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As filed with the Securities and Exchange Commission on February 26, 2021.

Registration No. 333-                

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Instil Bio, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware		2836		83-2072195
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

3963 Maple Avenue, Suite 350

Dallas, TX 75219

(972) 499-3350

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Bronson Crouch

Chief Executive Officer

Instil Bio, Inc.

3963 Maple Avenue, Suite 350

Dallas, TX 75219

(972) 499-3350

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Divakar Gupta Madison A. Jones Brent B. Siler Cooley LLP 55 Hudson Yards New York, New York 10001 (212) 479-6000		Nathan Ajiashvili Latham & Watkins LLP 885 Third Avenue New York, New York 10022 (212) 906-1200

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
				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 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities To Be Registered		Proposed Maximum Aggregate Offering Price(1)		Amount of Registration Fee(2)
Common Stock, $0.000001 par value per share		$100,000,000		$10,910

(1)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Includes the offering price of additional shares that the underwriters have the option to purchase.

(2)	Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION

DATED FEBRUARY 26, 2021

                Shares

 

Instil Bio, Inc.

COMMON STOCK

 

 

Instil Bio, Inc. is offering                  shares of common stock. This is our initial public offering and no public market exists for our common stock. We anticipate that the initial public offering price will be between $                 and $                per share.

 

 

We have applied to list our common stock on The Nasdaq Global Market under the trading symbol “TIL.”

 

 

We are an “emerging growth company” as defined under U.S. federal securities laws and, as such, will be subject to reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary—Implications of Being an Emerging Growth Company and a Smaller Reporting Company.” Investing in our common stock involves risks. See “Risk Factors” beginning on page 14 of this prospectus.

 

 

 

		Per Share				Total
Initial Public Offering Price			$				$
Underwriting Discounts and Commissions (1)			$				$
Proceeds, before expenses, to us			$				$

 

(1)	We refer you to “Underwriters” for additional information regarding total underwriter compensation.

 

 

We have granted the underwriters an option for a period of 30 days to purchase up to an additional                shares of our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock against payment in New York, New York on or about                , 2021.

 

 

Joint Book-Running Managers

 

MORGAN STANLEY		JEFFERIES		COWEN

 

Lead Manager

 

TRUIST SECURITIES

The date of this prospectus is                 , 2021

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Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide you. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock.

For investors outside of the United States: we have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.

All trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ^® and ^™ symbols, but such references should not be construed as any indicator that their respective owners will not assert their rights thereto.

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including our financial statements and related notes, before deciding whether to purchase shares of our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to our Financial Position and Capital Needs

We have incurred significant losses since our inception. We expect to incur losses over the next several years and may never achieve or maintain profitability.

Since our inception, we have incurred significant net losses, and we expect to continue to incur significant expenses and operating losses for the foreseeable future. Our net losses were $6.5 million and $37.7 million for the years ended December 31, 2019 and 2020, respectively. As of December 31, 2020, we had an accumulated deficit of $44.9 million. We have financed our operations with $380.1 million in net proceeds raised in our private placements of convertible preferred stock to date. We have no products approved for commercialization and have never generated any revenue from product sales.

All of our product candidates are still in clinical and preclinical testing. We expect to continue to incur significant expenses and operating losses over the next several years. We expect that it could be several years, if ever, before we have a commercialized product. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially as we:

 

•

conduct our planned clinical trials of ITIL-168 and ITIL-306, as well as initiate and complete additional clinical trials of future product candidates or current product candidates in new indications;

 

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continue to advance the preclinical and clinical development of our product candidates and our preclinical and discovery programs, including in our CoStAR platform;

 

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seek regulatory approval for any product candidates that successfully complete clinical trials;

 

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continue to develop our product candidate pipeline;

 

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scale up our clinical and regulatory capabilities;

 

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manufacture current good manufacturing practices, or cGMP, material for clinical trials or potential commercial sales at our manufacturing facilities;

 

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establish and validate a commercial-scale cGMP manufacturing facility;

 

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establish a commercialization infrastructure and scale up internal and external manufacturing and distribution capabilities to commercialize any product candidates for which we may obtain regulatory approval;

 

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adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products;

 

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maintain, expand and protect our intellectual property portfolio;

 

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hire additional clinical, manufacturing quality control, regulatory, manufacturing and scientific and administrative personnel;

 

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add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and

 

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incur additional legal, accounting and other expenses in operating as a public company.

 

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To date, we have not generated any revenue from product sales. To become and remain profitable, we must succeed in developing and eventually commercializing product candidates that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of our product candidates, obtaining regulatory approval, and manufacturing, marketing and selling any product candidates for which we may obtain regulatory approval, as well as discovering and developing additional product candidates. We are only in the preliminary stages of most of these activities and all of our product candidates are in clinical or preclinical development. We may never succeed in these activities and, even if we do, may never generate any revenue or revenue that is 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 development efforts, obtain product approvals, diversify our offerings or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We have a limited operating history and no history of commercializing products, which may make it difficult for an investor to evaluate the success of our business to date and to assess our future viability.

We are a clinical-stage biopharmaceutical company with a limited operating history. We commenced operations in 2019, and our operations to date have been largely focused on organizing and staffing our company, business planning, raising capital, acquiring our technology and product candidates, acquiring our facilities in Tarzana, California, developing our manufacturing capabilities and developing our clinical and preclinical product candidates, including undertaking preclinical studies and conducting clinical trials. To date, we have not yet demonstrated our ability to successfully complete pivotal clinical trials, obtain regulatory approvals, manufacture a product on a commercial scale, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful 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 and commercializing products.

We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We will need to develop commercial capabilities, and we may not be successful in doing so.

Even if this offering is successful, we will need substantial additional funding to meet our financial obligations and to pursue our business objectives. If we are unable to raise capital when needed, we could be forced to curtail our planned operations and the pursuit of our growth strategy.

Our operations have consumed substantial amounts of cash since inception. Identifying and acquiring potential product candidates, conducting preclinical testing and clinical trials and developing manufacturing operations for our product candidates 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 regulatory approval and achieve product sales. We expect to continue to incur significant expenses and operating losses over the next several years as we conduct clinical trials of our product candidates, initiate future clinical trials of our product candidates, advance our preclinical programs, build our manufacturing capabilities, seek marketing approval for any product candidates that successfully complete clinical trials and advance any of our other product candidates we may develop or otherwise acquire. In addition, our product candidates, if approved, may not achieve commercial success. Our revenue, if any, will be derived from sales of products that we do not expect to be commercially available for a number of years, if at all. If we obtain marketing approval for any product candidates that we develop or otherwise acquire, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. We also expect an increase in our expenses associated with creating additional infrastructure to support operations as a public company. Accordingly, we will need to obtain substantial additional funding in order to continue our operations.

 

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As of December 31, 2020, we had cash and cash equivalents of $241.7 million. We believe that the anticipated net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to fund our operating expenses and capital requirements through                  . This estimate is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we expect. We plan to use the net proceeds from this offering to         . Advancing the development of our product candidates will require a significant amount of capital. The net proceeds from this offering, together with our existing cash and cash equivalents, will not be sufficient to fund any of our product candidates through regulatory approval. Changes may occur beyond our control that would cause us to consume our available capital before that time, including changes in and progress of our development activities, acquisitions of additional product candidates, and changes in regulation. Our future capital requirements will depend on many factors, including:

 

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the scope, progress, costs and results of discovery, preclinical development, laboratory testing and clinical trials for ITIL-168, ITIL-306 and future product candidates;

 

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the extent to which we develop, in-license or acquire other product candidates and technologies in our product candidate pipeline;

 

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the costs and timing of process development and manufacturing scale-up activities associated with our product candidates and other programs as we advance them through preclinical and clinical development;

 

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the number and development requirements of product candidates that we may pursue;

 

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the costs, timing and outcome of regulatory review of our product candidates;

 

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our headcount growth and associated costs as we expand our research and development capabilities and establish a commercial infrastructure;

 

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the costs of establishing and maintaining our own commercial-scale cGMP manufacturing facility;

 

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the costs and timing of future commercialization activities, including product manufacturing, marketing, sales, and distribution, for any of our product candidates for which we receive marketing approval;

 

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the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

 

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the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; and

 

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the costs of operating as a public company.

We will require additional capital to achieve our business objectives. Additional funds may not be available on a timely basis, on favorable terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to implement our long-term business strategy. Further, our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If we are unable to raise sufficient additional capital, we could be forced to curtail our planned operations and the pursuit of our growth strategy.

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 substantial revenue, we may finance our cash needs through a combination of equity offerings, government or private party grants, debt financings and license and collaboration agreements. We do not currently have any other committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest

 

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will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. 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, making capital expenditures or declaring dividends.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams or product candidates, grant licenses on terms that may not be favorable to us or commit to future payment streams. If we are unable to raise additional funds through equity or debt financings when needed, we may 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.

Risks Related to the Development of our Product Candidates

All of our product candidates are currently in clinical and preclinical development. If we are unable to successfully develop, receive regulatory approval for and commercialize our product candidates for the indications we seek, or successfully develop any other product candidates, or experience significant delays in doing so, our business will be harmed.

We currently have no products approved for commercial sale, and all of our product candidates are currently in clinical and preclinical development. To date, we have clinical experience in the context of a compassionate use program at a single clinical site with a TIL product that was manufactured using a prior version of the ITIL-168 manufacturing process. However, as an organization, we are preparing to conduct our first prospective, multi-center clinical trial with centralized manufacturing, have not previously conducted any later stage or pivotal clinical trials, have limited experience in preparing, submitting and prosecuting regulatory filings and have not previously submitted a BLA for any product candidate. Each of our programs and product candidates will require additional preclinical and/or clinical development, regulatory approval, obtaining manufacturing supply, capacity and expertise, building a commercial organization or successfully outsourcing commercialization, substantial investment and significant marketing efforts before we generate any revenue from product sales. We do not have any products that are approved for commercial sale, and we may never be able to develop or commercialize marketable products.

Our ability to generate revenue from our product candidates, which we do not expect will occur for several years, if ever, will depend heavily on the successful development, regulatory approval and eventual commercialization of our product candidates. The success of ITIL-168, ITIL-306 or any other product candidates that we develop or otherwise may acquire will depend on several factors, including:

 

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timely and successful completion of preclinical studies and clinical trials;

 

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effective investigational new drug applications, or INDs, from the U.S. Food and Drug Administration, or the FDA, or comparable foreign applications that allow commencement of our planned clinical trials or future clinical trials for our product candidates;

 

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sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials;

 

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successful enrollment and completion of clinical trials, including under the FDA’s current Good Clinical Practices, or GCPs, and current Good Laboratory Practices;

 

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successful development of, or making arrangements with third-party manufacturers for, our commercial manufacturing processes for any of our product candidates that receive regulatory approval;

 

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receipt of timely marketing approvals from applicable regulatory authorities;

 

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launching commercial sales of products, if approved, whether alone or in collaboration with others;

 

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acceptance of the benefits and use of our products, including method of administration, if approved, by patients, the medical community and third-party payors, for their approved indications;

 

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the prevalence and severity of adverse events experienced with ITIL-168, ITIL-306 or any other product candidates;

 

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the availability, perceived advantages, cost, safety and efficacy of alternative therapies for any product candidate, and any indications for such product candidate, that we develop;

 

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our ability to produce ITIL-168, ITIL-306 or any other product candidates we develop on a commercial scale;

 

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obtaining and maintaining patent, trademark and trade secret protection and regulatory exclusivity for our product candidates and otherwise protecting our rights in our intellectual property portfolio;

 

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maintaining compliance with regulatory requirements, including cGMPs, and complying effectively with other procedures;

 

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obtaining and maintaining third-party coverage and adequate reimbursement and patients’ willingness to pay out-of-pocket in the absence of such coverage and adequate reimbursement; and

 

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maintaining a continued acceptable safety, tolerability and efficacy profile of the products following approval.

If we are not successful with respect to one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize the product candidates we develop, which would materially harm our business. If we do not receive marketing approvals for any product candidate we develop, we may not be able to continue our operations.

Because ITIL-168, as well as ITIL-306 and any future product candidates developed from our CoStAR platform, represent novel approaches to the treatment of disease, there are many uncertainties regarding the development, market acceptance, third-party reimbursement coverage and commercial potential of our product candidates.

Human immunotherapy products are a new category of therapeutics, and to date, no TIL therapies have been approved by the FDA, EMA or other foreign regulatory authorities. Because this is a relatively new and expanding area of novel therapeutic interventions, there are many uncertainties related to development, marketing, reimbursement and the commercial potential for our product candidates. There can be no assurance as to the length of the trial period, the number of patients the FDA will require to be enrolled in the trials in order to establish the safety, efficacy, purity and potency of immunotherapy products or that the data generated in these trials will be acceptable to the FDA to support marketing approval. The FDA may take longer than usual to come to a decision on any biologics license application, or BLA, that we submit and may ultimately determine that there is not enough data, information, or experience with our product candidates to support an approval decision. The FDA may also require that we conduct additional post-marketing studies or implement risk management programs, such as Risk Evaluation and Mitigation Strategies, or REMS, until more experience with our product candidates is obtained. Finally, after increased usage, we may find that our product candidates do not have the intended effect or have unanticipated side effects, potentially jeopardizing initial or continuing regulatory approval and commercial prospects.

The success of our business depends in part upon our ability to develop engineered TIL therapies using our CoStAR platform. The CoStAR platform is novel and we have not yet initiated or completed a clinical trial of any product candidate developed using the CoStAR platform. The platform may fail to deliver TIL therapies that are effective in the treatment of tumor types that have historically been resistant to immunotherapy. Even if we are able to identify and develop TIL therapies using the CoStAR platform, we cannot assure that such product candidates will achieve marketing approval to safely and effectively treat cancer.

 

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If we uncover any previously unknown risks related to our CoStAR platform, or if we experience unanticipated problems or delays in developing our CoStAR product candidates, we may be unable to achieve our strategy of building a pipeline of TIL therapies.

We may also find that the manufacture of our product candidates is more difficult than anticipated, resulting in an inability to produce a sufficient amount of our product candidates for our clinical trials or, if approved, commercial supply. Moreover, because of the complexity and novelty of our manufacturing process, we may face difficulties in transferring the process from our facility in Manchester, United Kingdom to our new facility in Tarzana, California, which could hinder our ability to replicate our manufacturing to supply our clinical development or our commercial efforts.

There is no assurance that the approaches offered by our products will gain broad acceptance among doctors or patients or that governmental agencies or third-party medical insurers will be willing to provide reimbursement coverage for proposed product candidates. Since our current product candidates and any future product candidates will represent novel approaches to treating various conditions, it may be difficult, in any event, to accurately estimate the potential revenues from these product candidates. Accordingly, we may spend significant capital trying to obtain approval for product candidates that have an uncertain commercial market. The market for any products that we successfully develop will also depend on the cost of the product. We do not yet have sufficient information to reliably estimate what it will cost to commercially manufacture our current product candidates, and the actual cost to manufacture these products could materially and adversely affect the commercial viability of these products. Our goal is to reduce the cost of manufacturing and providing our product candidates. However, unless we can reduce those costs to an acceptable amount, we may never be able to develop a commercially viable product. If we do not successfully develop and commercialize products based upon our approach or find suitable and economical sources for materials used in the production of our products, we will not become profitable, which would materially and adversely affect the value of our common stock.

Our TIL therapies and our other therapies may be provided to patients in combination with other agents provided by third parties. The cost of such combination therapy may increase the overall cost of therapy and may result in issues regarding the allocation of reimbursements between our therapy and the other agents, all of which may affect our ability to obtain reimbursement coverage for the combination therapy from governmental or private third party medical insurers.

Preclinical studies and clinical trials are expensive, time-consuming, difficult to design and implement and involve an uncertain outcome. Further, we may encounter substantial delays in completing the development of our product candidates.

All of our product candidates are in clinical and preclinical development and their risk of failure is high. The clinical trials and manufacturing of our product candidates are, and the manufacturing and marketing of our products, if approved, will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test and market our product candidates. Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication. In particular, because our product candidates are subject to regulation as biological products, we will need to demonstrate that they are safe, pure and potent for use in their target indications. Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. Failure can occur at any time during the clinical trial process. Even if our future clinical trials are completed as planned, we cannot be certain that their results will support the safety and effectiveness of our product candidates for their targeted indications or support continued clinical development of such product candidates. Our future clinical trial results may not be successful.

 

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In addition, even if such trials are successfully completed, we cannot guarantee that the FDA, EMA or other foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. Moreover, results acceptable to support approval in one jurisdiction may be deemed inadequate by another regulatory authority to support regulatory approval in that other jurisdiction. To the extent that the results of the trials are not satisfactory to the FDA, EMA or other foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.

To date, we have not completed any clinical trials required for the approval of our product candidates. We may experience delays in conducting any clinical trials and we do not know whether our clinical trials will begin on time, need to be redesigned, recruit and enroll patients on time or be completed on schedule, or at all. Clinical trials can be delayed suspended or terminated for a variety of reasons, including in connection with:

 

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inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation of clinical trials;

 

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delays in sufficiently developing, characterizing or controlling a manufacturing process suitable for advanced clinical trials;

 

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delays in developing suitable assays for screening patients for eligibility for trials with respect to certain product candidates;

 

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delays in reaching agreement with the FDA, EMA or other regulatory authorities as to the design or implementation of our clinical trials;

 

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obtaining regulatory authorization to commence a clinical trial;

 

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reaching an agreement on acceptable terms with clinical trial sites or prospective contract research organizations, or CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different clinical trial sites;

 

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obtaining IRB approval at each trial site;

 

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recruiting suitable patients to participate in a clinical trial;

 

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having patients complete a clinical trial or return for post-treatment follow-up;

 

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inspections of clinical trial sites or operations by applicable regulatory authorities, or the imposition of a clinical hold;

 

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clinical sites, CROs or other third parties deviating from trial protocol or dropping out of a trial;

 

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failure to perform in accordance with the applicable regulatory requirements, including FDA’s GCP requirements, or applicable regulatory requirements in other countries;

 

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addressing patient safety concerns that arise during the course of a trial, including occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;

 

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adding a sufficient number of clinical trial sites;

 

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manufacturing sufficient quantities of product candidate for use in clinical trials; or

 

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suspensions or terminations by IRBs of the institutions at which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities due to a number of factors, including those described above.

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 our product candidates or significantly increase the cost of such trials, including:

 

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we may experience changes in regulatory requirements or guidance, or receive feedback from regulatory authorities that requires us to modify the design of our clinical trials;

 

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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 development programs;

 

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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;

 

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our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

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we or our investigators might have to suspend or terminate clinical trials of our product candidates for various reasons, including non-compliance with regulatory requirements, a finding that our product candidates have undesirable side effects or other unexpected characteristics, or a finding that the participants are being exposed to unacceptable health risks;

 

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the cost of clinical trials of our product candidates may be greater than we anticipate and we may not have funds to cover the costs;

 

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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;

 

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regulators may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate; and

 

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any future collaborators that conduct clinical trials may face any of the above issues, and may conduct clinical trials in ways they view as advantageous to them but that are suboptimal for us.

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 or if there are safety concerns, we may:

 

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incur unplanned costs;

 

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be delayed in obtaining marketing approval for our product candidates or not obtain marketing approval at all;

 

•

obtain marketing approval in some countries and not in others;

 

•

obtain marketing approval for indications or patient populations that are not as broad as intended or desired;

 

•

obtain marketing approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings or REMS;

 

•

be subject to additional post-marketing testing requirements;

 

•

be subject to changes in the way the product is administered; or

 

•

have regulatory authorities withdraw or suspend their approval of the product or to impose restrictions on its distribution after obtaining marketing approval.

We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board for such trial or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

 

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All of our product candidates will require extensive clinical testing before we are prepared to submit a BLA or marketing authorization application, or MAA, for regulatory approval. We cannot predict with any certainty if or when we might complete the clinical development for our product candidates and submit a BLA or MAA for regulatory approval of any of our product candidates or whether any such BLA or MAA will be approved. We may also seek feedback from the FDA, EMA or other regulatory authorities on our clinical development program, and the FDA, EMA or such regulatory authorities may not provide such feedback on a timely basis, or such feedback may not be favorable, which could further delay our development programs.

We cannot predict with any certainty whether or when we might complete a given clinical trial. If we experience delays in the commencement or completion of our clinical trials, or if we terminate a clinical trial prior to completion, the commercial prospects of our product candidates could be harmed, and our ability to generate revenues from our product candidates may be delayed or lost. In addition, any delays in our clinical trials could increase our costs, slow down the development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and results of operations. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

The regulatory approval processes of the FDA, EMA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable. If we are not able to obtain required regulatory approval for our product candidates, our business will be substantially harmed.

The time required to obtain approval or other marketing authorizations by the FDA, EMA and comparable foreign authorities is unpredictable, and it typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, and the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate, and it is possible that we may never obtain regulatory approval for any product candidates we may seek to develop in the future. Neither we nor any current or future collaborator is permitted to market any drug product candidates in the United States until we receive regulatory approval of a BLA from the FDA, and we cannot market it in the European Union until we receive approval for a MAA from the EMA, or other required regulatory approval in other countries. To date, we have had only limited discussions with the FDA, EMA and the Medicines and Healthcare products Regulatory Agency regarding clinical development programs or regulatory approval for any product candidate within the United States, European Union and United Kingdom, respectively. In addition, we have no discussions other comparable foreign authorities, regarding clinical development programs or regulatory approval for any product candidate outside of those jurisdictions.

Prior to obtaining approval to commercialize any drug product candidate in the United States or abroad, we must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA, EMA or other foreign regulatory agencies, that such product candidates are safe, pure and effective for their intended uses. Results from preclinical studies and clinical trials can be interpreted in different ways. Even if we believe the preclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. The FDA may also require us to conduct additional preclinical studies or clinical trials for our product candidates either prior to or after approval, or it may object to elements of our clinical development programs.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

 

•

the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

 

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•

we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

 

•

the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

 

•

we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

•

the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

 

•

the approval policies or regulations of the FDA or comparable foreign authorities may significantly change in a manner rendering our clinical data insufficient for approval.

Of the large number of products in development, only a small percentage successfully complete the FDA or foreign regulatory approval processes and are commercialized. The lengthy approval and marketing authorization process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval and marketing authorization to market our product candidates, which would significantly harm our business, financial condition, results of operations and prospects.

We have invested a significant portion of our time and financial resources in the development of our clinical and preclinical product candidates. Our business is dependent on our ability to successfully complete preclinical and clinical development of, obtain regulatory approval for, and, if approved, successfully commercialize ITIL-168, ITIL-306 and any future product candidates in a timely manner.

Even if we eventually complete clinical testing and receive approval of a BLA or foreign marketing application for ITIL-168, ITIL-306 or any future product candidates, the FDA, EMA or the applicable foreign regulatory agency may grant approval or other marketing authorization contingent on the performance of costly additional clinical trials, including post-marketing clinical trials. The FDA, EMA or the applicable foreign regulatory agency also may approve or authorize for marketing a product candidate for a more limited indication or patient population than we originally request, and the FDA, EMA or applicable foreign regulatory agency may not approve or authorize the labeling that we believe is necessary or desirable for the successful commercialization of a product candidate. Any delay in obtaining, or inability to obtain, applicable regulatory approval or other marketing authorization would delay or prevent commercialization of that product candidate and would materially adversely impact our business and prospects.

In addition, the FDA, EMA and other regulatory authorities may change their policies, issue additional regulations or revise existing regulations, or take other actions, which may prevent or delay approval of our future products under development on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain approvals, increase the costs of compliance or restrict our ability to maintain any marketing authorizations we may have obtained.

Success in preclinical studies or earlier clinical trials, including the compassionate use program, may not be indicative of results in future clinical trials. Our product candidates may not have favorable results in later clinical trials, if any, or receive regulatory approval.

Success in preclinical testing and early clinical trials, including the compassionate use program, does not ensure that later clinical trials will generate the same results or otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate. Preclinical tests and Phase 1 and Phase 2 clinical trials are primarily designed to test safety, to study pharmacokinetics and pharmacodynamics and to understand the side effects of product candidates at various doses and schedules. Success in preclinical or animal studies and early clinical trials does not ensure that later large-scale efficacy trials will be successful nor does it predict final

 

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results. For example, we may be unable to identify suitable animal disease models for our product candidates, which could delay or frustrate our ability to proceed into clinical trials or obtain marketing approval. Our product candidates may fail to show the desired safety and efficacy in clinical development despite having progressed through preclinical studies and initial clinical trials.

Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including changes in regulatory policy during the period of our product candidate development. Any such delays could negatively impact our business, financial condition, results of operations and prospects.

Interim, “top-line” and preliminary results from our clinical trials that we announce or publish from time to time may change as more data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publish interim, top-line 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 patient enrollment continues and more patient data become available. Preliminary or top-line 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. Differences between preliminary, top-line or interim data and final data could significantly harm our business prospects and may cause the trading price of our common stock to fluctuate significantly. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated.

Further, others, including regulatory agencies may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular development program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure. Any information we determine not to disclose may ultimately be deemed meaningful by you or others with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or our business. If the interim, top-line or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, product candidates may be harmed, which could significantly harm our business prospects.

Our preclinical studies and clinical trials may fail to demonstrate substantial evidence of the safety and efficacy of our product candidates, or serious adverse or unacceptable side effects may be identified during the development of our product candidates, which could prevent, delay or limit the scope of regulatory approval of our product candidates, limit their commercialization, increase our costs or necessitate the abandonment or limitation of the development of some of our product candidates.

To obtain the requisite regulatory approvals for the commercial sale of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are safe, pure and potent for use in each target indication. These trials are expensive and time

 

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consuming, and their outcomes are inherently uncertain. Failures can occur at any time during the development process. Preclinical studies and clinical trials often fail to demonstrate safety or efficacy of the product candidate studied for the target indication, and most product candidates that begin clinical trials are never approved.

We may fail to demonstrate with substantial evidence from adequate and well-controlled trials, and to the satisfaction of the FDA or comparable foreign regulatory authorities, that our product candidates are safe and potent for their intended uses.

Possible adverse side effects that could occur with treatment with cell therapy products include thrombocytopenia, chills, anemia, pyrexia, febrile neutropenia, diarrhea, neutropenia, vomiting, hypotension, dyspnea, cytokine release syndrome and neurotoxicity. If our product candidates are associated with undesirable effects in preclinical studies or clinical trials or have characteristics that are unexpected, we may decide or be required to perform additional preclinical studies or to halt or delay further clinical development of our product candidates or to limit their development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe, or more acceptable from a risk-benefit perspective, which may limit the commercial expectations for the product candidate, if approved. These side effects may not be appropriately recognized or managed by the treating medical staff, as toxicities resulting from personalized cell therapy, as with our TIL product candidates, are not normally encountered in the general patient population and by medical personnel. Further, patients in the United Kingdom have been treated under a compassionate use program with a TIL product that was manufactured using a prior version of the ITIL-168 manufacturing process. To the extent the experiences of patients being treated in this program are inconsistent with the results of our planned company-sponsored trials of ITIL-168, it may negatively affect perceptions of ITIL-168 or our business. In addition, the FDA, EMA or other foreign regulatory authorities may require us to obtain and submit additional nonclinical data supporting the comparability of our ITIL-168 product candidate with the TIL product evaluated in the compassionate use study in the United Kingdom, or may not permit us to rely on the data from the compassionate use program to support the development of ITIL-168 at all, which could delay clinical development or marketing approval of ITIL-168.

If any such adverse events occur, our clinical trials could be suspended or terminated. If we cannot demonstrate that any adverse events were not caused by the drug, the FDA, EMA or foreign regulatory authorities could order us to cease further development of, or deny approval of, our product candidates for any or all targeted indications. Even if we are able to demonstrate that all future serious adverse events are not product-related, such occurrences could affect patient recruitment or the ability of enrolled patients to complete the trial. Moreover, if we elect, or are required, to not initiate, delay, suspend or terminate any future clinical trial of any of our product candidates, the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to develop other product candidates, and may harm our business, financial condition and prospects significantly.

If our product candidates are associated with side effects in clinical trials or have characteristics that are unexpected, we may need to abandon their development or limit development to more narrow uses in which the side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. The FDA or an IRB may also require that we suspend, discontinue, or limit our clinical trials based on safety information, or that we conduct additional animal or human studies regarding the safety and efficacy of our product candidates which we have not planned or anticipated. Such findings could further result in regulatory authorities failing to provide marketing authorization for our product candidates or limiting the scope of the approved indication, if approved. Many product candidates that initially showed promise in early stage testing have later been found to cause side effects that prevented further development of the product candidate.

 

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Additionally, if one or more of our product candidates receives marketing approval, and we or others identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

 

•

regulatory authorities may suspend, withdraw or limit approvals of such product, or seek an injunction against its manufacture or distribution;

 

•

regulatory authorities may require additional warnings on the label;

 

•

we may be required to create a medication guide outlining the risks of such side effects for distribution to patients or other requirements subject to a REMS;

 

•

we may be required to change the way a product is administered or conduct additional trials;

 

•

we could be sued and held liable for harm caused to patients;

 

•

we may decide to remove the product from the market;

 

•

we may not be able to achieve or maintain third-party payor coverage and adequate reimbursement;

 

•

we may be subject to fines, injunctions or the imposition of civil or criminal penalties; and

 

•

our reputation and physician or patient acceptance of our products may suffer.

There can be no assurance that we will resolve any issues related to any product-related adverse events to the satisfaction of the FDA or foreign regulatory agency in a timely manner or at all. Moreover, any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.

Negative public opinion of TIL therapies and increased regulatory scrutiny of cell therapy using TILs may adversely impact the development or commercial success of our current and future product candidates.

The clinical and commercial success of our TIL therapies will depend in part on public acceptance of the use of cell therapy using TILs. Any adverse public attitudes about the use of TIL therapies may adversely impact our ability to enroll clinical trials. Moreover, our success will depend upon physicians prescribing, and their patients being willing to receive, treatments that involve the use of product candidates we may develop in lieu of, or in addition to, existing treatments with which they are already familiar and for which greater clinical data may be available.

More restrictive government regulations or negative public opinion would have a negative effect on our business or financial condition and may delay or impair the development and commercialization of our product candidates or demand for any products once approved. Adverse events in our or others’ clinical trials, even if not ultimately attributable to our product candidates, and the resulting publicity could result in increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates, all of which would have a negative impact on our business and operations.

As an organization, we are preparing to conduct our first prospective clinical trial, have no experience in conducting clinical trials, and may be unable to do so for any product candidates we may develop, including ITIL-168.

We are early in our development efforts for our product candidates, and will need to successfully complete our ongoing and planned clinical trials, including pivotal clinical trials, in order to obtain FDA approval to market any of our product candidates. Carrying out clinical trials and the submission of a successful BLA is a

 

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complicated process. As an organization, we are preparing to conduct our first prospective, multi-center clinical trial with centralized manufacturing, have no experience in conducting any clinical trials, have limited experience in preparing regulatory submissions and have not previously submitted a BLA for any product candidate. We have only previously treated patients with our TIL product in a compassionate use program. In addition, we have had limited interactions with the FDA and cannot be certain how many additional clinical trials of our product candidates will be required or how such trials should be designed. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to BLA submission and approval of any product candidate. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trials, could prevent us from or delay us in commercializing our product candidates.

We may experience delays or difficulties in the enrollment and/or retention of patients in clinical trials, which could delay or prevent our receipt of necessary regulatory approvals.

Successful and timely completion of clinical trials will require that we enroll a sufficient number of patients. Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature of the patient population and competition for patients eligible for our clinical trials with competitors which may have ongoing clinical trials for product candidates that are under development to treat the same indications as one or more of our product candidates, or approved products for the conditions for which we are developing our product candidates.

Trials may be subject to delays as a result of patient enrollment taking longer than anticipated or patient withdrawal. 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 foreign regulatory authorities. We cannot predict how successful we will be at enrolling subjects in future clinical trials. Subject enrollment is affected by other factors including:

 

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the severity and difficulty of diagnosing the disease under investigation;

 

•

the eligibility and exclusion criteria for the trial in question;

 

•

the size of the patient population and process for identifying patients;

 

•

our ability to recruit clinical trial investigators with the appropriate competencies and experience;

 

•

the design of the trial protocol;

 

•

the perceived risks and benefits of the product candidate in the trial, including relating to cell therapy approaches;

 

•

the availability of competing commercially available therapies and other competing therapeutic candidates’ clinical trials for the disease or condition under investigation;

 

•

the willingness of patients to be enrolled in our clinical trials;

 

•

the efforts to facilitate timely enrollment in clinical trials;

 

•

potential disruptions caused by the COVID-19 pandemic, including difficulties in initiating clinical sites, enrolling and retaining participants, diversion of healthcare resources away from clinical trials, travel or quarantine policies that may be implemented, and other factors;

 

•

the patient referral practices of physicians;

 

•

the ability to monitor patients adequately during and after treatment; and

 

•

the proximity and availability of clinical trial sites for prospective patients.

Our inability to enroll a sufficient number of patients for clinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether. Enrollment delays in these clinical trials may

 

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result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing. Furthermore, we expect to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and we will have limited influence over their performance.

Furthermore, even if we are able to enroll a sufficient number of patients for our clinical trials, we may have difficulty maintaining enrollment of such patients in our clinical trials.

We may seek orphan drug designation for some of our product candidates and we may be unsuccessful, or may be unable to maintain the benefits associated with orphan drug designation, including the potential for market exclusivity, for product candidates for which we obtain orphan drug designation.

We may seek orphan drug designation for some or all of our product candidates in specific orphan indications in which there is a medically plausible basis for the use of these product candidates. Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 individuals in the United States, or a patient population of 200,000 or more in the United States where there is no reasonable expectation that the cost of developing and making available the drug or biologic will be recovered from sales in the United States. Orphan drug designation must be requested before submitting a biologics license application, or BLA. Although we may seek orphan drug designation for some or all of our product candidates, we may never receive such designations.

In the United States, orphan drug designation entitles a party to financial incentives such as tax advantages and user fee waivers. Opportunities for grant funding toward clinical trial costs may also be available for clinical trials of drugs or biologics for rare diseases, regardless of whether the drugs or biologics are designated for the orphan use.

In addition, if a drug or biologic with an orphan drug designation subsequently receives the first marketing approval for a particular active ingredient or principal molecular structural features for the indication for which it has such designation, the product is entitled to a seven year period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same drug and indication for that time period, except in limited circumstances such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can ensure the availability of sufficient quantities of the orphan product to meet the needs of patients with the disease or condition for which the drug was designated. Even if we obtain orphan drug designation for a product candidate, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing biological products. If we seek orphan drug designation, we may be unsuccessful in obtaining such orphan drug designation for our product candidates. Even if we obtain orphan drug exclusivity for any of our product candidates, we may be unable to maintain the benefits associated with orphan drug designation, or such orphan drug exclusivity may not effectively protect those product candidates from competition because different drugs can be approved for the same condition, and orphan drug exclusivity does not prevent the FDA from approving the same or a different drug in another indication. Even after an orphan drug is granted orphan exclusivity and approved, the FDA can subsequently approve a later application for the same drug for the same condition before the expiration of the seven-year exclusivity period if the FDA concludes that the later drug is clinically superior in that it is shown to be safer in a substantial portion of the target populations, more effective or makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Moreover, orphan-drug-exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or that we are unable to manufacture sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.

 

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Breakthrough therapy designation by the FDA for any product candidate may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that the product candidate will receive marketing approval.

We may, in the future, apply for breakthrough therapy designation, or the equivalent thereof in foreign jurisdictions (where available), for our product candidates. A breakthrough therapy is defined as a product candidate that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product candidate may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For product candidates that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Product candidates designated as breakthrough therapies by the FDA are also eligible for priority review if supported by clinical data at the time of the submission of the BLA.

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe that one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to product candidates considered for approval under conventional FDA procedures and it would not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that the product candidate no longer meets the conditions for qualification or it may decide that the time period for FDA review or approval will not be shortened.

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 management resources, we must focus on development programs and product candidates that we identify for specific indications. As such, we are currently primarily focused on the development of ITIL-168 for the treatment of PD-1-inhibitor-relapsed or refractory advanced melanoma. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications for these product candidates that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future 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.

We plan to conduct and may in the future conduct additional clinical trials for our product candidates outside the United States, and the FDA and similar foreign regulatory authorities may not accept data from such trials conducted in locations outside of their jurisdiction.

We may in the future choose to conduct clinical trials outside the United States, including in Australia, Canada, Europe or other foreign jurisdictions. The acceptance of trial data from clinical trials conducted outside the United States by the FDA may be subject to certain conditions or may not be accepted at all. In cases where data from clinical trials conducted outside the United States 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 (iii) the data may be considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be

 

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necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory bodies 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 similar foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or any similar foreign regulatory authority does not accept such data, it would result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan, and which may result in our product candidates not receiving approval or clearance for commercialization in the applicable jurisdiction.

We may not be successful in our efforts to build a pipeline of additional product candidates.

We may not be able to continue to identify and develop new product candidates in addition to our current pipeline. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development. For example, product candidates may be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be successfully developed, much less receive marketing approval and achieve market acceptance. If we do not successfully develop and commercialize product candidates based upon our approach, we will not be able to obtain product revenue in future periods, which likely would result in significant harm to our financial position and adversely affect our stock price.

If we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of our products may be delayed.

From time to time, we may estimate the timing of the accomplishment of various scientific, clinical, regulatory, manufacturing and other product development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of preclinical studies and clinical trials and the submission of regulatory filings, including IND submissions. From time to time, we may publicly announce the expected timing of some of these milestones. All of these milestones are, and will be, based on a variety of assumptions. The actual timing of these milestones can vary significantly compared to our estimates, in some cases for reasons beyond our control. We may experience numerous unforeseen events during, or as a result of, any future clinical trials that we conduct that could delay or prevent our ability to receive marketing approval or commercialize our product candidates.

Our business and operations may be adversely affected by the evolving and ongoing COVID-19 global pandemic.

Our business and operations may be adversely affected by the effects of the recent and evolving COVID-19 virus, which was declared a global pandemic by the World Health Organization. The COVID-19 pandemic has resulted in travel and other restrictions in order to reduce the spread of the disease, including public health directives and orders in the United States and the European Union that, among other things and for various periods of time, directed individuals to shelter at their places of residence, directed businesses and governmental agencies to cease non-essential operations at physical locations, prohibited certain non-essential gatherings and events and ordered cessation of non-essential travel. Future remote work policies and similar government orders or other restrictions on the conduct of business operations related to the COVID-19 pandemic may negatively impact productivity and may disrupt our ongoing research and development activities and our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. Further, such orders also may impact the availability or cost of materials, which would disrupt our supply chain and manufacturing efforts and could affect our ability to conduct ongoing and planned clinical trials and preparatory activities.

 

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Although our planned clinical trials have not been impacted by the COVID-19 pandemic to date, we may experience related disruptions in the future that could severely impact our clinical trials, including:

 

•

delays, difficulties or a suspension in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;

 

•

interruptions in our ability to manufacture and deliver drug supply for trials;

 

•

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

 

•

changes in local regulations as part of a response to the COVID-19 outbreak that may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

 

•

interruption of key clinical trial activities, such as clinical trial site monitoring, and the ability or willingness of subjects to travel to trial sites due to limitations on travel imposed or recommended by federal or state governments, employers and others;

 

•

limitations in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;

 

•

delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; and

 

•

refusal of the FDA to accept data from clinical trials in these affected geographies.

The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

The global COVID-19 pandemic continues to rapidly evolve. The extent to which the COVID-19 pandemic impacts our business and operations, including our clinical development and regulatory efforts, will depend on future developments that are highly uncertain and cannot be predicted with confidence at the time of this prospectus, such as the ultimate geographic spread of the disease, the duration of the outbreak, the duration and effect of business disruptions and the short-term effects and ultimate effectiveness of the travel restrictions, quarantines, social distancing requirements and business closures in the United States and other countries to contain and treat the disease. Accordingly, we do not yet know the full extent of potential delays or impacts on our business, our clinical and regulatory activities, healthcare systems or the global economy as a whole. However, these impacts could adversely affect our business, financial condition, results of operations and growth prospects.

In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties described in this “Risk Factors” section.

The market opportunities for any current or future product candidate we develop, if approved, may be limited to those patients who are ineligible for established therapies or for whom prior therapies have failed, and may be small.

Any revenue we are able to generate in the future from product sales will be dependent, in part, upon the size of the market in the United States and any other jurisdiction for which we gain regulatory approval and have

 

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commercial rights. If the markets or patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales of such products, even if approved.

Cancer therapies are sometimes characterized as first-line, second-line or third-line, and the FDA often approves new therapies initially only for third-line use. When cancer is detected early enough, first-line therapy, usually chemotherapy, immunotherapy, hormone therapy, surgery, radiation therapy or a combination of these, is sometimes adequate to cure the cancer or prolong life without a cure. Second- and third-line therapies are administered to patients when prior therapy is not effective. We may initially seek approval for ITIL-168, ITIL-306 and any other product candidates we develop as a therapy for patients who have received one or more prior treatments. If we do so, for those products that prove to be sufficiently beneficial, if any, we would expect to seek approval potentially as a first-line therapy, but there is no guarantee that any product candidate we develop, even if approved, would be approved for first-line therapy, and, prior to any such approvals, we may have to conduct additional clinical trials.

The number of patients who have the types of cancer we are targeting may turn out to be lower than expected. Additionally, the potentially addressable patient population for our current or future product candidates may be limited, if and when approved. Further, even if any of our product candidates are approved by the FDA or comparable foreign regulators, their approved indications may be limited to a subset of the indications that we targeted. Even if we obtain significant market share for any product candidate, if and when approved, if the potential target populations are small, we may never achieve profitability without obtaining marketing approval for additional indications, including to be used as first- or second-line therapy.

We may develop ITIL-168, ITIL-306 and future product candidates for use in combination with other therapies or third party product candidates, which exposes us to additional regulatory risks.

We may develop ITIL-168, ITIL-306 and future product candidates for use in combination with one or more currently approved cancer therapies. Even if any product candidate we develop were to receive marketing approval or be commercialized for use in combination with other existing therapies, we would continue to be subject to the risk that the FDA, EMA or comparable foreign regulatory authorities could revoke approval of the therapy used in combination with our product candidate or that safety, efficacy, manufacturing or supply issues could arise with these existing therapies. This could result in our own products being removed from the market or being less successful commercially. Combination therapies are commonly used for the treatment of cancer, and we would be subject to similar risks if we develop any of our product candidates for use in combination with other drugs or for indications other than cancer.

We may also evaluate ITIL-168, ITIL-306 or any future product candidate in combination with one or more other third party product candidates that have not yet been approved for marketing by the FDA, EMA or comparable foreign regulatory authorities. If so, we will not be able to market and sell ITIL-168, ITIL-306 or any product candidate we develop in combination with any such unapproved cancer therapies that do not ultimately obtain marketing approval.

If the FDA or comparable foreign regulatory authorities do not approve these other biological products or revoke their approval of, or if safety, efficacy, manufacturing or supply issues arise with, the biologics we choose to evaluate in combination with ITIL-168, ITIL-306 or any product candidate we develop, we may be unable to obtain approval of or market any such product candidate.

The United Kingdom’s withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.

Following the result of a referendum in 2016, the United Kingdom left the European Union on January 31, 2020, commonly referred to as Brexit. Pursuant to the formal withdrawal arrangements agreed to by the United Kingdom and the European Union, as of January 1, 2021, the United Kingdom is no longer subject to the

 

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transition period, or the Transition Period, during which European Union rules continued to apply. Negotiations between the United Kingdom and the European Union are expected to continue in relation to the customs and trading relationship between the United Kingdom and the European Union following the expiry of the Transition Period.

We have significant operations in the United Kingdom. Further, since a significant proportion of the regulatory framework in the United Kingdom is applicable to our business and our product candidates is derived from European Union directives and regulations, Brexit, following the Transition Period, could materially impact the regulatory regime with respect to the development, manufacture, importation, approval and commercialization of our product candidates in the United Kingdom or the European Union. For example, as a result of the uncertainty surrounding Brexit, the EMA relocated to Amsterdam from London. Following the Transition Period, the United Kingdom will no longer be covered by the centralized procedures for obtaining European Union-wide marketing authorizations from the EMA and, unless a specific agreement is entered into, a separate process for authorization of drug products will be required in the United Kingdom, the potential process for which is currently unclear. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United Kingdom or the European Union and limit our ability to generate revenue and achieve and sustain profitability. In addition, we may be required to pay taxes or duties or be subjected to other hurdles in connection with the importation of our product candidates into the European Union, or we may incur expenses in establishing a manufacturing facility in the European Union in order to circumvent such hurdles. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom or the European Union for our product candidates, or incur significant additional expenses to operate our business, which could significantly and materially harm or delay our ability to generate revenues or achieve profitability of our business. Any further changes in international trade, tariff and import/export regulations as a result of Brexit or otherwise may impose unexpected duty costs or other non-tariff barriers on us. These developments, or the perception that any of them could occur, may significantly reduce global trade and, in particular, trade between the impacted nations and the United Kingdom. It is also possible that Brexit may negatively affect our ability to attract and retain employees, particularly those from the European Union.

Risks Related to the Manufacturing of our Product Candidates

Cell therapies are complex and difficult to manufacture. We could experience manufacturing problems that result in delays in the development or commercialization of our product candidates or otherwise harm our business.

The manufacture of cell therapy products is technically complex and necessitates substantial expertise and capital investment. Production difficulties caused by unforeseen events may delay the availability of material for our clinical studies.

The manufacturers of pharmaceutical products must comply with strictly enforced cGMP requirements, state and federal regulations, as well as foreign requirements when applicable. Any failure of us or our contract manufacturing organizations to adhere to or document compliance to such regulatory requirements could lead to a delay or interruption in the availability of our program materials for clinical trials or enforcement action from the FDA, EMA or foreign regulatory authorities. If we or our manufacturers were to fail to comply with the FDA, EMA or other regulatory authority, it 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 product candidates. Our potential future dependence upon others for the manufacture of our product candidates may also adversely affect our future profit margins and our ability to commercialize any product candidates that receive regulatory approval on a timely and competitive basis.

 

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Biological products are inherently difficult to manufacture. Our program materials are manufactured using technically complex processes requiring specialized equipment and facilities, highly specific raw materials, cells, and reagents, and other production constraints. Our production process requires a number of highly specific raw materials, cells and reagents with limited suppliers. Even though we aim to have backup supplies of raw materials, cells and reagents whenever possible, we cannot be certain they will be sufficient if our primary sources are unavailable. A shortage of a critical raw material, cell line, or reagent, or a technical issue during manufacturing may lead to delays in clinical development or commercialization plans. Any changes in the manufacturing of components of the raw materials we use could result in unanticipated or unfavorable effects in our manufacturing processes, resulting in delays.

Delays or failures in the manufacture of cell therapies (whether by us, any collaborator or our third party contract manufacturers) can result in a patient being unable to receive their cell therapy or a requirement to re-manufacture which itself then causes delays in manufacture for other patients. Any delay or failure or inability to manufacture on a timely basis can adversely affect a patient’s outcomes and delay the timelines for our clinical trials. Such delays or failure or inability to manufacture can result from:

 

•

a failure in the manufacturing process itself, for example by an error in manufacturing process (whether by us or our third party CMO), equipment or reagent failure, failure in any step of the manufacturing process, failure to maintain a GMP environment or failure in quality systems applicable to manufacture, sterility failures, contamination during process;

 

•

product loss or failure due to logistical issues associated with the collection of a patient’s tumor or other samples, shipping that material to analytical laboratories, and shipping the final product back to the location using cold chain distribution where it will be administered to the patient, manufacturing issues associated with the differences in patient starting materials, inconsistency in cell growth and variability in product characteristics;

 

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a lack of reliability or reproducibility in the manufacturing process itself leading to variability in end manufacture of cell therapy, which may lead to regulatory authorities placing a hold on a clinical trial or requesting further information on the process which could in turn result in delays to the clinical trials;

 

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variations in patient starting material or apheresis product resulting in less product than expected or product that is not viable, or that cannot be used to successfully manufacture a cell therapy;

 

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product loss or failure due to logistical issues including issues associated with the differences between patients’ white blood cells or characteristics, interruptions to process, contamination, failure to supply patient apheresis material within required timescales (for example, as a result of an import or export hold-up) or supplier error;

 

•

inability to obtain viral vector manufacturing slots from CMOs or to have enough manufacturing slots to manufacture cell therapies for patients as and when those patients require manufacture;

 

•

inability to procure starting materials or to manufacture starting materials;

 

•

loss of or close-down of any manufacturing facility used in the manufacture of our cell therapies, or the inability to find alternative manufacturing capability in a timely fashion;

 

•

loss or contamination of patient starting material, requiring the starting material to be obtained again from the patient or the manufacturing process to be re-started; and

 

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a requirement to modify or make changes to any manufacturing process, which may also require comparability testing that delays our ability to make the required modifications or perform any required comparability testing in a timely fashion, require further regulatory approval or require successful tech transfer to CMOs to continue manufacturing.

 

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Our product candidates are biologics and the manufacture of our product candidates is complex and we may encounter difficulties in production, particularly with respect to process development or scaling-out of our manufacturing capabilities. If we encounter such difficulties, our ability to provide supply of our product candidates for clinical trials or any approved products could be delayed or stopped.

All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for components our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials in the European Union must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA or MAA on a timely basis. Our facilities and quality systems and the facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted, and they could put a hold on one or more of our clinical trials if the facilities of our contract development and manufacturing organizations do not pass such audit or inspections. If these facilities do not pass a pre-approval plant inspection, FDA approval of the products will not be granted.

The regulatory authorities also may, at any time following approval of a product for sale, inspect or audit our manufacturing facilities or those of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could harm our business. If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product or biologic product, or revocation of a pre-existing approval. As a result, our business, financial condition and results of operations may be harmed. Additionally, if supply from one approved manufacturer is interrupted, there could be a significant disruption in commercial supply. An alternative manufacturer would need to be qualified through a BLA and/or MAA supplement which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.

These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully, if approved. Furthermore, if our suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.

Although we are in the process of transferring the current manufacturing process of ITIL-168 from our manufacturing facility in Manchester, United Kingdom and establishing our manufacturing facility in Tarzana, California, we may utilize third parties if needed to manufacture our product candidates. Therefore, we are subject to the risk that such third parties may not perform satisfactorily.

Although we expect that our manufacturing facility will be the primary source of clinical and commercial supply for ITIL-168 and future product candidates, if approved, we may continue to rely on outside vendors for

 

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at least a portion of the manufacturing process and intend to evaluate potential third-party manufacturing capabilities if necessary to meet further clinical and commercial demand. In the event that we engage third-party manufacturers and they do not successfully carry out their contractual duties, meet expected deadlines or manufacture our product candidates in accordance with regulatory requirements or if there are disagreements between us and any third-party manufacturer, we may be delayed in producing sufficient clinical and commercial supply of our product candidates. In such instances, we may need to locate an appropriate replacement third-party relationship, which may not be readily available or on acceptable terms, which would cause additional delay or increased expense and would thereby have a material adverse effect on our business, financial condition, results of operations and prospects.

Reliance on third-party providers may expose us to more risk than if we were to manufacture product candidates ourselves. The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit our BLA to the FDA. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements, known as cGMPs for the manufacture of our product candidates. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. In addition, any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the manufacturing of our product candidates or that obtained approvals could be revoked, which would adversely affect our business and reputation. Furthermore, third-party providers may breach existing agreements they have with us because of factors beyond our control. They may also terminate or refuse to renew their agreement because of their own financial difficulties or business priorities, at a time that is costly or otherwise inconvenient for us. If we were unable to find adequate replacement or another acceptable solution in time, our clinical trials could be delayed or our commercial activities could be harmed.

We have initiated a technology transfer of the current manufacturing process of ITIL-168 from our manufacturing facility in Manchester, United Kingdom to our new manufacturing facility in Tarzana, California, and we intend to utilize material manufactured in our new manufacturing facility in our future clinical trials of ITIL-168. This technology transfer process is still underway, and to date, we have not successfully produced a batch of ITIL-168. We will need to perform analytical and other animal or cell-based tests to demonstrate that materials produced by our new manufacturing facility, or any other third-party manufacturer that we engage, is comparable in all respects, including potency, to the product produced by our Manchester manufacturing facility and utilized in prior clinical and preclinical studies of ITIL-168. There is no assurance that we, or any other future third-party manufacturer that we engage, will be successful in producing ITIL-168, that any such product will pass the required comparability testing, or that any materials produced by us or any other third-party manufacturer that we engage will have the same effect in patients that we have observed to date with respect to materials produced by our Manchester manufacturing facility. Once the technology transfer is complete, we believe that our manufacturing network will have sufficient capacity to meet demand for ITIL-168 for our future U.S. clinical trials. Although we have identified additional third-party cGMP-compliant manufacturers that we believe we will be able to contract with in order to provide additional sources of such materials, there is a risk that if supplies are interrupted or result in poor yield or quality, it would materially harm our business. In addition, we may change our manufacturing process for ITIL-168, which could cause delays in production as we and our third-party manufacturers seek to improve and streamline the process.

In addition, we do not currently have long-term supply or manufacturing arrangements in place for the production of ITIL-168. Although we intend to establish multiple sources for long-term supply, including our

 

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own commercial-scale cGMP-compliant manufacturing facility and one or more third-party manufacturers, if the cell therapy industry were to grow, we may encounter increasing competition for the raw materials and consumables necessary for the production of ITIL-168. Furthermore, demand for third-party cGMP manufacturing facilities may grow at a faster rate than existing manufacturing capacity, which could disrupt our ability to find and retain third-party manufacturers capable of producing sufficient quantities of ITIL-168 for future clinical trials or to meet initial commercial demand in the U.S. In addition to our own manufacturing facilities, we currently rely, and expect to continue to rely, on additional third parties to manufacture ingredients of our product candidates and to perform quality testing. Even following our establishment of our own cGMP-compliant manufacturing capabilities, we intend to maintain third-party manufacturers for these ingredients, as well as to serve as additional sources of our product candidates, which will expose us to risks including:

 

•

reduced control for certain aspects of manufacturing activities;

 

•

termination or nonrenewal of manufacturing and service agreements with third parties in a manner or at a time that is costly or damaging to us; and

 

•

disruptions to the operations of our third-party manufacturers and service providers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or service provider.

Building our new manufacturing facility will require additional investment, will be time-consuming and may be subject to delays, including because of shortage of labor or compliance with regulatory requirements. In addition, building a manufacturing facility may cost more than we currently anticipate. Delays or problems in the build out of our manufacturing facility may adversely impact our ability to provide supply for the development and commercialization of ITIL-168, as well as our financial condition.

Any of these events could lead to clinical trial delays or failure to obtain regulatory approval, or impact our ability to successfully commercialize ITIL-168. Some of these events could be the basis for FDA action, including injunction, recall, seizure or total or partial suspension of product manufacture.

Our current operations are concentrated in two locations. We or the third parties upon whom we depend may be adversely affected by earthquakes, wildfires or other natural disasters, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

We are in the process of transitioning from our manufacturing facility in Manchester, United Kingdom to our new manufacturing facility in Tarzana, California. Any unplanned event, such as flood, fire, explosion, earthquake, extreme weather condition, medical epidemics or pandemics, power shortage, telecommunication failure or other natural or manmade accidents or incidents that result in us being unable to fully utilize our facilities may have a material and adverse effect on our ability to operate our business, particularly on a daily basis, and have significant negative consequences on our financial and operating conditions. Loss of access to these facilities may result in increased costs, delays in the development of our product candidates or interruption of our business operations. Earthquakes, wildfires or other natural disasters could further disrupt our operations, and have a material and adverse effect on our business, financial condition, results of operations and prospects. If a natural disaster, power outage or other event prevented us from using all or a significant portion of our manufacturing facilities, or otherwise disrupted operations, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business. As part of our risk management policy, we maintain insurance coverage at levels that we believe are appropriate for our business. However, in the event of an accident or incident at these facilities, we cannot assure you that the amounts of insurance will be sufficient to satisfy any damages and losses. If our facilities are unable to operate because of an accident or incident or for any other reason, even for a short period of time, any or all of our research and development programs may be harmed. Any business interruption may have a material and adverse effect on our business, financial condition, results of operations and prospects.

 

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We depend on third-party suppliers for materials that are necessary for the conduct of preclinical studies and manufacture of our product candidates for clinical trials, and the loss of these third-party suppliers or their inability to supply us with sufficient quantities of adequate materials, or to do so at acceptable quality levels and on a timely basis, could harm our business.

Manufacturing our product candidates requires many reagents, which are substances used in our manufacturing processes to bring about chemical or biological reactions, and other specialty materials and equipment, some of which are manufactured or supplied by small companies with limited resources and experience to support commercial biologics production. We currently depend on a limited number of vendors for certain materials and equipment used in the manufacture of our product candidates. For example, we currently use facilities and equipment at external contract manufacturing organizations, or CMOs, as well as supply sources internal to the collaboration for vector supply. Our use of CMOs increases the risk of delays in production or insufficient supplies as we transfer our manufacturing technology to these CMOs and as they gain experience with our supply requirements. Some of these suppliers may not have the capacity to support clinical trials and commercial products manufactured under cGMP by biopharmaceutical firms or may otherwise be ill-equipped to support our needs. We also do not have supply contracts with many of these suppliers and may not be able to obtain supply contracts with them on acceptable terms or at all. Accordingly, we may experience delays in receiving key materials and equipment to support clinical or commercial manufacturing.

For some of these reagents, equipment, and materials, we rely and may in the future rely on sole source vendors or a limited number of vendors. The supply of the reagents and other specialty materials and equipment that are necessary to produce our product candidates could be reduced or interrupted at any time. In such case, identifying and engaging an alternative supplier or manufacturer could result in delay, and we may not be able to find other acceptable suppliers or manufacturers on acceptable terms, or at all. Switching suppliers or manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines. If we change suppliers or manufacturers for commercial production, applicable regulatory agencies may require us to conduct additional studies or trials. If key suppliers or manufacturers are lost, or if the supply of the materials is diminished or discontinued, we may not be able to develop, manufacture and market our product candidates in a timely and competitive manner, or at all. An inability to continue to source product from any of these suppliers, which could be due to a number of issues, including regulatory actions or requirements affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor disputes or shortages, unexpected demands or quality issues, could adversely affect our ability to satisfy demand for our product candidates, which could adversely and materially affect our product sales and operating results or our ability to conduct clinical trials, either of which could significantly harm our business.

As we continue to develop and scale our manufacturing process, we expect that we will need to obtain rights to and supplies of certain materials and equipment to be used as part of that process. We may not be able to obtain rights to such materials on commercially reasonable terms, or at all, and if we are unable to alter our process in a commercially viable manner to avoid the use of such materials or find a suitable substitute, it would have a material adverse effect on our business. Even if we are able to alter our process so as to use other materials or equipment, such a change may lead to a delay in our clinical development and/or commercialization plans. If such a change occurs for product candidate that is already in clinical testing, the change may require us to perform both ex vivo comparability studies and to collect additional data from patients prior to undertaking more advanced clinical trials. These factors could cause the delay of studies or trials, regulatory submissions, required approvals or commercialization of product candidates that we develop, cause us to incur higher costs and prevent us from commercializing our product candidates successfully.

Any contamination or interruption in our manufacturing process, shortages of raw materials or failure of our suppliers of reagents to deliver necessary components could result in delays in our clinical development or marketing schedules.

Given the nature of cell therapy manufacturing, there is a risk of contamination. Any contamination could adversely affect our ability to produce product candidates on schedule and could, therefore, harm our results of

 

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operations and cause reputational damage. Some of the raw materials required in our manufacturing process are derived from biologic sources. Such raw materials are difficult to procure and may be subject to contamination or recall. A material shortage, contamination, recall or restriction on the use of biologically derived substances in the manufacture of our product candidates could adversely impact or disrupt the commercial manufacturing or the production of clinical material, which could adversely affect our development timelines and our business, financial condition, results of operations and prospects.

Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay.

As product candidates proceed through preclinical studies to late-stage clinical trials towards potential approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize processes and product characteristics. Such changes carry the risk that they will not achieve our intended objectives. Any such changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the materials manufactured using altered processes. Such changes may also require additional testing, FDA notification or FDA approval. This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidates and jeopardize our ability to commence sales and generate revenue. In addition, we may be required to make significant changes to our upstream and downstream processes across our pipeline, which could delay the development of our future product candidates.

Risks Related to the Commercialization of our Product Candidates

Even if any of our product candidates receive marketing approval, they 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.

If any of our product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If our product candidates do not achieve an adequate level of acceptance, we may not generate significant revenue 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:

 

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the efficacy, safety and potential advantages compared to alternative treatments;

 

•

our ability to offer our products for sale at competitive prices;

 

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the convenience and ease of administration compared to alternative treatments;

 

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product labeling or product insert requirements of the FDA, EMA or other foreign regulatory authorities, including any limitations or warnings contained in a product’s approved labeling, including any black box warning or REMS;

 

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the willingness of the target patient population to try new treatments and of physicians to prescribe these treatments;

 

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our ability to hire and retain a sales force in the United States;

 

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the strength of marketing and distribution support;

 

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the availability of third-party coverage and adequate reimbursement for ITIL-168, ITIL-306 and any other product candidates, once approved;

 

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the prevalence and severity of any side effects; and

 

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any restrictions on the use of our products together with other medications.

 

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If we are unable to establish sales, marketing and distribution capabilities for ITIL-168, ITIL-306 or any other product candidate that may receive regulatory approval, we may not be successful in commercializing those product candidates if and when they are approved.

We do not have sales or marketing infrastructure. To achieve commercial success for ITIL-168, ITIL-306 or any other product candidate for which we may obtain marketing approval, we will need to establish a sales and marketing organization. In the future, we expect to build a focused sales and marketing infrastructure to market our product candidates in the United States, if they are approved. There are risks involved with 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. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to market our products on our own include:

 

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our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;

 

•

the inability of sales personnel to obtain access to physicians in order to educate physicians about our product candidates, once approved;

 

•

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 are forced to enter into arrangements with, and rely on, third parties to perform these services, our revenue and our profitability, if any, are likely to be lower than if we had developed such capabilities 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 favorable 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.

The affected populations for our other product candidates may be smaller than we or third parties currently project, which may affect the addressable markets for our product candidates.

Our projections of the number of people who have the diseases we are seeking to treat, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are estimates based on our knowledge and understanding of these diseases. These estimates may prove to be incorrect and new studies may further reduce the estimated incidence or prevalence of this disease. The number of patients in the United States, the European Union and elsewhere may turn out to be lower than expected, may not be otherwise amenable to treatment with our product candidates or patients may become increasingly difficult to identify and access, all of which would adversely affect our business, financial condition, results of operations and prospects. Further, even if we obtain approval for our product candidates, the FDA or other regulators may limit their approved indications to more narrow uses or subpopulations within the populations for which we are targeting development of our product candidates.

The total addressable market opportunity for our product candidates will ultimately depend upon a number of factors including the diagnosis and treatment criteria included in the final label, if approved for sale in specified indications, acceptance by the medical community, patient access and product pricing and reimbursement. Incidence and prevalence estimates are frequently based on information and assumptions that are

 

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not exact and may not be appropriate, and the methodology is forward-looking and speculative. The process we have used in developing an estimated incidence and prevalence range for the indications we are targeting has involved collating limited data from multiple sources. Accordingly, the incidence and prevalence estimates included in this prospectus should be viewed with caution. Further, the data and statistical information used in this prospectus, including estimates derived from them, may differ from information and estimates made by our competitors or from current or future studies conducted by independent sources.

Off-label use or misuse of our products may harm our reputation in the marketplace, result in injuries that lead to costly product liability suits, and/or subject us to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with any product.

If our product candidates are approved by the FDA, we may only promote or market our product candidates for their specifically approved indications. We will train our marketing and sales force against promoting our product candidates for uses outside of the approved indications for use, known as “off-label uses.” We cannot, however, prevent a physician from using our products off-label, when in the physician’s independent professional medical judgment he or she deems it appropriate. Furthermore, the use of our products for indications other than those approved by the FDA may not effectively treat such conditions. Any such off-label use of our product candidates could harm our reputation in the marketplace among physicians and patients. There may also be increased risk of injury to patients if physicians attempt to use our products for these uses for which they are not approved, which could lead to product liability suits that that might require significant financial and management resources and that could harm our reputation.

Advertising and promotion of any product candidate that obtains approval in the United States will be heavily scrutinized by the FDA, the U.S. Federal Trade Commission, the Department of Justice, or the DOJ, the Office of Inspector General of the U.S. Department of Health and Human Services, or HHS, state attorneys general, members of the U.S. Congress, and the public. Additionally, advertising and promotion of any product candidate that obtains approval outside of the United States will be heavily scrutinized by comparable foreign entities and stakeholders. Violations, including actual or alleged promotion of our products for unapproved or off-label uses, are subject to enforcement letters, inquiries, and investigations, and civil and criminal sanctions by the FDA, DOJ, or comparable foreign bodies. Any actual or alleged failure to comply with labeling and promotion requirements may result in fines, warning letters, mandates to corrective information to healthcare practitioners, injunctions, or civil or criminal penalties.

We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

Drug development is highly competitive and subject to rapid and significant technological advancements. There are several large and small pharmaceutical companies focused on delivering therapeutics for the treatment of metastatic melanoma and other oncology indications we might target in the future. Further, it is likely that additional drugs will become available in the future for the treatment of our target indications.

We face competition from segments of the pharmaceutical, biotechnology and other related markets that pursue the development of TIL or other cell therapies for the treatment of solid tumors. Companies that are developing TIL therapies include Iovance Biotherapeutics Inc., Adaptimmune Therapeutics, Plc., Achilles Therapeutics, Ltd., Intima Bioscience, Inc., Nurix Therapeutics, Inc., KSQ Therapeutics, Inc., Obsidian Therapeutics, Inc., PACT Pharma, Inc. and Neogene Therapeutics, B.V. In addition, we may face competition from companies focused on CAR-T and TCR-T cell therapies, such as Kite Pharma, Inc., a subsidiary of Gilead, Inc., Juno Therapeutics, Inc., a subsidiary of Bristol-Myers Squibb, Inc., TCR2 Therapeutics, Inc., Poseida Therapeutics, Inc. and Immatics N.V. There are also companies utilizing other cell-based approaches that may be competitive to our product candidates. For example, companies such as Celyad, S.A. and Nkarta, Inc. are developing therapies that target and/or engineer natural killer, or NK, cells.

 

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Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, as well as in obtaining regulatory approvals of those product candidates in the United States and in foreign countries. Our current and potential future competitors may also have significantly more experience commercializing drugs, particularly cell therapy and other biological products, that have been approved for marketing. Mergers and acquisitions in the pharmaceutical and biotechnology industries could result in even more resources being concentrated among a small number of our competitors.

We will face competition from other drugs or from other non-drug products currently approved or that will be approved in the future in the oncology field, including for the treatment of diseases and disorders in the therapeutic categories we intend to target. Therefore, our ability to compete successfully will depend largely on our ability to:

 

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develop and commercialize drugs that are superior to other products in the market;

 

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demonstrate through our clinical trials that our product candidates are differentiated from existing and future therapies;

 

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attract qualified scientific, product development and commercial personnel;

 

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obtain patent or other proprietary protection for our medicines;

 

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obtain required regulatory approvals;

 

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obtain coverage and adequate reimbursement from, and negotiate competitive pricing with, third-party payors; and

 

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successfully collaborate with pharmaceutical companies in the discovery, development and commercialization of new medicines.

The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any product candidate we develop. The inability to compete with existing or subsequently introduced drugs would have an adverse impact on our business, financial condition and prospects. In addition, the reimbursement structure of approved cell therapies by other companies could impact the anticipated reimbursement structure of our cell therapies, if approved, and our business, financial condition, results of operations and prospects.

Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, discovering, developing, receiving regulatory and marketing approval for, or commercializing, drugs before we do, which would have an adverse impact on our business and results of operations.

Any product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.

If we are successful in achieving regulatory approval to commercialize any biologic product candidate that we develop, it may face competition from biosimilar products. In the United States, our product candidates are regulated by the FDA as biologic products subject to approval under the BLA pathway. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the ACA, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the

 

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FDA. In addition, the approval 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 by the FDA. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing 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 law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have an adverse effect on the future commercial prospects for our biological products.

There is a risk that any of our product candidates approved as a biological product under a BLA would not qualify for the 12-year period of exclusivity or 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 generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. If competitors are able to obtain marketing approval for biosimilars referencing our candidates, if approved, our products may become subject to competition from such biosimilars, with the attendant competitive pressure and potential adverse consequences.

The success of our product candidates will depend significantly on coverage and adequate reimbursement or the willingness of patients to pay for these therapies.

We believe our success depends on obtaining and maintaining coverage and adequate reimbursement for our product candidates, including ITIL-168 for the treatment of metastatic melanoma, and the extent to which patients will be willing to pay out-of-pocket for such products, in the absence of reimbursement for all or part of the cost. In the United States and in other countries, patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. The availability of coverage and adequacy of reimbursement for our products by third-party payors, including government health care programs (e.g., Medicare, Medicaid, TRICARE), managed care providers, private health insurers, health maintenance organizations, and other organizations is essential for most patients to be able to afford medical services and pharmaceutical products such as our product candidates. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a payor-by-payor basis. One payor’s determination to provide coverage for a drug product does not assure that other payors will also provide coverage, and adequate reimbursement. The principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, or HHS. CMS decides whether and to what extent products will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree.

Third-party payors determine which products and procedures they will cover and establish reimbursement levels. Even if a third-party payor covers a particular product or procedure, the resulting reimbursement payment rates may not be adequate. Patients who are treated in-office for a medical condition generally rely on third-party payors to reimburse all or part of the costs associated with the procedure, including costs associated with products used during the procedure, and may be unwilling to undergo such procedures in the absence of such coverage and adequate reimbursement. Physicians may be unlikely to offer procedures for such treatment if they are not covered by insurance and may be unlikely to purchase and use our product candidates, if approved, for our stated indications unless coverage is provided and reimbursement is adequate. In addition, for products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs.

 

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Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that a procedure is safe, effective and medically necessary; appropriate for the specific patient; cost-effective; supported by peer-reviewed medical journals; included in clinical practice guidelines; and neither cosmetic, experimental, nor investigational. Further, increasing efforts by third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates. In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain FDA or comparable regulatory approvals. Additionally, we may also need to provide discounts to purchasers, private health plans or government healthcare programs. Our product candidates may nonetheless not be considered medically necessary or cost-effective. If third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow a company to sell its products at a profit. We expect to experience pricing pressures from third-party payors in connection with the potential sale of any of our product candidates. Decreases in third-party reimbursement for any product or a decision by a third-party payor not to cover a product could reduce physician usage and patient demand for the product and also have a material adverse effect on sales.

