies. The FDA’s regulations are intended to help ensure the protection of human subjects enrolled in non-IND foreign clinical studies, as well as the quality and integrity of the resulting data. They further help ensure that non-IND foreign studies are conducted in a manner comparable to that required for IND studies.
The acceptance by the FDA of study data from clinical trials conducted outside the United States in support of United States approval may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the sole basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the United States population and United States medical practice; (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations; and (iii) the data may be considered valid without the need for an on-site inspection by the FDA, or if the FDA considers such inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means.
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In addition, even where the foreign study data are not intended to serve as the sole basis for approval, the FDA will not accept the data as support for an application for marketing approval unless the study is well-designed and well-conducted in accordance with GCP requirements and the FDA is able to validate the data from the study through an onsite inspection if deemed necessary. Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials are subject to the applicable local laws of the foreign jurisdictions where the trials are conducted.
FDA Meetings and Interactions
Following the clearance of an IND and the commencement of clinical trials, the sponsor will continue to have interactions with the FDA. Progress reports detailing the results of clinical trials must be submitted annually within 60 days of the anniversary dates that the IND went into effect and more frequently if serious adverse events occur. These reports must include a development safety update report (“DSUR”). In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other trials or animal or in vitro testing that suggest a significant risk in humans exposed to the product; and any clinically important increase in the occurrence of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.
In addition, sponsors are given opportunities to meet with the FDA at certain points in the clinical development program. Meetings at other times may also be requested. There are five types of meetings that occur between sponsors and the FDA. Type A meetings are those that are necessary for an otherwise stalled product development program to proceed or to address an important safety issue. Type B meetings include pre-IND and pre-BLA meetings, as well as end of phase meetings such as EOP2 meetings. A Type C meeting is any meeting other than a Type A or Type B meeting regarding the development and review of a product, including for example meetings to facilitate early consultations on the use of a biomarker as a new surrogate endpoint that has never been previously used as the primary basis for product approval in the proposed context of use. A Type D meeting is focused on a narrow set of issues, which should be limited to no more than two focused topics and should not require input from more than three disciplines or divisions. Finally, INTERACT meetings are intended for novel products and development programs that present unique challenges in the early development of an investigational product.
The FDA has indicated that its responses, as conveyed in meeting minutes and advice letters, only constitute mere recommendations and/or advice made to a sponsor and, as such, sponsors are not bound by such recommendations and/or advice. Nonetheless, from a practical perspective, a sponsor’s failure to follow the FDA’s recommendations for design of a clinical program may put the program at significant risk of failure.
Pediatric Studies
Under the Pediatric Research Equity Act of 2003 (“PREA”), a BLA or supplement thereto must contain data that are adequate to assess the safety, potency and purity of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. Sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the sponsor plans to conduct, including study objectives and design, any deferral or waiver requests, and other information required by regulation. The sponsor, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the sponsor may request an amendment to the plan at any time.
The FDA may, on its own initiative or at the request of the sponsor, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. A deferral may be granted for several reasons, including a finding that the product or therapeutic candidate is ready for approval for use in adults before pediatric trials are completed. The FDA is required to send a PREA Non-Compliance letter to sponsors who have failed to submit their pediatric assessments under PREA, have failed to seek or obtain a deferral or deferral extension or have failed to request approval for a required pediatric formulation. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation, although the FDA has taken steps to limit what it considers abuse of this statutory exemption in PREA. The FDA also maintains a list of diseases that are exempt from PREA requirements due to low prevalence of disease in the pediatric population. In May 2023, the FDA issued new draft guidance that further describes the pediatric study requirements under PREA.
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Compliance with cGMP Requirements
The FDA’s regulations require that pharmaceutical products be manufactured in specific approved facilities and in accordance with cGMPs. The cGMP regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports and returned or salvaged products. Manufacturers and others involved in the manufacture and distribution of products must also register their establishments with the FDA and certain state agencies. Both domestic and foreign manufacturing establishments must register and provide additional information to the FDA upon their initial participation in the manufacturing process.
Any product manufactured by or imported from a facility that has not registered, whether foreign or domestic, is deemed misbranded under the FDCA. Establishments may be subject to periodic unannounced inspections by government authorities to ensure compliance with cGMPs and other laws. Inspections must follow a “risk-based schedule” that may result in certain establishments being inspected more frequently. Manufacturers may also have to provide, on request, electronic or physical records regarding their establishments. Delaying, denying, limiting, or refusing inspection by the FDA may lead to a product being deemed to be adulterated. Changes to the manufacturing process, specifications or container closure system for an approved product are strictly regulated and often require prior FDA approval before being implemented. The FDA’s regulations also require, among other things, the investigation and correction of any deviations from cGMP and the imposition of reporting and documentation requirements upon the sponsor and any third-party manufacturers involved in producing the approved product.
The PREVENT Pandemics Act, which was enacted in December 2022, clarifies that foreign manufacturing establishments are subject to registration and listing requirements even if a biologic undergoes further manufacture, preparation, propagation, compounding, or processing at a separate establishment outside the United States prior to being imported or offered for import into the United States.
Submission and Filing of a BLA
The results of product candidate development, preclinical testing, and clinical trials, including negative or ambiguous results as well as positive findings, are submitted to the FDA as part of a BLA requesting a license to market the product. The BLA must contain extensive manufacturing information and detailed information on the composition of the product and proposed labeling as well as payment of a user fee. Under federal law, the submission of most BLAs is subject to an application user fee, which for federal fiscal year 2025 is $4,310,002 for an application requiring clinical data. The sponsor of a licensed BLA is also subject to an annual program fee, which for federal fiscal year 2025 is $403,889. Certain exceptions and waivers are available for some of these fees, such as an exception from the application fee for products with orphan designation and a waiver for certain small businesses.
Following submission of a BLA, the FDA has 60 days to conduct a preliminary review of the application, and it must inform the sponsor within that period of time whether the BLA is sufficiently complete to permit substantive review. In the event that FDA determines that an application does not satisfy this standard, it will issue a Refuse to File (“RTF”) determination to the sponsor. The FDA may request additional information and studies, and the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission has been accepted for filing, the FDA begins an in-depth review of the application.
The FDA reviews the application to determine, among other things, whether the proposed biologic is safe, potent and pure for its intended use. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has ten months from the filing date in which to complete its initial review of a standard application that is a new molecular entity, and six months from the filing date for an application with priority review. The review process may be extended by the FDA for three additional months to consider new information or in the case of a clarification provided by the sponsor to address an outstanding deficiency identified by the FDA following the original submission. Despite these review goals, it is not uncommon for FDA review of an application to extend beyond the PDUFA goal date.
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The FDA seeks to meet these timelines for review of an application but its ability to do so may be affected by a variety of factors. While the costs associated with review of an application are typically covered by the PDUFA user fee program, other activities, including government budget and funding levels, the ability to hire and retain key personnel and statutory, regulatory and policy changes, may impact the FDA’s review and approval of marketing applications. Average review times at the agency have fluctuated in recent years, as a result. For example, during the past decade, the U.S. government has shut down several times and certain regulatory agencies, including the FDA, have had to furlough critical employees and stop critical activities. Further, there is substantial uncertainty as to how measures currently being implemented by the new Trump Administration across the government will impact the FDA and other federal agencies with jurisdiction over biologics.
In connection with its review of an application, the FDA will typically submit information requests to the applicant and set deadlines for responses thereto. The FDA will also conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether the manufacturing processes and facilities comply with cGMPs. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to assure consistent production of the product within required specifications. The FDA also may inspect the sponsor and one or more clinical trial sites to assure compliance with IND and GCP requirements and the integrity of the clinical data submitted to the FDA. The FDA may conduct inspections of facilities involved in the preparation, conduct, or analysis of clinical and non-clinical studies submitted to the FDA as well as other persons holding study records or involved in the study process.
Moreover, the FDA will review a sponsor’s financial relationship with the principal investigators who conducted the clinical trials in support of the BLA. That is because, under certain circumstances, principal investigators at a clinical trial site may also serve as scientific advisors or consultants to a sponsor and receive compensation in connection with such services. Depending on the level of that compensation and any other financial interest a principal investigator may have in a sponsor, the sponsor may be required to report these relationships to the FDA. The FDA will then evaluate that financial relationship and determine whether it creates a conflict of interest or otherwise affects the interpretation of the trial or the integrity of the data generated at the principal investigator’s clinical trial site. If so, the FDA may exclude data from the clinical trial site in connection with its determination of safety and efficacy of the investigational product.
The FDA may also refer the application to an advisory committee for review, evaluation, and recommendation as to whether the application should be approved. In particular, the FDA may refer applications for novel biologic products or biologic products that present difficult questions of safety or efficacy to an advisory committee. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates, and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
The FDA’s Decision on a BLA
Under the PHSA, the FDA may approve a BLA if it determines that the product is safe, pure, and potent, and the facility where the product will be manufactured meets standards, including cGMP requirements, designed to ensure that it continues to be safe, pure, and potent. Specifically, the FDA must determine that the expected benefits of the proposed product outweigh its potential risks to patients. This “benefit-risk” assessment is informed by the extensive body of evidence about the proposed product in the BLA. The FDA will also consider the severity of the underlying condition and how well patients’ medical needs are addressed by currently available therapies; uncertainty about how the premarket clinical trial evidence will extrapolate to real-world use of the product in the post-market setting; and whether risk management tools are necessary to manage specific risks. On the basis of its evaluation of the application and accompanying information, the FDA may issue a complete response letter (“CRL”) or an approval letter.
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If the application is not approved, the FDA will issue a CRL, which will contain the conditions that must be met in order to secure final approval of the application, and when possible, will outline recommended actions the sponsor might take to obtain approval of the application. Sponsors that receive a CRL may submit to the FDA information that represents a complete response to the issues identified by the FDA, withdraw the application or request a hearing. The FDA will not approve an application until issues identified in the CRL have been addressed. If a CRL is issued, the sponsor will have one year to respond to the deficiencies identified by the FDA, at which time the FDA can deem the application withdrawn or, in its discretion, grant the sponsor an additional six-month extension to respond. For those seeking to challenge the FDA’s CRL decision, the FDA has indicated that sponsors may request a formal hearing on the CRL, or they may file a request for reconsideration or a request for a formal dispute resolution.
An approval letter, on the other hand, authorizes commercial marketing of the product with specific prescribing information for specific indications. The FDA may limit the approved indication(s) for use of the product. It may also require that contraindications, warnings, or precautions be included in the product labeling. In addition, the FDA may call for post-approval studies, including Phase 4 clinical trials, to further assess the product’s efficacy and/or safety after approval. The FDA may also require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, to help ensure that the benefits of the product outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use (“ETASU”).
The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.
Post-Approval Regulation
If regulatory approval for marketing of a product or new indication for an existing product is obtained, the sponsor will be required to comply with all regular post-approval regulatory requirements as well as any post-approval requirements that the FDA have imposed as part of the approval process. The sponsor will be required to report certain adverse reactions and production problems to the FDA, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling requirements. Manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP regulations, which impose certain procedural and documentation requirements upon manufacturers. Accordingly, the sponsor and its third-party manufacturers must continue to expend time, money, and effort in the areas of production and quality control to maintain compliance with cGMP regulations and other regulatory requirements.
A product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official lot release, the manufacturer must submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may in addition perform certain confirmatory tests on lots of some products before releasing the lots for distribution. Finally, the FDA will conduct laboratory research related to the safety, purity, potency, and effectiveness of pharmaceutical products.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
| • | restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; |
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| • | fines, warning letters or holds on post-approval clinical trials; |
| • | refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals; |
| • | product seizure or detention, or refusal to permit the import or export of products; or |
| • | injunctions or the imposition of civil or criminal penalties. |
Although physicians may prescribe legally available products for unapproved uses or patient populations (i.e., “off-label uses”), manufacturers may not market or promote such uses. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. In September 2021, the FDA published final regulations which describe the types of evidence that the FDA will consider in determining the intended use of a biologic. If a company is found to have promoted off-label uses, it may become subject to adverse public relations and administrative and judicial enforcement by the FDA, the Department of Justice, or the Office of the Inspector General of the Department of Health and Human Services (“HHS”), as well as state authorities. This could subject a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements that materially restrict the manner in which a company promotes or distributes drug products.
It may be permissible, under very specific, narrow conditions, for a manufacturer to engage in nonpromotional, non-misleading communication regarding off-label information, such as distributing scientific or medical journal information. Moreover, with passage of the Pre-Approval Information Exchange Act in December 2022, sponsors of products that have not been approved may proactively communicate to payors certain information about products in development to help expedite patient access upon product approval. In addition, in January 2025, the FDA published final guidance outlining its policies governing the distribution of scientific information to healthcare providers about unapproved uses of approved products. The final guidance calls for such communications to be truthful, non-misleading and scientifically sound and to include all information necessary for healthcare providers to interpret the strengths and weaknesses and validity and utility of the information about the unapproved use of the approved product. If a company engages in such communications consistent with the guidance’s recommendations, the FDA indicated that it will not treat such communications as evidence of unlawful promotion of a new intended use for the approved product.
Reference Product Exclusivity
The Biologics Price Competition and Innovation Act of 2009 (the “BPCIA”) established a regulatory scheme authorizing the FDA to approve biosimilars and interchangeable biosimilars. Under the BPCIA, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to” or “interchangeable with” a previously approved biological product or “reference product.” In order for the FDA to approve a biosimilar product, it must find that there are no clinically meaningful differences between the reference product and proposed biosimilar product in terms of safety, purity, and potency. For the FDA to approve a biosimilar product as interchangeable with a reference product, the FDA must find that the biosimilar product can be expected to produce the same clinical results as the reference product, and (for products administered multiple times) that the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date of approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the reference product was approved. Even if a product is considered to be a reference product eligible for exclusivity, another company could market a competing version of that product if the FDA approves a full BLA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products.
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There have been recent government proposals to reduce the 12-year reference product exclusivity period, but none has been enacted to date. At the same time, since passage of the BPCIA, many states have passed laws or amendments to laws, which address pharmacy practices involving biosimilar products.
Pediatric Exclusivity
Pediatric exclusivity is another type of non-patent exclusivity in the United States and for biologics, if granted, provides for the attachment of an additional six months of regulatory exclusivity to the term of any existing regulatory exclusivity, including orphan exclusivity. This six-month exclusivity may be granted if a BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity that cover the product are extended by six months.
Patent Term Restoration and Extension
In the United States, a patent claiming a new biologic product, its method of use or its method of manufacture may be eligible for a limited patent term extension under the Hatch-Waxman Act, which permits a patent extension of up to five years for patent term lost during product development and FDA regulatory review. Assuming grant of the patent for which the extension is sought, the restoration period for a patent covering a product is typically one-half the time between the effective date of the IND clearing clinical studies and the submission date of the BLA, plus the time between the submission date of the BLA and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date in the United States. Only one patent applicable to an approved product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent for which extension is sought. A patent that covers multiple products for which approval is sought can only be extended in connection with one of the approvals. The USPTO reviews and approves the application for any patent term extension in consultation with the FDA.
Healthcare Compliance
In the United States, biopharmaceutical manufacturers and their products are subject to extensive regulation at the federal and state level, such as laws intended to prevent fraud and abuse in the healthcare industry. Healthcare providers and third-party payors play a primary role in the recommendation and prescription of pharmaceutical products that are granted marketing approval. Arrangements with providers, consultants, third-party payors, and customers are subject to broadly applicable fraud and abuse, anti-kickback, false claims laws, reporting of payments to healthcare providers and patient privacy laws and regulations and other healthcare laws and regulations that may constrain our business and/or financial arrangements. Restrictions under applicable federal and state healthcare laws and regulations, including certain laws and regulations applicable only if we have marketed products, include the following:
| • | the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully offering, soliciting, receiving, or providing remuneration, directly or indirectly, to induce either the referral of an individual for, or the purchase, order, or arranging for or recommending the purchase or order of a good or service for which payment may be made under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation; |
| • | federal false claims, false statements, and civil monetary penalties laws prohibiting, among other things, any person from knowingly presenting, or causing to be presented, a false claim for payment of government funds or knowingly making, or causing to be made, a false statement to get a false claim paid. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti- Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act; |
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| • | the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which, in addition to privacy protections applicable to healthcare providers and other entities, prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; |
| • | federal laws that require pharmaceutical manufacturers to report certain calculated product prices to the government or provide certain discounts or rebates to government authorities or private entities, often as a condition of reimbursement under government healthcare programs; |
| • | federal Open Payments (or federal “sunshine” law), which requires pharmaceutical and medical device companies to monitor and report certain financial interactions with certain healthcare providers and teaching hospitals to the Centers for Medicate & Medicaid Services (“CMS”) within the HHS for re-disclosure to the public, as well as ownership and investment interests held by physicians (as defined by statute) and their immediate family members; |
| • | federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; |
| • | analogous state laws and regulations, including: state anti-kickback and false claims laws; state laws requiring pharmaceutical companies to comply with specific compliance standards, restrict financial interactions between pharmaceutical companies and healthcare providers or require pharmaceutical companies to report information related to payments to health care providers or marketing expenditures; and state laws governing privacy, security and breaches of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and |
| • | laws and regulations prohibiting bribery and corruption such as the FCPA, which, among other things, prohibits United States companies and their employees and agents from authorizing, promising, offering, or providing, directly or indirectly, corrupt or improper payments or anything else of value to foreign government officials, employees of public international organizations or foreign government-owned or affiliated entities, candidates for foreign public office, and foreign political parties or officials thereof. |
Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, exclusion from participation in federal and state health care programs, such as Medicare and Medicaid. Ensuring compliance is time consuming and costly. Similar healthcare laws and regulations exist in the European Union and other jurisdictions, including reporting requirements detailing interactions with and payments to healthcare providers and laws governing the privacy and security of personal information.
Federal and State Data Privacy and Security Laws
Under HIPAA, HHS has issued regulations to protect the privacy and security of protected health information used or disclosed by covered entities including certain healthcare providers, health plans, and healthcare clearinghouses. HIPAA also regulates standardization of data content, codes, and formats used in healthcare transactions and standardization of identifiers for health plans and providers. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”) and their regulations, including the omnibus final rule published on January 25, 2013, also imposes certain obligations on the business associates of covered entities that obtain protected health information in providing services to or on behalf of covered entities. In addition to federal privacy regulations, there are a number of state laws governing confidentiality and security of health information that are applicable to our business. In addition to possible federal civil and criminal penalties for HIPAA violations, state attorneys general are authorized to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with pursuing federal civil actions. Accordingly, state attorneys general (along with private plaintiffs) have brought civil actions seeking injunctions and damages resulting from alleged violations of HIPAA’s privacy and security rules. New laws and regulations governing privacy and security may be adopted in the future as well.
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In addition to potential enforcement by HHS, we are also potentially subject to privacy enforcement from the Federal Trade Commission (the “FTC”). The FTC has been particularly focused on the unpermitted processing of health and genetic data through its recent enforcement actions and is expanding the types of privacy violations that it interprets to be “unfair” under Section 5 of the FTC Act, as well as the types of activities it views to trigger the Health Breach Notification Rule (which the FTC also has the authority to enforce). The agency is also in the process of developing rules related to commercial surveillance and data security that may impact our business. We will need to account for the FTC’s evolving rules and guidance for proper privacy and data security practices in order to mitigate our risk for a potential enforcement action, which may be costly. If we are subject to a potential FTC enforcement action, we may be subject to a settlement order that requires us to adhere to very specific privacy and data security practices, which may impact our business. We may also be required to pay fines as part of a settlement (depending on the nature of the alleged violations). If we violate any consent order that we reach with the FTC, we may be subject to additional fines and compliance requirements. Finally, both the FTC and HHS’s enforcement priorities (as well as those of other federal regulators) may be impacted by the change in administration and new leadership. These shifts in enforcement priorities may also impact our business.
There are also increased restrictions at the federal level relating to transferring sensitive data outside of the United States to certain foreign countries. For example, in 2024, Congress passed H.B. 815, which included the Protecting Americans’ Data from Foreign Adversaries Act of 2024. This law creates certain restrictions for entities that disclose sensitive data (including potential health data) to countries such as China. Failure to comply with these rules can lead to a potential FTC enforcement action. Additionally, the Department of Justice recently finalized a rule implementing Executive Order 14117, which creates similar restrictions related to the transfer of sensitive United States data to countries such as China. These data transfer restrictions (and others that may pass in the future) may create operational challenges and legal risks for our business.
Additionally, California recently enacted legislation that has been dubbed the first “GDPR-like” law in the United States. Known as the California Consumer Privacy Act (“CCPA”), it creates new individual privacy rights for consumers (as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households. The CCPA went into effect on January 1, 2020, and requires covered companies to provide new disclosures to California consumers, provide such consumers new ways to opt-out of certain sales of personal information, and allow for a new cause of action for data breaches. The CCPA could impact our business activities depending on how it is interpreted and exemplifies the vulnerability of our business to not only cyber threats but also the evolving regulatory environment related to personal data and protected health information.
In November 2020, California voters passed a ballot initiative for the California Privacy Rights Act (the “CRPA”), which went into effect on January 1, 2023, and significantly expanded the CCPA to incorporate additional GDPR-like provisions including requiring that the use, retention, and sharing of personal information of California residents be reasonably necessary and proportionate to the purposes of collection or processing, granting additional protections for sensitive personal information, and requiring greater disclosures related to notice to residents regarding retention of information. The CPRA also created a new enforcement agency - the California Privacy Protection Agency - whose sole responsibility is to enforce the CPRA, which will further increase compliance risk. The provisions in the CPRA may apply to some of our business activities.
In addition to California, at least eighteen other states have passed comprehensive privacy laws similar to the CCPA and CPRA. These laws are either in effect or will go into effect sometime before the end of 2026. Like the CCPA and CPRA, these laws create obligations related to the processing of personal information, as well as special obligations for the processing of “sensitive” data, which includes health data in some cases. Some of the provisions of these laws may apply to our business activities. There are also states that have passed comprehensive privacy laws during the 2024 legislative sessions that will go into effect in 2025 and beyond. Other states will be considering similar laws in the future, and Congress has also been debating passing a federal privacy law. There are also states that are specifically regulating health information that may affect our business. For example, the State of Washington passed the My Health My Data Act in 2023 which specifically regulated health information that is not otherwise regulated by the HIPAA rules, and the law also has a private right of action, which further increases the relevant compliance risk. Connecticut and Nevada have also passed similar laws regulating consumer health data, and more states are considering such legislation in 2025. These laws may impact our business activities, including our identification of research subjects, relationships with business partners and ultimately the marketing and distribution of our products.
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Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available under such laws, it is possible that some of our current or future business activities, including certain clinical research, sales, and marketing practices and the provision of certain items and services to our customers, could be subject to challenge under one or more of such privacy and data security laws. The heightening compliance environment and the need to build and maintain robust and secure systems to comply with different privacy compliance and/or reporting requirements in multiple jurisdictions could increase the possibility that a healthcare company may fail to comply fully with one or more of these requirements.
Coverage, Pricing, and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we may seek regulatory approval by the FDA or other government authorities. In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use any product candidates we may develop unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of such product candidates. Even if any product candidates we may develop are approved, sales of such product candidates will depend, in part, on the extent to which third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers, and managed care organizations, provide coverage, and establish adequate reimbursement levels for, such product candidates. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity, and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the approved products for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable marketing approvals. Nonetheless, product candidates may not be considered medically necessary or cost effective. A decision by a third-party payor not to cover any product candidates we may develop could reduce physician utilization of such product candidates once approved and have a material adverse effect on our sales, results of operations and financial condition. Additionally, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor. Third-party reimbursement and coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. In addition, any companion diagnostic tests require coverage and reimbursement separate and apart from the coverage and reimbursement for their companion pharmaceutical or biological products. Similar challenges to obtaining coverage and reimbursement, applicable to pharmaceutical or biological products, will apply to any companion diagnostics.
The containment of healthcare costs also has become a priority of federal, state and foreign governments and the prices of pharmaceuticals have been a focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement, and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale of any approved products. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which a company or its collaborators receive marketing approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
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Healthcare Reform
A primary trend in the United States healthcare industry and elsewhere is cost containment. There have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement for medical products, government control and other changes to the healthcare system in the United States.
In March 2010, the United States Congress enacted the ACA, which, among other things, includes changes to the coverage and payment for products under government healthcare programs. Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, in August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2012 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of up to 2% per fiscal year, which will remain in effect through 2031 pursuant to the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).
The American Taxpayer Relief Act of 2012, which was enacted in January 2013, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers, and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used. Indeed, under current legislation, the actual reductions in Medicare payments may vary up to 4%.
Since enactment of the ACA, there have been, and continue to be, numerous legal challenges and Congressional actions to repeal and replace provisions of the law. For example, with enactment of the Tax Cuts and Jobs Act of 2017, which was signed by President Trump on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, became effective in 2019. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results.
During the first Trump Administration, the Congress and administration sought to overturn the ACA and related measures. Shortly after taking office in January 2025, President Trump revoked numerous executive orders issued by President Biden, including at least two executive orders (e.g., E.O. 14009, Strengthening Medicaid and the Affordable Care Act, and E.O. 14070, Continuing to Strengthen Americans’ Access to Affordable, Quality Health Coverage) where were designed to further implement the ACA. There may be similar efforts to undermine the ACA, and the accompanying uncertainty, for the foreseeable future.
Pharmaceutical Prices
The prices of prescription pharmaceuticals have also been the subject of considerable discussion in the United States. There have been congressional inquiries, as well as proposed and enacted state and federal legislation designed to, among other things, bring more transparency to pharmaceutical pricing, review the relationship between pricing and manufacturer patient programs, and reduce the costs of pharmaceuticals under Medicare and Medicaid.
In addition, in October 2020, HHS and the FDA published a final rule allowing states and other entities to develop a SIP to import certain prescription products from Canada into the United States. That regulation was challenged in a lawsuit by PhRMA, but the case was dismissed by a federal district court in February 2023 after the court found that PhRMA did not have standing to sue HHS. Seven states (Colorado, Florida, Maine, New Hampshire, New Mexico, Texas and Vermont) have passed laws allowing for the importation of products from Canada. North Dakota and Virginia have passed legislation establishing workgroups to examine the impact of a state importation program. As of May 2024, five states (Colorado, Florida, Maine, New Hampshire and New Mexico) had submitted Section 804 Importation Program proposals to the FDA. On January 5, 2023, the FDA approved Florida’s plan for Canadian product importation. That state now has authority to import certain products from Canada for a period of two years once certain conditions are met. Florida will first need to submit a pre-import request for each product selected for importation, which must be approved by the FDA. The state will also need to relabel the products and perform quality testing of the products to meet FDA standards.
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Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The final rule would eliminate the current safe harbor for Medicare drug rebates and create new safe harbors for beneficiary point-of-sale discounts and pharmacy benefit manager service fees. It originally was set to go into effect on January 1, 2022, but with passage of the Inflation Reduction Act of 2022 (“IRA”), it has been delayed by Congress to January 1, 2032.
On August 16, 2022, the IRA was signed into law by President Biden. The new legislation has implications for Medicare Part D, which is a program available to individuals who are entitled to Medicare Part A or enrolled in Medicare Part B to give them the option of paying a monthly premium for outpatient prescription drug coverage. Among other things, the IRA requires manufacturers of certain products to engage in price negotiations with Medicare (beginning in 2026), with prices that can be negotiated subject to a cap and it replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). In addition, the IRA established inflation rebate programs under Medicare Part B and Part D. These programs require manufacturers to pay rebates to Medicare if they raise their prices for certain Part B and Part D drugs faster than the rate of inflation. On December 9, 2024, with issuance of its 2025 Physician Fee Schedule final regulation, CMS finalized its rules governing the IRA inflation rebate programs. The IRA permits the Secretary of the Department of HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years.
Specifically, with respect to price negotiations, Congress authorized Medicare to negotiate lower prices for certain costly single-source biologic products that do not have competing generics or biosimilars and are reimbursed under Medicare Part B and Part D. CMS may negotiate prices for ten high-cost products paid for by Medicare Part D starting in 2026, followed by 15 Medicare Part D products in 2027, 15 Medicare Part B or Part D products in 2028, and 20 Medicare Part B or Part D products in 2029 and beyond. This provision applies to products that have been approved for at least 9 years and biologics that have been licensed for 13 years Further, the legislation subjects manufacturers to civil monetary penalties and a potential excise tax for failing to comply with the legislation by offering a price that is not equal to or less than the negotiated “maximum fair price” under the law or for taking price increases that exceed inflation. The legislation also requires manufacturers to pay rebates for products in Medicare Part D whose price increases exceed inflation. The new law also caps Medicare out-of-pocket costs at an estimated $4,000 a year in 2024 and, thereafter beginning in 2025, at $2,000 a year.