Foreign governments also have their own healthcare reimbursement systems, which vary significantly by country and region, and we cannot be sure that coverage and adequate reimbursement will be made available with respect to the treatments in which our products are used under any foreign reimbursement system.

There can be no assurance that ITIL-168 or any other product candidate, if approved for sale in the United States or in other countries, will be considered medically reasonable and necessary, that it will be considered cost-effective by third-party payors, that coverage or an adequate level of reimbursement will be available or that reimbursement policies and practices in the United States and in foreign countries where our products are sold will not adversely affect our ability to sell our product candidates profitably, if they are approved for sale.

Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.

We face an inherent risk of 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. If we cannot successfully defend ourselves against claims that our product candidates or drugs caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

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decreased demand for any product candidates or drugs that we may develop;

 

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injury to our reputation and significant negative media attention;

 

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withdrawal of clinical trial participants;

 

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significant costs to defend the related litigation;

 

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substantial monetary awards paid to trial participants or patients;

 

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loss of revenue;

 

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reduced resources of our management to pursue our business strategy; and

 

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the inability to commercialize any products that we may develop.

Although we maintain product liability insurance coverage, such insurance may not be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage as we expand 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.

 

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Our business and operations would suffer in the event of computer system failures, cyberattacks or a deficiency in our cybersecurity.

Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyberattacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyberattacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur material legal claims and liability and damage to our reputation, and the further development of our product candidates could be delayed.

We are subject to a variety of privacy and data security laws, and our failure to comply with them could harm our business.

We maintain a large quantity of sensitive information, including confidential business and personal information in connection with the conduct of our clinical trials and related to our employees, and we are subject to laws and regulations governing the privacy and security of such information. In the United States, there are numerous federal and state privacy and data security laws and regulations governing the collection, use, disclosure and protection of personal information, including federal and state health information privacy laws, federal and state security breach notification laws, and federal and state consumer protection laws. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy and data protection issues, which may affect our business and is expected to increase our compliance costs and exposure to liability. In the United States, numerous federal and state laws and regulations could apply to our operations or the operations of our partners, including state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws and regulations (e.g. Section 5 of the FTC Act), that govern the collection, use, disclosure, and protection of health-related and other personal information. In addition, we may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and regulations promulgated thereunder. Depending on the facts and circumstances, we could be subject to significant penalties if we obtain, use, or disclose individually identifiable health information in a manner that is not authorized or permitted by HIPAA.

In Europe, the General Data Protection Regulation or the GDPR, took effect in May 2018. The GDPR governs the collection, use, disclosure, transfer or other processing of personal data of individuals within the European Economic Area, or the EEA, including clinical trial data. Among other things, the GDPR imposes requirements regarding the security of personal data and notification of data processing obligations to the competent national data processing authorities, requires having lawful bases on which personal data can be processed, and requires changes to informed consent practices, as well as more detailed notices for clinical trial subjects and investigators. In addition, the GDPR increases the scrutiny of transfers of personal data from the EEA to the United States and other jurisdictions that the European Commission does not recognize as having “adequate” data protection laws; in July 2020, the Court of Justice of the European Union limited how organizations could lawfully transfer personal data from the EEA to the United States by invalidating the EU-US Privacy Shield and imposing further restrictions on use of the standard contractual clauses, which could increase our costs and our ability to efficiently process personal data from the EEA. The GDPR imposes substantial fines

 

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for breaches and violations (up to the greater of €20 million or 4% of our consolidated annual worldwide gross revenue), and 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. Relatedly, following the United Kingdom’s withdrawal from the European Economic Area and the European Union, and the expiry of the transition period, which ended on January 1, 2021, companies have to comply with both the GDPR and the GDPR as incorporated into United Kingdom national law, the latter regime having the ability to separately fine up to the greater of £17.5 million or 4% of global turnover. On January 1, 2021, the United Kingdom became a third country for the purposes of the GDPR.

The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, for example around how data can lawfully be transferred between each jurisdiction, which exposes us to further compliance risk. Pursuant to the EU-UK Trade and Cooperation Agreement of December 24, 2020, transfers of personal data from the European Union to the United Kingdom may continue to take place without a need for additional safeguards during a further transition period, to expire on (1) the date on which an adequacy decision with respect to the United Kingdom is adopted by the EU Commission; or (2) the expiry of four months, which shall be extended by a further two months unless either the European Union or the United Kingdom objects. It remains unclear whether the EU Commission will adopt an adequacy decision with respect to the United Kingdom. In the absence of such decision after the expiry of the additional transition period, we may need to put in place additional safeguards for transfers of personal data from the European Union to the United Kingdom, such as standard contractual clauses approved by the EU Commission.

Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. If we fail to comply with any such laws or regulations, we may face significant fines and penalties that could adversely affect our business, financial condition and results of operations. Furthermore, the laws are not consistent, and compliance in the event of a widespread data breach is costly. In addition, states are constantly adopting new laws or amending existing laws, requiring attention to frequently changing regulatory requirements. For example, California enacted the California Consumer Privacy Act, or the CCPA, which took effect on January 1, 2020, became enforceable by the California Attorney General on July 1, 2020, and has been dubbed the first “GDPR-like” law in the United States. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used by requiring covered companies to provide new disclosures to California consumers (as that term is broadly defined) and provide such consumers new ways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. Further, the California Privacy Rights Act, or the CPRA, recently passed in California. The CPRA will impose additional data protection obligations on companies doing business in California, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be required. Although the CCPA currently exempts certain health-related information, including clinical trial data, the CCPA and the CPRA may increase our compliance costs and potential liability. Similar laws have been proposed in other states and at the federal level, and if passed, such laws may have potentially conflicting requirements that would make compliance challenging.

If we or any contract manufacturers and suppliers we engage fail to comply with environmental, health, and safety laws and regulations, we could become subject to fines or penalties or incur costs that could seriously harm our business.

We and any contract manufacturers and suppliers we engage are subject to numerous federal, state and local environmental, health, and safety laws, regulations, and permitting requirements, including those governing

 

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laboratory procedures; the generation, handling, use, storage, treatment and disposal of hazardous and regulated materials and wastes; the emission and discharge of hazardous materials into the ground, air and water; and employee health and safety. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. Under certain environmental laws, we could be held responsible for costs relating to any contamination at our current or past facilities and at third-party facilities. We also could incur significant costs associated with civil or criminal fines and penalties.

Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our research, product development and manufacturing efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty, and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended, which could seriously harm our business.

Risks Related to Our Dependence on Third Parties

We intend to rely on third parties to conduct, supervise and monitor a significant portion of our research and preclinical testing and clinical trials for our product candidates, and if those third parties do not successfully carry out their contractual duties, comply with regulatory requirements or otherwise perform satisfactorily, we may not be able to obtain regulatory approval or commercialize product candidates, or such approval or commercialization may be delayed, and our business may be substantially harmed.

We intend to engage CROs and other third parties to conduct our planned preclinical studies or clinical trials, including our planned Phase 2 trial of ITIL-168, and to monitor and manage data. We expect to continue to rely on third parties, including clinical data management organizations, medical institutions and clinical investigators, to conduct those clinical trials. Any of these third parties may terminate their engagements with us, some in the event of an uncured material breach and some at any time for convenience. If any of our relationships with these third parties terminate, we may not be able to timely enter into arrangements with alternative third parties or to do so on commercially reasonable terms, if at all. Switching or adding CROs involves substantial 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 occur, which can materially impact our ability to meet our desired clinical development timelines. Though we intend to carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects. Further, the performance of our CROs and other third parties conducting our trials may also be interrupted by the ongoing COVID-19 pandemic, including due to travel or quarantine policies, heightened exposure of CRO or clinical site or other vendor staff who are healthcare providers to COVID-19 or prioritization of resources toward the pandemic.

In addition, any third parties conducting our clinical trials will not be our employees, and except for remedies available to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time and resources to our clinical programs. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or

 

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accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. Consequently, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase substantially and our ability to generate revenue could be delayed significantly.

We rely on these parties for execution of our preclinical studies and clinical trials, and generally do not control their activities. Our reliance on these third parties for research and development activities will reduce our control over these activities but will 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 standards, commonly referred to as good clinical practices, or 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. If we or any of our CROs or other third parties, including trial sites, fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials complies with GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP conditions. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

We also are required to register certain ongoing clinical trials and post the results of certain 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.

In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA. The FDA may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the trial. The FDA 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 and may ultimately lead to the denial of marketing approval for ITIL-168, ITIL-306 or any other product candidates.

We also expect to rely on other third parties to store and distribute product supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, producing additional losses and depriving us of potential revenue.

We may seek collaborations with third parties for the development or commercialization of our product candidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.

We may seek third-party collaborators for the development and commercialization of our product candidates, including for the commercialization of any of our product candidates that are approved for marketing outside the United States. Our likely collaborators for any such arrangements include regional and national pharmaceutical companies and biotechnology companies. If we enter into any additional such arrangements with any third parties, we will likely have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. Our ability to generate revenue from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.

 

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Collaborations involving our product candidates would pose the following risks to us:

 

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collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;

 

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collaborators may not perform their obligations as expected;

 

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collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;

 

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collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

 

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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

 

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we could grant exclusive rights to our collaborators that would prevent us from collaborating with others;

 

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product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or drugs, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;

 

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a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such products;

 

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disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination 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;

 

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collaborators may not properly maintain or defend our or their intellectual property rights or may use our or their proprietary information in such a way as to invite litigation that could jeopardize or invalidate such intellectual property or proprietary information or expose us to potential litigation;

 

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collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and

 

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collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates.

Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If any future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program could be delayed, diminished or terminated.

We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for any 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

 

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of approval by the FDA, EMA or similar regulatory authorities outside the United States, 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 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. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

We may not be able to negotiate additional collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of such product candidate, reduce or delay its development program or one or more of our other development programs, delay its 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 elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate revenue.

Risks Related to our Intellectual Property

If we are unable to obtain or protect intellectual property rights related to any of our product candidates, we may not be able to compete effectively in our market.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our product candidates and technologies. Our success depends in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and in other countries with respect to our proprietary technology and product candidates.

As of the date of prospectus, we do not currently in-license any intellectual property, but we may choose to do so in the future. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. We cannot offer any assurances about which of our patent applications will issue, the breadth of any resulting patent or whether any of the issued patents will be found invalid and unenforceable or will be threatened by third parties. We cannot offer any assurances that the breadth of our resulting or granted patents will be sufficient to stop a competitor from developing and commercializing a product, including a biosimilar product, that would be competitive with one or more of our product candidates. There is no assurance that all the potentially relevant prior art relating to our patent and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we or our future licensors were the first to file any patent application related to our product candidates and technologies. Additionally, an interference proceeding can be provoked by a third party or instituted by the United States Patent and Trademark Office (USPTO) to determine who was the first to invent any of the subject matter covered by the patent claims of our applications.

Furthermore, any successful challenge to these patents or any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of any of our product candidates and technologies that we may develop. Even if they are unchallenged or such third-party challenges are unsuccessful, our patent and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates and technologies, or prevent others from designing around our claims. If the breadth or strength of protection provided by the patent and patent applications we hold, obtain or pursue with respect to our product candidates and technologies is challenged, or if they fail to provide meaningful

 

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exclusivity for our product candidates and technologies, it could threaten our ability to commercialize our product candidates and technologies. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection, if approved, would be reduced.

The patent prosecution process is expensive and time-consuming. We may not be able to prepare, file and prosecute all necessary or desirable patent applications at a commercially reasonable cost, in a timely manner, or in all jurisdictions. It is also possible that we 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. Moreover, depending on the terms of any future in-licenses to which we may become a party, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology in-licensed from third parties. Therefore, these patents and patent applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. In addition to the protection provided by our patent estate, we rely on trade secret protection and confidentiality agreements to protect proprietary scientific, business and technical information and know-how that is not or may not be patentable or that we elect not to patent. We seek to protect our proprietary information, data and processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and partners. Although these agreements are designed to protect our proprietary information, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Although we generally require all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed with all third parties who may have helped to develop our intellectual property or who had access to our proprietary information, or that our agreements will not be breached. If any of the parties to these confidentiality agreements breaches or violates the terms of such agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result.

Enforcing a claim that a third party illegally obtained and is using our trade secrets, like patent litigation, is expensive and time-consuming, and the outcome is unpredictable. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. We cannot guarantee that our employees, former employees or consultants will not file patent applications claiming our inventions. Because of the “first-to-file” laws in the United States, such unauthorized patent application filings may defeat our attempts to obtain patents on our own inventions.

Trade secrets and know-how can be difficult to protect as trade secrets and know-how will over time be disseminated within the industry through independent development, the publication of journal articles, and the movement of personnel skilled in the art from company to company or academic to industry scientific positions. Moreover, our competitors may independently develop knowledge, methods and know-how equivalent to our trade secrets. Competitors could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own technologies that fall outside of our intellectual property rights. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets and proprietary know-how were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.

We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.

 

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Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective.

While we have confidence in these individuals, organizations and systems, our agreements or security measures may be breached, and we may not have adequate remedies for any breach. Also, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. In addition, others may independently discover our trade secrets and proprietary information. For example, the FDA is considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future. If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.

Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of time, and if we do not obtain protection under the Hatch-Waxman Amendments and similar non-United States legislation for extending the term of patents covering each of our product candidates, our business may be materially harmed.

Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after its first effective filing date. Although various extensions may be available, the life of a patent, and the protection it affords, is limited. 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 medications. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates may expire before or shortly after such candidates are commercialized. Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our United States patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, and similar legislation in the European Union. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. A 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 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. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced and could have a material adverse effect on our business.

If we fail to comply with our obligations imposed by any intellectual property licenses with third parties that we may need in the future, we could lose rights that are important to our business.

Although we do not currently have any intellectual property licenses with third parties, we may in the future require licenses to additional third-party technology and materials. Such licenses may not be available in the future or may not be available on commercially reasonable terms, or at all, which could have a material adverse effect on our business and financial condition. Even if we acquire the right to control the prosecution, maintenance and enforcement of the licensed and sublicensed intellectual property relating to our product candidates, we may require the cooperation of our licensors and any upstream licensor, which may not be forthcoming. Therefore, we cannot be certain that the prosecution, maintenance and enforcement of these patent rights will be in a manner consistent with the best interests of our business. If we or our licensor fail to maintain

 

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such patents, or if we or our licensor lose rights to those patents or patent applications, the rights we have licensed may be reduced or eliminated and our right to develop and commercialize any of our product candidates that are the subject of such licensed rights could be adversely affected. In addition to the foregoing, the risks associated with patent rights that we license from third parties will also apply to patent rights we may own in the future. Further, if we fail to comply with our development obligations under our license agreements, we may lose our patent rights with respect to such agreement, which would affect our patent rights worldwide.

Termination of our current or any future license agreements would reduce or eliminate our rights under these agreements and may result in our having to negotiate new or reinstated agreements with less favorable terms or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology. Any of the foregoing could prevent us from commercializing our other product candidates, which could have a material adverse effect on our operating results and overall financial condition.

In addition, intellectual property rights that we in-license in the future may be sublicenses under intellectual property owned by third parties, in some cases through multiple tiers. The actions of our licensors may therefore affect our rights to use our sublicensed intellectual property, even if we are in compliance with all of the obligations under our license agreements. Should our licensors or any of the upstream licensors fail to comply with their obligations under the agreements pursuant to which they obtain the rights that are sublicensed to us, or should such agreements be terminated or amended, our ability to develop and commercialize our product candidates may be materially harmed.

Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our future patents.

Our ability to obtain patents is highly uncertain because, to date, some legal principles remain unresolved, and there has not been a consistent policy regarding the breadth or interpretation of claims allowed in patents in the United States. Furthermore, the specific content of patents and patent applications that are necessary to support and interpret patent claims is highly uncertain due to the complex nature of the relevant legal, scientific, and factual issues. Changes in either patent laws or interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection.

For example, on September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act included a number of significant changes to United States patent law. These included provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The USPTO has developed new and untested regulations and procedures to govern the full implementation of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, became effective in March 2013. The Leahy-Smith Act has also introduced procedures making it easier for third parties to challenge issued patents, as well as to intervene in the prosecution of patent applications. Finally, the Leahy-Smith Act contained new statutory provisions that require the USPTO to issue new regulations for their implementation, and it may take the courts years to interpret the provisions of the new statute. It is too early to tell what, if any, impact the Leahy-Smith Act will have on the operation of our business and the protection and enforcement of our intellectual property. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our future patents. Further, 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 the United States 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 owned or licensed or that we might obtain in the future. An inability to obtain, enforce, and defend patents covering our proprietary technologies would materially and adversely affect our business prospects and financial condition.

 

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Similarly, changes in patent laws and regulations in other countries or jurisdictions, 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 may obtain in the future. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of 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. For example, if the issuance in a given country of a patent covering an invention is not followed by the issuance in other countries of patents covering the same invention, or if any judicial interpretation of the validity, enforceability or scope of the claims or the written description or enablement, in a patent issued in one country is not similar to the interpretation given to the corresponding patent issued in another country, our ability to protect our intellectual property in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection.

Competitors could enter the market with generic versions of our product candidates, which may result in a material decline in sales of our product candidates.

We may not be successful in securing or maintaining proprietary patent protection for products and technologies we develop or license. Moreover, if any patents that are granted and listed in the Orange Book are successfully challenged by way of a Paragraph IV certification and subsequent litigation, the affected product could more immediately face generic competition and its sales would likely decline materially. Should sales decline, we may have to write off a portion or all of the intangible assets associated with the affected product and our results of operations and cash flows could be materially and adversely affected.

We may be involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our issued patents or any patents issued as a result of our pending or future patent applications. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party in such infringement proceeding 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 proceedings could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly, and could put any of our patent applications at risk of not yielding an issued patent.

If we initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could counterclaim that the patent covering our product or product candidate is invalid and/or unenforceable. In patent litigation in the United States, counterclaims alleging invalidity and/or unenforceability are common, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the PTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, inter partes review and equivalent proceedings in foreign jurisdictions (for example, opposition proceedings, nullity proceedings or litigation or invalidation trials or invalidation proceedings). Such proceedings could result in revocation of or amendment to our patents in such a way that they no longer cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity of our patents, for example, we cannot be certain that there is no invalidating prior art of which we, our patent counsel, and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity

 

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and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and could have a material adverse impact on our business.

Interference or derivation proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions or inventorship (and possibly also ownership) of inventions with respect to our patent applications or resulting patents, or patent applications or resulting patents of third parties. An unfavorable outcome could require us to cease using the related technology or force us to take a license under the patent rights of the prevailing party, if available. Furthermore, our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. 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.

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 a material adverse effect on the price of our common stock.

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.

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 product candidates in any jurisdiction.

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. We may incorrectly determine that our products 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, which may negatively impact our ability to develop and market our product candidates. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products.

We may be unsuccessful in licensing or acquiring intellectual property from third parties that may be required to develop and commercialize our product candidates.

A third party may hold intellectual property, including patent rights that are important or necessary to the development and commercialization of our product candidates. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our product candidates, in which case we would be required to acquire or obtain a license to such intellectual property from these third parties, and we may be unable to do so on commercially reasonable terms or at all. The licensing or acquisition of third-party 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

 

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property rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on our business.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain.

Our commercial success depends in part on our ability to develop, manufacture, market and sell our drug candidates and use our proprietary technologies without infringing or otherwise violating the patents and proprietary rights of third parties. As our current and future product candidates progress toward commercialization, the possibility of a patent infringement claim against us increases. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, derivation proceedings, post grant reviews, inter partes reviews, and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. Numerous United States and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates, and 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 product candidates and technologies. Third parties, including our competitors may initiate legal proceedings against us alleging that we are infringing or otherwise violating their patent or other intellectual property rights.

We cannot provide any assurance that our current and future product candidates do not infringe other parties’ patents or other proprietary rights, and competitors or other parties may assert that we infringe their proprietary rights in any event. We may become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our current and future product candidates, including interference or derivation proceedings before the USPTO. Even if we believe such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, which could have a negative impact on our ability to commercialize ITIL-168, ITIL-306 or any future product candidates. In order to successfully challenge the validity of any such United States patent in federal court, we would need to overcome a presumption of validity. As this burden is high and requires us to present clear and convincing evidence as to the invalidity of any such United States patent claim, there is no assurance that a court of competent jurisdiction would agree with us and invalidate the claims of any such United States patent. Moreover, given the vast number of patents in our field of technology, we cannot be certain that we do not infringe existing patents or that we will not infringe patents that may be granted in the future.

While we may decide to initiate proceedings to challenge the validity of these or other patents in the future, we may be unsuccessful, and courts or patent offices in the United States and abroad could uphold the validity of any such patent. Furthermore, because patent applications can take many years to issue and may be confidential for 18 months or more after filing, and because pending patent claims can be revised before issuance, there may be applications now pending which may later result in issued patents that may be infringed by the manufacture, use or sale of our product candidates. Regardless of when filed, we may fail to identify relevant third-party patents or patent applications, or we may incorrectly conclude that a third-party patent is invalid or not infringed by our product candidates or activities. If a patent holder believes that one of our product candidates infringes its patent, the patent holder may sue us even if we have received patent protection for our technology. In addition, third parties may obtain patents in the future and claim that our product candidates or technologies infringe upon these patents. Moreover, we may face patent infringement claims from non-practicing entities that have no relevant drug revenue and against whom our own patent portfolio may thus have no deterrent effect. If a patent infringement suit were threatened or brought against us, we could be forced to stop or delay research, development, manufacturing or sales of the drug or product candidate that is the subject of the actual or threatened suit.

 

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If we are found to infringe a third party’s valid intellectual property rights, we could be required to obtain a license from such third party to continue commercializing our product candidates. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if a license can be obtained on acceptable terms, the rights may be non-exclusive, which could give our competitors access to the same technology or intellectual property rights licensed to us. If we fail to obtain a required license, we may be unable to effectively market product candidates based on our technology, which could limit our ability to generate revenue or achieve profitability and possibly prevent us from generating revenue sufficient to sustain our operations. Alternatively, we may need to redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. Under certain circumstances, we could be forced, including by court orders, to cease commercializing our product candidates. In addition, in any such proceeding or litigation, we could be found liable for substantial monetary damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed the patent at issue. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could harm our business. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar negative impact on our business.

The cost to us in defending or initiating any litigation or other proceeding relating to patent or other proprietary rights, even if resolved in our favor, could be substantial, and litigation would divert our management’s attention. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could delay our research and development efforts and limit our ability to continue our operations.

We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties.

We employ individuals who were previously employed at other biotechnology or biopharmaceutical companies. 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 we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees’ former employers or other third parties. We may also be subject to claims that former employers or other third parties have an ownership interest in our future patents. 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 or personnel. There is no guarantee of success in defending these claims, and even if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees.

We may be subject to claims challenging the inventorship or ownership of our future patents and other intellectual property.

We may also be subject to claims that former employees, collaborators, or other third parties have an ownership interest in our patent applications, our future patents issued as a result of our pending or future applications, or other intellectual property. We may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. Although it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own, and we cannot be certain that our agreements with such parties will be upheld in the face of a potential challenge, or that they will not be breached, for which we may not have an adequate remedy. The assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, and litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary

 

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damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

If we rely on third parties to manufacture or commercialize our product candidates, or if we collaborate with additional third parties for the development of such product candidates, we must, at times, share trade secrets with them. We may also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development partnerships or similar agreements. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or 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 our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. 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 could 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 and consultants to publish data potentially relating to our trade secrets. Despite our efforts to protect our trade secrets, we may not be able to prevent the unauthorized disclosure or use of our technical know-how or other trade secrets by the parties to these agreements. Moreover, we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our confidential information or proprietary technology and processes. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. If any of the collaborators, scientific advisors, employees, contractors and consultants who are parties to these agreements breaches or violates the terms of any of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result. Moreover, if confidential information that is licensed or disclosed to us by our partners, collaborators, or others is inadvertently disclosed or subject to a breach or violation, we may be exposed to liability to the owner of that confidential information. Enforcing a claim that a third party illegally obtained and is using our trade secrets, like patent litigation, is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets.

We may enjoy only limited geographical protection with respect to certain patents and we may not be able to protect our intellectual property rights throughout the world.

Filing and prosecuting patent applications and defending patents covering our product candidates in all countries throughout the world would be prohibitively expensive. 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 have patent protection, but enforcement rights are not as strong as that in the United States or Europe. These products may compete with our product candidates, and our future patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

In addition, we may decide to abandon national and regional patent applications before they are granted. The examination of each national or regional patent application is an independent proceeding. As a result, patent

 

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applications in the same family may issue as patents in some jurisdictions, such as in the United States, but may issue as patents with claims of different scope or may even be refused in other jurisdictions. It is also quite common that depending on the country, the scope of patent protection may vary for the same product candidate or technology.

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 our 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 our product candidates in all of our expected significant foreign markets. If we encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished, and we may face additional competition from others in those jurisdictions.

The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws or rules and regulations in the United States and Europe and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property rights, especially those relating to life sciences, which could make it difficult for us to stop the infringement of our future patents or marketing of competing products in violation of our proprietary rights generally. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.

Proceedings to enforce our patent rights in other 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 future patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing as patents, 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. 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 our product candidates. 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 from third parties.

Some countries also have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, some countries limit the enforceability of patents against government agencies or government contractors. In those countries, the patent owner may have limited remedies, which could materially diminish the value of such patents. If we are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and/or applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our patents and/or applications and any patent rights we may obtain in the future. Furthermore, the USPTO and various non-United States government patent agencies require compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals and rely on such third parties to help us comply with

 

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these requirements and effect payment of these fees with respect to the patent and patent applications that we own, and if we in-license intellectual property, we may have to rely upon our licensors to comply with these requirements and effect payment of these fees with respect to any patents and patent applications that we license. In many cases, an inadvertent lapse of a patent or patent application can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patents or patent applications, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market, which could have a material adverse effect on our business.

Any trademarks we have obtained or may obtain may be infringed or otherwise violated, or successfully challenged, resulting in harm to our business.

We expect to rely on trademarks as one means to distinguish our product candidates, if approved for marketing, from the drugs of our competitors. Once we select new trademarks and apply to register them, our trademark applications may not be approved. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. Third parties may oppose or attempt to cancel our trademark applications or trademarks, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our drugs, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing new brands. Our competitors may infringe or otherwise violate our trademarks and we may not have adequate resources to enforce our trademarks. Any of the foregoing events may have a material adverse effect on our business. Moreover, any name we propose to use with our 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 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 substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our product candidates.

We may seek collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of our product candidates depending on the merits of retaining commercialization rights for ourselves as compared to entering into collaboration arrangements. We will face, to the extent that we decide to enter into collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time-consuming to negotiate, document, implement and maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we so chose to enter into such arrangements. The terms of any collaborations or other arrangements that we may establish may not be favorable to us.

Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, which may include that:

 

•

collaborators have significant discretion in determining the efforts and resources that they will apply to collaborations;

 

•

collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities;

 

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•

collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial, abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

 

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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates;

 

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a collaborator with marketing, manufacturing and distribution rights to one or more products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities;

 

•

we could grant exclusive rights to our collaborators that would prevent us from collaborating with others;

 

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collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability;

 

•

disputes may arise between us and a collaborator that causes the delay or termination of the research, development or commercialization of our current or future products or that results in costly litigation or arbitration that diverts management attention and resources;

 

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collaborations may be terminated, and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable current or future products;

 

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collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in such cases, we would not have the exclusive right to develop or commercialize such intellectual property; and

 

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a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws resulting in civil or criminal proceedings.

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:

 

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others may be able to make products that are similar to or otherwise competitive with our product candidates but that are not covered by the claims of our current or future patents;

 

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an in-license necessary for the manufacture, use, sale, offer for sale or importation of one or more of our product candidates may be terminated by the licensor;

 

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we or future collaborators might not have been the first to make the inventions covered by our issued or future issued patents or our pending patent applications;

 

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we or future collaborators might not have been the first to file patent applications covering certain of our inventions;

 

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others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

 

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it is possible that our pending patent applications will not lead to issued patents;

 

•

issued patents that we own or in-license may be held invalid or unenforceable as a result of legal challenges by our competitors;

 

•

issued patents that we own or in-license may not provide coverage for all aspects of our product candidates in all countries;

 

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•

our competitors might conduct research and development activities 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;

 

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we may not develop additional proprietary technologies that are patentable; and

 

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the patents of others may have an adverse effect on our business.

Should any of these events occur, they could significantly harm our business, results of operations and prospects.

Risks Related to Legal and Regulatory Compliance Matters

Our relationships with customers, healthcare providers, including physicians, and third-party payors are subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

Healthcare providers, including physicians, and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our current and future arrangements with healthcare professionals, principal investigators, consultants, customers and third-party payors subject us to various federal and state fraud and abuse laws and other healthcare laws, including, without limitation, the federal Anti-Kickback Statute, the federal civil and criminal false claims laws and the law commonly referred to as the Physician Payments Sunshine Act and regulations promulgated under such laws. These laws will impact, among other things, our clinical research, proposed sales, marketing and educational programs, and other interactions with healthcare professionals. In addition, we may be subject to patient privacy laws by both the federal government and the states in which we conduct or may conduct our business. The laws that will affect our operations include, but are not limited to:

 

•

the federal Anti-Kickback Statute, which prohibits, among other things, individuals or entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind in return for, or to induce, either the referral of an individual, or the purchase, lease, order or arrangement for or recommendation of the purchase, lease, order or arrangement for any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration” has been broadly interpreted to include anything of value. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. A person does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation;

 

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the federal civil and criminal false claims laws, including, without limitation, the federal False Claims Act, which can be enforced by private citizens through civil whistleblower or qui tam actions, and civil monetary penalty laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from the federal government, including Medicare, Medicaid and other government payors, that are false or fraudulent or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or to avoid, decrease or conceal an obligation to pay money to the federal government. A claim includes “any request or demand” for money or property presented to the United States federal government. Several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to

 

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be submitted because of the companies’ marketing of products for unapproved, and thus non-reimbursable, uses. 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 federal False Claims Act;

 

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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes which prohibit, among other things, a person from knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

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the federal transparency laws, including the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, medical devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the State Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to: (i) payments or other “transfers of value’’ made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and (ii) ownership and investment interests held by physicians and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists and certified nurse midwives; and

 

•

analogous state and foreign laws and regulations; state laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, marketing expenditures or drug pricing; 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, or that otherwise restrict payments that may be made to healthcare providers; and state and local laws that require the registration of pharmaceutical sales representatives.

Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. 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 penalties, including, without limitation, civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participating in federal and state funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, diminished profits and future earnings, reputational harm and the curtailment or restructuring of our operations, any of which could harm our business.

The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to

 

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build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.

Even if we obtain regulatory approval for ITIL-168, ITIL-306 or any future product candidates, they will remain subject to ongoing regulatory oversight, which may result in significant additional expense.

Even if we obtain any regulatory approval for ITIL-168, ITIL-306 or any future product candidates, such product candidates, they will be subject to ongoing regulatory requirements applicable to manufacturing, labeling, packaging, storage, advertising, promoting, sampling, record-keeping and submission of safety and other post-market information, among other things. Any regulatory approvals that we receive for ITIL-168, ITIL-306 or any future product candidates may also be subject to a risk evaluation and mitigation strategy, limitations on the approved indicated uses for which the drug may be marketed or to the conditions of approval, or requirements that we conduct potentially costly post-marketing testing and surveillance studies, including Phase 4 trials and surveillance to monitor the quality, safety and efficacy of the drug. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval. We will further be required to immediately report any serious and unexpected adverse events and certain quality or production problems with our products to regulatory authorities along with other periodic reports.

Any new legislation addressing drug safety issues could result in delays in product development or commercialization, or increased costs to assure compliance. We will also have to comply with requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drug products are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. As such, we will not be allowed to promote our products for indications or uses for which they do not have approval, commonly known as off-label promotion. The holder of an approved BLA must submit new or supplemental applications and obtain prior approval for certain changes to the approved product, product labeling, or manufacturing process. A company that is found to have improperly promoted off-label uses of their products may be subject to significant civil, criminal and administrative penalties.

In addition, drug manufacturers are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP requirements and adherence to commitments made in the BLA or foreign marketing application. If we, or a regulatory authority, discover previously unknown problems with a drug, such as adverse events of unanticipated severity or frequency, or problems with the facility where the drug is manufactured or if a regulatory authority disagrees with the promotion, marketing or labeling of that drug, a regulatory authority may impose restrictions relative to that drug, the manufacturing facility or us, including requesting a recall or requiring withdrawal of the drug from the market or suspension of manufacturing.

If we fail to comply with applicable regulatory requirements following approval of ITIL-168, ITIL-306 or any future product candidates, a regulatory authority may:

 

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issue an untitled letter or warning letter asserting that we are in violation of the law;

 

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seek an injunction or impose administrative, civil or criminal penalties or monetary fines;

 

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suspend or withdraw regulatory approval;

 

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suspend any ongoing clinical trials;

 

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refuse to approve a pending marketing application or supplement to an approved application or comparable foreign marketing application (or any supplements thereto) submitted by us or our strategic partners;

 

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restrict the marketing or manufacturing of the drug;

 

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•

seize or detain the drug or otherwise require the withdrawal of the drug from the market;

 

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refuse to permit the import or export of products or product candidates; or

 

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refuse to allow us to enter into supply contracts, including government contracts.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize ITIL-168, ITIL-306 or any future product candidates and harm our business, financial condition, results of operations and prospects.

Even if we obtain FDA or EMA approval any of our product candidates in the United States or European Union, we may never obtain approval for or commercialize any of them in any other jurisdiction, which would limit our ability to realize their full market potential.

In order to market any products in any particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy.

Approval by the FDA in the United States or the EMA in the European Union does not ensure approval by regulatory authorities in other countries or jurisdictions. However, the failure to obtain approval in one jurisdiction may negatively impact our ability to obtain approval elsewhere. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country.

Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and increased costs for us and require additional preclinical studies or clinical trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. We do not have any product candidates approved for sale in any jurisdiction, including in international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of any product we develop will be unrealized.

Healthcare legislative or regulatory reform measures may have a negative impact on our business and results of operations.

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect our ability to profitably sell any product candidates for which we obtain marketing approval.

Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For example, in March 2010, the ACA was passed, which substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the United States pharmaceutical industry. The ACA, among other things: (i) established an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs; (ii) expanded the entities eligible for discounts under the 340B drug pricing program; (iii) increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate

 

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Program to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively, and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price, or AMP; (iv) expanded the eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new eligibility categories for individuals with income at or below 133% (as calculated, it constitutes 138%) of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability; (v) addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and biologics that are inhaled, infused, instilled, implanted or injected; (vi) introduced a new Medicare Part D coverage gap discount program in which manufacturers must now agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D (increased from 50%, effective January 1, 2019, pursuant to the Bipartisan Budget Act of 2018); (vii) created 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 (viii) established the Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug.

There remain judicial and Congressional challenges to certain aspects of the ACA, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017, or Tax Act, included a provision that repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On December 14, 2018, a Texas United States District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the United States Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. The United States Supreme Court is currently reviewing this case, although it is unclear when a decision will be made. It is also unclear how such litigation and other efforts to challenge, repeal or replace the ACA will impact the ACA or our business.

Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013, and due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through March 31, 2021, unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals 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, which could have an adverse effect on customers for our product candidates, if approved, and, accordingly, our financial operations.

Additionally, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the Trump administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance (over a period of time) to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy

 

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expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases. On July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to prescription drug pricing that seek to implement several of the administration’s proposals. As a result, the FDA also released a final rule on September 24, 2020 providing guidance for states to build and submit importation plans for drugs from Canada. 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 rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. Further, in November 2020, CMS issued an interim final rule implementing the Most Favored Nation, or MFN, Model under which Medicare Part B reimbursement rates will be calculated for certain drugs and biologicals based on the lowest price drug manufacturers receive in Organization for Economic Cooperation and Development countries with a similar gross domestic product per capita. The MFN Model regulations mandate participation by identified Part B providers and will apply in all U.S. states and territories for a seven-year period beginning January 1, 2021, and ending December 31, 2027. On December 28, 2020, the United States District Court in Northern California issued a nationwide preliminary injunction against implementation of the interim final rule. The likelihood of implementation of any of the other Trump administration reform initiatives is uncertain, particularly in light of the recent U.S. presidential election.

We expect that these and 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 receive for any approved drug. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our drugs. It is also possible that additional governmental action is taken to address the COVID-19 pandemic.

In addition, FDA regulations and guidance may be revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. For example, the results of the 2020 U.S. Presidential election may impact our business and industry. The Trump administration took several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict whether or how these requirements will be interpreted and implemented, or whether they will be rescinded and replaced under the Biden administration. The policies and priorities of the new administration are unknown and could materially impact the regulations governing our product candidates. Any new regulations or guidance, or revisions or reinterpretations of existing regulations or guidance, may impose additional costs or lengthen FDA review times for ITIL-168, ITIL-306 or any future product candidates. We cannot determine how changes in regulations, statutes, policies, or interpretations when and if issued, enacted or adopted, may affect our business in the future. Such changes could, among other things, require:

 

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additional clinical trials to be conducted prior to obtaining approval;

 

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changes to manufacturing methods;

 

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recalls, replacements, or discontinuance of one or more of our products; and

 

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additional recordkeeping.

Such changes would likely require substantial time and impose significant costs, or could reduce the potential commercial value of ITIL-168, ITIL-306 or other product candidates, and could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any other products would harm our business, financial condition, and results of operations.

 

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Risks Related to Employee Matters and Managing our Growth

Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on the management, development, clinical, financial and business development expertise of our executive officers. Each of our executive officers may currently terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or employees.

Recruiting and retaining qualified scientific and clinical personnel and, if we progress the development of our product pipeline toward scaling up for commercialization, manufacturing and sales and marketing personnel, will also be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. 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 regulatory 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 pharmaceutical and biotechnology 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 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. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

We expect to expand our clinical 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.

As of December 31, 2020, we had 150 employees. As our development progresses, we expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of clinical product development, regulatory affairs, manufacturing 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 qualified personnel. 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. The expansion of our operations may 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.

Our employees, independent contractors, consultants, collaborators, principal investigators, CROs, suppliers and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.

We are exposed to the risk that our employees, independent contractors, consultants, collaborators, principal investigators, CROs, suppliers and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct that violates FDA regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA, manufacturing standards, federal and state healthcare laws and regulations, and laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and business

 

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arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct by these parties could also involve the improper use of individually identifiable information, including, without limitation, information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct, 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 or regulations. 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, including the imposition of significant civil, criminal and administrative penalties, including, without limitation, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations.

Risks Related to This Offering, Ownership of our Common Stock and our Status as a Public Company

An active trading market for our common stock may not develop and you may not be able to resell your shares of our common stock at or above the initial offering price, if at all.

Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock was determined through negotiations with the underwriters and may not be indicative of the price at which our common stock will trade after the closing of this offering. Although we have applied to list our common stock on The Nasdaq Global Market, an active trading market for our shares may never develop or be sustained following this offering. If an active market for our common stock does not develop or is not sustained, it may be difficult for you to sell shares you purchased in this offering at an attractive price or at all.

The trading price of the shares of our common stock may be volatile, and purchasers of our common stock could incur substantial losses.

Our stock price may be volatile. The stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the price paid for the shares. The market price for our common stock may be influenced by many factors, including:

 

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the commencement, enrollment or results of our clinical trials of ITIL-168, ITIL-306 or any future clinical trials we may conduct, or changes in the development status of our product candidates;

 

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any delay in our regulatory filings for ITIL-168, ITIL-306 or any other product candidate we may develop, and any adverse development or perceived adverse development with respect to the applicable regulatory authority’s review of such filings, including without limitation the FDA’s issuance of a “refusal to file” letter or a request for additional information;

 

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delays in or termination of clinical trials;

 

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adverse regulatory decisions, including failure to receive regulatory approval of our product candidates;

 

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unanticipated serious safety concerns related to the use of ITIL-168, ITIL-306 or any other product candidate;

 

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changes in financial estimates by us or by any equity research analysts who might cover our stock;

 

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•

conditions or trends in our industry;

 

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changes in the market valuations of similar companies;

 

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announcements by our competitors of new product candidates or technologies, or the results of clinical trials or regulatory decisions;

 

•

stock market price and volume fluctuations of comparable companies and, in particular, those that operate in the biopharmaceutical industry;

 

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publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts;

 

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announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures;

 

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our relationships with our collaborators;

 

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announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;

 

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investors’ general perception of our company and our business;

 

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recruitment or departure of key personnel;

 

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overall performance of the equity markets;

 

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trading volume of our common stock;

 

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disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

 

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significant lawsuits, including patent or stockholder litigation;

 

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changes in the structure of healthcare payment systems;

 

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general political and economic conditions; and

 

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other events or factors, many of which are beyond our control.

The stock market in general, and the Nasdaq Global Market and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies, including very recently in connection with the ongoing COVID-19 pandemic, which has resulted in decreased stock prices for many companies notwithstanding the lack of a fundamental change in their underlying business models or prospects. Broad market and industry factors, including potentially worsening economic conditions and other adverse effects or developments relating to the ongoing COVID-19 pandemic, may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in this section, could have a significant and material adverse impact on the market price of our common stock.

In addition, in the past, stockholders have initiated class action lawsuits against pharmaceutical and biotechnology companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources from our business.

If you purchase shares of our common stock in this offering, you will suffer immediate dilution of your investment.

The initial public offering price of our common stock is substantially higher than the net tangible book value (deficit) per share of our common stock. Therefore, if you purchase shares of our common stock in this offering,

 

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you will pay a price per share that substantially exceeds our pro forma as adjusted net tangible book value per share after this offering. Based on the assumed initial public offering price of $                 per share, the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $                 per share, representing the difference between our pro forma as adjusted net tangible book value per share after this offering and the assumed initial public offering price.

In addition, as of December 31, 2020, we had outstanding stock options to purchase an aggregate of 10,143,478 shares of common stock at a weighted average exercise price of $1.10 per share. To the extent these outstanding options are exercised, there will be further dilution to investors in this offering. See “Dilution.”

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. As a newly public company, we have only limited research coverage by equity research analysts. 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 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 our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline significantly.

Upon the closing of this offering, we will have outstanding                shares of common stock, after giving effect to the automatic conversion of our outstanding convertible preferred stock into 74,350,597 shares of our common stock, and assuming no exercise of outstanding options to purchase shares of our redeemable convertible preferred stock. Of these shares, the                shares sold in this offering will be freely tradable and substantially all of the                  additional shares of common stock will be available for sale in the public market beginning 180 days after the date of this prospectus following the expiration of lock-up agreements between some of our stockholders and the underwriters. Morgan Stanley & Co. LLC, Jefferies LLC and Cowen and Company, LLC may release these stockholders from their lock-up agreements with the underwriters at any time and without notice, which would allow for earlier sales of shares in the public market.

In addition, promptly following the closing of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act of 1933, as amended, or the Securities Act, registering the issuance of                 shares of common stock subject to options or other equity awards issued or reserved for future issuance under our equity incentive plans. Shares registered under these registration statements on Form S-8 will be available for sale in the public market subject to vesting arrangements and exercise of options, the lock-up agreements described above and the restrictions of Rule 144 in the case of our affiliates.

Additionally, after this offering, the holders of an aggregate of 74,350,597 shares of our common stock, or their transferees, will have rights, subject to some conditions, to require us to file one or more registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. If we were to register the resale of these shares, they could be freely sold in the public

 

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market. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management and hinder efforts to acquire a controlling interest in us, and the market price of our common stock may be lower as a result.

There are provisions in our certificate of incorporation and bylaws to be in effect upon the closing of this offering that may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change of control was considered favorable by you and other stockholders. For example, our board of directors will have the authority to issue up to                  shares of preferred stock. The board of directors can fix the price, rights, preferences, privileges, and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stock may delay or prevent a change of control transaction. As a result, the market price of our common stock and the voting and other rights of our stockholders may be adversely affected. An issuance of shares of preferred stock may result in the loss of voting control to other stockholders.

Our charter documents will also contain other provisions that could have an anti-takeover effect, including:

 

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only one of our three classes of directors will be elected each year;

 

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stockholders will not be entitled to remove directors other than by a 66 2/3% vote and only for cause;

 

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stockholders will not be permitted to take actions by written consent;

 

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stockholders cannot call a special meeting of stockholders; and

 

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stockholders must give advance notice to nominate directors or submit proposals for consideration at stockholder meetings.

In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions by prohibiting Delaware corporations from engaging in specified business combinations with particular stockholders of those companies. These provisions could discourage potential acquisition proposals and could delay or prevent a change of control transaction. They could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock.

Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.

Our executive officers, directors and current beneficial owners of 5% or more of our common stock and their respective affiliates beneficially own                 % of our outstanding common stock. As a result, these persons, acting together, would be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors, any merger, consolidation, sale of all or substantially all of our assets, or other significant corporate transactions.

Some of these persons or entities may have interests different than yours. For example, because many of these stockholders purchased their shares at prices substantially below the current market price of our common stock and have held their shares for a longer period, they may be more interested in selling our company to an acquirer than other investors, or they may want us to pursue strategies that deviate from the interests of other stockholders.

 

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We are an “emerging growth company” and a “smaller reporting company” and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies and smaller reporting companies, our common stock may be less attractive to investors.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies, including:

 

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not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

 

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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;

 

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reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

 

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not being required to hold a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We cannot predict if investors will find our common stock less attractive because we will 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. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of the last day of the fiscal year (i) following the fifth anniversary of the closing of our initial public offering, (ii) in which we have total annual gross revenue of at least $1.07 billion, or (iii) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Even after we no longer qualify as an emerging growth company, we may, under certain circumstances, still 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.

We will have broad discretion in the use of proceeds from this offering 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 will have broad discretion over the use of proceeds from this offering. You may not agree with our decisions, and our use of the proceeds may not yield any return on your investment. We expect to use the net proceeds to us from this offering, together with our existing cash and cash equivalents, to                  . See “Use of Proceeds.” In addition, we may use a portion of the proceeds from this offering to pursue our strategy to in-license or acquire additional product candidates. Our failure to apply the net proceeds from this offering 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 these net proceeds. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.

Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be your sole source of gains and you may never receive a return on your investment.

You should not rely on an investment in our common stock to provide dividend income. We have not declared or paid cash dividends on our common stock to date. We currently intend to retain our future earnings,

 

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if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. Investors seeking cash dividends should not purchase our common stock.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and 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 certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:

 

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any derivative action or proceeding brought on our behalf;

 

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any action asserting a breach of fiduciary duty;

 

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any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; and

 

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any action asserting a claim against us that is governed by the internal-affairs doctrine.

This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.

These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business.

General Risk Factors

We will incur increased costs and demands upon management as a result of being a public company.

As a public company listed in the United States, we will incur significant additional legal, accounting and other costs, which we anticipate could be between $1.0 million and $2.0 million annually. These additional costs could negatively affect our financial results. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and the Nasdaq Stock Market, may increase legal and financial compliance costs and make some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.

 

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We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If notwithstanding our efforts to comply with new laws, regulations and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

Failure to comply with these rules might also make it more difficult for us to obtain some types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.

After the closing of this offering, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of the stock market on which our common stock is listed. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting.

Commencing with our fiscal year ending December 31, 2022, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. This will require that we incur substantial additional professional fees and internal costs to expand our accounting and finance functions and that we expend significant management efforts. Prior to this offering, we have never been required to test our internal control within a specified period, and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner.

We may identify weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the Securities and Exchange Commission or other regulatory authorities.

Our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of accrued amounts.

We are subject to taxation in more than one tax jurisdiction. As a result, our effective tax rate is derived from a combination of applicable tax rates in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that will become payable in each of such places. Nevertheless, our effective tax rate may be different than experienced in the past due to numerous factors, including passage of newly enacted tax legislation, changes in the mix of our profitability from jurisdiction to jurisdiction, the results of examinations and audits of our tax filings, our inability to secure or sustain acceptable agreements with tax authorities, changes in accounting for income taxes and changes in tax laws. Any of these factors could cause us

 

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to experience an effective tax rate significantly different from previous periods or our current expectations and may result in tax obligations in excess of amounts accrued in our financial statements.

We might not be able to utilize a significant portion of our net operating loss carryforwards.

We have generated and expect to continue to generate in the future significant federal and state net operating loss, or NOL, carryforwards. These NOL carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under the Tax Cuts and Jobs, or the Tax Act, as modified by the CARES Act, federal NOLs incurred in taxable years beginning after December 31, 2017 and in future taxable years may be carried forward indefinitely, but the deductibility of such federal NOLs incurred in the taxable year beginning after December 31, 2020 is limited. It is uncertain how various states will respond to the Tax Act and CARES Act. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. The completion of this offering, together with private placements and other transactions that have occurred since our inception, may trigger such an ownership change pursuant to Section 382. We have not yet completed a Section 382 analysis. We may experience ownership changes as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability to use our NOL carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations. We have a full valuation allowance for deferred tax assets including NOLs.

Our business activities will be subject to the Foreign Corrupt Practices Act, or FCPA, and similar anti-bribery and anti-corruption laws.

As we expand our business activities outside of the United States, including our clinical trial efforts, we will be subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate. The FCPA generally prohibits offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to a non-United States government official in order to influence official action, or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-United States governments. Additionally, in many other countries, the healthcare providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, our dealings with these prescribers and purchasers will be subject to regulation under the FCPA. Recently the SEC and Department of Justice have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all of our employees, agents, suppliers, manufacturers, contractors, or collaborators, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, the closing down of facilities, including those of our suppliers and manufacturers, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries as well as difficulties in manufacturing or continuing to develop our products, and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, and our business, prospects, operating results, and financial condition.

 

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Disruptions at the FDA, the SEC and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

The ability of the FDA to review and approve 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. In addition, government funding of 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.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs or biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including most recently from December 22, 2018 to January 25, 2019, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown 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.

Separately, in response to the COVID-19 pandemic, on March 10, 2020 the FDA announced its intention to postpone most inspections of foreign manufacturing facilities and products and subsequently, on March 18, 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing facilities. Subsequently, on July 10, 2020, the FDA announced its intention to resume certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all regulatory activities.. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory activities. . If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting business as usual or conducting inspections, reviews or other regulatory activities, 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.

Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. Portions of our future clinical trials may be conducted outside of the United States and unfavorable economic conditions resulting in the weakening of the U.S. dollar would make those clinical trials more costly to operate. Furthermore, a severe or prolonged economic downturn, including a recession or depression resulting from the current COVID-19 pandemic or political disruption could result in a variety of risks to our business, including weakened demand for our product candidates or any future product candidates, if approved, and our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy or political disruption, including any international trade disputes, could also strain our manufacturers or suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our potential products. Any of the foregoing could seriously harm our business, and we cannot anticipate all of the ways in which the political or economic climate and financial market conditions could seriously harm our business.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the sections titled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this prospectus. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “estimate,” “believe,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions intended to identify statements about the future. These statements speak only as of the date of this prospectus and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements include, without limitation, statements about the following:

 

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the timing, progress and results of our preclinical studies and clinical trials of ITIL-168, ITIL-306 and any future product candidates, including statements regarding the timing of our planned IND submissions, initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available and our research and development programs;

 

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the timing of any submission of filings for regulatory approval of, and our ability to obtain and maintain regulatory approvals for, our current and future product candidates;

 

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our manufacturing capabilities and strategy, including the scalability and commercial viability of our manufacturing methods and processes;

 

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our ability to identify patients with the diseases treated by our product candidates and to enroll these patients in our clinical trials;

 

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our expectations regarding the size of the patient populations, market acceptance and opportunity for and clinical utility of our product candidates, if approved for commercial use;

 

•

our expectations regarding the scope of any approved indication for ITIL-168, ITIL-306 or any other product candidate;

 

•

our ability to successfully commercialize our product candidates;

 

•

our ability to leverage our CoStAR platform to identify and develop future product candidates;

 

•

our estimates of our expenses, ongoing losses, future revenue, capital requirements and our need for or ability to obtain additional funding before we can expect to generate any revenue from product sales and the period over which we expect the net proceeds of this offering, together with our existing cash and cash equivalents, to be sufficient to fund our operations;

 

•

our expected use of proceeds from this offering;

 

•

our competitive position and the development of and projections relating to our competitors or our industry; and

 

•

business disruptions affecting our preclinical studies or the initiation, patient enrollment, development and operations of our clinical trials, including a public health crisis, such as the outbreak of COVID-19.

The foregoing list of forward looking statements is not exhaustive. You should refer to the “Risk Factors” section of this prospectus for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Other sections of this prospectus may include additional factors that could harm our business and financial performance. Moreover, we operate in

 

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an evolving 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. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. You should, however, review the factors and risks and other information we describe in the reports we will file from time to time with the SEC after the date of this prospectus.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, the events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

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MARKET AND INDUSTRY DATA

We obtained the industry, statistical and market data included in this prospectus from our own internal estimates and research as well as from industry and general publications and research, surveys and studies conducted by third parties. All of the market data used in this prospectus involve a number of assumptions and limitations, and the sources of such data cannot guarantee the accuracy or completeness of such information. While we are not aware of any misstatements regarding the third-party information and we believe that each of these studies and publications is reliable, the industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of important factors, including those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by third parties and by us.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering will be approximately $                million (or approximately $                million if the underwriters exercise in full their option to purchase up to                additional shares), assuming an initial public offering price of $                per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $                per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us from this offering by $                million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase or decrease of 1.0 million in the number of shares offered by us would increase or decrease the net proceeds to us from this offering by $                million, assuming no change in the assumed initial public offering price per share and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We do not expect that a change in the offering price or the number of shares by these amounts would have a material effect on our intended uses of the net proceeds from this offering, although it may impact the amount of time prior to which we may need to seek additional capital.

As of December 31, 2020, we had cash and cash equivalents of $241.7 million. Subsequent to December 31, 2020, we received $52.5 million in net proceeds from the issuance and sale of our Series C convertible preferred stock. We intend to use the net proceeds from this offering, together with our existing cash and cash equivalents, as follows:

 

•

approximately $                million to                 ;

 

•

approximately $                million to                 ; and

 

•

the remainder for working capital and other general corporate purposes.

We may also use a portion of the remaining net proceeds to in-license, acquire or invest in complementary businesses, technologies, products or assets, although we have no current agreements, commitments or understandings to do so.

We believe that the net proceeds of this offering, together with our existing cash and cash equivalents, will enable us to fund our operations through                 . Based on our current operational plans and assumptions, we expect the net proceeds from this offering, together with our cash and cash equivalents, will be sufficient to                 . We have based these estimates on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we expect.

This expected use of net proceeds from this offering and our existing cash and cash equivalents represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, the status of and results from clinical trials, any collaborations that we may enter into with third parties for our product candidates and any unforeseen cash needs.

Our management will have broad discretion in the application of the net proceeds from this offering, and investors will be relying on the judgment of our management regarding the application of those net proceeds. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending their use, we plan to invest the net proceeds from this offering in short-term, interest bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States.

 

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DIVIDEND POLICY

We have never declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2020:

 

•

on an actual basis;

 

•

on a pro forma basis to give effect to (i) the receipt of $52.5 million in aggregate net proceeds from the issuance and sale of Series C convertible preferred stock during the first quarter of 2021, (ii) the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 74,350,597 shares of our common stock, as if such conversion had occurred on December 31, 2020, (iii) the related reclassification of the convertible preferred stock aggregate carrying value to permanent equity and (iv) the filing and effectiveness of our amended and restated certificate of incorporation upon the closing of this offering; and

 

•

on a pro forma as adjusted basis to give further effect to our issuance and sale of                shares of common stock in this offering at an assumed initial public offering price of $                per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Our capitalization following the closing of this offering will depend on the actual initial public offering price and other terms of this offering determined at pricing. You should read this information in conjunction with our financial statements and the related notes appearing at the end of this prospectus, the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information contained in this prospectus.

 

		As of December 31, 2020
		Actual				Pro Forma				Pro Forma As Adjusted(1)
		(in thousands, except share and per share amounts)
Cash and cash equivalents		$	241,714			$	294,230			$
Series A convertible preferred stock, par value $0.000001; 25,000,000 shares authorized, issued and outstanding, actual, and no shares authorized and outstanding, pro forma and pro forma as adjusted		$	29,314			$	—			$
Series B convertible preferred stock, par value $0.000001; 34,600,523 shares authorized, issued and outstanding, actual, and no shares authorized and outstanding, pro forma and pro forma as adjusted			169,843				—
Series C convertible preferred stock, par value $0.000001; 14,750,075 shares authorized, 10,575,523 shares issued and outstanding, actual, and no shares authorized and outstanding, pro forma and pro forma as adjusted			132,809				—
Stockholders’ (deficit) equity:
Common stock, $0.000001 par value; 111,000,000 shares authorized; 17,159,642 shares issued and outstanding, actual;              shares authorized, pro forma and pro forma as adjusted; 91,510,239 shares issued and outstanding, pro forma;              shares issued and outstanding, pro forma as adjusted			—				—
Additional paid-in capital			5,607				386,363
Accumulated other comprehensive loss			(283	)			(283	)
Accumulated deficit			(44,923	)			(44,923	)
Total stockholders’ (deficit) equity			(39,599	)			341,157
Total capitalization		$	252,768			$	682,314			$

 

(1)	Each $1.00 increase or decrease in the assumed initial public offering price of $                per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the

 

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pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by $                million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million in the number of shares offered by us would increase or decrease the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by $                million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The number of shares of our common stock outstanding in the table above excludes:

 

•

10,143,478 shares of our common stock issuable upon the exercise of options under the 2018 Plan outstanding as of December 31, 2020, at a weighted-average exercise price of $1.10 per share;

 

•

5,019,000 shares of our common stock issuable upon the exercise of options under our 2018 Plan granted subsequent to December 31, 2020, at a weighted-average exercise price of $7.13 per share;

 

•

2,829,015 shares of our common stock reserved for future issuance under the 2018 Plan, which shares will cease to be available for issuance at the time the 2021 Plan becomes effective and will be added to, and become available for issuance under, the 2021 Plan;

 

•

shares of our common stock reserved for future issuance under the 2021 Plan, which will become effective in connection with this offering, as well as any automatic increases in the number of shares of common stock reserved for future issuance under the 2021 Plan; and

 

•

shares of our common stock reserved for future issuance under the ESPP, which will become effective in connection with this offering, as well as any automatic increases in the number of shares of common stock reserved for future issuance under the ESPP.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

As of December 31, 2020, we had a historical net tangible book value (deficit) of $276.5 million, or $16.12 per share of common stock. Our historical net tangible book value (deficit) per share represents total tangible assets less total liabilities, divided by the number of shares of our common stock outstanding as of December 31, 2020.

Our pro forma net tangible book value as of December 31, 2020 was $329.1 million, or $3.60 per share of our common stock. Pro forma net tangible book value represents the amount of our total tangible assets less our total liabilities, after giving effect to (i) the receipt of $52.5 million in net proceeds from the issuance and sale of Series C convertible preferred stock during the first quarter of 2021 and (ii) the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 74,350,597 shares of our common stock as if such conversion had occurred on December 31, 2020. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the total number of shares outstanding as of December 31, 2020, after giving effect to those pro forma adjustments.

After giving further effect to the sale of                  shares of common stock in this offering at an assumed initial public offering price of $                 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2020 would have been $                 million, or $                 per share. This amount represents an immediate increase in pro forma net tangible book value of $                 per share to our existing stockholders and immediate dilution of $                 per share to new investors in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of common stock in this offering.

The following table illustrates this dilution:

 

Assumed initial public offering price per share						$
Historical net tangible book value (deficit) per share as of December 31, 2020		$	16.12
Pro forma decrease in net tangible book value (deficit) per share attributable to the pro forma transactions described above			(12.52	)
Pro forma net tangible book value per share as of December 31, 2020			3.60
Increase in pro forma as adjusted net tangible book value per share attributable to new investors participating in this offering
Pro forma as adjusted net tangible book value per share after this offering
Dilution per share to new investors participating in this offering						$

The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $                 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the pro forma as adjusted net tangible book value per share after this offering by $                , and dilution in pro forma net tangible book value per share to new investors by $                , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase of 1.0 million shares in the number of shares we are

 

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offering would increase the pro forma as adjusted net tangible book value per share after this offering by $                and decrease the dilution per share to new investors participating in this offering by $                , assuming no change in the assumed initial public offering price per share and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. A decrease of 1.0 million shares in the number of shares we are offering would decrease the pro forma as adjusted net tangible book value per share after this offering by $                and increase the dilution per share to new investors participating in this offering by $                , assuming no change in the assumed initial public offering price per share and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares of our common stock in full, the pro forma as adjusted net tangible book value after this offering would be $                 per share, the increase in pro forma net tangible book value would be $                 per share and the dilution to new investors would be $                 per share, in each case assuming an initial public offering price of $                 per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

The following table summarizes, as of December 31, 2020, on the pro forma as adjusted basis described above, the differences between the number of shares purchased from us, the total consideration paid to us in cash and the average price per share that existing stockholders and new investors paid for such shares. This calculation is based on an assumed initial public offering price of $                 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

		Total Shares								Total Consideration								Weighted- Average Price Per Share
		Number				Percent				Amount				Percent
Existing stockholders			91,510,239					%		$	382,144,503					%		$	4.18
New investors
Total							100	%		$					100	%

The foregoing tables and calculations are based on the number of shares of our common stock outstanding as of December 31, 2020, after giving effect to the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 74,350,597 shares of common stock, as if such conversion had occurred on December 31, 2020, and excludes:

 

•

10,143,478 shares of our common stock issuable upon the exercise of options under the 2018 Plan outstanding as of December 31, 2020, at a weighted-average exercise price of $1.10 per share;

 

•

5,019,000 shares of our common stock issuable upon the exercise of options under our 2018 Plan granted subsequent to December 31, 2020, at a weighted-average exercise price of $7.13 per share;

 

•

2,829,015 shares of our common stock reserved for future issuance under the 2018 Plan, which shares will cease to be available for issuance at the time the 2021 Plan becomes effective and will be added to, and become available for issuance under, the 2021 Plan;

 

•

shares of our common stock reserved for future issuance under the 2021 Plan, which will become effective in connection with this offering, as well as any automatic increases in the number of shares of common stock reserved for future issuance under the 2021 Plan; and

 

•

shares of our common stock reserved for future issuance under the ESPP, which will become effective in connection with this offering, as well as any automatic increases in the number of shares of common stock reserved for future issuance under the ESPP.

 

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To the extent that stock options are exercised, new stock options are issued under our equity incentive plan or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

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

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section of this prospectus titled “Risk Factors,” our actual results could differ materially from the results described in or implied by these forward- looking statements.

Overview

We are a clinical-stage biopharmaceutical company focused on developing an innovative cell therapy pipeline of autologous tumor infiltrating lymphocyte, or TIL, therapies for the treatment of patients with cancer. We have assembled an accomplished team with a successful track record in the development, manufacture, regulatory approval and commercialization of multiple cell therapies. Using our optimized and scalable manufacturing process, we are advancing our lead TIL product candidate, ITIL-168, for the treatment of advanced melanoma. Based on the clinical results from a compassionate use program with a TIL product that was manufactured using a prior version of the ITIL-168 manufacturing process, we plan to submit an investigational new drug application, or IND, to the U.S. Food and Drug Administration, or the FDA, and, if authorized to proceed, initiate a Phase 2 trial in the second half of 2021, which we believe could support a BLA submission in 2023. We plan to initiate Phase 1 trials of ITIL-168 in additional indications with unmet medical need, including cutaneous squamous cell carcinoma, non-small cell lung cancer, head and neck cancer and cervical cancer, in the first half of 2022. ITIL-168 will be manufactured in our company-operated in-house manufacturing facilities for both our clinical trials and commercial sale, if approved.

We are also developing a novel class of genetically engineered TIL therapies using our Co-Stimulatory Antigen Receptor, or CoStAR, platform. These modified TILs still rely on their native, patient-specific T cell receptors, or TCRs, to bind to tumor neoantigens, but have been enhanced to express novel CoStAR molecules, which bind to shared tumor-associated antigens and provide potent costimulation to T cells within the microenvironment. We believe that the ability of CoStAR to augment the activation of TILs upon native TCR-mediated recognition of tumor neoantigens has the potential to bring TIL therapy to patients with cancer types that have been historically resistant to immunotherapy. We anticipate filing an IND for our lead CoStAR-TIL product candidate, ITIL-306, in the first half of 2022.

We were founded in August 2018. In February 2019, we entered into a license agreement with Immetacyte Ltd., or Immetacyte, pursuant to which we obtained a worldwide license to Immetacyte’s proprietary technology, know-how and intellectual property for the research, development, manufacture and commercialization of TIL therapies. Immetacyte had been manufacturing a TIL product under a compassionate use program since 2011. Under this license agreement, we were obligated to make an up-front payment, along with payments related to the achievement of development and commercial milestones, as well as royalty payments on net sales, if any. This transaction was accounted for as an asset acquisition and, because the assets were determined to have no alternative future use, we recognized an amount of in-process research and development, or IPR&D, expense during the year ended December 31, 2019. We were also obligated to make payments for certain research and development, manufacturing, monitoring and other services.

In March 2020, we acquired 100% of the share capital of Immetacyte for $0.8 million in cash consideration and we issued 4.7 million shares of common stock at $0.69 per share. Pursuant to the purchase agreement, we are obligated to pay up to an aggregate of $14.8 million upon the achievement of certain clinical, regulatory and commercial sales milestones. In connection with the acquisition, we terminated the Immetacyte license agreement and associated payment obligations. The transaction was accounted for as a business combination and

 

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we recognized a $10.1 million intangible asset for the acquired IPR&D. We acquired Immetacyte primarily for this IPR&D, which is critical to achieve our objective of developing an innovative cell therapy pipeline of autologous TIL therapies for the treatment of patients with cancer, as well as the dedicated workforce of Immetacyte. Utilizing this IPR&D, we have optimized and scaled the manufacturing process and are advancing our lead TIL product candidate, ITIL-168, for the treatment of advanced melanoma. Based on the clinical results from a compassionate use program performed by Immetacyte at the Christie Hospital in Manchester, United Kingdom, with a TIL product that was manufactured using a prior version of the ITIL-168 manufacturing process, we plan to initiate a Phase 2 trial in the second half of 2021.

Since our inception, we have raised an aggregate of $380.1 million of net proceeds from the issuance and sale of convertible preferred stock. As of December 31, 2020, we had cash and cash equivalents of $241.7 million. During the first quarter of 2021, we received an additional $52.5 million of net proceeds from the issuance and sale of our Series C convertible preferred stock.

Impact of the COVID-19 Pandemic on Our Operations

On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. Since then, extraordinary actions have been taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world, including the United Kingdom and California, where most of our operations are conducted. These actions include travel bans, quarantines, “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. We have been carefully monitoring the COVID-19 pandemic as it continues to progress and its potential impact on our business. As a result of COVID-19, we have taken precautionary measures in order to minimize the risk of the virus to our employees, including the suspension of all non-essential business travel. In addition, the majority of our workforce now works remotely. To date, we have been able to continue our key business activities and advance our clinical programs. However, in the future, it is possible that it will become more difficult to enroll participants in our clinical trials, which could delay our clinical development timelines. While the broader implications of the COVID-19 pandemic on our results of operations and overall financial performance remain uncertain, the COVID-19 pandemic has, to date, not had a material adverse impact on our results of operations or our ability to raise funds to sustain operations. The economic effects of the pandemic and resulting societal changes are currently not predictable, and the future financial impacts could vary from those foreseen.

See “Risk Factors” for a further discussion of the potential adverse impact of COVID-19 on our business.

Components of Operating Results

Revenue

Revenue recognized during the year ended December 31, 2020 was primarily related to our commercial services agreement with a customer to provide storage and processing of clinical material harvested from patients related to the compassionate use program. We receive fixed fees per patient and procedure. Revenue related to this services agreement was recognized once services were performed as there was no alternative use for the asset once the activities were performed. We do not have any products that have achieved regulatory marketing approval and we do not expect to generate revenue from sales of any product candidates for several years, if ever. The services revenue recognized by us during the year ended December 31, 2020 are not expected to continue as we are in the process of winding down all services contracts inherited through our acquisition of Immetacyte.

Operating Expenses

Research and Development

Research and development expenses account for a significant portion of our operating expenses. During the year ended December 31, 2019, research and development expenses consisted primarily of research services and

 

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license payments to Immetacyte. In-licensing payments to Immetacyte were treated as IPR&D and expensed when incurred because the product candidates using the in-licensed TIL technology were determined to have no alternative future use. Following our acquisition of Immetacyte, research and development expenses include agreements with CROs and other research organizations that conduct and manage pre-clinical studies on our behalf, payments to cell and gene therapy consultants, laboratory supplies and materials, and changes in fair value of the contingent consideration liability. For all periods presented, research and development expenses include salaries, benefits, and other personnel related costs, including stock-based compensation, professional service fees and facility and other related costs. Research and development expenses are presented net of grant proceeds and research and development tax and expenditure credits from the United Kingdom government.

For the years ended December 31, 2019 and 2020, we did not allocate our research and development expenses by program.

We expect our research and development expenses to increase substantially for the foreseeable future as we continue to ramp up our clinical development activities and incur expenses associated with hiring additional personnel to support our research and development efforts. Our expenditures on future nonclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs and timing of clinical trials and development of product candidates will depend on a variety of factors, including:

 

•

the scope, rate of progress and expenses of clinical trials and other research and development activities;

 

•

potential safety monitoring and other studies requested by regulatory agencies;

 

•

significant and changing government regulation; and

 

•

the timing and receipt of regulatory approvals, if any.

The process of conducting the necessary clinical research to obtain FDA and other regulatory approval is costly and time consuming and the successful development of product candidates is highly uncertain. The risks and uncertainties associated with our research and development projects are discussed more fully in the section of this prospectus titled “Risk Factors.” As a result of these risks and uncertainties, we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects, or if, when or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.

General and Administrative

General and administrative expenses consist primarily of compensation and personnel-related expenses, including stock-based compensation, for our personnel in executive, finance and other administrative functions. General and administrative expenses also include professional fees paid for accounting, auditing, legal, tax and consulting services, insurance costs, recruiting costs, travel expenses, amortization and depreciation, other general and administrative costs and acquisition-related costs from the Immetacyte acquisition.

We expect our general and administrative expenses to increase substantially for the foreseeable future as we continue to increase our headcount to support our research and development activities and operations generally, the growth of our business and, if any of our product candidates receive marketing approval, commercialization activities. We will also incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, additional director and officer insurance expenses, investor relations activities and other administrative and professional services.

 

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Interest and Other Income (Expense), Net

Interest and other income (expense), net consists primarily of a loss on issuance of Series A convertible preferred stock to an investor, offset by foreign exchange remeasurement gains.

Income Tax Provision

We are subject to income taxes in the United States and the foreign jurisdiction where we operate, the United Kingdom. The United Kingdom has statutory tax rates that differ from those in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of U.K. to U.S. income, the availability of research and development tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due to the uncertainty of the business in which we operate, projections of future profitability are difficult and past profitability is not necessarily indicative of future profitability. Management does not believe it is more likely than not that the deferred tax assets will be realized, and accordingly, a valuation allowance at December 31, 2019 and 2020 of $1.5 million and $9.5 million, respectively, has been established and no deferred tax asset and related tax benefit have been recognized in our consolidated financial statements. As of December 31, 2020, we had net operating loss carryforwards for federal income tax purposes of $38.0 million which will carry forward indefinitely.

Results of Operations

Comparison of the Years Ended December 31, 2019 and 2020

The following table summarizes our results of operations for the years ended December 31, 2019 and 2020 (in thousands):

 

		Year Ended December 31,								$ Change				% Change
		2019				2020
Revenue		$	—			$	138			$	138				n/a
Operating expenses:
Research and development			4,027				19,399				15,372				382	%
General and administrative			2,558				14,383				11,825				462	%
Total operating expenses			6,585				33,782				27,197				413	%
Loss from operations			(6,585	)			(33,644	)			(27,059	)			411	%
Interest and other income (expense), net			63				(3,943	)			(4,006	)			6,359	%
Loss before income tax expense			(6,522	)			(37,587	)			(31,065	)			476	%
Income tax expense			—				(151	)			(151	)			n/a
Net loss		$	(6,522)			$	(37,738	)		$	(31,216	)			479	%

Revenue

Revenue recognized of $0.1 million during the year ended December 31, 2020 was related to our commercial services agreement with a customer to provide storage and processing of clinical material harvested from patients related to the compassionate use program in refractory melanoma. The services revenue recognized by us during the year ended December 31, 2020 are not expected to continue as we are in the process of winding down all services contracts inherited through our acquisition of Immetacyte.

 

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Research and Development Expenses

Research and development expenses increased by 382% from $4.0 million for the year ended December 31, 2019 to $19.4 million for the year ended December 31, 2020. The increase was primarily due to an increase in our research and clinical development activities upon the acquisition of Immetacyte and incurred expenses associated with hiring additional personnel. More specifically, the increase was primarily due to (i) $11.5 million of increased salaries, benefits and other personnel related costs, including stock-based compensation due to an increase in headcount, (ii) $2.8 million increase for services provided by clinical research organizations, (iii) $1.1 million increase for laboratory materials and supplies from research operations in the United Kingdom and $1.5 million from research operation in the United States, (iv) $1.4 million increase in cell and gene therapy consultants, (v) $0.9 million loss from the change in fair value of our contingent consideration liability from the Immetacyte acquisition and (vi) $0.2 million in facilities costs. These increases to research and development expenses were offset by (i) $2.8 million of decreased research and development, manufacturing, monitoring and general services paid to Immetacyte due to our acquisition and resulting termination of the license agreement in March 2020 and (ii) $1.2 million of grant proceeds.

General and Administrative Expenses

General and administrative expenses increased by 462% from $2.6 million for the year ended December 31, 2019 to $14.4 million for the year ended December 31, 2020. The increase was primarily due to (i) $6.6 million of increased salaries, benefits and other personnel related costs, including stock-based compensation due to an increase in headcount, (ii) $2.7 million of increased professional service fees paid for accounting, auditing, legal, tax and consulting services related to our growth and preparation to operate as a public company, (iii) $1.5 million increase in office, facility, and marketing expenses and (iv) $0.9 million of acquisition-related costs related to the Immetacyte acquisition.

Interest and Other Income (Expense), Net

 

		Year Ended December 31,								$ Change				% Change
		2019				2020
Loss on issuance of Series A convertible preferred stock		$	—			$	(4,400	)		$	(4,400	)		n/a
Foreign exchange remeasurement gains			—				643				643			n/a
Other expenses			(5	)			(256	)			(251	)		5,020%
Interest income			68				70				2			3
Total interest and other income (expense), net		$	63			$	(3,943	)		$	(4,006	)		6,359%

Interest and other income (expense), net decreased from less than $0.1 million for the year ended December 31, 2019 to $(3.9) million for the year ended December 31, 2020. During the year ended December 31, 2020, interest and other income (expense), net included $4.4 million loss on the issuance of Series A preferred stock to an investor. In May 2020, we issued an additional 10.0 million shares of our Series A convertible preferred stock to that same investor in previous issuances at a purchase price of $1.00 per share for net proceeds of $10.0 million. The fair value of Series A convertible preferred stock issued to the investor was $14.4 million, resulting in the recognition of a $4.4 million loss on issuance in the consolidated statements of operations and other comprehensive loss for the excess of the fair value of the shares issued over the cash proceeds received. This loss was partially offset by foreign exchange remeasurement gains of $0.6 million.

Income Tax Expense

Income tax expense increased from $0 for the year ended December 31, 2019 to $0.2 million for the year ended December 31, 2020. Following our acquisition of Immetacyte, we had income from a foreign jurisdiction,

 

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the United Kingdom, that was profitable from a tax perspective. During the year ended December 31, 2020, income tax expense consists of current and deferred foreign income taxes from our operations in the United Kingdom.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have not generated any revenue from product sales and we have incurred significant operating losses. We do not have any products that have achieved regulatory marketing approval and we do not expect to generate revenue from sales of any product candidates for several years, if ever. The services revenue recognized by us during 2020 is not expected to continue as we are in the process of winding down these contracts.

To date, we have funded our operations primarily through the issuance and sale of convertible preferred stock. From our inception through December 31, 2020, we had raised net cash proceeds of $327.6 million from the issuance and sale of our convertible preferred stock. As of December 31, 2020, we had cash and cash equivalents of $241.7 million and an accumulated deficit of $44.9 million.

Subsequent to December 31, 2020, we have raised aggregate net cash proceeds of $52.5 million from the issuance and sale of our Series C convertible preferred stock.

Funding Requirements

Based on our current operating plan, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to fund our operating expenses and capital expenditure requirements through     . We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We expect to continue to expend significant resources for the foreseeable future.

We use our cash to fund operations, primarily to fund our research and development expenditures and related personnel costs. We expect our expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities, particularly as we advance our product candidates into later stages of development and conduct larger clinical trials, seek regulatory approvals for and commercialize any product candidates that successfully complete clinical trials, hire additional personnel and invest in and grow our business, expand and protect our intellectual property portfolio, and operate as a public company. Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates, we are unable to estimate the exact timing and amount of our funding requirements. Our future operating expenditures will depend on many factors, including:

 

•

the scope, rate of progress, costs and results of our clinical and preclinical development activities;

 

•

the number and characteristics of any additional product candidates we develop or acquire;

 

•

the timing of, and the costs involved in, obtaining regulatory approvals for ITIL-168, ITIL-306 or any future product candidates, and the number of trials required for regulatory approval;

 

•

the cost of manufacturing ITIL-168, ITIL-306 or any future product candidates as well as any products we successfully commercialize;

 

•

costs related to our manufacturing and other facilities;

 

•

the cost of commercialization activities of our product candidates, if approved for sale, including marketing, sales and distribution costs;

 

•

the timing, receipt and amount of sales of ITIL-168, ITIL-306 or any future product candidates, if approved;

 

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•

the costs associated with constructing our new clinical and commercial manufacturing facility and building out lab space;

 

•

the extent to which we acquire or in-license other companies’ product candidates and technologies;

 

•

our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such arrangements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;

 

•

any product liability or other lawsuits;

 

•

the expenses needed to attract, hire and retain skilled personnel;

 

•

our investments in our operational, financial and management information systems;

 

•

the costs associated with operating as a public company;

 

•

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property portfolio; and

 

•

any delays or issues resulting from the ongoing COVID-19 pandemic.

Under our license agreement with Immetacyte that was in place as of December 31, 2019, we had payment obligations that were contingent upon future events such as our achievement of specified development, regulatory and commercial milestones and were required to make royalty payments in connection with the sale of products developed under those agreements.

In March 2020, we acquired 100% of the share capital of Immetacyte for $0.8 million in cash consideration and we issued 4.7 million shares of common stock at $0.69 per share. Pursuant to the purchase agreement, we are obligated to pay up to an aggregate of $14.8 million upon the achievement of certain clinical, regulatory and commercial sales milestones. In connection with the acquisition, we terminated the Immetacyte license agreement and associated payment obligations.

In October 2020, we acquired land inclusive of four buildings in Los Angeles, California, for $37.6 million. We are in the process of developing this land for our U.S. operations and have incurred $6.3 million in work in progress costs associated with this development project. Our contractual commitments for this development project are limited to unreimbursed spend by the general contractor and as such, as of December 31, 2020, $6.3 million is contractually committed to the development of this project. We expect to incur significant capital expenditures on development of this land throughout 2023. The ultimate timing of these expenditures may fluctuate given construction progress of the project.

Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through equity offerings, debt financings or other capital sources, which may include strategic collaborations or other arrangements with third parties. Additional funds may not be available to us on acceptable terms or at all. If we raise additional funds by issuing equity or convertible debt securities, our stockholders will suffer dilution and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common shareholders. Debt financing, if available, may involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities receive any distribution of our corporate assets. If we raise funds through collaborations or other similar arrangements with third parties, we may have to relinquish valuable rights to technologies, future revenue streams, product candidates or research programs or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common shares. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations.

 

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We lease various operating spaces in the United States and the United Kingdom under non-cancelable operating lease arrangements that expire on various dates through March 31, 2026. These arrangements require us to pay certain operating expenses, such as taxes, repairs, and insurance and contain landlord or tenant incentives or allowances, renewal and escalation clauses. As of December 31, 2020, our future minimum lease payments under noncancelable lease agreements were $4.6 million.

In the normal course of business, we enter into contracts with CROs and other third parties for preclinical studies and clinical trials, research and development supplies and other testing and manufacturing services. These contracts generally do not contain minimum purchase commitments and generally provide us the option to cancel, reschedule and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services. However, it is not possible to predict the maximum potential amount of future payments under these agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement.

Cash Flows

The following table summarizes our cash flows for the periods presented (in thousands):

 

		Year Ended December 31,
		2019				2020
Net cash provided by (used in):
Cash used in operating activities		$	(5,293	)		$	(29,616	)
Cash used in investing activities			(760	)			(51,122	)
Cash provided by financing activities			14,948				313,048
Net increase in cash, cash equivalents and restricted cash		$	8,895			$	232,310

Cash Flows from Operating Activities

Cash used in operating activities for the year ended December 31, 2020 was $29.6 million, which consisted of the net loss of $37.7 million partially offset by $6.6 million in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities and $1.5 million in a net change of our net operating assets and liabilities. The non-cash charges consist of loss on issuance of Series A preferred stock of $4.4 million, stock-based compensation of $1.7 million, loss on change in fair value of contingent consideration of $0.9 million and depreciation and amortization expenses of $0.3 million, offset by foreign exchange gains of $0.6 million. The net change in our operating assets and liabilities was primarily due to an increase of $4.6 million in accrued expenses and other current liabilities, partially offset by an increase of $0.9 million in prepaid expenses and other current assets, an increase of $1.1 million in other long-term assets and a decrease of $1.1 million in accounts payable.

Cash used in operating activities for the year ended December 31, 2019 was $5.3 million, which consisted of our net loss of $6.5 million partially offset by $0.9 million in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities and $0.4 million in a net change of our net operating assets and liabilities. The non-cash charges consist of stock-based compensation of $0.3 million. Additionally, acquired IPR&D expenses of $0.6 million, which are included in net loss, are recorded as investing cash flows. The net change in our operating assets and liabilities was primarily due to an increase of $0.3 million in accounts payable and $0.4 million in accrued expenses and other liabilities partially offset by an increase of $0.4 million in prepaid expenses and other current assets.

 

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Cash Flows from Investing Activities

Cash used in investing activities for the year ended December 31, 2020 was $51.1 million, which consisted of $50.8 million related to purchases of property, plant and equipment and $0.3 million related to the acquisition of Immetacyte. Included within our purchases of property and equipment is $37.6 million paid in October 2020 to acquire land inclusive of four buildings in Los Angeles, California. We are in the process of developing this land for our U.S. operations, and we have cash outflows of $6.3 million in work in progress costs associated with this development project.

Cash used in investing activities for the year ended December 31, 2019 was $0.8 million, which consisted of $0.2 million related to purchases of property and equipment and $0.6 million related to the acquisition of in-process research and development assets from Immetacyte.

Cash Flows from Financing Activities

Cash provided by financing activities for the year ended December 31, 2020 was from net cash proceeds of $312.6 million from the issuance and sale of shares of convertible preferred stock and $0.4 million from the exercise of stock options.

Cash provided by financing activities for the year ended December 31, 2019 was entirely from net cash proceeds of $14.9 million from the issuance and sale of shares of our Series A convertible preferred stock.

Critical Accounting Policies and Estimates

This management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of financial statements requires us 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. Our estimates are based on our historical experience and on various other factors that we believe 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. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in the notes to our consolidated financial statements included elsewhere in this prospectus, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Acquisitions

We evaluate acquisitions of assets and related liabilities and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen 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 is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not we have acquired inputs and processes that have the ability to create outputs which would meet the requirements of a business.

Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets and contingent consideration liabilities. We use our best estimates and assumptions to accurately assign fair value to the intangible assets acquired at the acquisition date. Liabilities arising from the acquisition may include contingent consideration and require judgment in ascertaining the related fair value. Independent appraisals may be used to assist in the determination of these fair

 

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values. Such appraisals are based on significant estimates provided by us, such as projected revenues, earnings, cash flows, assembled workforce and schedule, with estimated probabilities of development milestone achievements utilized in determining the fair value of contract-related acquired intangible assets or contingent consideration. Adjustments to the fair value of contingent consideration are recorded in earnings. Additional information related to the acquisition date fair value of acquired net assets obtained during the allocation period, not to exceed one year, may result in changes to the recorded values of acquired assets and liabilities, resulting in an offsetting adjustment to the goodwill associated with the business acquired.

Accounting for real estate acquisitions requires us to make significant estimates and assumptions with respect to the fair value of the acquired assets. We make estimates as part of our process for allocating a purchase price to the various identifiable assets and liabilities of an acquisition based upon the relative fair value of each asset or liability. The most significant components of our allocations are generally buildings as-if-vacant and land. In the case of allocating fair value between land and buildings, our fair value estimates were based on available market information, such as comparable sale transactions and relevant per square foot or unit cost information.

Stock-Based Compensation

We maintain a stock-based compensation plan as a long-term incentive for employees, directors and consultants. The plan allows for the issuance of stock options, stock appreciation rights and restricted stock units.

For stock-based awards with only service conditions, we recognize stock-based compensation expense for stock-based awards on a straight-line basis over the requisite service period and account for forfeitures as they occur. For stock-based awards with performance conditions, stock-based compensation expense is not recognized until the performance condition is probable to occur. Our stock-based compensation costs are based upon the grant date fair value estimated using the Black-Scholes option pricing model. This model utilizes inputs that are highly subjective assumptions and generally require significant judgment. These assumptions include:

 

•

Fair Value of Common Stock—See the subsection titled “— Common Stock Valuations” below.

 

•

Expected Term — The expected term represents the period that stock-based awards are expected to be outstanding and is determined as the average of the time-to-vesting and the contractual life of the awards.

 

•

Expected Volatility — Since we are privately held and do not have any trading history for our common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty.

 

•

Risk-Free Interest Rate — The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of awards.

 

•

Expected Dividend Yield —We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.

See Note 9 to our consolidated financial statements included elsewhere in this prospectus for more information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted in the year ended December 31, 2020. Some of these assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

We recorded stock-based compensation expense of $0.3 million and $1.7 million for the years ended December 31, 2019 and 2020, respectively. As of December 31, 2020, we had $6.1 million of unrecognized

 

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stock-based compensation cost for equity awards with only service conditions, which we expect to recognize over an estimated weighted-average period of 3.26 years. As of December 31, 2020, we did not have any unrecognized stock-based compensation cost for equity awards with performance conditions. We expect to continue to grant stock options and other stock-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase. The following table summarizes by grant date the number of shares of common stock underlying stock options granted from December 31, 2019 through the date of this prospectus and the associated per share exercise price and the estimated fair value per share of our common stock on the grant date:

 

Grant Date		Number of Shares of Common Stock Underlying Stock Options Granted		Exercise Price Per Share		Estimated Fair Value Per Share of Common Stock at the Grant Date
5/9/2020		2,623,000		$1.00		$0.71
5/11/2020		100,000		1.00		0.71
8/6/2020		4,438,269		1.38		1.38
10/26/2020		780,000		1.38		1.46
11/23/2020		965,000		1.38		1.46
12/4/2020		45,000		1.38		1.46
1/4/2021		30,000		7.13
1/22/2021		533,500		7.13
2/10/2021		3,537,000		7.13
2/12/2021		345,000		7.13
2/16/2021		140,000		7.13
2/22/2021		182,500		7.13
2/23/2021		90,000		7.13
2/24/2021		98,500		7.13
2/25/2021		62,500		7.13
		13,970,269

Stock Valuations

Historically, for all periods prior to this offering, fair values of the shares of common stock underlying our stock-based awards were estimated on each grant date by our board of directors. Our board of directors, with input from management considered, among other things, valuations of our common stock, which were prepared by an independent third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid.

The equity value of our business was estimated either by the market approach or income approach. The market approach estimates the value of our business by reference to the closest round of equity financing preceding the date of the valuation. The income approach estimates the fair value of a company based on the present value of our future estimated cash flows and our residual value beyond the forecast period. These future cash flows, including the cash flows beyond the forecast period for the residual value, are discounted to their present values using an appropriate discount rate to reflect the risks inherent in our company achieving these estimated cash flows.

The resulting equity value was then allocated to our common stock using the option pricing method, or OPM or a hybrid method that incorporates the Probability-Weighted Expected Return Method, or PWERM, and OPM.

 

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The OPM treats each class of common stock and convertible preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceed the value of the convertible preferred stock liquidation preferences at the time of a liquidity event, such as a strategic sale, merger or IPO. The common stock is modeled as a call option on the underlying equity value at a predetermined exercise price. In the model, the exercise price is based on a comparison with the total equity value rather than, as in the case of a regular call option, a comparison with a per share stock price. Thus, common stock is considered to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the convertible preferred stock liquidation preference is paid. The OPM uses the Black-Scholes option-pricing model to price the call options. This model defines the securities’ fair values as functions of the current fair value of a company and uses assumptions, such as the anticipated timing of a potential liquidity event and the estimated volatility of the equity securities. The aggregate value of the common stock derived from the OPM is then divided by the number of shares of common stock outstanding to arrive at the per share value.

The hybrid method is a PWERM where the equity value in one of the 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 us, 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.

After the allocation to the various classes of stock, a discount for lack of marketability, or DLOM, is applied to arrive at a fair value of the common stock. A DLOM is meant to account for the lack of marketability of a stock that is not traded on public exchanges. In our selection of the appropriate DLOM at each valuation date, we considered the implied discounts from various studies and quantitative models.

In connection with the preparation of our December 31, 2020 consolidated financial statements and the confidential submission of our draft registration statement on Form S-1, we reassessed the fair value of the underlying common stock used to calculate the related stock-based compensation for financial reporting purposes. Based on this reassessment, we noted that the fair value of our common stock increased $5.75 per share between our July 30, 2020 and December 31, 2020 valuation dates, which we concluded indicated that there was an increase in the fair value of the underlying common stock for the late October 2020, late November 2020 and early December 2020 stock option grants that was not reflected in their exercise price. As such, we believed it was appropriate to obtain a retrospective valuation to determine the fair value of our common stock as of October 30, 2020. In valuing our common stock as of October 30, 2020, the retrospective valuation estimated the fair value of our common stock at $1.46 per share, compared to the July 30, 2020 fair value of $1.38 per share. Based on this valuation and other factors, we determined the fair value of the underlying common stock should be $1.46 per share for the October 26, 2020, November 23, 2020 and December 4, 2020 stock option grants, rather than the $1.38 per share as previously determined, which resulted in an immaterial amount of additional stock-based compensation expense that we recorded during the year ended December 31, 2020. We also assessed the fair value of all of our other 2020 stock options and grants. However, based on the size and timing of the grants and their proximity to the most recent contemporaneous valuation, we did not believe it was necessary to change the underlying fair value of the common stock.

Finally, we considered the difference between the October 30, 2020 common stock valuation and the December 31, 2020 common stock valuation. The October 30, 2020 valuation reflected the potential that we might remain a privately held company or might experience a liquidity event, which inherently decreases the estimated fair value per share of our common stock due to the combination of (i) the expected business equity value in the stay private scenario, (ii) the consideration that we might liquidate with no value available to common stockholders and (iii) the application of a discount for lack of marketability. Conversely, the

 

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December 31, 2020 valuation included two IPO scenarios which inherently increased the value of the common stock due to a combination of the (i) expected business equity value in the IPO scenario, which was significantly higher than in the stay private scenario, and (ii) the corresponding elimination of the preferences and rights enjoyed by the holders of such preferred stock results in a higher valuation of our common stock. We believe the incorporation of IPO scenarios was not appropriate until after December 14, 2020 as we had not commenced substantive IPO execution activities until such date.

In valuing our common stock in March 2020, the fair value of our business, or enterprise value, was determined using an income approach. The resulting equity value was then allocated to our common stock using the OPM. The value of common stock was reduced by a discount for lack of marketability.

In connection with the preparation of our December 31, 2020 consolidated financial statements and the confidential submission of our draft registration statement on Form S-1, we reassessed the fair value of our stock in May 2020, the date when 10 million Series A convertible preferred stock were issued for $1.00 per share. In valuing our Series A convertible preferred stock, we started with our equity value as of March 2020. A rate of return adjustment was applied to capture our progress and changes in the market between the financing and the valuation date. The resulting equity value was then allocated to the outstanding stock using the OPM. Based on this valuation and other factors, we determined the fair value of the Series A convertible preferred stock should be $1.44 per share rather than the $1.00 original issuance price. This resulted in a difference between cash proceeds received and fair value issued of $4.4 million. As a result, we recorded this difference as a $4.4 million loss on issuance of Series A convertible preferred stock within other income (expense), net on our consolidated statement of operations and comprehensive loss for the year ended December 31, 2020.

In valuing our common stock in July 2020 and October 2020, we considered two types of scenarios: staying private and a near-term, unspecified liquidity event. The equity value under the unspecified liquidity event scenario was estimated by using recovery rates based on the nature of our assets and industry norms. The equity value under the staying private scenario was based on the OPM, backsolve method. In an OPM framework, the backsolve method for inferring the equity value implied by a recent financing transaction involves making assumptions for the expected time to liquidity, volatility and risk-free interest rate and then solving for the value of equity such that value for the most recent financing equals the amount paid. This method was selected as we concluded that the Series B convertible preferred stock financing transaction was an arms-length transaction. The average value of Series B convertible preferred stock across the two scenarios was set equal to the price paid by investors for those shares. The relative probability weighting of each scenario was determined based on our expectations as to the timing and likely prospects of the scenarios. A rate of return adjustment was applied in the October 2020 valuation to capture our progress and changes in the market between the financing and the valuation date. The value of common stock under all scenarios was reduced by a discount for lack of marketability.

In valuing our common stock in December 2020, we considered various scenarios: two IPO scenarios and staying private. The equity value under the IPO scenarios was based on our estimate and recent IPO values of comparable companies. The equity value under the staying private scenario was based on the OPM, backsolve method. This method was selected as we concluded that the Series C convertible preferred stock financing transaction was an arms-length transaction. In allocating the equity value of our business among the various classes of stock, we used a combination of the PWERM and OPM, across the scenarios mentioned above, thus using a hybrid method. The value of common stock under all scenarios was reduced by a discount for lack of marketability.

The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of management’s judgment. If we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

 

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Given the absence of a public trading market, our board of directors, with input from management, considered numerous objective and subjective factors to determine the fair value of common stock at each grant date. The factors included, but were not limited to:

 

•

valuations performed by an independent third-party valuation firm in accordance with the Practice Aid;

 

•

our stage of development and material risks related to our business;

 

•

the progress of our research and development programs, including the status and results of preclinical studies;

 

•

our business conditions and projections;

 

•

sales of our convertible preferred stock;

 

•

the rights, preferences and privileges of our convertible preferred stock relative to those of our common stock;

 

•

lack of marketability of our common and convertible preferred stock as a private company;

 

•

our operating results and financial performance;

 

•

the likelihood of achieving a liquidity event, such as an initial public offering or sale of our company, in light of prevailing market conditions;

 

•

the trends, developments and conditions in the life sciences and biotechnology industry sectors;

 

•

the analysis of initial public offering and the market performance and stock price volatility of similar public companies in the life sciences and biopharmaceutical sectors; and

 

•

the economy in general.

For valuations after the completion of this offering, the fair value of each share of underlying common stock will be based on the closing price of our common stock as reported on the date of grant on the primary stock exchange on which our common stock is traded.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements included elsewhere in this prospectus for more information.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We had cash and cash equivalents of $241.7 million as of December 31, 2020. We generally hold our cash in interest-bearing money market accounts. We believe that historical fluctuations in interest rates have not had a material effect on our results of operations during the periods presented.

Due to the low risk profile of our investments, a hypothetical one percentage point change in interest rates during the period presented would not have had a material impact on our consolidated financial statements included elsewhere in this prospectus.

Emerging Growth Company Status

We are an “emerging growth company” as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited

 

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by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our 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, in this prospectus, we have provided only two years of audited consolidated financial statements and have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

In addition, 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. We have elected to avail ourselves of this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the earliest of (i) December 31, 2026, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

 

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BUSINESS

Overview

We are a clinical-stage biopharmaceutical company focused on developing an innovative cell therapy pipeline of autologous tumor infiltrating lymphocyte, or TIL, therapies for the treatment of patients with cancer. We have assembled an accomplished team with a successful track record in the development, manufacture, regulatory approval and commercialization of multiple cell therapies. Using our optimized and scalable manufacturing process, we are advancing our lead TIL product candidate, ITIL-168, for the treatment of advanced melanoma. Based on the clinical results from a compassionate use program with a TIL product that was manufactured using a prior version of the ITIL-168 manufacturing process, we plan to submit an investigational new drug application, or IND, to the U.S. Food and Drug Administration, or the FDA, and, if authorized to proceed, initiate a Phase 2 trial in the second half of 2021, which we believe could support a BLA submission in 2023. We plan to initiate Phase 1 trials of ITIL-168 in additional indications with unmet medical need, including cutaneous squamous cell carcinoma, non-small cell lung cancer, head and neck cancer and cervical cancer, in the first half of 2022. ITIL-168 will be manufactured in our company-operated in-house manufacturing facilities for both our clinical trials and commercial sale, if approved.

We are also developing a novel class of genetically engineered TIL therapies using our Co-Stimulatory Antigen Receptor, or CoStAR, platform. These modified TILs still rely on their native, patient-specific T cell receptors, or TCRs, to bind to tumor neoantigens, but have been enhanced to express novel CoStAR molecules, which bind to shared tumor-associated antigens and provide potent costimulation to T cells within the microenvironment. We believe that the ability of CoStAR to augment the activation of TILs upon native TCR-mediated recognition of tumor neoantigens has the potential to bring TIL therapy to patients with cancer types that have been historically resistant to immunotherapy. We anticipate submitting an IND for our lead CoStAR-TIL product candidate, ITIL-306, in the first half of 2022.

We believe the critical advantage of TIL therapy over other cell therapies relates to the intrinsic and diverse anti-tumor reactivity of TILs. Unlike most cell therapies in development for solid tumors, which only recognize a single target antigen shared across a diverse patient population, TILs are polyclonal and therefore have the ability to recognize the broad set of antigens unique to each patient. This comprehensive polyclonality helps overcome a major limitation of cell therapies, such as CAR-Ts and TCR-Ts, by providing the requisite diversity to match the marked heterogeneity of solid tumors.

The successful use of TIL therapy to treat solid tumors was first published in 1988 by Steven A. Rosenberg, M.D., Ph.D., and his colleagues from the National Cancer Institute, or NCI, who demonstrated remissions in patients with advanced melanoma who had been treated with TILs. Since these initial reports, clinical studies of TILs have expanded significantly. In a study published in Annals of Oncology in 2019, U. Dafni and colleagues conducted a meta-analysis of clinical trials of TIL therapies published between 1988 and 2016, which reported an overall remission rate, or ORR, of 41% and a complete remission, or CR, rate of 12% in 410 heavily pretreated patients with metastatic melanoma. As shown below, in patients for whom detailed follow-up was available, the CRs were found to be remarkably durable, with only one of 28 patients experiencing disease recurrence.

 

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TIL Therapy Demonstrated Durable CRs

in Patients with Melanoma in Clinical Trials Between 1988 and 2016

 

In addition to melanoma, TIL therapy has also demonstrated efficacy in multiple other solid tumors, including non-small cell lung cancer, or NSCLC, squamous cell carcinoma of the head and neck, or HNSCC, and cervical cancer. However, despite these compelling clinical results, TIL therapy has largely been limited to the academic or compassionate use settings due to the lack of an industrialized and scalable process for the manufacture of these products.

By leveraging our team’s experience, we are executing on our plan to efficiently launch in-house capabilities of manufacturing, process development, clinical operations, regulatory strategy and research and development. We have created a robust, reproducible process to generate well-characterized and commercially viable TIL product candidates that we believe will provide patients with long-term therapeutic benefit.

Our Strengths

Our goal is to become the leader in the design, manufacture and delivery of TIL therapies to patients with cancer. We believe the following strengths will enable us to achieve this goal:

Highly experienced team. Our senior management team and a large fraction of our operational staff have extensive experience in cell therapy, with many having participated in the design and execution of the clinical development, manufacture and regulatory approval of Yescarta and Tecartus at Kite Pharma/Gilead, as well as the development of other clinical-stage cell therapy product candidates. In addition, our team and scientific advisors have a track record of successfully leading the technology discovery, process development, GMP manufacturing and clinical operations functions at other cell therapy companies.

Robust clinical development experience with TILs. Members of our team have been generating and improving TIL therapy for over a decade, and a TIL product manufactured by us has been used in the treatment of patients with refractory melanoma through a compassionate use program at the Christie Hospital in Manchester, United Kingdom, which is the largest single site cancer center in Europe. In the 21 patients treated through the compassionate use program using a TIL product that was manufactured using a prior version of the ITIL-168 manufacturing process, we observed a CR in four patients (19%) and a partial remission, or PR, in 10 patients (48%), resulting in an ORR of 67%. In addition, four patients reported SD, resulting in a disease control rate, or DCR, of 86%. Ten of the 21 patients have died from complications arising from disease progression. The results from the compassionate use program do not provide a guarantee that ITIL-168 will be deemed to be safe or effective for the treatment of melanoma or additional indications, and extensive clinical testing and regulatory approval will be required before ITIL-168 can be commercially marketed for the treatment of melanoma. Based on these results, together with our development and manufacturing expertise, we intend to transform TIL therapy into what we believe will be a scalable, convenient and effective option for patients with cancer.

 

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Optimized and scalable manufacturing process. We are developing a manufacturing process customized for autologous TIL therapies to maximize manufacturing success rate and potential for clinical efficacy beyond current practices. To ensure product quality and consistency, we have chosen to maintain full control of the entire manufacturing process, from the procurement of tumor samples through the shipping of the final product, without any outsourcing of core manufacturing process or quality control testing steps. Our process includes the optimized cryopreservation of both the digested tumor at the beginning to preserve cell viability and potency and the final product at the end to provide increased shelf life. Importantly, our cryopreservation process also provides significant scheduling flexibility for physicians and patients.

Company-operated in-house manufacturing facilities. We believe we are well positioned to execute on our clinical development plans and serve the U.S. and European markets with our existing and planned infrastructure. We have invested and plan to continue to invest in our manufacturing capabilities on two continents, with one facility in the United States in Tarzana, California and another in Manchester, United Kingdom. By controlling and operating our manufacturing facilities on two continents, we believe we have the unique ability to more efficiently implement continuous improvements into our operations and to readily provide therapies to patients across a broad geography. With the planned capacity across both of our facilities, we expect to have sufficient doses for all our clinical trials, as well as to meet the initial commercial demand of ITIL-168, if approved.

Strong capitalization. Since 2019, we have raised $380.1 million in net proceeds from leading global institutional investors. This funding has enabled us to assemble a team with experience across the entire spectrum of cell therapy development, including clinical development and operations, regulatory submissions, process engineering, quality analytics, manufacturing and strategic commercialization planning.

Our Pipeline

We are building an innovative pipeline of optimized TIL product candidates, including both unmodified and genetically engineered TILs, for the treatment of patients with cancer. We own worldwide rights to all our product candidates. Our current pipeline is summarized in the diagram below.

 

 

 

*

For ITIL-168 in melanoma, we believe that the compassionate use program satisfies the requirements for a Phase 1 clinical trial. Based on the clinical results from the compassionate use program and our discussions with the FDA, we plan to submit an IND and, if authorized to proceed, initiate a Phase 2 trial in the second half of 2021.

 

Our lead product candidate, ITIL-168, is an autologous TIL therapy that we are initially developing for the treatment of PD-1-inhibitor relapsed or refractory advanced melanoma. We are utilizing an optimized and scalable manufacturing process that we believe will differentiate the profile of ITIL-168 from other cell therapies, including other TIL therapies. Our process for ITIL-168 manufacturing begins with the complete digestion of the tumor tissue, which releases all TILs from the tumor microenvironment and enables cryopreservation of the digested tumor at the beginning of the process to preserve cell viability and potency.

 

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Additionally, we cryopreserve the final product to provide increased shelf life. Our cryopreservation process at both the beginning and end of the manufacturing process provides significant scheduling flexibility for physicians and patients.

We have generated preliminary safety and efficacy data in advanced melanoma in the context of a compassionate use program in the United Kingdom, using a TIL product that was produced with a prior version of the ITIL-168 manufacturing process. Twenty-one patients with stage IV metastatic cutaneous melanoma were treated in this compassionate use program between 2011 and 2019. Treatment led to an ORR of 67%, including four patients (19%) who achieved CR and ten patients (48%) who achieved a PR. The DCR, which included patients with CR, PR or SD, was 86%. Based on these clinical results and our discussions with the FDA, we plan to submit an IND for ITIL-168 and, if authorized to proceed, initiate a Phase 2 trial in the second half of 2021. We believe this trial, if successful, could support a BLA submission in 2023. Additionally, in the first half of 2022, we intend to initiate Phase 1 trials of ITIL-168 in tumor types where evidence of immune cell recognition and elimination of cancer cells has been observed, such as CSCC, NSCLC, HNSCC and cervical cancer.

We are also developing genetically engineered TIL product candidates modified with CoStAR to augment the activation of TILs in the tumor microenvironment. In preclinical studies, CoStAR+ T cells demonstrated markedly increased activity as compared to normal T cells, including enhanced cytokine expression and proliferative capacity. CoStAR’s modular architecture can be adapted to potentially target any cell surface antigen, which will allow us to develop additional CoStAR-TIL product candidates that enhance TIL function in multiple solid tumors.

Our lead CoStAR-TIL product candidate, ITIL-306, expresses a CoStAR molecule designed to recognize folate receptor alpha, or FOLR1, a tumor-associated antigen that is expressed on numerous solid tumors, including ovarian cancer, uterine cancer, NSCLC and renal cancer. We believe that ITIL-306 has the potential to increase anti-tumor activity due to its ability to improve proliferation and enhance cytokine secretion while retaining the specificity and polyclonality of TILs. We intend to submit an IND for ITIL-306 in the first half of 2022 and initiate a Phase 1 trial in 2022 to evaluate safety, feasibility and preliminary efficacy in multiple tumor types.

The modular nature of our CoStAR platform allows for multiple product candidates to be developed with minimal changes to the fundamental architecture of the molecule. We have generated a number of constructs containing antigen-binding domains directed against different tumor-associated antigens that are expressed by a wide variety of tumor types, including stomach, colorectal, pancreatic, breast and other cancers. We intend to select our next CoStAR-TIL product candidate for IND-enabling studies in the first half of 2022.

Our History and Team

We were founded in August 2018, and in early 2019, we in-licensed our foundational TIL technology from Immetacyte Ltd. and subsequently raised our Series A round of funding from Curative Ventures. In March 2020, we acquired Immetacyte Ltd., which had been manufacturing a TIL product for the compassionate use program at the Christie Hospital in the United Kingdom from 2011 to 2019. Since our inception, we have raised an aggregate of $380.1 million of net proceeds from leading global institutional investors.

We have assembled a team of industry veterans with deep experience in conducting all phases of development, from early stage clinical trials through regulatory approval across multiple regions, as well as in the commercial manufacture and marketing of cell therapies. Our management team consists of entrepreneurs, physicians and scientists with prior experience at cell therapy and oncology companies such as Kite Pharma/Gilead, Amgen, Pfizer, Genentech and Johnson & Johnson, among others.

Our Strategy

Our goal is to leverage our optimized and scalable manufacturing process to deliver innovative, life-saving TIL therapies to patients with cancer. In order to achieve this goal, our strategy involves the following key elements:

 

•

Develop and commercialize ITIL-168 in advanced melanoma. We intend to file an IND and initiate a Phase 2 trial of ITIL-168 in patients with relapsed or refractory advanced melanoma

 

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in the second half of 2021. Based on our discussions with the FDA and the clinical results generated through a compassionate use program with a TIL product that was manufactured using a prior version of the ITIL-168 manufacturing process, we are designing our Phase 2 trial to support a BLA submission in 2023. We believe that our optimized and scalable manufacturing process for TIL therapies, coupled with our team’s prior experience and success with developing and obtaining regulatory approval for multiple complex autologous cell therapies, will enable us to efficiently advance the development, manufacture and regulatory approval of ITIL-168.

 

•

Expand ITIL-168 into multiple solid tumors beyond melanoma. In addition to melanoma, we intend to develop ITIL-168 in tumor types where evidence of immune cell recognition and elimination of cancer cells has been observed, such as CSCC, NSCLC, HNSCC and cervical cancer. In the first half of 2022, we plan to file an amendment to our IND for ITIL-168 and initiate a Phase 1 trial in patients with locally advanced or metastatic CSCC, an indication in which PD-1 blockade has demonstrated benefit but an unmet medical need still exists. In addition, in the first half of 2022, we expect to file another amendment to our IND to initiate a multi-indication Phase 1 trial in patients with NSCLC, HNSCC and cervical cancer, tumor types where clinical proof of concept has been established for TIL therapy.

 

•

Leverage our experience with ITIL-168 to develop our CoStAR platform of engineered TIL therapies. By enhancing the activity of TILs with our CoStAR molecules, we believe we will be able to demonstrate efficacy in tumor types that historically have been resistant to immunotherapy, including TILs. We have observed that TILs enhanced with CoStAR molecules demonstrated a markedly increased ability to respond to tumor cells in vitro as compared to normal T cells. Our preclinical studies have shown robust TCR- and CoStAR-dependent proliferation, as well as increased secretion of activating cytokines and decreased levels of immunosuppressive cytokines into the tumor microenvironment. By modulating the local immunological milieu, our CoStAR-TIL product candidates could recruit additional anti-tumor immune cells and reduce recruitment of suppressive cells. We leverage the optimized and scalable manufacturing process developed for ITIL-168 for our CoStAR-TIL product candidates, which will allow us to efficiently develop a portfolio of CoStAR-TIL pipeline candidates. We plan to assess the safety, feasibility and efficacy of CoStAR-TIL product candidates in several tumor types where TILs have not yet been systematically tested or response to TIL therapy has been poor. We intend to file an IND for our lead CoStAR-TIL product candidate, ITIL-306, in the first half of 2022.

 

•

Enhance and expand our global manufacturing capabilities and capacity. We have invested and plan to continue to invest in our manufacturing capabilities on two continents, with one facility in the United States in Tarzana, California and another in Manchester, United Kingdom. By the second half of 2021, our clinical capacity is estimated to reach over 150 patient doses per year at our Manchester facility and is expected to expand to over 500 patient doses per year from both of our facilities combined by the first half of 2022, which we believe will fully support the clinical development of our programs. With continued investments and buildout, we expect to have sufficient capacity to produce thousands of commercial patient doses per year beginning in 2023, which we believe will be sufficient to meet the initial commercial demand for ITIL-168, if approved. While we believe we are well positioned to serve the U.S. and European markets with our existing and planned infrastructure, we intend to continue expanding our manufacturing network into additional regions, as needed.

 

•

Continuously improve and refine our manufacturing process and operations. We plan to pursue process development efforts on two distinct but strategically aligned paths. The first path includes our continuous improvement initiatives, which are designed to allow us to implement rapid design iterations that incrementally improve process efficiency, robustness and control. The second path includes our longer-term manufacturing innovation initiatives, where we will drive towards generational and disruptive changes to our manufacturing methods. For example, we plan to introduce automated bioprocessing equipment and eliminate select reagents from the manufacturing process to achieve shorter manufacturing times and reduce costs. We believe these improvements will continually reduce manufacturing and operational costs while preserving product quality, allowing us to potentially make our TIL therapies globally accessible.

 

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Background on TILs

Overview of Engineered T Cell Therapies

T cells are one of the key cell types of the immune system. Their roles include targeting cells that pose a threat to our health, such as infected or cancerous cells, for direct killing, as well as producing soluble mediators of immunity, like cytokines, to improve or otherwise modulate the overall immune response. T cells recognize and target these cells for killing through the engagement of the TCR by peptide antigens presented on the surface of the target cell by the major histocompatibility complex, or MHC. T cell therapies can be generated from peripheral blood collected and separated via leukapheresis to isolate T cells that are then genetically modified to express relevant TCRs or CARs. Alternatively, T cell therapies can be generated from tumor-infiltrating lymphocytes, or TILs, collected from a resected tumor.

CAR-T and TCR-T therapies are cell products composed of T cells that have been genetically engineered to recognize a specific cancer-related antigen on the surface of tumor cells. Recently, multiple CAR-T therapies such as Yescarta, Tecartus and Kymriah, which each target the B-cell antigen CD19, have achieved regulatory approval after demonstrating efficacy in the treatment of several kinds of B-cell malignancies. Despite these successes in blood cancers, CAR-T and TCR-T therapies have shown limited efficacy in the treatment of solid tumors. In addition to the general lack of anti-tumor activity, serious and potentially fatal toxicities commonly seen with these therapies have been observed in multiple clinical trials in solid tumors. These side effects include those related to normal tissue distribution of the target antigen, as well as antigen-independent toxicities such as cytokine release syndrome, neurotoxicity and prolonged pancytopenia. For these reasons, there are currently no approved CAR-T or TCR-T therapies for the treatment of solid tumors.

Tumor heterogeneity is a major obstacle in successfully treating solid tumors with single-antigen targeting modalities like CAR-Ts and TCR-Ts. Individual cancer cells within tumors are clonally diverse and thus display significant differences in the profile of antigens they express. As most CAR-T and TCR-T therapies are engineered to target a single antigen, they lack the ability to address the profound antigenic heterogeneity found within solid tumors. Patients with solid tumors who have been treated with these therapies are at increased risk of clonal escape, which is the growth of tumor cells that do not express the antigen targeted by the therapy. Clonal escape, also known as target-negative relapse, is a well-described mechanism by which single antigen targeting therapies fail in the treatment of cancer.

Other limitations of both CAR-T and TCR-T therapies are related to tissue distribution of the target antigen itself. CAR-T cells target cell surface proteins that are often found on both normal tissues and tumors, leading to on-target, off-tumor toxicity. In the case of anti-CD19 CAR-T cell products, the complete elimination of normal B cells is an expected side effect and results in possibly permanent immunosuppression. Also, because CAR-T therapies can only target surface antigens, they are not able to recognize intracellular tumor-specific proteins, which significantly limits the number of potential molecules to target. In contrast, TCRs recognize all cellular antigens that have been presented by MHC molecules, enabling T cells to recognize and attack cancer cells, including those expressing either intracellular or membrane-anchored tumor-specific proteins. However, despite the broader antigen recognition capabilities of TCR-Ts, the MHC-dependent mechanism requires careful tissue matching between the transgenic TCR and the patient, thus limiting the addressable patient population to only those patients with the appropriate MHC alleles. Finally, the targeted antigen for either CAR-T or TCR-T therapies must be shared broadly between patients. As a result, these therapies are not able to recognize unique, patient-specific antigens that may otherwise be attractive targets.

Overview of TIL Therapies

The application of TILs to treat solid tumors began in 1988, when these cells were first used as an experimental therapy at the U.S. National Cancer Institute. At that time, Steven A. Rosenberg, M.D., Ph.D. and his colleagues published results demonstrating melanoma regression in patients who had been treated with TILs grown ex vivo. Over the past 30 years, interest in TIL therapy for melanoma and other solid tumors has expanded

 

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significantly beyond academia, with dozens of academic and industry-sponsored clinical trials ongoing currently, ranging from Phase 1 exploratory trials of TILs in combination with a checkpoint inhibitor to Phase 3 randomized trials comparing TILs with established therapies.

A meta-analysis of clinical trials evaluating TIL therapies was published in the journal Annals of Oncology in 2019 and reported an ORR of 41% in 410 heavily pretreated patients with metastatic melanoma. Twelve percent of patients achieved CR with long-term durability, with only one of 28 patients experiencing disease recurrence.

We believe the following key factors are critical to the development of a patient-specific TIL-based therapy for the treatment of solid tumors:

Polyclonal recognition of tumor-specific antigens. TILs are activated to recognize and kill tumor cells based on their ability to bind to tumor-specific antigens. Unlike CAR-T cells and other engineered cell therapies that recognize only a single target antigen that is required to be both expressed on the surface of all tumor cells and shared across different patients, TILs are polyclonal and have the ability to recognize the broad set of antigens that are unique to each individual patient. This comprehensive, patient-specific polyclonality provides TIL therapies with the requisite diversity to respond to the marked clonal heterogeneity of the patient’s tumors, addressing a major limitation of cell therapies such as CAR-Ts and TCR-Ts.

Optimized processing and manufacturing methods. TIL therapies rely on patient-derived material obtained from each patient’s resected tumor. The processing methods for the freshly removed tumor tissue immediately following resection impact the characteristics of the final TIL product, including its potential efficacy. Streamlined and timely tumor procurement, processing and transportation is required to ensure manufacturing and clinical success.

The composition of the TIL population. TILs are immune cells naturally present in some tumors and composed of two types of T cells: CD8+ and CD4+ T cells. CD8+ T cells are cytotoxic T cells that are able to directly kill tumor cells. CD4+ T cells are T helper cells that secrete cytokines and engage in other activities to stimulate and recruit other immune cells, including other T cells, macrophages and dendritic cells, to tumor sites. Correlative studies have shown that high levels of T cells in tumors and surrounding tissues are associated with improved prognosis in a number of solid tumors, and the presence of both types of T cells is necessary for effective tumor control.

Our Approach

Our goal is to become the leader in the design, manufacture and delivery of TIL therapies to patients with cancer. We believe that the key elements that differentiate us include our highly experienced team, our optimized and scalable manufacturing process and our company-operated in-house manufacturing facilities.

Our Highly Experienced Team

We have assembled a team with extensive experience in the manufacture, clinical development and regulatory approval of cell therapies. Our process and engineering teams bring rigor to managing changes to our manufacturing processes based on their recognized track record in cell therapy research, development and commercialization. Our clinical operations team has developed CAR-T and TCR-T therapies in clinical trials across a wide variety of diseases, lines of therapy and patient populations across multiple geographies under the supervision of FDA, EMA and other leading regulatory agencies. We have operational know-how regarding tissue collection, chain of identity and custody, logistics and administration of autologous cell therapy products. Our team has a track record of successfully completing regulatory audits across multiple clinical trial sites, external vendors and internal processes. Notably, many members of our team were instrumental in the manufacture, clinical development and regulatory approvals of Yescarta and Tecartus.

 

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Our Optimized and Scalable Manufacturing Process

We have designed our TIL manufacturing process to maximize manufacturing success rate and potential for clinical efficacy beyond current industry practices. To ensure product quality and consistency, we have chosen to maintain full control of the entire manufacturing process, from the procurement of tumor samples through the shipping of the final product, without any outsourcing of core manufacturing process or quality control testing steps. Our process includes the optimized cryopreservation of both the fully digested tumor at the beginning of the manufacturing process to preserve cell viability and potency and the final product at the end of the manufacturing process to provide increased shelf life. Importantly, our cryopreservation process also provides significant scheduling flexibility for physicians and patients, which may improve our ability to provide treatment to patients in a timely manner.

With our team’s extensive experience in the commercialization of cell therapies, we understand the feasibility and the value of continuous improvements in manufacturing. We have designed a robust quality system focused on compliance that includes routine testing for release, documentation of our processes and the assessment of the impact of any changes on final product performance. The quality of this data is essential as regulators rely on it to understand the relationship between products that may have been generated by modified or updated manufacturing procedures. In addition to our continuous refinements, we are also focused on longer-term manufacturing innovation initiatives that will drive generational changes to our manufacturing methods. For example, we are developing an automated, standardized platform to minimize manual processing and provide in-line process measurements that can be used to shorten manufacturing times, increase manufacturing success and reduce costs.

Another key component of the manufacturing process for cell therapies is the release criteria used to characterize the final product. We have developed and are validating a robust potency assay aimed at understanding the mechanism of action of our TIL therapies. Based on initial discussions with regulatory agencies regarding our potency assay and other release methods to support our IND, we believe that our assay methodology and final product release criteria will satisfy guidelines and meet the expectations of the FDA and other regulatory authorities. Additionally, we have developed robust assays for purity, safety and dose to assure quality of our product. In addition to our release assays, we have generated a comprehensive package of characterization data to support our IND.

Our Company-Operated In-house Manufacturing Facilities

We are investing in expanding our manufacturing capabilities at our facilities in Manchester, United Kingdom, which has been operational since 2011, and in the United States in Tarzana, California, which is expected to be operational in 2021. Both facilities are fully controlled and operated by us, which will allow us to more efficiently introduce new product candidates and implement next-generation manufacturing technologies. In addition, by having facilities on two continents, we would have the ability to provide therapies, if approved, to patients across a broad geography as well as to continuously improve our operations.

Our facility in Tarzana, which will begin producing patient doses in the first half of 2022, has flexible modular technology using prefabricated modular cleanroom pods, enabling future process scalability and minimizing delays associated with the need for onsite construction. These modular cleanroom pods also provide the required segregation to allow for simultaneous manufacturing of distinct autologous products, such as ITIL-168 and ITIL-306, within the same manufacturing facility. Our clinical capacity at our Manchester facility is currently 70 patient doses per year and is estimated to reach over 150 patient doses per year by the second half of 2021. Our Tarzana manufacturing facility will initially have a clinical capacity of 300 patient doses per year. We believe the aggregate capacity from these facilities will be sufficient for all of our planned clinical development activities. We plan to increase the capacity to up to 3,100 commercial patient doses per year by 2023, which we believe will be sufficient to meet the initial commercial demand of ITIL-168, if approved.

 

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Our TIL Manufacturing Process

Our manufacturing process comprises three distinct and serial stages: (i) tumor processing, which includes tissue harvesting and cryopreservation, (ii) TIL generation, which includes the outgrowth and rapid expansion phases, and (iii) final product processing, which includes formulation and cryopreservation. We believe our novel approach to these three stages provides us with key advantages compared to historical approaches, as summarized below.

 

		Historical Approach		Our Novel Approach		Our Potential Advantages
Tumor Processing		•  Transport of fresh tumor for continuous manufacturing •  Fresh tumor fragments as starting material		•  Cryopreservation and shipment of digested tumor •  Fully digested tumor suspension as starting material		•  More TILs are liberated from the digested tumor tissue, increasing clonal diversity in the final product •  Enhanced cell viability and potency •  Flexible patient scheduling and efficient manufacturing capacity utilization
TIL Generation		•  Seeding of tumor fragments in open multi-well plates •  TIL culture in plates with manual perfusion •  Expansion of T cells in a static flask with manual controls •  Manual media feed based on cell counts		•  Seeding of tumor digest in closed gas-permeable culture bags •  Expansion of T cells in a suspended bioreactor with process controls •  Constant automated perfusion		•  Closed processing and automated controls increase manufacturing robustness •  More opportunities for optimization on bioreactor platforms vs. traditional flasks
Final Product Processing		•  Manual formulation •  Shipment of fresh final product		•  Automated formulation •  Shipment of cryopreserved final product		•  Increased shelf life •  Scheduling flexibility for physicians and patients

Tumor Processing

The starting material for our TIL product candidates is personalized with TILs isolated from a surgically excised sample of the patient’s tumor. These tumor samples contain tumor cells, stromal cells and TILs. When TIL therapy was first developed in an academic research setting, the operating room in which the patient underwent the tumor resection procedure was in close physical proximity to the laboratory in which the TIL therapy was made. Therefore, both the time required and the complexity of the transportation from operating room to manufacturing site were minimized. As TIL product candidates advance from single-institution clinical trials into registration-enabling global trials with multiple clinical sites and centralized manufacturing, controls for the stability of the removed tumor tissue must be instituted. We have developed a proprietary process in which the resected tissue is immediately processed and cryopreserved at one of our regional hubs located close to

 

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the clinical site, ensuring that our starting material is stable and preserved for shipment to one of our in-house manufacturing facilities for further processing.

The first step in our process involves fully dissociating the tumor tissue into a cell suspension through a combination of enzymatic digestion and gentle, automated agitation of the tissue. This initial step in our proprietary process has been designed to harvest all of the TILs embedded within the tumor without impacting cell viability. Our process is distinguished from typical manufacturing processes that start with manually minced fragments of tumor tissue. Our technique ensures that the greatest possible diversity of unique TCRs are preserved from the time of resection through the entire manufacturing process, as shown below:

Our Tumor Processing Method Releases and Preserves

All of the TILs from Tumor Samples

 

The rapid and reproducible stabilization of starting tumor material is crucial in enabling a scalable commercial process for treatment of patients across a broad geography. Logistical challenges, including coordination of patient scheduling with hospital availability, transportation of fresh tumor material and availability of manufacturing slots, have represented a significant barrier to the successful commercialization of autologous cell therapies. The process and infrastructure that we have developed to industrialize tumor procurement both preserves the starting tumor material and provides flexibility by allowing us to schedule tumor resection and TIL manufacturing independently from each other. Furthermore, once the starting material is cryopreserved, it can be stored for an extended period under controlled conditions before manufacturing begins, which reduces the risk of manufacturing failures due to tissue degradation and provides treatment flexibility for physicians and patients. Our novel approach will allow for the harvest of starting tumor material during routine biopsies or debulking surgeries for use in future TIL therapies.

In order to minimize the time from initial tumor resection to the processing, freezing and shipping of the tumor tissue, as part of our clinical trial, we plan to deploy a team of trained TIL recovery specialists to staff regional processing hubs strategically located near major treatment centers. The ability to have our specially trained staff take control of the tumor tissue as early in the process as possible and to process it using our proprietary methods helps ensure that the TILs in the starting material are of the highest possible quality and meet our manufacturing standards.

TIL Generation

The TIL generation step in our process includes the outgrowth and rapid expansion phases, as shown below, to ensure that our final TIL product contains an expanded population of TILs to maximize potential clinical efficacy.

 

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The Outgrowth and Rapid Expansion of Our TILs Result in a Final Product

Containing an Expanded Population of TILs

 

Outgrowth Phase. Once the cryopreserved tumor sample has reached one of our in-house manufacturing facilities, we thaw the suspension and culture the TILs and tumor cells together to promote the identification of tumor neoantigens by the TILs. This TIL outgrowth phase is designed to offer maximum exposure of the diverse and complete population of TILs to the clonally heterogenous tumor cells.

The complete tumor digestion that we utilize during the tumor processing step liberates all TILs from the tumor. During the outgrowth phase, all TILs are exposed to uniform concentrations of Interleukin-2, or IL-2, a potent T cell growth factor, in the cell suspension and freely associate with tumor cells. Our digestion process allows all of the harvested TILs to be collected and transitioned into the rapid expansion phase, or REP, of manufacturing and included in the final product. In contrast, the fragmentation method, in which a tumor specimen is manually minced into small fragments that are then cultured whole during outgrowth, relies on the migration of TILs out of the fragments by following an IL-2 gradient. Only those cells that successfully leave the tumor fragment and enter the bulk culture are collected and used to seed the REP of manufacturing; those that remain within the tumor fragment are discarded at the end of the outgrowth phase and thus are prevented from inclusion in the REP and final product. By the end of the TIL outgrowth phase in our process, the culture is predominantly composed of viable tumor-educated T cells, including CD8+ cytotoxic T cells and CD4+ helper T cells, and ready for further processing.

Rapid Expansion Phase. In the REP of manufacturing, we optimize the culture conditions to be conducive to the expansion of T cells that make up the final cell dose of the TIL therapy. We stimulate the cells with IL-2, OKT3, an anti-CD3 antibody that activates all TCRs, as well as feeder cells, which are peripheral blood mononuclear cells that support optimal growth conditions. Once sufficient expansion of the cell product has been reached to achieve what we define to be a therapeutic dose, the culture is harvested and prepared for final formulation and cryopreservation.

We believe our optimized and scalable manufacturing process provides several key advantages, including:

 

•

The ability to capture and preserve maximum health and diversity of each patient’s TILs by completely digesting and immediately cryopreserving the tumor sample near the clinical site to ensure stability during transportation to one of our in-house manufacturing facilities;

 

•

A limited number of manual processing steps and a functionally closed manufacturing process to increase process reliability and scalability; and

 

•

Flexibility to coordinate fresh tissue harvest with manufacturing availability through cryopreservation of both the starting material as well as the final product.

These attributes give us confidence that we will be able to deliver TIL-based therapies at a level of robustness, quality, consistency and scale not previously achieved by other TIL-based approaches.

 

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Our Product Candidates

ITIL-168

Our lead TIL product candidate, ITIL-168, is an autologous TIL therapy that we are initially developing for the treatment of advanced melanoma. We have generated preliminary safety and efficacy data in advanced melanoma in the context of a compassionate use program using a TIL product that was produced with a prior version of the ITIL-168 manufacturing process. Twenty-one patients with stage IV metastatic cutaneous melanoma were treated between 2011 and 2019. Treatment led to an ORR of 67%, including four patients (19%) who achieved CR and ten patients (48%) who achieved PR. The DCR, which included patients with CR, PR or SD, was 86%. Based on these clinical results and our discussions with the FDA, we plan to submit an IND for ITIL-168 and, if authorized to proceed, initiate a Phase 2 trial in the second half of 2021. We believe this trial, if successful, could support a BLA submission in 2023. In addition to melanoma, we intend to initiate Phase 1 trials of ITIL-168 in tumor types where evidence of immune cell recognition and elimination of cancer cells has been observed, such as CSCC, NSCLC, HNSCC and cervical cancer, in the first half of 2022.

Melanoma Overview

Melanoma is the most lethal form of skin cancer, accounting for the majority of skin cancer deaths. It arises from a malignant proliferation of melanocytes in the skin. The National Cancer Institute estimated that there would be more than 100,000 diagnoses of melanoma and 6,850 deaths from melanoma in the United States in 2020. Localized cutaneous melanoma is the fifth most common malignancy in the United States, and the incidence is rising. Most patients diagnosed with localized cutaneous melanoma have an excellent prognosis; however, in patients with distant metastatic spread of their disease, the 5-year survival rate is only 27%.

The primary risk factor for development of melanoma is exposure to ultraviolet, or UV, light, including sunlight and tanning beds. UV light and other environmental toxins can cause DNA damage, which, if not repaired, leads to an increased number of genetic mutations. In part due to this type of DNA damage, melanoma typically contains a high number of mutations. Furthermore, approximately half of melanomas have oncogenic driver mutations, such as alterations in the gene for proto-oncogene B-Raf, or BRAF. Both oncogenic driver and other mutations are an important differentiating feature between melanoma cells and healthy cells and form the pathophysiologic basis for recently developed therapeutic options.

Approximately one-half of cutaneous melanomas have an activating mutation in the BRAF gene. BRAF activates the mitogen-activated protein kinase, or MAPK, pathway, which accelerates the transformation of the cell into a cancer cell. BRAF inhibitors have demonstrated various positive clinical outcomes in melanoma, including tumor regression and survival improvement. Because many patients with BRAF mutations also have mutations in other oncogenes, the combination of a BRAF inhibitor with an inhibitor of mitogen-activated extracellular signal-regulated kinase, or MEK, an enzyme in the MAPK pathway, has been shown to further improve response rates and survival as compared with BRAF inhibition alone. Multiple BRAF inhibitors, such as vemurafenib (Zelboraf), dabrafenib (Tafinlar) and encorafenib (Braftovi), and MEK inhibitors, such as trametinib (Mekinist), cobimetinib (Cotellic) and binimetinib (Mektovi), have been approved for the treatment of metastatic melanoma.

More recently, multiple novel immunotherapies known as checkpoint inhibitors have been approved to treat advanced melanoma. These inhibitors block pathways such as PD-1/PD-L1 and CTLA4, which serve as negative regulators of T cell function. These groundbreaking therapies have changed the treatment landscape for metastatic melanoma and have dramatically improved both response rates and survival for patients.

Patients who are ineligible for surgery are typically treated with these systemic therapies. However, despite the significant response rates achieved with BRAF/MEK inhibitors and immunotherapies, a large proportion of patients either do not respond at all or develop resistance following an initial response and require additional therapy. Patients with melanoma that is refractory to or has relapsed following these treatments face a dearth of

 

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therapeutic options. There is no standard approach to the management of these patients and the limited number of agents used in this setting have shown poor response rates, high toxicity and limited survival benefit, as shown below.

Summary of Published Trials of Treatments for Patients with Advanced Melanoma

 

Lead Author (Year of Publication)		N		Treatment		ORR		Toxicity		Overall Survival
Zimmer (2017)		37		Ipilimumab + nivolumab		21%		33% discontinuation		55% (1 year)
Bowyer (2016)		40		Ipilimumab		10%		35% grade 3+ immune-related adverse events (AEs)		Not reported (median progression free survival of 5 months)
Kirchberger (2016)		9		Low dose ipilimumab + pembrolizumab		0%		Minimal		8 months (median)
Aya (2016)		9		Ipilimumab		22%		56% grade 3+ immune-related AEs		Not reported (median progression free survival of 3.1 months)
Weichenthal (2019)		200		Various		4-22%		10-36% grade 3+ AEs or discontinuation		9.2 – 15.6 months
Buchbinder (2019)		40		High dose IL-2		23%		20% discontinuation after one cycle		29.4 months

According to the scientific literature, TIL therapy is considered one of the most effective treatments for patients with advanced melanoma, including following the failure of checkpoint inhibitors and BRAF/MEK inhibitors. However, because of the complexity in scaling autologous cell therapies, including TIL therapy, access to this potentially life-saving treatment has been limited to patients who are enrolled in clinical trials or treated under compassionate use. Furthermore, the majority of these TIL therapy clinical trials have been conducted in single academic centers with little standardization in the manufacturing methods used to isolate, activate and expand the TILs that comprise the final product. We believe our optimized process will enable the standardization and scaling of the manufacture of our lead TIL product candidate, ITIL-168, to provide significant clinical benefit for patients with advanced melanoma.

Our Solution: ITIL-168

We intend to initiate global, multi-center clinical trials of ITIL-168 in several solid tumor types, beginning with PD-1-inhibitor relapsed or refractory advanced melanoma in the second half of 2021. Our process for ITIL-168 begins with the procurement of the resected tumor by one of our trained specialists. At one of our regional processing hubs located near the clinical site, the resected tumor is placed into a sterile bag containing media and tissue digestion enzymes. The bag is then heat-sealed and its contents are digested through a process of gentle agitation and enzymatic activity to generate a homogeneous cell suspension containing tumor cells and TILs. This proprietary method allows for the complete digestion of the tumor tissue and releases all of the TILs from the tumor microenvironment. The cell suspension is then cryopreserved and shipped to one of our in-house manufacturing facilities, where it is thawed. The process of activating and expanding the TILs is then initiated. Upon completion of manufacturing, the final product candidate is formulated and cryopreserved for shipment

 

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back to the clinical site. Following treatment with lymphodepleting chemotherapy and ITIL-168, the patient is treated with IL-2 to support the further proliferation of ITIL-168 in vivo. The manufacturing period takes approximately 24 days based on our current processes. Our manufacturing and treatment process for ITIL-168 is summarized in the graphic below:

The ITIL-168 Manufacturing and Treatment Process

 

A preclinical study of TILs made from three separate patients using a process similar to ITIL-168 consistently killed tumor cells. In addition, this study showed dose-dependent anti-tumor activity in vitro with evidence of tumor killing even at low TIL to tumor cell ratios, as shown below:

A Preclinical Study Demonstrated Dose-Dependent Anti-Tumor Activity In Vitro

 

Clinical Data from Compassionate Use Program

We have generated preliminary safety and efficacy data from a compassionate use program in the United Kingdom in advanced melanoma using a TIL product that was manufactured using a prior version of the ITIL-168 manufacturing process. The compassionate use program was authorized under a Manufacturing Specials license from the Medicines and Healthcare products Regulatory Agency. Individual patients were referred by their local oncologists to Professor Robert Hawkins, MBBS FRCP, Ph.D., our Chief Strategy Advisor and a well-known medical oncologist and cell therapy investigator at the Christie Hospital in Manchester, United Kingdom, for evaluation and treatment.

 

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Between 2011 and 2019, a total of 21 patients with stage IV metastatic cutaneous melanoma received approximately the same treatment regimen we intend to evaluate in our clinical trials of ITIL-168: lymphodepleting chemotherapy, TIL infusion and post-TIL IL-2 treatment. The majority of these patients had metastases to the lung and other non-CNS sites, referred to as stage M1c disease, or brain metastases, referred to as stage M1d disease, including 14 patients who had metastatic lesions in more than three sites and seven patients who had brain metastases. These patients were referred to Dr. Hawkins after being treated with and failing an average of three prior systemic therapies. Over 90% of the patients had failed the CTLA4 inhibitor ipilimumab, and 12 patients had experienced disease progression on or following treatment with a PD-1 inhibitor as well as ipilimumab. More than half of the patients had a BRAF mutation and had progressed on a BRAF inhibitor.

As shown in the table below, treatment with TIL therapy led to an ORR of 67% in these 21 patients, including four patients (19%) who achieved CR and 10 patients (48%) who achieved PR. The DCR, which included 4 patients with SD in addition to those with CRs and PRs, was 86%. Of these 21 patients, 15 were followed up with CT and/or MRI at regular intervals in a manner consistent with standard RECIST 1.1 methodology; in this subgroup of patients, the ORR was 53% and the CR rate was 13%. The other six patients were followed with non-RECIST imaging modalities like PET/CT as well as clinical monitoring. Two of these six patients had developed melanoma that was unequivocally refractory to the BRAF inhibitor dabrafenib in combination with MEK inhibitor therapy immediately prior to TIL treatment but were continued on dabrafenib, with brief interruptions for tumor harvest and TIL infusion, to prevent the rapid disease progression that often accompanies abrupt dabrafenib discontinuation. Both patients developed durable responses following TIL treatment. One patient, who had also failed prior ipilimumab and PD-1 blockade, achieved a PR that lasted approximately 14 months from TIL infusion during which time dabrafenib was continued. The second patient was treated with dabrafenib for approximately three months following TIL infusion at which point the dabrafenib was stopped. This patient achieved a PR at approximately 12 months after TIL infusion that converted to a durable CR that was ongoing for over four years after TIL infusion at the time of data cutoff.

Summary of Responses in All Patients Treated in Compassionate Use Program (n=21)

 

		n (%)
Overall remission rate				14 (67%	)
Partial remission rate				10 (48%	)
Complete remission rate				4 (19%	)
Disease control rate				18 (86%	)

Eight of the 14 responders were still alive as of the data cutoff date of December 31, 2019, with all four patients with CRs remaining without disease progression, as shown below.

 

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Treatment with TIL Therapy Led to Long-term Survival of Patients with Metastatic Melanoma in Compassionate Use Program

 

One of the responding patients in the compassionate use program was a 16-year-old male with widely metastatic and bulky (sum of lesion diameters = 103mm), BRAF-mutated melanoma that was refractory to three prior lines of therapy, including ipilimumab, a CTLA4 inhibitor, and dabrafenib, a BRAF inhibitor. Following treatment with TIL therapy, this patient experienced a rapid reduction in his disease burden, as shown in the images below. Over the following year, repeated scans confirmed continued reduction in his systemic and brain metastases, and he subsequently achieved CR and has remained without disease progression for over seven years.

 

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Ongoing Complete Remission at 7+ Years in a 16-Year-Old Patient with

Metastatic Melanoma in Compassionate Use Program

 

Among the 12 patients who had previously failed at least one PD-1 inhibitor as well as ipilimumab, seven patients (58%) achieved a remission, including one (8%) who achieved CR. The DCR, which included two patients with SD, was 75%, as shown in the table below.

Summary of Responses in Patients with PD-1 and CTLA4 Inhibitor Relapsed or Refractory Melanoma in Compassionate Use Program (n=12)

 

		n (%)
Overall remission rate				7 (58%	)
Partial remission rate				6 (50%	)
Complete remission rate				1 (8%)
Disease control rate				9 (75%	)

The median time to response in all 21 patients was under 2 months and the median overall survival was 21.3 months, as shown in the Kaplan-Meier survival graph below. The results from the compassionate use program do not provide a guarantee that ITIL-168 will be deemed to be safe or effective for the treatment of melanoma or additional indications, and extensive clinical testing and regulatory approval will be required before ITIL-168 can be commercially marketed for the treatment of melanoma.

 

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Survival of Patients with Advanced Melanoma Treated with TIL Therapy in Compassionate Use Program

 

Safety

Overall, the safety findings associated with the TIL regimen of lymphodepletion, TIL transfusion and post-TIL IL-2 treatment was consistent with the published literature of TIL therapy in patients with melanoma. Side effects were largely transient, self-limited and generally attributable to the lymphodepleting chemotherapy regimen and post-TIL IL-2 treatment. The most common adverse events, or AEs, after the TIL infusion were transient low blood counts and physiological manifestations of IL-2, including fever, tachycardia and edema. There were no deaths deemed related to the treatment regimen. As of the data cutoff date, 10 of 21 patients had died due to complications arising from disease progression.

AEs experienced by patients in this compassionate use program were not systematically graded by the treating physicians nor was AE attribution or seriousness consistently collected. Rather, AEs were summarized by signs and symptoms and according to the time of onset relative to the treatment sequence. The most frequently reported AEs during the lymphodepleting chemotherapy period were neutropenia (nine patients, 43%) and nausea (four patients, 19%). All other AEs were reported in one patient (5%) each. The most frequently reported AEs after TIL infusion were thrombocytopenia (13 patients, 62%), pyrexia (12 patients, 57%) and rigors (nine patients, 43%). Neutropenia and tachycardia were experienced by six patients (29%) each; pulmonary edema and vascular leak were each observed in five patients (24%). Rash was observed in four patients (19%) and atrial fibrillation, cardiovascular instability, chest infection and oedema were each observed in three patients (14%). All other AEs occurred in two or fewer patients (<10%).