The IRA includes a provision, known as the orphan drug exclusion, that excludes from price negotiations those orphan drugs that have been designated for only one rare disease or condition and for which the only approved indication (or indications) is for such disease or condition. Thus, as CMS stated in final guidance in July 2023, a drug or biologic that is designated for more than one rare disease or condition will not qualify for the orphan drug exclusion, even if it is not approved for any indications for the additional diseases or conditions. Further, CMS will only consider active designations/approvals when evaluating a drug or biologic for the orphan drug exclusion. CMS has also clarified that, if a drug loses its orphan drug status, the agency will use the earliest date of approval/licensure to determine whether the product is a qualifying single source drug subject to price negotiations.
The first cycle of negotiations for the Medicare Drug Price Negotiation Program commenced in the summer of 2023. On August 15, 2024, HHS published the results of the first Medicare drug price negotiations for ten selected drugs that treat a range of conditions, including diabetes, chronic kidney disease, and rheumatoid arthritis. The prices of these ten drugs will become effective January 1, 2026. On January 17, 2025, shortly before the new administration took office, CMS announced its selection of 15 additional drugs covered by Part D for the second cycle of negotiations. There has been uncertainty about the extent to which the new administration would support the price negotiation program. Following the change in administrations, CMS issued a public statement on January 29, 2025, declaring that lowering the cost of prescription drugs is a top priority of the new administration and CMS is committed to considering opportunities to bring greater transparency in the negotiation program. The second cycle of negotiations with participating drug companies will occur during 2025, and any negotiated prices for this second set of drugs will be effective starting January 1, 2027.
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On June 6, 2023, Merck & Co. filed a lawsuit against the HHS and CMS asserting that, among other things, the IRA’s Drug Price Negotiation Program for Medicare constitutes an uncompensated taking in violation of the Fifth Amendment of the Constitution. Subsequently, a number of other parties also filed lawsuits in various courts with similar constitutional claims against the HHS and CMS. We expect that litigation involving these and other provisions of the IRA will continue, with unpredictable and uncertain results.
At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. A number of states, for example, require pharmaceutical manufacturers and other entities in the supply chain, including health carriers, pharmacy benefit managers, wholesale distributors, to disclose information about pricing of pharmaceuticals. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products, and which suppliers will be included in their prescription product and other healthcare programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures. This may be increasingly true with respect to products approved pursuant to the accelerated approval pathway. State Medicaid programs and other payers are developing strategies and implementing significant coverage barriers, or refusing to cover these products outright, arguing that accelerated approval drugs have insufficient or limited evidence despite meeting the FDA’s standards for accelerated approval.
Approval and Regulation of Medicinal Products in the European Union
In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety, and efficacy, and governing, among other things, clinical trials, marketing authorization, commercial sales, and distribution of products. Whether or not it obtains FDA approval for a product, a sponsor will need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. Specifically, the process governing approval of medicinal products in the European Union generally follows the same lines as in the United States. It entails satisfactory completion of preclinical studies and adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication. It also requires the submission to the relevant competent authorities of a marketing authorization application (“MAA”) and granting of a marketing authorization by these authorities before the product can be marketed and sold in the European Union.
Preclinical Studies
Non-clinical studies are performed to demonstrate the health or environmental safety of new chemical or biological substances. Non-clinical (pharmaco-toxicological) studies must be conducted in compliance with the principles of good laboratory practice (GLP) as set forth in EU Directive 2004/10/EC (unless otherwise justified for certain particular medicinal products - e.g., radio-pharmaceutical precursors for radio-labeling purposes). In particular, non-clinical studies, both in vitro and in vivo, must be planned, performed, monitored, recorded, reported and archived in accordance with the GLP principles, which define a set of rules and criteria for a quality system for the organizational process and the conditions for non-clinical studies. These GLP standards reflect the Organization for Economic Co-operation and Development requirements.
Clinical Trials
On January 31, 2022, the new Clinical Trials Regulation (EU) No 536/2014 (“CTR”) became effective in the EU and replaced the prior Clinical Trials Directive 2001/20/EC. The new regulation aims at simplifying and streamlining the authorization, conduct and transparency of clinical trials in the EU. Under the new coordinated procedure for the approval of clinical trials, the sponsor of a clinical trial to be conducted in more than one Member State of the European Union (“European Union Member State”) will only be required to submit a single application for approval. The submission will be made through the Clinical Trials Information System, a new clinical trials portal overseen by the European Medicines Agency (“EMA”) and available to clinical trial sponsors, competent authorities of the EU Member States and the public.
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The main characteristics of the regulation include: a streamlined application procedure via a single entry point, the “EU Portal and Database”; a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is assessed by the appointed reporting Member State, whose assessment report is submitted for review by the sponsor and all other competent authorities of all EU Member States in which an application for authorization of a clinical trial has been submitted or concerned member states. Part II is assessed separately by each concerned member state. Strict deadlines have been established for the assessment of clinical trial applications. The role of the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the concerned member state. However, overall related timelines will be defined by the Clinical Trials Regulation.
The new regulation did not change the preexisting requirement that a sponsor must obtain prior approval from the competent national authority of the European Union Member State in which the clinical trial is to be conducted. If the clinical trial is conducted in different European Union Member States, the competent authorities in each of these European Union Member States must provide their approval for the conduct of the clinical trial. Furthermore, the sponsor may only start a clinical trial at a specific study site after the applicable ethics committee has issued a favorable opinion.
As of January 31, 2025, all clinical trials (including those which are ongoing) are subject to the provisions of the CTR. The failure to transition ongoing clinical trials to the CTR can result in corrective measures under Article 77 of the CTR, including revocation of the authorization of the clinical trial or suspension of the clinical trial as well as criminal sanctions and fines under national law of EU Member States.
Parties conducting certain clinical trials must, as in the United States, post clinical trial information in the in the EU at the EudraCT website: https://eudract.ema.europa.eu.
Marketing Authorization
To obtain a marketing authorization for a product under the European Union regulatory system, a sponsor must submit an MAA, either under a centralized procedure administered by the EMA or one of the procedures administered by competent authorities in European Union Member States (decentralized procedure, national procedure, or mutual recognition procedure). A marketing authorization may be granted only to a sponsor established in the European Union. Regulation (EC) No 1901/2006 provides that prior to obtaining a marketing authorization in the European Union, a sponsor must demonstrate compliance with all measures included in an EMA-approved Pediatric Investigation Plan (“PIP”) covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver, class waiver, or a deferral for one or more of the measures included in the PIP.
The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all European Union Member States. Pursuant to Regulation (EC) No. 726/2004, the centralized procedure is compulsory for specific products, including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy products and products with a new active substance indicated for the treatment of certain diseases, including products for the treatment of cancer. For products with a new active substance indicated for the treatment of other diseases and products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional. Manufacturers must demonstrate the quality, safety, and efficacy of their products to the EMA, which provides an opinion regarding the MAA. The European Commission grants or refuses marketing authorization in light of the opinion delivered by the EMA.
Under the centralized procedure, the Committee for Medicinal Products for Human Use (“CHMP”) established at the EMA is responsible for conducting an initial assessment of a product. Under the centralized procedure in the European Union, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops when additional information or written or oral explanation is to be provided by the sponsor in response to questions of the CHMP.
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Conditional Marketing Authorization
In particular circumstances, EU legislation (Article 14-a Regulation (EC) No 726/2004 (as amended by Regulation (EU) 2019/5 and Regulation (EC) No 507/2006 on Conditional Marketing Authorizations for Medicinal Products for Human Use) enables sponsors to obtain a conditional marketing authorization prior to obtaining the comprehensive clinical data required for an application for a full marketing authorization (“MA”). Such conditional approvals may be granted for product candidates (including medicines designated as orphan medicinal products) if (1) the product candidate is intended for the treatment, prevention or medical diagnosis of seriously debilitating or life-threatening diseases; (2) the product candidate is intended to meet unmet medical needs of patients; (3) a marketing authorization may be granted prior to submission of comprehensive clinical data provided that the benefit of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required; (4) the risk-benefit balance of the product candidate is positive, and (5) it is likely that the sponsor will be in a position to provide the required comprehensive clinical trial data. A conditional MA may contain specific obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or new clinical trials and with respect to the collection of pharmacovigilance data. Conditional MAs are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions or specific obligations. The timelines for the centralized procedure described above also apply with respect to the review by the CHMP of applications for a conditional MA.
Exceptional Circumstances
An MA may also be granted “under exceptional circumstances” when the applicant can show that it is unable to provide comprehensive data on the efficacy and safety under normal conditions of use even after the product has been authorized and subject to specific procedures being introduced. This may arise in particular when the intended indications are very rare and, in the present state of scientific knowledge, it is not possible to provide comprehensive information, or when generating data may be contrary to generally accepted ethical principles. This MA is close to the conditional MA as it is reserved to medicinal products to be approved for severe diseases or unmet medical needs and the applicant does not hold the complete data set legally required for the grant of a MA. However, unlike the conditional MA, the applicant does not have to provide the missing data and will never have to. Although the MA “under exceptional circumstances” is granted definitively, the risk-benefit balance of the medicinal product is reviewed annually, and the MA is withdrawn in case the risk-benefit ratio is no longer favorable. Under these procedures, before granting the MA, the EMA or the competent authorities of the member states make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety, and efficacy. Except conditional MAs, MAs have an initial duration of five years. After these five years, the authorization may be renewed on the basis of a reevaluation of the risk-benefit balance.
Pediatric Studies
Prior to obtaining a marketing authorization in the European Union, sponsors have to demonstrate compliance with all measures included in an EMA-approved PIP covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver, a class waiver or a deferral for one or more of the measures included in the PIP. The respective requirements for all marketing authorization procedures are set forth in Regulation (EC) No 1901/2006, which is referred to as the Pediatric Regulation. This requirement also applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized. The Pediatric Committee of the EMA (“PDCO”) may grant deferrals for some medicines, allowing a company to delay development of the medicine in children until there is enough information to demonstrate its effectiveness and safety in adults. The PDCO may also grant waivers when development of a medicine in children is not needed or is not appropriate because (a) the product is likely to be ineffective or unsafe in part or all of the pediatric population; (b) the disease or condition occurs only in adult population; or (c) the product does not represent a significant therapeutic benefit over existing treatments for pediatric population. Before a marketing authorization application can be filed, or an existing marketing authorization can be amended, the EMA determines that companies actually comply with the agreed studies and measures listed in each relevant PIP.
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Periods of Authorization and Renewals
A marketing authorization is valid for five years, in principle, and it may be renewed after five years on the basis of a reevaluation of the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To that end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal period. Any authorization that is not followed by the placement of the drug on the European Union market (in the case of the centralized procedure) or on the market of the authorizing member state within three years after authorization ceases to be valid.
Regulatory Requirements after Marketing Authorization
Following approval, the holder of the marketing authorization is required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of the medicinal product. These include compliance with the European Union’s stringent pharmacovigilance or safety reporting rules, pursuant to which post-authorization studies and additional monitoring obligations can be imposed. In addition, the manufacturing of authorized products, for which a separate manufacturer’s license is mandatory, must also be conducted in strict compliance with the EMA’s good manufacturing practice requirements and comparable requirements of other regulatory bodies in the European Union, which mandate the methods, facilities, and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. Finally, the marketing and promotion of authorized products, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the European Union under Directive 2001/83EC, as amended.
Regulatory exclusivity
In the European Union, new products authorized for marketing (i.e., reference products) qualify for eight years of data exclusivity and an additional two years of market exclusivity upon marketing authorization. The data exclusivity period prevents generic sponsors from relying on the preclinical and clinical trial data contained in the dossier of the reference product when applying for a generic marketing authorization in the European Union during a period of eight years from the date on which the reference product was first authorized in the European Union. The market exclusivity period prevents a successful generic sponsor from commercializing its product in the European Union until ten years have elapsed from the initial authorization of the reference product in the European Union. The ten-year market exclusivity period can be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies.
The EU pharmaceutical legislation is currently undergoing a complete review process, in the context of the Pharmaceutical Strategy for Europe initiative, launched by the European Commission in November 2020. The European Commission’s proposal for revision of several legislative instruments related to medicinal products was published in April 2023 and includes, among other things, provisions that would potentially reduce the duration of regulatory data protection. The European Parliament requested several amendments in April 2024. At this time, the proposed revisions remain to be agreed and adopted by the European Parliament and European Council and the proposals may therefore be substantially revised before adoption, which is not anticipated before early 2026. The revisions may, however, have a significant impact on the pharmaceutical industry in the long term, if and when adopted.
Orphan Drug Designation and Exclusivity
Regulation (EC) No 141/2000 and Regulation (EC) No. 847/2000 provide that a product can be designated as an orphan drug by the European Commission if its sponsor can establish: that the product is intended for the diagnosis, prevention or treatment of (1) a life-threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the European Union when the application is made, or (2) a life-threatening, seriously debilitating or serious and chronic condition in the European Union and that without incentives it is unlikely that the marketing of the drug in the European Union would generate sufficient return to justify the necessary investment. For either of these conditions, the sponsor must demonstrate that there exists no satisfactory method of diagnosis, prevention, or treatment of the condition in question that has been authorized in the European Union or, if such method exists, the drug will be of significant benefit to those affected by that condition.
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An orphan drug designation provides a number of benefits, including fee reductions, regulatory assistance, and the possibility to apply for a centralized European Union marketing authorization. Marketing authorization for an orphan drug leads to a ten-year period of market exclusivity. During this market exclusivity period, neither the EMA nor the European Commission or the member states can accept an application or grant a marketing authorization for a “similar medicinal product.” A “similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended for the same therapeutic indication. The market exclusivity period for the authorized therapeutic indication may, however, be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan drug designation because, for example, the product is sufficiently profitable not to justify market exclusivity.
Pediatric exclusivity
If a sponsor obtains a marketing authorization in all European Union Member States, or a marketing authorization granted in the centralized procedure by the European Commission, and the trial results for the pediatric population are included in the product information, even when negative, the medicine is then eligible for an additional six-month period of qualifying patent protection through extension of the term of the Supplementary Protection Certificate (“SPC”), or alternatively a one year extension of the regulatory market exclusivity from ten to eleven years, as selected by the marketing authorization holder. Patent Term Extensions in the European Union and Other Jurisdictions
The European Union also provides for patent term extension through Supplementary Protection Certificates (“SPCs”). The rules and requirements for obtaining an SPC are similar to those in the United States. An SPC may extend the term of a patent for up to five years after its originally scheduled expiration date and can provide up to a maximum of fifteen years of marketing exclusivity for a drug. In certain circumstances, these periods may be extended for six additional months if pediatric exclusivity is obtained, which is described in detail below. Although SPCs are available throughout the European Union, sponsors must apply on a country-by-country basis. Similar patent term extension rights exist in certain other foreign jurisdictions outside the European Union.
General Data Protection Regulation
The collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the European Union, including personal health data, is subject to the European Union General Data Protection Regulation (“GDPR”), which became effective on May 25, 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the European Union, including the United States, and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. Compliance with the GDPR will be a rigorous and time-intensive process that may increase the cost of doing business or require companies to change their business practices to ensure full compliance. In July 2020, the Court of Justice of the European Union (the “CJEU”) invalidated the EU-U.S. Privacy Shield framework, one of the mechanisms used to legitimize the transfer of personal data from the European Economic Area (“EEA”) to the United States. The CJEU decision also drew into question the long-term viability of an alternative means of data transfer, the standard contractual clauses, for transfers of personal data from the EEA to the United States.
Following the CJEU decision, in October 2022, President Biden signed an executive order to implement the EU-U.S. Data Privacy Framework, which would serve as a replacement to the EU-US Privacy Shield. The European Union initiated the process to adopt an adequacy decision for the EU-U.S. Data Privacy Framework in December 2022, and the European Commission adopted the adequacy decision in July 2023. The adequacy decision permits United States companies who self-certify to the EU-U.S. Data Privacy Framework to rely on it as a valid data transfer mechanism for data transfers from the European Union to the United States. However, some privacy
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advocacy groups have already suggested that they will be challenging the EU-U.S. Data Privacy Framework. If these challenges are successful, they may not only impact the EU-U.S. Data Privacy Framework, but also further limit the viability of the standard contractual clauses and other data transfer mechanisms. The uncertainty around this issue has the potential to impact our business.
On June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union, commonly referred to as Brexit. As with other issues related to Brexit, there are open questions about how personal data will be protected in the United Kingdom and whether personal information can transfer from the European Union to the United Kingdom. Following the withdrawal of the United Kingdom from the European Union, the U.K. Data Protection Act 2018 applies to the processing of personal data that takes place in the United Kingdom and includes parallel obligations to those set forth by GDPR. While the Data Protection Act of 2018 in the United Kingdom. that “implements” and complements the GDPR has achieved Royal Assent on May 23, 2018 and is now effective in the United Kingdom, it is unclear whether transfer of data from the EEA to the United Kingdom will remain lawful under the GDPR, although these transfers currently are permitted by an adequacy decision from the European Commission. The United Kingdom government has already determined that it considers all European Union 27 and EEA member states to be adequate for the purposes of data protection, ensuring that data flows from the United Kingdom to the European Union/EEA remain unaffected. In addition, a recent decision from the European Commission appears to deem the United Kingdom as being “essentially adequate” for purposes of data transfer from the European Union to the United Kingdom, although this decision may be re-evaluated in the future. The United Kingdom and the United States have also agreed to a U.S.-UK “Data Bridge,” which functions similarly to the EU-U.S. Data Privacy Framework and provides an additional legal mechanism for companies to transfer data from the United Kingdom to the United States. In addition to the United Kingdom, Switzerland is also in the process of approving an adequacy decision in relation to the Swiss-U.S. Data Privacy Framework (which would function similarly to the EU-U.S. Data Privacy Framework and the U.S.-UK Data Bridge in relation to data transfers from Switzerland to the United States). Any changes or updates to these developments have the potential to impact our business. Reimbursement and Pricing
In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently available therapies or so-called health technology assessments, in order to obtain reimbursement or pricing approval. For example, the European Union provides options for its Member States to restrict the range of products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. Member States may approve a specific price for a product, or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the market. Other Member States allow companies to fix their own prices for products but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. Recently, many countries in the European Union have increased the amount of discounts required on pharmaceuticals and these efforts could continue as countries attempt to manage health care expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the Europe Union. The downward pressure on health care costs in general, particularly prescription products, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various Member States, and parallel trade, i.e., arbitrage between low-priced and high-priced Member States, can further reduce prices. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any products, if approved in those countries.
Healthcare Reform
In the European Union, similar political, economic, and regulatory developments to those in the United States may affect our ability to profitably commercialize our product candidates, if approved. In many countries, including those of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control and access. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of a marketing approval for a product. To obtain reimbursement or pricing approval in some countries, pharmaceutical firms may be required to conduct a clinical trial that compares the cost-effectiveness of the product to other available therapies. In addition to continuing pressure on prices and cost containment measures, legislative
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developments at the European Union or member state level may result in significant additional requirements or obstacles. The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than European Union, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most European Union member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing European Union and national regulatory burdens on those wishing to develop and market products, this could restrict or regulate post-approval activities and affect the ability of pharmaceutical companies to commercialize their products. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.
Potential reductions in prices and changes in reimbursement levels could be the result of different factors, including reference pricing used by various European Union member states, and parallel distribution and parallel trade can further reduce prices. It could also result from the application of external reference pricing mechanisms, which consist of arbitrage between low-priced and high-priced member states). There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any product candidates, if approved in those countries.
A health technology assessment (“HTA”) of medicinal products in the European Union is an essential element of the pricing and reimbursement decision-making process in a number of European Union member states. The outcome of HTA has a direct impact on the pricing and reimbursement status granted to the medicinal product. A negative HTA by a leading and recognized HTA body concerning a medicinal product could undermine the prospects to obtain reimbursement for such product not only in the European Union member state in which the negative assessment was issued, but also in other European Union member states.
In 2011, Directive 2011/24/EU was adopted at the European Union level. This Directive establishes a voluntary network of national authorities or bodies responsible for HTA in the individual European Union member states. The network facilitates and supports the exchange of scientific information concerning HTAs. Further to this, on December 13, 2021, Regulation No 2021/2282 on HTA, amending Directive 2011/24/EU, was adopted. While the Regulation entered into force in January 2022, it will only begin to apply from January 2025 onwards, with preparatory and implementation-related steps to take place in the interim. Once applicable, it will have a phased implementation depending on the concerned products. The Regulation intends to boost cooperation among European Union member states in assessing health technologies, including new medicinal products as well as certain high-risk medical devices, and provide the basis for cooperation at the European Union level for joint clinical assessments in these areas. It will permit European Union member states to use common HTA tools, methodologies, and procedures across the European Union, working together in four main areas, including joint clinical assessment of the innovative health technologies with the highest potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas. Individual European Union member states will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and reimbursement.
Brexit and the Regulatory Framework in the United Kingdom
The United Kingdom’s withdrawal from the European Union, commonly referred to as Brexit, took place on January 31, 2020. The European Union and the United Kingdom reached an agreement on their new partnership in the Trade and Cooperation Agreement, which entered into force on May 1, 2021. As of January 1, 2021, the Medicines and Healthcare Products Regulatory Agency (the “MHRA”), became responsible for supervising medicines and medical devices in Great Britain, comprising England, Scotland and Wales under domestic law, whereas Northern Ireland continues to be subject to European Union rules under the Northern Ireland Protocol, as amended by the so called Windsor Framework agreed in February 2023. As of January 1, 2025, the changes introduced by the Windsor Framework resulted in the MHRA being responsible for approving all medicinal products destined for the United Kingdom market (Great Britain and Northern Ireland), and the EMA will no longer have any role in approving medicinal products destined for Northern Ireland. The MHRA relies on the Human Medicines Regulations 2012 (SI 2012/1916) (as amended, the “HMR”), as the basis for regulating medicines. The HMR has incorporated into the domestic law the body of European Union law instruments governing medicinal products that pre-existed prior to the United Kingdom’s withdrawal from the European Union.
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As of January 1, 2024 on, a new international recognition procedure (“IRP”), applies which intends to facilitate approval of pharmaceutical products in the United Kingdom. The IRP is open to applicants that have already received an authorization for the same product from one of the MHRA’s specified Reference Regulators (“RRs”). The RRs notably include EMA and regulators in the EEA member states for approvals in the EU centralized procedure and mutual recognition procedure as well as the FDA (for product approvals granted in the U.S.). The RR assessment must have undergone a full and standalone review. RR assessments based on reliance or recognition cannot be used to support an IRP application. A CHMP positive opinion or a U.S. Army Medical Research and Development Command positive end of procedure outcome is an RR authorization for the purposes of IRP.
Employees and Human Capital Resources
As of March 5, 2025, we had fourteen employees, all of whom were full-time and eleven of whom were engaged in research and development activities. Three of our employees hold Ph.D. or M.D. degrees. None of our employees are represented by a labor union or covered under a collective bargaining agreement. We consider our relationship with our employees to be good.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.
Facilities
Kalaris’ principal facilities consist of office space. Kalaris currently leases approximately 6,371 square feet of office space in New Jersey under a lease that is expected to expire in 2031, with two options to renew, each for an additional three years. Kalaris expects to begin to occupy this office space later in 2025. Kalaris believes these facilities will be adequate for the foreseeable future and that suitable additional or substitute space will be available as and when needed.
Legal Proceedings
Since the filing of the Proxy Statement/Prospectus dated February 10, 2025, which forms a part of the Registration Statement on Form S-4 filed by AlloVir (Registration No. 333-283678) that was declared effective by the Securities and Exchange Commission on February 10, 2025, two complaints have been filed by purported AlloVir stockholders as individual actions against AlloVir (our predecessor) and the members of its Board of Directors in the Supreme Court of the State of New York, New York County, captioned Keller v. AlloVir, Inc. et al., No. 650989/2025 (N.Y. Sup. Ct. Feb. 20, 2025), and Morgan v. AlloVir, Inc. et al., No. 650965/2025 (N.Y. Sup. Ct. Feb. 19, 2025) (the “Complaints”). The Complaints allege that the Proxy Statement/Prospectus misrepresents and/or omits certain purportedly material information, and assert claims for negligent misrepresentation and concealment and negligence under New York common law. Additionally, multiple purported AlloVir stockholders have sent demand letters alleging insufficiencies in the disclosures in the Proxy Statement/Prospectus under state law and the federal securities laws, including Section 14(a) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Rule 14a-9 promulgated thereunder, and Section 20(a) of the Exchange Act (such letters, the “Demands” and collectively with the Complaints, the “Litigation Matters”). The Litigation Matters seek various remedies including, among other things, an order enjoining the consummation of the merger, requiring the defendants to file an amended Proxy Statement/Prospectus, rescinding the merger in the event it is consummated or granting rescissory damages, and awarding costs, including plaintiff’s attorneys’ fees and experts’ fees, and other relief the court may deem just and proper. AlloVir and Legacy Kalaris deny the allegations in the Litigation Matters and deny that any further disclosure beyond that already contained in the Proxy Statement/Prospectus is required under applicable law.
44
Exhibit 99.4
KALARIS’ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of Kalaris’ financial condition and results of operations together with Kalaris’ financial statements and related notes included elsewhere in this Current Report on Form 8-K. This discussion and other parts of this Current Report on Form 8-K contain forward-looking statements that involve risks and uncertainties, such as Kalaris’ plans, objectives, expectations, intentions, and beliefs. Kalaris’ actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this Current Report on Form 8-K.
Overview
Kalaris Therapeutics, Inc. (“Kalaris”) is a clinical stage biopharmaceutical company focused on developing and commercializing innovative therapeutics aimed at becoming the standard of care for prevalent retinal diseases for which there is a major unmet medical need.
Kalaris is developing TH103, a novel, clinical stage anti-vascular endothelial growth factor (“VEGF”) drug, engineered to potentially provide longer lasting and increased anti-VEGF activity in patients with exudative and neovascular retinal diseases. TH103 is a fully humanized recombinant fusion protein, functioning as a “decoy receptor” (a VEGF trap), leveraging salient molecular properties of the human body’s native, highest affinity VEGF receptor 1. In head-to-head preclinical studies, TH103 showed more anti-VEGF activity and longer duration of activity compared to aflibercept, the current market-leading anti-VEGF agent, which also functions as a decoy receptor VEGF trap but differs from TH103 in key molecular elements.
Kalaris is enrolling an open label Phase 1 clinical trial of TH103 in patients with neovascular Age-related Macular Degeneration (“nAMD”), a leading cause of blindness in the United States and Europe that affected an estimated 1.6 million adults in the United States in 2023, and Kalaris expects to report initial clinical data from Part 1 of the Phase 1 clinical trial in the third quarter of 2025. Kalaris also plans to expand the development of TH103 beyond nAMD into other prevalent VEGF-mediated retinal diseases, such as Diabetic Macular Edema (“DME”), diabetic retinopathy (“DR”), and Retinal Vein Occlusion (“RVO”).
Since its inception in September 2019, Kalaris has devoted substantially all of its resources to organizing and staffing, business planning, raising capital, acquiring its technology, establishing its intellectual property portfolio and performing research and development of its product candidate. Kalaris does not have any products approved for sale and has not generated any revenue from product sales or otherwise. Kalaris has incurred significant losses and negative cash flows from operations since its inception. Kalaris’ net losses were $69.2 million and $14.7 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, Kalaris had an accumulated deficit of $116.6 million.
Through December 31, 2024, Kalaris has funded its operations primarily from sales of its redeemable convertible preferred stock, issuances of convertible promissory notes and a simple agreement for future equity (“SAFE”) and received gross proceeds of $60.0 million from such sales. In October 2024, Kalaris entered into a convertible note purchase agreement with Samsara BioCapital L.P. (“Samsara”) to issue to Samsara and other investors who subsequently joined the agreement up to $25.0 million of convertible promissory notes with a maturity date of May 31, 2025 (the “Convertible Note Financing”). In October and November 2024, Kalaris received $10.0 million from the initial closings of the Convertible Note Financing. Under the Merger Agreement (as defined below), Kalaris was permitted to issue additional convertible promissory notes pursuant to the Convertible Note Financing or otherwise to fund its operations prior to the closing of the Merger (as defined below) in an amount not to exceed $15.0 million in the aggregate on a to be converted post-money basis, with up to $7.5 million to be provided by AlloVir, Inc. (“AlloVir”) and up to $7.5 million to be provided by existing Kalaris stockholders (the “Additional Permitted Bridge Financing”). In January 2025, as part of the first tranche of the Additional Permitted Bridge Financing, Kalaris issued a convertible promissory note in an aggregate principal amount of up to $7.5 million to AlloVir under which AlloVir funded a principal amount of $3.75 million, and Kalaris issued convertible promissory notes in an aggregate principal amount of $3.75 million to existing Kalaris stockholders. No additional tranches of the convertible notes financing closed prior to the closing of the Merger. Immediately prior to
the closing of the Merger, Kalaris’ outstanding convertible promissory notes held by its existing stockholders were converted into shares of Kalaris’ common stock or shares of Kalaris’ Series B-2 Preferred Stock that were then converted into shares of Kalaris’ common stock, which, at the effective time of the Merger, were converted into the right to receive shares of AlloVir’s common stock calculated in accordance with the Exchange Ratio (as defined below). Immediately prior to the closing of the Merger, Kalaris’ outstanding convertible promissory note issued to AlloVir was cancelled.
As of December 31, 2024, Kalaris had $1.6 million in cash and cash equivalents. Based on its current operating plans, Kalaris’ management expects that its cash and cash equivalents as of December 31, 2024, together with the funding received in January 2025 related to issued convertible promissory notes and AlloVir’s cash and cash equivalents of approximately $106.0 million as of the closing date of the Merger, will be sufficient to fund its operating expenses and capital expenditure requirements into the fourth quarter of 2026. However, Kalaris has based these estimates on assumptions that may prove to be wrong, and its operating plans may change as a result of many factors currently unknown to Kalaris. In addition, changing circumstances could cause Kalaris to consume capital significantly faster than it currently anticipates, and Kalaris may need to spend more than currently expected because of circumstances beyond its control. As a result, Kalaris could deplete its capital resources sooner than it currently expects.
Kalaris expects to continue to incur substantial losses for the foreseeable future, including costs associated with operating as a public company. Kalaris does not expect to generate any revenue from commercial product sales unless and until Kalaris successfully completes development and obtains regulatory approval for its product candidate. Its ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of its product candidate, which may never occur. Kalaris may never achieve or maintain profitability. Accordingly, Kalaris will need to obtain substantial additional funding in connection with its continuing operations.
Kalaris anticipates that its expenses will increase substantially if and as Kalaris:
| • | conducts its ongoing Phase 1 clinical trial of TH103 in patients with nAMD; |
| • | continues to progress the development of TH103 in future preclinical studies and clinical trials; |
| • | advances any future product candidate that Kalaris may develop into preclinical and clinical development; |
| • | maintains, expands, enforces and protects its intellectual property portfolio; |
| • | seeks regulatory and marketing approvals for TH103 and any other product candidate that successfully completes clinical trials; |
| • | seeks to identify and maintain additional collaborations and license agreements, and the success of those collaborations and license agreements; |
| • | makes any payments under its existing or future strategic collaboration agreements, licensing agreements or sponsored research agreements, including with the University of California, San Diego (“UCSD”); |
| • | ultimately establishes a sales, marketing and distribution infrastructure to commercialize any product candidate for which it may obtain marketing approval; |
| • | generates revenue from commercial sales of product candidates that it may receive marketing approval; |
| • | hires additional clinical, regulatory, manufacturing, quality control, development and scientific personnel; |
| • | in-licenses or acquires additional technologies or product candidates; |
| • | establishes a commercial manufacturing source and secures supply chain capacity sufficient to provide commercial quantities of any product candidates it may develop for which it obtains regulatory approval; and |
| • | add operational, financial and management information systems and personnel, including personnel to support its product development and planned future commercialization efforts and its operations as a public company. |
Kalaris does not currently own or operate any drug development or manufacturing facilities. Kalaris relies on Contract Development and Manufacturing Organizations (“CDMOs”) to help develop and to produce TH103 in accordance with the U.S. Food and Drug Administration’s (“FDA”) current Good Manufacturing Practices regulations for use in its clinical trials. Kalaris uses external contract research organizations (“CROs”) to conduct its preclinical studies and clinical trials.
Given its stage of development, Kalaris does not yet have a marketing or sales organization or commercial infrastructure. Accordingly, if Kalaris obtains regulatory approval for its product candidate, it also expects to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution.
Because of the numerous risks and uncertainties associated with product development, Kalaris management is unable to predict the timing or amount of increased expenses or when or if it will be able to achieve or maintain profitability, if at all. Even if Kalaris is able to generate revenue from the sale of its product candidate, it may not achieve or maintain profitability. If Kalaris fails to become profitable or is unable to sustain profitability on a continuing basis, Kalaris may be unable to continue its operations at planned levels and may be forced to reduce its operations.
Merger with AlloVir
In November 2024, Kalaris entered into an Agreement and Plan of Merger (the “Merger Agreement”) with AlloVir and Aurora Merger Sub, Inc., a wholly owned subsidiary of AlloVir. On March 12, 2025, the Merger was approved by AlloVir’s stockholders and it was closed on March 18, 2025. Pursuant to the Merger Agreement, at the closing of the merger, Aurora Merger Sub, Inc. merged with and into Kalaris, with Kalaris continuing as a wholly owned subsidiary of AlloVir (the “Merger”). Upon completion of the Merger, AlloVir changed its name to Kalaris Therapeutics, Inc.
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), all issued and outstanding shares of Kalaris’ common stock (including common stock issued upon conversion of Kalaris’ preferred stock and outstanding convertible promissory notes) converted into the right to receive 0.2016 shares of AlloVir’s common stock calculated in accordance with an exchange ratio equal to 1:0.2016 (the “Exchange Ratio”). Each award of restricted shares of Kalaris’ common stock that was unvested and outstanding was converted into and became exchangeable for the right to receive a number of restricted shares of AlloVir common stock based on the Exchange Ratio. Each outstanding option to purchase shares of Kalaris’ common stock under Kalaris’ 2019 Equity Incentive Plan, whether or not vested, was converted into an option to acquire a number of shares of AlloVir’s common stock based on the Exchange Ratio. Exercise prices of assumed options were determined as the product of the exercise price immediately prior to the Effective Time multiplied by the reciprocal of the Exchange Ratio, and rounding up to the nearest whole cent. There were no changes to any other terms of such options or restricted share awards. Immediately following the Merger, stockholders of Kalaris owned approximately 74.47% of the outstanding common stock of the combined company on a fully diluted basis.
The Merger will be accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States (“GAAP”). Under this method of accounting, Kalaris is deemed to be the accounting acquirer for financial reporting purposes. Accordingly, for accounting purposes, the Merger will be treated as the equivalent of Kalaris issuing stock to acquire the net assets of AlloVir. As a result of the Merger, the net assets of AlloVir will be recorded at their acquisition-date fair value in the financial statements of Kalaris.
License Agreement with the University of California, San Diego
In April 2021, Kalaris entered into a license agreement with UCSD (as amended, the “UCSD Agreement”) pursuant to which Kalaris obtained (i) an exclusive license under the patent rights to make, use, sell, offer for sale, and import licensed products and (ii) a non-exclusive license to use the technology with a right to sublicense, each (i) and (ii) related to new anti-VEGF agents and novel long-acting VEGF inhibitors for intraocular neovascularization for the treatment of patients with retinal pathologies. As partial consideration for the license, Kalaris agreed to pay UCSD $0.2 million and was obligated to issue shares of its common stock to UCSD equal to 5% of the fully diluted issued and outstanding securities of Kalaris until such time as an aggregate of $5.0 million in gross proceeds from the sale of equity securities had been raised by Kalaris. In June 2022, after the closing of the Series A financing, Kalaris issued 680,725 shares of its common stock to UCSD. Kalaris was also obligated to pay $0.1 million of patent costs incurred prior to the effective date and is required to reimburse future patent expenses incurred by UCSD during the term of the UCSD Agreement. Under the UCSD Agreement, Kalaris is required to make annual license maintenance payments of $10,000 during the first four anniversaries and $15,000 on the fifth and every subsequent anniversary of the effective date. Kalaris is obligated to pay an aggregate of up to $4.6 million upon the achievement of various development and regulatory milestones and low single-digit royalties on net sales
of licensed products. The royalty is payable, on a licensed product-by-licensed product and country-by country basis, until expiration of the last-to-expire issued patent of the applicable licensed product in the country of sale or the manufacture. If Kalaris enters into a sublicensing agreement, it is required to pay UCSD a sublicense fee as a percentage of the fair market value of any sublicense received that is not earned royalties for each sublicense granted. The sublicense fee percentage ranges from 50% if the applicable sublicense agreement is entered into within one year from the UCSD Agreement effective date and decreases to 10% if the applicable sublicense agreement is entered into after the first dosing of a patient for a phase 2 clinical trial.
Per the UCSD Agreement, UCSD also had a right to purchase up to 10% of the securities issued in each round of equity financing on the same terms and conditions as were offered to other investors. UCSD did not participate in any equity financing, and the participation right expired in April 2023.
In case of a closing of a merger, or sale of at least 50% of the voting stock of Kalaris or the sale by Kalaris of all or substantially all of its assets (collectively referred to as “Liquidity Event”), Kalaris is obligated to make a one-time cash milestone payment to UCSD ranging from $0.1 million to $1.0 million based on the valuation of Kalaris’ outstanding shares at the Liquidity Event closing date. The Merger did not meet the definition of the Liquidity Event.
The UCSD Agreement is effective until the expiration date of the longest-lived patent rights or last to be abandoned patent or future patent of the licensed products, whichever is later. Kalaris can terminate the agreement upon 60 days written notice. UCSD can terminate the agreement in the event of an uncured material breach, such as a failure to make payments due, or to perform or a violation of any other material term of the UCSD Agreement, is not cured by Kalaris within 60 days after a breach written notice provided by UCSD.
The acquisition of the license under the UCSD Agreement, including patent rights and know-how, was accounted for as an asset acquisition. As the acquired technology did not have an alternative use for accounting purposes, Kalaris recognized the $0.2 million initial cash consideration, $0.1 million patent reimbursement costs incurred prior to the effective date and $0.2 million related to the obligation to issue shares of Kalaris’ common stock as research and development expenses upon entering into the UCSD Agreement in April 2021. The obligation to issue shares of common stock included two components, the initial shares obligation and the additional shares obligation. The fair value of the initial shares obligation was estimated as $0.1 million based on the fair value of 275,000 shares of common stock, which represented 5% of the outstanding fully diluted equity at the effective date. As the initial share obligation was indexed to Kalaris’ own stock, it was recorded as additional paid-in capital. The additional shares obligation was accounted for when the next round of financing closed in March 2022. Kalaris estimated the fair value of an additional 405,725 shares of common stock as $0.2 million and recognized it as research and development expenses and additional paid-in capital in March 2022. Kalaris concluded that the contingent payment upon the closing of the Liquidity Event was a derivative liability and estimated its fair value as zero at the inception date, at December 31, 2024 and 2023, as the probability of such a Liquidity Event at each date was estimated to be zero. Kalaris recognized $10,000 related to the license maintenance annual fees as research and development expenses in each of the years ended December 31, 2024 and 2023. Kalaris recognized $0.1 million related to the patent reimbursement costs as general and administrative expenses for each of the years ended December 31, 2024 and 2023. As of December 31, 2023, Kalaris recorded $0.2 million as accrued expenses and other current liabilities related to the initial consideration, which was paid in May 2024. No related liability was recorded as of December 31, 2024. Kalaris made a payment of $0.1 million in connection with its achievement of the first development milestone related to the dosing of the first patient in its Phase 1 clinical trial in August 2024, which was recorded as research and development expense in the statement of operations and comprehensive loss for the year ended December 31, 2024. No other milestones were achieved or probable as of December 31, 2024 and 2023.
Royalty Agreement with Samsara - Related Party
In July 2024, Kalaris entered into a royalty agreement (the “Royalty Agreement’) with Samsara. Under the Royalty Agreement, Kalaris redeemed 50,000 shares of its common stock issued to Samsara under a founder’s restricted stock purchase agreement in exchange for Kalaris’ agreement to pay Samsara a low single digit percentage tiered royalty on net sales, if any, of Kalaris’ products developed using the technology licensed under the UCSD Agreement. Such royalties are payable on a product-by-product and country-by-country basis until the later of (i) ten years after the first commercial sale of such product in such country and (ii) the expiration of the last-to-expire issued claim of Kalaris’ patents for such product in such country.
Kalaris identified two elements in the Royalty Agreement: repurchased shares, and future royalty payments to Samsara. The repurchase of shares was accounted at an estimated fair value of $32,000 as a reduction of common stock and additional paid in capital in the balance sheet and the statement of redeemable convertible preferred stock and shareholders’ deficit. Kalaris recorded $32.1 million as a long-term liability related to the obligation to make royalty payments to Samsara. The fair value of the royalty obligation was estimated using a risk-adjusted net present value model, based on the contractual royalty rates applied to the future net sales forecast, adjusted by the probability of success of product development and discounted to the effective date of the Royalty Agreement. The excess of the royalty liability over the fair value of the redeemed shares of $32.0 million was recorded as a research and development expense.
Once royalty payments to Samsara are deemed probable and estimable, and if such amounts exceed the initially recorded royalty obligation balance, Kalaris will impute interest to accrete the liability on a prospective basis based on such estimates. If and when Kalaris makes royalty payments under the Royalty Agreement, the royalty obligation balance will be reduced. As of December 31, 2024, royalty payments were not probable and estimable and, therefore, for the year ended December 31, 2024, no interest expense was recognized for the royalty liability.
Financial Operations Overview
Operating Expenses
Kalaris’ operating expenses consist of research and development expenses and general and administrative expenses.
Research and Development Expenses
The largest component of Kalaris’ total operating expenses since inception has been research and development activities, including preclinical development of its product candidate. Research and development costs are expensed as incurred.
External research and development costs include:
| • | costs associated with acquiring technology and intellectual property licenses that have no alternative future uses, milestone payments and annual license maintenance fees under its licensing agreements; |
| • | costs incurred under agreements with third-party CDMOs, CROs and other third parties that conduct preclinical and clinical activities on Kalaris’ behalf and manufacture its product candidate; |
| • | consulting fees associated with Kalaris’ research and development activities; |
| • | costs related to compliance with regulatory requirements; and |
| • | other costs associated with its research and development programs. |
Internal research and development costs include:
| • | employee-related costs, including salaries, benefits, travel and meals expenses, and stock-based compensation expense for Kalaris’ research and development personnel; and |
| • | allocated overhead costs, including software and other miscellaneous expenses incurred in connection with its research and development programs. |
Costs for certain development activities are recognized based on Kalaris management’s evaluation of the progress to completion of specific tasks using information and data provided by its vendors and third-party service providers. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense when the goods have been delivered or the services have been performed, or when it is no longer expected that the goods will
be delivered or the services rendered. Upfront payments under license agreements are expensed upon receipt of the license, and annual maintenance fees under license agreements are expensed in the period in which they are incurred. Milestone payments under license agreements are accrued, with a corresponding expense being recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable. Research and development expenses incurred from inception relate to the development of its lead product candidate, TH103.
Kalaris expects its research and development expenses to increase substantially for the foreseeable future as Kalaris advances its product candidate through clinical trials, pursues regulatory approval of its product candidate and expands the indications for its product candidate. The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for Kalaris’ product candidate may be affected by a variety of factors, including the timing and progress of clinical development activities, its ability to successfully complete clinical trials with safety, potency and purity profiles that are satisfactory to the FDA or any comparable foreign regulatory authority, its ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, its product candidate; its ability to establish and maintain agreements with third-party manufacturers for clinical supply for its clinical trials and commercial manufacturing, if its product candidate is approved; the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder; its ability to obtain and maintain patent, trade secret and other intellectual property protection and its ability to commercialize products, if and when approved, whether alone or in collaboration with others. Kalaris may never receive regulatory approval for its product candidate. As a result of the uncertainties discussed above, Kalaris management is unable to determine the duration and completion costs of its research and development activities or if, when and to what extent Kalaris will generate revenue from the commercialization and sale of its product candidate, if approved.
General and Administrative Expenses
General and administrative expenses consist primarily of payroll and personnel-related expenses, including salaries, employee benefit costs and stock-based compensation expense. General and administrative expenses also include professional fees for legal, consulting, accounting and tax services, as well as allocated overheads, including information technology costs, and other general operating expenses not otherwise classified as research and development expenses.
Kalaris anticipates that its general and administrative expenses will increase as a result of increased personnel costs, including salaries, benefits and stock-based compensation expense. Additionally, following the Merger, Kalaris expects that it will incur significant additional expenses associated with being a public company, including expanded infrastructure and higher consulting, legal and accounting services, investor relations costs and director and officer insurance premiums.
Change in fair value of derivative liabilities
Change in fair value of derivative liabilities represents gains or losses from the remeasurement of the derivative liabilities embedded in the convertible promissory notes issued to Samsara and other investors at the end of each reporting period until settlement or extinguishment.
Interest expense
Interest expense represents non-cash interest expense accrued on issued and outstanding convertible promissory notes issued to Samsara and other investors.
Change in fair value of tranche liability
Change in fair value of tranche liability represents gains or losses from the remeasurement of tranche liability related to the investors’ rights to receive additional convertible promissory notes in subsequent tranches of the Convertible Note Financing with a predetermined conversion price. The tranche liability is remeasured at fair value at the end of each reporting period until the tranche liability is exercised or expires.
Loss on issuance and on extinguishment of convertible promissory notes
Loss on issuance and on extinguishment of convertible promissory notes represents loss upon the issuance of convertible promissory notes to Samsara and other investors accounted at fair value and loss from extinguishment of convertible promissory notes upon their conversion into redeemable convertible preferred stock.
Other income, net
Other income, net includes primarily interest income received from money market investments and bank deposits, and foreign currency gains (losses).
Results of Operations
Comparison of the Years Ended December 31, 2024 and 2023
The following table summarizes Kalaris’ results of operations for the periods presented (in thousands):
| Year Ended December 31, |
Change | |||||||||||
| 2024 | 2023 | $ | ||||||||||
| Operating expenses |
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| Research and development |
$ | 45,042 | $ | 11,707 | $ | 33,335 | ||||||
| General and administrative |
6,690 | 1,757 | 4,933 | |||||||||
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|
|
|
|
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| Total operating expenses |
51,732 | 13,464 | 38,268 | |||||||||
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|
|
|
|
|
|
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| Loss from operations |
(51,732 | ) | (13,464 | ) | (38,268 | ) | ||||||
| Other expense: |
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| Change in fair value of derivative liabilities |
2,084 | 307 | 1,777 | |||||||||
| Change in fair value of tranche liability |
21,012 | — | 21,012 | |||||||||
| Interest expense |
(2,701 | ) | (687 | ) | (2,014 | ) | ||||||
| Loss on issuance and on extinguishment of convertible promissory notes |
(38,018 | ) | (892 | ) | (37,126 | ) | ||||||
| Other income, net |
188 | 37 | 151 | |||||||||
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|
|
|
|
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| Total other expense, net |
(17,435 | ) | (1,235 | ) | (16,200 | ) | ||||||
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| Net loss |
$ | (69,167 | ) | $ | (14,699 | ) | (54,468 | ) | ||||
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Research and Development Expenses
The following table summarizes Kalaris’ research and development expenses for the periods presented (in thousands):
| Year Ended December 31, |
Change | |||||||||||
| 2024 | 2023 | $ | ||||||||||
| External costs |
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| License fees, milestone payments and annual maintenance fees related to acquired technologies |
$ | 32,099 | $ | 50 | $ | 32,049 | ||||||
| CDMO, CRO and other third-party preclinical studies, clinical trials and consulting costs |
10,324 | 10,285 | 39 | |||||||||
| Lab supplies and other external research and development costs |
27 | 4 | 23 | |||||||||
| Internal costs |
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| Personnel related costs |
2,490 | 1,282 | 1,208 | |||||||||
| Other expense |
102 | 86 | 16 | |||||||||
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|
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|
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| Total research and development expenses |
$ | 45,042 | $ | 11,707 | $ | 33,335 | ||||||
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Research and development expenses increased by $33.3 million, from $11.7 million for the year ended December 31, 2023, to $45.0 million for the year ended December 31, 2024. In 2024, license fees, milestone payments and annual maintenance fees included estimated fair value of future royalties of $32.1 million related to the Royalty Agreement with Samsara. CDMO, CRO and other third-party preclinical studies, clinical trials and consulting costs increased by less than $0.1 million and was $10.3 million for the years ended December 31, 2024 and December 31, 2023. CRO expenses increased by $2.9 million during the year ended December 31, 2024 as Kalaris initiated its Phase 1 clinical trial in June 2024. CDMO and other third-party preclinical studies and consulting costs decreased by a total of $2.9 million, or $1.5 million and $1.4 million, respectively, during the year ended December 31, 2024 due to the timing of manufacturing development activities and a lower spend on preclinical animal studies during the year ended December 31, 2024 as compared to the year ended December 31, 2023, as Kalaris entered the clinical stage of development in June 2024.
Personnel related expenses increased by $1.2 million, from $1.3 million for the year ended December 31, 2023, to $2.5 million for the year ended December 31, 2024, due to hiring in Kalaris’ research and development organization during the year resulting in higher salaries and benefits expenses, including annual bonuses.
General and Administrative Expenses
General and administrative expenses increased by $4.9 million, from $1.8 million for the year ended December 31, 2023 to $6.7 million for the year ended December 31, 2024. Personnel related expenses increased by $1.1 million during the year ended December 31, 2024 as additional executives were hired during 2024. Legal, accounting and other professional services expenses increased by $3.1 million as Kalaris expended more resources to prepare for the proposed Merger, including audit preparation and audit fees, as well as legal fees. Other general and administrative expenses increased by $0.7 million during the year ended December 31, 2024 as Kalaris invested in its corporate infrastructure and supporting activities for its operations.
Change in fair value of derivative liabilities
Kalaris recognized $2.1 million and $0.3 million for the years ended December 31, 2024 and 2023, respectively, related to the changes in the fair value of derivative liabilities embedded into convertible promissory notes issued to Samsara and other investors. Kalaris estimated the fair value of the derivative liabilities embedded in the convertible promissory notes using a with-and-without scenario analysis. Refer to Note 4, Fair Value Measurements and Fair Value of Financial Instruments, in Kalaris’ financial statements included elsewhere in this Current Report on Form 8-K for additional details.
Change in fair value of tranche liability
Kalaris recognized $21.0 million for the year ended December 31, 2024, related to the changes in the fair value of tranche liability. The convertible promissory notes issued in the Convertible Note Financing in October and November 2024 and amended in November 2024 included three subsequent tranches for the issuance of convertible promissory notes at the predetermined conversion price that were concluded to be liabilities and are accounted for at fair value until the tranches’ expiration or settlement. On January 10, 2025, Kalaris modified the subsequent tranche amounts and the conversion provision. As this modification was known as of December 31, 2024, it resulted in a $21.0 million change in the estimated fair value of the tranche liability. The fair value of the tranche liability is estimated using a probability weighted scenario analysis discounted to the current period. Refer to Note 4, Fair Value Measurements and Fair Value of Financial Instruments, in Kalaris’ financial statements included elsewhere in this Current Report on Form 8-K for additional details.
Loss on issuance and on extinguishment of convertible promissory notes
Kalaris recognized $38.0 million and $0.9 million for the years ended December 31, 2024 and 2023, respectively of loss on issuance and on extinguishment of convertible promissory notes issued to Samsara and other investors. Kalaris recognized $38.0 million of loss of issuance on the convertible promissory notes for the year ended December 31, 2024, which related to the difference between the fair value at the issuance date of the applicable note together with tranche liability and the cash proceeds amount of such note. Kalaris recognized $0.9 million of the premium on issuance of convertible promissory notes for the year ended December 31, 2023, which
related to the difference between the fair value at the issuance date of the applicable note and the principal amount of such note. Kalaris did not extinguish any notes for the year ended December 31, 2024. Kalaris recognized less than $0.1 million of extinguishment loss of convertible promissory notes for the year ended December 31, 2023, related to the conversion of convertible promissory notes into shares of Kalaris’ Series B-1 redeemable convertible preferred stock in October 2023. Refer to Note 6, Convertible Promissory Notes and SAFE Agreements, in Kalaris’ financial statements included elsewhere in this Current Report on Form 8-K for additional details.
Interest expense
Kalaris recognized $2.7 million and $0.7 million for the years ended December 31, 2024 and 2023, respectively, of interest expense, which includes the accrued contractual interest and amortization of debt discount related to issued and outstanding convertible promissory notes to Samsara and other investors. Refer to Note 6, Convertible Promissory Notes and SAFE Agreements, in Kalaris’ financial statements included elsewhere in this Current Report on Form 8-K, for additional details.
Liquidity and Capital Resources
Sources of Liquidity
Since its inception, Kalaris has not generated any revenue from product sales and has incurred significant operating losses and negative cash flows from its operations. From inception, Kalaris has primarily funded its operations from sales of its redeemable convertible preferred stock, issuances of convertible promissory notes and the SAFE. As of December 31, 2024, Kalaris had $1.6 million in cash and cash equivalents. In January 2025, as part of the first tranche of the Additional Permitted Bridge Financing, Kalaris issued a convertible promissory note in an aggregate principal amount of up to $7.5 million to AlloVir under which AlloVir funded a principal amount of $3.75 million, and Kalaris issued convertible promissory notes in an aggregate principal amount of $3.75 million to existing Kalaris stockholders. Immediately prior to the closing of the Merger, Kalaris’ outstanding convertible promissory notes held by its existing stockholders were converted into shares of Kalaris’ common stock or shares of Kalaris’ Series B-2 Preferred Stock that were then converted into shares of Kalaris’ common stock, which, at the Effective Time, were converted into the right to receive shares of AlloVir’s common stock calculated in accordance with the Exchange Ratio. Immediately prior to the closing of the Merger, Kalaris’ outstanding convertible promissory note issued to AlloVir was cancelled. In March 2025, Kalaris received approximately $106.0 million of AlloVir’s cash and cash equivalents in connection with the closing of the Merger.
Funding Requirements
Kalaris’ primary uses of cash are to fund its operations, which consist primarily of research and development expenditures related to the development of its lead product candidate, TH103, and, to a lesser extent, general and administrative expenditures. Kalaris expects to continue to incur significant and increasing expenses for the foreseeable future as it continues to advance TH103, expand its corporate infrastructure, further its research and development initiatives and incur costs associated with the potential commercialization activities. Conducting preclinical testing and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and Kalaris may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, TH103, if approved, may not achieve commercial success. Kalaris’ commercial revenues, if any, will be derived from sales of a product that it does not expect to be commercially available for several years, if ever. Accordingly, Kalaris will need to obtain substantial additional funds to achieve its business objectives.
Kalaris has incurred significant losses and negative cash flows from operations since its inception. As of December 31, 2024, Kalaris had an accumulated deficit of $116.6 million. Based on its current operating plans, Kalaris management has determined that its existing cash and cash equivalents. together with the funding received in connection with the issuance of convertible promissory notes in the first tranche of the Additional Permitted Bridge Financing and the receipt of AlloVir’s cash and cash equivalents of $106.0 as of the closing date of the Merger, will be sufficient to fund its operating expenses and capital expenditure requirements into the fourth quarter of 2026. However, Kalaris has based these estimates on assumptions that may prove to be wrong, and its operating plans may change as a result of many factors currently unknown to Kalaris. In addition, changing circumstances could cause Kalaris to consume capital significantly faster than it currently anticipates, and Kalaris may need to spend more than currently expected because of circumstances beyond its control. As a result, Kalaris could deplete its capital resources sooner than it currently expects.
This forecast of cash resources and planned operations involves risks and uncertainties, and the actual amount of expenses could vary materially as a result of a number of factors. Because of the numerous risks and uncertainties associated with product development, and because the extent to which Kalaris may enter into collaborations with third parties for the development of TH103 is unknown, Kalaris may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of TH103. Kalaris future funding requirements will depend on many factors, including, but not limited to, the following:
| • | the timing, scope, progress and results of its preclinical studies and clinical trials for its current and future product candidates; |
| • | the number, scope and duration of clinical trials required for regulatory approval of its current and future product candidates; |
| • | the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities for its product candidates, including any requirement to conduct more studies or generate additional data; |
| • | the cost of manufacturing clinical and commercial supplies, as well as scale-up of Kalaris current and future product candidates; |
| • | the potential increase in the number of Kalaris employees and the acquisition and expansion of physical facilities to support growth initiatives; |
| • | Kalaris’ ability to maintain existing, and establish new, strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement; |
| • | the cost of filing and prosecuting its patent applications, and maintaining and enforcing Kalaris patents and other intellectual property rights; |
| • | the extent to which Kalaris acquires or in-license other product candidates and technologies; |
| • | the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against Kalaris’ product candidates; |
| • | the effect of competing technological and market developments; |
| • | the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of Kalaris’ product candidates for which it receives marketing approval; |
| • | the amount of revenue, if any, received from commercial sales of TH103 or any future product candidates, should any product candidates receive marketing approval; |
| • | Kalaris implementation of various computerized informational systems and efforts to enhance operational systems; |
| • | the costs associated with being a public company; and |
| • | the impact of inflation, as well as other factors, including economic uncertainty and geopolitical tensions, which may exacerbate the magnitude of the factors discussed above. |
Until such time as Kalaris can generate significant revenue from product sales, if ever, Kalaris expects to finance its operations through a combination of public or private equity offerings or debt financings, or potentially other capital sources, such as collaboration or licensing arrangements with third parties or other strategic transactions. There are no assurances that Kalaris will be successful in obtaining an adequate level of financing to support its business plans when needed on acceptable terms, or at all. To the extent that Kalaris raises additional capital through the sale of equity or convertible debt securities, the ownership interest of its stockholders could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of Kalaris’ common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting Kalaris’ ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If Kalaris raises additional funds through collaboration or
licensing arrangements with third parties or other strategic transactions, Kalaris may have to relinquish rights to its intellectual property, future revenue streams, research programs, or product candidates, or Kalaris may have to grant licenses on terms that may not be favorable to Kalaris. If Kalaris is unable to raise capital as and when needed or on attractive terms, or at all, it may have to significantly delay, reduce or discontinue the development or future commercialization of TH103 or any future product candidate.