Clinical Development Plans

Based on the results from the compassionate use program, we plan to submit an IND and, if authorized to proceed, initiate a Phase 2 trial of ITIL-168 in patients with PD-1-inhibitor relapsed or refractory advanced melanoma in the second half of 2021. We anticipate obtaining topline safety and efficacy data in 2023, and we believe this Phase 2 trial, if successful, has the potential to support the submission of a BLA to the FDA in 2023 and a Marketing Authorization Application to the European Medicines Agency in 2024.

We are designing our Phase 2 trial to enroll approximately 75 to 100 patients who have relapsed or refractory cutaneous melanoma and have failed treatment with a PD-1 inhibitor and, if applicable, a BRAF inhibitor. Patients will undergo surgery to remove a small amount of their tumor to initiate the manufacturing process. Once the patient-specific ITIL-168 is fully manufactured and sent back to the clinical site, patients will

 

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be treated with lymphodepleting chemotherapy. ITIL-168 infusion will be followed by treatment with IL-2 to support the further proliferation of ITIL-168 in vivo. The primary endpoint of this trial will be ORR, with secondary endpoints focusing on additional aspects of safety and efficacy.

Clinical Development for ITIL-168 in Additional Tumor Types

Shortly following the initiation of our Phase 2 trial for the treatment of PD-1-inhibitor relapsed or refractory advanced melanoma, we intend to initiate clinical trials of ITIL-168 in other solid tumor types where evidence of immune cell recognition and elimination of cancer cells has been observed, such as CSCC, NSCLC, HNSCC and cervical cancer.

In the first half of 2022, we plan to file an amendment to our IND for ITIL-168 and initiate a Phase 1 trial in patients with PD-1-inhibitor relapsed or refractory, locally-advanced or metastatic CSCC, which is the most common type of UV-induced skin cancer and has an underlying pathophysiology that is similar to melanoma. An estimated one million patients are diagnosed with CSCC each year in the United States. While most patients with localized CSCC have a good prognosis, locally advanced and unresectable or metastatic CSCC causes up to 15,000 deaths in the United States annually. Until recently, very few treatment options for this typically chemo-refractory cancer were available for patients. Since 2018, two PD-1 inhibitors have been approved for the treatment of patients with locally advanced and unresectable or metastatic CSCC, indicating an important role for T cells in the treatment of CSCC. Most of these patients, however, ultimately experience disease progression and require additional therapy. We are designing our Phase 1 trial to evaluate safety, feasibility and efficacy of ITIL-168 in the treatment of PD-1 inhibitor-relapsed or refractory, locally-advanced or metastatic CSCC.

In addition, we plan to evaluate ITIL-168 for the treatment of relapsed or refractory NSCLC, HNSCC and cervical cancer. Third-party TIL therapy has demonstrated clinical proof of concept in each of these tumor types, with an ORR of 31% reported in a clinical trial of a third-party TIL therapy for the treatment of HNSCC and an ORR of 25% reported in a clinical trial of a third-party TIL therapy for the treatment of NSCLC. Furthermore, PD-1 inhibitors have demonstrated efficacy in each of these tumors in clinical trials, further supporting a role for T cell-based immunoreactivity in the treatment of these cancers. However, all of these tumor types continue to have an unmet medical need. In 2019, the annual mortality of NSCLC, HNSCC and cervical cancers in the U.S. surpassed 120,000, 10,000, and 4,000, respectively. We expect to file another amendment to our IND for ITIL-168 and initiate a multi-indication Phase 1 trial in the first half of 2022. Following this trial, we anticipate opening Phase 2 trials within each of these three tumor types to evaluate the safety and efficacy of ITIL-168 in these indications.

CoStAR: A Co-stimulatory Platform to Genetically Engineer TILs

We are developing a novel class of genetically engineered TIL product candidates designed to express Co-Stimulatory Antigen Receptor, or CoStAR, molecules to augment the activation of TILs in the tumor microenvironment, potentially leading to an increase in anti-tumor activity. We believe that the ability of CoStAR to enhance the activation of TILs upon recognition of tumor neoantigens has the potential to bring TIL therapy to patients with cancer types that historically have been resistant to immunotherapy. In preclinical studies, we observed that CoStAR+ T cells demonstrated markedly increased activity as compared to normal T cells, including enhanced cytokine expression and proliferative capacity. We are leveraging the optimized and scalable manufacturing process that we have developed for ITIL-168 to develop manufacturing process steps specific to CoStAR-TIL therapies.

We plan to evaluate CoStAR-TIL therapies in several tumor types where TILs have not yet established proof of concept or responses to TIL therapy have been poor. We anticipate submitting an IND for our lead CoStAR-TIL product candidate, ITIL-306, in the first half of 2022.

Role of Co-stimulation in T Cell Activation

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a second, antigen-independent signal known as costimulation. Costimulation occurs when a costimulatory molecule on the surface of the T cell binds to its ligand on the target cell at the same time that the TCR is engaging with the antigen presented by the MHC. The requirement for costimulation also applies to T cell therapies. For example, first generation CAR-T therapies did not contain any additional costimulatory molecules, as shown below, and therefore relied on endogenous co-stimulation for enhanced activity within the tumor microenvironment. As a result, the anti-tumor activity of these first-generation products was low. Subsequent generations of CAR-T therapies included one or more costimulatory domains, which have been shown to increase their anti-tumor activity. However, these therapies are still bound by the limitations of single-antigen targeting, including on-target, off-tumor toxicities.

Costimulatory Domains in First Generation vs.

Next-Generation CAR-T Therapies

 

Design and Intended Function of CoStAR

Our CoStAR platform encompasses a class of novel CARs designed to increase the anti-tumor activity of our TIL product candidates by providing potent co-stimulation via two intracellular costimulatory domains that are linked by a transmembrane sequence to an extracellular single chain variable fragment, or scFv. When CoStAR is expressed on the surface of TILs, the scFv is designed to bind to commonly expressed, shared tumor-associated antigens and thereby deliver a potent costimulatory signal to the T cell. This costimulatory signal is only relevant when the TIL’s native TCR engages a tumor-specific neoantigen on the surface of the tumor cell, as shown below. In preclinical studies, we did not observe any measurable effects of CoStAR engagement of the shared tumor-associated antigen on the T cell without concomitant TCR recognition of a tumor neoantigen.

 

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The main difference between CoStAR and second or later generation CARs is that CoStAR is designed to exclusively induce co-stimulation. This effect is achieved by the elimination of the CD3 signaling domain that is uniformly included in CAR-T products. Absence of the CD3 domain renders CoStAR ligation alone unable to lead to T cell activation or cytolytic activity. Similar to ITIL-168, the full activation of CoStAR+ T cells is first dependent on the recognition of tumor-specific antigens by the native TCR. The CoStAR modification only serves to augment the activation of the T cells once TCR binding has occurred. In preclinical studies, we did not observe any measurable effects of CoStAR engagement of the shared tumor-associated antigen on the T cell without concomitant TCR recognition of a tumor neoantigen.

We believe the separation of function between tumor recognition and activation in our CoStAR-TILs provides the following key advantages compared to CAR-T therapies:

Increased potency without a change in specificity. The introduction of a CAR to a T cell fundamentally changes its specificity to target cells that express the antigen bound by the scFv of the CAR. Because the target antigen is not unique to individual tumor cells, CAR-T cells kill any cells that express this antigen, including healthy cells. This lack of discrimination often results in on-target, off-tumor toxicity, as observed with anti-CD19 CAR-T therapies that eliminate normal B cells that express CD19, causing prolonged immunosuppression. In contrast, CoStAR does not change the specificity of TILs, as T cell activation is still entirely dependent on the recognition by the cell’s native TCR of a unique tumor neoantigen presented by the target cell. CoStAR strictly provides the necessary costimulatory signal for full T cell activation. Through the selection of the specific scFv incorporated into the CoStAR architecture, costimulation is triggered in a tumor-specific manner, providing a microenvironment-specific signal leading to increased TIL activation.

Retention of polyclonal antigen recognition. Our CoStAR-TILs rely on the unique endogenous TCRs expressed by each T cell to recognize the heterogeneous set of tumor neoantigens that are presented by tumor cells. With CoStAR-TIL therapy, the T cells isolated directly from the patient’s tumor have been naturally selected by the immune system and preserved by our manufacturing process to target patient-specific neoantigens. We believe the ability to target multiple antigens is critical to the success of cell therapies in solid tumors due to the intra-tumor heterogeneity of cancer cells in solid tumors and the limited success observed with single-antigen cell therapy approaches to date.

 

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Enhanced cytokine secretion and profile. Our CoStAR-TIL product candidates are designed to secrete high levels of activating cytokines into their surrounding microenvironment upon the engagement of unique tumor neoantigens by the TILs’ native TCRs in combination with the engagement of the target by CoStAR. Additionally, the production of immunosuppressive cytokines is reduced. We believe that these properties of our CoStAR-TILs will stimulate immune cell migration into tumors, which may, in turn, drive additional immune reaction to the tumor, resulting in the conversion of poorly immunogenic tumors with few endogenous immune cells into inflamed tumors with a broad array of activated immune cell subsets. Such inflamed tumors have been shown to be more amenable to treatment with immunotherapies and to have better prognosis.

Broad platform targeting shared tumor-associated antigens. A defining feature of our CoStAR platform is its expected safety profile. Unlike conventional ADC or CAR-T therapies, CoStAR’s engagement with the cell expressing its target antigen alone does not trigger its elimination. This key attribute allows us to consider a wide array of antigens to target with our CoStAR-TIL product candidates with fewer concerns related to safety risk associated with normal tissue expression. In addition to the tumor-associated antigens commonly targeted by other therapeutic modalities, such as HER2, CoStAR may have the potential to target other antigens, including those with extensive normal tissue expression.

Our CoStAR Platform

During our development of the CoStAR platform, we empirically designed and tested a number of sequences containing various costimulatory domains, either as single domains or as pairs of domains, to identify the most potent architecture using a variety of target antigens. We found that the inclusion of a particular configuration of two costimulatory domains led to markedly enhanced cytokine secretion, cell survival and proliferation in vitro as compared to the other tested variants.

We observed increased expression of certain pro-inflammatory cytokines, such as IL-2, without increased expression of immunosuppressive cytokines, such as IL-10, that are known to be detrimental to T cells and other immune subsets, as shown below, which we believe is due to the design of the signaling domains in CoStAR. We believe that CoStAR’s ability to increase pro-inflammatory cytokines with no significant rise in immunosuppressive ones creates a favorable immunological milieu that may promote a robust anti-tumor response.

CoStAR Increased Pro-inflammatory Cytokines

And Did Not Increase Immunosuppressive Cytokines

 

In multiple third-party CAR-T therapy clinical trials, post-infusion expansion of T cells has been shown to correlate with deep and durable clinical responses in patients. The in vitro expansion of T cells demonstrated in our preclinical studies, even in stringent culture conditions that lack supplemental IL-2, provides preclinical

 

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evidence of the improved proliferative capacity of CoStAR+ T cells. As shown below, CoStAR+ T cells responded to target cells that expressed OKT3, an anti-CD3 antibody that activates all TCRs, and the CoStAR target with increased survival and proliferation as compared to CoStAR- T cells.

CoStAR+ T Cells Showed Increased Survival and Proliferation of Cells in the Absence of IL-2

 

Our preclinical studies of CoStAR+ T cells have demonstrated the potential of CoStAR-TIL therapies to increase anti-tumor activity compared to conventional TIL therapies. Specifically, the CoStAR platform:

 

•

Retained the anti-tumor TCR repertoire of the starting TIL population, thus reducing the potential for normal tissue toxicity;

 

•

Demonstrated markedly increased survival and growth potential and reduced dependence on supplemental IL-2 in response to target cells expressing OKT3 and the CoStAR target; and

 

•

Secreted high levels of immune-activating cytokines like IL-2 without increased expression of immunosuppressive cytokines, which we believe offers the potential for a potent bystander effect in the tumor microenvironment.

Our Lead CoStAR-TIL Product Candidate, ITIL-306

Our first CoStAR-TIL product candidate, ITIL-306, is an autologous TIL therapy genetically engineered to express a CoStAR molecule that recognizes FOLR1. FOLR1 is a tumor-associated antigen that is expressed on numerous solid tumors, including ovarian, uterine, NSCLC and renal cancers. As shown in the immunohistochemical, or IHC, stains below, FOLR1 is found to be expressed at high levels in numerous solid tumor indications and its expression in normal tissue is minimal.

 

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FOLR1 is Expressed by Numerous Solid Tumors,

as Assessed by mRNA and Protein

 

To validate that FOLR1-CoStAR TILs are robustly activated only in the presence of FOLR1 and native TCR stimulation, we assessed the ability of CoStAR+ T cells to secrete IL-2 in an in vitro study. Cytokine secretion is a classical measure of activation of T cells and represents a key mechanism by which CoStAR+ T cells enhance the tumor microenvironment and proliferation of TILs. These CoStAR+ T cells were cultured with target cells that were engineered to express OKT3, FOLR1, neither of these molecules, or both.

As shown below, the culture with OKT3-expressing target cells yielded a modest increase in IL-2 secretion over baseline. The addition of CoStAR costimulation, as shown by the FOLR1 expression in the target cells, led to an approximately 10-fold increase in IL-2 secretion. Importantly, ligation of CoStAR by FOLR1 alone in the absence of TCR engagement led to no measurable increase over baseline IL-2 secretion, supporting that the delivery of costimulation through the CoStAR molecule alone does not activate T cells. This finding supports our hypothesis that CoStAR will limit the on-target, off-tumor toxicity that is often found with classical CAR-T therapies, while enhancing T cell activation within the tumor.

CoStAR+ T Cells Enhanced Secretion of IL-2 in the Presence of Both FOLR1 and Activated TCRs

 

 

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We intend to submit an IND for ITIL-306 in the first half of 2022. Further preclinical and manufacturing development of ITIL-306 will inform the final clinical development plan and first-in-human study design. We anticipate initiating a Phase 1 trial in 2022 to evaluate preliminary safety, feasibility and efficacy in multiple tumor types.

Additional CoStAR-TIL Programs

The modular nature of our CoStAR platform allows for multiple product candidates to be developed with minimal changes to the fundamental architecture of the molecule. We have generated a number of constructs containing antigen-binding domains directed against different tumor-associated antigens that are expressed by a wide variety of tumor types, including stomach, colorectal, pancreatic, breast and other cancers. We intend to select our next CoStAR-TIL product candidate for IND-enabling studies in the first half of 2022.

Commercialization Plan

We are in the process of building our U.S. commercial and medical affairs infrastructure and intend to build our own global commercialization capabilities over time in certain geographies for our TIL product candidates, including ITIL-168 and ITIL-306. If any of our TIL product candidates are approved, we expect to commercialize those products with an experienced sales, marketing and distribution organization, including a national specialty oncology sales force. As additional product candidates advance through our pipeline, our commercial plans will evolve as we consider elements such as the market potential.

Competition

The biotechnology and pharmaceutical industries are characterized by the rapid evolution of technologies and understanding of disease etiology, intense competition and a strong emphasis on intellectual property. We believe that our approach, strategy, scientific and manufacturing capabilities, know-how and experience provide us with competitive advantages. However, we expect substantial competition from multiple sources, including major pharmaceutical, specialty pharmaceutical, and existing or emerging biotechnology companies, academic research institutions and governmental agencies and public and private research institutions worldwide. Many of our competitors, either alone or through collaborations, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These entities also compete with us in recruiting and retaining qualified scientific, manufacturing and management personnel and establishing clinical trial sites and patient enrollment in clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. As a result, our competitors may discover, develop, license or commercialize products before or more successfully than we do.

We face competition from segments of the pharmaceutical, biotechnology and other related markets that pursue the development of TIL or other cell therapies for the treatment of solid tumors. Companies that are developing TIL therapies include Iovance Biotherapeutics Inc., Adaptimmune Therapeutics, Plc., Achilles Therapeutics, Ltd., Intima Bioscience, Inc., Nurix Therapeutics, Inc., KSQ Therapeutics, Inc., Obsidian Therapeutics, Inc., PACT Pharma, Inc., and Neogene Therapeutics, B.V. In addition, we may face competition from companies focused on CAR-T and TCR-T cell therapies, such as Kite Pharma, Inc., a subsidiary of Gilead, Inc., Juno Therapeutics, Inc., a subsidiary of Bristol-Myers Squibb, Inc., TCR2 Therapeutics, Inc., Poseida Therapeutics, Inc. and Immatics N.V. There are also companies utilizing other cell-based approaches that may be competitive to our product candidates. For example, companies such as Celyad, S.A. and Nkarta, Inc. are developing therapies that target and/or engineer natural killer, or NK, cells.

Furthermore, we also face competition more broadly across the oncology market for cost-effective and reimbursable cancer treatments. The most common methods of treating patients with cancer are surgery, radiation and drug therapy, including chemotherapy, hormone therapy, biologic therapy, such as monoclonal and bispecific antibodies, immunotherapy, cell-based therapy and targeted therapy, or a combination of any such

 

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methods. There are a variety of available drug therapies marketed for cancer. In many cases, these drugs are administered in combination to enhance efficacy. While our TIL product candidates, if any are approved, may compete with these existing drugs and other therapies, to the extent they are ultimately used in combination with or as an adjunct to these therapies, our TIL therapies may not be competitive with them. Some of these drugs are branded and subject to patent protection, and others are available on a generic basis. Insurers and other third-party payors may also encourage the use of generic products or specific branded products. As a result, obtaining market acceptance of, and gaining significant share of the market for, any of our TIL therapies that we successfully introduce to the market may pose challenges. In addition, many companies are developing new oncology therapeutics, and we cannot predict what the standard of care will be as our product candidates progress through clinical development.

We could see a reduction or elimination in our commercial opportunity if our competitors develop and commercialize drugs that are safer, more effective, have fewer or less severe side effects, are more convenient to administer, are less expensive or with a more favorable label than our TIL product candidates. Our competitors also may obtain FDA or other regulatory approval for their drugs more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. The key competitive factors affecting the success of all of our TIL product candidates, if approved, are likely to be their efficacy, safety, convenience, price and the availability of reimbursement from government and other third-party payors.

Intellectual Property

Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions, improvements and know-how related to our business; defend and enforce our patents and other intellectual property; preserve the confidentiality of our trade secrets; and operate without infringing or otherwise violating the valid enforceable patents and proprietary rights of third parties. Our ability to stop third parties from making, using, selling, offering to sell or importing our products may depend on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. With respect to both licensed and company-owned intellectual property, 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 of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our commercial products and methods of manufacturing the same. We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to protect. See “Risk Factors – Risks Related to Our Intellectual Property.”

We actively seek to protect our proprietary technology, inventions, and other intellectual property that is commercially important to the development of our business by a variety of means, such as seeking, maintaining, and defending patent rights, whether developed internally or licensed from third parties. We also may rely on trade secrets and know-how relating to our proprietary technology platform, on continuing technological innovation and on in-licensing opportunities to develop, strengthen and maintain the strength of our position in the field of cell therapy that may be important for the development of our business. We also intend to seek patent protection or rely upon trade secret rights to protect other technologies that may be used to discover and validate targets, as well as to manufacture and develop novel cell therapy products. Additional regulatory protection may also be afforded through data exclusivity, market exclusivity and patent term extensions where available.

ITIL-168

We have one U.S. patent application and one European patent application directed to an aseptic tissue processing method, kit and device, which, if issued, are expected to expire in 2038, without taking into account any possible patent term adjustment or extension.

 

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We have one PCT application and two foreign patent applications in Argentina and Taiwan directed to methods for isolating unmodified tumor infiltrating lymphocytes and expansion of cell populations, which, if issued, are expected to expire in 2040, without taking into account any possible patent term adjustment or extension.

We have one U.S. design patent application and foreign design patent applications in 21 countries: Argentina, Australia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Europe including the United Kingdom, Ecuador, India, Israel, Japan, South Korea, Mexico, Peru, Philippines, Russia, Singapore, Taiwan and Ukraine, directed to a tissue collection bag for sealing tissue therein for processing. The U.S. design patent will expire 15 years from issue.

We have seven provisional applications directed to cryopreserved tumor infiltrating lymphocytes, and methods of treatment, which, if issued, are expected to expire in 2041, without taking into account any possible patent term adjustment or extension.

ITIL-306

We have one U.S. patent application and one European patent application directed to an aseptic tissue processing method, kit and device, which, if issued, are expected to expire in 2038, without taking into account any possible patent term adjustment or extension.

We have one PCT application and two foreign patent applications in Argentina and Taiwan directed to methods for isolating unmodified tumor infiltrating lymphocytes and expansion of cell populations, which, if issued, are expected to expire in 2040, without taking into account any possible patent term adjustment or extension.

We have one U.S. and foreign design patent applications in 21 countries: Argentina, Australia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Europe including the United Kingdom, Ecuador, India, Israel, Japan, South Korea, Mexico, Peru, Philippines, Russia, Singapore, Taiwan and Ukraine, directed to a tissue collection bag for sealing tissue therein for processing. The U.S. design patent will expire 15 years from issue.

We have seven provisional applications directed to cryopreserved tumor infiltrating lymphocytes, and methods of treatment. Patents from full patent applications claiming priority to the provisional application, if issued, are expected to expire in 2041, without taking into account any possible patent term adjustment or extension.

We have one PCT application and one provisional application directed to receptors providing targeted costimulation for adoptive cell therapy. Patents from the PCT application, if issued, are expected to expire in 2040, without taking into account any possible patent term adjustment or extension. Patents from full patent applications claiming priority to the provisional application, if issued, are expected to expire in 2041, without taking into account any possible patent term adjustment or extension.

Others

We have one U.S. patent application, 19 foreign patent applications and one PCT application in Australia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Eurasia, Ecuador, Europe, India, Israel, Japan, South Korea, Mexico, Peru, Philippines, Singapore and Ukraine directed to biomarkers predictive of tumor infiltrating lymphocyte therapy and uses thereof, which, if issued, are expected to expire in 2039 (U.S. and 19 foreign applications) and 2040 (PCT application), without taking into account any possible patent term adjustment or extension.

We have one U.S. patent application and 19 foreign patent applications in Australia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Eurasia, Ecuador, Europe, India, Israel, Japan, South Korea, Mexico, Peru, Philippines, Singapore and Ukraine directed to cells expressing chimeric growth factor receptors and uses thereof, which, if issued, are expected to expire in 2039, without taking into account any possible patent term adjustment or extension.

 

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We have one provisional application directed to chimeric molecules providing targeted co-stimulation for adoptive cell therapy. Patents from full applications claiming priority from that provisional application if filed and issued, are expected to expire in 2041, without taking into account any possible patent term adjustment or extension.

We have one U.S. patent application and one European application directed to cells expressing recombinant growth factor receptors, which, if issued, are expected to expire in 2036, without taking into account any possible patent term adjustment or extension.

Government Regulation

The FDA and other regulatory authorities at federal, state, and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring, and post-approval reporting of biologics such as those we are developing. We, along with third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval or licensure of our product candidates. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.

U.S. Biologics Regulation

In the United States, biological products are subject to regulation under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, and other federal, state, local and foreign statutes and regulations. The process required by the FDA before biologics may be marketed in the United States generally involves the following:

 

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completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s Good Laboratory Practice requirements, or GLP);

 

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submission to the FDA of an IND, which must become effective before clinical trials may begin;

 

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approval by an institutional review board, or IRB, or ethics committee at each clinical site before the trial is commenced;

 

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performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as good clinical practice, or GCP, regulations and any additional requirements for the protection of human research subjects and their health information to establish the safety, purity and potency of the proposed biologic product candidate for its intended purpose;

 

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preparation of and submission to the FDA of a BLA, after completion of all pivotal clinical trials;

 

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satisfactory completion of an FDA Advisory Committee review, if applicable;

 

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a determination by the FDA within 60 days of its receipt of a BLA to file the application for review;

 

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satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed product is produced to assess compliance with current Good Manufacturing Practices, or cGMP, and to assure that the facilities, methods and controls are adequate to preserve the biological product’s continued safety, purity and potency and, if applicable, to assess compliance with the FDA’s current Good Tissue Practice, or cGTP, requirements for the use of human cellular and tissue products, and of selected clinical investigation sites to assess compliance with Good Clinical Practices, or GCPs;

 

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potential FDA audit of the nonclinical and clinical study sites that generated the data in support of the BLA; and

 

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FDA review and approval of the BLA to permit commercial marketing of the product for particular indications for use in the United States.

Before testing any biological product candidate in humans, the product candidate enters the preclinical testing stage. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations of product

 

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chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the product candidate. The conduct of the preclinical tests must comply with federal regulations and requirements including GLPs.

Prior to beginning the first clinical trial with a product candidate in the United States, we must submit an IND to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls information; and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.

In addition to the submission of an IND to the FDA before initiation of a clinical trial in the United States, certain human clinical trials involving recombinant or synthetic nucleic acid molecules are subject to oversight of institutional biosafety committees, or IBCs, as set forth in the National Institutes of Health, or NIH, Guidelines for Research Involving Recombinant DNA Molecules, or the NIH Guidelines. Specifically, under the NIH Guidelines, supervision of human gene transfer trials includes evaluation and assessment by an IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries.

For purposes of BLA approval, human clinical trials are typically conducted in three sequential phases that may overlap or be combined:

 

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Phase 1—The investigational product is initially introduced into healthy human subjects or patients with the target disease or condition. These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness.

 

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Phase 2—The investigational product is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials.

 

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Phase 3—The investigational product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval.

In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product in the intended therapeutic indication, particularly for long-term safety follow-up. These so-called Phase 4 studies may also be made a condition to approval of the BLA.

Concurrent with clinical trials, companies may complete additional animal studies and develop additional information about the biological characteristics of the product candidate, and must finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

BLA Submission and Review by the FDA

Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of a BLA requesting approval to market the product for one or more indications. The BLA must include all relevant data available from preclinical and clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among other things. Data can come from company-sponsored clinical studies intended to test the safety and effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by independent investigators. The submission of a BLA requires payment of a substantial application user fee to the FDA, unless a waiver or exemption applies.

Within 60 days following submission of the application, the FDA reviews a BLA submitted to determine if it is substantially complete before the FDA accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the BLA must be resubmitted with the additional information. Once a BLA has been accepted for filing, the FDA’s goal is to review standard applications within ten months after the filing date, or, if the application qualifies for priority review, six months after the FDA accepts the application for filing. In both standard and priority reviews, the review process may also be extended by FDA requests for additional information or clarification. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure and potent and the facility in which it is manufactured, processed, packed or held meets standards designed to assure the product’s continued safety, purity and potency. The FDA may also convene an advisory committee to provide clinical insight on application review questions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Before approving a BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP and adequate to assure consistent production of the product within required specifications. For a product candidate that is also a human cellular or tissue product, the FDA also will not approve the application if the manufacturer is not in compliance with cGTPs. These are FDA regulations that

 

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govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissues, and cellular and tissue based products, or HCT/Ps, which are human cells or tissue intended for implantation, transplant, infusion, or transfer into a human recipient. The primary intent of the GTP requirements is to ensure that cell and tissue based products are manufactured in a manner designed to prevent the introduction, transmission and spread of communicable disease. FDA regulations also require tissue establishments to register and list their HCT/Ps with the FDA and, when applicable, to evaluate donors through screening and testing. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

After the FDA evaluates a BLA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter, or CRL. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A CRL will describe all of the deficiencies that the FDA has identified in the BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections, testing submitted product lots, and/or reviewing proposed labeling. In issuing the CRL, the FDA may recommend actions that the applicant might take to place the BLA in condition for approval, including requests for additional information or clarification. The FDA may delay or refuse approval of a BLA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.

If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the BLA with a Risk Evaluation and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks, or otherwise limit the scope of any approval. A REMS is a safety strategy implemented to manage a known or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.

Expedited Development and Review Programs

The FDA offers a number of expedited development and review programs for qualifying product candidates. For example, the fast track program is intended to expedite or facilitate the process for reviewing new products that are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Specifically, new biological products are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new biologic may request that the FDA designate the biologic as a fast track product at any time during the clinical development of the product. The sponsor of a fast track product has opportunities for more frequent interactions with the applicable FDA review team during product development and, once a BLA is submitted, the product candidate may be eligible for priority review. A fast track product may also be eligible for rolling review, where the FDA may consider for review sections of the BLA on a rolling basis before the complete application is

 

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submitted, if the sponsor provides a schedule for the submission of the sections of the BLA, the FDA agrees to accept sections of the BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the BLA.

A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite its development and review. A product candidate can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product candidate, including involvement of senior managers.

Any marketing application for a drug or biologic submitted to the FDA for approval, including a product candidate with a fast track designation and/or breakthrough therapy designation, may be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. A product candidate is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products.. The FDA will attempt to direct additional resources to the evaluation of an application for a new biological product designated for priority review in an effort to facilitate the review. For original BLAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date (as compared to ten months under standard review).

Additionally, product candidates studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. Products receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required post-marketing studies or if such studies fail to verify the predicted clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.

In 2017, the FDA established a new regenerative medicine advanced therapy, or RMAT, designation, which is intended to facilitate an efficient development program for, and expedite review of, any drug or biologic that meets the following criteria: (i) the drug or biologic qualifies as a RMAT, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions; (ii) the drug or biologic is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and (iii) preliminary clinical evidence indicates that the drug or biologic has the potential to address unmet medical needs for such a disease or condition. RMAT designation provides all the benefits of breakthrough therapy designation, including more frequent meetings with the FDA to discuss the development plan for the product candidate and eligibility for rolling review and priority review. Product candidates granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of clinical trial sites, including through expansion of trials to additional sites. RMAT-designated products that receive accelerated approval may, as appropriate, fulfill their post-approval requirements through submission of clinical evidence, clinical studies, patient registries, or other sources of real-world evidence (such as electronic health records); through the collection of larger confirmatory data sets; or via post-approval monitoring of all patients treated with such therapy prior to approval of such therapy.

 

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Fast track designation, breakthrough therapy designation, priority review, accelerated approval, and RMAT designation do not change the standards for approval but may expedite the development or approval process. Even if a product candidate qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

Orphan Drug Designation and Exclusivity

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 individuals in the United States and when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United States will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has orphan drug designation subsequently receives the first FDA approval for a particular drug or biologic for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a full BLA, to market the same biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Orphan product exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval of the same biological product as defined by the FDA or if our product candidate is determined to be contained within the competitor’s product for the same indication or disease.

A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or, as noted above, if a second applicant demonstrates that its product is clinically superior to the approved product with orphan exclusivity or the manufacturer of the approved product is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.

Post-Approval Requirements

Biologics are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual program fees for any marketed products. Biologic manufacturers and other entities involved in the manufacture and distribution of approved biological products 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 cGMP requirements and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain GMP compliance. Changes to the manufacturing process or facility are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting

 

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requirements. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

The FDA may withdraw 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 studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

 

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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 untitled letters;

 

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clinical holds on clinical studies;

 

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refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;

 

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product seizure or detention, or refusal to permit the import or export of products;

 

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consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs;

 

•

mandated modification of promotional materials and labeling and the issuance of corrective information;

 

•

the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or

 

•

injunctions or the imposition of civil or criminal penalties.

The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, clinical hold, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or communications with doctors, debarment, restitution, disgorgement of profits, or civil or criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.

Biosimilars and Reference Product Exclusivity

The Affordable Care Act, signed into law in 2010, includes a subtitle called the Biologics Price Competition and Innovation Act, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. The FDA has issued several guidance documents outlining an approach to review and approval of biosimilars.

Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to an

 

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individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. However, complexities associated with the larger, and often more complex, structures of biological products, as well as the processes by which such products are manufactured, pose significant hurdles to implementation of the abbreviated approval pathway that are still being worked out by the FDA.

Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval 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 market a competing version of the reference product if the FDA approves a full BLA for the competing product containing that applicant’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of its product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.

A biological product can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study. The BPCIA is complex and continues to be interpreted and implemented by the FDA. In addition, government proposals have sought to reduce the 12-year reference product exclusivity period. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. As a result, the ultimate impact, implementation, and impact of the BPCIA is subject to significant uncertainty.

Government Regulation Outside of the United States

In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical studies and any commercial sales and distribution of our products. Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries. Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical studies or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical study application much like the IND prior to the commencement of human clinical studies.

In the European Union, for example, a clinical trial application, or CTA, must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA and the IRB, respectively. Once the CTA is approved in accordance with the applicable requirements, clinical study development may proceed. The requirements and process governing the conduct of clinical studies, are to a significant extent harmonized at the European Union-level but could vary from country to country. In all cases, the clinical studies are conducted in accordance with Good Clinical Practices, or GCP, and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. The way clinical trials are conducted in the European Union will undergo a major change when the Clinical Trial Regulation (Regulation (EU) No 536/2014) comes into application, probably in 2022. The Regulation harmonizes the assessment and supervision processes for clinical trials throughout the European Union via a Clinical Trials Information System, which will contain a centralized European Union portal and database.

To obtain regulatory approval of an investigational biological product under European Union regulatory systems, we must submit a marketing authorization application. The application used to file the BLA in the United States is similar to that required in the European Union, with the exception of, among other things, country-specific document requirements. Innovative products that target an unmet medical need may be eligible

 

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for a number of expedited development and review programs in the European Union, such as the PRIME scheme, which provides incentives similar to the breakthrough therapy designation in the United States. Such products are generally eligible for accelerated assessment and may also benefit from different types of fast track approvals, such as a conditional marketing authorization or a marketing authorization under exceptional circumstances granted on the basis of less comprehensive clinical data than normally required (respectively in the likelihood that the sponsor will provide such data within an agreed timeframe or when comprehensive data cannot be obtained even after authorization).

The European Union also provides opportunities for market exclusivity. For example, in the European Union, upon receiving marketing authorization, new chemical entities generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic or biosimilar application. During the additional two-year period of market exclusivity, a generic or biosimilar marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic or biosimilar product can be marketed until the expiration of the market exclusivity. However, there is no guarantee that a product will be considered by the European Union’s regulatory authorities to be a new chemical entity, and products may not qualify for data exclusivity. Products receiving orphan designation in the European Union can receive ten years of market exclusivity, during which time no similar medicinal product for the same indication may be placed on the market. An orphan product can also obtain an additional two years of market exclusivity in the European Union for pediatric studies. No extension to any supplementary protection certificate can be granted on the basis of pediatric studies for orphan indications.

The criteria for designating an “orphan medicinal product” in the European Union are similar in principle to those in the United States. Under Article 3 of Regulation (EC) 141/2000, a medicinal product may be designated as orphan if (1) it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; (2) either (a) such condition affects no more than five in 10,000 persons in the European Union when the application is made, or (b) the product, without the benefits derived from orphan status, would not generate sufficient return in the European Union to justify investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the European Union, or if such a method exists, the product will be of significant benefit to those affected by the condition, as defined in Regulation (EC) 847/2000. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and are, upon grant of a marketing authorization, entitled to ten years of market exclusivity for the approved therapeutic indication. The application for orphan drug designation must be submitted before the application for marketing authorization. The applicant will receive a fee reduction for the marketing authorization application if the orphan drug designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

The 10-year market exclusivity may 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 designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Additionally, marketing authorization may be granted to a similar product for the same indication at any time if:

 

•

The second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior;

 

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The applicant consents to a second orphan medicinal product application; or

 

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The applicant cannot supply enough orphan medicinal product.

The medicinal products we are developing, which are based on genes, cells or tissues, may be considered advanced therapy medicinal products, or ATMPs, in the European Union if they meet the scientific criteria for defining an ATMP. The principles of the aforementioned medicines legislation apply to ATMPs. All ATMPs

 

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must obtain a marketing authorization from the EMA and are regulated through the centralized authorization procedure. Regulation (EC) No 1394/2007, or the ATMP Regulation, provides specific incentives to accelerate the development of such products, including fee reductions for scientific advice, an ATMP classification procedure (for all developers) and a certification procedure for quality and non-clinical data (for SMEs only).

If tissues and cells are being used as starting materials in a medicinal product we may also need to comply with the requirements of Directive 2004/23/EC, or the European Tissues and Cells Directive, covering standards for donation, procurement and testing, processing, preservation, storage and distribution of human tissues and cells, as well as its technical implementing directives; and Directive 2015/566, as regards the procedures for verifying the equivalent standards of quality and safety of imported tissues and cells.

In the European Union, early access mechanisms for innovative medicines (such as compassionate use programs and named patient supplies), pricing and reimbursement, and promotion and advertising are subject to national regulations and oversight by national competent authorities and therefore significantly vary from country to country.

Sanctions for non-compliance with the aforementioned requirements, which may include administrative and criminal penalties, are generally determined and enforced at national level. However, under the European Union financial penalties regime, the EMA can investigate and report on alleged breaches of the European Union pharmaceutical rules by holders of a marketing authorization for centrally authorized medicinal products and the European Commission could adopt decisions imposing significant financial penalties on infringing marketing authorization holders.

The United Kingdom has left the European Union on January 31, 2020. Following the Transition Period which ended on December 31, 2020, Brexit could materially impact the regulatory regime with respect to the development, manufacture, importation, approval and commercialization of our product candidates in the United Kingdom in the coming years.

For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical studies, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical studies are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Other Healthcare Laws

Pharmaceutical companies are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business and may constrain the financial arrangements and relationships through which we research, as well as, sell, market and distribute any products for which we obtain marketing approval. Such laws include, without limitation, federal and state anti-kickback, fraud and abuse, false claims, data privacy and security and physician and other health care provider transparency laws and regulations. If our significant operations are found to be in violation of any of such laws or any other governmental regulations that apply, they may be subject to penalties, including, without limitation, administrative, civil and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of operations, integrity oversight and reporting obligations, exclusion from participation in federal and state healthcare programs and imprisonment.

Coverage and Reimbursement

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healthcare organizations, and the level of reimbursement for such product by third-party payors. Decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. These third-party payors are increasingly reducing coverage and reimbursement for medical products, drugs and services. In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on coverage and 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 sales of any product. Decreases in third-party reimbursement for any product or a decision by a third-party payor not to cover a product could reduce physician usage and patient demand for the product and also have a material adverse effect on sales.

Healthcare Reform

In the United States, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, each as amended, collectively known as the ACA, was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly affected the pharmaceutical industry. The ACA contained a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement adjustments and changes to fraud and abuse laws. For example, the ACA:

 

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increased the minimum level of Medicaid rebates payable by manufacturers of brand name drugs from 15.1% to 23.1% of the average manufacturer price;

 

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required collection of rebates for drugs paid by Medicaid managed care organizations;

 

•

required manufacturers to participate in a coverage gap discount program, under which they must agree to offer 70 percent point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; and

 

•

imposed a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs” to specified federal government programs.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA. For example, the United States Supreme Court is currently reviewing the U.S. Court of Appeals for the 5th Circuit ruling that the individual mandate was unconstitutional and to determine the constitutionality of the ACA in its entirety. Other legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductions of Medicare payments to providers of 2% per fiscal year, which was temporarily suspended from May 1, 2020 through March 31, 2021 due to the COVID-19 pandemic, and reduced payments to several types of Medicare providers. Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries, proposed and enacted legislation and executive orders issued by the President designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. It is also possible that additional governmental action is taken in response to the COVID-19 pandemic. Individual states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical 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.

Facilities

We control and operate our manufacturing site in Manchester, United Kingdom, which consists of 12,630 total square feet of leased laboratory and office space under four leases that each expire in July 2022. We also

 

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own and are developing our manufacturing facility in Tarzana, California, which is expected to include approximately 95,294 square feet of laboratory and office space. Our Tarzana facility is expected to be operational in 2021.

Our headquarters is currently located in Dallas, Texas and consists of 6,481 square feet of leased office space under a lease that expires in March 2026. We also lease 10,008 square feet of laboratory and office space in Thousand Oaks, California, under a lease that expires in October 2025, and 6,867 square feet of leased laboratory and office space in Alderley Park, United Kingdom, under a lease that expires in November 2025, which in each case is subject to renewal. We believe that our facilities are adequate for our current needs, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms.

Employees and Human Capital Resources

As of December 31, 2020, we had 150 full-time employees. Of these employees, 119 were engaged in research and development activities. Substantially all of our employees are based in Dallas, Texas, Tarzana, California and Manchester, United Kingdom. None of our employees are represented by labor unions or covered by collective bargaining agreements. 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.

Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently subject to any material legal proceedings.

 

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MANAGEMENT

Executive Officers and Directors

The following table provides information regarding our current executive officers and directors, including their ages as of December 31, 2020:

 

Name		Age				Position(s)
Executive Officers
Bronson Crouch			47			Chief Executive Officer and Chairman
Zachary Roberts, M.D.			43			Chief Medical Officer
Vijay Chiruvolu, Ph.D.			58			Chief Technical Officer
Sandeep Laumas, M.D.			52			Chief Financial Officer and Chief Business Officer
Non-Employee Directors
Gwendolyn Binder, Ph.D.			46			Director
Neil Gibson, Ph.D.			64			Director
George Matcham, Ph.D.			68			Director
R. Kent McGaughy, Jr.			49			Director
Jack Nielsen			57			Director
Nimish Shah			43			Director

 

(1)	Member of the audit committee.

(2)	Member of the compensation committee.

(3)	Member of the nominating and corporate governance committee.

Executive Officers

Bronson Crouch has served as our Chief Executive Officer and Chairman of our board of directors since November 2018. In addition to serving as our Chief Executive Officer and Chairman, Mr. Crouch has served as Founding Partner of Curative Ventures Management LLC since January 2014. Our board of directors believes that Mr. Crouch is qualified to serve as a director based on his extensive experience in venture capital and in the biotechnology industry.

Zachary Roberts, M.D., Ph.D. has served as our Chief Medical Officer since March 2020. Prior to joining us, he served in various roles for Kite Pharma, Inc./Gilead Sciences, most recently as Vice President, Clinical Development from February 2018 to May 2019. Prior to joining Kite, Dr. Roberts served as Clinical Research Medical Director for Amgen Oncology from January 2015 to July 2015. Dr. Roberts completed his training in internal medicine and hematology/oncology at the Massachusetts General Hospital and Dana Farber Cancer Institute. He earned his B.S. in microbiology and immunology from the University of Maryland, College Park and both his Ph.D. in immunology and his M.D from the University of Maryland, Baltimore.

Vijay Chiruvolu, Ph.D. has served as our Chief Technical Officer since July 2020. Prior to joining us, he served as the Senior Vice President, Global Process Development–Cell Therapy of Kite Pharma, Inc./Gilead Sciences, from September 2014 to July 2020. During his time at Kite, Dr. Chiruvolu was responsible for the CMC/process development leading to the regulatory approval of two cell therapy products, Yescarta and Tecartus. Prior to joining Kite, from 1996 to 2014, Dr. Chiruvolu spent 18 years in positions of increasing responsibility in Process Development, Manufacturing, Supply Chain and Quality at Scios, Avigen, Hoffmann-La Roche, Johnson & Johnson and Amgen. Dr. Chiruvolu holds a Ph.D. in Engineering (Biochemical) from University of Nebraska and M.B.A. from Pennsylvania State University.

 

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Sandeep Laumas, M.D. has served as our Chief Financial Officer since February 2021 and our Chief Business Officer since June 2020. He currently serves a member of the board of directors of 9 Meters Biopharma, Inc. since May 2020 and previously served as the Executive Chairman from January 2014 to April 2020, including as the Chief Executive Officer from February 2019 to April 2020. Dr. Laumas has served as a member of the board of directors and chairman of the audit committee of BioXcel Therapeutics, Inc. since September 2017. Dr. Laumas received his A.B. in chemistry from Cornell University and M.D. from Albany Medical College, and he completed a medical internship at the Yale University School of Medicine.

Non-Employee Directors

Gwendolyn Binder, Ph.D. has served as a member of our board of directors since July 2020. Dr. Binder has served as Executive Vice President of Science and Technology of Cabaletta Bio, Inc. since February 2019. Dr. Binder previously served in various roles for Adaptimmune Therapeutics PLC from March 2011 to January 2019, most recently as Chief Technology Officer from March 2016 to January 2019 and Executive Vice President, Head of Translational Sciences from March 2011 to February 2016. Dr. Binder earned her B.A. from Wells College in biochemistry and molecular biology and Ph.D. in cellular and molecular medicine from the John Hopkins University. Our board of directors believes that Dr. Binder is qualified to serve as a director based upon her extensive experience in the biotechnology industry.

Neil Gibson, Ph.D. has served as a member of our board of directors since June 2020. Dr. Gibson has served as President and Chief Executive Officer of Adanate, a COI Pharmaceuticals, Inc. company, since 2017. Dr. Gibson has held various senior positions within the biotechnology and pharmaceutical industry, including President and Chief Executive Officer of PDI Therapeutics from 2017 to 2020, Senior Vice President of BioAtla, Inc. from 2015 to 2016 and Chief Scientific Officer of Regulus Therapeutics from 2011 to 2015. Dr. Gibson has served on the board of TCR2 and Causeway Therapeutics since 2017 and previously served on the board of Cytosen Therapeutics from 2016 to 2019. Dr. Gibson earned his B.Sc. in Pharmacy from the University of Strathclyde and his Ph.D. from the University of Aston. We believe Dr. Gibson is qualified to serve on our Board because of his extensive experience as an executive officer in the biopharmaceutical industry.

George Matcham, Ph.D. has served as a member of our board of directors since September 2018. He previously served in various roles for Celgene Corporation since 1988, most recently as Senior Vice President, CAR T CMC & Technology Development from August 2017 to June 2018 and Senior Vice President, Biologics Development and Manufacturing from May 2013 to August 2017, with responsibility for CAR T CMC & Manufacturing from September 2015. Dr. Matcham received his B.Sc. and Ph.D. in biochemistry from Cardiff University. Our board of directors believes that Dr. Matcham is qualified to serve as a director based upon his extensive experience in the biotechnology industry.

R. Kent McGaughy, Jr. has served as a member of our board of directors since June 2020. He has served as a Partner of CPMG, Inc. since 2006. Mr. McGaughty has served on the board of directors of Apollo Endosurgery since January 2012 and Reata Pharmaceuticals Inc. since December 2004. He earned a B.A. from the University of Texas and an M.B.A. from Harvard Business School. Our board of directors believes that Mr. McGaughy is qualified to serve as a director based upon his extensive leadership as an investor in the medical technologies industry and his financial expertise.

Jack Nielsen has served as a member of our board of directors since June 2020. He has served as the Managing Director of Vivo Capital, LLC since August 2017, and previously served as a consultant from March 2017 to July 2017. Prior to joining Vivo Capital, LLC, Mr. Nielsen worked within the Novo Holdings A/S organization and its venture activities since 2001 in several roles, most recently as a Senior Partner from until February 2017. He has served on the boards of directors of Apollo Endosurgery from February 2012 to May 2017, Crinetics Pharmaceuticals, Inc. from February 2017 to November 2019, Merus N.V. from August 2015 to June 2017, ALX Oncology Holdings Inc. since February 2020, Aligos Therapeutics, Inc. since August 2018,

 

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Harmony Biosciences Holdings, Inc. since September 2017 and Reata Pharmaceuticals Inc. since June 2006. Mr. Nielsen earned a master’s degree in management of technology from the Center for Technology, Economics and Management at the Technical University of Denmark and a M.Sc. in chemical engineering from the Technical University of Denmark. Our board of directors believes that Mr. Nielsen is qualified to serve as a director based upon his extensive industry experience, his experience as a venture capital investor and his board service for several companies in the biotechnology industry.

Nimish Shah has served as a member of our board of directors since July 2020. Mr. Shah has served as a Partner at Venrock since July 2013. Mr. Shah received his B.S. from Rutgers College of Pharmacy, M.B.A. from Columbia University and M.P.H. from Columbia University. Our board of directors believes that Mr. Shah is qualified to serve as a director based upon his extensive experience as an investor in the biotechnology industry.

Board Composition

Our business and affairs are managed under the direction of our board of directors, which currently consists of seven members. Our directors were elected to, and currently serve on, the board pursuant to a voting agreement among us and all of our stockholders and voting rights granted by our current amended and restated certificate of incorporation. The voting agreement will terminate upon the closing of this offering, after which there will be no further contractual obligations regarding the election of our directors.

In accordance with our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect upon the closing of this offering, our board of directors will be divided into three classes, each of which will consist, as nearly as possible, of one-third of the total number of directors constituting our entire board and which will serve staggered three-year terms. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Our directors will be divided among the three classes as follows:

 

•

Class I, which will consist of                and                , and their terms will expire at our first annual meeting of stockholders to be held after the closing of this offering;

 

•

Class II, which will consist of                and                , and their terms will expire at our second annual meeting of stockholders to be held after the closing of this offering; and

 

•

Class III, which will consist of                and                , and their terms will expire at our third annual meeting of stockholders to be held after the closing of this offering.

Our amended and restated bylaws, which will become effective upon the closing of this offering, will provide that the authorized number of directors may be changed only by resolution approved by a majority of our board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change of control.

Director Independence

Applicable Nasdaq rules, or the Nasdaq Listing Rules, require a majority of a listed company’s board of directors to be composed of independent directors within one year of listing. In addition, the Nasdaq Listing Rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act of 1934, as amended, or the Exchange Act. The Nasdaq independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees, that neither the director nor any of his family members

 

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has engaged in various types of business dealings with us and that the director is not associated with the holders of more than 5% of our common stock. In addition, 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.

Our board of directors has determined that all of our directors other than                , representing                 of our                 directors, are “independent directors” as defined under applicable Nasdaq rules. In making such determination, our board of directors considered the current and prior relationships that each such director has with our company and all other facts and circumstances that our board of directors deemed relevant in determining his or her independence, including the beneficial ownership of our capital stock by each director and the transactions described in the section titled “Certain Relationships and Related Party Transactions.”

There are no family relationships among any of our directors or executive officers.

Role of the Board in Risk Oversight

One of the key functions of our board of directors is informed oversight of our risk management process. Our board of directors does not have a standing risk management committee, but rather administers this oversight function directly through the board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure. Following the completion of this offering, we intend for our audit committee to have the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The audit committee will also monitor compliance with legal and regulatory requirements.

Board Committees

Our board of directors has established an audit committee, compensation committee and a nominating and corporate governance committee, each of which operate pursuant to a committee charter. Our board of directors may establish other committees to facilitate the management of our business. The composition and functions of each committee are described below.

Audit Committee

Upon the completion of this offering, our audit committee will consist of                 ,                 and                 , with                 serving as chair of the audit committee. Our board of directors has determined that each of these individuals meets the independence requirements of Rule 10A-3 under the Securities Exchange Act of 1934, or the Exchange Act, and the applicable listing standards of Nasdaq. Each member of our audit committee can read and understand fundamental financial statements in accordance with Nasdaq audit committee requirements. Our board of directors has also determined that                 qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of the Nasdaq Listing Rules. In arriving at these determinations, the board has examined each audit committee member’s scope of experience and the nature of their prior and/or current employment.

The functions of this committee include, among other things:

 

•

helping our board of directors oversee our corporate accounting and financial reporting processes;

 

•

managing the selection, engagement, qualifications, independence and performance of a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;

 

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•

discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and the independent accountants, our interim and year-end operating results;

 

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developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters;

 

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reviewing related person transactions;

 

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obtaining and reviewing a report by the independent registered public accounting firm at least annually that describes our internal quality control procedures, any material issues with such procedures and any steps taken to deal with such issues when required by applicable law; and

 

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approving or, as permitted, pre-approving, audit and permissible non-audit services to be performed by the independent registered public accounting firm.

We believe that the composition and functioning of our audit committee will comply with all applicable SEC and Nasdaq rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

Compensation Committee

Upon the completion of this offering, our compensation committee will consist of                     ,                      and                 , with                  serving as chair of the compensation committee. Each of these individuals is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act. Our board of directors has determined that each of these individuals is ‘‘independent’’ as defined under the applicable listing standards of Nasdaq, including the standards specific to members of a compensation committee. The functions of this committee include, among other things:

 

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reviewing, modifying and approving (or if it deems appropriate, making recommendations to the full board of directors regarding) our overall compensation strategy and policies;

 

•

making recommendations to the full board of directors regarding the compensation and other terms of employment of our executive officers;

 

•

reviewing and making recommendations to the full board of directors regarding performance goals and objectives relevant to the compensation of our executive officers and assessing their performance against these goals and objectives;

 

•

reviewing and approving (or if it deems it appropriate, making recommendations to the full board of directors regarding) the equity incentive plans, compensation plans and similar programs advisable for us, as well as modifying, amending or terminating existing plans and programs;

 

•

evaluating risks associated with our compensation policies and practices and assessing whether risks arising from our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on us;

 

•

reviewing and making recommendations to the full board of directors regarding the type and amount of compensation to be paid or awarded to our non-employee board members;

 

•

establishing policies with respect to votes by our stockholders to approve executive compensation to the extent required by Section 14A of the Exchange Act and, if applicable, determining our recommendations regarding the frequency of advisory votes on executive compensation;

 

•

reviewing and assessing the independence of compensation consultants, legal counsel and other advisors as required by Section 10C of the Exchange Act;

 

•

administering our equity incentive plans;

 

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•

establishing policies with respect to equity compensation arrangements;

 

•

reviewing the competitiveness of our executive compensation programs and evaluating the effectiveness of our compensation policy and strategy in achieving expected benefits to us;

 

•

reviewing and making recommendations to the full board of directors regarding the terms of any employment agreements, severance arrangements, change in control protections and any other compensatory arrangements for our executive officers;

 

•

reviewing with management and approving our disclosures under the caption “Compensation Discussion and Analysis” in our periodic reports or proxy statements to be filed with the SEC, to the extent such caption is included in any such report or proxy statement;

 

•

preparing the report that the SEC requires in our annual proxy statement; and

 

•

reviewing and evaluating on an annual basis the performance of the compensation committee and the compensation committee charter.

We believe that the composition and functioning of our compensation committee will comply with all applicable SEC and Nasdaq rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

Nominating and Corporate Governance Committee

Upon the completion of this offering, our nominating and corporate governance committee will consist of                ,                and                                  , with                serving as chair of the nominating and corporate governance committee. Our board of directors has determined that each of these individuals is ‘‘independent’’ as defined under the applicable listing standards of Nasdaq and SEC rules and regulations. The functions of this committee include, among other things:

 

•

identifying, reviewing and evaluating candidates to serve on our board of directors;

 

•

determining the minimum qualifications for service on our board of directors;

 

•

evaluating director performance on the board and applicable committees of the board and determining whether continued service on our board is appropriate;

 

•

evaluating, nominating and recommending individuals for membership on our board of directors;

 

•

evaluating nominations by stockholders of candidates for election to our board of directors;

 

•

considering and assessing the independence of members of our board of directors;

 

•

developing a set of corporate governance policies and principles and recommending to our board of directors any changes to such policies and principles;

 

•

reviewing and making recommendations to the board of directors with respect to management succession planning;

 

•

considering questions of possible conflicts of interest of directors as such questions arise; and

 

•

reviewing and evaluating on an annual basis the performance of the nominating and corporate governance committee and the nominating and corporate governance committee charter.

We believe that the composition and functioning of our nominating and corporate governance committee will comply with all applicable SEC and Nasdaq rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

Compensation Committee Interlocks and Insider Participation

None of our directors who serve as a member of our compensation committee is, or has at any time during the past year been, one of our officers or employees. None of our executive officers currently serves, or in the

 

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past year has served, as a member of the board of directors or compensation committee of any other entity that has one or more executive officers serving on our board of directors or compensation committee.

Code of Business Conduct and Ethics

Effective upon the closing of this offering, we will adopt a Code of Business Conduct and Ethics, or the Code of Conduct, applicable to all of our employees, executive officers and directors. This includes our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. Following the closing of this offering, the full text of the Code of Conduct will be available on our website at instilbio.com. We intend to post on our website all disclosures that are required by law or the listing standards of the Nasdaq Stock Market concerning any amendments to, or waivers from, any provision of the Code of Conduct. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus. We have included our website in this prospectus solely as an inactive textual reference.

Non-Employee Director Compensation

During the year ended December 31, 2020, we paid each non-employee director an annual cash retainer of $45,000 for serving on our board of directors. In addition, effective January 6, 2021, each non-employee director, and each new non-employee director who joins our board of directors after January 6, 2021, is entitled to be granted a stock option to purchase 60,000 shares of our common stock under our 2018 Plan, with the shares vesting in 36 equal monthly installments, subject to continued service as a director through the vesting date, which we refer to as the initial grant. Each subsequent fiscal year after a non-employee director receives an initial grant and subject to the approval of the board of directors, each non-employee director is entitled to be granted a stock option to purchase 30,000 shares of our common stock under our 2018 Plan, with the shares vesting in 12 equal monthly installments, subject to continued service as a director through the vesting date, which we refer to as the annual grant. The exercise price per share of each of the initial grant and annual grant will be equal to the fair market value of the underlying shares of our common stock, as determined by the board of directors, with a term of ten years from the date of grant, subject to earlier termination in connection with a termination of the eligible director’s continuous service with us.

Dr. Gwendolyn Binder, a current member of our board of directors, provided advisory services to our company during 2020 pursuant to an advisory agreement. Under that agreement, we paid Dr. Binder $20,000 during 2020.

Dr. Neil Gibson, a current member of our board of directors, provided advisory services to our company during 2020 pursuant to an advisory agreement. Under that agreement, we paid Dr. Gibson $59,400 during 2020.

Dr. George Matcham, a current member of our board of directors, provided consulting services to our company during 2020 pursuant to a consulting agreement with Matcham, LLC, an entity controlled by Dr. Matcham. Under that agreement, we issued Matcham, LLC 500,000 shares of common stock on September 20, 2018 at a purchase price of $0.000001 per share as compensation for consulting services to be provided to the Company by Dr. Matcham. We retained a right to repurchase unvested shares under this award. 20% of these shares vested on the date of purchase, and the remaining 80% vest monthly in substantially equal installments over a 36-month period commencing on April 20, 2019, subject to Dr. Matcham’s continuous service as an employee, director or consultant as of each such vesting date. In the event of a change in control transaction, the vesting of the shares accelerates and our right to repurchase any unvested shares terminates with respect to any unvested shares.

Dr. Robert Hawkins, a former member of our board of directors, served as our Chief Strategy Advisor during 2020 pursuant to an advisory agreement. Under that agreement, we paid Dr. Hawkins $218,720 during 2020, and the board of directors granted Dr. Hawkins an option to purchase 336,847 shares, at an exercise price

 

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of $1.38 per share, on August 6, 2020. 25% of the shares subject to this option vest July 1, 2021, and the remaining 75% of the shares subject to the option vest over the subsequent 3-year period in substantially equal monthly installments at a rate of 1/48th of the total shares subject to the option each month, subject to Dr. Hawkins’ continuous service as of each such vesting date.

Dr. Margo Roberts, a former member of our board of directors, provided consulting services to our company during 2020 pursuant to a consulting agreement. Under that agreement, we issued Dr. Roberts 500,000 shares of common stock on September 13, 2018 at a purchase price of $0.000001 per share as compensation for her consulting services. We retained a right to repurchase unvested shares under this award. 20% of the shares vested on the date of the award, and the remaining 80% vested monthly in substantially equal installments over a 36-month period commencing on April 13, 2019, subject to Dr. Roberts’ continuous service as an employee, director or consultant as of each such vesting date. In the event of a change in control transaction, the vesting of the shares accelerates and our right to repurchase any unvested shares terminates with respect to any unvested shares. We terminated this consulting agreement upon Dr. Roberts’ resignation from the board of directors in April 2020, and the shares subject to Dr. Roberts’ award ceased vesting as of that date.

2020 Director Compensation Table

The following table sets forth information regarding the compensation earned for service on our board of directors in 2020 by our non-employee directors. Bronson Crouch, our Chief Executive Officer, is also a member of our board of directors but did not receive any additional compensation for service as a director.

 

Name		Fees Earned or Paid in Cash ($)				Option and Stock Awards ($)(1)(2)				All Other Compensation ($)(3)				Total ($)
Gwendolyn Binder, Ph.D.			22,500				—				20,000				42,500
Neil Gibson, Ph.D.			22,500				—				59,400				81,900
Robert Hawkins, MBBS FRCP, Ph.D. (4)			—				464,848				218,720	(5)			683,568
George Matcham, Ph.D.			22,500				—				—				22,500
R. Kent McGaughy, Jr.			22,500				—				—				22,500
Jack Nielsen			22,500				—				—				22,500
Margo Roberts, Ph.D. (6)			—				—				—				—
Nimish Shah			—				—				—				—

 

(1)

The amounts disclosed represent the aggregate grant date fair value of the stock options granted under our 2018 Plan, computed in accordance with ASC Topic 718. The assumptions used in calculating the grant date fair value of the stock options are set forth in the notes to our financial statements included elsewhere in this prospectus. This amount does not reflect the actual economic value that may be realized by the named executive officers.

 

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(2)	The table below shows the aggregate number of option and stock awards outstanding for each of our directors who is not a named executive officer, as of December 31, 2020:

 

Name		Number of Outstanding Options				Number of Unvested Stock Awards
Gwendolyn Binder, Ph.D.			10,000				—
Neil Gibson, Ph.D.			—				—
Robert Hawkins, MBBS FRCP, Ph.D.			336,847				—
George Matcham, Ph.D.			—				166,667	*
R. Kent McGaughy, Jr.			—				—
Jack Nielsen			—				—
Margo Roberts, Ph.D.			—				—
Nimish Shah			—				—
*  These shares are held by Matcham LLC, an entity controlled by Dr. Matcham.

 

(3)	This amount represents cash consulting fees paid during 2020, as described above.

(4)	Dr. Hawkins resigned from our board of directors on June 30, 2020.

(5)	This amount represents compensation in the amount of £320,000 converted to U.S. dollars at a weighted average conversion rate of 1.37.

(6)	Dr. Roberts resigned from our board of directors on April 9, 2020.

 

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EXECUTIVE COMPENSATION

This section provides a summary of the compensation of our “named executive officers,” who are the three executive officers listed in the “Summary Compensation Table” below. In addition to presenting quantitative compensation information in the tables below, this section also provides a qualitative description of the material factors helpful to an understanding of such data.

Summary Compensation Table

The following table sets forth information regarding compensation awarded to, earned by and paid to our named executive officers with respect to the year ended December 31, 2020.

 

Name and Principal Position		Salary ($)(1)				Option Awards ($)(2)				Non-Equity Incentive Plan Compensation ($)(3)				All Other Compensation ($)(4)				Total ($)
Bronson Crouch (5)  Chief Executive Officer and Chairman			437,500				3,360,350				1,926,250				9,583				5,733,683
Zachary Roberts, M.D., Ph.D. Chief Medical Officer			348,438				1,385,060				462,256				—				2,195,754
Sandeep Laumas, M.D. Chief Financial Officer and Chief Business Officer			245,833				726,560				393,345				—				1,365,738

 

(1)

Each named executive officer’s base salary is a fixed component of annual compensation for performing specific duties and functions, and has been established taking into account each individual’s roles, responsibilities, skills and expertise. In 2020, we paid annual base salaries of $300,000, $450,000 and $425,000 to each of Mr. Crouch and Drs. Roberts and Laumas, respectively. For Drs. Roberts and Laumas, the amounts shown represent the pro rata portion of each named executive officer’s annual salary earned during 2020 from commencement of his employment in March 2020 and June 2020, respectively, through December 31, 2020. Mr. Crouch’s base salary was increased to $575,000 effective July 1, 2020.

(2)

This column reflects the aggregate grant date fair value of option awards granted during the year measured pursuant to Financial Accounting Standard Board Accounting Standards Codification Topic 718, the basis for computing stock-based compensation in our financial statements. This calculation assumes that the named executive officer will perform the requisite service for the award to vest in full as required by SEC rules. The assumptions we used in valuing options are described in note to our audited financial statements appearing elsewhere in this prospectus. These amounts do not reflect the actual economic value that will be realized by the named executive officer upon vesting of the stock options, the exercise of the stock options or the sale of the common stock underlying such stock options.

(3)

Represents (i) special performance-based bonuses awarded based upon the achievement of certain special individual and company performance milestones as determined by our board of directors in the amount of $1,552,500, $275,475 and $269,338 for each of Mr. Crouch and Drs. Roberts and Laumas, respectively, and (ii) annual performance bonuses calculated as a target percentage of their annual base salary and based upon the achievement of 2020 individual and company performance milestones as determined by our board of directors in the amount of $373,750, $186,781 and $124,007 for each of Mr. Crouch and Drs. Roberts and Laumas, respectively. See “—Agreements with our Named Executive Officers and Potential Payments Upon Termination of Employment.”

(4)	Represents employer contributions to retirement plans. See “—Retirement Benefits and Other Compensation.”

(5)	Mr. Crouch is also our Chairman, but he did not receive any additional compensation in his capacity as a director in 2020.

 

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Outstanding Equity Awards at December 31, 2020

The following table sets forth certain information about outstanding equity awards granted to our named executive officers that were outstanding as of December 31, 2020.

 

		Option Awards(1)
Name		Grant Date				Number of Securities Underlying Unexercised Options (#) Exercisable				Number of Securities Underlying Unexercised Options (#) Unexercisable				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options				Option Exercise Price($)(2)				Option Expiration Date
Bronson Crouch			9/6/2019				37,812				794,063	(3)			—				0.41				9/5/2029
			8/6/2020				—				2,435,036	(4)			—				1.38				8/5/2030
Zachary Roberts, M.D., Ph.D.			5/9/2020				100,000				450,000	(5)			350,000	(6)			1.00				5/8/2030
			8/6/2020				—				351,493	(4)			—				1.38				8/5/2030
Sandeep Laumas, M.D.			9/6/2019				995,834				262,500	(7)			—				0.41				9/5/2029
			8/6/2020				—				526,493	(4)			—				1.38				8/5/2030

 

(1)	All of the awards listed in this table were granted under our 2018 Plan.

(2)	All of the option awards listed in the table were granted with a per share exercise price equal to or above the estimated fair value of our common stock on the date of grant, as determined in good faith by our board of directors.

(3)

25% of the shares subject to this award vested upon the date of grant, with the remaining shares vesting in equal monthly installments over the three years thereafter, in each case subject to Mr. Crouch’s continued service, provided that the option will vest in full immediately prior to the first to occur of a change in control or a strategic transaction structured as a merger and become immediately exercisable for the full ten-year term of the option.

(4)	25% of the shares subject to this award will vest on July 1, 2021, with the remaining shares vesting in equal monthly installments over the three years thereafter, in each case subject to the named executive officer’s continued service.

(5)

100,000 of the shares subject to this award vested in full upon the closing of the Series B convertible preferred stock financing in June 2020. 450,000 of the shares subject to this award vest, with respect to the first 25% of such shares upon Dr. Roberts’ completion of 12 months of continuous service after March 3, 2020, with the remainder of such shares vesting in equal monthly installments over the three years thereafter, in each case subject to Dr. Roberts’ continued service.

(6)

100,000 of the shares subject to this award will vest in full upon the acceptance of an investigational new drug application or equivalent by regulatory authorities before June 30, 2021 using unmodified TILs in metastatic melanoma. 75,000 of the shares subject to this award will vest in full upon the acceptance of an investigational new drug application or equivalent by regulatory authorities before June 30, 2021 using engineered TILs in an oncology indication if we make a strategic decision to not pursue a near-term clinical program using unmodified TILs in metastatic melanoma. 100,000 of the shares subject to this award will vest in full upon the enrollment of the first patient in a registrational clinical trial or a registrational cohort of a product candidate of unmodified TILs in metastatic melanoma before June 30, 2021. 75,000 of the shares subject to this award will vest in full upon the enrollment of the first patient into a clinical trial using engineered TILs in a solid or hematologic tumor indication before December 31, 2021 if we make the strategic decision to not pursue a near-term clinical program using unmodified TIL in metastatic melanoma.

(7)

600,000 of the shares subject to this award vested with respect to the first 25% of such shares immediately on the date of grant, with the remainder of such shares vesting in equal monthly installments over the three years thereafter, in each case subject to Dr. Laumas’ continued service, provided that the option will vest in full immediately prior to the first to occur of a change in control or a strategic transaction structured as a merger and become immediately exercisable for the full ten-year term of the option. 658,334 of the shares subject to this award vested in full upon the closing of the Series B convertible preferred stock financing in June 2020.

 

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Agreements with our Named Executive Officers and Potential Payments upon Termination of Employment

We have entered into employment agreements with each of our named executive officers. The agreements generally provide for employment without any specific term and set forth the named executive officer’s base salary, bonus potential, eligibility for employee benefits and severance benefits upon a qualifying termination of employment, subject to certain confidentiality, non-solicitation and non-competition provisions. Any potential payments and benefits due upon a qualifying termination of employment or a change in control are further described below.

Bronson Crouch

In June 2020, we entered into an amended and restated executive employment agreement with Mr. Crouch that was effective as of the closing of the first sale of our Series B convertible preferred stock, or the Crouch Effective Date, pursuant to which Mr. Crouch serves as our Chief Executive Officer and as an employee at-will. Under his amended and restated executive employment agreement, Mr. Crouch is entitled to an annual base salary of $575,000, which base salary will be reviewed and may be adjusted by the board of directors on an annual basis. Additionally, Mr. Crouch is eligible to receive an annual performance bonus with a target equal to 65% of his then-current base salary, contingent upon satisfaction of individual performance goals. In 2020, we paid Mr. Crouch an annual performance bonus of $373,750 based upon the achievement of 2020 individual and company performance milestones as determined by our board of directors and a special performance-based bonus of $1,552,500 based upon the achievement of certain special individual and company performance milestones as determined by our board of directors. As contemplated by his amended and restated executive employment agreement, Mr. Crouch was granted an option to acquire 2,435,036 shares of our common stock in June 2020 pursuant to our 2018 Plan, which grant vests as to 25% of the shares on the one-year anniversary of the Crouch Effective Date, with the remainder vesting monthly over the following 36 months such that it will be vested in full on the four-year anniversary of the Crouch Effective Date, subject to Mr. Crouch’s continuous service through such vesting dates. Under Mr. Crouch’s amended and restated executive employment agreement, 100% of the unvested shares subject to all stock options vest immediately prior to the closing of a change in control as defined in the 2018 Plan.