Cash Flows
The following table summarizes primary sources and uses of cash for the periods presented (in thousands):
| Year Ended December 31, |
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| 2024 | 2023 | |||||||
| Net cash used in operating activities |
$ | (20,670 | ) | $ | (14,132 | ) | ||
| Net cash provided by financing activities |
19,140 | 14,242 | ||||||
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| Net increase (decrease) in cash and cash equivalents |
$ | (1,530 | ) | $ | 110 | |||
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Operating Activities
Net cash used in operating activities was $20.7 million and $14.1 million for the years ended December 31, 2024 and 2023, respectively.
Cash used in operating activities for the year ended December 31, 2024, was primarily due to a net loss of $69.2 million, reduced by non-cash charges of $50.6 million and increased by net changes of $2.1 million in the net operating assets and liabilities. Non-cash changes primarily consist of a $32.0 million royalty obligation expense recognized in connection with the Royalty Agreement with Samsara, a $(21.0) million change in fair value of tranche liability, a $0.9 million stock-based compensation expense, a $(2.1) million change in fair value of derivative liabilities, loss on issuance and on extinguishment of convertible promissory notes of $38.0 million and a non-cash interest expense of $2.7 million. The change in net operating assets and liabilities was primarily due to a decrease in accounts payable of $1.0 million due to the timing of receipts and payments of invoices from vendors, an increase in prepaid expenses and other current and non-current assets of $1.2 million and a decrease in accrued expenses and other current liabilities of $0.1 million, offset by an increase in accrued research and development expenses of $0.1 million and an increase in accrued compensation of $0.1 million.
Cash used in operating activities for the year ended December 31, 2023, was primarily due to a net loss of $14.7 million, reduced by non-cash charges of $1.7 million and increased by net changes of $1.1 million in the net operating assets and liabilities. Non-cash changes primarily consist of loss on issuance and on extinguishment of convertible promissory notes - related party of $0.9 million, a non-cash interest expense - related party of $0.7 million, a $0.2 million capital contribution by in-kind services provided by Samsara and a $0.1 million stock-based compensation expense, partially off-set by a $0.3 million change in fair value of derivative liabilities - related party. The change in net operating assets and liabilities was primarily due to a decrease in accrued research and development expenses of $1.7 million and a decrease in accounts payable of $0.4 million due to the timing of payments and receipt of invoices from vendors, off-set by a decrease in prepaid expenses and other current assets of $0.7 million, an increase in accrued compensation of $0.2 million and an increase in accrued expenses and other current liabilities of $0.1 million.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2024, was $19.1 million, which consisted of $20.0 million net cash proceeds from the issuance of convertible promissory notes and $1.6 million from the issuance of redeemable convertible preferred stock to Samsara and other investors, offset by payment of deferred transaction costs of $2.4 million in connection with the Merger.
Net cash provided by financing activities for the year ended December 31, 2023, was $14.2 million, which consisted of $6.7 million net cash proceeds from the issuance of redeemable convertible preferred stock to existing and new investors, and $6.0 million from the issuance of convertible promissory notes and $1.5 million from the issuance of the SAFE to Samsara.
Contractual and Other Obligations
Kalaris enters into contracts in the normal course of business with CDMOs for clinical supply manufacturing, with CROs for clinical trials and with other vendors for preclinical studies, supplies and other products and services for operating purposes. These agreements generally provide for termination at the request of either party generally with less than one-year notice and, therefore, Kalaris management believes that non-cancellable obligations under these agreements are not material. Kalaris does not currently expect any of these agreements to be terminated and did not have any significant non-cancellable obligations under these agreements as of December 31, 2024 and 2023.
Kalaris is required to pay certain milestone payments contingent upon the achievement of specific development and regulatory events in accordance with the UCSD Agreement. Refer to Note 5 to the Kalaris financial statements included elsewhere in this Current Report on Form 8-K for additional details. Kalaris achieved the first development milestone under the UCSD Agreement in August 2024 and recognized an expense of $0.1 million as research and development expense in the statement of operations and comprehensive loss for the year ended December 31, 2024. No other milestones were achieved or probable as of December 31, 2024 and 2023. Kalaris is required to pay royalties on sales of products developed under the UCSD Agreement. Kalaris’ product candidate was in development as of December 31, 2024 and 2023, and no such royalties were due.
Kalaris is obligated to pay royalties to Samsara under the Royalty Agreement. Refer to Note 5 to the Kalaris financial statements included elsewhere in this Current Report on Form 8-K for additional details. Kalaris recognized an initial royalty liability in the amount of $32.1 million, which was based on its estimated fair value at the effective date of the Royalty Agreement. Once royalty payments to Samsara are deemed probable and estimable, and if such amounts exceed the royalty liability balance, Kalaris will impute interest to accrete the royalty liability on a prospective basis based on such estimates. As of December 31, 2024, these royalties were not probable and estimable.
On February 4, 2025, Kalaris entered into an agreement to lease office space in Berkley Heights, New Jersey. The term of the lease is 76 months with total estimated rent payments of $2.1 million and rent-free period for the first four months. In addition to the base rent, Kalaris will pay its share of operating expenses and taxes. Kalaris can extend the lease term twice for an additional three years and it can terminate the lease after four years and four months after the lease commencement date with a termination penalty of $0.3 million. The lessor provided Kalaris with a tenant improvement allowance of up to $0.4 million for Kalaris’ leasehold improvements. In conjunction with signing the lease, Kalaris secured a letter of credit in favor of the lessor in the amount of $0.5 million, which will be reduced to $0.2 million over five years.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact on the financial position, results of operations or cash flows is disclosed in Note 2 to Kalaris’ financial statements included elsewhere in this Current Report on Form 8-K.
Critical Accounting Estimates
Kalaris’ management’s discussion and analysis of its financial condition and results of operations is based on the Kalaris financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. On an ongoing basis, Kalaris management evaluates its estimates and judgments, including, but not limited to, those related to the accrual of research and development expenses, the fair value of royalty obligation, the fair value of convertible promissory notes, the fair value of derivative liabilities, the fair value of common stock and preferred stock, and stock-based compensation. These estimates and assumptions are monitored and analyzed by Kalaris management for changes in facts and
circumstances, and material changes in these estimates and assumptions could occur in the future. Kalaris management’s estimates are based on its historical experience and on various other factors that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions.
Although significant accounting policies are described in more detail in Note 2 to the Kalaris financial statements included elsewhere in this Current Report on Form 8-K, Kalaris management believes that the following accounting estimates are those most critical to the judgments and estimates used in the preparation of Kalaris’ financial statements.
Research and Development Expenses
Research and development expenses are charged to expense as incurred. Research and development expenses include certain payroll and personnel expenses, license fees, laboratory supplies, consulting costs, external contract research and development expenses and allocated overhead costs, including software and other miscellaneous expenses incurred in connection with its research and development programs.
Kalaris estimates manufacturing and product development costs, preclinical study and clinical trial and other research and development expenses based on the services performed. Kalaris has entered into various agreements with outsourced vendors, contract development and manufacturing organizations and clinical research organizations. The financial terms of these contracts are subject to negotiation, which vary by contract and may result in payments that do not match the periods over which materials or services are provided. Generally, these agreements set forth the scope of work to be performed at a fixed fee, unit price or on a time and materials basis. Kalaris records the estimated costs of research and development activities based on the level of services performed, the progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development services provided, but not yet invoiced, are included in accrued expenses on the balance sheets. Advance payments for goods or services for future research and development activities are deferred as prepaid expenses and are expensed as the goods are delivered or the related services are performed. Kalaris makes these estimates based on facts and circumstances known at that time. If the actual timing of the performance of services or the level of effort varies from the original estimates, Kalaris will adjust the accrual accordingly. Amounts ultimately incurred in relation to amounts accrued for these services at a reporting date may be substantially higher or lower than Kalaris’ estimates. To date, there have been no material differences between estimates of such expenses and the amounts actually incurred.
Convertible Promissory Notes
Tranche Liability
The convertible promissory notes issued in the Convertible Note Financing in October and November 2024 contained subsequent tranches to require investors to provide additional financing upon a written notice of Kalaris. The investors’ right to receive additional convertible promissory notes in subsequent tranches of the Convertible Note Financing with a predetermined conversion price was concluded to be a freestanding financial instrument that is required to be accounted for separately as a liability at fair value. Kalaris estimated the fair value of the tranche liability at inception and remeasures it at the end of each reporting period until the tranche liability expires or is settled. The changes in the fair value are recorded as a change in fair value of tranche liability in the statements of operations and comprehensive loss. Kalaris estimates the fair value of the tranche liability using a probability weighted model, which considers as inputs the timing of issuing convertible notes and notes conversion, probabilities of conversion scenarios, the estimated fair value of Kalaris’ shares into which the note is convertible and a discount rate. A significant change in probabilities of conversion scenarios and changes in the estimated conversion price will significantly change the estimated fair value of the tranche liability. Kalaris recognized $21.3 million as a tranche liability at the issuance dates in October and November 2024 and recognized a gain of $21.0 million as the change in fair value of the tranche liability for the year ended December 31, 2024. The decrease in fair value was a result of the modification of the subsequent tranche amounts in January 2025 and the parties agreeing to convert tranches at a price per share equal to Kalaris’ value per share, as defined in the Merger Agreement. At the closing of the Merger, in March 2025, all subsequent tranches of the Convertible Notes Financing that were not funded prior to the closing were cancelled.
Derivative Liabilities
The convertible promissory notes contained embedded features that provided the noteholder with multiple settlement alternatives. Certain of these settlement features provided the noteholder the right to receive cash or a variable number of shares upon a change in control or the completion of a capital raising transaction by Kalaris (the “redemption features”).
The redemption features of the convertible promissory notes met the requirements for separate accounting and were accounted for as compound derivative instruments recorded as a liability at fair value at inception and were subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recorded as a change in fair value of derivative liabilities - related party in the statements of operations and other comprehensive loss. Derivative liabilities were classified in the balance sheets as current or non-current consistent with the classification of the respective convertible promissory notes they were related to. Kalaris estimates the fair value of the derivative liabilities embedded in the convertible promissory notes using a with-and-without scenario analysis, which involves valuing the whole instrument on an as-is basis and then valuing the instrument without the embedded derivative. The difference between the entire instrument with the embedded derivatives compared to the instrument without the embedded derivatives is the fair value of the derivative liabilities. A significant increase in probabilities of a qualified financing or redemption scenario, a change of control scenario and a decrease in a discount rate would significantly increase the estimated fair value of derivative liabilities.
Royalty Obligation - Related Party
In July 2024, Kalaris entered into the Royalty Agreement with Samsara. Under the Royalty Agreement, Kalaris redeemed 50,000 shares of its own common stock with a fair value of $32,000 from Samsara. In return, Kalaris is obligated to pay Samsara royalties on a product-by-product and country-by-country basis at low single-digit royalty rates on future net product sales. At the effective date of the agreement, Kalaris recognized its obligation to make future royalty payments to Samsara at estimated fair value as a liability on the balance sheet and as a research and development expense in the statement of operations and comprehensive loss. Once royalty payments to Samsara are deemed probable and estimable, and if such amounts exceed the royalty liability balance recognized at the effective date of the agreement, Kalaris will impute interest to accrete the royalty liability on a prospective basis based on such estimates. The fair value of the royalty obligation at the effective date of the Royalty Agreement was estimated using a risk-adjusted net present value model, based on the contractual royalty rates applied to the future net sales forecast, adjusted by the probability of success of product development and discounted to the effective date of the Royalty Agreement. Significant changes to any of the following assumptions would significantly impact the estimated liability amount: future timing and amounts of net product revenues, estimated probabilities of success based on a stage of product development and the discount rate.
Stock-Based Compensation Expense
Kalaris measures stock-based awards made to employees and non-employees based on the estimated fair value of the awards as of the grant date using the Black-Scholes option-pricing model. The model requires management to make a number of assumptions including common stock fair value, expected volatility, expected term, risk-free interest rate and expected dividend yield.
Fair Value of Common Stock. See the subsection titled “Determination of Fair Value of Common Stock” below.
Expected Volatility - Expected volatility is estimated by studying the volatility of the prices of shares of common stock of comparable public companies for similar terms. Kalaris will continue to apply this process until enough historical information regarding the volatility of Kalaris’ stock price becomes available.
Expected Term - Expected term represents the period that Kalaris’ stock-based awards are expected to be outstanding and is determined using the simplified method.
Risk-Free Interest Rate - The risk-free interest rate is based on the U.S. Treasury zero-coupon bonds issued in effect at the time of grant for periods corresponding with the expected term of the option.
Expected Dividend - The Black-Scholes valuation model calls for a single expected dividend yield as an input. To date, Kalaris has not declared or paid any dividends and it does not expect to declare or pay any dividends in the future.
Significant changes in estimated fair value of common stock, expected volatility and expected term would significantly impact recognized stock-based compensation expense amounts. The intrinsic value of all outstanding stock options as of December 31, 2024 was approximately $20.2 million, based on the fair value of $3.71 per share of Kalaris common stock, of which approximately $3.7 million related to vested stock options, and approximately $16.5 million related to unvested stock options.
Determination of Fair Value of Common Stock
The estimated fair value of Kalaris common stock underlying its stock-based awards has been determined by Kalaris’ board of directors as of each option grant date with input from management, considering Kalaris’ most recently available third-party valuations of common stock and Kalaris’ board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately- Held-Company Equity Securities Issued as Compensation (the “Practice Aid”).
Prior to December 31, 2023, Kalaris management determined the Option Pricing Method (“OPM”) method, primarily the OPM backsolve methodology, was the most appropriate method for determining the fair value of Kalaris common stock based on its stage of development and other relevant factors. Within the OPM framework, the backsolve method for inferring the total equity value implied by a recent financing transaction involves the construction of an allocation model that takes into account Kalaris’ capital structure and the rights, preferences and privileges of each class of stock, then assumes reasonable inputs for the other OPM variables (expected time to liquidity, volatility, and risk-free rate). The total equity value is then iterated in the model until the model output value for the equity class sold in a recent financing round equals the price paid in that round. The OPM is generally utilized when specific future liquidity events are difficult to forecast (i.e., the enterprise has many choices and options available), and the enterprise’s value depends on how well it follows an uncharted path through the various possible opportunities and challenges. In determining the estimated fair value of the common stock, the board of directors also considered that the stockholders could not freely trade the common stock in the public markets. Accordingly, Kalaris management applied discounts to reflect the lack of marketability of its common stock based on the weighted-average expected time to liquidity. The estimated fair value of the common stock at each grant date reflected a non-marketability discount partially based on the anticipated likelihood and timing of a future liquidity event.
For valuations performed after December 31, 2023 in accordance with the Practice Aid, Kalaris utilized the hybrid method for determining the fair value of Kalaris common stock based on its stage of development and other relevant factors. The hybrid method is a probability-weighted expected return method (“PWERM”), where the equity value in one or more scenarios is calculated using an OPM. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for Kalaris, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock.
In addition to considering the results of independent third-party valuations, Kalaris’ board of directors considered various objective and subjective factors to determine the fair value of common stock as of each grant date, including:
| • | the prices at which Kalaris sold shares of its preferred stock and the superior rights, preferences and privileges of Kalaris’ preferred stock relative to those of its common stock at the time of each grant; |
| • | the progress of Kalaris’ research and development activities, including the status of preclinical studies and clinical trials; |
| • | the stage of Kalaris’ development and its business strategy, and material risks related to its business; |
| • | external market conditions affecting the biotechnology industry and trends within the biotechnology industry; |
| • | the competitive landscape for Kalaris; |
| • | Kalaris’ financial position, including cash on hand, and its historical and forecasted performance and operating results; |
| • | the lack of an active public market for Kalaris’ common stock and its redeemable convertible preferred stock; |
| • | the likelihood of achieving a liquidity event, such as an initial public offering or a sale of Kalaris, given prevailing market conditions; and |
| • | general economic conditions. |
The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. As a result, if Kalaris had used significantly different assumptions or estimates, the fair value of its common stock and Kalaris’ stock-based compensation expense could be materially different.
Following the completion of the Merger, it is no longer necessary for Kalaris’ board of directors to estimate the fair value of Kalaris’ common stock in connection with its accounting for granted stock options and other equity awards Kalaris may grant, as the fair value of its common stock will be based on the quoted market price of its common stock.
Internal Control Over Financial Reporting
Kalaris has identified material weaknesses in its internal control over financial reporting as of December 31, 2024. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements would not be prevented or detected on a timely basis.
Kalaris did not fully maintain components of the Committee of Sponsoring Organizations of the Treadway Commission framework, including elements of the control environment, risk assessment, monitoring activities, information and communication, and control activities components, relating to: (i) Kalaris’ commitment to attract, develop, and retain competent individuals; (ii) identifying, assessing, and communicating appropriate internal control objectives, (iii) identifying and analyzing risks to achieve these objectives; (iv) selecting, developing, and performing ongoing evaluations to ascertain whether the components of internal controls are present and functioning; (v) communicating accurate information internally and externally, including providing information pursuant to objectives, responsibilities, and functions of internal control; (vi) selecting and developing control activities that contribute to the mitigation of risks and support achievement of objectives and (vii) deploying control activities through policies that establish what is expected and procedures that put policies into action.
These material weaknesses could result in a misstatement of substantially all of Kalaris’ accounts or disclosures that would result in a material misstatement of Kalaris’ annual or interim financial statements that would not be prevented or detected.
To remediate these material weaknesses, Kalaris is actively recruiting additional accounting personnel with appropriate experience, certification, education and training. Following the closing of the Merger, AlloVir’s Chief Accounting Officer will serve as the Chief Accounting Officer of the combined company, and AlloVir’s Assistant Controller will serve as the Controller of the combined company. Kalaris is in the process of implementing additional measures and risk assessment procedures designed to improve Kalaris’ disclosure controls and procedures and internal control over financial reporting to address the underlying causes of these material weaknesses, including the implementation of appropriate segregation of duties, formalization of accounting policies and controls, and implementation of accounting systems to automate manual processes. Kalaris plans to engage financial consultants to assist with the implementation of internal controls over financial reporting and is actively recruiting an audit committee financial expert. To the extent that Kalaris is not able to hire and retain such individuals or is unable to successfully design and implement such controls, the material weaknesses identified may not be remediated and management may be required to record additional adjustments to its financial statements in the future or otherwise not be able to produce timely or accurate financial statements. The material weaknesses will not be considered remediated until management completes the design and implementation of the measures described above, the controls operate for a sufficient period of time, and management has concluded, through testing, that these controls are effective. These remediation measures will be time-consuming and require financial and operational resources. Kalaris’ failure to implement and maintain effective internal control over financial reporting could result in errors in its financial statements that may lead to a restatement of its financial statements or cause it to fail to meet its reporting obligations.
Emerging Growth Company Status
Kalaris will be an emerging growth company, as defined in the Jumpstart Our Business Startup Act (“JOBS Act”), and it may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the initial public offering of AlloVir’s common stock. For so long as Kalaris remains an emerging growth company, Kalaris is permitted and intends to rely on certain exemptions from various public company disclosure and reporting requirements, including not being required to have its internal control over financial reporting audited by its independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. In particular, Kalaris has provided only two years of audited financial statements and has not included all of the executive compensation-related information that would be required if Kalaris was not an emerging growth company. Accordingly, the information contained herein may not be comparable with the information stockholders receive from other public companies in which they may hold stock.
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Prior to the Merger, AlloVir has elected to use, and Kalaris intends to continue to use, this extended transition period for complying with certain or new or revised accounting standards until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of AlloVir’s initial public offering, (b) in which Kalaris has total annual gross revenue of at least $1.235 billion, or (c) in which Kalaris is deemed to be a large accelerated filer, which means the market value of its common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, (ii) the date on which Kalaris has issued more than $1.0 billion in non-convertible debt during the prior three-year period, or (iii) if Kalaris affirmatively and irrevocably opts out of the extended transition period provided by the JOBS Act.
Kalaris will also be a “smaller reporting company” because the market value of AlloVir’s stock held by non-affiliates was less than $700.0 million and its annual revenue was less than $100.0 million during the most recently completed fiscal year. Kalaris may continue to be a smaller reporting company if either (i) the market value of its stock held by non-affiliates is less than $250.0 million or (ii) its annual revenue was less than $100.0 million during the most recently completed fiscal year and the market value of its stock held by non-affiliates is less than $700.0 million. If Kalaris is a smaller reporting company at the time it ceases to be an emerging growth company, Kalaris may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company Kalaris may choose to present only the two most recent fiscal years of audited financial statements in its Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Exhibit 99.5
Kalaris Therapeutics, Inc.
INDEX TO FINANCIAL STATEMENTS
| Audited Financial Statements for the Years Ended December 31, 2024 and 2023: |
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| Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) |
F-1 | |||
| Balance Sheets as of December 31, 2024 and 2023 |
F-2 | |||
| Statements of Operations and Comprehensive Loss for the years ended December 31, 2024 and 2023 |
F-3 | |||
| Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit for the years ended December 31, 2024 and 2023 |
F-4 | |||
| Statements of Cash Flows for the years ended December 31, 2024 and 2023 |
F-5 | |||
| Notes to Financial Statements |
F-6 | |||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Kalaris Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Kalaris Therapeutics, Inc. (the “Company”) as of December 31, 2024 and 2023, the related statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ deficit, and cash flows, for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
San Francisco, California
March 18, 2025
We have served as the Company’s auditor since 2024.
F-1
Kalaris Therapeutics, Inc.
Balance Sheets
(in thousands, except share and per share data)
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Assets |
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| Current assets |
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| Cash and cash equivalents |
$ | 1,639 | $ | 3,169 | ||||
| Prepaid expenses and other current assets |
967 | 164 | ||||||
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| Total current assets |
2,606 | 3,333 | ||||||
| Deferred transaction costs |
3,146 | — | ||||||
| Other non-current assets |
410 | — | ||||||
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| Total assets |
$ | 6,162 | $ | 3,333 | ||||
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| Liabilities, redeemable convertible preferred stock and stockholders’ deficit |
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| Current liabilities |
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| Accounts payable |
$ | 1,560 | $ | 2,362 | ||||
| Accrued research and development expenses |
659 | 522 | ||||||
| Accrued compensation |
591 | 466 | ||||||
| Accrued expenses and other current liabilities ($85 and $13 due to a related party) |
945 | 592 | ||||||
| Convertible promissory notes, net of discount of $1,298 ($18,670 for a related party) |
19,541 | — | ||||||
| Derivative liabilities ($995 for a related party) |
1,042 | — | ||||||
| Tranche liability ($331 for a related party) |
365 | — | ||||||
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| Total current liabilities |
24,703 | 3,942 | ||||||
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| Royalty obligation - related party |
32,076 | — | ||||||
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| Total liabilities |
56,779 | 3,942 | ||||||
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| Commitments and contingencies (Note 7) |
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| Redeemable convertible preferred stock, $0.00001 par value, 75,151,340 and 43,151,340 shares authorized as of December 31, 2024 and 2023, respectively; 43,151,340 and 41,871,340 shares issued and outstanding as of December 31, 2024 and 2023, respectively; liquidation preference of $45,151 and $43,551 as of December 31, 2024 and 2023, respectively |
45,999 | 44,408 | ||||||
| Stockholders’ deficit |
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| Common stock, $0.00001 par value; 86,000,000 and 54,000,000 shares authorized as of December 31, 2024 and 2023, respectively; 6,728,346 and 6,758,346 shares issued and outstanding as of December 31, 2024 and 2023, respectively |
— | — | ||||||
| Additional paid-in capital |
19,945 | 2,377 | ||||||
| Accumulated deficit |
(116,561 | ) | (47,394 | ) | ||||
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| Total stockholders’ deficit |
(96,616 | ) | (45,017 | ) | ||||
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| Total liabilities, redeemable convertible preferred stock and stockholders’ deficit |
$ | 6,162 | $ | 3,333 | ||||
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The accompanying notes are an integral part of these financial statements.
F-2
Kalaris Therapeutics, Inc.
Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
| Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating expenses |
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| Research and development (including $32,128 and $190 for a related party) |
$ | 45,042 | $ | 11,707 | ||||
| General and administrative (including $230 and $148 for a related party) |
6,690 | 1,757 | ||||||
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| Total operating expenses |
51,732 | 13,464 | ||||||
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| Loss from operations |
(51,732 | ) | (13,464 | ) | ||||
| Change in fair value of tranche liability (including $19,064 for a related party) |
21,012 | — | ||||||
| Change in fair value of derivative liabilities (including $2,039 and $307 for a related party) |
2,084 | 307 | ||||||
| Interest expense (including $2,656 and $687 for a related party) |
(2,701 | ) | (687 | ) | ||||
| Loss on issuance and on extinguishment of convertible promissory notes (including $34,692 and $892 for a related party) |
(38,018 | ) | (892 | ) | ||||
| Other income, net |
188 | 37 | ||||||
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| Total other expense, net |
(17,435 | ) | (1,235 | ) | ||||
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| Net loss and comprehensive loss |
$ | (69,167 | ) | $ | (14,699 | ) | ||
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| Net loss per share attributable to common stockholders, basic and diluted |
$ | (10.44 | ) | $ | (2.42 | ) | ||
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| Weighted-average shares outstanding, basic and diluted |
6,626,624 | 6,069,234 | ||||||
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The accompanying notes are an integral part of these financial statements.
F-3
Kalaris Therapeutics, Inc.
Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit
(in thousands, except share data)
| Redeemable Convertible Preferred Stock |
Common Stock | Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Deficit |
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| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
| Balance at December 31, 2022 |
25,194,245 | $ | 24,965 | 6,758,346 | $ | — | $ | 2,423 | $ | (32,695 | ) | $ | (30,272 | ) | ||||||||||||||
| Issuance of Series B-1 redeemable convertible preferred stock upon conversion of related party convertible promissory notes |
9,957,095 | 11,222 | — | — | (1,321 | ) | — | (1,321 | ) | |||||||||||||||||||
| Issuance of Series B-2 redeemable convertible preferred stock, net of issuance costs of $179 |
5,520,000 | 6,721 | — | — | — | — | — | |||||||||||||||||||||
| Issuance of Series B-2 redeemable convertible preferred stock upon conversion of related party simple agreement for future equity |
1,200,000 | 1,500 | — | — | — | — | — | |||||||||||||||||||||
| Capital contributions - in-kind services - related party |
— | — | — | — | 239 | — | 239 | |||||||||||||||||||||
| Premium on issuance of convertible promissory notes - related party |
— | — | — | — | 886 | — | 886 | |||||||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | 148 | — | 148 | |||||||||||||||||||||
| Vesting of restricted stock awards |
— | — | — | — | 2 | — | 2 | |||||||||||||||||||||
| Net loss |
— | — | — | — | — | (14,699 | ) | (14,699 | ) | |||||||||||||||||||
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| Balance at December 31, 2023 |
41,871,340 | $ | 44,408 | 6,758,346 | $ | — | $ | 2,377 | $ | (47,394 | ) | $ | (45,017 | ) | ||||||||||||||
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| Issuance of Series B-2 redeemable convertible preferred stock, net of issuance costs of $9 |
1,280,000 | 1,591 | — | — | — | — | — | |||||||||||||||||||||
| Capital contributions - in-kind services - related party |
— | — | — | — | 60 | — | 60 | |||||||||||||||||||||
| Premium on issuance of convertible promissory notes |
— | — | — | — | 16,641 | — | 16,641 | |||||||||||||||||||||
| Issuance of common stock upon stock option exercises |
— | — | 20,000 | — | 3 | — | 3 | |||||||||||||||||||||
| Repurchase of common shares in connection with the royalty agreement - related party |
— | — | (50,000 | ) | — | (32 | ) | — | (32 | ) | ||||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | 895 | — | 895 | |||||||||||||||||||||
| Vesting of restricted stock awards |
— | — | — | — | 1 | — | 1 | |||||||||||||||||||||
| Net loss |
— | — | — | — | — | (69,167 | ) | (69,167 | ) | |||||||||||||||||||
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| Balance at December 31, 2024 |
43,151,340 | $ | 45,999 | 6,728,346 | $ | — | $ | 19,945 | $ | (116,561 | ) | $ | (96,616 | ) | ||||||||||||||
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The accompanying notes are an integral part of these financial statements.
F-4
Kalaris Therapeutics, Inc.
Statements of Cash Flows
(in thousands)
| Year Ended December 31, |
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| 2024 | 2023 | |||||||
| Cash flows from operating activities: |
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| Net loss |
$ | (69,167 | ) | $ | (14,699 | ) | ||
| Adjustments to reconcile net loss to net cash used in operations: |
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| Royalty obligation expense - related party |
32,044 | — | ||||||
| Stock-based compensation expense |
895 | 148 | ||||||
| Capital contributions - in-kind services - related party |
60 | 239 | ||||||
| Change in fair value of derivative liabilities (including $2,039 and $307 for a related party) |
(2,084 | ) | (307 | ) | ||||
| Change in fair value of tranche liability (including $19,064 and $0 for a related party) |
(21,012 | ) | — | |||||
| Non-cash interest expense (including $2,656 and $687 for a related party) |
2,701 | 687 | ||||||
| Loss on issuance and on extinguishment of convertible promissory notes (including $34,692 and $892 for a related party) |
38,018 | 892 | ||||||
| Changes in assets and liabilities: |
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| Prepaid expense and other current assets |
(803 | ) | 676 | |||||
| Other non-current assets |
(410 | ) | — | |||||
| Accounts payable |
(1,027 | ) | (402 | ) | ||||
| Accrued compensation |
125 | 208 | ||||||
| Accrued research and development expenses |
137 | (1,711 | ) | |||||
| Accrued expenses and other current liabilities |
(147 | ) | 137 | |||||
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| Net cash used in operating activities |
(20,670 | ) | (14,132 | ) | ||||
| Cash flows from financing activities: |
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| Proceeds from the issuance of redeemable convertible preferred stock and tranche liability, net of issuance costs |
1,591 | 6,742 | ||||||
| Proceeds from the issuance of convertible promissory notes (including $19,041 and $6,000 from a related party), net of issuance costs |
19,966 | 6,000 | ||||||
| Proceeds from the issuance of simple agreements for future equity - related party |
— | 1,500 | ||||||
| Payment of deferred transaction costs and issuance costs |
(2,420 | ) | — | |||||
| Proceeds from exercise of stock options |
3 | — | ||||||
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| Net cash provided by financing activities |
19,140 | 14,242 | ||||||
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| Net (decrease) increase in cash and cash equivalents |
(1,530 | ) | 110 | |||||
| Cash and cash equivalents, at beginning of the period |
3,169 | 3,059 | ||||||
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| Cash and cash equivalents, at end of the period |
$ | 1,639 | $ | 3,169 | ||||
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| Supplemental disclosure of cash flow information: |
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| Deferred transaction and financing issuance costs included in accounts payable and accrued expenses and other current liabilities |
$ | 748 | $ | 22 | ||||
| Issuance of redeemable convertible preferred stock upon conversion of convertible promissory notes - related party |
$ | — | $ | 11,222 | ||||
| Issuance of redeemable convertible preferred stock upon conversion of simple agreements for future equity - related party |
$ | — | $ | 1,500 | ||||
| Capital contributions - in-kind services - related party |
$ | 60 | $ | 239 | ||||
| Premium on issuance of convertible promissory notes (including $15,296 and $0 for a related party) |
$ | 16,641 | $ | 886 | ||||
| Repurchase of common stock shares for royalty obligation |
$ | 32 | $ | — | ||||
| Vesting of restricted stock awards |
$ | 1 | $ | 2 | ||||
The accompanying notes are an integral part of these financial statements.
F-5
Kalaris Therapeutics, Inc.
Notes to the Financial Statements
1. Description of Business, Organization and Liquidity
Kalaris Therapeutics, Inc. (“Kalaris” or “the Company”) is a clinical-stage ophthalmology biotech company focused on developing retinal therapies. The Company was incorporated on September 30, 2019 in Delaware as NapoCo, Inc. The Company changed its name to Theia Therapeutics, Inc. on November 24, 2019 and to Kalaris Therapeutics, Inc. on May 7, 2024. The Company is located in California. The Company began its operations in April 2021, when the Company licensed its technology from the Regents of the University of California, San Diego (“UCSD”) (Note 5).
Since its inception, the Company has devoted substantially all of its resources to performing research and development, enabling manufacturing activities in support of its product development efforts, hiring personnel, acquiring and developing its technology and product candidates, establishing its intellectual property portfolio, raising capital and providing general and administrative support for these activities.
One of the Company’s founding stockholders, Samsara BioCapital L.P. and its affiliates (collectively, “Samsara”) have provided a significant amount of equity and debt financing from inception and have provided management and operational support services to the Company. As of December 31, 2024 and 2023, Samsara owned 79.9% and 82.1% of the Company’s outstanding voting equity securities, respectively, and was a related party of the Company (Note 12).
Merger with AlloVir
In November 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with AlloVir, Inc. (“AlloVir”) and Aurora Merger Sub, a wholly owned subsidiary of AlloVir (“Merger Sub”). The Merger (as defined below) was completed on March 18, 2025. Pursuant to the Merger Agreement, at the closing of the merger, Merger Sub merged with and into the Company, with the Company surviving as a wholly owned subsidiary of AlloVir (the “Merger”). Upon completion of the Merger, AlloVir changed its name to Kalaris Therapeutics, Inc. The Company’s business will continue as the business of the combined company.
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, all issued and outstanding shares of the Company’s common stock (including common stock issued upon conversion of the Company’s preferred stock and outstanding convertible promissory notes) converted into the right to receive 0.2016 shares of AlloVir’s common stock calculated in accordance with an exchange ratio equal to 1:0.2016 (the “Exchange Ratio”). Each award of restricted shares of Kalaris’ common stock that was unvested and outstanding was converted into and became exchangeable for the right to receive a number of restricted shares of AlloVir common stock based on the Exchange Ratio. Each outstanding option to purchase shares of Kalaris’ common stock under Kalaris’ 2019 Equity Incentive Plan, whether or not vested, was converted into an option to acquire a number of shares of AlloVir’s common stock based on the Exchange Ratio. Exercise prices of assumed options were determined as the product of the exercise price immediately prior to the effective time of the Merger multiplied by the reciprocal of the Exchange Ratio, and rounding up to the nearest whole cent. There were no changes to any other terms of such options or restricted share awards. The Merger will be accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, the Company is deemed to be the accounting acquirer for financial reporting purposes. Accordingly, for accounting purposes, the Merger will be treated as the equivalent of the Company issuing stock to acquire the net assets of the AlloVir. As a result of the Merger, the net assets of AlloVir will be recorded at their acquisition-date fair value in the financial statements of the Company.
F-6
Liquidity
The Company has incurred significant losses and negative cash flows from operations since its inception. During the years ended December 31, 2024 and 2023, the Company incurred net losses of $69.2 million and $14.7 million, respectively. During the years ended December 31, 2024 and 2023, the Company had negative cash flows from operations of $20.7 million and $14.1 million, respectively. As of December 31, 2024, the Company had an accumulated deficit of $116.6 million. The Company expects to continue to incur substantial losses for the foreseeable future, and its ability to achieve and sustain profitability will depend on the successful development, approval, and commercialization of product candidates and on the achievement of sufficient revenues to support the Company’s operations.
As of December 31, 2024, the Company had cash and cash equivalents of $1.6 million. To date, the Company has financed its operations primarily through the issuance and sale of redeemable convertible preferred stock, convertible promissory notes, a simple agreement for future equity (“SAFE”), and AlloVir’s cash and cash equivalents received in the Merger. In January 2025, the Company received $7.5 million upon the issuance of convertible promissory notes, including $3.75 million from Samsara and other stockholders and $3.75 million from AlloVir (see Note 16). In March 2025, the Merger closed, and the Company received approximately $106.0 million of AlloVir’s cash and cash equivalents as of the closing of the Merger. The Company’s management expects that the existing cash and cash equivalents, together with convertible notes financing and AlloVir’s cash and cash equivalents received at the closing of the Merger, will be sufficient to fund the Company’s operating plans for at least twelve months from the issuance date of these financial statements.
The Company will need to raise additional financing to continue its products’ development for the foreseeable future until it becomes profitable. The Company plans to monitor expenses and raise additional capital through a combination of equity and debt financings, strategic alliances, and licensing arrangements. The Company’s ability to access capital when needed is not assured and, if capital is not available to the Company when, and in the amounts needed, the Company may be required to significantly curtail, delay or discontinue one or more of its research or development programs or the commercialization of any product candidate, or be unable to expand its operations or otherwise capitalize on the Company’s business opportunities, as desired, which could materially harm the Company’s business, financial condition and results of operations.
2. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable. Actual results could differ from those estimates and such differences could be material to the financial position and results of operations. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, the accrual of research and development expenses, the fair value of convertible promissory notes and SAFE, the fair value of derivative liabilities, the fair value of tranche liability, the fair value of common stock and redeemable convertible preferred stock, stock-based compensation expense, and valuation of deferred tax assets.
Concentrations of Credit Risk and Other Risks and Uncertainties
The Company’s cash and cash equivalents are maintained with financial institutions in the United States of America. Cash balances are held at financial institutions and account balances may exceed federally insured limits. The Company also had investments in money market funds, which can be subject to certain credit risks. The Company mitigates the risks by investing in high-grade instruments, limiting its exposure to any one issuer and monitoring the ongoing creditworthiness of the financial institutions and issuers. To date, the Company has not experienced any losses on its cash and cash equivalents balances and periodically evaluates the creditworthiness of its financial institutions.
F-7
The Company is subject to risks common to companies in the development stage, including, but not limited to, development and regulatory approval of product candidates, development of markets and distribution channels, dependence on key personnel, and the ability to obtain additional capital as needed to fund its product plans and business operations. To achieve profitable operations, the Company must successfully develop and obtain requisite regulatory approvals for, manufacture, and market its product candidate. There can be no assurance that such product candidate can be developed and approved or manufactured at an acceptable cost and with appropriate performance characteristics, or that such product will be successfully marketed. These factors could have a material adverse effect on the Company’s future financial results.
The product candidate being developed by the Company requires approval from the U.S. Food and Drug Administration or other international regulatory agencies prior to commercial sales. There can be no assurance that the Company’s product candidate will receive the necessary regulatory approvals. If the Company is unable to complete clinical development, obtain regulatory approval for or commercialize its product candidate, or experiences significant delays in doing so, its business will be materially harmed.
Cash and Cash Equivalents
Cash and cash equivalents include cash in readily available checking accounts and money market funds. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements, as follows:
Level 1-Quoted prices in active markets for identical assets or liabilities.
Level 2-Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3-Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.
Financial assets and liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable.
Segment information
The Company operates and manages its business as one reportable and operating segment, which is the business of developing retinal therapies. The chief executive officer, who is the chief operating decision maker (the “CODM”), reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.
F-8
Acquisitions
The Company evaluates acquisitions of assets and other similar transactions to assess whether the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen test is met, the transaction is accounted for as an asset acquisition. If the screen test is not met, further determination is required as to whether the Company has acquired inputs and processes that have the ability to create outputs which would meet the definition of a business. Significant judgment is required in the application of the screen test to determine whether an acquisition is a business combination or an acquisition of assets.
The Company measures and recognizes asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets, which includes transaction costs. Goodwill is not recognized in an asset acquisition. In an asset acquisition, the cost allocated to the acquired in-process research and development assets with no alternative future use is charged to research and development expense at the acquisition date.
Deferred transaction costs
Deferred transaction costs as of December 31, 2024 of $3.1 million relate to legal, consulting, and accounting fees incurred in connection with the Merger. Deferred transaction costs will be recognized to additional paid-in capital upon the consummation of the Merger.
Patent Costs
All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty of the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses in the statements of operations and comprehensive loss.
Tranche Liability
The convertible promissory notes issued in the convertible note financing in October and November 2024, contained subsequent tranches that require investors to provide additional financing upon a written notice of the Company. The investors’ right to receive additional convertible promissory notes in subsequent tranches of this convertible note financing with a predetermined conversion price was concluded to be a freestanding financial instrument that is required to be accounted for separately as a liability at fair value. The Company estimated fair value of the tranche liability at inception and remeasures it at the end of each reporting period until the tranche liability expires or is settled. The changes in the fair value are recorded as a change in fair value of tranche liability in the statements of operations and comprehensive loss.
Convertible Promissory Notes Derivative Liabilities
The convertible promissory notes contained embedded features that provided the noteholder with multiple settlement alternatives. Certain of these settlement features provided the noteholder the right to receive cash or a variable number of shares upon a change in control or the completion of a capital raising transaction by the Company (the “redemption features”).
The redemption features of the convertible promissory notes met the requirements for separate accounting and were accounted for as compound derivative instruments recorded as a liability at fair value at inception and were subject to remeasurement to fair value at each reporting period when outstanding, with any changes in fair value recorded as a change in fair value of derivative liabilities in the statements of operations and other comprehensive loss (Note 3). Derivative liabilities were classified in the balance sheets as current consistent with the classification of the respective convertible promissory notes they were related to. The Company estimates the fair value of the derivative liabilities embedded in the convertible promissory notes using a with-and-without scenario analysis, which involves valuing the whole instrument on an as-is basis and then valuing the instrument without the embedded derivative. The difference between the entire instrument with the embedded derivatives compared to the instrument without the embedded derivatives is the fair value of the derivative liabilities. A significant increase in probabilities of qualified financing or redemption scenario, a change of control scenario and a decrease in a discount rate would significantly increase the estimated fair value of derivative liabilities.
F-9
Simple Agreement for Future Equity (SAFE)
The Company issued a SAFE that was settled in shares of redeemable convertible preferred stock. The SAFE met the criteria for liability accounting pursuant to guidance under ASC 480, as the agreement included cash settlement provisions outside of the Company’s control. The SAFE was accounted for at fair value and was remeasured at the end of each reporting period when outstanding. As the SAFE was issued in August 2023 and settled in shares of Series B-2 redeemable convertible preferred stock in October 2023, within a short period of time, the changes in the SAFE’s fair value were minimal.
Redeemable Convertible Preferred Stock
The Company records redeemable convertible preferred stock at fair value on the date of issuance, net of issuance costs. The redeemable convertible preferred stock is recorded separately from stockholders’ deficit because the shares contain deemed liquidation features that are not solely within the Company’s control. The holders of the preferred stock control a majority of the votes of the board of directors of the Company. Accordingly, the preferred stock is classified as temporary equity in the Company’s balance sheets. The Company has not adjusted the carrying values of the redeemable convertible preferred stock to the liquidation preferences of such stock because it is uncertain whether or when a deemed liquidation event would occur that would obligate the Company to pay the liquidation preferences to holders of redeemable convertible preferred stock. Subsequent adjustments to the carrying values to the liquidation preferences will be made only when it becomes probable that such a deemed liquidation event will occur.
Research and Development Expenses
Research and development expenses are charged to expenses as incurred. Research and development expenses include payroll and personnel related expenses, license fees, laboratory supplies, consulting costs, external contract research and development expenses and allocated overhead costs, including software and other miscellaneous expenses incurred in connection with its research and development programs.
The Company estimates manufacturing and product development costs, preclinical study and clinical trial and other research and development expenses based on the services performed. The Company has entered into various agreements with outsourced vendors, contract development and manufacturing organizations and clinical research organizations. The financial terms of these contracts are subject to negotiation, which vary by contract and may result in payments that do not match the periods over which materials or services are provided. Generally, these agreements set forth the scope of work to be performed at a fixed fee, unit price or on a time and materials basis. The Company records the estimated costs of research and development activities based on the level of services performed, the progress of the studies, including the phase or completion of events, and contracted costs. The estimated costs of research and development services provided, but not yet invoiced, are included in accrued expenses on the balance sheets. Advance payments for goods or services for future research and development activities are deferred as prepaid expenses and are expensed as the goods are delivered or the related services are performed. The Company makes these estimates based on facts and circumstances known at that time. If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly. Amounts ultimately incurred in relation to amounts accrued for these services at a reporting date may be substantially higher or lower than the Company’s estimates. To date, there have been no material differences between estimates of such expenses and the amounts actually incurred.
Stock-Based Compensation Expense
The Company provides stock-based awards in the form of stock options and restricted stock awards to its employees and consultants. The Company accounts for stock-based compensation expense by measuring and recognizing compensation expense for all stock-based awards based on estimated grant-date fair values. For awards with service-based vesting conditions, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service or vesting period. The vesting period generally approximates the expected service period of the awards. The Company accounts for forfeitures as they occur.
F-10
The Company estimates the fair value of stock options using the Black-Scholes option valuation model. The Black-Scholes model requires the input of subjective assumptions, including expected volatility, expected dividend yield, expected term, risk-free rate of return and the estimated fair value of the underlying common stock on the date of grant.
Foreign Currency Transactions
Transactions denominated in foreign currencies are initially measured in U.S. dollars using the exchange rate on the date of the transaction. Foreign currency denominated monetary assets and liabilities are subsequently remeasured at the end of each reporting period using the exchange rate at that date, with the corresponding foreign currency transaction gain or loss recorded in other income in the statements of operations and comprehensive loss.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ deficit that result from transactions and economic events other than those with stockholders. The comprehensive loss for the Company equals its net loss for all periods presented.
Net Loss Per Share Attributable to Common Stockholders
Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period. The Company’s potentially dilutive securities include convertible promissory notes, the SAFE, the redeemable convertible preferred stock, common stock subject to repurchase, unvested restricted stock awards, and stock options. These potentially dilutive securities have been excluded from the computation of diluted net loss per share as their inclusion would be antidilutive.
Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities as the redeemable convertible preferred stock and common stock subject to repurchase are considered participating securities. The redeemable convertible preferred stock does not have a contractual obligation to share in the Company’s losses, and common stock subject to repurchase and unvested restricted stock awards are considered contingently issuable shares for accounting purposes. As such, the net loss is attributed entirely to common stockholders. Because the Company has reported a net loss for the reporting periods presented, the diluted net loss per common share is the same as basic net loss per common share for those periods.
Commitments and Contingencies
The Company recognizes a liability with regard to loss contingencies when it believes it is probable a liability has been incurred, and the amount can be reasonably estimated. If some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, the Company accrues that amount. When no amount within the range is a better estimate than any other amount the Company accrues the minimum amount in the range.
Income Taxes
The Company accounts for income taxes using the asset and liability method; under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.
F-11
The Company recognizes deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, if all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to the provision of income taxes in the period when such determination is made.
As of December 31, 2024 and 2023, the Company maintained a valuation allowance against its deferred tax assets as the Company concluded it had not met the “more likely than not” to be realized threshold. Changes in the valuation allowance when they are recognized in the provision for income taxes may result in a change in the estimated annual effective tax rate.
Tax benefits related to uncertain tax positions are recognized when it is more likely than not that a tax position will be sustained during an audit. Tax positions that meet the more-likely-than-not threshold are measured at the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with the taxing authority. Interest and penalties related to unrecognized tax benefits are included within the provision for income tax.
Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU modified the disclosure and presentation requirements primarily through enhanced disclosures of significant segment expenses and clarified that single reportable segment entities must apply Topic 280 in its entirety. The Company adopted this standard effective January 1, 2024 and included additional disclosure regarding significant segment expenses in Note 8.
Recently Issued Accounting Pronouncements Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for fiscal years beginning after December 15, 2024 for all public entities and for fiscal years beginning after December 15, 2025 for all other entities. Early adoption is permitted and should be applied either prospectively or retrospectively. The Company is currently evaluating the impact that the updated standard will have on its financial statement disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses to improve financial reporting by requiring that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. The amendments in this ASU do not change or remove current expense disclosure requirements; however, the amendments affect where such information appears in the notes to the financial statements because entities are required to include certain current disclosures in the same tabular format disclosure as the other disaggregation requirements in the amendments. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact that the updated standard will have on its financial statement disclosures and financial reporting processes.
F-12
3. Fair Value Measurements and Fair Value of Financial Instruments
The Company’s fair value hierarchy for its financial instruments measured at fair value on a recurring basis as of December 31, 2024 and 2023, is as follows (in thousands):
| Fair Value Measurements | ||||||||||||||||
| As of December 31, 2024 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets: |
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| Money market funds (included in cash equivalents) |
$ | 1,009 | $ | 1,009 | $ | — | $ | — | ||||||||
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| Total fair value of assets |
$ | 1,009 | $ | 1,009 | $ | — | $ | — | ||||||||
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| Liabilities: |
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| Derivative liabilities (including $995 for related party) |
$ | 1,042 | $ | — | $ | — | $ | 1,042 | ||||||||
| Tranche liability (including $331 for related party) |
365 | $ | — | — | 365 | |||||||||||
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| Total fair value of liabilities |
$ | 1,407 | $ | — | $ | — | $ | 1,407 | ||||||||
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| Fair Value Measurements | ||||||||||||||||
| As of December 31, 2023 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets: |
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| Money market funds (included in cash equivalents) |
$ | 2,538 | $ | 2,538 | $ | — | $ | — | ||||||||
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| Total fair value of assets |
$ | 2,538 | $ | 2,538 | $ | — | $ | — | ||||||||
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The carrying amounts of cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate their fair value due to their short-term maturities. During the periods presented, the Company has not changed the manner in which it values liabilities that are measured at estimated fair value using Level 3 inputs. There were no transfers within the hierarchy for any periods presented.
During the years ended December 31, 2024 and 2023, the Company issued the following financial instruments to be accounted for at fair value on a recurring basis: derivative liabilities embedded in convertible promissory notes, the tranche liability related to the convertible note financing, and the SAFE (Note 6).
The Company estimated the fair value of the derivative liabilities embedded in the convertible promissory notes using a with-and-without scenario analysis. The Company estimated that embedded change of control feature fair values were minimal based on the low probability of the change of control events during the years ended December 31, 2024 and 2023.
The following assumptions were used to determine the estimated fair value of the derivative liabilities related to the redemption features for the year ended December 31, 2024:
| At the Issuance Dates |
As of December 31, 2024 | |||
| Expected term (in years) |
0.4 - 1.3 | 0.2 - 0.4 | ||
| Probability of achievement |
0.0% - 90.0% | 0.0% - 80.0% | ||
| Discount rate |
9.5% - 18.7% | 9.0% |
The following assumptions were used to determine the estimated fair value of the derivative liabilities related to the redemption features for the year ended December 31, 2023:
| At the Issuance Dates |
At the Conversion Date |
As of December 31, 2023 | ||||
| Expected term (in years) |
0.6 - 2.0 | 0.0 - 1.6 | — | |||
| Probability of achievement |
0.0% - 90.0% | 0.0% - 95.0% | — | |||
| Discount rate |
10.3% - 16.4% | 15.7% - 16.1% | — |
A significant increase in probabilities of a qualified financing or redemption scenario, a change of control scenario and a decrease in a discount rate would significantly increase the estimated fair value of derivative liabilities.
F-13
The fair value of the tranche liability related to the convertible promissory notes issued in October and November 2024 of $10.0 million was estimated using the probability weighted model with the following Level 3 input assumptions: the timing of issuing convertible notes and notes conversion, probabilities of conversion scenarios, the estimated fair value of the Company’s shares into which the note is convertible and a discount rate. The significant assumptions were as follows at the issuance dates in March, October and November 2024 and as of December 31, 2024:
| At the Issuance Dates |
As of December 31, 2024 |
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| Expected term (in years) |
0.4 - 0.6 | 0.2 - 0.4 | ||||||
| Probability of achievement |
0.0% - 60.0% | 0.0% - 80.0% | ||||||
| Discount rate |
9.5% | 9.0% | ||||||
Significant changes in probabilities of conversion scenarios and changes in the estimated conversion price will significantly change the estimated fair value of the tranche liability.
The SAFE was issued in August 2023 and was converted in October 2023 into 1,200,000 shares of Series B-2 redeemable convertible preferred stock at a price per share of $1.25, which was the price per share paid by other investors for the Series B-2 redeemable convertible preferred stock. SAFE fair value was estimated using Level 3 inputs, including the estimated price for the next round of financing. There were no changes in the SAFE estimated fair value from the issuance to the settlement date.
The following table provides a roll-forward of the aggregate fair values of the Company’s outstanding Level 3 financial instruments during the years ended December 31, 2024 and 2023 (in thousands):
| Derivative liabilities |
SAFE - related party |
Tranche liability |
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| Balance as of January 1, 2023 |
$ | 262 | $ | — | $ | — | ||||||
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| Initial fair value at issuance |
708 | 1,500 | — | |||||||||
| Change in fair value |
(307 | ) | — | |||||||||
| Derecognition upon settlement or extinguishment |
(663 | ) | (1,500 | ) | — | |||||||
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| Balance as of December 31, 2023 |
$ | — | $ | — | $ | — | ||||||
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| Initial fair value at issuance |
3,126 | — | 21,377 | |||||||||
| Change in fair value |
(2,084 | ) | — | (21,012 | ) | |||||||
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| Balance as of December 31, 2024 |
$ | 1,042 | $ | — | $ | 365 | ||||||
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4. Balance Sheet Components
Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following (in thousands):
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Prepaid professional services |
$ | 525 | $ | — | ||||
| Prepaid research and development expenses |
388 | 147 | ||||||
| Prepaid insurance and other current assets |
54 | 17 | ||||||
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| Total prepaid expenses and other current assets |
$ | 967 | $ | 164 | ||||
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F-14
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| December 31 | ||||||||
| 2024 | 2023 | |||||||
| Accrued transaction expenses |
$ | 567 | $ | — | ||||
| Accrued professional and legal services ($84 due to a related party) |
308 | — | ||||||
| Accrued patent reimbursement costs |
48 | 354 | ||||||
| Accrued expenses related to in-process research and development assets acquired |
— | 151 | ||||||
| Other current liabilities ($0 and $13 due to a related party) |
22 | 87 | ||||||
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| Total accrued expenses and other current liabilities |
$ | 945 | $ | 592 | ||||
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5. Significant Agreements
License Agreement with the University of California, San Diego
In April 2021, the Company entered into a license agreement with UCSD (as amended, the “UCSD Agreement”) pursuant to which the Company obtained (i) an exclusive license under the patent rights to make, use, sell, offer for sale, and import licensed products and (ii) a non-exclusive license to use the technology with a right to sublicense, each (i) and (ii) related to new anti-VEGF agents and novel long-acting VEGF inhibitors for intraocular neovascularization for the treatment of patients with retinal pathologies. As partial consideration for the license, the Company agreed to pay UCSD $0.2 million and was obligated to issue shares of its common stock to UCSD equal to 5% of the fully diluted issued and outstanding securities of the Company until such time as an aggregate of $5.0 million in gross proceeds from the sale of equity securities had been raised by the Company. In June 2022, after the closing of the Series A financing, the Company issued 680,725 shares of its common stock to UCSD. The Company was also obligated to pay $0.1 million of patent costs incurred prior to the effective date and is required to reimburse future patent expenses incurred by UCSD during the term of the UCSD Agreement. Under the UCSD Agreement, the Company is required to make annual license maintenance payments of $10,000 during the first four anniversaries and $15,000 on the fifth and every subsequent anniversary of the effective date. The Company is obligated to pay an aggregate of up to $4.6 million upon the achievement of various development and regulatory milestones and low single-digit royalties on net sales of licensed products. The royalty is payable, on a licensed product-by-licensed product and country-by country basis, until expiration of the last-to-expire issued patent of the applicable licensed product in the country of sale or the manufacture. If the Company enters into a sublicensing agreement, it is required to pay UCSD a sublicense fee as a percentage of the fair market value of any sublicense fee received that is not earned royalties for each sublicense granted. The sublicense fee percentage ranges from 50% if the applicable sublicense agreement is entered into within one year from the UCSD Agreement effective date and decreases to 10% if the applicable sublicense agreement is entered into after the first dosing of a patient for a phase 2 clinical trial.
Per the UCSD Agreement, UCSD also had a right to purchase up to 10% of the securities issued in each round of equity financing on the same terms and conditions as were offered to other investors. UCSD did not participate in any equity financing, and the participation right expired in April 2023.
In case of a closing of a merger, or sale of at least 50% of the voting stock of the Company or the sale by the Company of all or substantially all of its assets (collectively referred to as “Liquidity Event”), the Company is obligated to make a one-time cash milestone payment to UCSD ranging from $0.1 million to $1.0 million based on the valuation of the Company’s outstanding shares at the Liquidity Event closing date. The Merger did not meet the definition of the Liquidity Event.
The UCSD Agreement is effective until the expiration date of the longest-lived patent rights or last to be abandoned patent or future patent of the licensed products, whichever is later. The Company can terminate the agreement upon 60 days written notice. UCSD can terminate the agreement in the event of an uncured material breach, such as a failure to make payments due, or to perform or a violation of any other material term of the UCSD Agreement, is not cured by the Company within 60 days after a breach written notice provided by UCSD.