Under Mr. Crouch’s amended and restated executive employment agreement, if he resigns for “good reason” or we terminate Mr. Crouch’s employment without “cause” not in connection with a change in control (each as defined in the amended and restated executive employment agreement, and excluding a termination on account of Mr. Crouch’s death or disability), Mr. Crouch shall be eligible to receive the following severance benefits:

 

•

an amount equal to 18 months of his annual base salary;

 

•

payment for health premiums until the earlier of (i) 18 months; (ii) the date he becomes eligible for substantially equivalent health benefits; or (iii) the date he ceases to be eligible for COBRA continuation coverage at the level existing on the termination date; and

 

•

12 months of accelerated vesting of all outstanding unvested time-based equity awards.

Under Mr. Crouch’s amended and restated executive employment agreement, if he resigns for “good reason” or we terminate Mr. Crouch’s employment without “cause” within three months prior to or twelve months following the effective date of a change in control (each as defined in the amended and restated executive employment agreement, and excluding a termination on account of Mr. Crouch’s death or disability), Mr. Crouch shall be eligible to receive the following severance benefits:

 

•

an amount equal to 18 months of his annual base salary;

 

•

payment for health premiums until the earlier of (i) 18 months; (ii) the date he becomes eligible for substantially equivalent health benefits; or (iii) the date he ceases to be eligible for COBRA continuation coverage at the level existing on the termination date;

 

•

an amount equal to 1.5 times his full target bonus for the calendar year in which his termination occurs (which shall be equivalent to 97.5% of his then-current base salary); and

 

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•

effective as of the later of his change in control termination date or the effective date of the change in control, the vesting and exercisability of all outstanding unvested equity awards held by Mr. Crouch shall be accelerated in full.

As a condition to receiving the foregoing severance benefits, Mr. Crouch must sign and not revoke a general release contained in a separation agreement in the form presented by us, return all company property and confidential information in his possession, comply with his post-termination obligations, and resign from any positions held with us.

Under Mr. Crouch’s amended and restated employment agreement, if payments and benefits payable to Mr. Crouch in connection with a change in control are subject to Section 4999 of the Internal Revenue Code of 1986, as amended, or the Code, then such payments and benefits will either be reduced to an amount determined by us in good faith to be the maximum amount that may be provided to Mr. Crouch so that the Section 4999 excise tax does not apply or provided in full, such that Mr. Crouch receives the greater economic benefit notwithstanding that some or all of the payment or benefit may be subject to excise tax.

Zachary Roberts, M.D., Ph.D.

In June 2020, we entered into an amended and restated executive employment agreement with Dr. Roberts that was effective as of the closing of the first sale of our Series B convertible preferred stock, or the Roberts Effective Date, pursuant to which Dr. Roberts serves as our Chief Medical Officer and as an employee at-will. Under his amended and restated executive employment agreement, Dr. Roberts is entitled to an annual base salary of $450,000, which base salary will be reviewed and may be adjusted by the board of directors on an annual basis. Additionally, Dr. Roberts is eligible to receive an annual performance bonus with a target equal to 50% of his then-current base salary, contingent upon satisfaction of individual performance goals. In 2020, we paid Dr. Roberts an annual performance bonus of $186,781 based upon the achievement of 2020 individual and company performance milestones as determined by our board of directors and a special performance-based bonus of $275,475 based upon the achievement of certain special individual and company performance milestones as determined by our board of directors. Further, Dr. Roberts is eligible for milestones bonuses as follows:

 

•

if, prior to June 30, 2021, our investigational new drug application or equivalent is accepted by a regulatory authority using unmodified TILs in metastatic melanoma, Dr. Roberts shall be paid a bonus of $50,000, subject to taxes and withholdings, and paid on the first payroll date following such acceptance of the investigational new drug application or equivalent;

 

•

if, prior to June 30, 2021, a first patient is enrolled in a registrational clinical trial or a registrational cohort using unmodified TILs in metastatic melanoma, Dr. Roberts shall be paid a bonus of $50,000, subject to taxes and withholdings, and paid on the first payroll date following such patient’s enrollment.

As contemplated by his amended and restated executive employment agreement, Dr. Roberts was granted an option to acquire 351,493 shares of our common stock in June 2020 pursuant to our 2018 Plan, which grant vests as to 25% of the shares on the one-year anniversary of the Roberts Effective Date, with the remainder vesting monthly over the following 36 months such that it will be vested in full on the four-year anniversary of the Roberts Effective Date, subject to Dr. Roberts’s continuous service through such vesting dates.

Under Dr. Roberts’s amended and restated executive employment agreement, if he resigns for “good reason” or we terminate Dr. Roberts’s employment without “cause” not in connection with a change in control (each as defined in the amended and restated executive employment agreement, and excluding a termination on account of Dr. Roberts’s death or disability), Dr. Roberts shall be eligible to receive the following severance benefits:

 

•

an amount equal to 12 months of his annual base salary;

 

•

payment for health premiums until the earlier of (i) 12 months; (ii) the date he becomes eligible for substantially equivalent health benefits; or (iii) the date he ceases to be eligible for COBRA continuation coverage at the level existing on the termination date; and

 

•

6 months of accelerated vesting of all outstanding unvested time-based equity awards.

 

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Under Dr. Roberts’s amended and restated executive employment agreement, if he resigns for “good reason” or we terminate Dr. Roberts’s employment without “cause” within three months prior to or twelve months following the effective date of a change in control (each as defined in the amended and restated executive employment agreement, and excluding a termination on account of Dr. Roberts’s death or disability), Dr. Roberts shall be eligible to receive the following severance benefits:

 

•

an amount equal to 12 months of his annual base salary;

 

•

payment for health premiums until the earlier of (i) 12 months; (ii) the date he becomes eligible for substantially equivalent health benefits; or (ii) the date he ceases to be eligible for COBRA continuation coverage at the level existing on the termination date;

 

•

an amount equal to his full target bonus for the calendar year in which his termination occurs (which shall be equivalent to 50% of his then-current base salary); and

 

•

effective as of the later of his change in control termination date or the effective date of the change in control, the vesting and exercisability of all outstanding unvested equity awards held by Dr. Roberts shall be accelerated in full.

As a condition to receiving the foregoing severance benefits, Dr. Roberts must sign and not revoke a general release contained in a separation agreement in the form presented by us, return all company property and confidential information in his possession, comply with his post-termination obligations, and resign from any positions held with us.

Under Dr. Roberts’s amended and restated employment agreement, if payments and benefits payable to Dr. Roberts in connection with a change in control are subject to Section 4999 of the Code, then such payments and benefits will either be reduced to an amount determined by us in good faith to be the maximum amount that may be provided to Dr. Roberts so that the Section 4999 excise tax does not apply or provided in full, such that Dr. Roberts receives the greater economic benefit notwithstanding that some or all of the payment or benefit may be subject to excise tax.

Sandeep Laumas, M.D.

Dr. Laumas provided consulting services to our company during 2020 pursuant to a consulting agreement with 360 Analytics LLC, an entity controlled by Dr. Laumas. Under that agreement, we issued Dr. Laumas an option to purchase 600,000 shares of common stock on September 19, 2019 at an exercise price of $0.41 per share as compensation for consulting services to be provided by Dr. Laumas. 25% of the shares subject to this option vested immediately, and the remaining shares vest in substantially equal installments over the following three-year period, subject to Dr. Laumas’s continuous service through 360 Analytics, LLC. In the event of a change in control or a strategic transaction defined as a merger, the vesting of the shares accelerate and become immediately exercisable. The consulting agreement was terminated upon Dr. Laumas becoming our Chief Business Officer in June 2020, and vesting of the option award was continued pursuant to Dr. Laumas’ offer letter, as approved by our board of directors.

In June 2020, we entered into an amended and restated executive employment agreement with Dr. Laumas that was effective as of the closing of the first sale of our Series B convertible preferred stock, or the Laumas Effective Date, pursuant to which Dr. Laumas serves as our Chief Business Officer and Executive Vice President and as an employee at-will. Dr. Laumas was appointed our Chief Financial Officer in February 2021. Under his amended and restated executive employment agreement, Dr. Laumas is entitled to an annual base salary of $425,000, which base salary will be reviewed and may be adjusted by the board of directors on an annual basis. Additionally, Dr. Laumas is eligible to receive an annual performance bonus with a target equal to 50% of his then-current base salary, contingent upon satisfaction of individual performance goals. In 2020, we paid Dr. Laumas an annual performance bonus of $124,007 based upon the achievement of 2020 individual and company performance milestones as determined by our board of directors and a special performance-based bonus of $269,338 based upon the achievement of certain special individual and company performance milestones as determined by our board of directors. As contemplated by his amended and restated executive employment agreement, Dr. Laumas was granted an option to acquire 526,493 shares of our common shares in June 2020 pursuant to our 2018 Plan, which grant

 

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vests as to 25% of the shares on the one-year anniversary of the Laumas Effective Date, with the remainder vesting monthly over the following 36 months such that it will be vested in full on the four-year anniversary of the Laumas Effective Date, subject to Dr. Laumas’ continuous service through such vesting dates.

Under Dr. Laumas’ amended and restated executive employment agreement, if he resigns for “good reason” or we terminate Dr. Laumas’ employment without “cause” not in connection with a change in control (each as defined in the amended and restated executive employment agreement, and excluding a termination on account of Dr. Laumas’ death or disability), Dr. Laumas shall be eligible to receive the following severance benefits:

 

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an amount equal to 12 months of his annual base salary;

 

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payment for health premiums until the earlier of (i) 12 months; (ii) the date he becomes eligible for substantially equivalent health benefits; or (iii) the date he ceases to be eligible for COBRA continuation coverage at the level existing on the termination date; and

 

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6 months of accelerated vesting of all outstanding unvested time-based equity awards.

Under Dr. Laumas’ amended and restated executive employment agreement, if he resigns for “good reason” or we terminate Dr. Laumas’ employment without “cause” within three months prior to or twelve months following the effective date of a change in control (each as defined in the amended and restated executive employment agreement, and excluding a termination on account of Dr. Laumas’ death or disability), Dr. Laumas shall be eligible to receive the following severance benefits:

 

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an amount equal to 12 months of his annual base salary;

 

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payment for health premiums until the earlier of (i) 12 months; (ii) the date he becomes eligible for substantially equivalent health benefits; or (ii) the date he ceases to be eligible for COBRA continuation coverage at the level existing on the termination date;

 

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an amount equal to his full target bonus for the calendar year in which his termination occurs (which shall be equivalent to 50% of his then-current base salary); and

 

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effective as of the later of his change in control termination date or the effective date of the change in control, the vesting and exercisability of all outstanding unvested equity awards held by Dr. Laumas shall be accelerated in full.

As a condition to receiving the foregoing severance benefits, Dr. Laumas must sign and not revoke a general release contained in a separation agreement in the form presented by us, return all company property and confidential information in his possession, comply with his post-termination obligations, and resign from any positions held with us.

Under Dr. Laumas’ amended and restated employment agreement, if payments and benefits payable to Dr. Laumas in connection with a change in control are subject to Section 4999 of the Code, then such payments and benefits will either be reduced to an amount determined by us in good faith to be the maximum amount that may be provided to Dr. Laumas so that the Section 4999 excise tax does not apply or provided in full, such that Dr. Laumas receives the greater economic benefit notwithstanding that some or all of the payment or benefit may be subject to excise tax.

Retirement Benefits and Other Compensation

Our named executive officers were eligible to participate in our employee benefits, including health insurance and group life insurance benefits, on the same basis as our other employees. We maintain an employee savings plan pursuant to Section 401(k) of the Code covering all eligible employees. We have elected to make non-elective contributions totaling to 3% of an eligible employee’s gross salary. Mr. Crouch received 3% non-elective contributions once the plan became active in 2020. We generally do not provide other perquisites or personal benefits except in limited circumstances, and we did not provide any such perquisites or personal benefits to our named executive officers in 2020.

 

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Equity Incentive Plans

2021 Equity Incentive Plan

Our board of directors adopted, and our stockholders approved, our 2021 Equity Incentive Plan, or the 2021 Plan, in                , 2021. Our 2021 Plan provides for the grant of incentive stock options, or ISOs, to employees, including employees of any parent or subsidiary, and for the grant of nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of stock awards to employees, directors, and consultants, including employees and consultants of our affiliates. Our 2021 Plan is a successor to the 2018 Plan, and will become effective on the execution of the underwriting agreement related to this offering.

Authorized Shares. Initially, the maximum number of shares of our common stock that may be issued under our 2021 Plan after it becomes effective will be                shares, which is the sum of (i)                new shares; plus (ii)                the number of shares that remain available for issuance under the 2018 Plan at the time our 2021 Plan becomes effective; and (iii) any shares subject to outstanding stock options or other stock awards that were granted under the 2018 Plan that are forfeited, terminate, expire or are otherwise not issued. In addition, the number of shares of our common stock reserved for issuance under our 2021 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2022 and continuing through January 1, 2031, in an amount equal to         % of the total number of shares of our capital stock outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by our board of directors. The maximum number of shares of our common stock that may be issued on the exercise of ISOs under our 2021 Plan is                .

Shares subject to stock awards granted under our 2021 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, do not reduce the number of shares available for issuance under our 2021 Plan. Additionally, shares become available for future grant under our 2021 Plan if they were issued under stock awards under our 2021 Plan if we repurchase them or they are forfeited. This includes shares used to pay the exercise price of a stock award or to satisfy the tax withholding obligations related to a stock award.

Plan Administration. Our board of directors, or a duly authorized committee of our board of directors, will administer our 2021 Plan. Our board of directors may also delegate to one or more of our officers the authority to (i) designate employees (other than officers) to receive specified stock awards and (ii) determine the number of shares subject to such stock awards. Under our 2021 Plan, our board of directors has the authority to determine and amend the terms of awards and underlying agreements, including:

 

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recipients;

 

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the exercise, purchase or strike price of stock awards, if any; the number of shares subject to each stock award;

 

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the vesting schedule applicable to the awards, together with any vesting acceleration; and

 

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the form of consideration, if any, payable on exercise or settlement of the award.

Under the 2021 Plan, the board of directors also generally has the authority to effect, with the consent of any adversely affected participant:

 

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the reduction of the exercise, purchase, or strike price of any outstanding award;

 

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the cancellation of any outstanding award and the grant in substitution therefore of other awards, cash, or other consideration; or

 

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any other action that is treated as a repricing under generally accepted accounting principles.

Stock Options. ISOs and NSOs are granted under stock option agreements adopted by the plan administrator. The plan administrator determines the exercise price for stock options, within the terms and conditions of the 2021 Plan, provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2021 Plan vest at the rate specified in the stock option agreement as determined by the plan administrator.

 

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Tax Limitations on ISOs. The aggregate fair market value, determined at the time of grant, of our common stock with respect to ISOs that are exercisable for the first time by an option holder during any calendar year under all of our stock plans may not exceed $100,000. Options or portions thereof that exceed such limit will generally be treated as NSOs. No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless (i) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant; and (ii) the option is not exercisable after the expiration of five years from the date of grant.

Restricted Stock Unit Awards. Restricted stock units are granted under restricted stock unit award agreements adopted by the plan administrator. Restricted stock units may be granted in consideration for any form of legal consideration that may be acceptable to our board of directors and permissible under applicable law. A restricted stock unit may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by the plan administrator, or in any other form of consideration set forth in the restricted stock unit agreement. Additionally, dividend equivalents may be credited in respect of shares covered by a restricted stock unit. Except as otherwise provided in the applicable award agreement, restricted stock units that have not vested will be forfeited once the participant’s continuous service ends for any reason.

Restricted Stock Awards. Restricted stock awards are granted under restricted stock award agreements adopted by the plan administrator. A restricted stock award may be awarded in consideration for cash, check, bank draft or money order, past services to us, or any other form of legal consideration that may be acceptable to our board of directors and permissible under applicable law. The plan administrator determines the terms and conditions of restricted stock awards, including vesting and forfeiture terms. If a participant’s service relationship with us ends for any reason, we may receive any or all of the shares of common stock held by the participant that have not vested as of the date the participant terminates service with us through a forfeiture condition or a repurchase right.

Stock Appreciation Rights. Stock appreciation rights are granted under stock appreciation grant agreements adopted by the plan administrator. The plan administrator determines the purchase price or strike price for a stock appreciation right, which generally cannot be less than 100% of the fair market value of our common stock on the date of grant. A stock appreciation right granted under the 2021 Plan vests at the rate specified in the stock appreciation right agreement as determined by the plan administrator.

Performance Awards. The 2021 Plan permits the grant of performance-based stock and cash awards. The plan administrator may structure awards so that the shares of our stock, cash, or other property will be issued or paid only following the achievement of certain pre-established performance goals during a designated performance period. The performance criteria that will be used to establish such performance goals may be based on any measure of performance selected by the plan administrator. The performance goals may be based on a company-wide basis, with respect to one or more business units, divisions, affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unless specified otherwise (i) in the award agreement at the time the award is granted or (ii) in such other document setting forth the performance goals at the time the goals are established, we will appropriately make adjustments in the method of calculating the attainment of performance goals as follows: (1) to exclude restructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects; (3) to exclude the effects of changes to generally accepted accounting principles; (4) to exclude the effects of any statutory adjustments to corporate tax rates; (5) to exclude the effects of items that are “unusual” in nature or occur “infrequently” as determined under generally accepted accounting principles; (6) to exclude the dilutive effects of acquisitions or joint ventures; (7) to assume that any business divested by us achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; (8) to exclude the effect of any change in the outstanding shares of our common stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends; (9) to exclude the effects of stock based compensation and the award of bonuses under our bonus

 

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plans; (10) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to be expensed under generally accepted accounting principles; (11) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under generally accepted accounting principles; and (12) to exclude the effects of the timing of acceptance for review and/or approval of submissions to the FDA or any other regulatory body. In addition, we retain the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of the goals. The performance goals may differ from participant to participant and from award to award.

Other Stock Awards. The plan administrator may grant other awards based in whole or in part by reference to our common stock. The plan administrator will set the number of shares under the stock award and all other terms and conditions of such awards.

Non-Employee Director Compensation Limit. The aggregate value of all compensation granted or paid to any non-employee director with respect to any calendar year, including stock awards granted and cash fees paid by us to such non-employee director, will not exceed $                 in total value, or in the event such non-employee director is first appointed or elected to the board during such annual period, $                 in total value (in each case, calculating the value of any such stock awards based on the grant date fair value of such stock awards for financial reporting purposes).

Changes to Capital Structure. In the event there is a specified type of change in our capital structure, such as a stock split, reverse stock split, or recapitalization, appropriate adjustments will be made to (i) the class and maximum number of shares reserved for issuance under the 2021 Plan, (ii) the class and maximum number of shares by which the share reserve may increase automatically each year, (iii) the class and maximum number of shares that may be issued on the exercise of incentive stock options, and (iv) the class and number of shares and exercise price, strike price, or purchase price, if applicable, of all outstanding stock awards.

Corporate Transactions. The following applies to stock awards under the 2021 Plan in the event of a corporate transaction, unless otherwise provided in a participant’s stock award agreement or other written agreement with us or one of our affiliates or unless otherwise expressly provided by the plan administrator at the time of grant.

In the event of a corporate transaction, any stock awards outstanding under the 2021 Plan may be assumed, continued or substituted for by any surviving or acquiring corporation (or its parent company), and any reacquisition or repurchase rights held by us with respect to the stock award may be assigned to the successor (or its parent company). If the surviving or acquiring corporation (or its parent company) does not assume, continue or substitute for such stock awards, then with respect to any such stock awards that are held by participants whose continuous service has not terminated prior to the effective time of the transaction, or current participants, the vesting (and exercisability, if applicable) of such stock awards will be accelerated in full to a date prior to the effective time of the transaction (contingent upon the effectiveness of the transaction), and such stock awards will terminate if not exercised (if applicable) at or prior to the effective time of the transaction, and any reacquisition or repurchase rights held by us with respect to such stock awards will lapse (contingent upon the effectiveness of the transaction). With respect to performance awards with multiple vesting levels depending on performance level, unless otherwise provided by an award agreement or by the administrator, the award will accelerate at 100% of target. If the surviving or acquiring corporation (or its parent company) does not assume, continue or substitute for such stock awards, then with respect to any such stock awards that are held by persons other than current participants, such awards will terminate if not exercised (if applicable) prior to the effective time of the transaction, except that any reacquisition or repurchase rights held by us with respect to such stock awards will not terminate and may continue to be exercised notwithstanding the transaction. The plan administrator is not obligated to treat all stock awards or portions of stock awards in the same manner and is not obligated to take the same actions with respect to all participants.

In the event a stock award will terminate if not exercised prior to the effective time of a transaction, the plan administrator may provide, in its sole discretion, that the holder of such stock award may not exercise such stock

 

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award but instead will receive a payment equal in value to the excess (if any) of (i) the value of the property the participant would have received upon the exercise of the stock award over (ii) any exercise price payable by such holder in connection with such exercise.

Change in Control. In the event of a change in control, as defined under our 2021 Plan, awards granted under our 2021 Plan will not receive automatic acceleration of vesting and exercisability, although this treatment may be provided for in an award agreement.

Under our 2021 Plan, a corporate transaction is defined to include: (i) a sale of all or substantially all of our assets; (ii) the sale or disposition of more than 50% of our outstanding securities; (iii) the consummation of a merger or consolidation where we do not survive the transaction; and (iv) the consummation of a merger or consolidation where we do survive the transaction but the shares of our common stock outstanding before such transaction are converted or exchanged into other property by virtue of the transaction, unless otherwise provided in an award agreement or other written agreement between us and the award holder. Under the 2021 Plan, a change in control is defined to include (1) the acquisition by any person or company of more than 50% of the combined voting power of our then outstanding stock; (2) a merger, consolidation or similar transaction in which our stockholders immediately before the transaction do not own, directly or indirectly, more than 50% of the combined voting power of the surviving entity (or the parent of the surviving entity); (3) the approval by the stockholders or the board of directors of a plan of complete dissolution or liquidation of the company, or the occurrence of a complete dissolution or liquidation of the company, except for a liquidation into a parent corporation; (4) a sale, lease, exclusive license or other disposition of all or substantially all of our assets other than to an entity more than 50% of the combined voting power of which is owned by our stockholders; and (5) an unapproved change in the majority of the board of directors.

Transferability. A participant may not transfer stock awards under our 2021 Plan other than by will, the laws of descent and distribution, or as otherwise provided under our 2021 Plan.

Plan Amendment or Termination. Our board of directors has the authority to amend, suspend, or terminate our 2021 Plan, provided that such action does not materially impair the existing rights of any participant without such participant’s written consent. Certain material amendments also require the approval of our stockholders. No incentive stock options may be granted after the tenth anniversary of the date our board of directors adopted our 2021 Plan. No stock awards may be granted under our 2021 Plan while it is suspended or after it is terminated.

2018 Stock Incentive Plan

Our 2018 Stock Incentive Plan, or the 2018 Plan, was originally adopted by our board of directors on September 20, 2018 and approved by our stockholders on October 3, 2018. The 2018 Plan allows for the grant of ISOs to employees, including employees of any parent or subsidiary, and for the grant of NSOs, restricted stock awards, stock appreciation rights, restricted stock units and other forms of stock awards to employees, directors, and consultants, including employees and consultants of our affiliates. Once our 2021 Plan becomes effective, no further grants will be made under the 2018 Plan. Any outstanding awards granted under the 2018 Plan will remain subject to the terms of the 2018 Plan and applicable award agreements.

Authorized Shares. The maximum number of shares of our common stock that may be issued under the 2018 Plan is 5,666,667 shares. Shares subject to stock awards granted under the 2018 Plan that are cancelled, forfeited, settled in cash or that expire by their terms do not reduce the number of shares available for issuance under the 2018 Plan. Additionally, shares used to pay the exercise price of a stock award or to satisfy the tax withholding obligations related to a stock award become available for future grant under the 2018 Plan.

Administration. Our board of directors, or a duly authorized committee thereof, administers the 2018 Plan. Our board of directors may also delegate to one or more of our officers the authority to designate employees, other than such authorized officers, to receive stock awards or to determine the number of shares of our common stock to be subject to such stock awards. Under the 2018 Plan, the plan administrator has the full authority and discretion to take any actions it deems necessary or advisable for the 2018 Plan’s administration.

 

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Stock Options. ISOs and NSOs are granted pursuant to award agreements adopted by the plan administrator. Each award agreement specifies the number of shares subject to the option and the exercise price, provided that the exercise price of a stock option generally cannot be less than 100% (or 110% in the case of ISOs granted to certain stockholders) of the fair market value of our common stock on the date of grant. Options granted under the 2018 Plan vest at the rate specified in the applicable award agreement. Payment for the purchase of common stock issued upon the exercise of a stock option may be made in cash or cash equivalents. However, the plan administrator may also allow for other forms of consideration, including (i) surrendering shares of common stock already owned by a participant, (ii) delivery of a promissory note, (iii) a broker-assisted cashless exercise, (iv) by a “net exercise” arrangement, or (v) by other forms consistent with applicable law. The award agreements specify the term of stock options granted under the 2018 Plan, up to a maximum of 10 years (or five years in the case of ISOs granted to certain stockholders). The plan administrator shall determine the effect on a stock award of the disability, death, retirement, authorized leave of absence, or any other change or purported change in a holder’s status. Unless the plan administrator provides otherwise, stock options generally are not transferable except by will, the laws of descent and distribution.

Changes to Capital Structure. In the event of a subdivision of our outstanding common stock, a declaration of a dividend payable in shares, a declaration of an extraordinary dividend payable in a form other than shares in an amount that has a material effect on the fair market value of our common stock, a combination or consolidation of our outstanding common stock into a lesser number of shares, a recapitalization, a spin-off, a reclassification or similar occurrence, the plan administrator will make appropriate adjustments to the following: (i) the number and class of shares available for future stock awards, (ii) the number and class of shares covered by each outstanding stock award, (iii) the exercise price under each outstanding stock award, and (iv) the price of shares subject to our right of repurchase.

Corporate Transactions. The 2018 Plan provides that in the event of a specified corporate transaction, including without limitation a merger or other consolidation, or the sale or other disposition of all or substantially all of our stock or assets, or in the event of such other corporate transaction, such as a separation or reorganization, the plan administrator will determine how to treat each outstanding stock award. The plan administrator may provide for the:

 

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continuation of stock awards, if we are the surviving corporation;

 

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assumption or substitution, in whole or in part, of a stock award by a successor corporation;

 

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exercisability and settlement, in whole or in part, of stock awards to the extent vested and exercisable under the terms of the award agreement followed by the cancellation of such stock awards (whether or not then vested or exercisable) upon or immediately prior to the effectiveness of the transaction; or

 

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settlement of the intrinsic value of stock awards to the extent vested and exercisable under the terms of the award agreement, with payment made in cash, cash equivalents or property, followed by the cancellation of such stock awards (whether or not then vested or exercisable).

The plan administrator is not obligated to treat all stock awards or portions of stock awards, even those that are of the same type, in the same manner. The plan administrator may take different actions with respect to the vested and unvested portions of a stock award.

Amendment or Termination. Our board has the authority to amend, suspend, or terminate the 2018 Plan at any time and for any reason, provided that such action may not have a material adverse effect on any stock award previously granted under the 2018 Plan without the participant’s consent. Amendment does not require stockholder approval unless such amendment (i) increases the number of shares available for issuance under the 2018 Plan, or (ii) materially changes the class of persons who are eligible for the grant of awards.

2021 Employee Stock Purchase Plan

Our board of directors adopted, and our stockholders approved, our 2021 Employee Stock Purchase Plan, or the ESPP, in                , 2021. The ESPP will become effective on the execution of the underwriting agreement

 

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related to this offering. The purpose of the ESPP is to secure the services of new employees, to retain the services of existing employees, and to provide incentives for such individuals to exert maximum efforts toward our success and that of our affiliates. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code for U.S. employees.

Share Reserve. Following this offering, the ESPP authorizes the issuance of shares of our common stock under purchase rights granted to our employees or to employees of any of our designated affiliates. The ESPP will initially provide participating employees with the opportunity to purchase up to an aggregate of                 shares of our common stock. The number of shares of our common stock reserved for issuance will automatically increase on January 1 of each calendar year, starting on January 1, 2022 and continuing through January 1, 2031, by the lesser of (i)                % of the total number of shares of our common stock outstanding on the last day of the calendar month before the date of the automatic increase; and (ii) shares; provided that before the date of any such increase, our board of directors may determine that such increase will be less than the amount set forth in clauses (i) and (ii). As of the date hereof, no shares of our common stock have been purchased under the ESPP.

Administration. Our board of directors intends to delegate concurrent authority to administer the ESPP to our compensation committee. The ESPP is implemented through a series of offerings under which eligible employees are granted purchase rights to purchase shares of our common stock on specified dates during such offerings. Under the ESPP, we may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of our common stock will be purchased for employees participating in the offering. An offering under the ESPP may be terminated under certain circumstances.

Payroll Deductions. Generally, all regular employees, including executive officers, employed by us or by any of our designated affiliates, may participate in the ESPP and may contribute, normally through payroll deductions, up to    % of their earnings (as defined in the ESPP) for the purchase of our common stock under the ESPP. Unless otherwise determined by our board of directors, common stock will be purchased for the accounts of employees participating in the ESPP at a price per share that is at least the lesser of (i) 85% of the fair market value of a share of our common stock on the first date of an offering; or (ii) 85% of the fair market value of a share of our common stock on the date of purchase.

Limitations. Employees may have to satisfy one or more of the following service requirements before participating in the ESPP, as determined by our board of directors, including: (i) being customarily employed for more than 20 hours per week; (ii) being customarily employed for more than five months per calendar year; or (iii) continuous employment with us or one of our affiliates for a period of time (not to exceed two years). No employee may purchase shares under the ESPP at a rate in excess of $25,000 worth of our common stock based on the fair market value per share of our common stock at the beginning of an offering for each year such a purchase right is outstanding. Finally, no employee will be eligible for the grant of any purchase rights under the ESPP if immediately after such rights are granted, such employee has voting power over 5% or more of our outstanding capital stock measured by vote or value under Section 424(d) of the Code.

Changes to Capital Structure. In the event that there occurs a change in our capital structure through such actions as a stock split, merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, liquidating dividend, combination of shares, exchange of shares, change in corporate structure, or similar transaction, the board of directors will make appropriate adjustments to: (i) the number of shares reserved under the ESPP; (ii) the maximum number of shares by which the share reserve may increase automatically each year; (iii) the number of shares and purchase price of all outstanding purchase rights; and (iv) the number of shares that are subject to purchase limits under ongoing offerings.

Corporate Transactions. In the event of certain significant corporate transactions, including: (i) a sale of all or substantially all of our assets; (ii) the sale or disposition of more than 50% of our outstanding securities;

 

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(iii) the consummation of a merger or consolidation where we do not survive the transaction; and (iv) the consummation of a merger or consolidation where we do survive the transaction but the shares of our common stock outstanding immediately before such transaction are converted or exchanged into other property by virtue of the transaction, any then-outstanding rights to purchase our stock under the ESPP may be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue, or substitute for such purchase rights, then the participants’ accumulated payroll contributions will be used to purchase shares of our common stock within ten business days before such corporate transaction, and such purchase rights will terminate immediately.

Amendment or Termination. Our board of directors has the authority to amend or terminate our ESPP, provided that except in certain circumstances such amendment or termination may not materially impair any outstanding purchase rights without the holder’s consent. We will obtain stockholder approval of any amendment to our ESPP, as required by applicable law or listing requirements.

Limitations on Liability and Indemnification Matters

Upon the closing of this offering, our amended and restated certificate of incorporation will contain provisions that limit the liability of our current and former directors for monetary damages to the fullest extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for any breach of fiduciary duties as directors, except liability for:

 

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any breach of the director’s duty of loyalty to the corporation or its stockholders;

 

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any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

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unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

 

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any transaction from which the director derived an improper personal benefit.

This limitation of liability does not apply to liabilities arising under federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.

Our amended and restated certificate of incorporation and our amended and restated bylaws will provide that we are required to indemnify our directors to the fullest extent permitted by Delaware law. Our amended and restated bylaws will also provide that, upon satisfaction of certain conditions, we are required to advance expenses incurred by a director in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. Our amended and restated bylaws will also provide our board of directors with discretion to indemnify our officers and employees when determined appropriate by the board.

We have entered into indemnification agreements with each of our directors and expect to enter into indemnification agreements with each of our executive officers prior to the closing of this offering. With certain exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and executive officers. We also maintain customary directors’ and officers’ liability insurance.

The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against

 

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our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought and we are not aware of any threatened litigation that may result in claims for indemnification.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, executive officers or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Rule 10b5-1 Sales Plans

Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer when entering into the plan, without further direction from them. The director or officer may amend a Rule 10b5-1 plan in some circumstances and may terminate a plan at any time. Our directors and executive officers also may buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material nonpublic information subject to compliance with the terms of our insider trading policy. Prior to 180 days after the date of this offering, subject to early termination, the sale of any shares under such plan would be prohibited by the lock-up agreement that the director or officer has entered into with the underwriters.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The following is a description of transactions since our inception in August 2018 to which we have been a participant in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or holders of more than 5% of our voting securities, or any members of their immediate family, had or will have a direct or indirect material interest, other than compensation arrangements that are described under “Management—Non-Employee Director Compensation” and “Executive Compensation.”

Private Placements of Our Securities

Series A Convertible Preferred Stock Financing

In March 2019, we entered into a preferred stock purchase agreement with Curative Ventures V LLC, which was amended in May 2020, pursuant to which we issued and sold to Curative Ventures V LLC an aggregate of 25,000,000 shares of our Series A convertible preferred stock at a purchase price of $1.00 per share for aggregate gross proceeds of $25.0 million. The financing closed in March 2019, September 2019 and May 2020.

The table below sets forth the aggregate number of shares of Series A convertible preferred stock issued to our related parties in this financing:

 

Name		Series A Convertible Preferred Stock (#)				Aggregate Purchase Price ($)
Curative Ventures V LLC (1)			25,000,000				25,000,000

 

(1)	Bronson Crouch, our Chief Executive Officer and Chairman, is the Manager of Curative Ventures V LLC and has sole voting and investment power with respect to the shares held by Curative Ventures V LLC. Curative Ventures V LLC holds more than 5% of our capital stock prior to this offering.

Series B Convertible Preferred Stock Financing

In June 2020, we entered into a preferred stock purchase agreement with certain investors, including beneficial owners of greater than 5% of our capital stock, members of our board of directors and affiliates of members of our board of directors, pursuant to which we issued and sold to such investors an aggregate of 34,600,523 shares of our Series B convertible preferred stock at a purchase price of $4.92 per share for aggregate gross proceeds of $170.2 million. The financing closed in June 2020.

The table below sets forth the aggregate number of shares of Series B convertible preferred stock issued to our related parties in this financing:

 

Name		Series B Convertible Preferred Stock (#)				Aggregate Purchase Price ($)
Curative Ventures V LLC (1)			5,082,333				24,999,996
Entities affiliated with Venrock (2)			4,675,747				22,999,999
Ibisbill, LP (3)			5,895,507				28,999,999
Vivo Capital Fund IX, L.P. (4)			9,758,080				47,999,996

 

(1)	Bronson Crouch, our Chief Executive Officer and Chairman, is the Manager of Curative Ventures V LLC and has sole voting and investment power with respect to the shares held by Curative Ventures V LLC. Curative Ventures V LLC holds more than 5% of our capital stock prior to this offering.

 

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(2)	Nimish Shah, a member of our board of directors, is a partner at Venrock. Entities affiliated with Venrock collectively hold more than 5% of our capital stock prior to this offering.

(3)	R. Kent McGaughy, Jr., a member of our board of directors, is affiliated with Ibisbill, LP.

(4)	Jack Nielsen, a member of our board of directors, is affiliated with Vivo Capital Fund IX, L.P.

Series C Convertible Preferred Stock Financing

In December 2020, we entered into a preferred stock purchase agreement with certain investors, including beneficial owners of greater than 5% of our capital stock, members of our board of directors and affiliates of members of our board of directors, pursuant to which we issued and sold to such investors an aggregate of 10,575,523 shares of our Series C convertible preferred stock at a purchase price of $12.58 per share for aggregate gross proceeds of $133.0 million. In January and February 2021, we issued and sold an additional 4,174,551 shares of Series C convertible preferred stock for aggregate gross proceeds of $52.5 million. The financing closed in December 2020, January 2021 and February 2021.

The table below sets forth the aggregate number of shares of Series C convertible preferred stock issued to our related parties in this financing:

 

Name		Series C Convertible Preferred Stock (#)				Aggregate Purchase Price ($)
Curative Ventures V LLC (1)			1,192,729			$	14,299,998
Entities associated with Venrock (2)			795,151			$	9,999,978
Ibisbill, LP (3)			795,152			$	9,999,991
Vivo Capital Fund IX, L.P. (4)			397,576			$	4,999,995

 

(1)	Bronson Crouch, our Chief Executive Officer and Chairman, is the Manager of Curative Ventures V LLC and has sole voting and investment power with respect to the shares held by Curative Ventures V LLC. Curative Ventures V LLC holds more than 5% of our capital stock prior to this offering.

(2)	Nimish Shah, a member of our board of directors, is a partner at Venrock. Entities affiliated with Venrock collectively hold more than 5% of our capital stock prior to this offering.

(3)	R. Kent McGaughy, Jr., a member of our board of directors, is affiliated with Ibisbill, LP.

(4)	Jack Nielsen, a member of our board of directors, is affiliated with Vivo Capital Fund IX, L.P.

Promissory Note with Bronson Crouch

In November 2020, we entered into a limited recourse promissory note with Mr. Crouch, our Chief Executive Officer and Chairman, pursuant to which we loaned him the principal amount of $1,079,581 to early exercise stock options. The note accrued interest at 2.5% compounding annually and could be repaid at any time without penalty. Mr. Crouch repaid the principal amount and accrued interest under this promissory note in full in January 2021.

Investors’ Rights, Voting and Right of First Refusal Agreements

In connection with the sales of convertible preferred stock described above, we entered into an amended and restated investors’ rights agreement, an amended and restated voting agreement and an amended and restated right of first refusal and co-sale agreement containing registration rights, information rights, voting rights and rights of first refusal, among other things, with the holders of our convertible preferred stock. These agreements will terminate upon the closing of this offering, except for the registration rights granted under our amended and restated investors’ rights agreement, as more fully described in the section of this prospectus titled “Description of Capital Stock—Registration Rights.”

 

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Consulting Agreements

We have entered into consulting agreements with certain of our non-employee directors. For more information regarding our employment agreements with our named executive officers, see “Management—Non-Employee Director Compensation.”

Employment Arrangements

We have entered into employment agreements or offer letter agreements with certain of our executive officers. For more information regarding our employment agreements with our named executive officers, see “Executive Compensation.”

Indemnification Agreements

Our amended and restated certificate of incorporation that will be in effect upon the closing of this offering will contain provisions limiting the liability of directors, and our amended and restated bylaws will provide that we will indemnify each of our directors to the fullest extent permitted under Delaware law. Our amended and restated certificate of incorporation and amended and restated bylaws will also provide our board of directors with discretion to indemnify our officers and employees when determined appropriate by the board.

In addition, we have entered into indemnification agreements with each of our directors, and we expect to enter into indemnification agreements with each of our executive officers prior to the closing of this offering. For more information regarding these agreements, see “Executive Compensation—Limitations on Liability and Indemnification Matters.”

Related Person Transaction Policy

Prior to this offering, we have not had a formal policy regarding approval of transactions with related parties. In connection with this offering, we have adopted a related person transaction policy that sets forth our procedures for the identification, review, consideration and approval or ratification of related person transactions, which policy will become effective immediately upon the execution of the underwriting agreement for this offering. For purposes of our policy only, a related person transaction will be a transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we and any related person are, were or will be participants in which the amount involved exceeds $120,000. Transactions involving compensation for services provided to us as an employee or director will not be covered by this policy. A related person will be any executive officer, director or beneficial owner of more than 5% of any class of our voting securities, including any of their immediate family members and any entity owned or controlled by such persons.

Under the policy, if a transaction has been identified as a related person transaction, including any transaction that was not a related person transaction when originally consummated or any transaction that was not initially identified as a related person transaction prior to consummation, our management must present information regarding the related person transaction to our audit committee, or, if audit committee approval would be inappropriate, to another independent body of our board of directors, for review, consideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to us of the transaction and whether the transaction is on terms that are comparable to the terms available to or from, as the case may be, an unrelated third party or to or from employees generally. Under the policy, we will collect information that we deem reasonably necessary from each director, executive officer and, to the extent feasible, significant stockholder to enable us to identify any existing or potential related-person transactions and to effectuate the terms of the policy. In addition, under our Code of Conduct that we expect to adopt prior to the closing of this offering, our employees and directors will have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict of interest. In considering related person transactions, our

 

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audit committee, or other independent body of our board of directors, will take into account the relevant available facts and circumstances including:

 

•

the risks, costs and benefits to us;

 

•

the impact on a director’s independence in the event that the related person is a director, immediate family member of a director or an entity with which a director is affiliated;

 

•

the availability of other sources for comparable services or products; and

 

•

the terms available to or from, as the case may be, unrelated third parties or to or from employees generally.

The policy will require that, in determining whether to approve, ratify or reject a related person transaction, our audit committee, or other independent body of our board of directors, must consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with, our best interests and those of our stockholders, as our audit committee, or other independent body of our board of directors, determines in the good faith exercise of its discretion.

All of the transactions described in this section were entered into prior to the adoption of this policy. Although we have not had a written policy for the review and approval of transactions with related persons, our board of directors has historically reviewed and approved any transaction where a director or officer had a financial interest, including the transactions described above. Prior to approving such a transaction, the material facts as to a director’s or officer’s relationship or interest in the agreement or transaction were disclosed to our board of directors. Our board of directors took this information into account when evaluating the transaction and in determining whether such transaction was fair to us and in the best interest of all our stockholders.

 

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PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding beneficial ownership of our capital stock by:

 

•

each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock;

 

•

each of our directors;

 

•

each of our named executive officers; and

 

•

all of our current executive officers and directors as a group.

We have determined beneficial ownership in accordance with the rules of the SEC. Under these rules, beneficial ownership includes any shares of common stock as to which the individual or entity has sole or shared voting power or investment power. Applicable percentage ownership is based on 91,510,239 shares of common stock outstanding as of February 23, 2021, after giving effect to the conversion of all of our convertible preferred stock. In computing the number of shares beneficially owned by an individual or entity and the percentage ownership of that person, shares of common stock subject to options held by such person that are currently exercisable or will become exercisable within 60 days of February 23, 2021 are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage ownership of any other person.

Unless noted otherwise, the address of all listed stockholders is c/o Instil Bio, Inc., 3963 Maple Avenue, Suite 350, Dallas, Texas 75219.

Except as indicated by the footnotes below, we believe, based on information furnished to us, that each of the stockholders listed has sole voting and investment power with respect to the shares beneficially owned by the stockholder unless noted otherwise, subject to community property laws where applicable.

 

Name of Beneficial Owner		Number of Shares Beneficially Owned				Percentage of Shares Beneficially Owned
						Before Offering				After Offering
Greater than 5% stockholders
Curative Ventures V LLC(1)			31,275,062				34.1	%				%
Vivo Capital Fund IX, L.P.(2)			10,155,656				11.1
Entity associated with CPMG, Inc.(3)			6,690,659				7.3
Entities associated with Venrock(4)			5,470,898				6.0
Named Executive Officers and Directors
Bronson Crouch(5)			35,524,226				38.7
Zachary Roberts, M.D., Ph.D.(6)			226,041					*
Sandeep Laumas, M.D.(7)			3,716,666				4.0
Gwendolyn Binder, Ph.D.(8)			7,083					*
Neil Gibson, Ph.D.			—				—
George Matcham, Ph.D.(9)			635,000					*
R. Kent McGaughy, Jr.(3)			6,690,659				7.3
Jack Nielsen(2)			10,155,656				11.1
Nimish Shah(4)			5,470,898				6.0
All current executive officers and directors as a group (10 persons)			62,426,230				68.0	%

 

*	Represents beneficial ownership of less than one percent.

(1)	Consists of (a) 25,000,000 shares of common stock issuable upon conversion of Series A convertible preferred stock, (b) 5,082,333 shares of common stock issuable upon conversion of Series B convertible

 

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preferred stock and (c) 1,192,729 shares of common stock issuable upon conversion of Series C convertible preferred stock. Bronson Crouch, our Chief Executive Officer and Chairman, is the Manager of Curative Ventures V LLC and has sole voting and investment power with respect to the shares held by Curative Ventures V LLC.

(2)

Consists of (a) 9,758,080 shares of common stock issuable upon conversion of Series B convertible preferred stock and (b) 397,576 shares of common stock issuable upon conversion of Series C convertible preferred stock held by Vivo Capital Fund IX, L.P. Vivo Capital IX, LLC is the general partner of Vivo Capital Fund IX, L.P. Jack Nielsen, a member of our board of directors, is a managing member of Vivo Capital IX, LLC and may be deemed to share voting and investment power with respect to the shares beneficially owned by Vivo Capital Fund IX, L.P. The business address of the entities referenced in this footnote is 192 Lytton Ave. Palo Alto, CA 94301.

(3)

Consists of (a) 5,895,507 shares of common stock issuable upon conversion of Series B convertible preferred stock and (b) 795,152 shares of common stock issuable upon conversion of Series C convertible preferred stock held by Ibisibill, LP. CPMG, Inc. is the general partner of Ibisbill, LP and has voting and investment control over the shares beneficially owned by the Ibisbill, LP. R. Kent McGaughy, Jr., a member of our board of directors, is the sole shareholder and managing director of CPMG, Inc. and may be deemed to share voting and investment power with respect to the shares beneficially owned by Ibisbill, LP. Mr. McGaughy disclaims beneficial ownership of the shares beneficially owned by Ibisbill, LP except to the extent of any pecuniary interest therein. The business address of the entities referenced in this footnote is 2000 McKinney Ave, Suite 2125, Dallas, Texas 75201.

(4)

Consists of (a) 4,250,722 shares of common stock issuable upon conversion of Series B convertible preferred stock and 358,693 shares of common stock issuable upon conversion of Series C convertible preferred stock held by Venrock Healthcare Capital Partners III, L.P., (b) 425,025 shares of common stock issuable upon conversion of Series B convertible preferred stock and 35,861 shares of common stock issuable upon conversion of Series C convertible preferred stock held by VHCP Co-Investment Holdings III, LLC and (c) 400,597 shares of common stock issuable upon conversion of Series C convertible preferred stock held by Venrock Healthcare Capital Partners EG, L.P. VHCP Management III, LLC is the sole general partner of Venrock Healthcare Capital Partners III, L.P. and the manager of VHCP Co-Investment Holdings III, LLC. VHCP Management EG, LLC is the sole general partner of Venrock Healthcare Capital Partners EG, L.P. Dr. Bong Koh and Nimish Shah, a member of our board of directors, are the voting members of VHCP Management III, LLC and VHCP Management EG, LLC and may be deemed to share voting and investment power with respect to the shares beneficially owned by the entities referenced in this footnote. The business address for the entities referenced in this footnote is 7 Bryant Park, 23rd Floor, New York, NY 10018.

(5)

Consists of (a) 2,114,895 shares of common stock, (b) 134,270 shares of common stock issuable upon the exercise of options within 60 days of February 23, 2021, (c) 2,000,000 shares of common stock held by SB2A LP and (d) 31,275,062 shares of common stock issuable upon the conversion of convertible preferred stock held by Curative Ventures V LLC, as described more fully in footnote 1. Mr. Crouch is Manager of SB2A Management LLC, the general partner and manager of SB2A LP and has sole voting and investment power with respect to the shares held by SB2A LP. Mr. Crouch is the Manager of Curative Ventures V LLC and has sole voting and investment power with respect to the shares held by Curative Ventures V LLC.

(6)	Consists of 226,041 shares of common stock issuable upon the exercise of options within 60 days of February 23, 2021.

(7)

Consists of (a) 1,050,000 shares of common stock issuable upon the exercise of options within 60 days of February 23, 2021 and (b) 2,666,666 shares of common stock held by Bearing Circle Capital LLC. Dr. Laumas is managing member of Bearing Circle Capital LLC and has sole voting and investment power with respect to the shares held by Bearing Circle Capital LLC.

(8)	Consists of 7,083 shares of common stock issuable upon the exercise of options within 60 days of February 23, 2021.

 

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(9)	Consists of (a) 135,000 shares of common stock and (b) 500,000 shares of common stock held by Matcham LLC. Dr. Matcham is co-principal of Matcham LLC and may be deemed to have sole voting and investment power with respect to the shares held by Matcham LLC.

 

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DESCRIPTION OF CAPITAL STOCK

The following description of our capital stock, certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws, as each will be in effect following the completion of this offering, and certain provisions of Delaware law are summaries. You should also refer to the amended and restated certificate of incorporation and the amended and restated bylaws, which are filed as exhibits to the registration statement of which this prospectus is part.

General

Upon the completion of this offering, our amended and restated certificate of incorporation will authorize us to issue up to                shares of common stock, $0.000001 par value per share, and                shares of preferred stock, $0.000001 par value per share, all of which shares of preferred stock will be undesignated. Our board of directors may establish the rights and preferences of the preferred stock from time to time.

As of December 31, 2020, we had outstanding 17,159,642 shares of common stock, held by 22 stockholders of record. As of December 31, 2020, adjusted to include Series C convertible preferred stock issued through February 26, 2021, after giving effect to the conversion of all of the outstanding shares of our convertible preferred stock, there would have been 91,510,239 shares of common stock issued and outstanding, held by 49 stockholders of record.

In March 2020, we issued 4,700,000 shares of our common stock to the shareholders of Immetacyte pursuant to our acquisition of Immetacyte.

Common Stock

Voting Rights

Each holder of our common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. The affirmative vote of holders of at least 66²/₃% of the voting power of all of the then-outstanding shares of capital stock, voting as a single class, will be required to amend certain provisions of our amended and restated certificate of incorporation, including provisions relating to amending our amended and restated bylaws, the classified board, the size of our board, removal of directors, director liability, vacancies on our board, special meetings, stockholder notices, actions by written consent and exclusive forum.

Dividends

Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the board of directors out of legally available funds.

Liquidation

In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then-outstanding shares of preferred stock.

Rights and Preferences

Holders of common stock have no preemptive, conversion or subscription rights and there are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the right of the holders of shares of any series of preferred stock that we may designate in the future.

 

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Preferred Stock

As of December 31, 2020, there were 70,176,046 shares of our preferred stock outstanding consisting of 25,000,000 shares of our Series A convertible preferred stock, 34,600,523 shares of our Series B convertible preferred stock and 10,575,523 shares of our Series C convertible preferred stock. We issued 4,174,551 shares of our Series C convertible preferred stock subsequent to December 31, 2020. All currently outstanding shares of convertible preferred stock will be converted into an aggregate of 74,350,597 shares of common stock upon the closing of this offering.

Following the closing of this offering, our board of directors will have the authority under our amended and restated certificate of incorporation, without further action by our stockholders, to issue up to                shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding.

Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of us and may adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of common stock until the board of directors determines the specific rights attached to that preferred stock.

We have no present plans to issue any shares of preferred stock following the completion of this offering.

Options

As of December 31, 2020, there were options to purchase 10,143,478 shares of common stock outstanding. For additional information regarding the terms of our 2018 Equity Incentive Plan, see “Executive Compensation—Equity Incentive Plans.”

Registration Rights

We, the holders of our existing convertible preferred stock and certain holders of our existing common stock have entered into an amended and restated investors’ rights agreement. The registration rights provisions of this agreement provide those holders with demand, piggyback and Form S-3 registration rights with respect to the shares of common stock currently held by them and issuable to them upon conversion of our convertible preferred stock in connection with our initial public offering. These shares are collectively referred to herein as registrable securities.

Demand Registration Rights

At any time beginning 180 days following the effective date of the registration statement of which this prospectus is a part, the holders of a majority of registrable securities then outstanding have the right to demand that we file a registration statement covering at least 40% of the registrable securities then outstanding. These registration rights are subject to specified conditions and limitations, including the right of the underwriters, if any, to limit the number of shares included in any such registration under specified circumstances. Upon such a request, we are required to effect the registration as soon as practicable, but in any event no later than 60 days after the receipt of such request. An aggregate of 74,350,597 shares of common stock will be entitled to these demand registration rights.

 

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Piggyback Registration Rights

If we propose to register any of our securities under the Securities Act either for our own account or for the account of other stockholders, the holders of registrable securities will each be entitled to notice of the registration and will be entitled to include their shares of common stock in the registration statement. These piggyback registration rights are subject to specified conditions and limitations, including the right of the underwriters to limit the number of shares included in any such registration under specified circumstances. An aggregate of 74,350,597 shares of common stock will be entitled to these piggyback registration rights.

Registration on Form S-3

At any time after we become eligible to file a registration statement on Form S-3, the holders of at least 30% of the registrable securities then outstanding will be entitled to request to have such shares registered by us on a Form S-3 registration statement. These Form S-3 registration rights are subject to other specified conditions and limitations, including the condition that the anticipated aggregate offering price, net of certain selling expenses, is at least $5.0 million. Upon receipt of this request, the holders of registrable securities will each be entitled to participate in this registration. An aggregate of 74,350,597 shares of common stock will be entitled to these Form S-3 registration rights.

Expenses of Registration

We are required to pay all expenses, including fees and expenses of one counsel to represent the selling stockholders (up to $50,000 total), relating to any demand, piggyback or Form S-3 registration, other than underwriting discounts and commissions, stock transfer taxes and any additional fees of counsel for the selling stockholders, subject to specified conditions and limitations. We are not required to pay registration expenses if a demand registration request is withdrawn at the request of a majority of holders of registrable securities to be registered, unless holders of a majority of the registrable securities agree to forfeit their right to one demand registration.

The amended and restated investors’ rights agreement contains customary cross-indemnification provisions, pursuant to which we are obligated to indemnify the selling stockholders in the event of material misstatements or omissions in the applicable registration statement attributable to us, and the selling stockholders are obligated to indemnify us for material misstatements or omissions in the registration statement attributable to them, subject to certain limitations.

Termination of Registration Rights

The registration rights granted under the investors’ rights agreement will terminate with respect to any particular stockholder upon the earlier of (a) the closing of a deemed liquidation event, as defined in our certificate of incorporation, (b) with respect to each stockholder, at such time such stockholder is able to sell all of its shares pursuant to Rule 144 or another similar exemption under the Securities Act during a three-month period without registration and (c) the fifth anniversary of the closing of this offering.

Anti-Takeover Provisions

Section 203 of the Delaware General Corporation Law

We are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:

 

•

before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

 

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•

upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

 

•

on or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 662/3% of the outstanding voting stock that is not owned by the interested stockholder.

In general, Section 203 defines a “business combination” to include the following:

 

•

any merger or consolidation involving the corporation or any direct or indirect majority-owned subsidiary of the corporation and the interested stockholder;

 

•

any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder (in one transaction or a series of transactions);

 

•

subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation or by any direct or indirect majority-owned subsidiary of the corporation of any stock of the corporation or of such subsidiary to the interested stockholder;

 

•

any transaction involving the corporation or any direct or indirect majority-owned subsidiary of the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; or

 

•

the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits by or through the corporation.

In general, Section 203 defines an “interested stockholder” as an entity or person who, together with the person’s affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation.

Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws

Our amended and restated certificate of incorporation to be in effect upon the completion of this offering, or our restated certificate, will provide for our board of directors to be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Because our stockholders do not have cumulative voting rights, stockholders holding a majority of the shares of common stock outstanding will be able to elect all of our directors. Our restated certificate and our amended and restated bylaws to be effective upon the completion of this offering, or our restated bylaws, will also provide that directors may be removed by the stockholders only for cause upon the vote of 66²/₃% or more of our outstanding common stock. Furthermore, the authorized number of directors may be changed only by resolution of the board of directors, and vacancies and newly created directorships on the board of directors may, except as otherwise required by law or determined by the board, only be filled by a majority vote of the directors then serving on the board, even though less than a quorum.

Under our restated certificate of incorporation and amended and restated bylaws our stockholders will not have cumulative voting rights. Because of this, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose.

 

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Our restated certificate and restated bylaws will also provide that all stockholder actions must be effected at a duly called meeting of stockholders and will eliminate the right of stockholders to act by written consent without a meeting. Our restated bylaws will also provide that only our Chairman of the board, Chief Executive Officer or the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors may call a special meeting of stockholders.

Our restated bylaws will also provide that stockholders seeking to present proposals before a meeting of stockholders to nominate candidates for election as directors at a meeting of stockholders must provide timely advance notice in writing, and will specify requirements as to the form and content of a stockholder’s notice.

Our restated certificate and restated bylaws will provide that the stockholders cannot amend many of the provisions described above except by a vote of 66²/₃% or more of our outstanding common stock.

As described in “—Preferred Stock” above, our restated certificate will give our board of directors the authority, without further action by our stockholders, to issue up to                shares of preferred stock in one or more series, with any rights, preferences and privileges as they may designate, including the right to approve an acquisition or other change in control.

The combination of these provisions will make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control of us by replacing our board of directors. Since our board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change our control.

These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to reduce our vulnerability to hostile takeovers and to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and may have the effect of delaying changes in our control or management. As a consequence, these provisions may also inhibit fluctuations in the market price of our stock that could result from actual or rumored takeover attempts. We believe that the benefits of these provisions, including increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure our company, outweigh the disadvantages of discouraging takeover proposals, because negotiation of takeover proposals could result in an improvement of their terms.

Choice of Forum

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the state of Delaware will be the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:

 

•

any derivative action or proceeding brought on our behalf;

 

•

any action asserting a breach of fiduciary duty;

 

•

any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our restated certificate, or our amended and restated bylaws; or

 

•

any action asserting a claim against us that is governed by the internal affairs doctrine.

The provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims.

 

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To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation will also provide that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.

While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions

These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business.

Our amended and restated certificate of incorporation will further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, subject to and contingent upon a final adjudication in the State of Delaware of the enforceability of such exclusive forum provision.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is                . The transfer agent’s address is                .

Listing

We have applied to list our common stock on the Nasdaq Global Market under the trading symbol “TIL.”

 

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, no public market existed for our common stock. Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity capital in the future.

Based on the number of shares outstanding as of December 31, 2020, upon the closing of this offering and assuming no exercise of the underwriters’ option to purchase additional shares,                  shares of common stock will be outstanding, assuming no outstanding options are exercised. All of the shares of common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act, except for any shares sold to our “affiliates,” as that term is defined under Rule 144 under the Securities Act. The remaining                  shares of common stock held by existing stockholders are “restricted securities,” as that term is defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if their resale qualifies for exemption from registration described below under Rule 144 promulgated under the Securities Act or another available exemption.

As a result of the lock-up agreements described below and the provisions of Rules 144 and 701 under the Securities Act, the shares of common stock that will be deemed restricted securities after this offering will be available for sale in the public market as follows:

 

•

none of the existing restricted shares will be eligible for immediate sale upon the completion of this offering; and

 

•

restricted shares will be eligible for sale in the public market upon expiration of lock-up agreements 180 days after the date of this prospectus, subject in certain circumstances to the volume, manner of sale and other limitations under Rule 144 and Rule 701 under the Securities Act, which are summarized below.

Rule 144

In general, non-affiliate persons who have beneficially owned restricted shares of our common stock for at least six months, and any affiliate of the company who owns either restricted or unrestricted shares of our common stock, are entitled to sell their securities without registration with the SEC under an exemption from registration provided by Rule 144 under the Securities Act.

Non-Affiliates

Any person who is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale may sell an unlimited number of restricted securities under Rule 144 if:

 

•

the restricted securities have been held for at least six months, including the holding period of any prior owner other than one of our affiliates (subject to certain exceptions);

 

•

we have been subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale; and

 

•

we are current in our Exchange Act reporting at the time of sale.

Any person who is not deemed to have been an affiliate of ours at the time of, or at any time during the three months preceding, a sale and has held the restricted securities for at least one year, including the holding period of any prior owner other than one of our affiliates, will be entitled to sell an unlimited number of restricted

 

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securities without regard to the length of time we have been subject to Exchange Act periodic reporting or whether we are current in our Exchange Act reporting. Non-affiliate resales are not subject to the manner of sale, volume limitation or notice filing provisions of Rule 144.

Affiliates

Persons seeking to sell restricted securities who are our affiliates at the time of, or any time during the three months preceding, a sale, would be subject to the restrictions described above. They are also subject to additional restrictions, by which such person would be required to comply with the manner of sale and notice provisions of Rule 144 and would be entitled to sell within any three-month period only that number of securities that does not exceed the greater of either of the following:

 

•

1% of the number of shares of our common stock then outstanding, which will equal approximately                  shares immediately after the completion of this offering based on the number of shares outstanding as of December 31, 2020; or

 

•

the average weekly trading volume of our common stock on the stock exchange on which our shares are listed during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

Additionally, persons who are our affiliates at the time of, or any time during the three months preceding, a sale may sell unrestricted securities under the requirements of Rule 144 described above, without regard to the six-month holding period of Rule 144, which does not apply to sales of unrestricted securities.

Rule 701

Rule 701 under the Securities Act, as in effect on the date of this prospectus, permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the holding period requirement. Most of our employees, executive officers or directors who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares. However, substantially all Rule 701 shares are subject to lock-up agreements as described below and in the section titled “Underwriting” and will become eligible for sale upon the expiration of the restrictions set forth in those agreements.

Form S-8 Registration Statements

We intend to file one or more registration statements on Form S-8 under the Securities Act to register all shares of common stock subject to outstanding stock options and common stock issued or issuable under our equity plans. We expect to file the registration statement covering shares offered pursuant to our stock plans as soon as practicable after the closing of this offering, permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act and the sale by affiliates in the public market, subject to compliance with the resale provisions of Rule 144 and expiration or release from the terms of the lock-up agreements described above.

Lock-Up Agreements

We, our executive officers and directors and substantially all of the holders of our common stock outstanding on the date of this prospectus have entered into lock-up agreements with the underwriters or otherwise agreed, subject to certain exceptions, that we and they will not, directly or indirectly, offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale, or otherwise dispose of or hedge any of our shares of common stock, any options or warrants to purchase shares of our common stock, or any securities convertible into, or exchangeable for or that represent the right to receive shares of our common stock,

 

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without the prior written consent of Morgan Stanley & Co. LLC, Jefferies LLC and Cowen and Company, LLC for a period of 180 days from the date of this prospectus.

In addition to the restrictions contained in the lock-up agreements described above, we have entered into an agreement with the holders of our convertible preferred stock that contains market stand-off provisions imposing restrictions on the ability of such security holders to sell or otherwise transfer or dispose of any registrable securities for a period of 180 days following the date of this prospectus.

Registration Rights

Upon the closing of this offering, the holders of 74,350,597 shares of our common stock, including common stock issuable upon the conversion of our convertible preferred stock, or their transferees, will be entitled to specified rights with respect to the registration of their registrable shares under the Securities Act, subject to certain limitations and the expiration, waiver or termination of the lock-up agreements. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act immediately upon effectiveness of the registration. See “Description of Capital Stock—Registration Rights” for additional information.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK

The following is a summary of certain material U.S. federal income tax consequences to non-U.S. holders (as defined below) of the ownership and disposition of our common stock offered pursuant to this prospectus. This discussion is not a complete analysis of all potential U.S. federal income tax consequences relating thereto, does not address the potential application of the Medicare contribution tax on net investment income, the alternative minimum tax, or the special tax accounting rules under Section 451(b) of the Code, and does not address any U.S. federal non-income tax consequences such as estate or gift tax consequences or any tax consequences arising under any state, local, or non-U.S. tax laws, or any other U.S. federal tax laws. This discussion is based on the Code and applicable Treasury Regulations promulgated thereunder, judicial decisions and published rulings, and administrative pronouncements of the Internal Revenue Service, or IRS, all as in effect as of the date hereof. These authorities are subject to differing interpretations and may change, possibly retroactively, resulting in U.S. federal income tax consequences different from those discussed below. We have not requested a ruling from the IRS with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS or a court will agree with such statements and conclusions.

This discussion is limited to non-U.S. holders who purchase our common stock offered by this prospectus and who hold our common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all of the U.S. federal income tax consequences that may be relevant to a particular holder in light of such holder’s particular circumstances. This discussion also does not consider any specific facts or circumstances that may be relevant to holders subject to special rules under the U.S. federal income tax laws, including:

 

•

certain former citizens or long-term residents of the United States;

 

•

partnerships or other entities or arrangements treated as partnerships, pass-throughs, or disregarded entities for U.S. federal income tax purposes (and investors therein), S corporations or other pass-through entities (including hybrid entities);

 

•

“controlled foreign corporations;”

 

•

“passive foreign investment companies;”

 

•

corporations that accumulate earnings to avoid U.S. federal income tax;

 

•

banks, financial institutions, investment funds, insurance companies, brokers or dealers in securities;

 

•

persons who have elected to mark securities to market;

 

•

tax-exempt organizations and governmental organizations;

 

•

tax-qualified retirement plans;

 

•

persons that acquired our common stock through the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan;

 

•

persons that acquired our common stock pursuant to the exercise of warrants or conversion rights under convertible instruments;

 

•

persons who hold common stock that constitutes “qualified small business stock” under Section 1202 of the Code, or “Section 1244 stock” under Section 1244 of the Code;

 

•

persons who acquired our common stock in a transaction subject to the gain rollover provisions of the Code (including Section 1045 of the Code);

 

•

persons that own, or have owned, actually or constructively, more than 5% of our common stock;

 

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•

“qualified foreign pension funds” as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds; and

 

•

persons holding our common stock as part of a hedging or conversion transaction or straddle, or a constructive sale, or other risk reduction strategy or integrated investment.

If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes holds our common stock, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. Partnerships holding our common stock and the partners in such partnerships are urged to consult their tax advisors about the particular U.S. federal income tax consequences to them of holding and disposing of our common stock.

THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING, AND DISPOSING OF OUR COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL, OR NON-U.S. TAX LAWS AND ANY U.S. FEDERAL NON-INCOME TAX LAWS, OR UNDER ANY APPLICABLE INCOME TAX TREATY.

Definition of Non-U.S. Holder

For purposes of this discussion, a non-U.S. holder is any beneficial owner of our common stock that is not a “U.S. person” or a partnership (including any entity or arrangement treated as a partnership) for U.S. federal income tax purposes. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:

 

•

an individual who is a citizen or resident of the United States;

 

•

a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia;

 

•

an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

 

•

a trust (1) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (2) that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

Distributions on Our Common Stock

As described in the section titled “Dividend Policy,” we have not paid and do not anticipate paying dividends in the foreseeable future. However, if we make cash or other property distributions on our common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts that exceed such current and accumulated earnings and profits and, therefore, are not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and will first be applied against and reduce a holder’s tax basis in our common stock, but not below zero. Any amount distributed in excess of basis will be treated as gain realized on the sale or other disposition of our common stock and will be treated as described under the section titled “—Gain on Disposition of Our Common Stock” below.

Subject to the discussions below regarding effectively connected income, backup withholding, and Sections 1471 through 1474 of the Code, or FATCA, dividends paid to a non-U.S. holder of our common stock generally will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends or such lower rate specified by an applicable income tax treaty. To receive the benefit of a reduced treaty rate, a non-U.S. holder must furnish us or the applicable withholding agent with a valid IRS Form W-8BEN or IRS

 

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Form W-8BEN-E (or applicable successor form) certifying such holder’s qualification for the reduced rate. This certification must be provided to us or the applicable withholding agent before the payment of dividends and must be updated periodically. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the non-U.S. holder’s behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, which then will be required to provide certification to us or the applicable withholding agent, either directly or through other intermediaries.

Non-U.S. holders that do not provide the required certification on a timely basis, but that qualify for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.

If a non-U.S. holder holds our common stock in connection with the conduct of a trade or business in the United States, and dividends paid on our common stock are effectively connected with such holder’s U.S. trade or business (and are attributable to such holder’s permanent establishment in the United States, if required by an applicable tax treaty), the non-U.S. holder will generally be exempt from U.S. federal withholding tax. To claim the exemption, the non-U.S. holder must generally furnish a valid IRS Form W-8ECI (or applicable successor form) to the applicable withholding agent.

However, any such effectively connected dividends paid on our common stock generally will be subject to U.S. federal income tax on a net income basis at the regular U.S. federal income tax rates in the same manner as if such holder were a resident of the United States. A non-U.S. holder that is a foreign corporation also may be subject to an additional branch profits tax equal to 30% (or such lower rate specified by an applicable income tax treaty) of its effectively connected earnings and profits for the taxable year, as adjusted for certain items. Non-U.S. holders should consult their tax advisors regarding any applicable income tax treaties that may provide for different rules.

Gain on Disposition of Our Common Stock

Subject to the discussions below regarding backup withholding and FATCA, a non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized on the sale or other disposition of our common stock, unless:

 

•

the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States;

 

•

the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition, and certain other requirements are met; or

 

•

our common stock constitutes a “United States real property interest” by reason of our status as a United States real property holding corporation, or USRPHC, for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or the non-U.S. holder’s holding period for our common stock, and our common stock is not regularly traded on an established securities market as defined by applicable Treasury Regulations.

Determining whether we are a USRPHC depends on the fair market value of our U.S. real property interests relative to the fair market value of our other trade or business assets and our foreign real property interests. We do not believe that we are, or have been, and do not anticipate becoming a USRPHC for U.S. federal income tax purposes, although there can be no assurance we will not in the future become a USRPHC. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition by a non-U.S. holder of our common stock may not be subject to U.S. federal income tax if our common stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market.

 

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Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular U.S. federal income tax rates in the same manner as if such holder were a resident of the United States. A non-U.S. holder that is a foreign corporation also may be subject to an additional branch profits tax equal to 30% (or such lower rate specified by an applicable income tax treaty) of its effectively connected earnings and profits for the taxable year, as adjusted for certain items. Gain described in the second bullet point above will be subject to U.S. federal income tax at a flat 30% rate (or such lower rate specified by an applicable income tax treaty), but may be offset by certain U.S.-source capital losses (even though the individual is not considered a resident of the United States), provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. Non-U.S. holders should consult their tax advisors regarding any applicable income tax treaties that may provide for different rules.

Information Reporting and Backup Withholding

Annual reports are required to be filed with the IRS and provided to each non-U.S. holder indicating the amount of distributions on our common stock paid to such holder and the amount of any tax withheld with respect to those distributions. These information reporting requirements apply even if no withholding was required (because the distributions were effectively connected with the holder’s conduct of a U.S. trade or business, or withholding was reduced or eliminated by an applicable income tax treaty) and regardless of whether such distributions constitute dividends. This information also may be made available under a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established. Backup withholding, currently at a 24% rate, generally will not apply to payments to a non-U.S. holder of dividends on or the gross proceeds of a disposition of our common stock provided the non-U.S. holder furnishes the required certification for its non-U.S. status, such as by providing a valid IRS Form W-8BEN, IRS Form W-8BEN-E, or IRS Form W-8ECI, or certain other requirements are met. Backup withholding may apply if the payor has actual knowledge, or reason to know, that the holder is a U.S. person who is not an exempt recipient.