F-15
The acquisition of the license under the UCSD Agreement, including patent rights and know-how, was accounted for as an asset acquisition. As the acquired technology did not have an alternative use for accounting purposes, the Company recognized the $0.2 million initial cash consideration, $0.1 million patent reimbursement costs incurred prior to the effective date, and $0.2 million related to the obligation to issue shares of the Company’s common stock as research and development expenses upon entering into the UCSD Agreement in April 2021. The obligation to issue common stock shares included two components, the initial shares obligation and the additional shares obligation. The fair value of the initial share obligation was estimated as $0.1 million based on the fair value of 275,000 shares of common stock, which represented 5% of the outstanding fully diluted equity at the effective date. As the initial share obligation was indexed to the Company’s own stock, it was recorded as additional paid-in capital. The additional shares obligation was recognized when the next round of financing closed in March 2022. The Company estimated the fair value of an additional 405,725 shares of common stock as $0.2 million and recognized it as research and development expenses and additional paid-in capital in March 2022. The Company concluded that the contingent payment upon the closing of the Liquidity Event was a derivative liability and estimated its fair value as zero at the inception date, at December 31, 2024 and 2023, as the probability of such a Liquidity Event at each date was estimated to be zero. The Company recognized $10,000 related to the license maintenance annual fees as research and development expenses in each of the years ended December 31, 2024 and 2023. The Company recognized $0.1 million related to the patent reimbursement costs as general and administrative expenses for each of the years ended December 31, 2024 and 2023. As of December 31, 2023, the Company recorded $0.2 million as accrued expenses and other current liabilities related to the initial consideration, which was paid in May 2024. No related liability was recorded as of December 31, 2024. The Company made a payment of $0.1 million in connection with its achievement of the first development milestone in August 2024, recorded as research and development expense in the statement of operations and comprehensive loss for the year ended December 31, 2024.
Royalty Agreement with Samsara - Related Party
In July 2024, the Company entered into a royalty agreement (the “Royalty Agreement’) with Samsara, the majority stockholder of the Company and a related party. Under the Royalty Agreement, the Company redeemed 50,000 shares of its common stock issued to Samsara under a restricted stock purchase agreement in exchange for the Company’s agreement to pay Samsara a low single digit percentage tiered royalty on net sales, if any, of the Company’s products developed using the technology licensed under the UCSD Agreement. Such royalties are payable on a product-by-product and country-by-country basis until the later of (i) ten years after the first commercial sale of such product in such country and (ii) the expiration of the last-to-expire issued claim of the Company’s patents for such product in such country.
The Company identified two elements in the Royalty Agreement: repurchased shares, and future royalty payments to Samsara. The repurchase of shares was accounted for at an estimated fair value of $32,000 as a reduction of common stock and additional paid in capital in the balance sheet and the statement of redeemable convertible preferred stock and shareholders’ deficit. The Company recorded $32.1 million as a long-term liability related to the obligation to make royalty payments to Samsara. The fair value of the royalty obligation was estimated using a risk-adjusted net present value model, based on the contractual royalty rates applied to the future net sales forecast, adjusted by the probability of success of product development and discounted to the effective date of the Royalty Agreement using a 25.0% discount rate. The excess of the royalty liability over the fair value of the repurchased shares of $32.0 million was recorded as a research and development expense in the statement of operations and comprehensive loss for the year ended December 31, 2024. Once royalty payments to Samsara are deemed probable and estimable, and if such amounts exceed the initially recorded royalty obligation balance, the Company will impute interest to accrete the liability on a prospective basis based on such estimates. If and when the Company makes royalty payments under the Royalty Agreement, the royalty obligation balance will be reduced.
As of December 31, 2024, royalty payments were not probable and estimable and, therefore, for the year ended December 31, 2024, no interest expense was recognized for the royalty liability.
F-16
6. Convertible Promissory Notes and SAFE Agreements
2022 Convertible Promissory Note – Related Party
In December 2022, the Company issued a convertible promissory note to Samsara (the “2022 Note”) for total proceeds of up to $6.5 million. The 2022 Note was payable in three advances at Samsara’s discretion, carried an annual interest rate of 8%, and had an original maturity date of December 16, 2024. In December 2022 and February 2023, Samsara advanced to the Company $3.5 million and $3.0 million, respectively, under the 2022 Note. All unpaid interest and principal were due and payable upon request of Samsara on or after maturity, or in the event of default. The Company could not prepay the principal amount and accrued interest at any time before maturity without the consent of Samsara.
In the event that the Company issued and sold shares of its redeemable convertible preferred stock to investors following the issuance date of the 2022 Note in a single transaction or a series of related transactions that resulted in either (i) gross proceeds of at least $10.0 million (excluding conversion of the (a) 2022 Note and any other convertible notes or convertible securities issued by the Company and then outstanding and (b) aggregate gross proceeds to the Company yielded by any cash investment by Samsara), or (ii) designated as a qualified financing by Samsara (a “2022 Note Qualified Financing”), then the outstanding principal amount of the 2022 Note and any unpaid accrued interest would automatically convert into shares of redeemable convertible preferred stock issued in the 2022 Note Qualified Financing at a conversion price equal to (a) 80% of the per share price paid by investors for the redeemable convertible preferred stock in the 2022 Note Qualified Financing, if the Company has consummated a licensing transaction with an ophthalmic pharmaceutical company on or prior to February 1, 2023, or (b) the lesser of (x) 80% of the per share price paid by investors for the 2022 Note Qualified Financing or (y) the Series A redeemable convertible preferred stock conversion price then in effect, if the Company has not consummated a licensing transaction with an ophthalmic pharmaceutical company on or prior to February 1, 2023.
Upon a change in control, the 2022 Note, at the election of Samsara, would either (i) become due and payable in cash upon the closing of such change in control, in an amount equal to twice the outstanding principal amount plus any unpaid accrued interest, or (ii) convert into shares of the Company’s Series A redeemable convertible preferred stock. The conversion would be based on a price equal to 100% of the total aggregate consideration paid for each share of the Company’s capital stock on an as-converted to common stock basis (including any earn-out amounts).
Unless earlier converted or repaid in connection with the 2022 Note Qualified Financing or a change in control on or prior to the maturity date, or at any time at Samsara’s option, Samsara might elect to convert the 2022 Note and any unpaid accrued interest into the Company’s common stock at a conversion price equal to the Series A redeemable convertible preferred stock conversion price then in effect.
The 2022 Note contained customary representations and warranties, and event of default provisions. Upon any event of default, Samsara could declare the principal and unpaid accrued interest under the 2022 Note immediately due and payable.
The 2022 Note contained embedded features that provided Samsara the right to receive cash or a variable number of shares upon a change in control or the completion of a capital raising transaction by the Company. These embedded features were required to be bifurcated and accounted for separately as a compound derivative instrument. The embedded features were initially and subsequently measured at fair value with changes in the fair value recorded as a change in fair value of derivative liabilities in the statements of operations and comprehensive loss. The derivative liabilities created a discount on the advances under the 2022 Note that are amortized using the effective interest rate method over the term of the respective advance and recorded as a non-cash interest expense.
The change in fair value of the derivative liability related to the 2022 Note was $0.5 million during the year ended December 31, 2023. The total interest expense for the 2022 Note was $0.5 million for the year ended December 31, 2023, consisting of $0.4 million of contractual interest expense and $0.1 million in amortization of debt discount arising from the separation of the derivative instrument.
In October 2023, in connection with the sale and issuance of Series B redeemable convertible preferred stock, the outstanding principal of $6.5 million for the 2022 Note and accrued unpaid interest of $0.4 million were converted into 6,865,698 shares of Series B-1 redeemable convertible preferred stock at a conversion price of $1.00 per share, representing 80% of the price paid by other investors for Series B-2 shares of redeemable convertible preferred stock financing. The estimated fair value of Series B-1 redeemable convertible preferred stock was $1.13 per share. The conversion of the 2022 Note into shares of Series B-1 redeemable convertible preferred stock was accounted for as a debt extinguishment. In connection with the extinguishment in October 2023, the Company
F-17
recognized the issuance of the redeemable convertible preferred stock at fair value, derecognized the carrying value of the 2022 Note and related derivative liabilities and reversed the $1.2 million premium that had been recognized as additional paid in capital. Additionally, the Company recognized a $6,000 loss on issuance and on extinguishment of convertible promissory notes - related party in the statement of operations and comprehensive loss.
2023 Convertible Promissory Note – Related Party
In May 2023, the Company issued a convertible promissory note to Samsara (the “2023 Note”) for total proceeds of up to $6.0 million. The 2023 Note was payable in two advances at Samsara’s discretion, carried an annual interest rate of 8%, and had an original maturity date of May 13, 2025. In May 2023, Samsara advanced $3.0 million under the 2023 Note. No subsequent advance was made under the 2023 Note. The 2023 Note’s terms are similar to the 2022 Note provisions described above, except a conversion price upon the qualified financing is the lesser of (a) 80% of the per share price paid by investors in such qualified financing, and (b) 1.25 times the Series A redeemable convertible preferred stock conversion price then in effect.
The 2023 Note was issued to Samsara at the estimated fair value of $3.3 million at the issuance date. Since the convertible promissory notes were issued to a related party and considered not at arm’s length, the premium of $0.3 million, which was the difference between the fair value at the issuance date and the principal amount of the note, was recognized as a loss on issuance and on extinguishment of convertible promissory notes - related party in the statement of operations and comprehensive loss and as additional paid in capital in the statement of redeemable convertible preferred stock and stockholders’ deficit in the year ended December 31, 2023. The fair value of convertible promissory notes at issuance was estimated using the probability weighted settlement scenarios model discounted to the present value with the following range of assumptions: expected term of 0.6 - 2.0 years, probabilities of scenario achievement of 0.0% - 90.0% and discount rates of 16.4% - 25.1%.
The 2023 Note contained embedded features that provide Samsara the right to receive cash or a variable number of shares upon a change in control or the completion of a capital raising transaction by the Company. These embedded features were required to be bifurcated and accounted for separately as a compound derivative instrument. The embedded features are initially and subsequently measured at fair value with changes in the fair value recorded as a change in fair value of derivative liabilities in the statements of operations and comprehensive loss. The fair value at issuance of the derivative instrument issued with the 2023 Note was $0.5 million. The derivative liability created a discount on the note that was amortized using the effective interest rate method over the term of the note and recorded as a non-cash interest expense.
The change in fair value of derivative liability related to the 2023 Note was $0.2 million for the year ended December 31, 2023. The total interest expense of the 2023 Note was $0.2 million for the year ended December 31, 2023, consisting of $0.1 million of contractual interest expense and $0.1 million in amortization of debt discount arising from the separation of the derivative instrument.
In October 2023, in connection with the sale and issuance of Series B redeemable convertible preferred stock, the outstanding principal of $3.0 million for the 2023 Note and accrued unpaid interest of $0.1 million were converted into 3,091,397 shares of Series B-1 redeemable convertible preferred stock at a conversion price of $1.00 per share, representing 80% of the price paid by other investors for Series B-2 shares of redeemable convertible preferred stock financing. The estimated fair value of Series B-1 redeemable convertible preferred stock was $1.13 per share. The conversion of the 2023 Note into shares of Series B-1 redeemable convertible preferred stock was accounted for as a debt extinguishment. In connection with the extinguishment in October 2023, the Company recognized the issued redeemable convertible preferred stock at fair value, derecognized the carrying value of the 2023 Note and related derivative liabilities and reversed the $0.3 million premium that had been recognized to additional paid in capital at the note’s inception. Additionally, the Company recognized a $0.2 million gain to additional paid in capital in the statement of redeemable convertible preferred stock and stockholders’ deficit.
March 2024 Convertible Promissory Note – Related Party
In March 2024, the Company issued a convertible promissory note to Samsara (the “March 2024 Note”) for total proceeds of up to $10.0 million. The March 2024 Note was payable in two advances at Samsara’s discretion, carries an annual interest rate of 10%, and has an original maturity date of March 2025. In March and May 2024,
F-18
Samsara advanced to the Company $5.0 million for an aggregate advance of $10.0 million under the March 2024 Note. The March 2024 Note’s terms are similar to the terms of the 2022 Note described above, except the conversion price upon a qualified financing is 80% of the per share price paid by investors in such qualified financing, and the March 2024 Note is convertible into shares of Series B-2 redeemable convertible preferred stock upon the occurrence of a change in control, or at any time at Samsara’s option. The March 2024 Note contains customary representations and warranties and event of default provisions. Upon any event of default, Samsara can declare the principal and unpaid accrued interest under the March 2024 Note immediately due and payable. As of December 31, 2024, the Company was in compliance with all applicable provisions of the 2024 Note.
The March 2024 Note was issued to Samsara at the estimated fair value of $12.1 million at the issuance date. Since the convertible promissory notes were issued to a related party and considered not at arm’s length, the premium of $2.1 million, which was the difference between the fair value at the issuance date and the principal amount of the note, was recognized as a loss on issuance and on extinguishment of convertible promissory notes - related party in the statement of operations and comprehensive loss and as additional paid in capital in the statement of redeemable convertible preferred stock and stockholders’ deficit in March and May 2024 when amounts were advanced under the March 2024 Note. The fair value of convertible promissory notes at issuance was estimated using the probability weighted settlements scenarios model discounted to present value with the following range of assumptions: expected term of 0.4 - 1.3 years, probabilities of scenario achievement of 0.0% - 90.0% and discount rates of 12.3% - 18.7%.
The March 2024 Note contained embedded features that provide Samsara the right to receive cash or a variable number of shares upon a change in control or the completion of a capital raising transaction by the Company. These embedded features were required to be bifurcated and accounted for separately as a compound derivative instrument. The embedded features were initially and subsequently measured at fair value with changes in the fair value recorded as a change in fair value of derivative liabilities in the statements of operations and comprehensive loss. The fair value at issuance of the derivative instrument issued with the March 2024 Note was $2.1 million. The derivative liabilities created a discount on the advances under the March 2024 Note that are amortized using the effective interest rate method over the term of the respective advance and recorded as a non-cash interest expense.
The change in the fair value of derivative liability related to the March 2024 Note was $1.6 million for the year ended December 31, 2024. As of December 31, 2024, the derivative liability fair value was $0.5 million. The total interest expense for the March 2024 Note was $2.3 million for the year ended December 31, 2024, consisting of $0.7 million of contractual interest expense and $1.6 million in amortization of debt discount arising from the separation of the derivative instrument. As of December 31, 2024, the March 2024 Note had accrued interest of $0.7 million outstanding.
October 2024 Convertible Promissory Note
In October 2024, the Company entered into a convertible note purchase agreement with Samsara to sell and issue convertible promissory notes for an aggregate principal amount of up to $25.0 million. In November 2024, the Company amended the agreement and other existing preferred stockholders of the Company joined the agreement. In October 2024, the Company issued to Samsara a convertible promissory note with an aggregate principal amount of approximately $9.0 million (the “October 2024 Note”). In November 2024, the Company issued additional notes with an aggregate principal amount of approximately $1.0 million to Samsara and other investors (the “November 2024 Notes”, and together with the October 2024 Note, the “2024 Bridge Notes”). The October and November 2024 issuance of convertible notes is referred to as the “First Tranche Closing”. The Company had the right to draw up to an additional $15.0 million in three subsequent tranche closings of up to a maximum aggregate principal amount of $5.0 million in each such closing (each, the “Subsequent Tranche Closing”). The 2024 Bridge Notes carry an annual interest rate of 8%, and have an original maturity date of May 2025.
In the event that the Company issues and sells shares of its redeemable convertible preferred stock to investors following the respective issuance date of the 2024 Bridge Notes in a single transaction or a series of related transactions that results in either (i) gross proceeds of at least $10.0 million (excluding conversion of the (a) 2024 Bridge Notes any other convertible notes or convertible securities issued by the Company and then outstanding and (b) aggregate gross proceeds to the Company yielded by any cash investment by Samsara), or (ii) designated as a qualified financing by Samsara (a “2024 Bridge Notes Qualified Financing”), then the outstanding principal amount
F-19
of the 2024 Bridge Notes and any unpaid accrued interest will automatically convert into shares of redeemable convertible preferred stock issued in the 2024 Bridge Notes Qualified Financing at a conversion price equal to 80% of the per share price paid by investors for the redeemable convertible preferred stock in the 2024 Bridge Notes Qualified Financing.
Upon a change in control, the 2024 Bridge Notes, at the election of Samsara, would either (i) become due and payable in cash upon the closing of such change in control, in an amount equal to twice the outstanding principal amount plus any unpaid accrued interest, or (ii) convert into shares of the Company’s Series B-2 redeemable convertible preferred stock at a price equal to 100% of the total aggregate consideration to be paid for each share of the Company’s capital stock on an as-converted to common stock basis (including any earn-out amounts) as determined by the board of directors of the Company in its sole discretion, provided that if the conversion occurs due to the closing of the Merger, only clause (ii) will apply to such conversion.
Unless earlier converted or repaid in connection with the 2024 Bridge Notes Qualified Financing or a change in control on or prior to the maturity date, or at any time at Samsara’s option, Samsara might elect to convert the 2024 Bridge Notes and any unpaid accrued interest into the Company’s common stock at a conversion price equal to the Series B-2 redeemable convertible preferred stock conversion price then in effect (the “2024 Bridge Notes Optional Conversion”).
The 2024 Bridge Notes contains customary representations and warranties and event of default provisions. Upon any event of default, Samsara can declare the principal and unpaid accrued interest under the 2024 Bridge Notes immediately due and payable. As of December 31, 2024, the Company was in compliance with all applicable provisions of the 2024 Bridge Notes.
The Company determined that the investors’ right to receive additional convertible promissory notes at a predetermined conversion price under each of the Subsequent Tranche Closing represented freestanding instruments that should be accounted for separately as liabilities, initially recorded and subsequently remeasured at fair value until their exercise or expiration (the “Tranche Liability”). The Tranche Liability was initially recorded at $21.4 million. The change in the fair value of the Tranche Liability was $21.0 million for the year ended December 31, 2024. As of December 31, 2024, the Tranche Liability fair value was $0.4 million. The decrease in fair value was a result of modification of tranche amounts and parties agreeing to convert each of the subsequent Tranche Closings at a price per share equal to the Company Value Per Share, as defined in the Merger Agreement. The fair value of the Tranche Liability is estimated using the probability weighted scenario analysis discounted to the current period (Note 4).
The 2024 Bridge Notes were issued to Samsara and other existing preferred stockholders of the Company at the estimated fair value of $24.5 million at the issuance dates. The premium of $14.5 million, which was the difference between the fair value at the issuance date and the principal amount of the notes, was recognized as additional paid in capital in the statement of redeemable convertible preferred stock and stockholders’ deficit at the issuance date. The fair value of the notes at issuance was estimated using the probability weighted settlements scenarios model discounted to present value with the following range of assumptions: expected term of 0.4 - 0.6 years, probabilities of scenario achievement of 0% - 60% and a discount rate of 9.5%. The aggregate estimated fair value of the 2024 Bridge Notes and the Tranche Liability was $45.9 million as of the issuance date. The Company recognized the excess of the aggregated fair value over net cash proceeds received as non-pro rata distribution to the stockholders, resulting in a loss of $35.9 million at the issuance date, which was recorded as a loss on issuance and on extinguishment of convertible promissory notes in the statement of operations and comprehensive loss for the year ended December 31, 2024.
The 2024 Bridge Notes contained embedded features that provide Samsara and other stockholders the right to receive cash or a variable number of shares upon a change in control or the completion of a capital raising transaction by the Company. These embedded features were required to be bifurcated and accounted for separately as a compound derivative instrument. The embedded features were initially and subsequently measured at fair value with changes in the fair value recorded as a change in fair value of derivative liabilities in the statements of operations and comprehensive loss. The fair value at issuance of the derivative instrument issued with the 2024 Bridge Notes was $1.0 million. The derivative liabilities created a discount on the advances under the 2024 Bridge Notes that are amortized using the effective interest rate method over the term of the respective advance and recorded as a non-cash interest expense. The change in the fair value of derivative liabilities related to the 2024 Bridge Notes was $0.5 million for the year ended December 31, 2024. As of December 31, 2024, the derivative liability fair value was $0.5 million.
F-20
The total interest expense for the 2024 Bridge Notes was $0.4 million for the year ended December 31, 2024, consisting of $0.1 million of contractual interest expense and $0.3 million in amortization of debt discount arising from the separation of the derivative instrument. As of December 31, 2024, the 2024 Bridge Notes had accrued interest of $0.1 million outstanding.
SAFE Agreement – Related Party
In August 2023, the Company entered into a SAFE agreement with Samsara and received gross cash proceeds of $1.5 million. The SAFE agreement had no maturity date, bore no interest, and was redeemable by the Company upon the occurrence of a triggering event, including an equity financing, direct listing transaction, change of control, or initial public offering, as defined in the agreement.
The SAFE was not in the legal form of an outstanding share or debt and, therefore, was evaluated under ASC 480. As the SAFE allowed for redemption upon certain triggering events that were outside the Company’s control, it was classified as a liability pursuant to ASC 480 and initially measured at fair value upon issuance.
The Company estimated the initial fair value of the SAFE to be $1.5 million at the issuance date in August 2023. In October 2023, in connection with the Series B financing, the SAFE was converted into 1,200,000 shares of Series B-2 redeemable convertible preferred stock at $1.25 per share, which was the price paid by other investors in the Series B financing. The Company estimated that changes in the SAFE fair value from the issuance date to the settlement date were not material. As of December 31, 2023, the SAFE was no longer outstanding.
7. Commitments and Contingencies
Research and Development Agreements
The Company enters into various agreements in the ordinary course of business, such as those with suppliers, contract development and manufacturing organizations, clinical research organizations, and other research and development vendors. These agreements provide for termination at the request of either party, generally with less than one year’s notice. Therefore, they are cancellable contracts and, if canceled, are not expected to have a material effect on the Company’s financial condition, results of operations, or cash flows.
License and Royalty Agreements
The Company is required to pay certain milestone payments contingent upon the achievement of specific development and regulatory events in accordance with the UCSD Agreement (Note 5). The Company made a payment of $0.1 million in connection with its achievement of the first development milestone in August 2024, recognized as research and development expense in the statement of operations and comprehensive loss for the year ended December 31, 2024. No other milestones were achieved or probable as of December 31, 2024 and 2023. The Company is required to pay royalties on commercial sales of products developed under the UCSD Agreement. The Company’s product candidate was in clinical development as of December 31, 2024 and 2023, and no such royalties were due.
The Company is obligated to pay royalties to Samsara under the Royalty Agreement (Note 5). The Company recognized an initial royalty obligation liability in the amount of $32.1 million, which was based on its estimated fair value at the effective date of the Royalty Agreement. Once royalty payments to Samsara are deemed probable and estimable, and if such amounts exceed the royalty liability balance, the Company will impute interest to accrete the royalty obligation on a prospective basis based on such estimates. As of December 31, 2024, these royalties were not probable and estimable.
Legal Contingencies
The Company, from time to time, may be a party to litigation arising in the ordinary course of business. The Company was not subject to any material legal proceedings as of December 31, 2024 and 2023. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount is reasonably estimable, the Company will accrue a liability for the estimated loss.
F-21
Guarantees and Indemnifications
In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of December 31, 2024 and 2023, the Company does not have any material indemnification claims that were probable or reasonably possible.
8. Segment Reporting
The Company operates and manages its business as one reportable and operating segment. The CODM reviews and evaluates net loss, as reported in the statements of operations and comprehensive loss, for purposes of assessing performance, making operating decisions, allocating resources, and planning and forecasting for future periods on an aggregate basis. The CODM does not review assets at a different level or category than the amounts disclosed in the balance sheets. All of the Company’s long-lived assets are located in the United States. The following table sets forth the Company’s summary of segment loss, including significant segment expenses for the years ended December 31, 2024 and 2023 (in thousands):
| Year ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| External research and development expenses: |
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| CDMO, CRO and other third-party preclinical studies, clinical trials and consulting costs |
$ | 10,324 | $ | 10,289 | ||||
| License fees, milestone payments, and annual maintenance fees related to acquired technologies (including $32, 044 million and zero related to the estimated fair value of royalty obligation for the year ended December 31, 2024 and 2023, respectively) |
32,099 | 50 | ||||||
| Internal research and development personnel expenses |
2,490 | 1,282 | ||||||
| Other research and development costs |
129 | 86 | ||||||
| General and administrative personnel expenses |
1,940 | 883 | ||||||
| Other general and administrative expenses |
4,750 | 874 | ||||||
| Interest expense |
2,701 | 687 | ||||||
| Other segment items |
14,734 | (1) | 548 | |||||
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| Net loss |
$ | (69,167 | ) | $ | (14,699 | ) | ||
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| (1) - | Other segment items include change in fair value of tranche liability, change in fair value of derivative liabilities, loss on issuance and on extinguishment of convertible promissory notes and other income. |
9. Redeemable Convertible Preferred Stock
In October 2023, the Company issued 9,957,095 shares of Series B-1 redeemable convertible preferred stock at a conversion price of $1.00 per share (the “Series B-1 Stock”), all of which were issued upon conversion of convertible promissory notes issued to Samsara between December 2022 and May 2023 (Note 6).
In October 2023, the Company issued 6,720,000 shares of Series B-2 redeemable convertible preferred stock (the “Series B-2 Stock”), of which 5,520,000 shares of Series B-2 Stock were issued at a price of $1.25 per share for gross cash proceeds of $6.9 million and 1,200,000 shares of Series B-2 Stock were issued to Samsara upon settlement of the SAFE agreements (Note 6).
In January 2024, the Company issued 1,280,000 shares of Series B-2 Stock at a price of $1.25 per share for gross cash proceeds of $1.6 million. The Company incurred issuance costs of $0.2 million in connection with the issuance of the Series B-2 Stock.
F-22
Redeemable convertible preferred stock as of December 31, 2024 and 2023, consisted of the following (in thousands, except shares):
| December 31, 2024 | ||||||||||||||||
| Shares Authorized |
Shares Issued and Outstanding |
Aggregate Liquidation Preference |
Net Carrying Value |
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| Series A |
25,194,245 | 25,194,245 | $ | 25,194 | $ | 24,965 | ||||||||||
| Series B-1 |
9,957,095 | 9,957,095 | 9,957 | 11,222 | ||||||||||||
| Series B-2 |
40,000,000 | 8,000,000 | 10,000 | 9,812 | ||||||||||||
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| Total redeemable convertible preferred stock |
75,151,340 | 43,151,340 | $ | 45,151 | $ | 45,999 | ||||||||||
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| December 31, 2023 | ||||||||||||||||
| Shares Authorized |
Shares Issued and Outstanding |
Aggregate Liquidation Preference |
Net Carrying Value |
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| Series A |
25,194,245 | 25,194,245 | $ | 25,194 | $ | 24,965 | ||||||||||
| Series B-1 |
9,957,095 | 9,957,095 | 9,957 | 11,222 | ||||||||||||
| Series B-2 |
8,000,000 | 6,720,000 | 8,400 | 8,221 | ||||||||||||
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| Total redeemable convertible preferred stock |
43,151,340 | 41,871,340 | $ | 43,551 | $ | 44,408 | ||||||||||
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The holders of the Company’s redeemable convertible preferred stock have various rights and preferences, including the following:
Liquidation Preference
In the event of any liquidation, dissolution, or winding up of the Company, or a deemed liquidation event, including a merger or consolidation, or a sale or other disposition of all or substantially all of the Company’s assets, the holders of shares of Series A redeemable convertible preferred stock (the “Series A Stock”), Series B-1 Stock and Series B-2 Stock are entitled to receive, before any payments are made to the holders of common stock, an amount per share equal to the Series A Stock, Series B-1 Stock and Series B-2 Stock original issuance price of $1.00, $1.00 and $1.25 per share, respectively, plus any dividends declared but unpaid. If the Company’s legally available assets are insufficient to satisfy the Series A Stock, Series B-1 Stock and Series B-2 Stock liquidation preference, then proceeds will be distributed with equal priority and pro rata among the holders of the Series A Stock, Series B-1 Stock and Series B-2 Stock in proportion to the preferential amount each holder was otherwise entitled to receive.
After the payment of the full liquidation preference of the redeemable convertible preferred stock, the Company’s remaining assets legally available for distribution, if any, will be distributed ratably to the holders of common stock and redeemable preferred stock on an as-if-converted basis.
Conversion
Shares of redeemable convertible preferred stock are convertible into common stock at the option of the holder at a conversion ratio that equals to the original issue price for such series, adjusted for any anti-dilution adjustments, divided by the conversion price for such series, in effect on the date of the conversion. The initial conversion price per share for convertible preferred stock is the original issuance price. The conversion ratios were one-for-one for each series of redeemable convertible preferred stock as of December 31, 2024 and 2023.
Each share of redeemable convertible preferred stock is automatically convertible into shares of common stock at the then-effective conversion ratio immediately upon (i) the vote or written consent of the holders of at least the majority of the outstanding shares of redeemable convertible preferred stock, (ii) the closing of a firm-commitment underwritten public offering with gross proceeds to the Company of at least $75.0 million and a public offering price which is at least $3.75 per share, adjusted for any anti-dilution adjustments, or (iii) closing of a special purpose acquisition company (a “SPAC”) transaction. A SPAC transaction is any business combination pursuant to which the Company is merged into, or otherwise combines with a SPAC listed on a national securities exchange, or a subsidiary of such SPAC, and the shares of capital stock of the Company outstanding immediately prior to such transaction continue to represent, immediately following such combination, a majority, by voting power, of the capital stock of the surviving or resulting corporation.
F-23
In March 2025, at the closing of the Merger, preferred stockholders of the Company converted their issued and outstanding shares of redeemable convertible preferred stock, including shares of redeemable convertible preferred stock issued upon the conversion of issued and outstanding convertible promissory notes, into shares of the Company’s common stock on a one-for-one basis in accordance with their optional conversion rights.
Dividends
The Company may not pay any dividends on common stock of the Company unless the holders of redeemable convertible preferred stock then outstanding first or simultaneously receive dividends at the same rate as dividends paid with respect to common stock or any class or series that is not convertible into common stock, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to redeemable convertible preferred stock. If the Company declares, pays or sets aside, a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of each series of redeemable convertible preferred stock is calculated based upon the dividend on the class or series of capital stock that would result in the highest dividend for such series of preferred stock. Through December 31, 2024, no dividends had been declared or paid.
Voting Rights
Each holder of redeemable convertible preferred stock is entitled to the number of votes equal to the number of shares of common stock into which such shares of preferred stock held by such holder could then be converted. The holders of redeemable convertible preferred stock vote together with the holders of common stock as a single class and on an as-converted to common stock basis.
The holders of shares of the Series A Stock, voting as a separate class, are entitled to elect three members of the board of directors. The holders of the shares of common stock, voting as a separate class, are entitled to elect one director of the Company. The holders of common stock and redeemable convertible preferred stock, voting together as a single class on an as-converted basis, are entitled to elect all remaining members of the board of directors, if any.
Redemption
The Company’s redeemable convertible preferred stock has been classified as temporary equity in the accompanying balance sheets in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities whose redemption is based upon deemed liquidation events not solely within the Company’s control, including a merger or consolidation, or, a sale or other disposition of all or substantially all of the Company’s assets. The Company has determined not to adjust the carrying values of the redeemable convertible preferred stock to the liquidation preferences of such shares because of the uncertainty of whether or when such events would occur.
10. Common Stock
As of December 31, 2024 and 2023, shares of common stock reserved for future issuance were as follows:
| December 31, | ||||||||
| 2024 | 2023 | |||||||
| Redeemable convertible preferred stock, as converted |
43,151,340 | 41,871,340 | ||||||
| Outstanding stock option awards |
5,678,073 | 564,551 | ||||||
| Shares available for future options grants |
1,104,782 | 2,062,275 | ||||||
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| Total shares reserved for future issuance |
49,934,195 | 44,498,166 | ||||||
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Common Stock Issued to Founders
In September 2019, the Company entered into restricted stock agreements with the founders of the Company to issue 5,000,000 shares of common stock to the founders at a purchase price of $0.00001 per share, which approximated fair value on the issuance date. Samsara received 1,250,000 fully vested shares, while the other two founders who are current Company directors received 3,750,000 shares that vest monthly over a four-year period starting from the issuance date. The Company reserves the right to repurchase unvested shares at the original purchase price, adjusted for any stock dividends, stock splits, reverse stock splits, or recapitalizations of the Company’s common stock occurring after the effective date of the applicable restricted stock agreement, if the founder’s services to the Company are terminated. The founder awards were accounted as a compensatory arrangement under ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). Stock-based compensation expense related to founders’ shares was de-minimis. During the year ended December 31, 2023, 703,125 shares of restricted stock vested. No shares remained unvested as of December 31, 2024 and 2023.
11. Stock Option Plan and Stock-Based Compensation
In 2019, the Company adopted the 2019 Plan, which provides for stock awards to employees, directors and consultants of the Company. Awards issuable under the 2019 Plan include incentive stock options (“ISO”), non-statutory stock options (“NSO”), restricted stock units, stock grants and stock purchase awards. As of December 31, 2024, 7,880,476 shares of common stock had been authorized for issuance and 1,104,782 shares were available for future grant under the 2019 Plan.
Options to purchase common stock may be granted at a price not less than the fair market value as established by the board of directors in the case of both NSOs and ISOs. Stock option grants under the 2019 Plan generally vest over four years. All options expire no later than ten years from the date of grant. The exercise price of ISOs granted to an employee who owns more than 10% of the voting power of all classes of stock of the Company shall be no less than 110% of the estimated fair market value of the underlying common stock on the grant date, and the contractual term is no longer than five years.
A summary of option activity under the 2019 Plan is as follows:
| Outstanding Awards | ||||||||||||||||
| Number of Shares Underlying Outstanding Options |
Weighted Average Exercise Price Per Share |
Weighted Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value (in thousands) |
|||||||||||||
| Outstanding as of December 31, 2023 |
564,551 | $ | 0.11 | 8.57 | $ | 164 | ||||||||||
| Options granted |
5,133,522 | $ | 0.17 | |||||||||||||
| Options exercised |
(20,000 | ) | $ | 0.17 | ||||||||||||
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|
|
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| Outstanding as of December 31, 2024 |
5,678,073 | $ | 0.16 | 9.23 | $ | 20,160 | ||||||||||
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|
|
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| Exercisable as of December 31, 2024 |
1,024,184 | $ | 0.14 | 8.56 | $ | 3,659 | ||||||||||
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|
|
|
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| Vested and expected to vest as of December 31, 2024 |
5,678,073 | $ | 0.16 | 9.23 | $ | 20,160 | ||||||||||
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|
|
|
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Aggregate intrinsic value represents the difference between the fair value of the underlying common stock and the exercise price as of December 31, 2024. The total fair value of options that vested during the years ended December 31, 2024 and 2023 was $0.4 million and $0.1 million, respectively. The estimated weighted-average grant date fair value of options granted for the year ended December 31, 2024 was $0.60 per share. No options were granted during the year ended December 31, 2023. As of December 31, 2024, the total unrecognized stock-based compensation expense was $2.4 million, which is expected to be recognized over a weighted-average period of 2.9 years.
Restricted Stock Awards
In February 2022, the Company issued restricted stock awards to its former president for 1,010,270 shares and a consultant for 67,351 shares, in each case, at a purchase price of $0.005 per share under the 2019 Plan. The shares related to the former president’s award vest monthly over four years starting from January 2021, while the shares related to the consultant’s award vest monthly over six years starting from January 2020. The restricted stock awards
F-25
are subject to the Company’s right of repurchase upon termination of services at a repurchase price equal to their original purchase price. Shares purchased pursuant to these awards participate in dividends and voting, are legally outstanding, and are presented as outstanding shares; however, for accounting purposes, shares purchased by employees pursuant to restricted stock awards are not considered issued until they vest according to their respective vesting schedules. Unvested awards are excluded from the calculation of net loss attributable to common stockholders as these are considered contingently issuable shares and require services to be performed as these shares continue to vest. Proceeds received from the issuance of restricted stock awards are recorded as a share repurchase liability within accrued expenses and other current liabilities on the balance sheet and reclassified to additional paid-in capital as such awards vest.
A summary of restricted stock awards activity under the 2019 Plan is as follows:
| Restricted Stock Awards |
Weighted Average Grant Date Fair Value |
|||||||
| Unvested as of December 31, 2023 |
291,165 | $ | 0.35 | |||||
| Vested |
(282,028 | ) | $ | 0.35 | ||||
|
|
|
|
|
|||||
| Unvested as of December 31, 2024 |
9,126 | $ | 0.35 | |||||
|
|
|
|
|
|||||
As of December 31, 2024, there was less than $0.1 million of unrecognized stock-based compensation related to restricted stock awards, which is expected to be recognized over a weighted-average period of 1.0 year. No restricted stock awards were repurchased or cancelled during the years ended December 31, 2024 and 2023. The Company accelerated six months of vesting of the former president’s unvested shares under the original restricted stock award terms in connection with the former president’s separation from the Company in June 2024.
Stock-Based Compensation Expense
The Black-Scholes option pricing model, used to estimate the fair value of stock-based awards, requires the use of the following assumptions:
| • | Fair value of Common Stock. The fair market value of common stock is determined by the board of directors with assistance from management and external valuation experts. The approach to estimating the fair market value of common stock is consistent with the methods outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately- Held-Company Equity Securities Issued as Compensation (the “Practice Aid”). |
In accordance with the Practice Aid, for valuation of common stock prior to December 31, 2023, the Company utilized an Option Pricing Method (“OPM”) based analysis, primarily the OPM backsolve methodology, to determine the estimated fair value of the common stock. Within the OPM framework, the backsolve method for inferring the total equity value implied by a recent financing transaction involves the construction of an allocation model that takes into account the Company’s capital structure and the rights, preferences and privileges of each class of stock, then assumes reasonable inputs for the other OPM variables (expected time to liquidity, volatility, and risk-free rate). The total equity value is then iterated in the model until the model output value for the equity class sold in a recent financing round equals the price paid in that round. The OPM is generally utilized when specific future liquidity events are difficult to forecast (i.e., the enterprise has many choices and options available), and the enterprise’s value depends on how well it follows an uncharted path through the various possible opportunities and challenges. In determining the estimated fair value of the common stock, the Company also considered the fact that the stockholders could not freely trade the common stock in the public markets. Accordingly, the Company applied discounts to reflect the lack of marketability of its common stock based on the weighted-average expected time to liquidity. The estimated fair value of the common stock at each grant date reflected a non-marketability discount partially based on the anticipated likelihood and timing of a future liquidity event.
For valuations performed after December 31, 2023 in accordance with the Practice Aid, the Company utilized the hybrid method for determining the fair value of its common stock based on its stage of development and other relevant factors. The hybrid method is a probability-weighted expected return method (“PWERM”), where the equity value in one or more scenarios is calculated using an OPM. The
F-26
PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. A discount for the lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock.
| • | Expected Term. The expected term of options granted represents the period of time that the options are expected to be outstanding. Due to the lack of historical exercise history, the expected term of the Company’s employee and non-employee stock options has been determined by calculating the midpoint of the contractual term of the options and the weighted-average vesting period. |
| • | Expected Volatility. The expected stock price volatility assumption was determined by examining the historical volatilities for comparable public companies, as the Company did not have any trading history for the common stock. |
| • | Risk-Free Interest Rate. The risk-free interest rate assumption is based on the U.S. Treasury zero-coupon issued in effect at the time of grant for periods corresponding with the expected term of the option. |
| • | Dividends. The Company has not paid any dividends on its common stock since inception and does not anticipate paying any dividends in the foreseeable future. Consequently, an expected dividend yield of zero was used. |
There were no options granted during the year ended December 31, 2023. The estimated grant-date fair value of stock options granted during the year ended December 31, 2024 was calculated based on the following assumptions:
| Year ended December 31, 2024 | ||
| Expected term (in years) |
5.18 - 6.06 | |
| Expected volatility |
103.18% - 104.88% | |
| Expected dividend yield |
0.00% | |
| Risk-free interest rate |
3.48% - 4.56% |
The following table presents the classification of stock-based compensation expense related to stock-based awards granted (in thousands):
| Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Research and development expenses |
$ | 333 | $ | 52 | ||||
| General and administrative expenses |
562 | 96 | ||||||
|
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|
|
|
|||||
| Total stock-based compensation expense |
$ | 895 | $ | 148 | ||||
|
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|
|
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The above stock-based compensation expense was related to the following stock-based awards (in thousands):
| Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Stock options |
$ | 798 | $ | 56 | ||||
| Restricted stock awards and unvested founders’ shares |
97 | 92 | ||||||
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|
|
|
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| Total stock-based compensation expense |
$ | 895 | $ | 148 | ||||
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F-27
12. Related Parties
Scientific Advisor - Board Member
In 2021, the Company entered into an advisory agreement with one of its founders and a director. For each of the years ended December 31, 2024 and 2023, the Company paid the scientific advisor a consulting fee in the amount of $50,000 for advisory services. There were no amounts due to or from this related party as of December 31, 2024 and 2023.
Samsara BioCapital L.P. and Affiliates
Since the Company’s inception, Samsara has provided in-kind research and development and general and administrative services to the Company. From April 2022, Samsara also began to provide general and administrative services for cash consideration related to (i) accounting and controllership, (ii) human resources, and (iii) executive assistance. In July 2023, the Company and Samsara entered into a Business Services Agreement (the “BSA”) that governs the provision of such services. The BSA has a term of five years and may be terminated upon 15 days written notice by either party.
The Company recognized $0.2 million as general and administrative expenses and less than $0.1 million as research and development expenses for the year ended December 31, 2024, related to the services provided by Samsara under the BSA. The Company recognized $0.2 million as general and administrative expenses and $0.1 million as research and development expenses for the year ended December 31, 2023, related to the services provided by Samsara under the BSA. In-kind services were estimated at fair value and recognized as capital contributions to additional paid-in-capital of $0.1 million and $0.2 million for the years ended December 31, 2024 and 2023, respectively. The Company recognized a $32.0 million research and development expense related to the royalty obligation under the Royalty Agreement for the year ended December 31, 2024. As of December 31, 2024 and 2023, the Company recognized $0.1 million and less than $0.1 million in accrued expenses and other current liabilities in the balance sheets, respectively, related to the services provided by Samsara under the BSA. As of December 31, 2024, the Company recognized a $32.1 million royalty obligation - related party, as a long-term liability, under the Royalty Agreement.
The Company has issued Samsara convertible promissory notes and the SAFE (Note 6), redeemable convertible preferred stock (Note 9) and common stock (Note 10). In July 2024, the Company entered into a Royalty Agreement with Samsara (Note 5).
13. Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):
| Year ended December 31, |
||||||||
| 2024 | 2023 | |||||||
| Numerator: |
||||||||
| Net loss |
$ | (69,167 | ) | $ | (14,699 | ) | ||
| Denominator: |
||||||||
| Weighted average common shares outstanding |
6,739,029 | 6,758,346 | ||||||
| Less: Weighted-average common shares subject to repurchase |
(112,405 | ) | (689,112 | ) | ||||
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|
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| Weighted-average shares outstanding, basic and diluted |
6,626,624 | 6,069,234 | ||||||
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|
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| Net loss per share attributable to common stockholders, basic and diluted: |
$ | (10.44 | ) | $ | (2.42 | ) | ||
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The potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have had an antidilutive effect were as follows:
F-28
| Year ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Redeemable convertible preferred stock as converted |
43,151,340 | 41,871,340 | ||||||
| Outstanding options to purchase common stock |
5,678,073 | 564,551 | ||||||
| Unvested restricted stock awards |
9,126 | 291,165 | ||||||
| March and 2024 Bridge Notes as converted * |
16,670,573 | — | ||||||
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|
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| Total |
65, 509,112 | 42,727,056 | ||||||
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| * | The number of shares herein is calculated based on the conversion of the March and 2024 Bridge Notes’ outstanding principal and accrued and unpaid interest as of December 31, 2024 into the Company’s common stock at the price of $1.25 per share under the noteholders’ right to convert the March and 2024 Bridge Notes’ into the Company’s common stock at any time. |
14. Income Taxes
All of the Company’s operating losses were generated in the United States. The Company has no current or deferred income tax expense for federal or state purposes for the years ended December 31, 2024 and 2023.
The reconciliation of the effective tax rate for income taxes from the federal statutory rate was as follows:
| Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Income tax computed at federal statutory rate |
21 | % | 21 | % | ||||
| State taxes |
0.1 | % | 1.5 | % | ||||
| Other permanent differences |
(4.8 | )% | (1.1 | )% | ||||
| Research credits |
0.5 | % | 5.3 | % | ||||
| Other differences |
0.9 | % | — | % | ||||
|
|
|
|
|
|||||
| Change in valuation allowance |
(17.7 | )% | (26.7 | )% | ||||
|
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|
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|
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| Effective income tax rate |
— | % | — | % | ||||
|
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|
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The following table presents significant components of the Company’s deferred tax assets and liabilities as of December 31, 2024 and 2023 (in thousands):
| Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Deferred Tax Assets: |
||||||||
| Net operating loss carry forwards |
$ | 7,360 | $ | 4,877 | ||||
| Capitalized R&D expenditures |
5,115 | 3,926 | ||||||
| Research credits |
2,226 | 1,756 | ||||||
| Accrued expenses and reserves |
8,763 | 722 | ||||||
| Other |
3 | (30 | ) | |||||
|
|
|
|
|
|||||
| Total deferred tax assets |
23,467 | 11,251 | ||||||
|
|
|
|
|
|||||
| Less: Valuation allowance |
(23,467 | ) | (11,251 | ) | ||||
|
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|
|
|
|||||
| Net deferred tax assets |
$ | — | $ | — | ||||
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|
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A valuation allowance is required to be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain. The Company has reviewed its positive and negative evidence and has concluded that it is more likely than not that the net deferred tax assets will not be realized; therefore, the Company continues to maintain a valuation allowance. The valuation allowance increased by $12.2 million and $3.8 million during the years ended December 31, 2024 and 2023, respectively, due to the generation of net operating losses.
F-29
The Company has net operating loss carryforwards for federal and state income tax purposes of $34.9 million and $4.2 million, respectively, as of December 31, 2024. The federal net operating loss carryforwards are not subject to expiration but are limited to 80% of the taxable income in the year the carryforward is used. State net operating loss carryforwards, if not utilized, will expire beginning in 2039.
As of December 31, 2024, the Company has federal and state research and development credit carryforwards of $2.2 million and $0.1 million, respectively. The federal credits will expire beginning in 2040 and the state credits can be carried forward indefinitely.
Under Section 382 of the Tax Code, the ability to utilize net operating losses carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if the Company has experienced an “ownership change.” Generally, Section 382 ownership change occurs if there is a cumulative increase of more than 50 percentage points in the stock ownership of one or more stockholders or groups of stockholders who own at least 5% of a corporation’s stock within a specified testing period. Similar rules may apply under state tax laws. As of December 31, 2024, the Company has completed the Section 382 analysis from inception through the year ended December 31, 2024. The Company experienced an ownership change in March 2022 related to the redeemable convertible preferred stock financing. Net operating loss of $3.6 million generated prior to the 2022 change in ownership will be permanently limited for California tax purposes. Net federal operating losses are not limited as they can be carried forward indefinitely. The Company may experience ownership changes as a result of future financing or other changes in stock ownership.
The Tax Cuts and Jobs Act of 2017 contains a provision that requires the capitalization of Section 174 costs incurred in years beginning on or after January 1, 2022. Section 174 costs are expenditures that represent research and development costs that are incidental to the development or improvement of a product, process, formula, invention, computer software or technique. This provision changes the treatment of Section 174 costs such that the expenditures are no longer allowed as an immediate deduction but rather must be capitalized and amortized over five years for domestic research and development and fifteen years for foreign research and development.
Uncertain Tax Positions
A reconciliation of the beginning and ending balances of the unrecognized tax benefits during the year ended December 31, 2024 and 2023, is as follows (in thousands):
| Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Beginning balance |
$ | 514 | $ | 222 | ||||
| Increase in tax positions in the current period |
166 | 292 | ||||||
|
|
|
|
|
|||||
| Ending balance |
$ | 680 | $ | 514 | ||||
|
|
|
|
|
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The entire amount of the unrecognized tax benefits would not impact on the Company’s effective tax rate if recognized, due to the valuation allowance. The Company has elected to include interest and penalties as a component of tax expense. During the years ended December 31, 2024 and 2023, the Company did not recognize accrued interest and penalties related to unrecognized tax benefits.
The Company files tax returns in the U.S., California and other various states. The Company is currently not under examination in any of these jurisdictions and all its tax years remain effectively open to examination due to net operating loss carryforwards.
15. Defined Contribution plan
The Company sponsors a 401(k) plan (the “401(k) Plan”), which stipulates that eligible employees can elect to contribute to the 401(k) Plan, subject to certain limitations of eligible compensation. The Company may match employee contributions in amounts to be determined at the Company’s sole discretion. The Company’s matching contributions during the years ended December 31, 2024 and 2023 were immaterial.
F-30
16. Subsequent Events
The Company has evaluated subsequent events for financial statement purposes occurring through March 18, 2025, the date these financial statements were available to be issued.
Convertible Promissory Notes
Pursuant to the Merger Agreement, the Company was permitted to enter into a series of financings to fund its operations prior to the closing of the Merger in an amount not to exceed $15.0 million in the aggregate on a to be converted post-money basis, with up to $7.5 million to be provided by AlloVir and up to $7.5 million to be provided by the Company’s stockholders (the “Additional Permitted Bridge Financing”).
In January 2025, the Company amended its 2024 Bridge Notes agreement and changed the amounts of Subsequent Tranche Closings from $5.0 million for each tranche to $3.75 million for the first two tranches and $7.5 million for the third tranche. No other changes were made to the terms of the 2024 Bridge Notes. In January 2025, Samsara and other investors funded an aggregate principal amount of $3.75 million in convertible promissory notes as part of the first tranche of the Additional Permitted Bridge Financing (the “2025 Bridge Notes”). Samsara and other investors agreed that the convertible promissory notes issued in the Additional Permitted Bridge Financing will be converted into the Series B-2 redeemable convertible preferred stock shares at a price per share equal to the Company Value Per Share.
In January 2025, also as part of the Additional Permitted Bridge Financing, the Company issued a convertible promissory note in an aggregate principal amount of up to $7.5 million to AlloVir (the “AlloVir Note”), under which AlloVir funded a principal amount of $3.75 million in January 2025.
Prior to the closing of the Merger, the Company had the opportunity to receive an additional $7.5 million in the second tranche of the Additional Permitted Bridge Financing, of which $3.75 million would have been provided by the Company’s existing stockholders and the remaining $3.75 million would have been provided by AlloVir. However, the second tranche of the Additional Permitted Bridge Financing was not funded prior to the closing of the Merger.
In March 2025, at the closing of the Merger, the AlloVir Note was cancelled in accordance with its terms. Kalaris and other noteholders entered into an acknowledgment of conversion and termination agreement to cancel all unfunded tranches of the Subsequent Tranche Closings. Outstanding principal and accrued interest of the March 2024 Note and the 2024 Bridge Notes were converted into 16,958,568 shares of common stock at $1.25 price per share in accordance with the optional conversion provisions of the notes. Outstanding principal and accrued interest of the 2025 Bridge Notes were converted into 794,499 shares of Series B-2 redeemable convertible preferred stock at $4.79 price per share, which is the Company Value Per Share.
Lease Agreement
On February 4, 2025, the Company entered into an agreement to lease office space in Berkley Heights, New Jersey. The term of the lease is 76 months with total estimated rent payments of $2.1 million and a rent-free period for the first four months. In addition to the base rent, the Company will pay its share of operating expenses and taxes. The Company can extend the lease term twice for an additional three years and it can terminate the lease after four years and four months after the lease commencement date with a termination penalty of $0.3 million. The lessor provided the Company with a tenant improvement allowance of up to $0.4 million for the Company’s leasehold improvements. In conjunction with signing the lease, the Company secured a letter of credit in favor of the lessor in the amount of $0.5 million, which will be reduced to $0.2 million over five years.
Merger with AlloVir
On March 18, 2025, the Merger of the Company and AlloVir closed. Refer to Note 1 for additional details.
F-31
Exhibit 99.6
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
AlloVir, Inc., a Delaware corporation (“AlloVir”), and Kalaris Therapeutics, Inc., a Delaware corporation (“Legacy Kalaris”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) on November 7, 2024. The merger was completed at the effective time (the “Effective Time”) on March 18, 2025 (the “Closing). Pursuant to the Merger Agreement, among other matters, Aurora Merger Sub, Inc., a wholly owned subsidiary of AlloVir (“Merger Sub”), merged with and into Legacy Kalaris, with Legacy Kalaris surviving as a wholly-owned subsidiary of AlloVir (such transaction, the “Merger”). The Merger is intended to qualify for federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. Immediately following the Effective Time, AlloVir changed its name to Kalaris Therapeutics, Inc. AlloVir, together with its consolidated subsidiary, Legacy Kalaris, are referred to herein as the “Combined Company”.
At the Effective Time, (a) each share of Legacy Kalaris’ convertible preferred stock outstanding immediately prior to the Effective Time was converted into shares of Legacy Kalaris’ common stock, par value $0.00001 (“Legacy Kalaris’ Common Stock”) in accordance with its terms (the “Legacy Kalaris Preferred Stock Conversion”), (b) each share of Legacy Kalaris’ Common Stock issued and outstanding immediately prior to the Effective Time (after giving effect to the Legacy Kalaris Preferred Stock Conversion) (excluding shares (i) held as treasury stock and automatically cancelled pursuant to the Merger Agreement, (ii) owned, directly or indirectly, by AlloVir or Merger Sub immediately prior to the Effective Time or (iii) as to which appraisal rights have been properly exercised in accordance with Delaware law, but including restricted shares of Legacy Kalaris’ Common Stock that are unvested and outstanding immediately prior to the Effective Time), including shares of Legacy Kalaris’ Common Stock that were issued upon conversion of outstanding Legacy Kalaris convertible promissory notes, converted into and became exchangeable for the right to receive a number of shares of AlloVir’s Common Stock, par value $0.0001 (“AlloVir’s Common Stock”) based on an agreed upon ratio determined to be 0.2016 shares of AlloVir’s Common Stock for each share of Legacy Kalaris’ Common Stock (the “Exchange Ratio) and (c) each award of restricted shares of Legacy Kalaris’ Common Stock that was unvested and outstanding converted into and became exchangeable for the right to receive a number of restricted shares of AlloVir’s Common Stock based on the Exchange Ratio.
In October 2024, Legacy Kalaris entered into a convertible note purchase agreement with an existing investor to issue to such investor and other investors who subsequently joined the agreement up to $25.0 million of convertible promissory notes with a maturity date of May 31, 2025 (the “Convertible Note Financing”). In October and November 2024, Legacy Kalaris received $10.0 million in the initial closings of the Convertible Note Financing (the “Pre-Signing Financing”). Pursuant to the Merger Agreement, Legacy Kalaris was permitted to enter into a series of financings to fund its operations prior to the Closing in an amount not to exceed $15.0 million, with up to $7.5 million to be provided by AlloVir and up to $7.5 million to be provided by existing Legacy Kalaris stockholders (the “Pre-Closing Financing”). In January 2025, Legacy Kalaris received $7.5 million in the first tranche of the Pre-Closing Financing, of which $3.75 million was provided by existing Legacy Kalaris stockholders and the remaining $3.75 million was provided by AlloVir (the “AlloVir Note”).
Immediately prior to the Effective Time, (i) the outstanding principal and accrued but unpaid interest on convertible notes issued by Legacy Kalaris in January 2025 (other than the AlloVir Note) converted into shares of Legacy Kalaris Series B-2 Preferred Stock at a price of $4.7851 per share, and (ii) the outstanding principal and accrued but unpaid interest on convertible notes issued by Legacy Kalaris in 2024 converted into shares of Legacy Kalaris’ Common Stock at a price of $1.25 per share. At the Effective Time, the AlloVir Note was cancelled.
Each outstanding option to purchase shares of Legacy Kalaris’ Common Stock granted by Legacy Kalaris under Legacy Kalaris’ 2019 Equity Incentive Plan, as amended (the “2019 Plan”) whether or not vested, was converted into an option to acquire a number of shares of AlloVir’s Common Stock on the same terms and conditions (including the same vesting and exercisability terms and conditions) as were applicable under the 2019 Plan and the applicable option award agreement immediately prior to the Effective Time, with necessary adjustments to the number of shares and exercise price to reflect the Exchange Ratio.
Immediately prior to the Effective Time, each option to purchase shares of AlloVir’s Common Stock (each, an “AlloVir Option”) that was outstanding immediately prior to the Effective Time, whether vested or unvested, survived the Closing and remains outstanding in accordance with its terms, provided that (i) each unexercised and outstanding AlloVir Option with an exercise price per share equal to or greater than $92.00 was cancelled for no consideration, and (ii) each AlloVir Option that had an exercise price per share less than $92.00, was unvested and unexercised as of the Effective Time, was accelerated in full. Additionally, immediately prior to the Effective Time, each outstanding and unvested AlloVir restricted stock unit was accelerated in full and settled in shares of AlloVir’s Common Stock.
Under the Exchange Ratio formula in the Merger Agreement, the former Legacy Kalaris equity holders immediately before the Effective Time (after giving effect to the Pre-Signing Financing, the Pre-Closing Financing and excluding any shares reserved for future equity awards) own approximately 74.47% of the Combined Company on a fully-diluted basis, and the stockholders of AlloVir immediately before the Effective Time own approximately 25.53% of the Combined Company on a fully-diluted basis.
The following unaudited pro forma condensed combined financial information gives effect to (i) the Merger and (ii) the Pre-Closing Financing.
In the unaudited pro forma combined financial statements, the Merger was accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles (“GAAP”). Under this method of accounting, Legacy Kalaris was deemed to be the accounting acquirer for financing reporting purposes. This determination was primarily based on the fact that, immediately following the Merger: (1) Legacy Kalaris’ stockholders own a substantial majority of the voting rights of the Combined Company inclusive of Samsara BioCapital, LP, as a legacy stockholder of Legacy Kalaris holding a majority of the voting rights of the Combined Company; (2) Legacy Kalaris designated a majority of the initial members of the board of directors of the Combined Company; and (3) other than with respect to the Combined Company’s chief financial officer, for which AlloVir and Legacy Kalaris have commenced a search for a qualified candidate, Legacy Kalaris’ senior management (which are determined by the board of directors of the Combined Company) hold all key positions in senior management of the Combined Company. The Combined Company does not have a chief financial officer following the Merger. Brett Hagen, AlloVir’s Chief Accounting Officer, will continue in that role after the Merger. Mr. Hagen will also serve as principal financial officer and principal accounting officer until a chief financial officer is hired. For accounting purposes, the Merger is treated as the equivalent of Legacy Kalaris issuing stock to acquire the net assets of AlloVir. Following the Closing, the net assets of AlloVir will be recorded at their acquisition-date fair value in the financial statements of Legacy Kalaris and the reported operating results prior to the Merger will be those of Legacy Kalaris.