Backup withholding is not an additional tax. If any amount is withheld under the backup withholding rules, the non-U.S. holder should consult with a U.S. tax advisor regarding the possibility of and procedure for obtaining a refund or a credit against the non-U.S. holder’s U.S. federal income tax liability, if any.

Withholding on Foreign Entities

FATCA imposes a U.S. federal withholding tax of 30% on certain payments made to a “foreign financial institution” (as specially defined under these rules) unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding certain U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) or an exemption applies. FATCA also generally will impose a U.S. federal withholding tax of 30% on certain payments made to a non-financial foreign entity unless such entity provides the withholding agent a certification identifying certain direct and indirect U.S. owners of the entity or an exemption applies. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. FATCA applies to dividends paid on our common stock and, subject to the proposed Treasury Regulations described below, also applies to gross proceeds from sales or other dispositions of our common stock. The U.S. Treasury Department released proposed Treasury Regulations which, if finalized in their present form, would eliminate the federal withholding tax of 30% applicable to the gross proceeds of a disposition of our common stock. In its preamble to such proposed Treasury Regulations, the U.S. Treasury Department stated that taxpayers may generally rely on the proposed Treasury Regulations until final regulations are issued.

Prospective investors are encouraged to consult with their own tax advisors regarding the possible implications of this legislation on their investment in our common stock.

 

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UNDERWRITING

Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. LLC, Jefferies LLC and Cowen and Company, LLC are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares indicated below:

 

Name		Number of Shares
Morgan Stanley & Co. LLC
Jefferies LLC
Cowen and Company, LLC
Truist Securities, Inc.
Total:

The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives,” respectively. The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.

The underwriters initially propose to offer part of the shares of common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $                 per share under the public offering price. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives.

We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to                  additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table.

The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional                  shares of common stock.

 

Total

Per Share

No Exercise

Full Exercise

Public offering price

$

$

$

Underwriting discounts and commissions to be paid by us

$

$

$

Proceeds, before expenses, to us

$

$

$

The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $                . We have agreed to reimburse the underwriters for expenses relating to clearance of this offering with the Financial Industry Regulatory Authority up to $                .

 

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The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of common stock offered by them.

We have applied to list our common stock on Nasdaq under the symbol “TIL.”

We and all directors and officers and the holders of substantially all of our outstanding stock and stock options have agreed that, without the prior written consent of Morgan Stanley & Co. LLC, Jefferies LLC and Cowen and Company, LLC on behalf of the underwriters, we and they will not, and will not publicly disclose an intention to, during the period ending 180 days after the date of this prospectus (the “restricted period”):

 

•

offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock;

 

•

file any registration statement with the SEC relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or

 

•

enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock.

whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. In addition, we and each such person agrees that, without the prior written consent of Morgan Stanley & Co. LLC, Jefferies LLC and Cowen and Company, LLC on behalf of the underwriters, we or such other person will not, during the restricted period, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock.

The restrictions described in the immediately preceding paragraph to do not apply to:

 

•

transactions of shares of common stock or any other securities acquired in this offer or in open market transactions after the completion of the offering, provided that no filing under Section 16(a) of the Exchange Act is required or voluntarily made during the restricted period in connection with subsequent sales of our common stock or other securities acquired in this offering or in such open market transactions;

 

•

transfers of common stock or any security convertible into or exercisable or exchangeable for common stock (i) as a bona fide gift or charitable contribution, (ii) by will or intestacy or to any immediate family of such person or to a trust whose beneficiaries consist exclusively of one or more of such person and/or any immediate family, (iii) to limited partners, members, stockholders or holders of similar equity interests of such person or (iv) to another corporation, partnership, limited liability company, trust or other business entity that is an affiliate of such person, or to any investment fund or other entity controlled or managed by such person or affiliates of such person; provided that (A) each transferee or distributee shall sign and deliver a lock-up agreement and (B) no filing under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of shares of common stock, shall be required or shall be voluntarily made during the restricted period;

 

•

transfers of common stock or any security convertible into or exercisable or exchangeable for common stock by operation of law pursuant to a qualified domestic order or other court order or in connection with a divorce settlement; provided that (i) any filing under Section 16(a) of the Exchange Act made during the restricted period shall clearly indicate in the footnotes thereto that (A) the filing relates to the circumstances described herein and (B) no securities were sold by such person and (ii) such person does not otherwise voluntarily effect any other public filing or report regarding such transfers during the restricted period;

 

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•

the receipt by such person from the company of shares of common stock upon the transfer or disposition of shares of common stock or any securities convertible into common stock to the company upon a vesting or settlement event of the company’s securities or vesting of restricted stock unit awards or upon the exercise of options to purchase the company’s securities on a “cashless” or “net exercise” basis, in each case pursuant to any equity incentive plan of the company described herein and to the extent permitted by the instruments representing such restricted stock unit awards or options outstanding as of the date of the hereof (and solely to cover withholding tax obligations in connection with such transaction and any transfer to the company for the payment of taxes as a result of such transaction), provided that (i) the shares received upon exercise or settlement of the option are subject to the terms of a lock-up agreement, (ii) no public disclosure or filing under Section 16(a) of the Exchange Act shall be voluntarily made during the restricted period and (iii) to the extent a filing under Section 16(a) of the Exchange Act is required during the restricted period as a result of transfers described herein, it shall (A) clearly indicate that the filing relates to the circumstances described herein, including that the securities remain subject to the terms of a lock-up agreement and (B) no securities were sold by such person other than as contemplated hereby;

 

•

transfers to the company in connection with the repurchase of common stock in connection with the termination of such person’s employment with the company pursuant to contractual agreements with the company as in effect as of the date of this prospectus and disclosed to the representatives, provided that no public disclosure or filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made during the restricted period;

 

•

the conversion of the outstanding preferred stock of the company described herein into shares of common stock of the company, provided that such shares of common stock remain subject to the terms of a lock-up agreement;

 

•

facilitating the establishment of a trading plan on behalf of a stockholder, officer or director of the company pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of common stock, provided that (i) such plan does not provide for the transfer of common stock during the restricted period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by or on behalf of such person or the company regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of common stock may be made under such plan during the restricted period; or

 

•

transfers pursuant to a bona fide third-party tender offer for all outstanding common stock or securities convertible into or exchangeable for common stock of the company, merger, consolidation or other similar transaction approved by the company’s board of directors and made to all holders of the company’s securities involving a change of control of the company; provided that in the event that such tender offer, merger, consolidation or other such transaction is not completed, such securities held by such person shall remain subject to the provisions of the lock-up agreement.

Morgan Stanley & Co. LLC, Jefferies LLC and Cowen and Company, LLC, in their sole discretion, may release the common stock and other securities subject to the lock-up agreements described above in whole or in part at any time.

In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short

 

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position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.

We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares of common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses.

In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.

Pricing of the Offering

Prior to this offering, there has been no public market for our common stock. The initial public offering price was determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours.

Selling Restrictions

European Economic Area

In relation to each Member State of the European Economic Area and the United Kingdom (each, a “Relevant State”), no securities have been offered or will be offered pursuant to the offering to the public in that Relevant State prior to the publication of a prospectus in relation to the securities which has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State and

 

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notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation, except that offers of securities may be made to the public in that Relevant State at any time under the following exemptions under the Prospectus Regulation:

 

(a)

to any legal entity which is a qualified investor as defined under the Prospectus Regulation;

 

(b)

to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the representatives; or

 

(c)

in any other circumstances falling within Article 1(4) of the Prospectus Regulation,

provided that no such offer of shares shall require us or any of our representatives to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.

For the purposes of this provision, the expression an “offer to the public” in relation to any shares in any Relevant State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase any shares, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129 (as amended).

United Kingdom

Each underwriter has represented and agreed that:

 

(a)

it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (“FSMA”)) received by it in connection with the issue or sale of the shares of our common stock in circumstances in which Section 21(1) of the FSMA does not apply to us; and

 

(b)

it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of our common stock in, from or otherwise involving the United Kingdom.

Canada

The shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

 

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Australia

No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (“ASIC”), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the “Corporations Act”), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.

Any offer in Australia of the shares may only be made to persons (the “Exempt Investors”) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.

The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.

This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.

Switzerland

This document is not intended to constitute an offer or solicitation to purchase or invest in the securities. The securities may not be publicly offered, directly or indirectly, in Switzerland within the meaning of the Swiss Financial Services Act (“FinSA”) and no application has or will be made to admit the securities to trading on any trading venue (exchange or multilateral trading facility) in Switzerland. Neither this document nor any other offering or marketing material relating to the securities constitutes a prospectus pursuant to the FinSA, and neither this document nor any other offering or marketing material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.

Japan

No registration pursuant to Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) (the “FIEL”) has been made or will be made with respect to the solicitation of the application for the acquisition of the shares of common stock.

Accordingly, the shares of common stock have not been, directly or indirectly, offered or sold and will not be, directly or indirectly, offered or sold in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan except pursuant to an exemption from the registration requirements, and otherwise in compliance with, the FIEL and the other applicable laws and regulations of Japan.

 

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For Qualified Institutional Investors (“QII”)

Please note that the solicitation for newly-issued or secondary securities (each as described in Paragraph 2, Article 4 of the FIEL) in relation to the shares of common stock constitutes either a “QII only private placement” or a “QII only secondary distribution” (each as described in Paragraph 1, Article 23-13 of the FIEL). Disclosure regarding any such solicitation, as is otherwise prescribed in Paragraph 1, Article 4 of the FIEL, has not been made in relation to the shares of common stock. The shares of common stock may only be transferred to QIIs.

For Non-QII Investors

Please note that the solicitation for newly-issued or secondary securities (each as described in Paragraph 2, Article 4 of the FIEL) in relation to the shares of common stock constitutes either a “small number private placement” or a “small number private secondary distribution” (each as is described in Paragraph 4, Article 23-13 of the FIEL). Disclosure regarding any such solicitation, as is otherwise prescribed in Paragraph 1, Article 4 of the FIEL, has not been made in relation to the shares of common stock. The shares of common stock may only be transferred en bloc without subdivision to a single investor.

Dubai International Financial Centre

This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.

Hong Kong

The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong), or the Companies (Winding Up and Miscellaneous Provisions) Ordinance, or which do not constitute an invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong), or the Securities and Futures Ordinance, or (ii) to “professional investors” as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.

Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or

 

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indirectly, to persons in Singapore other than (i) to an institutional investor (as defined under Section 4A of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor, the securities (as defined in Section 239(1) of the SFA) of that corporation shall not be transferable for 6 months after that corporation has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer in that corporation’s securities pursuant to Section 275(1A) of the SFA, (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore, or Regulation 32.

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary of the trust is an accredited investor, the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferable for 6 months after that trust has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer that is made on terms that such rights or interest are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction (whether such amount is to be paid for in cash or by exchange of securities or other assets), (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32.

Singapore SFA Product Classification—In connection with Section 309B of the SFA and the Securities and Futures (Capital Markets Products) Regulations 2018 (the “CMP Regulations 2018”), the Company has determined, and hereby notifies all relevant persons (as defined in the CMP Regulations 2018), that the shares are “prescribed capital markets products” (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).

Israel

In the State of Israel this prospectus shall not be regarded as an offer to the public to purchase shares of common stock under the Israeli Securities Law, 5728 – 1968, which requires a prospectus to be published and authorized by the Israel Securities Authority, if it complies with certain provisions of Section 15 of the Israeli Securities Law, 5728–1968, including, inter alia, if: (i) the offer is made, distributed or directed to not more than 35 investors, subject to certain conditions (the “Addressed Investors”); or (ii) the offer is made, distributed or directed to certain qualified investors defined in the First Addendum of the Israeli Securities Law, 5728 – 1968, subject to certain conditions (the “Qualified Investors”). The Qualified Investors shall not be taken into account in the count of the Addressed Investors and may be offered to purchase securities in addition to the 35 Addressed Investors. The company has not and will not take any action that would require it to publish a prospectus in accordance with and subject to the Israeli Securities Law, 5728 – 1968. We have not and will not distribute this prospectus or make, distribute or direct an offer to subscribe for our common stock to any person within the State of Israel, other than to Qualified Investors and up to 35 Addressed Investors.

 

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Qualified Investors may have to submit written evidence that they meet the definitions set out in of the First Addendum to the Israeli Securities Law, 5728 – 1968. In particular, we may request, as a condition to be offered common stock, that Qualified Investors will each represent, warrant and certify to us and/or to anyone acting on our behalf: (i) that it is an investor falling within one of the categories listed in the First Addendum to the Israeli Securities Law, 5728 – 1968; (ii) which of the categories listed in the First Addendum to the Israeli Securities Law, 5728 – 1968 regarding Qualified Investors is applicable to it; (iii) that it will abide by all provisions set forth in the Israeli Securities Law, 5728 – 1968 and the regulations promulgated thereunder in connection with the offer to be issued common stock; (iv) that the shares of common stock that it will be issued are, subject to exemptions available under the Israeli Securities Law, 5728 – 1968: (a) for its own account; (b) for investment purposes only; and (c) not issued with a view to resale within the State of Israel, other than in accordance with the provisions of the Israeli Securities Law, 5728 – 1968; and (v) that it is willing to provide further evidence of its Qualified Investor status. Addressed Investors may have to submit written evidence in respect of their identity and may have to sign and submit a declaration containing, inter alia, the Addressed Investor’s name, address and passport number or Israeli identification number.

 

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LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon for us by Cooley LLP, New York, New York. Certain legal matters will be passed upon for the underwriters by Latham and Watkins, LLP, New York, New York. As of the date of this prospectus, GC&H Investments, LLC, an entity consisting of current and former partners and associates of Cooley LLP, beneficially holds an aggregate of 120,173 shares of our common stock on an as-converted basis.

EXPERTS

The financial statements included in this Prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock being offered by this prospectus. This prospectus, which constitutes part of the registration statement, does not contain all of the information in the registration statement and its exhibits. For further information with respect to our company and the common stock offered by this prospectus, we refer you to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.

You can read our SEC filings, including the registration statement, over the internet at the SEC’s website at www.sec.gov. Upon completion of this offering, we will be subject to the information reporting requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available at www.sec.gov.

We also maintain a website at instilbio.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of, and is not incorporated into, this prospectus. We have included our website in this prospectus solely as an inactive textual reference.

 

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INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

		Page
Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets			F-3
Consolidated Statements of Operations and Comprehensive Loss			F-4
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit			F-5
Consolidated Statements of Cash Flows			F-6
Notes to Consolidated Financial Statements			F-7

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Instil Bio, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Instil Bio, Inc. and subsidiaries (the “Company”) as of December 31, 2019 and 2020, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2020, 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, 2019 and 2020, and the results of its operations and its cash flows for the each of the two years in the period ended December 31, 2020, 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 audit. 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 Diego, California

February 26, 2021

We have served as the Company’s auditor since 2020.

 

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INSTIL BIO, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

		December 31,
		2019				2020
Current assets:
Cash and cash equivalents		$	8,895			$	241,714
Prepaid expenses and other current assets			391				4,424
Total current assets			9,286				246,138
Property, plant and equipment, net			190				55,341
Intangibles			—				10,104
Goodwill			—				5,722
Other long-term assets			—				1,707
Total assets		$	9,476			$	319,012
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable		$	979			$	3,495
Accrued expenses and other current liabilities			441				8,402
Contingent consideration, current portion			—				1,384
Total current liabilities			1,420				13,281
Contingent consideration, net of current portion			—				10,893
Deferred tax liabilities			—				2,471
Total liabilities			1,420				26,645
Commitments and contingencies (Note 6)
Convertible preferred stock, $0.000001 par value; 15,000,000 and 74,350,598 shares authorized as of December 31, 2019 and 2020, respectively; 15,000,000 and 70,176,046 shares issued and outstanding as of December 31, 2019 and 2020, respectively; $15,000 and $328,200 aggregate liquidation preference as of December 31, 2019 and 2020, respectively			14,948				331,966
Stockholders’ deficit:
Common stock, $0.000001 par value; 150,000,000 and 111,000,000 shares authorized as of December 31, 2019 and 2020, respectively; 9,333,330 and 17,159,642 shares issued and outstanding as of December 31, 2019 and 2020, respectively			—				—
Additional paid-in capital			293				5,607
Accumulated other comprehensive loss			—				(283	)
Accumulated deficit			(7,185	)			(44,923	)
Total stockholders’ deficit			(6,892	)			(39,599	)
Total liabilities, convertible preferred stock and stockholders’ deficit		$	9,476			$	319,012

The accompanying notes are an integral part of these consolidated financial statements.

 

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INSTIL BIO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)

 

		Year Ended December 31,
		2019				2020
Revenue		$	—			$	138
Operating expenses:
Research and development			4,027				19,399
General and administrative			2,558				14,383
Total operating expenses			6,585				33,782
Loss from operations			(6,585	)			(33,644	)
Interest and other income (expense), net			63				(3,943	)
Loss before income tax expense		$	(6,522	)		$	(37,587	)
Income tax expense			—				(151	)
Net loss		$	(6,522	)		$	(37,738	)
Foreign currency translation			—				(283	)
Comprehensive loss		$	(6,522	)		$	(38,021	)
Net loss per share, basic and diluted		$	(0.66	)		$	(2.83	)
Weighted-average shares used in computing net loss per share, basic and diluted			9,872,144				13,331,495

The accompanying notes are an integral part of these consolidated financial statements.

 

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INSTIL BIO, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(in thousands, except share and per share amounts)

 

		Convertible Preferred Stock												Common Stock								Additional Paid-in Capital				Accumulated Other Comprehensive Loss				Accumulated Deficit				Total Stockholders’ Deficit
		Shares				Amount								Shares				Amount
Balance—December 31, 2018			—			$	—								12,666,664			$	—			$	—			$	—			$	(663	)		$	(663	)
Issuance of Series A convertible preferred shares at $1.00 per share, net of issuance costs of $52			15,000,000				14,948								—				—				—				—				—				—
Repurchase and retirement of common stock			—				—								(3,333,334	)			—				—				—				—				—
Stock-based compensation			—				—								—				—				293				—				—				293
Net loss			—				—								—				—				—				—				(6,522	)			(6,522	)
Balance—December 31, 2019			15,000,000			$	14,948								9,333,330			$	—			$	293			$	—			$	(7,185	)		$	(6,892	)
Issuance of Series A convertible preferred shares at $1.00 per share, net of issuance costs of $34			10,000,000				14,366								—				—				—				—				—				—
Issuance of Series B convertible preferred shares at $4.92 per share, net of issuance costs of $357			34,600,523				169,843								—				—				—				—				—				—
Issuance of Series C convertible preferred shares at $12.58 per share, net of issuance costs of $191			10,575,523				132,809								—				—				—				—				—				—
Issuance of common stock in connection with an acquisition			—				—								4,700,000				—				3,243				—				—				3,243
Stock-based compensation			—				—								—				—				1,706				—				—				1,706
Exercise of stock options			—				—								3,126,312				—				365				—				—				365
Foreign currency translation			—				—								—				—				—				(283	)			—				(283	)
Net loss			—				—								—				—				—				—				(37,738	)			(37,738	)
Balance—December 31, 2020			70,176,046			$	331,966								17,159,642			$	—			$	5,607			$	(283	)		$	(44,923	)		$	(39,599	)

The accompanying notes are an integral part of these consolidated financial statements.

 

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INSTIL BIO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

		Year Ended December 31,
		2019				2020
Cash flows from operating activities:
Net loss		$	(6,522	)		$	(37,738	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on issuance of Series A convertible preferred stock			—				4,400
Stock-based compensation			293				1,706
Foreign exchange remeasurement gains			—				(643	)
Loss on change in fair value of contingent consideration			—				928
Depreciation and amortization			20				256
In-process research and development expenses			550				—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets			(384	)			(898	)
Other long-term assets			—				(1,141	)
Accounts payable			309				(1,054	)
Accrued expenses and other current liabilities			441				4,568
Net cash used in operating activities			(5,293	)			(29,616	)
Cash flows from investing activities:
Purchases of property, plant and equipment			(210	)			(50,816	)
Acquired in-process research and development			(550	)			—
Business acquisition, net of cash acquired			—				(306	)
Net cash used in investing activities			(760	)			(51,122	)
Cash flows from financing activities:
Proceeds from issuance of convertible preferred stock, net of issuance costs			14,948				312,618
Proceeds from exercise of stock options			—				365
Other			—				65
Net cash provided by financing activities			14,948				313,048
Net increase in cash, cash equivalents and restricted cash			8,895				232,310
Effect of exchange rate changes on cash, cash equivalents and restricted cash			—				559
Cash, cash equivalents and restricted cash—beginning of year			—				8,895
Cash, cash equivalents and restricted cash—end of year		$	8,895			$	241,764
Supplemental disclosure of cash flow information:
Noncash investing and financing activities:
Business acquisition through issuance of common stock and contingent consideration payable		$	—			$	14,592
Purchases of property, plant and equipment in accounts payable		$	—			$	2,922
Deferred offering costs in accrued expenses and other current liabilities		$	—			$	516

The accompanying notes are an integral part of these consolidated financial statements.

 

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INSTIL BIO, INC.

Notes to Consolidated Financial Statements

1. Organization and Description of Business

Instil Bio Inc. (the “Company” or “Instil Bio”) is headquartered in Dallas, Texas and was incorporated in the state of Delaware in August 2018. The Company is a clinical-stage biopharmaceutical company focused on developing an innovative cell therapy pipeline of autologous tumor infiltrating lymphocyte (“TIL”) therapies for the treatment of patients with cancer. Principal operations commenced during the first quarter of 2019 when the Company in-licensed its foundational TIL technology from Immetacyte, Ltd. (“Immetacyte”) and subsequently closed its first round of funding with the issuance and sale of its Series A convertible preferred stock. On March 2, 2020, the Company acquired Immetacyte.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and, beginning March 2, 2020, its wholly owned subsidiaries Instil Bio U.K. (formerly Immetacyte) and Complex Therapeutics, LLC. All intercompany balances and transactions have been eliminated in consolidation.

Liquidity

From its inception, the Company has devoted substantially all its efforts to organizational activities, raising capital, building infrastructure, developing intellectual property and conducting product development. The Company’s operations have been financed primarily through the issuance of convertible preferred stock. The Company’s ultimate success depends on the outcome of its research and development activities. Since inception, the Company has incurred losses and negative cash flows from operations as it has expended significant resources in research and development and other activities. These activities have resulted in losses from

 

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operations, which are expected to continue for the foreseeable future, and an accumulated deficit. The Company will require additional financing to continue its research and development activities and fund operations to meet its business plan. As of December 31, 2020, the Company had an accumulated deficit of $44.9 million and cash and cash equivalents of $241.7 million.

The Company intends to raise additional capital through public or private equity offerings or debt financings or other capital sources, which may include strategic collaborations or other arrangements with third parties. If the Company fails to obtain necessary capital when needed on acceptable terms, or at all, it could force the Company to delay, limit, reduce or terminate its product development programs, commercialization efforts or other operations. During the first quarter of 2021, the Company issued and sold an additional 4.2 million shares of Series C convertible preferred stock, at the same terms as the first closing, for net proceeds of $52.5 million. Based upon the Company’s current operating plan, management believes that the Company’s existing cash and cash equivalents as of December 31, 2020, plus the net proceeds from its closing of the additional Series C convertible preferred stock financings during the first quarter of 2021, is sufficient to support operations for at least the next 12 months following issuance of these consolidated financial statements. Management expects to continue to incur losses and negative cash flows from operations for at least the next several years.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. Since then, extraordinary actions have been taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world. These actions include travel bans, quarantines, “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. As a result of COVID-19, the Company has taken precautionary measures in order to minimize the risk of the virus to its employees and the communities in which it operates, including the suspension of all non-essential business travel of employees. Although the majority of the Company’s workforce now works remotely, there has been minimal disruption in the Company’s ability to ensure the effective operation of its business. While the broader implications of the COVID-19 pandemic on the Company’s results of operations and overall financial performance remain uncertain, the COVID-19 pandemic has, to date, not had a material adverse impact on its results of operations or our ability to raise funds to sustain operations. The economic effects of the pandemic and resulting societal changes are currently not predictable, and the future financial impacts could vary from those foreseen.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying consolidated financial statements include but are not limited to the fair value of stock valuations, the fair value of acquired intangible assets, the fair value of contingent consideration payable, and the fair value of buildings and land in an asset acquisition. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company’s cash and cash equivalents are held by two financial institutions in the United States (“U.S.”) and one financial institution in the United Kingdom (“U.K.”), which management

 

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believes to be financially sound, and, accordingly, minimal credit risk exists with respect to the financial institutions. At times, the Company’s deposits held in the U.S. and U.K. may exceed the Federal Depository Insurance Corporation and Financial Services Compensation Scheme, respectively, insured limits.

Risks and Uncertainties

The Company is subject to a number of risks similar to other development-stage biopharmaceutical companies, including but not limited to, dependency on the clinical and commercial success of its product candidates, ability to obtain regulatory approval of its product candidates, uncertainty of broad adoption of its approved products, if any, by physicians and patients, manufacturing, the need to obtain adequate additional funding, significant competition, and protection of its intellectual property portfolio.

Segments

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. Cash equivalents include amounts invested in money market accounts.

Restricted cash consists of a money market account which serves as collateral for the Company’s employee corporate credit cards and is classified within other long-term assets on the consolidated balance sheets. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the amounts shown in the consolidated statements of cash flows (in thousands):

 

		December 31,
		2019				2020
Cash and cash equivalents		$	8,895			$	241,714
Restricted cash			—				50
Cash, cash equivalents and restricted cash		$	8,895			$	241,764

Fair Value Measurement

Assets and liabilities recorded at fair value on a recurring basis in the balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company measures fair value based on a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

 

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Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the assets or liabilities. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

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.

In determining fair value, the Company utilizes quoted market prices, or valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

Property, Plant and Equipment, Net

Property, plant and equipment, with the exception of land, is stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. Maintenance and repairs are charged to operations as incurred. Upon sale or retirement of assets, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in the consolidated statement of operations and comprehensive loss. The estimated useful lives of the Company’s property and equipment are as follows:

 

Building		39 years
Laboratory equipment		7 years
Manufacturing equipment		7 years
Office and computer equipment		3 years
Leasehold improvements		Shorter of remaining lease term or estimated useful life

The Company owns land inclusive of four buildings that it is in the process of developing for its U.S. operations. A variety of costs are incurred in the development of a property. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when the development project is substantially complete and placed into service to begin depreciation involves a degree of judgment. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, and construction costs. When the development project is substantially complete and available for occupancy, the Company ceases capitalization of costs other than costs to improve the functionality or extend the useful lives of property and equipment included as part of the project.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or that the useful life is shorter than originally estimated. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset over its remaining useful life. If such assets are impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. If the useful life is shorter than originally estimated, the Company depreciates or amortizes the remaining carrying value over the revised shorter useful life. Assets to be disposed of by sale are reflected at the lower of their carrying amount or fair value less cost to sell.

Business Combinations

The Company evaluates acquisitions of assets and related liabilities and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first

 

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applying a screen 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 is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs which would meet the requirements of a business.

The Company accounts for its business combinations using the acquisition method of accounting which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their full fair value as of the date it obtains control. The Company has determined the fair value of assets acquired and liabilities assumed based upon management’s estimates of the fair values of assets acquired and liabilities assumed in the acquisitions. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. The Company accounts for contingent consideration at the acquisition-date fair value as part of the consideration transferred in the transaction.

While management has used its best estimates and assumptions to measure the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, not to exceed one year from the date of acquisition, any changes in the estimated fair values of the net assets recorded for the acquisitions will result in an adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, the Company records any subsequent adjustments to the consolidated statements of operations and comprehensive loss. Acquisition-related costs, such as legal and consulting fees, are expensed as incurred.

The Company accounts for an asset acquisition by recognizing net assets based on the cost to the acquiring entity on a relative fair value basis, which includes transaction costs in addition to consideration given. Goodwill is not recognized in an asset acquisition; any excess consideration transferred over the fair value of the net assets acquired is allocated to the non-monetary identifiable assets and liabilities assumed based on relative fair values. Acquired in-process research and development is expensed as incurred provided there is no alternative future use.

Goodwill and other Indefinite Lived Intangible Assets

Indefinite-lived intangible assets consist of goodwill and in-process research and development (“IPR&D”) acquired in a business combination.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company’s impairment tests are based on a single operating segment and reporting unit structure. If the carrying value of the reporting unit exceeds its fair value, an impairment charge is recognized for the excess of the carrying value of the reporting unit over its fair value.

IPR&D assets represent the fair value of incomplete research and development projects that had not reached technological feasibility as of the date of acquisition; initially, these are classified as IPR&D and are not subject to amortization. Once these research and development projects are completed, the asset balances are transferred from IPR&D to acquisition-related developed technology and are subject to amortization from this point forward. The Company reviews IPR&D for possible impairment annually or more frequently if events or changes in circumstances indicate that carrying amount may not be recoverable. Significant assumptions inherent in the evaluation and measurement of impairment include, but are not limited to, external factors such as industry and economic trends, and internal factors such as changes in the Company’s business strategy and the Company’s forecasts for specific projects.

 

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Deferred Offering Costs

Costs directly related to the Company’s IPO are deferred for expense recognition and instead capitalized and recorded within other long-term assets on the accompanying consolidated balance sheets. These costs consist of legal fees, accounting fees, and other applicable professional services. These deferred offering costs will be reclassified to additional paid in capital upon the closing of the planned IPO. In the event that the Company’s plans for an IPO are terminated, all deferred offering costs will be recognized within general and administrative and expensed in the same period on the Company’s consolidated statements of operations and comprehensive loss. There were no deferred offering costs capitalized as of December 31, 2019. As of December 31, 2020, $0.5 million of deferred offering costs were capitalized.

Revenue

Revenue recognized during the year ended December 31, 2020 is primarily related to the Company’s commercial services agreement with a customer to provide storage and processing of clinical material harvested from patients related to the compassionate use program. The Company receives fixed fees per patient and procedure. Revenue related to this services agreement is recognized once services are performed as there is no alternative use for the asset once the activities is performed and the Company has the right to consideration in an amount that corresponds directly with the value provided to its customer and its performance completed to date.

Grant Proceeds

The Company receives government grants in the U.K. for the furtherance of certain research and development projects. Grant proceeds are recognized when all conditions of such grants are fulfilled or there is a reasonable assurance that they will be fulfilled. Grant proceeds are classified as a reduction of research and development expenses. The Company did not receive grant proceeds during the year ended December 31, 2019. For the year ended December 31, 2020, $1.2 million of grant proceeds were recognized in research and development expenses on the Company’s consolidated statements of operations and comprehensive loss.

Research and Development Expenses

Research and development (“R&D”) costs are expensed as incurred. Advance payments for research and development activities are deferred as prepaid expenses, classified as current or noncurrent on the Company’s consolidated balance sheets based on the estimated timing the related services will be performed and are expensed as the related services are performed. Costs incurred by third parties pursuant to contracts with research institutions and clinical research organizations are expensed as the contracted work is performed. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or project and the invoices received from the external service providers. The Company adjusts its accrual as actual costs become known. If the actual timing of the performance of services or the level of effort varies significantly from the estimate, the Company will adjust the accrual accordingly. The Company has not experienced any material differences between accrued costs and actual costs incurred since its inception.

For the year ended December 31, 2019, research and development costs consist primarily of research services and license payments to Immetacyte and, to a lesser extent, salaries, benefits, and other personnel related costs, including stock-based compensation, professional service fees and facility and other related costs. Research and development expenses for the year ended December 31, 2019 also include in process research and development acquired and recognized as an expense in connection with the license of technology from Immetacyte in February 2019.

 

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Following the acquisition of Immetacyte, research and development expenses include agreements with clinical research organizations and other research organizations that conduct and manage pre-clinical studies on the Company’s behalf, payments to cell and gene therapy consultants, laboratory supplies and materials, and changes in fair value of the contingent consideration liability. Research and development expenses also include salaries, benefits, and other personnel related costs, including stock-based compensation, professional service fees and facility and other related costs.

Research and development expenses are presented net of government grants, as described above, and R&D tax and expenditure credits from the U.K. government, which are recognized over the period necessary to match the reimbursement with the related costs when it is probable that the Company has complied with any conditions attached and will receive the reimbursement. Reimbursable R&D tax and expenditure credits were $0.2 million in the year ended December 31, 2020. There were no R&D tax and expenditure credits in the year ended December 31, 2019.

Stock-Based Compensation

The Company measures its stock-based awards granted to employees, non-employee directors, consultants and independent advisors based on the estimated grant date fair value of the awards. For stock-based awards with only service conditions, compensation expense is recognized over the requisite service period using the straight-line method. For stock-based awards that include performance conditions, compensation expense is not recognized until the performance condition is probable to occur. The Company uses the Black-Scholes option pricing model to estimate the fair value of its stock-based awards. The Black-Scholes option pricing model requires the Company to make assumptions and judgements about the variables used in the calculations, including the fair value of common stock, expected term, expected volatility of the Company’s common stock, risk-free interest rate and expected dividend yield. As the stock-based compensation is based on awards ultimately expected to vest, it is reduced by forfeitures. The Company accounts for forfeitures of stock-based awards as they occur.

Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts or existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment. The Company records a valuation allowance to reduce deferred tax assets to an amount expected to be realized.

The Company recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained upon examination by the tax authorities, based on the merits of the position. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

Foreign Currency

The Company’s reporting currency is the U.S. dollar. The functional currency of the Company’s subsidiary located in the United Kingdom is the British Sterling. Balance sheets prepared in the functional currency are translated to the reporting currency at exchange rates in effect at the end of the accounting period, except for stockholders’ deficit accounts, which are translated at rates in effect when these balances were originally recorded. Revenue and expense accounts are translated using an average exchange rate in effect during the period. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive loss in the accompanying consolidated balance sheets.

 

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Gains and losses resulting from exchange rate changes on intercompany transactions denominated in a currency other than the local currency are included in earnings as incurred as the related amounts are expected to be repaid in the foreseeable future.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of the Company’s common stock outstanding for the period, without consideration for potential dilutive shares of common stock. For purposes of the diluted net loss per share calculation, convertible preferred stock and common stock options are considered to be potentially dilutive securities. Diluted net loss per share is the same as basic net loss per share for each period presented since the effects of potentially dilutive securities are antidilutive given the net loss of the Company.

Comprehensive Loss

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss was the same as its reported net loss for the year ended December 31, 2019. For the year ended December 31, 2020, other comprehensive loss consists of foreign currency translation adjustments.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). 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. The Company has elected to avail itself of this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

As described in “Recently Adopted Accounting Pronouncements” below, the Company early adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606 and Accounting Standards Update (“ASU”) 2018-17 as the JOBS Act does not preclude an emerging growth company from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies.

Recently Adopted Accounting Pronouncements

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This standard is intended to reduce the cost and complexity and to improve financial reporting for nonemployee share-based payments. The ASU expands the scope of Topic 718 to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees is substantially aligned. The Company has issued stock options to both employees and non-employee consultants. The standard is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue Recognition.

Pursuant to Topic 606, entities recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. The model provides that entities follow five steps: (i) identify the contract

 

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with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to each performance obligation, and (v) recognize revenue when or as each performance obligation is satisfied. The Company early adopted ASU 2018-07 and Topic 606 on January 1, 2019 and there was no material impact on the accompanying consolidated financial statements from these adopted standards.

Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also improves consistent application by clarifying and amending existing guidance. The standard is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The Company currently is assessing the impact of this guidance and on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. The new standard requires the lessees to classify leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee, and such classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which revised the effective date for ASU No. 2016-02, Leases (Topic 842) for fiscal years beginning after December 15, 2020. In June 2020, the FASB issued ASU No. 2020-05, Revenue From Contracts With Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, further delaying the effective date for ASU No. 2016-02, Leases (Topic 842) to fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The Company immediately adopted ASU No. 2019-10 and ASU No. 2020-05 upon issuance by the FASB. The Company currently is assessing the impact of this guidance and on its consolidated financial statements.

3. Balance Sheet and Statement of Operations Components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):

 

		December 31,
		2019				2020
Prepaid research and development expenses		$	334			$	1,181
Other receivables			—				1,803
R&D tax credits and value-added tax (“VAT”) refunds			—				799
Grant receivable			—				571
Other assets			57				70
Total prepaid expenses and other current assets		$	391			$	4,424

 

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Property, Plant and Equipment, Net

Property, plant and equipment, net consist of the following (in thousands):

 

		December 31,
		2019				2020
Land		$	—			$	31,243
Building			—				6,309
Laboratory equipment			210				6,590
Manufacturing equipment			—				2,355
Office and computer equipment			—				1,510
Leasehold improvements			—				1,312
Construction work-in-progress			—				6,328
Total property, plant and equipment, gross			210				55,647
Less: accumulated depreciation			(20	)			(306	)
Total property, plant and equipment, net		$	190			$	55,341

For the years ended December 31, 2019 and 2020 the Company recognized depreciation expense of $0 and $0.3 million, respectively, in the consolidated statements of operations and comprehensive loss.

In October 2020, the Company acquired land inclusive of four buildings in Los Angeles, California, for $37.6 million. The Company is in the process of developing this land for its U.S. operations and has capitalized $6.3 million in work in progress costs associated with this development project. The Company’s contractual commitments for this development project are limited to unreimbursed spend by the general contractor and as such, as of December 31, 2020, $6.3 million is contractually committed to the development of this project. This acquisition is classified as an asset acquisition for which the Company records identifiable assets acquired at cost on a relative fair value basis. The most significant components of the allocation of fair value are four buildings as-if-vacant and land. The Company determined fair value based on available market information, such as comparable sale transactions (market approach) and relevant per square foot or unit cost information (cost approach), which are considered Level 3 inputs.

Other Long-term Assets

Other long-term assets consist of the following (in thousands):

 

		December 31,
		2019				2020
Prepaid research and development expenses		$	—			$	603
Deferred rent			—				509
Deferred offering costs			—				516
Restricted cash			—				50
Security deposit			—				29
Total other long-term assets		$	—			$	1,707

 

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Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

 

		December 31,
		2019				2020
Accrued compensation and benefits		$	185			$	3,983
Accrued operational expenses			—				2,382
Accrued research and development expenses			256				1,125
VAT liabilities			—				631
Other			—				281
Total accrued expenses and other current liabilities		$	441			$	8,402

Interest and Other Income (Expense), net

Interest income and other expenses, net consist of the following (in thousands):

 

		December 31,
		2019				2020
Loss on issuance of Series A convertible preferred stock (Note 9)		$	—			$	(4,400	)
Foreign exchange remeasurement gains			—				643
Other expenses			(5	)			(256	)
Interest income			68				70
Total interest and other income (expense), net		$	63			$	(3,943	)

4. Fair Value Measurements

The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis:

 

		As of December 31, 2019
		Level 1				Level 2				Level 3				Total
		(In thousands)
Financial Assets
Money market funds		$	8,010			$	—			$	—			$	8,010
		As of December 31, 2020
		Level 1				Level 2				Level 3				Total
		(In thousands)
Financial Assets
Money market funds		$	106,138			$	—			$	—			$	106,138
Financial Liabilities
Contingent consideration		$	—			$	—			$	12,277			$	12,277

 

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There were no transfers in and out of Level 1, 2 and 3 measurements for the years ended December 31, 2019 and 2020. The following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities:

 

		Year Ended December 31, 2020
		(In thousands)
Fair value, beginning balance		$	—
Contingent consideration recorded as a result of Immetacyte acquisition			11,349
Change in present value of contingent consideration			928
Fair value, ending balance		$	12,277

The Company’s acquisition of Immetacyte involved the potential for the payment of future contingent consideration upon the achievement of (i) certain product development milestones including, approval of studies and commencement and completion of certain product trials, or (ii) various other performance conditions including, receipt of final approval for the first marketing authorization and first commercial sale in certain geographical markets. Contingent consideration is recorded at the estimated fair value of the contingent payments on the acquisition date. The fair value of the contingent consideration is remeasured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense within research and development expense in the consolidated statements of operations and comprehensive loss.

The Company determined the fair value of the contingent consideration by probability weighting scenarios of milestone achievements to determine the expected future contingent consideration payment, discounted to present value using an 8.5% discount rate based on the Company’s pre-tax cost of debt on the acquisition date. The probability of payments ranged from 20% to 100% and the timing of future payments ranged from 2020 to 2026. In determining the likelihood of milestone achievements which trigger payouts related to the contingent consideration, the probabilities for various scenarios, as well as the discount rate used in the Company’s calculations were based on internal unobservable projections. During the year ended December 31, 2020, no contingent consideration payments were made by the Company. As a result, as of December 31, 2020, the estimated future payments included the payment previously expected to be made in late 2020. As of December 31, 2020, the probability and timing of payments ranged from 20% to 100% and 2021 to 2026, respectively. As of December 31, 2020, the discount rate used in discounting the expected contingent consideration payments changed to 8% based on the Company’s pre-tax cost of debt, which increased the fair value of the contingent consideration by $0.9 million from the acquisition date.

5. Transactions with Immetacyte

License Agreement with Immetacyte

In February 2019, the Company entered into an Exclusive License & Research Services Agreement (the “License Agreement”) with Immetacyte, whose key founders are also shareholders of the Company, pursuant to which the Company obtained a worldwide license to Immetacyte’s proprietary technology, know-how and intellectual property for the research, development and manufacture of TIL therapies obtained from tumors using Immetacyte’s technology.

Under the License Agreement, prior to the acquisition of Immetacyte as described below, the Company was obligated to make payments for the license of the TIL technology which include: (i) an upfront license fee of $0.3 million, (ii) development milestone payments ranging from $0.3 million upon initial approval of a distinct product to $10 million upon first commercial sale in the U.S., European Union or Asia, (iii) sales milestone payments of up to an aggregate of $37.5 million based on tiered cumulative net sales of all products and

 

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(iv) royalty payments on net sales of each distinct product at a rate of 3% of net sales up to $250 million and 5% of net sales over $250 million.

The payments made for the license of the TIL technology were accounted for as IPR&D as part of an asset acquisition and were expensed as it was determined that there was no alternative future use for the license. The Company accounts for contingent consideration payable upon achievement of certain development or commercial milestones when the underlying contingency is resolved. For the year ended December 31, 2019, the Company recognized $0.6 million of IPR&D, which consisted of $0.3 million paid up front for the license and $0.3 million paid for achievement of a development milestone, which was recognized as a component of research and development expense in the Company’s statement of operations and comprehensive loss. As of December 31, 2019, and through the date of the acquisition of Immetacyte, no additional milestones were accrued as the underlying contingencies had not yet been resolved.

Additionally, the Company was obligated to make payments for the research and development, manufacturing, monitoring and general services which include: (i) research and development services payments of $1.9 million annually for each of the first three years, (ii) manufacturing services payments of $1.2 million for the first annual period and $1.6 million for two years thereafter, and (iii) $0.3 million for monitoring and general services.

For the years ended December 31, 2019 and 2020, the Company recorded $2.9 million and $0.6 million, respectively, of research and development expense in the statement of operations and comprehensive loss as part of these services.

Upon the acquisition of Immetacyte, the License Agreement was terminated.

Acquisition of Immetacyte

In March 2020, the Company acquired 100% of the share capital of Immetacyte for $0.8 million in cash consideration, 4.7 million shares of common stock at an estimated fair value of $0.69 per share and up to an aggregate of $14.8 million of cash contingent consideration. The contingent consideration is additional cash consideration payable to the seller up until January 31, 2040 upon achievement of distinct product development milestones. The Company believes the acquisition, which includes the dedicated workforce of Immetacyte, will better position themselves in developing an innovative cell therapy pipeline of autologous TIL therapies for the treatment of patients with cancer.

The fair value of consideration paid was as follows (in thousands):

 

Cash consideration		$	779
Common stock of 4,700,000 shares at an estimated fair value of $0.69 per share			3,243
Contingent consideration			11,349
Total consideration		$	15,371

 

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The allocation of the purchase consideration was based on management’s estimate of the acquisition date fair values of the assets acquired and liabilities assumed, as follows (in thousands):

 

Assets acquired:
Net working capital		$	870
Property and equipment			690
Intangibles			10,104
Total assets acquired			11,664
Goodwill			5,722
Deferred tax liabilities			(2,015	)
Total purchase price		$	15,371

The acquisition was accounted for as a business combination and, accordingly, the total fair value of purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values on the acquisition date. Due to the Company’s pre-commercialization stage, many of the processes and methods used in the production of TILs were still in experimental development and pre-clinical stages and as such, resulted in a $10.1 million IPR&D asset. To value the IPR&D, the Company utilized the multi-period excess earnings method under the income approach. The method reflects the present value of the operating cash flows generated by this asset after taking into account the cost to realize the revenue, and an appropriate discount rate to reflect the time value and risk associated with the invested capital. These assumptions were applied to a relief-from-royalty model.

Within net working capital, is $0.8 million of acquired gross trade receivables, all of which is expected to be collected. Goodwill is attributable to the assembled workforce and attributable to expected synergies from combining operations. The goodwill recognized for this acquisition is not deductible for income tax purposes. From the acquisition date through December 31, 2020, there has been no change in the carrying amount of goodwill. Because the acquired IPR&D has an indefinite life, it is not amortized but rather evaluated for impairment. As of December 31, 2020, IPR&D was not impaired.

All of the Company’s revenue and $5.3 million of net loss were related to Immetacyte and included in the Company’s consolidated statement of operations and comprehensive loss since the date of the acquisition.

The Company recognized acquisition-related costs of $0.9 million which were expensed as incurred within general and administrative on the consolidated statements of operations and comprehensive loss.

6. Commitments and Contingencies

Operating Leases

The Company leases various operating spaces in the U.S. and the U.K. under non-cancelable operating lease arrangements that expire on various dates through March 31, 2026. These arrangements require us to pay certain operating expenses, such as taxes, repairs, and insurance and contain landlord or tenant incentives or allowances, renewal and escalation clauses. The Company recognizes rent expense under these arrangements on a straight-line basis over the term of the lease and records the difference between the rent paid and the recognition of rent expense as a deferred rent asset. Total rent expense was $0.3 million and $0.5 million for the years ended December 31, 2019 and 2020, respectively.

 

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Future minimum lease payments under noncancelable operating leases as of December 31, 2020 were as follows (in thousands):

 

2021		$	1,192
2022			982
2023			837
2024			820
2025 and thereafter			740
Total		$	4,571

Legal Proceedings

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. The Company does not expect that the resolution of these matters will have a material adverse effect on its financial position, results of operations or cash flows.

Indemnifications

The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid. No liability associated with such indemnifications was recorded as of December 31, 2019 and 2020.

7. Common Stock

Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and if declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No cash dividends have been declared by the board of directors from inception.

In September and October 2018, the Company issued a total of 12.7 million shares of common stock through Founder’s Stock Purchase Agreements at a purchase price of $0.000001 per share (collectively, the “Founders’ Stock Purchase Agreements”). As part of the Founders’ Stock Purchase Agreements, 4.1 million shares were subject to vesting over a 36-month period, subject to certain conditions. For the unvested shares, the Company retained a right to repurchase such unvested shares if certain conditions were not met. As certain vesting conditions were not met, in February of 2019, the Company exercised the repurchase right and repurchased 3.3 million shares of unvested common stock at a price per share equal to the original purchase price. The Company did not exercise its repurchase rights of unvested common stock during 2020.

In March 2020, the Company issued 4.7 million shares of its common stock at an estimated fair value of $0.69 per share to purchase Immetacyte (see Note 4).

 

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In November 2020, the Company executed a limited recourse promissory note with its Chief Executive Officer (“CEO”), Bronson Crouch, in the amount of $1.1 million which is secured by a pledge of a total of 2.6 million shares of its common stock issued upon exercise of vested stock options. The note bears an interest rate of 2.5% per annum with a maturity date of the earlier of (i) five years from the date of the note or (ii) one business day prior to the filing or submission of the Company’s first registration statement covering the Company’s common stock with the Securities and Exchange Commission. The principal and interest under the note may be prepaid at any time without penalty. Because the Company only has partial recourse under the promissory note, the Company deemed the note receivable to be non-substantive. As such, the note receivable is not reflected in the consolidated financial statements and the related stock transaction will be recorded at the time the note receivable is settled in cash. As of December 31, 2020, the outstanding balance of the promissory note was $1.1 million. The promissory note was fully repaid in January 2021.

8. Convertible Preferred Stock

In March 2019, the Company entered into a Series A convertible Preferred Stock Purchase Agreement with a single investor, pursuant to which the Company issued 10.1 million shares of its Series A convertible preferred stock at a purchase price of $1.00 per share for net proceeds of $10.1 million. The CEO of our Company also serves as the Manager of the investor. In September 2019, the Company issued 4.9 million additional shares of Series A convertible preferred stock to the same investor in a second closing on the same terms as the initial closing for net proceeds of $4.9 million.

In May 2020, the Company issued an additional 10.0 million shares of its Series A convertible preferred stock to the same investor at a purchase price of $1.00 per share for net proceeds of $10.0 million. The fair value of Series A convertible preferred stock issued to the investor was $14.4 million, resulting in the recognition of a $4.4 million loss on issuance in the consolidated statements of operations and comprehensive loss for the excess of the fair value of the shares issued over the cash proceeds received which was recorded as a component of interest and other income (expense), net. The Company recognized the excess fair value of the Series A convertible preferred stock over the proceeds received as an expense because the excess fair value was transferred only to the holder of the Series A convertible preferred stock and not to other investors in the Company and there were no other rights or privileges identified that require separate accounting. The Company and the Series A convertible preferred stock investor determined to complete the extension of the Series A convertible Preferred Stock Purchase Agreement in line with their initial discussions, notwithstanding that the fair value of the Series A convertible preferred stock had increased from the time these discussions were initiated to the time the transaction was completed.

In June 2020, the Company issued an aggregate of 34.6 million shares of its Series B convertible preferred stock at a purchase price of $4.92 per share for net proceeds of $169.8 million.

In December 2020, the Company issued an aggregate of 10.6 million shares of its Series C convertible preferred stock at a purchase price of $12.58 per share for net proceeds of $132.8 million.

 

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Convertible preferred stock consisted of the following (in thousands, except shares):

 

		As of December 31, 2019
		Shares Authorized				Shares Issued and Outstanding				Aggregate Liquidation Preference
Series A			15,000,000				15,000,000			$	15,000
		As of December 31, 2020
		Shares Authorized				Shares Issued and Outstanding				Aggregate Liquidation Preference
Series A			25,000,000				25,000,000			$	25,000
Series B			34,600,523				34,600,523				170,200
Series C			14,750,075				10,575,523				133,000
			74,350,598				70,176,046			$	328,200

The Company classifies the convertible preferred stock outside of total stockholders’ deficit because, in the event of certain deemed liquidation events that are not solely within the control of the Company, the shares would become redeemable at the option of the holders. The Company did not adjust the carrying values of the convertible preferred stock to the deemed liquidation values of such shares since a liquidation event was not probable of occurring at December 31, 2020. Subsequent adjustments to increase or decrease the carrying values to the ultimate liquidation values will be made only if, and when, it becomes probable that such a liquidation event will occur.

As of December 31, 2020, the holders of the Company’s convertible preferred stock have various rights, preferences and privileges as follows:

Voting Rights

The holders of convertible preferred stock are entitled to cast the number of votes equal to the number of shares of common stock into which the shares of convertible preferred stock held by such holder are convertible as of the record date at any shareholder meeting of the Company. Except as provided by law or by the other provisions of the Company’s amended and restated certification of incorporation, holders of convertible preferred stock and common stock vote together as a single class. Holders of Series A convertible preferred stock, exclusively and as a separate class, are entitled to elect one member of the Company’s board of directors and holders of Series B convertible preferred stock, exclusively and as a separate class, are entitled to elect three members to the Company’s board of directors.

Dividends

Holders of convertible preferred stock are entitled to receive noncumulative cash dividends in an amount equal to 8% of their respective original issue price of $1.00, $4.92 and $12.58 for Series A, Series B and Series C convertible preferred stock, respectively, per annum per share (subject to appropriate adjustment in the event of any stock dividends, stock splits, stock combinations, recapitalizations or similar events), when and if declared by the Company’s board of directors, prior and in preference to the holders of common stock. As of December 31, 2020, no dividends had been declared.

Liquidation

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or deemed liquidation event, the holders of shares of Series C convertible preferred stock are entitled to receive,

 

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prior and in preference to any distribution to the holders of Series B convertible preferred stock, an amount equal to the greater of (i) $12.58 per share, plus any dividends declared but unpaid or (ii) such amount per share as would have been payable in respect of each share of Series C convertible preferred stock had all shares of Series C convertible preferred stock been converted into common stock immediately prior to such liquidation, dissolution, winding up or deemed liquidation event. After the required payment to Series C convertible stockholders, holders of shares of Series B convertible preferred stock are entitled to receive, prior and in preference to any distribution to the holders of Series A convertible preferred stock, an amount equal to the greater of (i) $4.92 per share, plus any dividends declared but unpaid or (ii) such amount per share as would have been payable in respect of each share of Series B convertible preferred stock had all shares of Series B convertible preferred stock been converted into common stock immediately prior to such liquidation, dissolution, winding up or deemed liquidation event. After the required payment to Series B convertible stock holders, holders of shares of Series A convertible preferred stock are entitled to receive, prior and in preference to any distribution to the holders of common stock, an amount equal to the greater of (i) $1.00 per share, plus any dividends declared but unpaid or (ii) such amount per share as would have been payable in respect of each share of Series A convertible preferred stock had all shares of Series A convertible preferred stock been converted into common stock immediately prior to such liquidation, dissolution, winding up or deemed liquidation event. After the required payment is made to the preferred stockholders, the remaining assets of the Company, if any, are to be distributed to the holders of common stock pro rata based on the number of shares held by each such holder.

Optional Conversion Rights

Each share of convertible preferred stock is convertible, at the option of the holder, into such number of shares of common stock as is determined by dividing the original issue price for that series by the conversion price for such series in effect at the time of conversion. The conversion price is $1.00 per share, $4.92 and $12.58 per share with respect to the shares of Series A, Series B and Series C convertible preferred stock, respectively, and is subject to certain anti-dilution adjustments.

Mandatory Conversion

Each share of convertible preferred stock will automatically be converted into shares of common stock at the then effective conversion ratio for such share upon the earlier of (i) the closing of the sale of shares of common stock to the public at a price of at least $15.09 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization) with the gross cash proceeds to the Company of at least $100 million, or (ii) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least a majority of outstanding shares of (a) Series B convertible preferred stock, (b) Series C convertible preferred stock not also holding Series B convertible preferred stock, and (c) all convertible preferred stock.

9. Stock-Based Compensation

In September 2018, the Company adopted the 2018 Stock Incentive Plan (the “2018 Plan”). The 2018 Plan provides for the Company to grant options, restricted stock awards, stock appreciation rights and restricted stock units to employees, non-employee directors and consultants of the Company under terms and provisions established by the board of directors. Under the terms of the 2018 Plan, options are granted at an exercise price no less than fair value of the Company’s common stock on the grant date. However, for any employee who is a 10% or greater stockholder, options are granted at an exercise price no less than 110% of the fair value of the Company’s common stock on the grant date. Under the terms of the 2018 Plan, options can be granted with vesting conditions that include either a service condition and/or performance condition. Awards with vesting conditions typically include either vesting 25% on the first anniversary of the grant date with the remainder vesting monthly over the following three years or vesting a portion immediately on the grant date (typically 25%) with the remainder vesting monthly over the following three-year period. Option awards granted typically have

 

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10-year terms measured from the option grant date. However, if any employee is a 10% or greater stockholder, the awards have 5-year terms measured from the option grant date. As of December 31, 2019 and 2020, the total number of shares authorized for issuance under the 2018 Plan was 8.7 million and 21.8 million, respectively. The following summarizes option activity under the 2018 Plan:

 

		Shares Available for Grant				Shares Issuable Under Options				Weighted- Average Exercise Price				Weighted- Average Remaining Contract Term (in years)				Aggregate Intrinsic Value (in thousands)
Balance, December 31, 2018			5,666,667				—			$	—
Additional Shares Authorized			3,000,000
Options granted(1)			(5,423,334	)			5,423,334				0.41
Balance, December 31, 2019			3,243,333				5,423,334				0.41				9.68			$	1,106
Additional Shares Authorized			13,117,481
Options granted(1)			(8,951,269	)			8,951,269				1.26
Options forfeited			1,104,813				(1,104,813	)			0.85
Options exercised (2)			—				(493,187	)			0.74
Balance, December 31, 2020			8,514,358				12,776,603				0.96				9.22			$	78,857
Exercisable, December 31, 2019							841,559				0.41				9.68			$	172
Vested and expected to vest, December 31, 2019							3,065,000				0.41				9.68			$	625
Exercisable, December 31, 2020							1,345,206				0.52				8.81			$	8,892
Vested and expected to vest, December 31, 2020							1,445,206				0.55				8.84			$	9,505

 

(1)	Includes 2,358,334 and 918,000 stock options during the years ended December 31, 2019 and 2020, respectively, subject to only performance conditions.

(2)	Excludes the exercise of 2,633,125 stock options that are subject to a limited recourse promissory note.

The aggregate intrinsic value disclosed in the above table is based on the difference between the exercise price of the stock option and the estimated fair value of the Company’s common stock as of the respective period-end dates. There were no stock options exercised during the year ended December 31, 2019. The aggregate intrinsic value of stock options exercised during the year ended December 31, 2020 was $1.5 million. The weighted-average grant date fair value of stock options granted during the years ended December 31, 2019 and 2020 was $0.26 and $0.81 per share, respectively.

The fair value of the Company’s stock option awards was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:

 

		Year Ended December 31,
		2019		2020
Expected term (in years)		5.27 - 6.25		5.88 – 6.10
Expected volatility		69.69% - 73.51%		82.54% - 88.62%
Risk-free interest rate		1.43% - 1.46%		0.31% - 0.55%
Fair Value of Common Stock		$0.41		$0.71 - $1.46
Expected dividend yield		0%		0%

The fair value of the shares of common stock underlying stock options has historically been determined by the Company’s board of directors. Because there has been no public market for the Company’s common stock,

 

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the board of directors has determined fair value of the common stock at the time of grant of the option by considering a number of objective and subjective factors including important developments in the Company’s operations, contemporaneous valuations performed by an independent third party firm, sales of the Company’s convertible preferred stock, the Company’s operating results and financial performance, the conditions in the biotechnology industry and the economy in general, the stock price volatility of similar public companies and the lack of marketability of the Company’s common stock, among other factors.

The Black-Scholes option pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards. These assumptions include:

Expected term—The expected term represents the period that stock-based awards are expected to be outstanding and is determined as the average of the time-to-vesting and the contractual life of the awards.

Expected volatility—Since the Company is privately held and does not have any trading history for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty.

Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of awards.

Expected dividend yield—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

Performance Awards

During the years ended December 31, 2019 and 2020, the Company granted 2.4 million and 426,000 stock options to both employees and non-employees that are subject to a performance condition and will vest upon the consummation of a strategic transaction by the Company prior to December 31, 2022. A strategic transaction has been defined as (a) a change in control, (b) the Company’s next capital raise or (c) an initial public offering of the Company’s shares, in which the Company receives at least $50 million in gross proceeds. As of December 31, 2019 and 2020, the Company had $0.6 million and $0 of unrecognized compensation cost relating to these performance awards, calculated using the accelerated attribution method and the grant date fair value of the awards.

During June 2020, the Company’s Series B financing met the definition of a strategic transaction, triggering the immediate vesting of the performance awards. The Company recognized $0.8 million in compensation expense relating to the performance awards as of the closing of the Series B convertible preferred stock financing.

Additionally, during the year ended December 31, 2020, the Company granted 492,000 options that are subject to operational performance conditions, or an IPO of which 92,000 options were forfeited during the year. Of the remaining options, 100,000 were considered probable of vesting and an immaterial amount of stock compensation expense had been recognized during the year ended December 31, 2020. As of December 31, 2020, the Company had $0.2 million of unrecognized compensation costs relating to all outstanding performance awards.

The following table sets forth stock-based compensation included in the Company’s statement of operations and comprehensive loss (in thousands):

 

		Year Ended December 31,
		2019				2020
Research and development expense		$	33			$	418
General and administrative expense			260				1,288
Total stock-based compensation expense		$	293			$	1,706

 

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As of December 31, 2019 and 2020, there was $0.5 million and $6.1 million of total unrecognized compensation cost related to unvested stock options granted under the 2018 Plan (excluding performance awards), which is expected to be recognized over a weighted average period of 1.34 and 3.26 years, respectively.

10. Net Loss Per Share

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:

 

		Year Ended December 31,
		2019				2020
Convertible preferred stock			15,000,000				70,176,046
Stock options to purchase common stock			5,423,334				7,510,353
Shares of common stock collateralizing note receivable from stockholder			—				2,633,125
Total			20,423,334				80,319,524

11. Income Taxes

The geographical breakdown of loss before provision for income taxes is as follows (in thousands):

 

		Year Ended December 31,
		2019				2020
Domestic		$	(6,522	)		$	(38,646	)
Foreign			—				1,059
Loss before income taxes		$	(6,522	)		$	(37,587	)

 

F-27

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The components of the provision for income taxes are as follows (in thousands):

 

		Year Ended December 31,
		2019				2020
Current provision for income taxes:
Foreign		$	—			$	(116	)
Total current			—				(116	)
Deferred tax provision:
Foreign			—				267
Total deferred			—				267
Total income tax expense		$	—			$	151

The following table presents a reconciliation of the Company’s statutory federal income tax rate and effective tax rate:

 

		Year Ended December 31,
		2019				2020
U.S federal taxes at statutory rate			21.0	%			21.0	%
Research and development tax credits			—				2.6
Stock-based compensation			—				1.0
Permanent differences			—				(1.3	)
Loss on issuance of Series A convertible preferred stock			—				(2.5	)
Statutory tax rate differences			—				0.1
Change in valuation allowance			(21.0	)			(21.3	)
Total			—	%			(0.4	)%

The components of deferred tax liabilities consist of the following (in thousands):

 

		Year Ended December 31,
		2019				2020
Deferred tax assets:
Net operating loss carryforwards		$	1,339			$	8,120
Research and development credits			—				848
Accrued compensation and benefits			—				728
Intangible assets			111				—
Stock-based compensation			61				142
Other			34				29
Total gross deferred tax assets			1,545				9,867
Less: valuation allowance			(1,505	)			(9,522	)
Total deferred tax assets, net			40				345
Deferred tax liabilities:
Intangible assets			—				(2,049	)
Fixed assets			(40	)			(641	)
Other			—				(126	)
Total gross deferred tax liabilities			(40	)			(2,816	)
Net deferred tax liabilities		$	—			$	(2,471	)

 

F-28

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In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due to the uncertainty of the business in which the Company operates, projections of future profitability are difficult and past profitability is not necessarily indicative of future profitability. The Company does not believe it is more likely than not that the deferred tax assets will be realized, and accordingly, the valuation allowance increased $8.0 million for the year ended December 31, 2020. As of December 31, 2020, the Company had net operating loss carryforwards for federal income tax purposes of $38.0 million, which will carryforward indefinitely, but may only offset 80% of the Company’s taxable income. This change may require the Company to pay federal income taxes in future years despite generating a loss for federal income tax purposes in prior years. The Company has R&D credits of $0.4 million and $0.5 million for federal and California, respectively, as of December 31, 2020. The federal R&D credits expire in 2040 and the California R&D credits carryforward indefinitely.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss carryforwards generated in taxable years beginning after December 31, 2017, to offset 100% of taxable income for taxable years beginning before January 1, 2021, and 80% of taxable income in taxable years beginning after December 31, 2020. The CARES Act does not have a material impact on the Company’s financial results for the year ended December 31, 2020.

The Company files income tax returns in the U.S. federal jurisdiction, the state of Texas and the U.K. As of December 31, 2020, the Company’s federal and state returns through 2020 are still open to examination. The UK returns starting from 2016 are open to examination. The Company did not have any uncertain tax positions as of December 31, 2020.

The Company has not completed a Section 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company’s formation. Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the Company’s net operating loss and research and development tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate.

12. Subsequent Events

Subsequent events have been evaluated through February 26, 2021, which is the date that the consolidated financial statements were available to be issued.

 

F-29

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                 Shares

 

 

Common Stock

PROSPECTUS

Joint Book-Running Managers

 

MORGAN STANLEY		JEFFERIES		COWEN

Lead Manager

TRUIST SECURITIES

Until                , 2021 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

                    , 2021

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table indicates the expenses to be incurred in connection with the offering described in this registration statement, other than underwriting discounts and commissions, all of which will be paid by us. All amounts are estimated except the Securities and Exchange Commission, or SEC, registration fee, the Financial Industry Regulatory Authority, Inc., or FINRA, filing fee and the Nasdaq Global Market initial listing fee.

 

		Amount
SEC registration fee		$	10,910
FINRA filing fee			15,500
Nasdaq Global Market initial listing fee			*
Accountants’ fees and expenses			*
Legal fees and expenses			*
Blue sky fees and expenses			*
Transfer agent’s fees and expenses			*
Printing and engraving expenses			*
Miscellaneous			*
Total expenses		$	*

 

*	To be provided by amendment

Item 14. Indemnification of Directors and Officers.

We are incorporated under the laws of the State of Delaware. Section 102 of the Delaware General Corporation Law permits a corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit.

Section 145 of the Delaware General Corporation Law provides that a corporation has the power to indemnify a director, officer, employee or agent of the corporation and certain other persons serving at the request of the corporation in related capacities against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlements actually and reasonably incurred by the person in connection with an action, suit or proceeding to which he is or is threatened to be made a party by reason of such position, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful, except that, in the case of actions brought by or in the right of the corporation, no indemnification shall be made with respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

As permitted by the Delaware General Corporation Law, our amended and restated certificate of incorporation and bylaws to be in effect upon the closing of this offering will provide that: (i) we are required to indemnify our directors to the fullest extent permitted by the Delaware General Corporation Law; (ii) we may, in our discretion, indemnify our officers, employees and agents as set forth in the Delaware General Corporation Law; (iii) we are required, upon satisfaction of certain conditions, to advance all expenses incurred by our directors in connection with certain legal proceedings; (iv) the rights conferred in the bylaws are not exclusive; and (v) we are authorized to enter into indemnification agreements with our directors, officers, employees and agents.

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In connection with this offering, we expect to enter into indemnification agreements with each of our directors and executive officers that require us to indemnify them against expenses, judgments, fines, settlements and other amounts that any such person becomes legally obligated to pay (including with respect to a derivative action) in connection with any proceeding, whether actual or threatened, to which such person may be made a party by reason of the fact that such person is or was a director or officer of us or any of our affiliates, provided such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, our best interests. The indemnification agreements will also set forth certain procedures that will apply in the event of a claim for indemnification thereunder. We intend to enter into similar indemnification agreements with our executive officers prior to the completion of this offering. At present, no litigation or proceeding is pending that involves any of our directors or officers regarding which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.

We maintain a directors’ and officers’ liability insurance policy. The policy insures directors and officers against unindemnified losses arising from certain wrongful acts in their capacities as directors and officers and reimburses us for those losses for which we have lawfully indemnified the directors and officers. The policy contains various exclusions.

In addition, the underwriting agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification by the underwriters of us and our officers and directors for certain liabilities arising under the Securities Act, or otherwise. Our amended and restated investor rights agreement with certain investors also provides for cross-indemnification in connection with the registration of our common stock on behalf of such investors.

Item 15. Recent Sales of Unregistered Securities.

The following list sets forth information regarding all unregistered securities sold by us since our inception through the date of the prospectus that forms a part of this registration statement.

Issuances of Capital Stock

In September and October 2018, we issued an aggregate of 12,666,664 shares of our common stock subject to a repurchase right to fifteen investors at a purchase price of $0.000001 per share, for aggregate consideration of $12.67. In February 2019, we repurchased 3,333,334 shares of our common stock at a price per share equal to the original purchase price.

In March 2019, we issued 10,100,00 shares of our Series A convertible preferred stock to Curative Ventures V LLC for $1.00 per share, for aggregate consideration of $10.1 million.

In September 2019, we issued 4,900,000 shares of our Series A convertible preferred stock to Curative Ventures V LLC for $1.00 per share, for aggregate consideration of $4.9 million.

In March 2020, we issued an aggregate of 4,700,000 shares of our common stock to the former stockholders of Immetacyte in connection with the share purchase agreement pursuant to which we acquired Immetacyte and it became our wholly owned subsidiary.

In May 2020, we issued 10,000,000 shares of our Series A convertible preferred stock to Curative Ventures V LLC for $1.00 per share, for aggregate consideration of $10.0 million.

In June 2020, we issued an aggregate of 34,600,523 shares of our Series B convertible preferred stock to fifteen investors at a purchase price of $4.92 per share, for aggregate consideration of $170.2 million.

In December 2020, January 2021 and February 2021, we issued an aggregate of 14,750,073 shares of our Series C convertible preferred stock to 26 investors at a purchase price of $12.58 per share, for aggregate consideration of $185.5 million.

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Issuances Pursuant to our Equity Plans

From August 31, 2018 (the date of our inception) through the date of this registration statement, we granted options under our 2018 Stock Incentive Plan to purchase an aggregate of 19,434,603 shares of common stock, at a weighted average exercise price of $2.55 per share, to our employees and consultants. Of these, 3,568,706 shares have been issued upon the exercise of options, and 1,145,813 options have been forfeited, expired or been cancelled.

None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. Unless otherwise specified above, we believe these transactions were exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act (and Regulation D or Regulation S promulgated thereunder) or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or under benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed on the share certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or advertising.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits.

The exhibits listed below are filed as part of this registration.

 

Exhibit Number		Description of Exhibit
1.1*		Form of Underwriting Agreement
3.1		Third Amended and Restated Certificate of Incorporation of the Registrant (as amended and currently in effect)
3.2		Bylaws of the Registrant (currently in effect)
3.3*		Form of Amended and Restated Certificate of Incorporation of the Registrant (to be effective upon the closing of this offering)
3.4*		Form of Amended and Restated Bylaws of the Registrant (to be effective upon the closing of this offering)
4.1		Second Amended and Restated Investors’ Rights Agreement, by and among the Registrant and certain of its stockholders, dated December 30, 2020
5.1*		Opinion of Cooley LLP
10.1†#		Share Purchase Agreement, by and between the Registrant and Immetacyte Limited, dated March 2, 2020
10.2+*		2021 Equity Incentive Plan and Forms of Option Grant Notice and Agreement, Exercise Notice, Early Exercise Notice and Restricted Stock Award Notice
10.3+		2018 Stock Incentive Plan and Forms of Stock Option Agreement, Notice of Stock Option Grant and Notice of Exercise and Common Stock Purchase Agreement
10.4+*		2021 Employee Stock Purchase Plan
10.5+*		Form of Indemnification Agreement with Executive Officers and Directors
10.6+*		Executive Employment Agreement, by and between the Registrant and Bronson Crouch, dated as of

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Exhibit Number		Description of Exhibit
10.7+*		Executive Employment Agreement, by and between the Registrant and Zachary Roberts, M.D., Ph.D., dated as of
10.8+*		Executive Employment Agreement, by and between the Registrant and Sandeep Laumas, M.D., dated as of
23.1		Consent of Deloitte & Touche LLP, independent registered public accounting firm
23.2*		Consent of Cooley LLP (included in Exhibit 5.1)
24.1		Power of Attorney (included on signature page)

 

+	Indicates management contract or compensatory plan.

†	Confidential treatment will be requested for portions of this agreement.

*	To be filed by amendment.

#	Certain schedules to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedules will be furnished supplementally to the SEC upon request.

(b) Financial Statement Schedules.

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

Item 17. Undertakings.

The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

 

(1)

For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.

 

(2)

For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Dallas, State of Texas, on this 26th day of February, 2021.

 

KNOW ALL BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Bronson Crouch and Sandeep Laumas, M.D., and each of them, as his or her true and lawful agents, proxies and attorneys-in-fact, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and all amendments (including post-effective amendments) to this registration statement together with all schedules and exhibits thereto and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together with all schedules and exhibits thereto, (ii) act on, sign and file such certificates, instruments, agreements and other documents as may be necessary or appropriate in connection therewith, (iii) act on and file any supplement to any prospectus included in this registration statement or any such amendment or any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and (iv) take any and all actions which may be necessary or appropriate to be done, as fully for all intents and purposes as he might or could do in person, hereby approving, ratifying and confirming all that such agent, proxy and attorney-in-fact or any of his substitutes may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature		Title		Date
/s/ Bronson Crouch Bronson Crouch		Chief Executive Officer and Director (Principal Executive Officer)		February 26, 2021
/s/ Sandeep Laumas, M.D. Sandeep Laumas, M.D.		Chief Financial Officer and Chief Business Officer (Principal Financial and Accounting Officer)		February 26, 2021
/s/ Gwendolyn Binder, Ph.D Gwendolyn Binder, Ph.D		Director		February 26, 2021
/s/ Neil Gibson, Ph.D. Neil Gibson, Ph.D.		Director		February 26, 2021
/s/ George Matcham, Ph.D. George Matcham, Ph.D.		Director		February 26, 2021
/s/ R. Kent McGaughy, Jr. R. Kent McGaughy, Jr.		Director		February 26, 2021
/s/ Jack Nielsen Jack Nielsen		Director		February 26, 2021
/s/ Nimish Shah Nimish Shah		Director		February 26, 2021

Exhibit 3.1

THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF INSTIL BIO, INC.

(Pursuant to Sections 242 and 245 of the General Corporation Law

of the state of Delaware)

Instil Bio, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the state of Delaware (the “General Corporation Law”),

DOES HEREBY CERTIFY:

1. That the name of this Corporation is Instil Bio, Inc. The original Certificate of Incorporation of the Corporation was filed with the Delaware Secretary of State on August 31, 2018. An Amended and Restated Certificate of Incorporation was filed on March 4, 2019, a Certificate of Amendment to the Amended and Restated Certificate of Incorporation was filed on May 28, 2020 and the Second Amended and Restated Certificate of Incorporation was filed on June 30, 2020.

2. That the Board of Directors of the Corporation (the “Board”) duly adopted resolutions proposing to amend and restate the Amended and Restated Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor.

3. That the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this corporation by written consent to action without a meeting in accordance with Section 228 of the General Corporation Law.

4. That this Third Amended and Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of this corporation’s Second Amended and Restated Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.

RESOLVED, that the amended and restated Certificate of Incorporation of this corporation be amended and restated in its entirety to read as follows:

FIRST: The name of this corporation is Instil Bio, Inc. (the “Corporation”).

SECOND: The address of the registered office of the Corporation in the state of Delaware is 3500 S. Dupont Hwy, in the city of Dover, county of Kent, Delaware 19901. The name of its registered agent at such address is Incorporating Services, Ltd.

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THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.

FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 111,000,000 shares of Common Stock, $0.000001 par value per share (“Common Stock”) and (ii) 74,350,598 shares of Preferred Stock, $0.000001 par value per share (“Preferred Stock”).

The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.

A. COMMON STOCK

1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.

2. Voting. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings). There is no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of this Third Amended and Restated Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.

B. PREFERRED STOCK

14,750,075 shares of the authorized Preferred Stock of the Corporation are hereby designated “Series C Preferred Stock,” 34,600,523 shares of the authorized Preferred Stock of the Corporation are hereby designated “Series B Preferred Stock” and 25,000,000 shares of the authorized Preferred Stock of the Corporation are hereby designated “Series A Preferred Stock”, each with the following rights, preferences, powers, privileges and restrictions, qualifications and limitations. Unless otherwise indicated, references to “sections” in this Part B of this Article Fourth refer to sections and Sections of Part B of this Article Fourth.

 

2

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1. Dividends.

1.1 The holders of Series C Preferred Stock will be entitled to receive dividends, out of any assets legally available therefore, prior and in preference to any declaration of payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on Series B Preferred Stock, Series A Preferred Stock or Common Stock, at the rate of 8% of the Series C Original Issue Price (as defined below) per annum, payable when, as and if declared by the Board (the “Series C Dividend”).

1.2 The holders of Series B Preferred Stock will be entitled to receive dividends, out of any assets legally available therefore, prior and in preference to any declaration of payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on Series A Preferred Stock or Common Stock, at the rate of 8% of the Series B Original Issue Price (as defined below) per annum, payable when, as and if declared by the Board and after payment in full of the Series C Dividend (the “Series B Dividend”).

1.3 The holders of Series A Preferred Stock will be entitled to receive dividends, out of any assets legally available therefore, prior and in preference to any declaration of payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on Common Stock, at the rate of 8% of the Series A Original Issue Price (as defined below) per annum, payable when, as and if declared by the Board and after payment in full of the Series C Dividend and the Series B Dividend (the “Series A Dividend” and together with the Series C Dividend and the Series B Dividend, the “Preferred Dividends”). The Preferred Dividends will be non-cumulative.

1.4 After payment of the Preferred Dividends, any additional dividends will be distributed among the holders of Preferred Stock and Common Stock pro rata based on the number of shares of Common Stock held by each holder (assuming conversion of all Preferred Stock into Common Stock).

1.5 The term “Series C Original Issue Price” shall mean $12.5762 per share for each share of Series C Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series C Preferred Stock). The term “Series B Original Issue Price” shall mean $4.919 per share for

 

3

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each share of Series B Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series B Preferred Stock). The term “Series A Original Issue Price” shall mean $1.00 per share for each share of Series A Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock). The term “Original Issue Price” shall mean (i) with respect to the Series C Preferred Stock, the Series C Original Issue Price, (ii) with respect to the Series B Preferred Stock, the Series B Original Issue Price and (iii) with respect to the Series A Preferred Stock, the Series A Original Issue Price.

2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.

2.1 Preferential Payments to Holders of Preferred Stock.

2.1.1 Series C Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the holders of shares of Series C Preferred Stock then outstanding will be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Series B Preferred Stock, Series A Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the Series C Original Issue Price, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable in respect of each share of Series C Preferred Stock had all shares of Series C Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this sentence is hereinafter referred to as the “Series C Liquidation Amount”). If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series C Preferred Stock the full amount to which they shall be entitled under this Section 2.1.1, the holders of shares of Series C Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

2.1.2 Series B Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, and after payment in full of all Series C Liquidation Amounts required to be paid to the holders of shares of Series C Preferred Stock, the holders of shares of Series B Preferred Stock then outstanding will be entitled to be paid out of the assets of the Corporation available for

 

4

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distribution to its stockholders before any payment shall be made to the holders of Series A Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the Series B Original Issue Price, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable in respect of each share of Series B Preferred Stock had all shares of Series B Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this sentence is hereinafter referred to as the “Series B Liquidation Amount”). If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series B Preferred Stock the full amount to which they shall be entitled under this Section 2.1.2, the holders of shares of Series B Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

2.1.3 Series A Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, and after payment in full of all Series C Liquidation Amounts and Series B Liquidation Amounts required to be paid to the holders of shares of Series C Preferred Stock and Series B Preferred Stock, the holders of shares of Series A Preferred Stock then outstanding will be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) the Series A Original Issue Price, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable in respect of each share of Series A Preferred Stock had all shares of Series A Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this sentence is hereinafter referred to as the “Series A Liquidation Amount”). If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A Preferred Stock the full amount to which they shall be entitled under this Section 2.1.3, the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. The term “Liquidation Amount” shall mean (i) with respect to the Series C Preferred Stock, the Series C Liquidation Amount, (ii) with respect to the Series B Preferred Stock, the Series B Liquidation Amount and (iii) with respect to the Series A Preferred Stock, the Series A Liquidation Amount.

 

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2.2 Distribution of Remaining Assets. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment in full of all Liquidation Amounts required to be paid to the holders of shares of Preferred Stock, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of shares of Common Stock, pro rata based on the number of shares held by each such holder.

2.3 Deemed Liquidation Events.

2.3.1 Definition. Each of the following events shall be considered a “Deemed Liquidation Event” unless the holders of a majority of the outstanding shares of Preferred Stock, voting together as a single class and on an as-converted basis, including the approval of the holders of (i) a majority of the outstanding shares of Series C Preferred Stock (including at least forty five percent (45%) of the shares of Series C Preferred Stock held by holders of shares of Series C Preferred Stock who do not also hold any shares of Series B Preferred Stock) (the “Requisite Series C Majority”) and (ii) a majority of the outstanding shares of Series B Preferred Stock (the “Requisite Series B Majority”; and the holders of a majority of the outstanding shares of Preferred Stock, the Requisite Series C Majority and the Requisite Series B Majority collectively, the “Requisite Holders”), elect otherwise by written notice sent to the Corporation at least 7 days prior to the effective date of any such event:

(a) a merger or consolidation in which

 

(i)

the Corporation is a constituent party or

 

(ii)

a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,

except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation; or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; or

 

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(b) (1) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all material intellectual property or all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or (2) the sale or disposition (whether by merger, consolidation or otherwise, and whether in a single transaction or a series of related transactions) of one or more subsidiaries of the Corporation if all material intellectual property or substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation.

2.3.2 Effecting a Deemed Liquidation Event.

(a) The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Section 2.3.l(a)(i) unless the agreement or plan of merger or consolidation for such transaction (the “Merger Agreement”) provides that the consideration payable to the stockholders of the Corporation is allocated among the holders of capital stock of the Corporation in accordance with Sections 2.1 and 2.2.

(b) In the event of a Deemed Liquidation Event referred to in Section 2.3.l(a)(ii) or 2.3.l(b), if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within 30 days after such Deemed Liquidation Event, then (i) the Corporation shall send a written notice to each holder of Preferred Stock no later than the 30th day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (ii) to require the redemption of such shares of Preferred Stock; and (ii) unless the Requisite Holders request otherwise in a written instrument delivered to the Corporation, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board), together with any other assets of the Corporation available for distribution to its stockholders, all to the extent permitted by Delaware law governing distributions to stockholders (the “Available Proceeds”), on the 60th day after such Deemed Liquidation Event, to redeem all outstanding shares of Preferred Stock at a price per share equal to the applicable Liquidation Amount. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if the Available Proceeds are not sufficient to redeem all outstanding shares of Preferred Stock, the Corporation shall ratably redeem each holder’s shares of Preferred Stock to the fullest extent of such Available Proceeds (in proportion to the aggregate Liquidation Amount payable to each such holder), and shall redeem the remaining shares as soon as it may lawfully do so under Delaware law governing distributions to stockholders. Prior to the distribution or redemption provided for in this Section 2.3.2(b), the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in connection with such Deemed Liquidation Event.

 

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(c) Upon redemption of the Preferred Stock pursuant to Section 2.3.2(b), each holder of Preferred Stock shall surrender the certificate or certificates representing such shares (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation, in the manner and at the place designated in the written notice sent by the Corporation pursuant to Section 2.3.2(b), and thereupon the redemption price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof.

(d) If the notice required by Section 2.3.2(b) shall have been duly given to each holder of shares of Preferred Stock, and if on the redemption date the price payable upon redemption of the shares of Preferred Stock is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor in a timely manner, then notwithstanding that the certificates evidencing any of the shares of Preferred Stock so called for redemption shall not have been surrendered, all rights with respect to such shares shall forthwith after such redemption date terminate, except only the right of the holders to receive the redemption price determined in accordance with Section 2.3.2(b) without interest upon surrender of their certificate or certificates therefor.

2.3.3 Amount Deemed Paid or Distributed. The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board, including the approval of a majority of the Series B Directors (as defined below).

2.3.4 Allocation of Escrow and Contingent Consideration. In the event of a Deemed Liquidation Event pursuant to Section 2.3.1(a)(i), if any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the “Additional Consideration”), the Merger Agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the “Initial Consideration”) shall be allocated among the holders of capital stock of the Corporation in accordance with Sections 2.1 and 2.2 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event; and (b) any Additional Consideration that becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Sections 2.1 and 2.2 after taking into account the previous payment of the Initial

 

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Consideration as part of the same transaction. For the purposes of this Section 2.3.4, consideration placed into escrow or retained as holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Additional Consideration.

3. Voting.

3.1 General. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of this Third Amended and Restated Certificate of Incorporation, holders of Preferred Stock shall vote together with the holders of Common Stock as a single class on an as-converted to Common Stock basis.

3.2 Election of Directors. The holders of record of the shares of Common Stock, exclusively and as a separate class, shall be entitled to elect one director of the Corporation; the holders of record of the shares of the Series A Preferred Stock, exclusively and as a separate series, shall be entitled to elect one director of the Corporation (the “Series A Director”); and the holders of record of the shares of the Series B Preferred Stock, exclusively and as a separate series, shall be entitled to elect three directors of the Corporation (each, a “Series B Director” and together with the Series A Director, the “Preferred Directors”). Any director elected as provided in the preceding sentence may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders. If the holders of shares of Series B Preferred Stock, Series A Preferred Stock or Common Stock, as the case may be, fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, voting exclusively and as a separate or single class pursuant to the first sentence of this Section 3.2, then any directorship not so filled shall remain vacant until such time as the holders of the Series B Preferred Stock, Series A Preferred Stock or Common Stock, as the case may be, elect a person to fill such directorship by vote or written consent in lieu of a meeting, and no such directorship may be filled by stockholders of the Corporation other than by the stockholders of the Corporation that are entitled to elect a person to fill such directorship, voting exclusively and as a separate or single class pursuant to the first sentence of this Section 3.2. The holders of record of the shares of Common Stock and of any other class or series of voting stock (including the Preferred Stock), exclusively and voting together as a single class, shall be entitled to elect the balance of the total

 

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number of directors of the Corporation. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director. Except as otherwise provided in this Section 3.2, a vacancy in any directorship filled by the holders of any class or series shall be filled only by vote or written consent in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of such class or series pursuant to this Section 3.2.

3.3 Preferred Stock Protective Provisions. At any time when shares of Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or this Third Amended and Restated Certificate of Incorporation) the written consent or affirmative vote of the holders of a majority of the then-outstanding shares of Preferred Stock, including (i) a majority of the then-outstanding shares of Series B Preferred Stock and the then-outstanding shares of Series C Preferred Stock (voting together as a single class on an as-converted basis) and (ii) with respect to subsections 3.3.1, 3.3.4, 3.3.5, 3.3.6, 3.3.7, 3.3.8, 3.3.11 or 3.3.12(ii), the Requisite Series C Majority, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:

3.3.1 liquidate, dissolve or wind up the business and affairs of the Corporation, effect any merger, consolidation, or any other Deemed Liquidation Event, or consent to any of the foregoing;

3.3.2 alter or change the rights, powers or preferences of any series of Preferred Stock;

3.3.3 amend, alter or repeal any provision of this Third Amended and Restated Certificate of Incorporation or the bylaws of the Corporation;

3.3.4 create, or authorize the creation of, or issue or obligate itself to issue shares of, any additional class or series of capital stock unless the same ranks junior to the Series C Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption, or increase the authorized number of shares of Series C Preferred Stock or increase the authorized number of shares of any additional class or series of capital stock of the Corporation unless the same ranks junior to the Series C Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption;

 

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3.3.5 (i) reclassify, alter or amend any existing security of the Corporation that is pari passu with the Series C Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Series C Preferred Stock in respect of any such right, preference, or privilege or (ii) reclassify, alter or amend any existing security of the Corporation that is junior to the Series C Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the Series C Preferred Stock in respect of any such right, preference or privilege;

3.3.6 (i) purchase or redeem (or permit any subsidiary to purchase or redeem) any shares of capital stock of the Corporation other than (A) redemptions of the Preferred Stock as expressly authorized herein or (B) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof or (ii) pay or declare any dividend or make any distribution on, any shares of capital stock of the Corporation prior to the payment of dividends on the Series C Preferred Stock as expressly authorized herein;

3.3.7 create, or authorize the creation of, or issue, or authorize the issuance of any debt security or create any lien or security interest (except for purchase money liens or statutory liens of landlords, mechanics, materialmen, workmen, warehousemen and other similar persons arising or incurred in the ordinary course of business) or incur other indebtedness for borrowed money, including but not limited to obligations and contingent obligations under guarantees, or permit any subsidiary to take any such action with respect to any debt security lien, security interest or other indebtedness for borrowed money, if the aggregate indebtedness of the Corporation and its subsidiaries for borrowed money following such action would exceed $1,000,000 other than equipment leases, bank lines of credit or trade payables incurred in the ordinary course unless such debt security has received the prior approval of the Board, including the approval of a majority of the Series B Directors;

3.3.8 create, or hold equity interests in, any subsidiary that is not wholly owned (either directly or through one or more other subsidiaries) by the Corporation, or permit any subsidiary to create, or authorize the creation of, or issue or obligate itself to issue, any shares of any class or series of capital stock, or sell, transfer or otherwise dispose of any capital stock of any direct or indirect subsidiary of the Corporation, or permit any direct or indirect subsidiary to sell, lease, transfer, exclusively license or otherwise dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary;

 

11

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3.3.9 increase or decrease the authorized number of directors constituting the Board;

3.3.10 adopt, terminate or amend any employee stock option plan of the Corporation;

3.3.11 otherwise enter into or be a party to any transaction with any director, officer, or employee of the Corporation or any “associate” (as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934) of any such Person; or

3.3.12 (i) authorize or agree to any of subsections 3.3.2, 3.3.3, 3.3.9 or 3.3.10 or (ii) authorize or agree to any of subsections 3.3.1, 3.3.4, 3.3.5, 3.3.6, 3.3.7, 3.3.8 or 3.3.11.

3.4 Series A Preferred Stock Protective Provisions. At any time when shares of Series A Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or this Third Amended and Restated Certificate of Incorporation) the written consent or affirmative vote of the holders of a majority of the then-outstanding shares of Series A Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:

3.4.1 increase or decrease (other than by redemption or conversion) the authorized number of shares of Series A Preferred Stock;

3.4.2 amend, alter or repeal any provision of this Third Amended and Restated Certificate of Incorporation or the bylaws of the Corporation so as to adversely alter or change the preferences, rights, privileges or powers of the Series A Preferred Stock; or

3.4.3 authorize or agree to any of the foregoing.

3.5 Series B Preferred Stock Protective Provisions. At any time when shares of Series B Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or this Third Amended and Restated Certificate of Incorporation) the written consent or affirmative vote of the Requisite Series B Majority, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:

3.5.1 increase or decrease (other than by redemption or conversion) the authorized number of shares of Series B Preferred Stock;

 

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3.5.2 amend, alter or repeal any provision of this Third Amended and Restated Certificate of Incorporation or the bylaws of the Corporation so as to adversely alter or change the preferences, rights, privileges or powers of the Series B Preferred Stock;

3.5.3 create, or authorize the creation of, or issue or obligate itself to issue shares of, any additional class or series of capital stock that is both senior to the Series B Preferred Stock and junior to the Series C Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption;

3.5.4 (i) reclassify, alter or amend any existing security of the Corporation that is pari passu with the Series B Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Series B Preferred Stock in respect of any such right, preference, or privilege or (ii) reclassify, alter or amend any existing security of the Corporation that is junior to the Series B Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the Series B Preferred Stock in respect of any such right, preference or privilege; or

3.5.5 authorize or agree to any of the foregoing.

3.6 Series C Preferred Stock Protective Provisions. At any time when shares of Series C Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or this Third Amended and Restated Certificate of Incorporation) the written consent or affirmative vote of the Requisite Series C Majority, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect:

3.6.1 increase or decrease (other than by redemption or conversion) the authorized number of shares of Series C Preferred Stock;

 

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3.6.2 amend, alter or repeal any provision of this Third Amended and Restated Certificate of Incorporation or the bylaws of the Corporation so as to adversely alter or change the preferences, rights, privileges or powers of the Series C Preferred Stock; or

3.6.3 authorize or agree to any of the foregoing.

4. Optional Conversion.

The holders of the Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

4.1 Right to Convert.

4.1.1 Series C Conversion Ratio. Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Series C Original Issue Price by the Series C Conversion Price (as defined below) in effect at the time of conversion. The “Series C Conversion Price” shall initially be equal to $12.5762. Such initial Series C Conversion Price, and the rate at which shares of Series C Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.

4.1.2 Series B Conversion Ratio. Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Series B Original Issue Price by the Series B Conversion Price (as defined below) in effect at the time of conversion. The “Series B Conversion Price” shall initially be equal to $4.919. Such initial Series B Conversion Price, and the rate at which shares of Series B Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.

4.1.3 Series A Conversion Ratio. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series A Original Issue Price by the Series A Conversion Price (as defined below) in effect at the time of conversion. The “Series A Conversion Price” shall initially be equal to $1.00. Such initial Series A Conversion Price, and the rate at which shares of Series A Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.

 

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4.2 Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.

4.3 Mechanics of Conversion.

4.3.1 Notice of Conversion. In order for a holder of Preferred Stock to voluntarily convert shares of Preferred Stock into shares of Common Stock, such holder shall (a) provide written notice to the Corporation’s transfer agent at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent) that such holder elects to convert all or any number of such holder’s shares of Preferred Stock and, if applicable, any event on which such conversion is contingent and (b), if such holder’s shares are certificated, surrender the certificate or certificates for such shares of Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent). Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the shares of Common Stock to be issued. If required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such notice and, if applicable, certificates (or lost certificate affidavit and agreement) shall be the time of conversion (the “Conversion Time”), and the shares of Common Stock issuable upon conversion of the specified shares shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time, (x) issue and deliver to such holder of Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, (y) pay in cash such amount as provided in Section 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (z) pay all declared but unpaid dividends on the shares of Preferred Stock converted.

 

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4.3.2 Reservation of Shares. The Corporation shall at all times when the Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Third Amended and Restated Certificate of Incorporation. Before taking any action which would cause an adjustment reducing the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the applicable Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted Series C Conversion Price, Series B Conversion Price or Series A Conversion Price.

4.3.3 Effect of Conversion. All shares of Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Section 4.2 and to receive payment of any dividends declared but unpaid thereon. Any shares of Preferred Stock so converted shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.

4.3.4 No Further Adjustment. Upon any such conversion, no adjustment to the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price shall be made for any declared but unpaid dividends on the Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.

4.3.5 Taxes. The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of Preferred Stock pursuant to this Section 4. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.

 

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4.4 Adjustments to Conversion Prices for Diluting Issues.

4.4.1 Special Definitions. For purposes of this Article Fourth, the following definitions shall apply:

(a) “Option” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(b) “Series C Original Issue Date” shall mean the date on which the first share of Series C Preferred Stock was issued.

(c) “Convertible Securities” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.

(d) “Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Section 4.4.3 below, deemed to be issued) by the Corporation after the Series C Original Issue Date, other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses (1) and (2), collectively, “Exempted Securities”):

 

(i)

shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Preferred Stock;

 

(ii)

shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Section 4.5, 4.6, 4.7 or 4.8;

 

(iii)

shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board (including the approval of a majority of the Series B Directors);

 

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(iv)

shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security;

 

(v)

shares of Common Stock, Options or Convertible Securities issued upon the conversion or exchange of the Preferred Stock or any debenture, warrant, Option or other Convertible Security outstanding as of the Series C Original Issue Date and pursuant to the terms of such Preferred Stock or debenture, warrant, option or other Convertible Security in effect as of the Series C Original Issue Date;

 

(vi)

shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board (including the approval of a majority of the Series B Directors);

 

(vii)

shares of Common Stock, Options or Convertible Securities issued to suppliers or third party service providers as consideration for the provision of goods or services pursuant to transactions approved by the Board (including the approval of a majority of the Series B Directors);

 

(viii)

shares of Common Stock, Options or Convertible Securities issued as acquisition consideration pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement, provided that such issuances are approved by the Board (including the approval of a majority of the Series B Directors); or

 

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(ix)

shares of Common Stock, Options or Convertible Securities issued as consideration for sponsored research, collaboration, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by the Board (including the approval of a majority of the Series B Directors).

4.4.2 No Adjustment of Conversion Prices. No adjustment in the Conversion Price for a particular series of Preferred Stock shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from the holders of a majority of the then outstanding shares of such series of Preferred Stock, including, with respect to the Series C Preferred Stock the Series C Requisite Majority, agreeing that no such adjustment shall be made to the Conversion Price for such series of Preferred Stock as the result of the issuance or deemed issuance of such Additional Shares of Common Stock.

4.4.3 Deemed Issue of Additional Shares of Common Stock.

(a) If the Corporation at any time or from time to time after the Series C Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.

 

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(b) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price pursuant to the terms of Section 4.4.4, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Series C Conversion Price, Series B Conversion Price or Series A Conversion Price as would have been obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price to an amount which exceeds the lower of (i) the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price (as applicable) in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price (as applicable) that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.

(c) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price pursuant to the terms of Section 4.4.4 (either because the consideration per share (determined pursuant to Section 4.4.5) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Series C Conversion Price, the Series B Conversion Price or Series A Conversion Price then in effect, or because such Option or Convertible Security was issued before the Series C Original Issue Date), are revised after the Series C Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Section 4.4.3(a)) shall be deemed to have been issued effective upon such increase or decrease becoming effective.

 

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(d) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price pursuant to the terms of Section 4.4.4, the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price shall be readjusted to such Series C Conversion Price, Series B Conversion Price or Series A Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.

(e) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price provided for in this Section 4.4.3 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Section 4.4.3). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price that would result under the terms of this Section 4.4.3 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price that such issuance or amendment took place at the time such calculation can first be made.

4.4.4 Adjustment of Conversion Prices Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Series C Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4.4.3), without consideration or for a consideration per share less than the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price in effect immediately prior to such issuance or deemed issuance, then the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price, as applicable, shall be reduced, concurrently with such issue, to a price (calculated to the nearest $0.0001) determined in accordance with the following formula:

CP₂ = CP₁ * (A + B) ÷ (A + C).

 

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For purposes of the foregoing formula, the following definitions shall apply:

(a) “CP₂” shall mean the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price, as applicable, in effect immediately after such issuance or deemed issuance of Additional Shares of Common Stock;

(b) “CP₁” shall mean the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price, as applicable, in effect immediately prior to such issuance or deemed issuance of Additional Shares of Common Stock;

(c) “A” shall mean the number of shares of Common Stock outstanding immediately prior to such issuance or deemed issuance of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issuance or deemed issuance or upon conversion or exchange of Convertible Securities (including the Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue);

(d) “B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued or deemed issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP1); and

(e) “C” shall mean the number of such Additional Shares of Common Stock issued in such transaction.

4.4.5 Determination of Consideration. For purposes of this Section 4.4, the consideration received by the Corporation for the issuance or deemed issuance of any Additional Shares of Common Stock shall be computed as follows:

(a) Cash and Property. Such consideration shall:

 

(i)

insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;

 

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(ii)

insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board, including the approval of a majority of the Series B Directors.

 

(iii)

in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board, including the approval of a majority of the Series B Directors.

(b) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 4.4.3, relating to Options and Convertible Securities, shall be determined by dividing:

 

(i)

The total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by

 

(ii)

the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.

 

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4.4.6 Multiple Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price pursuant to the terms of Section 4.4.4, and such issuance dates occur within a period of no more than 120 days from the first such issuance to the final such issuance, then, upon the final such issuance, the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).

4.5 Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Series C Original Issue Date effect a subdivision of the outstanding Common Stock, the Series C Conversion Price, Series B Conversion Price and Series A Conversion Price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Series C Original Issue Date combine the outstanding shares of Common Stock, the Series C Conversion Price, Series B Conversion Price and Series A Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this Section shall become effective at the close of business on the date the subdivision or combination becomes effective.

4.6 Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series C Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Series C Conversion Price, Series B Conversion Price and Series A Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price (as applicable) then in effect by a fraction:

 

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(1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and

(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

Notwithstanding the foregoing, (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price shall be adjusted pursuant to this Section as of the time of actual payment of such dividends or distributions; and (b) no such adjustment shall be made if the holders of Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.

4.7 Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series C Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.

4.8 Adjustment for Merger or Reorganization, etc. Subject to the provisions of Section 2.3, if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered

 

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by Sections 4.4, 4.6 or 4.7), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of the Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Preferred Stock. For the avoidance of doubt, nothing in this Subsection 4.8 shall be construed to prevent the holders of Preferred Stock from seeking any appraisal rights to which they are otherwise entitled under the General Corporation Law in connection with a merger triggering an adjustment hereunder, nor shall this Subsection 4.8 be deemed conclusive evidence of the fair value of the shares of Preferred Stock in any such appraisal proceeding.

4.9 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Series C Conversion Price, Series B Conversion Price or Series A Conversion Price pursuant to this Section 4, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of affected Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of affected Preferred Stock (but in any event not later than ten days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (a) the applicable Conversion Price then in effect, and (b) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of the applicable Preferred Stock.

 

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4.10 Notice of Record Date. In the event:

(a) the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security;

(b) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or

(c) of the voluntary or involuntary dissolution, liquidation or winding up of the Corporation;

then, and in each such case, the Corporation will send or cause to be sent to the holders of the Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding up, and the amount per share and character of such exchange applicable to the Preferred Stock and the Common Stock. Such notice shall be sent at least ten days prior to the record date or effective date for the event specified in such notice.

5. Mandatory Conversion.

5.1 Trigger Events. Upon either (a) the closing of the sale of shares of Common Stock to the public at a per share price of at least $15.0915 (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Common Stock), in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $100,000,000 of proceeds, net of the underwriting discount and commissions, to the Corporation and in connection with such offering the Common Stock is listed for trading on the Nasdaq Stock Market’s National Market, the New York Stock Exchange or another exchange or marketplace approved the Board of Directors, including the approval of a majority of the Series B Directors (a “Qualified Public Offering”) or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the Requisite Holders (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the “Mandatory Conversion Time”), then (i) all outstanding shares of Preferred Stock shall automatically be converted into shares of Common Stock, at the then effective conversion rate for each series of Preferred Stock as calculated pursuant to Section 4.1 and (ii) such shares may not be reissued by the Corporation.

 

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5.2 Procedural Requirements. All holders of record of shares of Preferred Stock shall be sent written notice of the Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of Preferred Stock pursuant to this Section 5. Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each holder of shares of Preferred Stock in certificated form shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. If so required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. All rights with respect to the Preferred Stock converted pursuant to Section 5.1, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender any certificates at or prior to such time), except only the rights of the holders thereof, upon surrender of any certificate or certificates of such holders (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this Section 5.2. As soon as practicable after the Mandatory Conversion Time and, if applicable, the surrender of any certificate or certificates (or lost certificate affidavit and agreement) for Preferred Stock, the Corporation shall (a) issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and (b) pay cash as provided in Section 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Preferred Stock converted. Such converted Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.

6. Redeemed or Otherwise Acquired Shares. Any shares of Preferred Stock that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Preferred Stock following redemption.

 

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7. Waiver. Except where a different vote is specified in this Third Amended and Restated Certificate of Incorporation: (a) any of the rights, powers, preferences and other terms of the Series C Preferred Stock set forth herein may be waived on behalf of all holders of Series C Preferred Stock by the affirmative written consent or vote of the Requisite Series C Majority; (b) any of the rights, powers, preferences and other terms of the Series B Preferred Stock set forth herein may be waived on behalf of all holders of Series B Preferred Stock by the affirmative written consent or vote of the Requisite Series B Majority; (c) any of the rights, powers, preferences and other terms of the Series A Preferred Stock set forth herein may be waived on behalf of all holders of Series A Preferred Stock by the affirmative written consent or vote of the holders of a majority of the shares of Series A Preferred Stock then outstanding; and (d) any of the rights, powers, preferences and other terms of the Preferred Stock as a class set forth herein may be waived on behalf of all holders of Preferred Stock by the affirmative written consent or vote of the holders of a majority of the voting power of the shares of Preferred Stock then outstanding. For purposes of clarity, for any matter with respect to which the vote in clause (d) of the preceding sentence applies, no additional vote pursuant to clauses (a), (b) or (c) of the preceding sentence shall apply to such matter.

8. Notices. Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission.

FIFTH: Subject to any additional vote required by this Third Amended and Restated Certificate of Incorporation or bylaws of the Corporation, in furtherance and not in limitation of the powers conferred by statute, the Board is expressly authorized to make, repeal, alter, amend and rescind any or all of the bylaws of the Corporation.

SIXTH: Subject to any additional vote required by this Third Amended and Restated Certificate of Incorporation, the number of directors of the Corporation shall be determined in the manner set forth in the bylaws of the Corporation.

SEVENTH: Elections of directors need not be by written ballot unless the bylaws of the Corporation shall so provide.

EIGHTH: Meetings of stockholders may be held within or without the state of Delaware, as the bylaws of the Corporation may provide. The books of the Corporation may be kept outside the state of Delaware at such place or places as may be designated from time to time by the Board or in the bylaws of the Corporation.

 

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NINTH: To the fullest extent permitted by law, 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. If the General Corporation Law or any other law of the state of Delaware is amended after approval by the stockholders of this Article Ninth 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 General Corporation Law as so amended.

Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.

TENTH: To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which the General Corporation Law permits the Corporation to provide indemnification) through bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law.

Any amendment, repeal or modification of the foregoing provisions of this Article Tenth shall not adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal or modification, or increase the liability of any director of the Corporation with respect to, any acts or omissions of such director, officer or other agent occurring prior to, such amendment, repeal or modification.

ELEVENTH: For purposes of Section 500 of the California Corporations Code (to the extent applicable), in connection with any repurchase of shares of Common Stock permitted under this Third Amended and Restated Certificate of Incorporation from employees, officers, directors or consultants of the Corporation in connection with a termination of employment or services pursuant to agreements or arrangements approved by the Board (in addition to any other consent required under this Third Amended and Restated Certificate of Incorporation), such repurchase may be made without regard to any “preferential dividends arrears amount” or “preferential rights amount” (as those terms are defined in Section 500 of the California Corporations Code). Accordingly, for purposes of making any calculation under California Corporations Code Section 500 in connection with such repurchase, the amount of any “preferential dividends arrears amount” or “preferential rights amount” (as those terms are defined therein) shall be deemed to be zero.

 

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TWELFTH: The Corporation renounces, to the fullest extent permitted by law, any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity. An “Excluded Opportunity” is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock or any partner, member, director, stockholder, employee, affiliate or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, the persons referred to in clauses (i) and (ii) are “Covered Persons”), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director of the Corporation. Any repeal or modification of this Article Twelfth will only be prospective and will not affect the rights under this Article Twelfth in effect at the time of the occurrence of any actions or omissions to the act giving rise to liability.

* * *

 

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IN WITNESS WHEREOF, this Third Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 29th day of December, 2020.

 

/s/ Bronson Crouch

Name: Bronson Crouch

Title: Chief Executive Officer

Exhibit 3.2

BYLAWS

OF

INSTIL BIO, INC.

 

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TABLE OF CONTENTS

 

				Page
Article I Corporate Offices					1
1.1		Principal Office			1
1.2		Other Offices			1
Article II Meetings of Stockholders					1
2.1		Place Of Meetings			1
2.2		Annual Meeting			1
2.3		Special Meeting			1
2.4		Notice of Stockholders’ Meetings			2
2.5		Manner of Giving Notice; Affidavit of Notice			2
2.6		Quorum			2
2.7		Adjourned Meeting; Notice			2
2.8		Organization; Conduct of Business			2
2.9		Voting			3
2.10		Waiver of Notice			3
2.11		Stockholder Action by Written Consent Without a Meeting			3
2.12		Record Date for Stockholder Notice, Voting and Consents			4
2.13		Proxies			4
2.14		Meetings by Telephone or Similar Communications			5
Article III Directors					5
3.1		Powers			5
3.2		Number of Directors			5
3.3		Election, Qualification and Term of Office of Directors			5
3.4		Resignation and Vacancies			6
3.5		Place of Meetings; Meetings by Telephone			6
3.6		Regular Meetings			7
3.7		Special Meetings; Notice			7
3.8		Quorum			7
3.9		Waiver of Notice			7
3.10		Board Action by Written Consent Without a Meeting			8
3.11		Fees and Compensation of Directors			8
3.12		Removal of Directors			8
Article IV Committees					8
4.1		Committees of Directors			8
4.2		Committee Minutes			8
4.3		Meetings and Action of Committees			9
Article V Officers					9
5.1		Officers			9
5.2		Appointment of Officers			9
5.3		Subordinate Officers			9
5.4		Removal and Resignation of Officers			9
5.5		Vacancies in Offices			9

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TABLE OF CONTENTS

(continued)

 

				Page
5.6		Chairman of the Board			10
5.7		Chief Executive Officer			10
5.8		President			10
5.9		Vice Presidents			10
5.10		Secretary			10
5.11		Chief Financial Officer			11
5.12		Assistant Secretary			11
5.13		Treasurer			11
5.14		Representation of Shares of Other Corporations			11
5.15		Authority and Duties of Officers			11
Article VI Indemnification of Directors, Officers, Employees and Other Agents					11
6.1		Indemnification of Directors and Officers			11
6.2		Indemnification of Others			12
6.3		Payment of Expenses in Advance			12
6.4		Indemnity Not Exclusive			12
6.5		Insurance			12
6.6		Conflicts			13
Article VII Records and Reports					13
7.1		Maintenance and Inspection of Records			13
7.2		Inspection by Directors			13
Article VIII General Matters					14
8.1		Checks			14
8.2		Execution of Corporate Contracts and Instruments			14
8.3		Stock Certificates; Partly Paid Shares			14
8.4		Special Designation on Certificates			14
8.5		Lost Certificates			15
8.6		Construction; Definitions			15
8.7		Dividends			15
8.8		Fiscal Year			15
8.9		Seal			15
8.10		Transfer of Stock			15
8.11		Stock Transfer Agreements			15
8.12		Registered Stockholders			16
8.13		Facsimile Signature			16
8.14		Conflicts With Certificate of Incorporation			16
Article IX Right of First Refusal					16
9.1		Right of First Refusal			16
9.2		Amendment and Waiver; Termination			18
9.3		Void Transfers			18
9.4		Assignment of Rights			18
9.5		Legends			18
Article X Amendments					19

 

 

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BYLAWS

OF

INSTIL BIO, INC.

ARTICLE I

CORPORATE OFFICES

1.1 Principal Office. The Board of Directors shall fix the location of the principal executive offices of InsTIL Bio, Inc. (the “Company”) at any place within or outside the State of Delaware.

1.2 Other Offices. The Board of Directors may at any time establish other offices at any place or places where the Company is qualified to do business.

ARTICLE II

MEETINGS OF STOCKHOLDERS

2.1 Place Of Meetings. Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board of Directors. In the absence of any such designation, stockholders’ meetings shall be held at the principal office of the Company.

2.2 Annual Meeting. The annual meeting of stockholders shall be held on such date, time and place, either within or outside the State of Delaware, as may be designated by the Board of Directors each year. At the meeting, directors shall be elected and any other proper business may be transacted.

2.3 Special Meeting. Except as provided by applicable law or in the certificate of incorporation, a special meeting of the stockholders may be called at any time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. If a special meeting is called by any person or persons other than the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted and shall be delivered personally or sent by certified mail, by facsimile or by electronic transmission to the Chairman of the Board, the Chief Executive Officer, the President, any Vice President or the Secretary of the Company. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty five (35) nor more than sixty (60) days after the receipt of the request. Nothing contained in this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.

 

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2.4 Notice of Stockholders’ Meetings. All notices of meetings of stockholders shall be in writing and shall be given in accordance with Section 2.5 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place (if any), date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present and vote at such meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called.

2.5 Manner of Giving Notice; Affidavit of Notice. Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at the stockholder’s address as it appears on the records of the Company. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic mail or other electronic transmission in the manner provided in Section 232 of the General Corporation Law of the State of Delaware (the “DGCL”). An affidavit of the secretary or an assistant secretary or of the transfer agent of the Company that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

2.6 Quorum. Except as provided by applicable law or in the certificate of incorporation, the holders of a majority of the shares of stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by applicable law or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, either (a) the chairman of the meeting or (b) holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, shall have power to adjourn the meeting to another place (if any), date or time.

2.7 Adjourned Meeting; Notice. When a meeting is adjourned to another place (if any), date or time, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place (if any) thereof and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the place (if any), date and time of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxy holders 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 at the meeting.

2.8 Organization; Conduct of Business. The Chairman of the Board or, in his or her absence, the Chief Executive Officer or, in his or her absence, the President or, in his or her absence, such person as the Board of Directors may have designated or, in the absence of such a person, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Company, the secretary of the meeting shall be such person as the chairman of the meeting appoints. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business. The date and time of opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.

 

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2.9 Voting. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Article II of these Bylaws, subject to the provisions of Sections 217 and 218 of the DGCL (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as may be required by law or otherwise provided in the certificate of incorporation, (a) each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder, (b) all elections shall be determined by a plurality of the votes cast, and (c) all other matters shall be determined by a majority of the votes cast affirmatively or negatively.

2.10 Waiver of Notice. Whenever notice is required to be given under any provision of the DGCL or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, or waiver by electronic mail or other electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice, or any waiver of notice by electronic transmission, unless so required by the certificate of incorporation or these Bylaws.

2.11 Stockholder Action by Written Consent Without a Meeting.

(a) Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the Company, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote if a consent in writing, setting forth the action so taken, is (i) signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, and (ii) delivered to the Company in accordance with Section 228 of the DGCL.

(b) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the date the earliest dated consent is delivered to the Company, a written consent or consents signed by a sufficient number of holders to take action are delivered to the Company in the manner prescribed in this Section 2.11. An electronic mail or other electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for purposes of this Section 2.11 to the extent permitted by, and shall be delivered in accordance with, Section 228 of the DGCL.

 

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(c) Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.

(d) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing (including by electronic mail or other electronic transmission as permitted by law). If the action which is consented to is such as would have required the filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the DGCL.

2.12 Record Date for Stockholder Notice, Voting and Consents.

(a) In order that the Company may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to take action by written consent without a meeting, 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, in advance, a record date, which shall not be less than ten (10) nor more than sixty (60) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, if such adjournment is for thirty (30) days or less, provided that the Board of Directors may fix a new record date for the adjourned meeting.

(b) If the Board of Directors does not so fix a record date:

(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.

(ii) The record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is delivered to the Company.

(iii) 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.

2.13 Proxies. Each stockholder entitled to vote at a meeting of stockholders or to take action by written consent without a meeting may authorize another person or persons to act for such stockholder by an instrument in writing or by an electronic transmission permitted by law filed with the secretary of the Company, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting, facsimile or electronic transmission or otherwise) by the stockholder or the stockholder’s attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.

 

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2.14 Meetings by Telephone or Similar Communications. If authorized by the Board of Directors, in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication:

(a) participate in a meeting of stockholders; and

(b) be deemed present in person and vote at a meeting of stockholders, whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the Company shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the Company shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Company.

ARTICLE III

DIRECTORS

3.1 Powers. Subject to the provisions of the DGCL and any limitations in the certificate of incorporation or these Bylaws relating to action required to be approved by the stockholders, the business and affairs of the Company shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.

3.2 Number of Directors. Upon the adoption of these Bylaws, the number of directors constituting the entire Board of Directors shall be 2. Thereafter, unless otherwise provided in the certificate of incorporation, this number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such director’s term of office expires.

3.3 Election, Qualification and Term of Office of Directors. Except as provided in Section 3.4 of these Bylaws, and unless otherwise provided in the certificate of incorporation, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these Bylaws. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Unless otherwise specified in the certificate of incorporation, elections of directors need not be by written ballot.

 

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3.4 Resignation and Vacancies.

(a) Any director may resign at any time upon notice given in writing or by electronic transmission to the Board of Directors, the Chief Executive Officer, the President or the Secretary of the Company. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.

(b) Unless otherwise provided in the certificate of incorporation or these Bylaws:

(i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.

(ii) Whenever the holders of any class of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or series may be filled by a majority of the directors elected by such class or series thereof then in office, or by a sole remaining director so elected.

(c) If at any time, by reason of death or resignation or other cause, the Company should have no directors in office, any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.

(d) If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.

3.5 Place of Meetings; Meetings by Telephone. The Board of Directors of the Company may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

 

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3.6 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors.

3.7 Special Meetings; Notice. Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail, facsimile or electronic transmission, charges prepaid, addressed to each director at that director’s address as it is shown on the records of the Company. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by facsimile, electronic transmission or telephone, it shall be delivered at least twenty four (24) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting and need not specify the place of the meeting as long as the meeting is to be held at the principal executive office of the Company. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.

3.8 Quorum. A majority of the directors then in office, but in no event less than one-third (1/3) of the total number of authorized directors, shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by applicable law or by the certificate of incorporation. If a quorum is not present at any meeting of the Board of Directors, the directors present at the meeting may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors as long as any action taken is approved by at least a majority of the required quorum for that meeting.

3.9 Waiver of Notice. Whenever notice is required to be given under any provision of the DGCL or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, or waiver by electronic mail or other electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws.

 

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3.10 Board Action by Written Consent Without a Meeting. Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board or committee. 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. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.

3.11 Fees and Compensation of Directors. Unless otherwise restricted by the certificate of incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the Company in any other capacity and receiving compensation therefor.

3.12 Removal of Directors. Unless otherwise restricted by applicable law, by the certificate of incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that if the stockholders of the Company are entitled to cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against such director’s removal would be sufficient to elect such director if then cumulatively voted at an election of the entire Board of Directors.

ARTICLE IV

COMMITTEES

4.1 Committees of Directors. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Company. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in these Bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Company and may authorize the seal of the Company to be affixed to all papers which may require it; provided, however, that no such committee shall have the power or authority in reference to the following matters: (a) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval; or (b) adopting, amending or repealing any bylaw of the Company.

4.2 Committee Minutes. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

 

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4.3 Meetings and Action of Committees. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice) and Section 3.10 (action without a meeting) of these Bylaws, with such changes in the context of such provisions as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.

ARTICLE V

OFFICERS

5.1 Officers. The officers of the Company shall be a Chief Executive Officer and/or a President, a Chief Financial Officer and/or a Treasurer and a Secretary. The Company may also have, at the discretion of the Board of Directors, a Chairman of the Board, a Treasurer, one or more Vice Presidents, one or more Assistant Secretaries, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person.

5.2 Appointment of Officers. The officers of the Company, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, and each shall serve at the pleasure of the Board, subject to the rights, if any, of an officer under any contract of employment.

5.3 Subordinate Officers. The Board of Directors may appoint, or empower the Chief Executive Officer or the President to appoint, such other officers and agents as the business of the Company may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine.

5.4 Removal and Resignation of Officers. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board of Directors or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom the power of removal is conferred by the Board of Directors. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Company. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice, and unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the officer is a party.

5.5 Vacancies in Offices. Any vacancy occurring in any office of the Company shall be filled in the manner prescribed by these Bylaws for regular appointment to that office.

 

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5.6 Chairman of the Board. The Chairman of the Board, if such an officer be elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may from time to time be assigned by the Board of Directors or as may be prescribed by these Bylaws.

5.7 Chief Executive Officer. Subject to such powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if any, the Chief Executive Officer of the Company (if such an officer is appointed) shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and the officers of the Company. The Chief Executive Officer shall preside at all meetings of the stockholders and, in the absence or disability of the Chairman of the Board, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested in the office of Chief Executive Officer of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.

5.8 President. Subject to such powers, if any, as may be given by the Board of Directors to the Chairman of the Board (if any) or the Chief Executive Officer (if any), the President shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and other officers of the Company. The President shall have the general powers and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. In the absence or disability of the Chief Executive Officer, the President shall perform all the duties of the Chief Executive Officer and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chief Executive Officer.

5.9 Vice Presidents. In the absence or disability of the Chief Executive Officer and President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the Chief Executive Officer, President or the Chairman of the Board.

5.10 Secretary. The Secretary shall keep or cause to be kept, at the principal executive office of the Company or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors’ meetings or committee meetings, the number of shares present or represented at stockholders’ meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal executive office of the Company or at the office of the Company’s transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. The Secretary shall keep the seal of the Company, if one is adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws.

 

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5.11 Chief Financial Officer. The Chief Financial Officer shall have the custody of the corporate funds and securities and shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Company, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Company with such depositories as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the Company as may be ordered by the Board of Directors, shall render to the Board of Directors, the Chief Executive Officer or the President, upon request, an account of all his or her transactions as Chief Financial Officer and of the financial condition of the Company, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws.

5.12 Assistant Secretary. The Assistant Secretary or, if there is more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there is no such determination, then in the order of their election) shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and such other duties and powers as may be prescribed by the Board of Directors or these Bylaws.

5.13 Treasurer. The Treasurer (if one is appointed) shall have such duties as may be specified by the Chief Financial Officer to assist the Chief Financial Officer in the performance of his or her duties and shall perform such other duties and have other powers as may from time to time be prescribed by the Board of Directors or the Chief Executive Officer.

5.14 Representation of Shares of Other Corporations. The Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Secretary or Assistant Secretary of this Company, or any other person authorized by the Board of Directors or the Chief Executive Officer, the President, the Chief Financial Officer or a Vice President, is authorized to vote, represent and exercise on behalf of this Company all rights incident to any and all shares of any other corporation standing in the name of this Company. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority.

5.15 Authority and Duties of Officers. In addition to the foregoing authority and duties, all officers of the Company shall respectively have such authority and perform such duties in the management of the business of the Company as may be designated from time to time by the Board of Directors.

ARTICLE VI

INDEMNIFICATION OF DIRECTORS, OFFICERS,

EMPLOYEES AND OTHER AGENTS

6.1 Indemnification of Directors and Officers. The Company shall, to the maximum extent and in the manner permitted by the DGCL, indemnify each of its directors and officers against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Company. For purposes of this Section 6.1, a “director”

 

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or “officer” of the Company includes any person (a) who is or was a director or officer of the Company, (b) who is or was serving at the request of the Company as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a corporation which was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation.

6.2 Indemnification of Others. The Company shall have the power, to the maximum extent and in the manner permitted by the DGCL, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Company. For purposes of this Section 6.2, an “employee” or “agent” of the Company (other than a director or officer) includes any person (a) who is or was an employee or agent of the Company, (b) who is or was serving at the request of the Company as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation.

6.3 Payment of Expenses in Advance. Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1 of these Bylaws or for which indemnification is permitted pursuant to Section 6.2 of these Bylaws, following authorization thereof by the Board of Directors, shall be paid by the Company in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that the indemnified party is not entitled to be indemnified as authorized in this Article VI.

6.4 Indemnity Not Exclusive. The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the certificate of incorporation.

6.5 Insurance. The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Company would have the power to indemnify him or her against such liability under the provisions of the DGCL.

 

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6.6 Conflicts. No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears:

(a) that it would be inconsistent with a provision of the certificate of incorporation, these Bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or

(b) that it would be inconsistent with any condition expressly imposed by a court in approving a settlement.

ARTICLE VII

RECORDS AND REPORTS

7.1 Maintenance and Inspection of Records.

(a) The Company shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books and other records.

(b) Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Company’s stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Company at its registered office in Delaware or at its principal place of business.

(c) A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class and series of stock and showing the address of each such stockholder and the number of shares registered in each such stockholder’s name, shall be open to the examination of any such stockholder for a period of at least ten (10) days prior to the meeting in the manner provided by law. The stock list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.

(d) The application and requirements of Section 1501 of the California Corporations Code, to the extent applicable, are hereby expressly waived to the fullest extent permitted thereunder.

7.2 Inspection by Directors. Any director shall have the right to examine the Company’s stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Company to permit the director to inspect any and all books and records, the stock ledger and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection or award such other and further relief as the Court may deem just and proper.

 

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ARTICLE VIII

GENERAL MATTERS

8.1 Checks. From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the Company, and only the persons so authorized shall sign or endorse those instruments.

8.2 Execution of Corporate Contracts and Instruments. The Board of Directors, except as otherwise provided by applicable law, the certificate of incorporation or in these Bylaws, may authorize any officers or agents to enter into any contract or execute any instrument in the name of and on behalf of the Company, and such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Company by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

8.3 Stock Certificates; Partly Paid Shares.

(a) The shares of the Company shall be represented by certificates, provided that the Board of Directors of the Company may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Company. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

(b) The Company may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the Company in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Company shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

8.4 Special Designation on Certificates. If the Company is authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof, and the qualifications, limitations or restrictions of such preferences and/or rights, shall be set forth in full or summarized on the face or back of the certificate that the Company shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202

 

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of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Company shall issue to represent such class or series of stock a statement that the Company will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

8.5 Lost Certificates. Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Company and cancelled at the same time. The Company may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it that is alleged to have been lost, stolen or destroyed and may require the owner of the lost, stolen or destroyed certificate, or the owner’s legal representative, to make an affidavit stating that the certificate has been lost, stolen or destroyed and/or to give the Company a bond sufficient to indemnify the Company against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

8.6 Construction; Definitions. Unless the context requires otherwise, the general provisions, rules of construction and definitions in the DGCL shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular and the term “person” includes both a corporation and a natural person.

8.7 Dividends. Subject to any restrictions contained in the DGCL or the certificate of incorporation, the Board of Directors may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property or in shares of the Company’s capital stock. The Board of Directors may set apart, out of any of the funds of the Company available for dividends, a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Company and meeting contingencies.

8.8 Fiscal Year. The fiscal year of the Company shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors.

8.9 Seal. The Company may adopt a corporate seal, which may be altered by the Board of Directors, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

8.10 Transfer of Stock. Upon surrender to the Company or the transfer agent of the Company of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Company to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction in its books.

8.11 Stock Transfer Agreements. The Company shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes or series of stock of the Company to restrict the transfer of shares of stock of the Company of any one or more classes or series owned by such stockholders in any manner not prohibited by the DGCL.

 

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8.12 Registered Stockholders. The Company shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by applicable law.

8.13 Facsimile Signature. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Company may be used whenever and as authorized by the Board of Directors or a committee thereof.

8.14 Conflicts With Certificate of Incorporation. In the event of any conflict between the provisions of the Company’s certificate of incorporation and these Bylaws, the provisions of the certificate of incorporation shall govern.

ARTICLE IX

RIGHT OF FIRST REFUSAL

9.1 Right of First Refusal. No stockholder shall sell, assign, pledge or otherwise transfer (a “transfer”) any of the shares of common stock of the Company or any right or interest therein, whether voluntarily, involuntarily, by operation of law, by gift or otherwise, except by a transfer which meets the requirements hereinafter set forth in this Article IX:

(a) If the stockholder desires to transfer any shares of common stock, the stockholder shall first give written notice thereof to the Company. The notice shall name the proposed transferee and state the number of shares to be transferred, the proposed consideration and all other terms and conditions of the proposed transfer.

(b) For thirty (30) days following receipt of such notice, the Company shall have the option to purchase all or any portion of the shares specified in the notice at the price and upon the terms set forth in such notice. In the event of a gift, property settlement or other transfer in which the proposed transferee is not paying the full price for the shares, and that is not otherwise exempted from the provisions of this Article IX, the price shall be deemed to be the fair market value of the stock at such time as determined in good faith by the Board of Directors. If the Company elects to purchase any of the shares, it shall give written notice to the transferring stockholder of its election, and the closing of the Company’s purchase of such shares shall be made as provided below.

(c) If the Company elects to acquire any of the shares of the transferring stockholder as specified in such transferring stockholder’s notice, the Secretary of the Company shall so notify the transferring stockholder (including notice as to the number of shares to be acquired) and settlement thereof shall be made in cash within fifteen (15) days after the Secretary delivers such notice to the transferring stockholder; provided, however, that if the terms of payment set forth in the transferring stockholder’s notice were other than cash or evidences of

 

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indebtedness against delivery, then the Company shall have the right to pay the purchase price in the form of cash equal in amount to the value of such property. If the transferring stockholder and the Company cannot agree on such cash value within twenty (20) days after the Company’s receipt of the transferring stockholder’s notice, the valuation shall be made by an appraiser of recognized standing selected by the transferring stockholder and the Company, or, if they cannot agree on an appraiser within thirty (30) days after the Company’s receipt of the transferring stockholder’s notice, each shall select an appraiser of recognized standing and the two appraisers shall designate a third appraiser of recognized standing, whose appraisal shall be determinative of such cash value. The cost of such appraisal shall be shared equally by the transferring stockholder and the Company. The closing shall then be held within fifteen (15) days after such cash valuation has been determined.

(d) If the Company does not elect to acquire all of the shares specified in the transferring stockholder’s notice, such transferring stockholder may, within the thirty (30) day period following the expiration of the option rights granted to the Company herein, transfer the shares specified in such transferring stockholder’s notice which were not acquired by the Company on terms and conditions (including the purchase price) no more favorable to the proposed transferee than those specified in such transferring stockholder’s notice. All shares so sold by such transferring stockholder shall continue to be subject to the provisions of this Article IX in the same manner as before such transfer.

(e) Notwithstanding anything to the contrary contained herein, the following transactions shall be exempt from the provisions of this Article IX:

(i) A stockholder’s transfer of any or all shares held either during such stockholder’s lifetime or on death by will or intestacy (A) to such stockholder’s immediate family, (B) to any custodian or trustee for the account or the benefit of such stockholder or such stockholder’s immediate family, or (C) to any limited partnership or limited liability company with respect to which the ownership interests are wholly owned by the stockholder, members of such stockholder’s immediate family or any trust for the account or benefit of such stockholder or such stockholder’s immediate family. “Immediate family” as used herein shall mean child, stepchild, grandchild, parent, stepparent, grandparent, spouse, domestic partner, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships.

(ii) A stockholder’s bona fide pledge or mortgage of any shares with a commercial lending institution that creates a mere security interest, provided that any subsequent transfer of such shares by such institution shall be subject to this Article IX.

(iii) A stockholder’s transfer of any or all of such stockholder’s shares to the Company.

(iv) A stockholder’s transfer of any or all of such stockholder’s shares to a person who, at the time of such transfer, is an officer or director of the Company.

(v) A corporate stockholder’s transfer of any or all of its shares to any or all of its stockholders.

 

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(vi) A transfer by a stockholder that is a limited or general partnership or limited liability company of any or all of its shares to any or all of its partners or former partners, or members of former members (as the case may be).

(vii) A transfer of common stock issued upon the conversion of preferred stock of the Company or any right or interest in such common stock (including without limitation the right to receive common stock on conversion of any preferred stock).

In any such case, the transferee shall receive and hold such stock subject to the provisions of this Article IX, and there shall be no further transfer of such stock except in accord with this Article IX; provided, however, that common stock transferred pursuant to subparagraph (vii)9.1(e)(vii) above shall not be subject to this paragraph.

9.2 Amendment and Waiver; Termination.

(a) The provisions of this Article IX may be waived with respect to any transfer either by the Company, upon duly authorized action of the Board of Directors, or by the stockholders, upon the written consent of the owners of a majority of the voting power of the Company (excluding the votes represented by those shares to be transferred by the transferring stockholder).

(b) The provisions of this Article IX may be amended or repealed either by a duly authorized action of the Board of Directors or by the stockholders upon the written consent of the owners of a majority of the voting power of the Company, but subject to any additional requirements of the certificate of incorporation.

(c) The provisions of this Article IX shall terminate immediately prior to the date of the closing of a firm commitment underwritten public offering of common stock of the Company pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission under the Securities Act of 1933, as amended.

9.3 Void Transfers. Any transfer, or purported transfer, of shares of the Company shall be null and void unless the terms, conditions and provisions of this Article IX are strictly observed and followed.

9.4 Assignment of Rights. The Company may assign its rights hereunder in whole or in part to any director, officer, employee, stockholder or other person or entity.

9.5 Legends. The certificates representing shares of stock of the Company subject to this Article IX shall bear on their face the following legend so long as this Article IX remains in effect:

“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL IN FAVOR OF THE COMPANY AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE COMPANY.”

 

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ARTICLE X

AMENDMENTS

These Bylaws may be adopted, amended or repealed by the stockholders or, to the extent such power is conferred on the Board of Directors in the Company’s certificate of incorporation, by the Board of Directors. The fact that such power has been so conferred upon the Board of Directors shall not divest the stockholders of the power, nor limit their power, to adopt, amend or repeal these Bylaws.

 

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CERTIFICATE OF SECRETARY

The undersigned hereby certifies that the undersigned is the duly elected, qualified, and acting Secretary or Assistant Secretary of InsTIL Bio, Inc., a Delaware corporation, and that the foregoing Bylaws were adopted as the Bylaws of the Company on September 20, 2018, by the Board of Directors.

Executed on September 20, 2018.

 

/s/ Bronson Crouch

Bronson Crouch, Secretary

Exhibit 4.1

INSTIL BIO, INC.

SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

THIS SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (this “Agreement”), is made as of December 30, 2020, by and among Instil Bio, Inc., a Delaware corporation (the “Company”), and each of the investors listed on Schedule A hereto (together with any subsequent investors, or transferees who become parties hereto as “Investors” pursuant to Section 6.9, the “Investors”).

RECITALS

WHEREAS, certain of the Investors (the “Existing Investors”) hold shares of the Company’s Preferred Stock and possess registration rights, information rights, rights of first offer and other rights pursuant to that certain Amended and Restated Investors’ Rights Agreement, dated as of June 30, 2020, by and among the Company and such Investors (the “Prior Agreement”);

WHEREAS, the Existing Investors are holders of a majority of the Registrable Securities of the Company (as defined in the Prior Agreement), and desire to amend and restate the Prior Agreement in its entirety and to accept the rights created pursuant to this Agreement in lieu of the rights granted to them under the Prior Agreement; and

WHEREAS, certain of the Investors are parties to that certain Series C Preferred Stock Purchase Agreement of even date herewith by and among the Company and certain of the Investors (the “Purchase Agreement”), under which certain of the Company’s and such Investors’ obligations are conditioned upon the execution and delivery of this Agreement.

NOW, THEREFORE, the Company and the Investors, including the Existing Investors, hereby agree that the Prior Agreement shall be amended, restated and replaced in its entirety by this Agreement, and the parties to this Agreement further agree as follows:

1. Definitions. For purposes of this Agreement:

1.1 “Affiliate” means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer or director of such Person or any venture capital, registered investment company or other investment fund now or hereafter existing that is controlled by one or more general partners, managing members or investment advisers of, or shares the same management company or investment adviser with, such Person.

1.2 “Common Stock” means shares of the Company’s common stock, par value $0.000001 per share.

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1.3 “Damages” means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon: (a) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (b) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (c) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law

1.4 “Derivative Securities” means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly or indirectly), Common Stock, including options and warrants.

1.5 “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

1.6 “Excluded Registration” means (a) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase or similar plan, (b) a registration relating to an SEC Rule 145 transaction, (c) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or (d) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.

1.7 “Form S-1” means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.

1.8 “Form S-3” means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits incorporation of substantial information by reference to other documents filed by the Company with the SEC.

1.9 “GAAP” means generally accepted accounting principles in the United States.

1.10 “Holder” means any holder of Registrable Securities who is a party to this Agreement.

1.11 “Immediate Family Member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, of a natural person referred to herein.

1.12 “Initiating Holders” means, collectively, Holders who properly initiate a registration request under this Agreement.

 

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1.13 “IPO” means the Company’s first firm underwritten public offering of its Common Stock pursuant to a registration statement filed and declared effective under the Securities Act.

1.14 “Key Employee” means any executive-level employee (including division director and vice president-level positions) as well as any employee who, either alone or in concert with others, develops, invents, programs or designs any Company Intellectual Property (as defined in the Purchase Agreement).

1.15 “Major Investor” means any Investor that, individually or together with such Investor’s Affiliates, holds at least 795,152 shares of Registrable Securities (as adjusted for any stock split, stock dividend, combination or other recapitalization or reclassification effected after the date hereof).

1.16 “New Securities” means, collectively, equity securities of the Company, whether or not currently authorized, as well as rights, options or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities.

1.17 “Person” means any individual, corporation, partnership, trust, limited liability company, association or other entity.

1.18 “Preferred Directors” means, collectively, the Series A Director and the Series B Directors.

1.19 “Preferred Stock” means, collectively, shares of the Company’s Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock.

1.20 “Registrable Securities” means (a) the Common Stock issuable or issued upon conversion of the Preferred Stock; (b) any Common Stock, or any Common Stock issued or issuable (directly or indirectly) upon conversion and/or exercise of any other securities of the Company, acquired by the Investors after the date hereof; and (c) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clauses (a) and (b) above; excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned pursuant to Section 6.1, and excluding for purposes of Section 2 any shares for which registration rights have terminated pursuant to Section 2.13 of this Agreement.

1.21 “Registrable Securities then outstanding” means the number of shares determined by adding the number of shares of outstanding Common Stock that are Registrable Securities and the number of shares of Common Stock issuable (directly or indirectly) pursuant to then exercisable and/or convertible securities that are Registrable Securities.

1.22 “Restricted Securities” means the securities of the Company required to be notated with the legend set forth in Section 2.12(b) hereof.

1.23 “SEC” means the Securities and Exchange Commission.

 

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1.24 “SEC Rule 144” means Rule 144 promulgated by the SEC under the Securities Act.

1.25 “SEC Rule 145” means Rule 145 promulgated by the SEC under the Securities Act.

1.26 “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

1.27 “Selling Expenses” means all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any Holder, except for the fees and disbursements of the Selling Holder Counsel borne and paid by the Company as provided in Section 2.6.

1.28 “Series A Director” means any director of the Company that the holders of record of the Series A Preferred Stock are entitled to elect pursuant to the Restated Certificate (as defined below).

1.29 “Series A Preferred Stock” means shares of the Company’s Series A Preferred Stock, par value $0.000001 per share.

1.30 “Series B Director” means any director of the Company that the holders of record of the Series B Preferred Stock are entitled to elect pursuant to the Restated Certificate.

1.31 “Series B Preferred Stock” means shares of the Company’s Series B Preferred Stock, par value $0.000001 per share.

1.32 “Series C Preferred Stock” means shares of the Company’s Series C Preferred Stock, par value $0.000001 per share.

2. Registration Rights. The Company covenants and agrees as follows:

2.1 Demand Registration.

(a) Form S-1 Demand. If at any time after the earlier of (a) three years after the date of this Agreement or (b) 180 days after the effective date of the registration statement for the IPO, the Company receives a request from Holders of a majority of the Registrable Securities then outstanding that the Company file a Form S-1 registration statement with respect to at least 40% of the Registrable Securities then outstanding, then the Company shall (i) within 10 days after the date such request is given, give notice thereof (the “Demand Notice”) to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within 60 days after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within 20 days of the date the Demand Notice is given, and in each case, subject to the limitations of Sections 2.1(c) and 2.3.

 

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(b) Form S-3 Demand. If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from Holders of at least 30% of the Registrable Securities then outstanding that the Company file a Form S-3 registration statement with respect to outstanding Registrable Securities of such Holders having an anticipated aggregate offering price, net of Selling Expenses, of at least $5 million, then the Company shall (i) within 10 days after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within 45 days after the date such request is given by the Initiating Holders, file a Form S-3 registration statement under the Securities Act covering all Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within 20 days of the date the Demand Notice is given, and in each case, subject to the limitations of Sections 2.1(c) and 2.3.

(c) Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Section 2.1 a certificate signed by the Company’s chief executive officer stating that in the good faith judgment of the Company’s board of directors (the “Board”) it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly for a period of not more than 30 days after the request of the Initiating Holders is given; provided, however, that the Company may not invoke this right more than once in any 12-month period; and provided further that the Company shall not register any securities for its own account or that of any other stockholder during such 30-day period other than an Excluded Registration.

(d) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 2.1(a): (i) during the period that is 60 days before the Company’s good faith estimate of the date of filing of, and ending on a date that is 180 days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; (ii) after the Company has effected two registrations pursuant to Section 2.1(a); or (iii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.1(b). The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 2.1(b): (i) during the period that is 30 days before the Company’s good faith estimate of the date of filing of, and ending on a date that is 90 days after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Company

 

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has effected two registrations pursuant to Section 2.1(b) within the 12-month period immediately preceding the date of such request. A registration shall not be counted as “effected” for purposes of this Section 2.1(d) until such time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their request for such registration, elect not to pay the registration expenses therefor, and forfeit their right to one demand registration statement pursuant to Section 2.6, in which case such withdrawn registration statement shall be counted as “effected” for purposes of this Section 2.1(d); provided, that if such withdrawal is during a period the Company has deferred taking action pursuant to Section 2.1(c), then the Initiating Holders may withdraw their request for registration and such registration will not be counted as “effected” for purposes of this Section 2.1(d).

2.2 Company Registration. If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than the Holders) any of its securities under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given within 20 days after such notice is given by the Company, the Company shall, subject to the provisions of Section 2.3, cause to be registered all of the Registrable Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by the Company in accordance with Section 2.6.

2.3 Underwriting Requirements.

(a) If, pursuant to Section 2.1, the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 2.1, and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include such Holder’s Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 2.4(e)) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Section 2.3, if the underwriter(s) advise(s) the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated among such Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities owned by each Holder or in such other proportion as shall mutually be agreed to by all such selling Holders; provided, however, that the number of Registrable Securities held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares.

 

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(b) In connection with any offering involving an underwriting of shares of the Company’s capital stock pursuant to Section 2.2, the Company shall not be required to include any of the Holders’ Registrable Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities owned by each selling Holder or in such other proportions as shall mutually be agreed to by all such selling Holders. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares. Notwithstanding the foregoing, in no event shall (i) the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering or (ii) the number of Registrable Securities included in the offering be reduced below 30% of the total number of securities included in such offering, unless such offering is the IPO, in which case the selling Holders may be excluded further if the underwriters make the determination described above and no other stockholder’s securities are included in such offering. For purposes of the provision in this Section 2.3(b) concerning apportionment, for any selling Holder that is a partnership, limited liability company or corporation, the partners, members, retired partners, retired members, stockholders and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners, retired partners, members and retired members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder” shall be based upon the aggregate number of Registrable Securities owned by all Persons included in such “selling Holder,” as defined in this sentence.