The unaudited pro forma combined balance sheet data as of December 31, 2024 assumes that the Merger took place on December 31, 2024 and combines the AlloVir and Legacy Kalaris historical balance sheets as of December 31, 2024. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2024 assumes that the Merger took place on January 1, 2024 and combines the historical results of AlloVir and Legacy Kalaris for the year ended December 31, 2024.
The historical financial statements of AlloVir and Legacy Kalaris have been adjusted to give pro forma effect to reflect the accounting for the transaction in accordance with U.S. GAAP. The adjustments presented on the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the Combined Company upon consummation of the Merger.
The unaudited pro forma condensed combined financial information is based on assumptions and adjustments that are described in the accompanying notes. The unaudited pro forma condensed combined financial information is for illustrative purposes only. The financial results may have been different had the companies been combined as of the dates and for the periods presented. The unaudited pro forma condensed combined financial information should not be relied upon as being indicative of the historical results that would have been achieved had the companies been combined as of the dates and for the periods presented or the future results that the Combined Company will experience. The actual amounts recorded as of the completion of the Merger may differ materially from the information presented in this unaudited pro forma combined financial information as a result, if any, of the amount of financing raised by Legacy Kalaris between the signing of the Merger Agreement and the Closing, the amount of cash used by AlloVir’s operations between the signing of the Merger Agreement and the Closing, the timing of the Closing, and other changes in AlloVir’s assets and liabilities that occur prior to the completion of the Merger.
The unaudited pro forma condensed combined financial statements, including the notes thereto, should be read in conjunction with the (i) historical audited financial statements of Legacy Kalaris and the section titled “Kalaris’ Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Current Report on Form 8-K and (ii) historical audited consolidated financial statements of AlloVir and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in AlloVir’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of December 31, 2024
(in thousands, except share and per share data)
| Legacy Kalaris |
AlloVir | Transaction Accounting Adjustments |
Pro Forma Combined |
|||||||||||||||
| ASSETS |
||||||||||||||||||
| Current assets: |
||||||||||||||||||
| Cash and cash equivalents |
$ | 1,639 | $ | 118,289 | $ | 7,500 | A | $ | 115,046 | |||||||||
| (3,750 | ) | A | ||||||||||||||||
| (3,544 | ) | G | ||||||||||||||||
| (5,088 | ) | D | ||||||||||||||||
| Loans receivable |
— | — | 3,750 | A | — | |||||||||||||
| (3,750 | ) | H | ||||||||||||||||
| Prepaid expenses and other current assets |
967 | 257 | — | 1,224 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total current assets |
2,606 | 118,546 | (4,882 | ) | 116,270 | |||||||||||||
| Deferred transaction costs |
3,146 | — | (3,146 | ) | F | — | ||||||||||||
| Other non-current assets |
410 | — | — | 410 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total assets |
$ | 6,162 | $ | 118,546 | $ | (8,028 | ) | $ | 116,680 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT) |
||||||||||||||||||
| Current liabilities: |
||||||||||||||||||
| Accounts payable |
$ | 1,560 | $ | 247 | $ | (230 | ) | G | $ | 1,577 | ||||||||
| Accrued research and development expenses |
659 | — | — | 659 | ||||||||||||||
| Accrued compensation(1) |
591 | 3,035 | (2,449 | ) | D | 1,117 | ||||||||||||
| Accrued expenses and other current liabilities(1) |
945 | 1,957 | 7,247 | B, C | 6,835 | |||||||||||||
| (3,314 | ) | G | ||||||||||||||||
| Convertible promissory notes |
19,541 | — | 7,500 | A | — | |||||||||||||
| (23,291 | ) | F | ||||||||||||||||
| (3,750 | ) | H | ||||||||||||||||
| Derivative liabilities |
1,042 | — | (1,042 | ) | F | — | ||||||||||||
| Tranche liability |
365 | — | (365 | ) | F | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total current liabilities |
24,703 | 5,239 | (19,694 | ) | 10,248 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Royalty obligation |
32,076 | — | — | 32,076 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities |
56,779 | 5,239 | (19,694 | ) | 42,324 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Commitments and contingencies |
||||||||||||||||||
| Redeemable convertible preferred stock |
45,999 | — | (45,999 | ) | E | — | ||||||||||||
| Stockholders’ equity (deficit): |
||||||||||||||||||
| Preferred stock |
— | — | — | — | ||||||||||||||
| Common stock |
— | — | 1 | F | 1 | |||||||||||||
| Additional paid-in capital |
19,945 | 828,404 | (649,809 | ) | B, F, K | 198,540 | ||||||||||||
| Accumulated other comprehensive loss |
— | (135 | ) | 135 | F | — | ||||||||||||
| Accumulated deficit |
(116,561 | ) | (714,962 | ) | 707,338 | C, D, F, K | (124,185 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total stockholders’ equity (deficit) |
(96,616 | ) | 113,307 | 57,665 | F | 74,356 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) |
$ | 6,162 | $ | 118,546 | $ | (8,028 | ) | $ | 116,680 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| (1) | AlloVir historical amounts have been reclassified for pro forma presentation purposes as follows: |
| As Originally Reported |
Reclassified for Pro Forma |
|||||||
| Financial Statement Line Item |
||||||||
| Accrued compensation |
$ | — | $ | 3,035 | ||||
| Accrued expenses and other current liabilities |
4,992 | 1,957 | ||||||
|
|
|
|
|
|||||
| $ | 4,992 | $ | 4,992 | |||||
|
|
|
|
|
|||||
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 2024
(in thousands, except share and per share data)
| Legacy Kalaris |
AlloVir | Transaction Accounting Adjustments |
Pro Forma Combined |
|||||||||||||||
| Operating expenses: |
||||||||||||||||||
| Research and development |
$ | 45,042 | $ | 12,340 | $ | — | $ | 57,382 | ||||||||||
| General and administrative |
6,690 | 42,916 | 7,624 | I, J, K | 57,230 | |||||||||||||
| Restructuring costs |
— | 10,185 | — | 10,185 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total operating expenses |
51,732 | 65,441 | 7,624 | 124,797 | ||||||||||||||
| Loss from operations |
(51,732 | ) | (65,441 | ) | (7,624 | ) | (124,797 | ) | ||||||||||
| Other income (expenses) |
||||||||||||||||||
| Change in fair value of tranche liability |
21,012 | — | (21,012 | ) | L | — | ||||||||||||
| Change in fair value of derivative liabilities |
2,084 | — | (2,084 | ) | M | — | ||||||||||||
| Interest (expense) income |
(2,701 | ) | 5,486 | 2,701 | N | 5,486 | ||||||||||||
| Loss on issuance and on extinguishment of convertible promissory notes |
(38,018 | ) | — | 38,018 | O | — | ||||||||||||
| Other income, net |
188 | 1,186 | — | 1,374 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total other (expense) income, net |
(17, 435 | ) | 6,672 | 17,623 | 6,860 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Net loss |
$ | (69,167 | ) | $ | (58,769 | ) | $ | 9,999 | $ | (117,937 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Net loss per share attributable to common stockholders, basic and diluted |
$ | (10.44 | ) | $ | (11.73 | ) | $ | — | $ | (6.32 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Weighted-average shares outstanding, basic and diluted |
6,626,624 | 5,008,449 | 7,011,649 | P | 18,646,722 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
Notes to Unaudited Pro Forma Combined Financial Statements
| 1. | Description of the Transactions |
Merger
On November 7, 2024, AlloVir, Legacy Kalaris and Merger Sub entered into the Merger Agreement. The merger was completed on March 18, 2025. At the Effective Time, each share of Legacy Kalaris’ Common Stock outstanding (after giving effect to the Legacy Kalaris Preferred Stock Conversion) (excluding shares (i) held as treasury stock and automatically cancelled pursuant to the Merger Agreement, (ii) owned, directly or indirectly, by AlloVir or Merger Sub immediately prior to the Effective Time or (iii) as to which appraisal rights have been properly exercised in accordance with Delaware law, but including restricted shares of Legacy Kalaris’ Common Stock that are unvested and outstanding immediately prior to the Effective Time), including shares of Legacy Kalaris’ Common Stock that were issued upon conversion of outstanding Legacy Kalaris convertible promissory notes, converted into and became exchangeable for the right to receive a number of shares of AlloVir’s Common Stock based on the Exchange Ratio. The Exchange Ratio was determined to be 0.2016 shares of AlloVir’s Common Stock for each share of Legacy Kalaris’ Common Stock. Under the Exchange Ratio formula in the Merger Agreement, the former Legacy Kalaris equity holders immediately before the Effective Time will own approximately 74.47% of the Combined Company on a fully-diluted basis, and the stockholders of AlloVir immediately before the Effective Time are expected to own approximately 25.53% of the Combined Company on a fully-diluted basis.
In addition, immediately prior to the Effective Time,
| • | each unexercised and outstanding AlloVir stock option with an exercise price per share equal to or greater than $92.00 was cancelled for no consideration and all other unexpired, unexercised and unvested AlloVir stock options accelerated in full; and |
| • | each outstanding and unvested AlloVir restricted stock unit and each outstanding and unvested AlloVir restricted share accelerated in full and each outstanding and unsettled AlloVir restricted stock unit was settled in shares of AlloVir’s Common Stock. |
At the Effective Time, each option to purchase shares of Legacy Kalaris’ Common Stock (a “Legacy Kalaris Option”) that was outstanding and unexercised immediately prior to the Effective Time granted under the 2019 Plan, whether or not vested, was, along with the 2019 Plan, assumed by AlloVir and became an option to purchase solely that number of shares of AlloVir’s Common Stock equal to the product obtained by multiplying (i) the number of shares of Legacy Kalaris’ Common Stock that were subject to such Legacy Kalaris Option immediately prior to the Effective Time by (ii) the Exchange Ratio, and rounding the resulting number down to the nearest whole number of shares of AlloVir’s Common Stock. The per share exercise price for AlloVir’s Common Stock issuable upon exercise of each Legacy Kalaris Option assumed by AlloVir was determined by dividing (a) the per share exercise price of Legacy Kalaris’ Common Stock subject to such Legacy Kalaris Option, as in effect immediately prior to the Effective Time, by (b) the Exchange Ratio, and rounding the resulting exercise price up to the nearest whole cent. Any restriction on the exercise of any Legacy Kalaris Option assumed by AlloVir will continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such Legacy Kalaris Option otherwise remain unchanged.
Each award of restricted shares of Legacy Kalaris’ Common Stock (such shares, collectively, the “Legacy Kalaris’ Restricted Shares”) that was unvested and outstanding immediately prior to the Effective Time converted into a number of shares of AlloVir’s Common Stock equal to the product of (x) the number of Legacy Kalaris’ Restricted Shares and (y) the Exchange Ratio; and such converted shares of AlloVir’s Common Stock became subject to the terms and conditions (including, without limitation, vesting and repurchase provisions) that are otherwise the same as were applicable to such Legacy Kalaris’ Restricted Shares as of immediately prior to the Effective Time.
Convertible Note Financing
The convertible promissory notes issued in the Pre-Signing Financing were converted into shares of Legacy Kalaris’ Common Stock at a conversion price of $1.25 per share. The convertible promissory notes that were issued under the Pre-Closing Financing to Legacy Kalaris stockholders were converted into shares of Legacy Kalaris’ convertible preferred stock at price of a $4.7851 per share. The convertible promissory note that was issued in the Pre-Closing Financing to AlloVir was cancelled upon the Closing and the aggregate amount outstanding (including accrued interest) under such convertible promissory notes was added to AlloVir’s net cash balance for the purposes of the Exchange Ratio calculation. Shares of Legacy Kalaris’ Common Stock and Legacy Kalaris’ preferred stock issued pursuant to the conversion of the convertible promissory notes were converted into shares of AlloVir’s Common Stock in the Merger in accordance with the Exchange Ratio.
| 2. | Basis of Presentation |
The accompanying unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of SEC Regulation S-X. The unaudited pro forma condensed combined balance sheet as of December 31, 2024 was prepared using the historical balance sheets of Legacy Kalaris and AlloVir as of December 31, 2024 and gives effect to the Merger as if it occurred on December 31, 2024. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2024 assumes that the Merger took place on January 1, 2024 and combines the historical results of AlloVir and Legacy Kalaris for the year ended December 31, 2024.
For accounting purposes, the Merger was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Legacy Kalaris was deemed to be the accounting acquirer for financing reporting purposes. For accounting purposes, the Merger was treated as the equivalent of Legacy Kalaris issuing stock to acquire the net assets of AlloVir. Following the Closing, the net assets of AlloVir were recorded at their acquisition-date fair value in the financial statements of Legacy Kalaris and the reported operating results prior to the Merger will be those of Legacy Kalaris.
For purposes of these pro forma financial statements, this estimated purchase price consideration consists of the following:
| Number of shares of the Combined Company to be owned by AlloVir stockholders(1) |
5,067,669 | |||
| Multiplied by the assumed price per share of AlloVir Common Stock(2) |
$ | 9.67 | ||
| Estimated fair value of shares of Combined Company to be owned by AlloVir stockholders |
$ | 49,004,359 | ||
| Estimated fair value of assumed AlloVir equity awards based on precombination service(3) |
$ | 23,402 | ||
|
|
|
|||
| $ | 49,027,761 | |||
|
|
|
| (1) | Reflects the number of shares of common stock of the Combined Company that AlloVir equity holders will own as of the Closing pursuant to the Merger Agreement, including 24,017 shares issued with respect to AlloVir’s restricted stock units. This amount is calculated, for purposes of this unaudited pro forma condensed combined financial information, based on shares of AlloVir’s Common Stock outstanding as of March 18, 2025. |
| (2) | Reflects the assumed price per share of AlloVir Common Stock of $9.67, which is the closing trading price of AlloVir Common Stock on The Nasdaq Capital Market on March 12, 2025. The actual share price will fluctuate until the effective date of the transaction. A 10% increase (decrease) to the AlloVir share price would increase (decrease) the purchase price by $4.9 million. |
| (3) | Reflects the estimated acquisition-date fair value of the assumed AlloVir’s equity awards attributable to precombination service which amount was determined based on the closing trading price of AlloVir common stock on The Nasdaq Capital Market on March 12, 2025, the number of AlloVir equity awards outstanding on March 18, 2025, and the period of service provided by the holders of the awards through the Merger closing date. |
The actual purchase consideration will vary based on the trading price of AlloVir’s Common Stock at the Closing as described above and the difference could be material. As such, the estimated purchase consideration reflected in these unaudited pro forma condensed combined financial information does not purport to represent what the actual purchase consideration will be when the Merger is completed.
Under reverse recapitalization accounting, the assets and liabilities of AlloVir were recorded, as of the completion of the Merger, at their relative fair value which approximates to cost. No goodwill or intangible assets were recognized and any excess consideration transferred over the fair value of the net assets of AlloVir following determination of the actual purchase consideration for AlloVir was reflected as a reduction to additional paid-in capital.
Consequently, the financial statements of Legacy Kalaris reflect the operations of the acquirer for accounting purposes together with a deemed issuance of shares, equivalent to the shares held by the former stockholders of the legal acquirer and a recapitalization of the equity of the accounting acquirer. The accompanying unaudited proforma condensed combined financial information is derived from the historical financial statements of AlloVir and Legacy Kalaris and include adjustments to give pro forma effect to reflect the accounting for the transaction in accordance with U.S. GAAP. The historical financial statements of Legacy Kalaris shall become the historical financial statements of the Combined Company.
Legacy Kalaris and AlloVir may incur significant costs associated with integrating the operations of Legacy Kalaris and AlloVir after the Merger is completed. The unaudited pro forma condensed combined financial information does not reflect the costs of any integration activities or benefits that may result from realization of future cost savings from operating efficiencies expected to result from the Merger.
To the extent there are significant changes to the business following completion of the Merger, the assumptions and estimates set forth in the unaudited pro forma condensed consolidated financial information could change significantly. Accordingly, the pro forma adjustments are subject to further adjustments as additional information becomes available and as additional analyses are conducted following the completion of the Merger. There can be no assurances that these additional analyses will not result in material changes to the estimates of fair value.
| 3. | Shares of AlloVir’s Common Stock Issued to Legacy Kalaris Stockholders upon Closing of the Merger |
Immediately prior to the Effective Time, all outstanding shares of Legacy Kalaris’ convertible preferred stock were converted into 43,151,340 share of Legacy Kalaris’ Common Stock, and then exchanged for shares of AlloVir’s Common Stock based on the Exchange Ratio. The outstanding Legacy Kalaris’ convertible promissory notes and accrued interest issued in the Pre-Signing Financing converted into 16,958,568 shares of Legacy Kalaris’ Common Stock at a per share price of $1.25 immediately prior to the Effective Time. The outstanding Legacy Kalaris convertible promissory notes and accrued interest issued in the Pre-Closing Financing to existing Legacy Kalaris stockholders converted into 794,499 shares of Legacy Kalaris’ preferred stock at a per share price equal to $4.7851. The outstanding Legacy Kalaris convertible promissory notes issued in Pre-Closing Financing to AlloVir were cancelled upon the Closing and the aggregate amount outstanding (including accrued interest) under such convertible promissory notes was added to AlloVir’s net cash balance for the purposes of the Exchange Ratio calculation. The Exchange Ratio was determined as follows:
| Legacy Kalaris’ Common Stock outstanding |
6,728,346 | |||
| Shares of Legacy Kalaris’ Common Stock issued upon conversion of redeemable convertible preferred stock |
43,151,340 | |||
| Shares of Legacy Kalaris’ Common Stock issued upon conversion of convertible promissory notes |
17,753,067 | |||
|
|
|
|||
| 67,632,753 | ||||
|
|
|
|||
| Exchange ratio |
0.2016 | |||
|
|
|
|||
| Shares of AlloVir Common Stock issued to Legacy Kalaris’ stockholders at Closing(1) |
13,634,744 | |||
|
|
|
| (1) | The number of shares of AlloVir’s Common Stock issued to Legacy Kalaris stockholders at the Closing is calculated by applying the Exchange Ratio to each individual share certificate. |
| 4. | Proforma Adjustments |
The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X, which requires entities to apply pro forma adjustments that depict the accounting for the transaction (“Transaction Accounting Adjustments”). AlloVir has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the following unaudited pro forma condensed combined financial information.
Based on Legacy Kalaris management’s review of AlloVir’s summary of significant accounting policies, the nature and amount of any adjustments to the historical financial statements of AlloVir to conform to the accounting policies of Legacy Kalaris are not expected to be significant. The pro forma adjustments, based on estimates that could change materially as additional information is obtained, are as follows:
| A. | To reflect $7.5 million of gross proceeds received by Legacy Kalaris in connection with the Pre-Closing Financing in January 2025. AlloVir participated in the Pre-Closing Financing and contributed $3.75 million. The amount of AlloVir convertible promissory notes issued to it by Legacy Kalaris of $3.75 million is presented as loans receivable and a reduction in cash and cash equivalents, due to the cash outflow from AlloVir, in the unaudited pro forma condensed combined balance sheet as of December 31, 2024. |
| B. | To reflect estimated transaction costs not yet reflected in historical financial statements of $2.4 million in connection with the Merger, including adviser fees, legal fees and accounting expenses that are expected to be incurred by Legacy Kalaris as an increase in accrued liabilities and a reduction to additional paid-in capital in the unaudited proforma condensed combined balance sheet. As the Merger was accounted for as a reverse recapitalization equivalent to the issuance of equity for the net assets, primarily cash, of AlloVir, these direct and incremental costs are treated as a reduction of the net proceeds received within additional paid-in capital. |
| C. | To reflect estimated transaction costs not yet reflected in historical financial statements of $4.9 million in connection with the Merger, including adviser fees, legal fees, director and officer liability insurance and accounting expenses, that are expected to be incurred by AlloVir as an increase in accrued liabilities and accumulated deficit in the unaudited proforma condensed combined balance sheet. |
| D. | To reflect payment of compensation expense related to severance, retention and transaction bonuses resulting from preexisting employment agreements in connection with the Merger, of which $2.5 million is included in accrued compensation as of December 31, 2024 and $2.6 million is not yet recognized in historical financial statements and is reflected as an increase to accumulated deficit in the unaudited pro forma condensed combined balance sheet. |
| E. | To reflect the conversion of 43,151,340 shares of Legacy Kalaris’ convertible preferred stock into 43,151,340 shares of Legacy Kalaris’ Common Stock immediately prior to the Merger and accompanying reclassification of the carrying amount of the redeemable convertible preferred stock of Legacy Kalaris into Legacy Kalaris’ Common Stock in the amount of par value and into additional paid-in capital in the amount of the excess over the par value. |
| F. | To record: |
| (i) | the conversion of Legacy Kalaris’ redeemable convertible preferred stock into 43,151,340 shares of common stock as described in (E) above, |
| (ii) | the accrual of transaction costs associated with the Merger described in (B) and (C) above, |
| (iii) | accrual of severance and retention bonuses in connection with the Merger not yet recognized in historical financial statements, described in (D) above, |
| (iv) | post-combination compensation expense of $0.1 million related to AlloVir options recognized upon the Closing described in (K) below, |
| (v) | issuance of 17,753,067 shares of common stock upon conversion of convertible promissory notes with the carrying amount of $23.3 million and settlement of the accompanying derivative liabilities with the carrying amount of $1.0 million and tranche liability with the carrying amount of $0.4 million, with such amounts reflected as an increase in additional paid-in capital, |
| (vi) | to reflect reclassification of deferred transaction costs of $3.1 million incurred by Legacy Kalaris in connection with the Merger to additional paid-in capital, |
| (vii) | the exchange of outstanding Legacy Kalaris’ Common Stock, par value $0.00001 into 13,634,744 shares of AlloVir’s Common Stock, par value $0.0001 based on the Exchange Ratio for purposes of these pro forma condensed combined financial information (see also Note 3), |
| (viii) | the elimination of AlloVir’s historical equity, including 5,040,640 outstanding shares of common stock at their par value of $0.0001 per share, $0.1 million of accumulated other comprehensive loss, $715.0 million of accumulated deficit and $828.4 million of additional paid-in capital, and |
| (ix) | the effect of the reverse recapitalization of AlloVir for a total of $113.3 million, which is the net assets of AlloVir as of December 31, 2024 (see also Note 2 for the number of shares of AlloVir’s Common Stock to be owned by AlloVir stockholders). |
| Common Stock | Additional paid-in- capital |
Accumulated deficit |
Accumulated other comprehensive loss |
Total Stockholders’ Equity |
||||||||||||||||||||||||||||
| Legacy Kalaris | AlloVir | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||
| Conversion of outstanding Legacy Kalaris’ redeemable convertible preferred stock into common stock(i) |
43,151,340 | $ | — | — | $ | — | $ | 45,999 | $ | — | $ | — | $ | 45,999 | ||||||||||||||||||
| Accrual of transaction costs(ii) |
— | — | — | — | (2,369 | ) | (4,878 | ) | — | (7,247 | ) | |||||||||||||||||||||
| Accrual of severance and retention bonuses(iii) |
— | — | — | — | — | (2,639 | ) | — | (2,639 | ) | ||||||||||||||||||||||
| Post-combination stock-based compensation costs(iv) |
— | — | — | — | 107 | (107 | ) | — | — | |||||||||||||||||||||||
| Conversion of convertible promissory notes(v) |
17,753,067 | — | — | — | 23,291 | — | — | 23,291 | ||||||||||||||||||||||||
| Settlement of derivative liabilities upon conversion of convertible promissory notes(v) |
— | — | — | — | 1,042 | — | — | 1,042 | ||||||||||||||||||||||||
| Settlement of tranche liability upon conversion of convertible promissory notes(v) |
— | — | — | — | 365 | — | — | 365 | ||||||||||||||||||||||||
| Reclassification of deferred transaction costs(vi) |
— | — | — | — | (3,146 | ) | — | — | (3,146 | ) | ||||||||||||||||||||||
| Exchange of outstanding Legacy Kalaris’s common stock into AlloVir’s common stock based on the assumed Exchange Ratio(vii) |
(67,632,753 | ) | — | 13,634,744 | 1 | (1 | ) | — | — | — | ||||||||||||||||||||||
| Elimination of AlloVir’s historical equity(viii) |
— | — | (5,040,640 | ) | — | (828,404 | ) | 714,962 | 135 | (113,307 | ) | |||||||||||||||||||||
| Reverse recapitalization of AlloVir(ix) |
— | — | 5,067,669 | — | 113,307 | — | — | 113,307 | ||||||||||||||||||||||||
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| Pro forma adjustment |
(6,728,346 | ) | $ | — | 13,661,773 | $ | 1 | $ | (649,809 | ) | $ | 707,338 | $ | 135 | $ | 57,665 | ||||||||||||||||
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| G. | To reflect payment of costs incurred in respect of legal and accounting fees by Legacy Kalaris and AlloVir of $1.2 million and $2.4 million, respectively, which are payable prior to the Closing, and of which $0.2 million was included in accounts payable and $0.5 million was included in accrued expenses and other current liabilities as of December 31, 2024 in Legacy Kalaris’ historical financial statements, and $0.7 million was included in accrued expenses and other current liabilities as of December 31, 2024 in AlloVir’s historical financial statements. |
| H. | Reflects cancellation of AlloVir convertible promissory notes of $3.75 million, as described in (A) above, prior to the Closing in accordance with the terms of AlloVir convertible promissory notes. |
| I. | The estimated transaction cost not yet reflected in historical financial statements of $4.9 million in connection with the Merger, including adviser fees, legal fees, directors and officers liability insurance, and accounting expenses that are expected to be incurred by AlloVir are reflected as if incurred on January 1, 2024, the date the Merger occurred for the purposes of the unaudited pro forma condensed combined statement of operations. This is a non-recurring item. |
| J. | Compensation expense not yet reflected in historical financial statements of $2.6 million related to severance, retention and transaction bonuses resulting from preexisting employment agreements that will be payable in connection with the Merger is reflected as if incurred on January 1, 2024, the date the Merger occurred for the purposes of the unaudited pro forma condensed combined statement of operations. This is a non-recurring item. |
| K. | To reflect compensation expense not yet reflected in historical financial statements of $0.1 million, related to the estimated acquisition-date fair value of the assumed AlloVir’s equity awards attributable to post-combination service (which amount was determined based on the closing trading price of AlloVir common stock on The Nasdaq Capital Market on March 12, 2025, the number of AlloVir equity awards outstanding on March 18, 2025, and the period of service provided by the holders of the award through the Merger closing) recognized upon the Closing for the purposes of the unaudited pro forma condensed combined statement of operations. This is a non-recurring item. |
| L. | To eliminate change in the fair value of tranche liability related to convertible promissory notes. |
| M. | To eliminate change in the fair value of derivative liabilities related to the convertible promissory notes. |
| N. | To eliminate interest expense related to convertible promissory notes. |
| O. | To eliminate loss in issuance and on extinguishment of convertible promissory notes. |
| P. | The pro forma combined basic and diluted loss per share have been adjusted to reflect the pro forma net loss for the year ended December 31, 2024. In addition, the weighted average shares outstanding for the period have been adjusted to give effect to the issuance of AlloVir’s Common Stock in connection with the Merger as of March 18, 2025. As the Combined Company is in a net loss position, any adjustment for potentially dilutive shares would be anti-dilutive, and as such basic and diluted loss per share are the same. The following table presents the calculation of the pro forma weighted average number of common stock outstanding: |
| Year Ended December 31, 2024 |
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| Pro forma net loss |
$ | (117,937 | ) | |
| Pro forma combined weighted average number of shares of common stock-basic and diluted |
18,646,722 | |||
| Pro forma net loss per share - basic and diluted |
$ | (6.32 | ) | |
| Calculation of weighted averages shares outstanding — basic and diluted |
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| Weighted average Legacy Kalaris shares outstanding |
6,626,624 | |||
| Weighted average share of Legacy Kalaris redeemable convertible preferred stock |
43,151,340 | |||
| Share issued upon conversion of convertible promissory notes |
17,753,067 | |||
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| 67,531,031 | ||||
| Weighted average Legacy Kalaris shares outstanding adjusted for the Exchange Ratio |
13,614,256 | |||
| Weighted average AlloVir shares outstanding |
5,008,449 | |||
| AlloVir shares to be issued for fully vested RSUs upon Merger |
24,017 | |||
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| Pro forma combined weighted average number of shares of common stock-basic and diluted |
18,646,722 | |||
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