(c) For purposes of Section 2.1, a registration shall not be counted as “effected” if, as a result of an exercise of the underwriter’s cutback provisions in Section 2.3(a), fewer than 50% of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.

2.4 Obligations of the Company. Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such

 

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registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to 120 days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the Holder refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in such registration and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such 120-day period shall be extended for up to 45 days, if necessary, to keep the registration statement effective until all such Registrable Securities are sold;

(b) prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;

(c) furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable Securities;

(d) use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

(e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;

(f) use its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;

(g) provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;

(h) promptly make available for inspection by the selling Holders, any underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company’s officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;

 

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(i) notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and

(j) after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus.

In addition, the Company shall ensure that, at all times after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, its insider trading policy shall provide that the Company’s directors may implement a trading program under Rule 10b5-1 of the Exchange Act.

2.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of such Holder’s Registrable Securities.

2.6 Expenses of Registration. All expenses (other than Selling Expenses) incurred in connection with registrations, filings or qualifications pursuant to Section 2, including all registration, filing and qualification fees; printers’ and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements, not to exceed $50,000, of one counsel for the selling Holders (“Selling Holder Counsel”), shall be borne and paid by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one registration pursuant to Sections 2.1(a) or 2.1(b), as the case may be; provided further that if, at the time of such withdrawal, the Holders shall have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information then the Holders shall not be required to pay any of such expenses and shall not forfeit their right to one registration pursuant to Sections 2.1(a) or 2.1(b). All Selling Expenses relating to Registrable Securities registered pursuant to this Section 2 shall be borne and paid by the Holders pro rata on the basis of the number of Registrable Securities registered on their behalf.

2.7 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.

 

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2.8 Indemnification. If any Registrable Securities are included in a registration statement under this Section 2:

(a) To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members, officers, directors and stockholders of each such Holder; legal counsel and accountants for each such Holder; any underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 2.8(a) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such Holder, underwriter, controlling Person or other aforementioned Person expressly for use in connection with such registration.

(b) To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company and each of its directors, each of its officers who has signed the registration statement, each Person (if any) who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), any other Holder selling securities in such registration statement, and any controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such selling Holder expressly for use in connection with such registration; and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 2.8(b) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under Sections 2.8(b) and (d) exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of fraud or willful misconduct by such Holder.

(c) Promptly after receipt by an indemnified party under this Section 2.8 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.8, give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an

 

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indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action. The failure to give notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.8, to the extent that such failure materially prejudices the indemnifying party’s ability to defend such action. The failure to give notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.8.

(d) To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either: (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Section 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Section 2.8 provides for indemnification in such case; or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Section 2.8, then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions or other actions that resulted in such loss, claim, damage, liability or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case (x) no Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (y) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall a Holder’s liability pursuant to this Section 2.8(d), when combined with the amounts paid or payable by such Holder pursuant to Section 2.8(b), exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of willful misconduct or fraud by such Holder.

(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

(f) Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Section 2.8 shall survive the completion of any offering of Registrable Securities in a registration under this Section 2, and otherwise shall survive the termination of this Agreement.

 

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2.9 Reports Under Exchange Act. With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company shall:

(a) make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the registration statement filed by the Company for the IPO;

(b) use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and

(c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after 90 days after the effective date of the registration statement filed by the Company for the IPO), the Securities Act, and the Exchange Act (at any time after the Company has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies) and (ii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form).

2.10 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would (a) provide to such holder or prospective holder the right to include securities in any registration on other than either a pro rata basis with respect to the Registrable Securities or on a subordinate basis after all Holders have had the opportunity to include in the registration and offering all shares of Registrable Securities that they wish to so include, (b) allow such holder or prospective holder to include such securities in any registration unless, under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the number of the Registrable Securities of the Holders that are included, or (c) allow such holder or prospective holder to initiate a demand for registration of any securities held by such holder or prospective holder; provided that this limitation shall not apply to any additional Investor who becomes a party to this Agreement in accordance with Section 6.9.

 

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2.11 “Market Stand-off” Agreement. Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the registration by the Company for its own behalf of shares of its Common Stock or any other equity securities under the Securities Act on a registration statement for the IPO, and ending on the date specified by the Company and the managing underwriter (such period not to exceed 180 days after the effective date of the final prospectus relating to the IPO), (i) lend; offer; pledge; sell; contract to sell; sell any option or contract to purchase; purchase any option or contract to sell; grant any option, right or warrant to purchase; or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock held immediately before the effective date of the registration statement for the IPO or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise. The foregoing provisions of this Section 2.11 shall apply only to the IPO, shall not apply to (a) the sale of any shares to an underwriter pursuant to an underwriting agreement, (b) the transfer of any shares to any trust for the direct or indirect benefit of the Holder or the immediate family of the Holder or the transfer of any shares to an Affiliate of the Holder, provided that the trustee of the trust or the Affiliate, as the case may be, agrees to be bound in writing by the restrictions set forth herein, (c) shares purchased by a Holder in the open market, and provided further that any such transfers in the case of (b) shall not involve a disposition for value. The foregoing restrictions of this Section 2.11 shall be applicable to the Holders only if all officers and directors of the Company and all stockholders individually owning more than 1% of the Company’s outstanding Common Stock (after giving effect to conversion into Common Stock of all outstanding Preferred Stock) are subject to substantially the same restrictions. The underwriters in connection with such registration are intended third-party beneficiaries of this Section 2.11 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Section 2.11 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all Holders subject to such agreements, based on the number of shares subject to such agreements.

2.12 Restrictions on Transfer.

(a) The Preferred Stock and the Registrable Securities shall not be sold, pledged or otherwise transferred, and the Company shall not recognize and shall issue stop- transfer instructions to its transfer agent with respect to any such sale, pledge or transfer, except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. A transferring Holder will cause any proposed purchaser, pledgee or transferee of the Preferred Stock and the Registrable Securities held by such Holder to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement. For the avoidance of doubt, all shares of Preferred Stock are freely transferable subject to applicable law, compliance with the provisions of Section 2.12(c) and the execution of a joinder to this Agreement by the transferee of such shares of Preferred Stock. Notwithstanding the foregoing, the Company shall not require any transferee of shares pursuant to an effective registration statement or, following the IPO, SEC Rule 144, in each case, to be bound by the terms of this Agreement.

 

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(b) Each certificate, instrument or book entry representing (i) the Preferred Stock, (ii) the Registrable Securities and (iii) any other securities issued in respect of the securities referenced in clauses (i) and (ii), upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 2.12(c)) be notated with a legend substantially in the following form:

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.

THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

The Holders consent to the Company making a notation in its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer set forth in this Section 2.12.

(c) The holder of such Restricted Securities, by acceptance of ownership thereof, agrees to comply in all respects with the provisions of this Section 2. Before any proposed sale, pledge or transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transaction or following the IPO, the transfer is made pursuant to SEC Rule 144, the Holder thereof shall give notice to the Company of such Holder’s intention to effect such sale, pledge or transfer, provided that no such notice shall be required in connection if the intended sale, pledge or transfer complies with SEC Rule 144. Each such notice shall describe the manner and circumstances of the proposed sale, pledge or transfer in sufficient detail and, if reasonably requested by the Company, shall be accompanied at such Holder’s expense by either (i) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transaction may be effected without registration under the Securities Act, (ii) a “no action” letter from the SEC to the effect that the proposed sale, pledge or transfer of such Restricted Securities without registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto, or (iii) any other evidence reasonably satisfactory to counsel to the Company to the effect that the proposed sale, pledge or transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the Holder of such Restricted Securities shall be entitled to sell, pledge or transfer such Restricted Securities in accordance with the terms of the notice given by the Holder to the Company. The Company will not require such a legal opinion or “no action” letter (x) in any transaction in compliance with SEC Rule 144; or (y) in any transaction in which such Holder transfers Restricted Securities to an Affiliate of such Holder for no consideration; provided that with respect to transfers under the foregoing clause (y), each transferee agrees in writing to be

 

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subject to the terms of this Section 2.12. Each certificate, instrument or book entry representing the Restricted Securities transferred as above provided shall be notated with, except if such transfer is made pursuant to SEC Rule 144, the appropriate restrictive legend set forth in Section 2.12(b), except that such certificate instrument or book entry shall not be notated with such restrictive legend if, in the opinion of counsel for such Holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act.

2.13 Termination of Registration Rights. The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Sections 2.1 or 2.2 shall terminate upon the earliest to occur of:

(a) the closing of a Deemed Liquidation Event, as such term is defined in the Company’s Third Amended and Restated Certificate of Incorporation (the “Restated Certificate”);

(b) such time after consummation of the IPO as Rule 144 or another similar exemption under the Securities Act is available for the sale of all of such Holder’s shares without limitation during a three-month period without registration; and

(c) the fifth anniversary of the IPO.

3. Information Rights.

3.1 Delivery of Financial Statements. The Company shall deliver to each Major Investor:

(a) as soon as practicable, but in any event within 120 days after the end of each fiscal year of the Company, (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and (iii) a statement of stockholders’ equity as of the end of such year, all such financial statements audited and certified by independent public accountants of nationally recognized standing selected by the Company;

(b) as soon as practicable, but in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company, unaudited statements of income and cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders’ equity as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments; and (ii) not contain all notes thereto that may be required in accordance with GAAP);

(c) as soon as practicable, but in any event within 45 days after the end of each quarter of each fiscal year of the Company, a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the Common Stock issuable upon conversion or exercise of any outstanding securities convertible or exercisable for Common Stock and the exchange ratio or exercise price applicable thereto, and the number of shares of issued stock options and stock options not yet issued but reserved for issuance, if any, all in sufficient detail as to permit the Major Investors to calculate their respective percentage equity ownership in the Company, and certified by the chief financial officer or chief executive officer of the Company as being true, complete and correct;

 

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(d) as soon as practicable, but in any event within 30 days after the end of each month, an unaudited income statement and statement of cash flows for such month, and an unaudited balance sheet and statement of stockholders’ equity as of the end of such month, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);

(e) as soon as practicable, but in any event 30 days before the end of each fiscal year, a budget and business plan for the next fiscal year, prepared on a monthly basis, including balance sheets, income statements and statements of cash flow for such months and, promptly after prepared, any other budgets or revised budgets prepared by the Company; and

(f) such other information relating to the financial condition, business, prospects or corporate affairs of the Company as any Major Investor may from time to time reasonably request; provided, however, that the Company shall not be obligated under this Section 3.1 to provide information (i) that the Company reasonably determines in good faith to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in a form reasonably acceptable to the Company) or (ii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.

If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.

Notwithstanding anything else in this Section 3.1 to the contrary, the Company may cease providing the information set forth in this Section 3.1 during the period starting with the date 30 days before the Company’s good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided that the Company’s covenants under this Section 3.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective.

3.2 Inspection. The Company shall permit each Major Investor, at such Major Investor’s expense, to visit and inspect the Company’s properties, examine its books of account and records and discuss the Company’s affairs, finances and accounts with its officers, during normal business hours of the Company as may be reasonably requested by the Major Investor; provided, however, that the Company shall not be obligated pursuant to this Section 3.2 to provide access to any information that it reasonably and in good faith considers to be a trade secret or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.

 

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3.3 Termination of Information Rights. The covenants set forth in Sections 3.1 and 3.2 shall terminate and be of no further force or effect (a) immediately before the consummation of the IPO, (b) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (c) upon a Deemed Liquidation Event, as such term is defined in the Restated Certificate, whichever event occurs first.

3.4 Confidentiality. Each Investor agrees that such Investor will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) any confidential information obtained from the Company pursuant to the terms of this Agreement (including notice of the Company’s intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Section 3.4 by such Investor), (b) is or has been independently developed or conceived by the Investor without use of the Company’s confidential information or (c) is or has been made known or disclosed to the Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that an Investor may disclose confidential information (i) to its and its Affiliates’ respective attorneys, accountants, consultants and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company, (ii) to any prospective purchaser of any Registrable Securities from such Investor, if such prospective purchaser agrees to be bound by the provisions of this Section 3.4, (iii) to any existing or prospective Affiliate, partner, partner of partners, member, stockholder or wholly owned subsidiary of such Investor in the ordinary course of business, provided that such Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information, or (iv) as may otherwise be required by law, regulation, rule, court order or subpoena, provided that the Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.

4. Rights to Future Stock Issuances.

4.1 Right of First Offer. Subject to the terms and conditions of this Section 4.1 and applicable securities laws, if the Company proposes to offer or sell any New Securities, the Company shall first offer such New Securities to each Major Investor. A Major Investor shall be entitled to apportion the right of first offer hereby granted to it in such proportions as it deems appropriate, among (i) itself, (ii) its Affiliates and (iii) its beneficial interest holders, such as limited partners, members or any other Person having “beneficial ownership,” as such term is defined in Rule 13d-3 promulgated under the Exchange Act, of such Major Investor (“Investor Beneficial Owners”); provided that each such Affiliate or Investor Beneficial Owner (x) agrees to enter into this Agreement and each of the Second Amended and Restated Voting Agreement and Second Amended and Restated Right of First Refusal and Co-Sale Agreement of even date herewith among the Company, the Investors and the other parties named therein, as an “Investor” under each such agreement and (y) agrees to purchase at least such number of New Securities as are allocable hereunder to the Major Investor holding the fewest number of Preferred Stock and any other Derivative Securities.

(a) The Company shall give notice (the “Offer Notice”) to each Major Investor, stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered and (iii) the price and terms, if any, upon which it proposes to offer such New Securities.

 

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(b) By notification to the Company within 20 days after the Offer Notice is given, each Major Investor may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the Common Stock then held by such Major Investor (including all shares of Common Stock then issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held by such Major Investor) bears to the total Common Stock of the Company then outstanding (assuming full conversion and/or exercise, as applicable, of all Preferred Stock and any other Derivative Securities then outstanding). At the expiration of such 20 day period, the Company shall promptly notify each Major Investor that elects to purchase or acquire all the shares available to it (each, a “Fully Exercising Investor”) of any other Major Investor’s failure to do likewise. During the 10 day period commencing after the Company has given such notice, each Fully Exercising Investor may, by giving notice to the Company, elect to purchase or acquire, in addition to the number of shares specified above, up to that portion of the New Securities for which Major Investors were entitled to subscribe but that were not subscribed for by the Major Investors which is equal to the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of Preferred Stock and any other Derivative Securities then held, by such Fully Exercising Investor bears to the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held, by all Fully Exercising Investors who wish to purchase such unsubscribed shares. The closing of any sale pursuant to this Section 4.1(b) shall occur within the later of 90 days of the date that the Offer Notice is given and the date of initial sale of New Securities pursuant to Section 4.1(c).

(c) If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Section 4.1(b), the Company may, during the 90 day period following the expiration of the periods provided in Section 4.1(b), offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within 30 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Major Investors in accordance with this Section 4.1.

(d) The right of first offer in this Section 4.1 shall not be applicable to (i) Exempted Securities (as defined in the Restated Certificate) and (ii) shares of Common Stock issued in the IPO.

4.2 Termination. The covenants set forth in Section 4.1 shall terminate and be of no further force or effect (a) immediately before the consummation of the IPO, in which all of the Preferred Stock is converted into Common Stock, (b) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (c) upon a Deemed Liquidation Event, as such term is defined in the Restated Certificate, whichever event occurs first.

 

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5. Additional Covenants.

5.1 Insurance. The Company shall obtain, within 90 days of the date hereof, from financially sound and reputable insurers Directors and Officers liability insurance in an amount and on terms and conditions satisfactory to the Board, and will use commercially reasonable efforts to cause such insurance policy to be maintained until such time as the Board (including at least two Preferred Directors) determines that such insurance should be discontinued.

5.2 Employee Agreements. The Company will cause (i) each Person now or hereafter employed by it or by any subsidiary (or engaged by the Company or any subsidiary as a consultant/independent contractor) to enter into a nondisclosure and proprietary rights assignment agreement; and (ii) each Key Employee to enter into a one year noncompetition and nonsolicitation agreement, substantially in the form approved by the Board. In addition, the Company shall not amend, modify, terminate, waive, or otherwise alter, in whole or in part, any of the above-referenced agreements or any restricted stock agreement between the Company and any employee, without the consent of the Board.

5.3 Employee Stock. Unless otherwise approved by the Board (including at least two Preferred Directors), all future employees and consultants of the Company who purchase, receive options to purchase, or receive awards of shares of the Company’s capital stock after the date hereof shall be required to execute restricted stock or option agreements, as applicable, providing for (a) vesting of shares over a four year period, with the first 25% of such shares vesting following 12 months of continued employment or service, and the remaining shares vesting in equal monthly installments over the following 36 months, and (b) a market stand-off provision substantially similar to that in Section 2.11. Without the prior approval by the Board, the Company shall not amend, modify, terminate, waive or otherwise alter, in whole or in part, any stock purchase, stock restriction or option agreement with any existing employee or service provider if such amendment would cause it to be inconsistent with this Section 5.3. In addition, unless otherwise approved by the Board, the Company shall retain a “right of first refusal” on employee transfers until the Company’s IPO and shall have the right to repurchase unvested shares at cost upon termination of employment of a holder of restricted stock.

5.4 Matters Requiring Investor Director Approval. So long as the holders of Series B Preferred Stock are entitled to elect a Series B Director, the Company hereby covenants and agrees with each of the Investors that it shall not, without approval of the Board, which approval must include the affirmative vote of at least two Preferred Directors:

(a) make, or permit any subsidiary to make, any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity or person unless it is wholly owned by the Company;

(b) make, or permit any subsidiary to make, any loan or advance to any Person, including, without limitation, any employee or director of the Company or any subsidiary, except advances and similar expenditures in the ordinary course of business or under the terms of an employee stock or option plan approved by the Board;

 

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(c) guarantee, directly or indirectly, or permit any subsidiary to guarantee, directly or indirectly, any indebtedness except for trade accounts of the Company or any subsidiary arising in the ordinary course of business;

(d) make any investment inconsistent with any investment policy approved by the Board;

(e) incur any aggregate indebtedness in excess of $1,000,000 that is not already included in a budget approved by the Board, other than trade credit incurred in the ordinary course of business;

(f) otherwise enter into or be a party to any transaction with any director, officer, or employee of the Company or any “associate” (as defined in Rule 12b-2 promulgated under the Exchange Act) of any such Person, except for transactions contemplated by this Agreement or the Purchase Agreement; transactions resulting in payments to or by the Company in an aggregate amount less than $120,000 per year; or transactions made in the ordinary course of business and pursuant to reasonable requirements of the Company’s business and upon fair and reasonable terms that are approved by a majority of the Board;

(g) hire, terminate, or change the compensation of the executive officers, including approving any option grants or stock awards to executive officers;

(h) change the principal business of the Company, enter new lines of business, or exit the current line of business;

(i) sell, assign, license, pledge, or encumber material technology or intellectual property, other than licenses granted in the ordinary course of business; or

(j) enter into any corporate strategic relationship involving the payment, contribution, or assignment by the Company or to the Company of money or assets greater than $1,000,000.

5.5 Board Matters. Unless otherwise determined by the vote of a majority of the directors then in office, the Board shall meet at least quarterly in accordance with an agreed-upon schedule. The Company shall reimburse the nonemployee directors for all reasonable out-of-pocket travel expenses incurred (consistent with the Company’s travel policy) in connection with attending meetings of the Board. Each Series B Director shall be entitled, at such person’s discretion, to be a member of any committee of the Board.

5.6 Successor Indemnification. If the Company or any of its successors or assignees consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification of members of the Board as in effect immediately before such transaction, whether such obligations are contained in the Company’s bylaws, its Restated Certificate or elsewhere, as the case may be.

 

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5.7 Indemnification Matters. The Company hereby acknowledges that one or more of the directors nominated to serve on the Board by the Investors (each a “Fund Director”) may have certain rights to indemnification, advancement of expenses and/or insurance provided by one or more of the Investors and certain of their Affiliates (collectively, the “Fund Indemnitors”). The Company hereby agrees (a) that it is the indemnitor of first resort (i.e., its obligations to any such Fund Director are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by such Fund Director are secondary), (b) that it shall be required to advance the full amount of expenses incurred by such Fund Director and shall be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement by or on behalf of any such Fund Director to the extent legally permitted and as required by the Restated Certificate or bylaws of the Company (or any agreement between the Company and such Fund Director), without regard to any rights such Fund Director may have against the Fund Indemnitors, and (c) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund 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 Fund Indemnitors on behalf of any such Fund Director with respect to any claim for which such Fund Director has sought indemnification from the Company shall affect the foregoing and the Fund 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 such Fund Director against the Company. The Fund Directors and the Fund Indemnitors are intended third-party beneficiaries of this Section 5.7 and shall have the right, power and authority to enforce the provisions of this Section 5.7 as though they were a party to this Agreement.

5.8 Right to Conduct Activities. The Company hereby agrees and acknowledges that each of Curative Ventures V LLC (together with its Affiliates) (“Curative”), Vivo Capital Fund IX, L.P. (together with its Affiliates) (“Vivo”), Venrock Healthcare Capital Partners III, L.P. (together with its Affiliates) (“Venrock”), HBM Healthcare Investments (Cayman) Ltd. (together with its Affiliates) (“HBM”), RA Capital Healthcare Fund, L.P. (together with its Affiliates) (“RA Capital”), Samsara BioCapital, L.P. (together with its Affiliates) (“Samsara”), Baker Brothers Life Sciences, L.P. (together with its Affiliates) (“Baker”), ISTL Holdings Limited (together with its Affiliates) (“ISTL”), MW XO Health Innovations Fund, LP (“MW”) and each of Wellington Management Company LLP (“Wellington”) and Wellington Biomedical Innovation Master Investors (Cayman) I L.P. (together with its affiliates, the “Wellington Investor”) is a professional investment organization, and as such reviews the business plans and related proprietary information of many enterprises, some of which may compete directly or indirectly with the Company’s business (as currently conducted or as currently proposed to be conducted). The Company hereby agrees that, to the extent permitted under applicable law, each of Curative, Vivo, Venrock, HBM, RA Capital, Samsara, Baker, ISTL, MW, Wellington and the Wellington Investor shall not be liable to the Company for any claim arising out of, or based upon, (a) the investment by Curative, Vivo, Venrock, HBM, RA Capital, Samsara, Baker, ISTL, MW, Wellington or the Wellington Investor in any entity competitive with the Company, or (b) actions taken by any partner, officer or other representative of Curative, Vivo, Venrock, HBM, RA Capital, Samsara, Baker, ISTL, MW, Wellington or the Wellington Investor to

 

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assist any such competitive company, whether or not such action was taken as a member of the board of directors of such competitive company or otherwise, and whether or not such action has a detrimental effect on the Company; provided, however, that the foregoing shall not relieve (x) any of the Investors from liability associated with the unauthorized disclosure of the Company’s confidential information obtained pursuant to this Agreement, or (y) any director or officer of the Company from any liability associated with his or her fiduciary duties to the Company.

5.9 Foreign Corrupt Practices Act. The Company shall not, and shall not permit any of its subsidiaries or affiliates or any of its or their respective directors, officers, managers, employees, independent contractors, representatives or agents to, promise, authorize or make any payment, or otherwise provide any item of value, directly or indirectly, to any foreign official or any foreign political party or official thereof or candidate for foreign political office in violation of the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act 2010, or any other applicable anti-bribery or anti-corruption law. The Company shall, and shall cause each of its subsidiaries and affiliates to, cease all of its or their respective activities, as well as remediate any actions taken by the Company, its subsidiaries or affiliates, or any of their respective directors, officers, managers, employees, independent contractors, representatives or agents in violation of the FCPA, the U.K. Bribery Act 2010, or any other applicable anti-bribery or anti-corruption law. The Company shall, and shall cause each of its subsidiaries and affiliates to, maintain systems of internal controls (including, but not limited to, accounting systems, purchasing systems and billing systems) to ensure compliance with the FCPA, the U.K. Bribery Act 2010, or any other applicable anti- bribery or anti-corruption law. Upon request, the Company agrees to provide responsive information and/or certifications concerning its compliance with applicable anti-corruption laws.

5.10 Termination of Covenants. The covenants set forth in this Section 5, except for Sections 5.6 and 5.7, shall terminate and be of no further force or effect (a) immediately before the consummation of the IPO, in which all of the Preferred Stock is converted into Common Stock, (b) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (c) upon a Deemed Liquidation Event, as such term is defined in the Restated Certificate, whichever event occurs first.

5.11 No Use of Name. Without a Holder’s prior written consent, none of the Company, its subsidiaries, any other Holder or their respective Affiliates shall use, publish, reproduce, or refer to such Holder, its related parties, controlling persons, or any similar name, trademark or logo, in any non-internal discussion, documents or materials, including without limitation for marketing, advertising, publicity or other purposes.

6. Miscellaneous.

6.1 Successors and Assigns. The rights under this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee of Registrable Securities that (a) is an Affiliate of a Holder, (b) is a Holder’s Immediate Family Member or trust for the benefit of an individual Holder or one or more of such Holder’s Immediate Family Members or (c) after such transfer, holds at least 100,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations and other recapitalizations); provided, however, that (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which

 

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such rights are being transferred, and (y) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement, including the provisions of Section 2.11. For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee (1) that is an Affiliate or stockholder of a Holder, (2) who is a Holder’s Immediate Family Member, or (3) that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member shall be aggregated together and with those of the transferring Holder; provided further that all transferees who would not qualify individually for assignment of rights shall, as a condition to the applicable transfer, establish a single attorney-in-fact for the purpose of exercising any rights, receiving notices, or taking any action under this Agreement. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.

6.2 Governing Law. This Agreement shall be governed by the internal law of the State of Delaware without regard for conflict of law principles.

6.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the United States federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

6.4 Titles and Subtitles. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.

6.5 Notices.

(a) All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or (a) personal delivery to the party to be notified, (b) when sent, if sent by electronic mail during the recipient’s normal business hours, and if not sent during normal business hours, then on the recipient’s next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth on Schedule A, or to the principal office of the Company, in the case of the Company, or to such email address or address as subsequently modified by written notice given in accordance with this Section 6.5.

(b) Consent to Electronic Notice. Each Investor consents to the delivery of any stockholder notice pursuant to the Delaware General Corporation Law (the “DGCL”), as amended or superseded from time to time, by electronic transmission pursuant to Section 232 of the DGCL (or any successor thereto) at the electronic mail address set forth below such Investor’s

 

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name on the Schedules hereto, as updated from time to time by notice to the Company, or as on the books of the Company. To the extent that any notice given by means of electronic transmission is returned or undeliverable for any reason, the foregoing consent shall be deemed to have been revoked until a new or corrected electronic mail address has been provided, and such attempted electronic notice shall be ineffective and deemed to not have been given. Each Investor agrees to promptly notify the Company of any change in such stockholder’s electronic mail address, and that failure to do so shall not affect the foregoing.

(c) Notwithstanding any of the foregoing, with respect to HBM Healthcare Investments (Cayman) Ltd. (“HBM”), only a nationally recognized courier service (such as FedEx or DHL) shall be used to effectuate the delivery of any notices pursuant to this Section 6.5, and such notice or other communication for purpose of this Agreement shall not be treated as effective or having been given if some other delivery method is utilized; provided, however, that if such notice is being sent internationally, it shall not be deemed defective if such courier does not deliver such notice on the next business day following deposit (provided that such notice shall be deemed delivered on the date of delivery by such courier service), and provided further, that HBM may agree to receive notice in some other manner set forth in this Section 6.5 by written election; and a copy (which shall not constitute notice) shall also be sent to Sidley Austin LLP, 1999 Avenue of the Stars, 17th Floor, Los Angeles, California 90067, Attention: Mehdi Khodadad.

6.6 Amendments and Waivers. Any term of this Agreement may be amended, modified or terminated and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Company and the holders of a majority of the Preferred Stock then outstanding (voting together as a single class on an as-converted basis), which majority must include (X) a majority of the Series B Preferred Stock then outstanding and (Y) the Requisite Series C Majority (as defined in the Restated Certificate); provided that the Company may in its sole discretion waive compliance with Section 2.12(c) (and the Company’s failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Section 2.12(c) shall be deemed to be a waiver); and provided further that any provision hereof may be waived by any waiving party on such party’s own behalf, without the consent of any other party. Notwithstanding the foregoing, (a) this Agreement may not be amended, modified or terminated and the observance of any term hereof may not be waived with respect to any Investor without the written consent of such Investor, unless such amendment, modification, termination or waiver applies to all Investors in the same fashion (it being agreed that a waiver of the provisions of Section 4 with respect to a particular transaction shall be deemed to apply to all Major Investors in the same fashion if such waiver does so by its terms, notwithstanding the fact that certain Investors may nonetheless, by agreement with the Company, purchase securities in such transaction); (b) Sections 3.1 and 3.2, Section 4 and any other section of this Agreement applicable to the Major Investors (including this clause (b) of this Section 6.6) may not be amended, modified, terminated or waived without the written consent of the holders of a majority of the Preferred Stock then outstanding and held by the Major Investors (voting together as a single class on an as-converted basis), which majority must include (A) a majority of the Series B Preferred Stock then outstanding and held by the Major Investors and (B) a majority of the Series C Preferred Stock then outstanding and held by the Major Investors (including at least one-third of the shares of Series C Preferred Stock held by Major Investors

 

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holding shares of Series C Preferred Stock who do not also hold any shares of Series B Preferred Stock); and (c) the definition of “Major Investor” may not be amended to increase the number of shares required to be deemed a “Major Investor” without the written consent of each Major Investor as of the date of this Agreement. Notwithstanding the foregoing, Schedule A hereto may be amended by the Company from time to time to add transferees of any Registrable Securities in compliance with the terms of this Agreement without the consent of the other parties; and Schedule A hereto may also be amended by the Company after the date of this Agreement without the consent of the other parties to add information regarding any additional Investor who becomes a party to this Agreement in accordance with Section 6.9. The Company shall give prompt notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination or waiver. Any amendment, termination or waiver effected in accordance with this Section 6.6 shall be binding on all parties hereto, regardless of whether any such party has consented thereto. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition or provision.

6.7 Severability. In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal or unenforceable provision shall be reformed and construed so that it will be valid, legal and enforceable to the maximum extent permitted by law.

6.8 Aggregation of Stock. All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.

6.9 Additional Investors. Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of the Company’s Series C Preferred Stock after the date hereof, any purchaser of such shares may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed an “Investor” for all purposes hereunder. No action or consent by the Investors shall be required for such joinder to this Agreement by such additional Investor, so long as such additional Investor has agreed in writing to be bound by all of the obligations as an “Investor” hereunder.

6.10 Entire Agreement. This Agreement (including any Schedules and Exhibits hereto) constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled. Upon the effectiveness of this Agreement, the Prior Agreement shall be deemed amended and restated and superseded and replaced in its entirety by this Agreement, and shall be of no further force or effect.

6.11 Dispute Resolution. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the federal or state courts located in the state of Delaware for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the federal or state courts located in the state of Delaware, (c)

 

25

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hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (d) agree to be subject to service of process in the state of Delaware by service of process directed to the address to which notices are to be sent as set forth in Section 6.5.

WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

Each party will bear its own costs in respect of any disputes arising under this Agreement. The prevailing party shall be entitled to reasonable attorney’s fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled.

6.12 Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

26

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

COMPANY:
INSTIL BIO, INC.
By:		/s/ Bronson Crouch
Name:		Bronson Crouch
Title:		Chief Executive Officer

Address:		3963 Maple Avenue, Suite 350
		Dallas, TX 75219

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
AllianceBernstein L.P., on behalf of its certain discretionary managed accounts:
AB CAP FUND, INC.—AB SMALL CAP GROWTH PORTFOLIO
AB DISCOVERY GROWTH FUND, INC.
By:		/s/ Paul A. Emerson
Name:		Paul A. Emerson
Title:		Assistant Secretary

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
ArrowMark Fundamental Opportunity Fund, L.P.
By:		its Investment Adviser
ArrowMark Colorado Holdings LLC

 

By:		/s/ Kirk Reid
Name:		Kirk Reid
Title:		COO

 

ArrowMark Life Science Fund, LP
By:		its Investment Adviser

ArrowMark Colorado Holdings LLC
By:		/s/ Kirk Reid
Name:		Kirk Reid
Title:		COO

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
ISTL HOLDINGS LIMITED
By:		/s/ Colm O’Connell
Name:		Colm O’Connell
Title:		Authorized Signatory

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
MW XO HEALTH INNOVATIONS FUND, LP
By:		Marshall Wace North America, LP
Its:		Investment Manager

 

By:		Marshall Wace LLC
Its:		General Partner of the Investment Manager

 

By:		/s/ Michael Sargent
Name:		Michael Sargent
Title:		Authorised Signatory

 

By:		/s/ Duncan Ford
Name:		Duncan Ford
Title:		Authorised Signatory

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
667, L.P.
By: BAKER BROS. ADVISORS LP, management company and investment adviser to 667, L.P., pursuant to authority granted to it by Baker Biotech Capital, L.P., general partner to 667, L.P., and not as the general partner.

 

By:		/s/ Scott Lessing

Name:		Scott L. Lessing

Title:		President

 

BAKER BROTHERS LIFE SCIENCES, L.P.
By: BAKER BROS. ADVISORS LP, management company and investment adviser to Baker Brothers Life Sciences, L.P., pursuant to authority granted to it by Baker Brothers Life Sciences Capital, L.P., general partner to Baker Brothers Life Sciences, L.P., and not as the general partner

 

By:		/s/ Scott Lessing

Name:		Scott L. Lessing

Title:		President

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
CURATIVE VENTURES V LLC

 

By:		/s/ Bronson Crouch

Name:		Bronson Crouch

Title:		Partner

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
GC&H INVESTMENTS, LLC

 

By:		/s/ Jim Kindler

Name:		Jim Kindler

Title:		Manager

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
HBM HEALTHCARE INVESTMENTS (CAYMAN) LTD.

 

By:		/s/ Jean-Marc LeSieur

Name:		Jean-Marc LeSieur

Title:		Director

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
IBISBILL, LP
By:		CPMG, Inc.
Its:		General Partner
By:		/s/ John Bateman

Name:		John E. Bateman
Title:		Chief Operating Officer

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
LOGOS OPPORTUNITIES FUND II, L.P.
By:		Logos Opportunities GP, LLC

Its General Partner
By:		/s/ Graham Walmsley

Name:		Graham Walmsley
Title:		Managing Member
Address:		1 Letterman Drive
		Building D, Suite D3-700
		San Francisco, CA 94129

By:		/s/ Arsani William

Name:		Arsani William
Title:		Managing Member
Address:		1 Letterman Drive
		Building D, Suite D3-700
		San Francisco, CA 94129

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
RA CAPITAL HEALTHCARE FUND, L.P.
By:		RA Capital Healthcare Fund GP, LLC
Its:		General Partner

By:		/s/ Peter Kolchinsky

Name:		Peter Kolchinsky
Title:		Manager

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
RA CAPITAL NEXUS FUND, L.P.
By:		RA Capital Nexus Fund GP, LLC
Its:		General Partner

By:		/s/ Peter Kolchinsky

Name:		Peter Kolchinsky
Title:		Manager

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

---

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
SAMSARA BIOCAPITAL, L.P.
By:		Samsara BioCapital GP, LLC, General Partner

By:		/s/ Srinivas Akkaraju

Name:		Srinivas Akkaraju, MD, PhD
Title:		Managing Member

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
VENROCK HEALTHCARE CAPITAL PARTNERS III, L.P.
By: VHCP Management III, LLC, its general partner
By: VR Advisor, LLC, its manager
VHCP CO-INVESTMENT HOLDINGS III, LLC
By: VHCP Management III, LLC, its manager
By: VR Advisor, LLC, its manager
By:		/s/ Nimish Shah
		Authorized Signatory
VENROCK HEALTHCARE CAPITAL PARTNERS EG, L.P.
By: VHCP Management EG, LLC, its general partner
By:		/s/ Nimish Shah
		Authorized Signatory

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

---

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
VIVO CAPITAL FUND IX, L.P.
By: Vivo Capital IX, LLC, General Partner
By:		/s/ Jack Nielsen

Name:		Jack Nielsen
Title:		Managing Member

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
WELLINGTON BIOMEDICAL INNOVATION MASTER INVESTORS (CAYMAN) I L.P.
By: Wellington Management Company LLP, as investment adviser
By:		/s/ Peter McIsaac

Name:		Peter McIsaac
Title:		Managing Director and Counsel

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

INVESTOR:
Fidelity Select Portfolios: Biotechnology Portfolio
By:		/s/ James Wegmann

Name:		James Wegmann
Title:		Authorized Signatory

 

Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund
By:		/s/ James Wegmann

Name:		James Wegmann
Title:		Authorized Signatory

 

Fidelity Securities Fund: Fidelity Small Cap Growth Fund
By:		/s/ James Wegmann

Name:		James Wegmann
Title:		Authorized Signatory

 

Fidelity Securities Fund: Fidelity Small Cap Growth K6 Fund
By:		/s/ James Wegmann

Name:		James Wegmann
Title:		Authorized Signatory

 

Fidelity Capital Trust: Fidelity Flex Small Cap Fund—Small Cap Growth Subportfolio

By:		/s/ James Wegmann
Name:		James Wegmann
Title:		Authorized Signatory

 

[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

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SCHEDULE A

INVESTORS

 

Name, Email and Address

Curative Ventures V LLC [***] [***] [***]

Vivo Capital Fund IX, L.P. [***] [***] [***] [***] [***]

Venrock Healthcare Capital Partners III, L.P. [***] [***] [***]

VHCP Co-Investment Holdings III, LLC [***] [***] [***]

Venrock Healthcare Capital Partners EG, L.P. [***] [***] [***]

Samsara BioCapital, L.P. [***] [***] [***]

HBM Healthcare Investments (Cayman) Ltd. [***] [***] [***] [***] [***]

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Name, Email and Address

RA Capital Healthcare Fund, L.P. [***] [***] [***] [***] [***]

Blackwell Partners LLC – Series A [***] [***] [***] [***]

RA Capital Nexus Fund, L.P. [***] [***] [***] [***] [***]

Ibisbill, LP [***] [***] [***] [***] [***]

Wellington Biomedical Innovation Master Investors (Cayman) I L.P. [***] [***] [***] [***] [***] [***]

Baker Brothers Life Sciences, L.P. [***] [***]

 

A-2

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Name, Email and Address

667, L.P. [***] [***]

Logos Opportunities Fund II, L.P. [***] [***] [***] [***]

GC&H Investments, LLC [***] [***] [***] [***]

AB Cap Fund, Inc. - AB Small Cap Growth Portfolio [***] [***] [***] [***] [***] [***]

AB Discovery Growth Fund, Inc. [***] [***] [***] [***] [***] [***]

ArrowMark Life Science Fund, LP [***] [***] [***] [***] [***]

ArrowMark Fundamental Opportunity Fund, L.P. [***] [***] [***] [***] [***]

 

A-3

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Name, Email and Address

MW XO Health Innovations Fund, LP [***] [***] [***] [***] [***]

ISTL Holdings Limited [***] [***] [***] [***] [***] [***] [***] [***]

Fidelity Select Portfolios: Biotechnology Portfolio Mag & Co. [***] [***] [***] [***] [***]

Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund [***] [***] [***] [***] [***] [***] [***]

 

A-4

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Name, Email and Address

Fidelity Securities Fund: Fidelity Small Cap Growth Fund Mag & Co. [***] [***] [***] [***] [***]

Fidelity Securities Fund: Fidelity Small Cap Growth K6 Fund [***] [***] [***] [***]

Fidelity Capital Trust: Fidelity Flex Small Cap Fund - Small Cap Growth Subportfolio [***] [***] [***] [***] [***] [***] [***]

 

A-5

Exhibit 10.1

Certain information has been excluded from this agreement (indicated by “[***]”) because Instil Bio, Inc. has determined such information (i) is not material and (ii) would be competitively harmful if publicly disclosed.

EXECUTION VERSION

AGREEMENT FOR THE SALE AND PURCHASE

OF THE ENTIRE ISSUED SHARE CAPITAL OF IMMETACYTE

LIMITED

 

(1)

SELLERS

 

(2)	INSTIL BIO INC.

 

(3)	SELLERS’ REPRESENTATIVE

2 March 2020

 

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Contents

 

Clause				Page
1.		DEFINITIONS AND INTERPRETATION			1
2.		AGREEMENT FOR SALE			8
3.		CONSIDERATION			8
4.		COMPLETION			9
5.		BORROWINGS			10
6.		MILESTONE FEE AMOUNT			10
7.		FORFEITURE OF BUYER SHARES IN CONNECTION WITH SHARE TRIGGER EVENT			10
8.		FORFEITURE TO MEET CLAIMS			10
9.		FORFEITURE; GENERAL			11
10.		PROCEDURE FOR CLAIMS			11
11.		RELEASE OF ASSURANCES			12
12.		WARRANTIES			12
13.		BUYER WARRANTIES			13
14.		TAXATION			14
15.		PROTECTION OF THE INTERESTS OF THE BUYER			14
16.		PAYMENTS AND INTEREST			16
17.		WITHHOLDING, GROSS-UP AND PAYROLL TAX LIABILITY			16
18.		FURTHER ASSURANCE			17
19.		ASSIGNMENT			17
20.		ANNOUNCEMENTS AND CONFIDENTIALITY			18
21.		COSTS			19
22.		THE SELLERS’ REPRESENTATIVE			19
23.		NOTICES			20
24.		THIRD PARTY RIGHTS			20
25.		WAIVER			21
26.		SEVERANCE			21
27.		SEVERAL LIABILITY			21
28.		NO MERGER			21
29.		COUNTERPARTS			21
30.		ENTIRE AGREEMENT AND FRAUD			22
31.		APPLICABLE LAW AND JURISDICTION			22
Schedule 1 Sellers’ Shareholdings and Entitlements					23
Schedule 2 Details of the Company					23
Part 1 – Details of the Company					23
Part 2 – Key Employees					24

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Schedule 3 Completion Obligations					25
Schedule 4 Warranties					27
Part 1 – Title and Capacity					27
Part 2 – General					28
Part 3 – Accounts, Financial, Banking and Current Trading					30
Part 4 – Compliance and Litigation					33
Part 5 – Contracts					38
Part 6 – Assets and insurance					41
Part 7 – Property					42
Part 8 – Employment					44
Part 9 – Pensions					47
Part 10 – Intellectual Property					49
Part 11 – Information Technology					52
Schedule 5 Taxation					53
Part 1 – Tax Definitions and Interpretation					53
Part 2 – Tax Warranties					57
Part 3 – Tax Covenant					61
Schedule 6 Leasehold Properties					70
Schedule 7 Limitations on Sellers’ Liability					71
Schedule 8 Additional Consideration					75
Schedule 9 Form of Section 431(1) Election in Respect of Buyer Shares					97
Schedule 10 Form of Assignment Separate From Certificate					102

Agreed Form Documents

Disclosure Letter

Loan Note Instrument

Resignations of directors and secretary

Share transfers

Minutes of the Buyer

Board resolutions of the Company

Voting powers of attorney

SHA Termination Deed

 

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THIS AGREEMENT is made on                     2 March                    2020

BETWEEN:

 

(1)	THE PERSONS whose names and addresses are set out in column (A) of Schedule 1 (together “Sellers” and each a “Seller”);

 

(2)	INSTIL BIO INC., a Delaware corporation whose main place of business is at 5949 Sherry Lane, Suite 820, Dallas, TX 75225 (“Buyer”); and

 

(3)	ROBERT HAWKINS, of [***] (who is initially appointed as the Sellers’ Representative under this Agreement).

RECITALS:

 

(A)	The Company is a private company limited by shares. Further details about the Company are set out in Part 1 of Schedule 2.

 

(B)	The Sellers wish to sell and the Buyer wishes to buy all of the issued share capital of the Company on the terms of this Agreement.

IT IS AGREED as follows:

 

1.	DEFINITIONS AND INTERPRETATION

 

1.1.	In this Agreement, the following words and expressions shall have the following meanings:

“Accounts” means the annual accounts of the Company for the financial year ended on the Accounts Date;

“Accounts Date” means 30 September 2019;

“Agreed” means (in relation to any Claim or part of a Claim):

 

(a)

where no Disagreement Notice is served in accordance with clause 10.3;

 

(b)

agreed in writing between the Sellers’ Representative and the Buyer, or the subject of an acknowledgement by the Sellers’ Representative on behalf of the Sellers that they accept liability in respect of that Claim;

 

(c)

save in respect of a Tax Claim pursuant to a Tax Demand, as determined by an English court of competent jurisdiction;

 

(d)

where a Seller has no liability pursuant to paragraph 2.6 of Schedule 7; or

 

(e)

in respect of a Tax Claim pursuant to a Tax Demand, where the Tax Liability that is the subject of the Tax Claim has been determined in accordance with paragraph 6 of Schedule 5,

and “Agreed Claim” shall be construed accordingly;

“Associate” means (a) in relation to an individual, any person who at any relevant time is connected with that individual within the meaning of sections 1122 to 1124 Corporation Tax Act 2010; and (b) in relation to an undertaking, any undertaking of that undertaking at any relevant time;

“Assurance” means any indemnity, guarantee or similar commitment;

 

1

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“Borrowings” means financial indebtedness and amounts in the nature of financial indebtedness owed by the Company and references in this Agreement to “repayment” of any Borrowings shall mean the taking of any action necessary to eliminate the liability of the Company for such financial indebtedness or amounts in the nature of financial indebtedness, and any related words or phrases shall be construed accordingly;

“Business Day” means a day that is not a Saturday or Sunday or a public holiday in London or Dallas, Texas;

“Business Warranty” means all Warranties other than the Fundamental Warranties and Tax Warranties;

“Business Warranty Claim” means a Claim for breach of any of the Business Warranties;

“Buyer Change of Control” means the occurrence of: (i) an acquisition of the Buyer by another entity by means of any transaction or series of related transactions, (ii) an acquisition of another entity by the Buyer by means of a transaction or series of related transactions, or (iii) a sale of all or substantially all of the assets of the Company (collectively, a “Merger”), so long as in each case the Buyer’s stockholders of record immediately prior to such Merger will, immediately after such Merger, hold less than fifty percent (50%) of the voting power of the surviving or acquiring entity;

“Buyer’s Group” means the Buyer and its group undertakings at any relevant time;

“Buyer Shares” means shares of common stock with par value $0.000001 each in the capital of the Buyer, as subdivided and/or consolidated from time to time after the date of this Agreement, ignoring (in the case of any subdivision into ordinary and deferred shares) any deferred shares arising on that subdivision;

“Buyer Shares Not Subject to Forfeiture” means the Buyer Shares issued to each Seller upon Completion, excluding the Buyer Shares Subject to Forfeiture;

“Buyer Shares Subject to Forfeiture” means, as of the Completion Date, 56.10% of the number of Buyer Shares issued to each Seller upon Completion (as such number may decrease from time to time, pursuant to clauses 7, 8 and 9 of this Agreement);

“Buyer’s Solicitors” means Cooley (UK) LLP of Dashwood, 69 Old Broad Street, London, EC2M 1QS;

“Cash Consideration” has the meaning set out in clause 3.1(b);

“Claim” means any claim made by the Buyer under this Agreement and “Claims” shall mean all such claims;

“Claim Notice” means a notice from the Buyer to the Sellers’ Representative in relation to a Claim in accordance with clause 10.1;

“Code” means U.S. Internal Revenue Code of 1986;

“Companies Act” means the Companies Act 2006;

“Company” means Immetacyte Limited, a private company limited by shares incorporated in England with registered number 06709883 whose registered office is at 48 Grafton Street, Manchester, England, M13 9XX;

“Company Processors” has the meaning given in paragraph 5.4(a) of Part 4 of Schedule 4;

 

2

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“Competition Law” means all applicable competition, state aid, antitrust or merger control laws in any jurisdiction in which the Company has material assets or carries on business or where its activities may have an effect;

“Completion” means completion of the sale and purchase of the Sale Shares in accordance with this Agreement;

“Completion Date” means the date of this Agreement;

“Consideration” means the consideration in exchange for the Sale Shares, as defined in clause 3.1;

“Data Protection Legislation” means: (a) the Data Protection Act 2018 and all other applicable national laws, regulations and secondary legislation implementing European Directive 95/46/EC; (b) the GDPR and all related national laws, regulations and secondary legislation (including those implementing the GDPR in the United Kingdom); (c) the Privacy and Electronic Communications (EC Directive) Regulations 2003 (SI 2003/2426) and all other applicable national laws, regulations and secondary legislation implementing European Directive 2002/58/EC; (d) any other laws relating to data protection and privacy which are from time to time applicable to the Company; (e) any applicable guidance and/or codes of practice issued by or with the approval of: (i) any applicable Supervisory Authority (including the Article 29 Working Party); or (ii) any trade association or body of which the Company is a member; and (f) any relevant industry privacy self-regulatory guidelines (such as the Digital Advertising Alliance Self-Governing Principles and the European Digital Advertising Alliance Online Behavioural Advertising Self-Regulatory Programme);

“Disagreement Notice” has the meaning set out in clause 10.3;

“Disclosed” means the facts, matters or other information fairly disclosed in the Disclosure Letter or the Disclosure Documents (in such manner and with such detail so as to enable the Buyer to make a reasonably informed assessment of the fact, matter or information concerned);

“Disclosure Documents” means the documents listed in the index of documents attached to the Disclosure Letter;

“Disclosure Letter” means the disclosure letter in the Agreed Form from the Warrantors to the Buyer, dated on the date of this Agreement;

“Encumbrance” means a mortgage, charge, pledge, lien, option, restriction, right of first refusal, right of pre-emption, retention of title arrangement or other third party right, interest or claim of any kind or any agreement or commitment to create the foregoing;

“Equity Consideration” has the meaning set out in clause 3.1(a);

“Exchange Rate” means, with respect to the conversion of a particular currency into another currency on a particular date, the closing mid-point rate for conversion of the first currency into that other currency on that date or, if that date is not a Business Day, on the first Business Day after that date, in both cases as set out in the London edition of the Financial Times containing exchange rates applicable to the relevant Business Day;

“Expected Tax Consequences” means (i) no Payroll Tax Liability will arise on the payment of the Cash Consideration, (ii) no Payroll Tax Liability will arise on the issue of the Equity Consideration, (iii) no Payroll Tax Liability will arise as a result of the execution of elections validly made under section 431(1) ITEPA in respect of the Share Trigger Shares and the Indemnity Shares, (iv) no Payroll Tax Liability will arise in respect of the forfeiture of the Indemnity Shares for nil consideration, (v) no Payroll Tax Liability will arise in the respect of the issue or redemption of the Loan Notes and (vi) no Payroll Tax Liability will arise in respect of validly made elections under section 431(1) of ITEPA in respect of the Loan Notes;

 

3

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“Fair Market Value” means in relation to the Buyer Shares (a) where the Buyer is a private company, the fair market value of the Buyer Shares determined in accordance with Section 409A of the Code; and (b) where the Buyer is a public company, the volume weighted average price of the Buyer Shares, as at the relevant date;

“Fundamental Warranties” means the Warranties set out in Part 1 of Schedule 4;

“Fundamental Warranty Claim” means a Claim for breach of any of the Fundamental Warranties;

“GDPR” means Regulation (EU) 2016/679 of the European Parliament and the Council of 27 April 2016;

“Indemnity Shares” has the meaning set out in clause 8.1;

“IPO” means the admission of the whole of any class of the issued share capital of the Buyer to the Official List of the UK Listing Authority, the AIM market operated by the London Stock Exchange plc or the Nasdaq National Stock Market of the Nasdaq Stock Market Inc. or to any recognised investment exchange (as defined in section 285 of the Financial Services and Markets Act 2000 (as amended));

“ITEPA” means the Income Tax (Earnings and Pensions) Act 2003;

“Leasehold Properties” means the leasehold properties demised by the Leases;

“Leases” means the leases listed in Schedule 6;

“Loan Note” means a loan note issued in accordance with the Loan Note Instrument;

“Loan Note Certificate” means a loan note certificate issued in respect of a Loan Note and pursuant to the Loan Note Instrument;

“Loan Note Instrument” means the zero per cent. loan note instrument entered into by the Buyer in respect of the Additional Consideration in the Agreed Form;

“Longstop Date” means 31 January 2040;

“Management Accounts” means the unaudited management accounts of the Company comprising a balance sheet as at the Management Accounts Date and a profit and loss account for the period which began on the Accounts Date and ended on the Management Accounts Date;

“Management Accounts Date” means 31 December 2019;

“Milestone Amounts” has the meaning given in paragraph 3.1 of Schedule 8;

“Milestone Fee Amount” means $[***];

“Milestones” has the meaning given in paragraph 3.1 of Schedule 8;

“Notified Claim” means a Claim which is the subject of a Claim Notice;

“Payroll Tax Claim” has the meaning given in paragraph 1 of Part 1 of Schedule 5;

 

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“Payroll Tax Liability” has the meaning given in paragraph 1 of Part 1 of Schedule 5;

“Payroll Tax Warranty” means the Warranty set out in paragraph 12.1 of Part 2 of Schedule 5;

“Personal Data” has the meaning given in Article 4(1) of the GDPR;

“Privacy Policies” means each external or internal, past or present, privacy policy or notice of the Company, including any such policy or notice relating to: (a) the privacy of users of any service, website or mobile application operated by or on behalf of the Company; and (b) the collection, processing, use, storage, retention, disclosure, security and transfer of any Personal Data;

“Pro Rata Proportion” means, with respect to any Seller, such Seller’s pro rata proportion as set out in column (H) of Schedule 1 (as rounded to two decimal places);

“Relevant Sale Shares” means in respect of a Seller, that number of Sale Shares set against that Seller’s name in column (B) of Schedule 1;

“Relief” has the meaning given in paragraph 1 of Part 1 of Schedule 5;

“Sale Shares” means all the issued shares in the capital of the Company at Completion;

“Security Breach” means any security breach, or any similar or equivalent comprise or event, which leads, or is likely to lead, to the unintended, accidental or unlawful destruction, loss, alteration, unauthorised disclosure of, or access to, any: (i) Personal Data or Confidential Information; and/or (ii) any Information Technology (including the Internal Systems), databases, software or technology, owned or operated by or on behalf of the Company, or any portion of any of the foregoing, including (in each case) any and all data (including Personal Data), content, media, information (including Confidential Information) or software stored therein or controlled or accessed thereby;

“Sellers’ Representative” means Robert Hawkins or any other Seller appointed as a replacement in accordance with clause 22.2;

“Sellers’ Solicitors” means Covington & Burling LLP of 265 Strand, Holborn, London WC2R 1BH;

“Shares” means the ordinary shares of £0.01 each in the capital of the Company;

“Share Trigger Event” means the earlier of: (i) the completion of a transaction or series of related transactions that result in a Buyer Change of Control; or (ii) the issue of an aggregate amount of $9,750,000 of Loan Notes by the Buyer;

“Share Trigger Shares” has the meaning given in clause 7.1;

“SHA Termination Deed” means the deed of termination, in the Agreed Form, in relation to the shareholders’ agreement relating to the Company dated 31 October 2010;

“Supervisory Authority” means any local, national, supranational, state, governmental or quasi-governmental agency, body, department, board, official or entity exercising regulatory or supervisory authority pursuant to any Data Protection Legislation, including the Information Commissioner’s Office in the United Kingdom;

“Tax” or “Taxation” has the meaning given in paragraph 1 of Part 1 of Schedule 5;

“Tax Authority” has the meaning given in paragraph 1 of Part 1 of Schedule 5;

 

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“Tax Claim” means a Claim under the Tax Covenant, a claim under clause 17.5 or a Tax Warranty Claim;

“Tax Covenant” means the tax covenants given in favour of the Buyer set out in Part 3 of Schedule 5;

“Tax Demand” has the meaning given in paragraph 1 of Part 1 of Schedule 5;

“Tax Warranties” means the warranties given pursuant to clause 12.1 and set out in Part 2 of Schedule 5 and a reference to “Tax Warranty” shall be construed accordingly;

“Tax Warranty Claim” means a Claim for breach of any of the Tax Warranties;

“TIL” means tumour infiltrating lymphocytes;

“UK GAAP” means generally accepted accounting principles in the UK as of the date hereof;

“VAT” means value added tax or any similar sales or turnover Tax in any jurisdiction;

“Warranties” means the warranties given pursuant to clause 12.1 and set out in Schedule 4, and the Tax Warranties, and a reference to “Warranty” shall be construed accordingly;

“Warrantor” means each of Robert Hawkins, Ryan Guest, Neill MacKenzie and Nicola Price and “Warrantors” shall be construed accordingly, and

“Warranty Claim” means a Claim for breach of any of the Warranties other than a Tax Warranty.

 

1.2.	In this Agreement, unless the context requires otherwise:

 

(a)

use of the singular includes the plural and vice versa, and use of any gender includes the other genders;

 

(b)

a reference to any specific legislation includes a reference to that legislation as re-enacted, consolidated, replaced or amended; any previous legislation of which it is a re-enactment, consolidation, replacement or amendment; and any subordinate legislation made under any of the same (and “legislation” in this clause 1.2(b) includes any statute, statutory provision, regulation, rule or subordinate legislation); and

 

(c)

“undertaking” shall have the meaning given in section 1161 of the Companies Act save that for the purposes of this Agreement, an undertaking shall include a limited liability partnership.

 

1.3.	In this Agreement, unless otherwise stated:

 

(a)

any reference to the parties or a recital, clause or schedule is to the parties (and permitted assignees) or the relevant recital, clause or schedule of or to this Agreement;

 

(b)

any reference in a schedule to a part or a paragraph is to a part or a paragraph of that schedule or, where relevant, to a paragraph of that part of that schedule;

 

(c)

any reference to a “person” includes an individual, firm, partnership, body corporate, corporation, association, organisation, government, state, foundation and trust, in each case whether or not having separate legal personality;

 

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(d)

any reference to a company’s “annual accounts” shall mean its annual accounts and reports within the meaning of section 471 of the Companies Act and shall include the notes to those accounts;

 

(e)

“financial year” shall be construed in accordance with section 390 of the Companies Act;

 

(f)

“group undertaking” and “subsidiary undertaking” shall have the respective meanings given in section 1161(5) and section 1162 of the Companies Act, save that for the purposes of this Agreement, an undertaking shall be treated as a member of another undertaking if any of the shares in that other undertaking are registered in the name of another person (or its nominee) as security (or in connection with the taking of security) from the first undertaking or any of that first undertaking’s subsidiary undertakings;

 

(g)

“to the extent that” means “if and to the extent that”;

 

(h)

any reference to an English legal term or concept, or any court, official, governmental or administrative authority or agency in England, includes in respect of any jurisdiction other than England a reference to whatever most closely approximates to it in that jurisdiction;

 

(i)

any reference to an individual includes a reference to his personal representatives, on whom this Agreement shall be binding;

 

(j)

“$” shall each mean U.S. Dollars, the lawful currency of the United States of America; and

 

(k)

“£” shall each mean Pounds Sterling, the lawful currency of Great Britain.

 

1.4.	The schedules and recitals form part of this Agreement and shall have effect as if set out in full in the body of this Agreement and any reference to this Agreement includes the schedules and recitals;

 

1.5.

Any reference in this Agreement to a document being “in the Agreed Form” means a document in a form agreed by the parties before the signing of this Agreement and either entered into on the date of this Agreement by the relevant parties or initialled by the Buyer and the Sellers’ Representative and where that document is not entered into on the date of this Agreement, with such amendments as the Buyer and the Sellers’ Representative may subsequently agree;

 

1.6.	In this Agreement, the words “other”, “including”, “includes”, “include”, “in particular” and any similar words shall not limit the general effect of words that precede or follow them and the ejusdem generis rule shall not apply;

 

1.7.

Any sum in any currency which is required to be construed, for the purposes of this Agreement, as a sum in any other currency (for example, in construing for the purposes of Schedule 7 the amount of a Warranty Claim which is not denominated in pounds sterling) shall, unless expressly stated otherwise, be regarded as converted into that other currency at the Exchange Rate;

 

1.8.	Any Warranty which refers to the awareness, knowledge or belief of the Warrantors, or analogous expression, shall be deemed to include an additional statement that it has been made after due and careful enquiry of each other Warrantor, given the subject matter of the relevant provision; and

 

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1.9.	References to the sale and/or purchase of Sale Shares and payments in consideration for the sale and/or purchase of the Sale Shares shall be construed, where appropriate, to refer to the exchange of Sale Shares for any Consideration including Buyer Shares and any Loan Notes.

 

2.	AGREEMENT FOR SALE

 

2.1.

On Completion, each Seller shall sell, and the Buyer shall buy, that Seller’s Relevant Sale Shares. Each Seller shall sell his Relevant Sale Shares with full title guarantee, free from all Encumbrances and with all rights attaching to them at Completion, including the right to receive all dividends and other distributions declared, made or paid after Completion.

 

2.2.	Each Seller covenants that he has the right to sell his Relevant Sale Shares on the terms of this Agreement and waives all rights of pre-emption over any of the Sale Shares, whether conferred by the articles of association of the Company or in any other way.

 

3.	CONSIDERATION

 

3.1.	As consideration (the “Consideration”) in exchange for the Sale Shares, the Buyer shall:

 

(a)

allot and issue to the Sellers a total of 4,700,000 Buyer Shares in the numbers shown opposite the Sellers’ respective names in column (D) of Schedule 1 upon Completion (the “Equity Consideration”);

 

(b)

pay to the Sellers in aggregate £610,000 in the amounts shown opposite the Sellers’ respective names in column (C) of Schedule 1 upon Completion (the “Cash Consideration”); and

 

(c)

issue to the Sellers, in the proportions shown opposite the Sellers’ respective names in column (H) of Schedule 1 and in accordance with clause 3.4, Loan Notes in an aggregate amount of up to $14,750,000 less the Milestone Fee Amount (if relevant), with such issue of Loan Notes being contingent upon the achievement of the relevant milestone events set out in paragraph 3 of Schedule 8 (each, a “Milestone”) (the “Additional Consideration”).

 

3.2.

The parties agree and acknowledge that, on the Completion Date, each Buyer Share has an unrestricted market value of $1 per Buyer Share. The Consideration shall be allocated amongst the Sale Shares so that the value of the Sale Shares (or any fraction thereof) attributable to the issue of each Buyer Share shall be equal to the unrestricted market value of such Buyer Share.

 

3.3.	The parties agree and acknowledge that the Equity Consideration comprises:

 

(a)

2,063,333 Buyer Shares Not Subject to Forfeiture; and

 

(b)

2,636,667 Buyer Shares Subject to Forfeiture, further split into:

 

(i)

[***] Share Trigger Shares, forfeitable in accordance with clause 7; and

 

(ii)

[***] Indemnity Shares, forfeitable in accordance with clause 8.

 

3.4.	The Additional Consideration shall be satisfied as follows:

 

(i)

on Completion, the Buyer shall execute the Loan Note Instrument;

 

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(ii)

on each occasion a Milestone Amount is achieved in accordance with Schedule 8, the Buyer shall issue a Loan Note to each Seller in an amount equal to such Seller’s Pro Rata Proportion of such Milestone Amount (subject to clause 3.4(iv)) with, for the avoidance of doubt, such Loan Note comprising consideration provided in exchange for the Relevant Sale Shares transferred by such Seller, and the Buyer shall:

 

(A)

make the appropriate recordings in its register of noteholders; and

 

(B)

issue a Loan Note Certificate to the relevant Seller in respect of such Loan Note; and

 

(iii)

on each occasion a Loan Note is issued to a Seller (other than David Gilham), such Seller shall enter into a valid election under section 431(1) of ITEPA in respect of such Loan Notes and the Buyer shall procure that the Company enters into such election; and

 

(iv)

if; however:

 

(A)

prior to the date on which a Loan Note is to be issued, there is any outstanding amount in respect of a Notified Claim in respect of a (i) Fundamental Warranty Claim; (ii) Payroll Tax Claim; or (iii) Claim under the Tax Covenant, (in the case where all of the Indemnity Shares set out in column (G) of Schedule 1 against the relevant Seller’s name have already been forfeited in accordance with clause 8) and such Notified Claim is an Agreed Claim, the Buyer shall be entitled to set off such outstanding amount under a Notified Claim against the amount of the Loan Note which would otherwise be issued to the relevant Seller in respect of that applicable Milestone Amount, with the amount of the Loan Note being reduced accordingly; or

 

(B)

prior to the date on which a Loan Note is to be issued, there is a Notified Claim in respect of a (i) Fundamental Warranty Claim; (ii) Payroll Tax Claim; or (iii) Claim under the Tax Covenant (in the case where all of the Indemnity Shares set out in column (G) of Schedule 1 against the relevant Seller’s name have already been forfeited in accordance with clause 8) and such Notified Claim is not an Agreed Claim, the Buyer shall, in accordance with the terms of the Loan Note Instrument, be entitled to deduct from the amount of the Loan Note which would otherwise be issued to the Seller in respect of that applicable Milestone Amount with the amount of the Loan Note being reduced and once the applicable Notified Claim becomes an Agreed Claim, issue the Loan Note or the balance of the Loan Note to the relevant Seller or set off the outstanding amount of such Agreed Claim against the Loan Note in respect of the relevant Seller(s).

 

3.5.	The Consideration, due at or after Completion, for the Sale Shares shall, so far as permitted by law, be treated as adjusted (as relevant) by the amount of any Agreed Claim and the forfeiture of any Buyer Shares Subject to Forfeiture.

 

3.6.	It is acknowledged that the Buyer Shares Subject to Forfeiture, whilst to be issued in full on the Completion Date, are subject to forfeiture in accordance with clauses 7 and 8.

 

4.	COMPLETION

 

4.1.	Completion shall take place at the offices of the Buyer’s Solicitors immediately after this Agreement is executed.

 

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4.2.	At Completion the Sellers and the Buyer shall comply with their respective obligations set out in Schedule 3.

 

5.	BORROWINGS

The Sellers shall ensure that at Completion all financial indebtedness of any Seller or any Associate of any Seller to the Company is repaid in full. The Sellers shall ensure that at Completion any Borrowings owing by the Company to any Seller or any Associate of any Seller are repaid in full.

 

6.	MILESTONE FEE AMOUNT

Upon the achievement of the Milestone corresponding to the “Upon First Commercial Sale in the U.S., EU or Asia” as detailed in paragraph 3.5 of Schedule 8, the Buyer shall be entitled to reduce the Milestone Amount in respect of such Milestone by an amount equal to the Milestone Fee Amount.

 

7.	FORFEITURE OF BUYER SHARES IN CONNECTION WITH SHARE TRIGGER EVENT

 

7.1.

It is acknowledged by the Buyer and the Sellers that forty six point ten per cent. (46.10%) of the Equity Consideration, being 2,166,667 Buyer Shares (as allocated between the Sellers in the numbers shown opposite the Sellers’ respective names in column (F) of Schedule 1) (such Buyer Shares being the “Share Trigger Shares”) will be subject to forfeiture in accordance with clauses 7.2, 7.3 and 9.

 

7.2.	In the event that a Share Trigger Event occurs before the Longstop Date, no Share Trigger Shares will be forfeited pursuant to this clause 7.

 

7.3.	In the event that a Share Trigger Event does not occur before the Longstop Date, the number of Share Trigger Shares held by each Seller shall be reduced (by way of forfeiture).

 

8.	FORFEITURE TO MEET CLAIMS

 

8.1.

It is acknowledged by the Buyer and the Sellers that ten per cent. (10%) of the Equity Consideration, being 470,000 Buyer Shares (as allocated between the Sellers in the numbers shown opposite the Sellers’ respective names in column (G) of Schedule 1) (such Buyer Shares being the “Indemnity Shares”) will be subject to forfeiture in accordance with clauses 8 and 9 in order to meet any Agreed Claim.

 

8.2.

The Indemnity Shares shall no longer be subject to forfeiture in accordance with clauses 8 and 9 at 23:59 GMT on the date that is eighteen (18) months after the Completion Date excluding any amount of Indemnity Shares that are already subject to a Notified Claim in accordance with this clause 8, which, for the avoidance of doubt, shall only be released (if not forfeited) once such Notified Claim becomes an Agreed Claim.

 

8.3.	The parties acknowledge and agree that a Seller’s Indemnity Shares shall be forfeited for nil consideration to satisfy or partially satisfy (as the case may be) such Seller’s obligations to meet any Agreed Claim.

 

8.4.

For the purposes of determining the number of Indemnity Shares to be forfeited for nil consideration to satisfy an Agreed Claim in accordance with clause 8.3, the value of any forfeited Indemnity Shares shall be the higher of (i) Fair Market Value of such shares as at the date of the Claim Notice, which shall be agreed by the parties in writing within twenty (20) Business Days of the Claim Notice or, failing such agreement, finally determined by an independent expert jointly appointed by the Buyer and the Sellers’ Representative, and failing such agreement to appoint an independent expert, within ten (10) days of a bona fide attempt to agree, by the President for the time being of the Institute of Chartered accountants (or the next most senior officer available); and (ii) $1 per Indemnity Share.

 

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8.5.

Subject to paragraph 4 of Schedule 7, in the case of Fundamental Warranty Claims and/or Payroll Tax Claims only in respect of each Seller, where (i) the value of a Claim or Claims exceeds the total value of the Indemnity Shares (as set out in column (G) of Schedule 1 against the relevant Seller’s name) forfeited pursuant to this clause 8 (as determined in accordance with clause 8.4); or (ii) where there are no Indemnity Shares subject to forfeiture in accordance with clause 8.2, such Seller shall be required to make a cash payment to satisfy any outstanding amounts due in relation to any such Claim under this Agreement. For the avoidance of doubt, this clause shall not affect the Buyer’s right to seek an injunction or other court determination, where applicable, and shall not entitle the Buyer to recover cash from a Seller other than as set out in paragraph 4 of Schedule 7.

 

9.	FORFEITURE; GENERAL

 

9.1.

In the event that any Buyer Shares Subject to Forfeiture are required to be forfeited in accordance with clauses 7 and 8, the relevant Seller(s) required to forfeit such Buyer Shares will execute an Assignment Separate from Certificate duly endorsed (with date and number of shares filled in) substantially in the form set out in Schedule 10 and deliver the same to the Buyer.

 

9.2.

Following such forfeiture, the Buyer will become the legal and beneficial owner of such Buyer Shares Subject to Forfeiture and all rights and interests in and related to such shares, and the Buyer will have the right to transfer to its own name such shares without further action by the relevant Seller(s). For the avoidance of doubt, upon forfeiture, such Buyer Shares shall cease to be Buyer Shares Subject to Forfeiture and shall become Buyer Shares.

 

9.3.

Notwithstanding anything to the contrary in this Agreement, (a) the Buyer may elect to waive, in its sole discretion, its right to require forfeiture of the relevant Buyer Shares Subject to Forfeiture in whole or in part by providing written notice to the relevant Seller at any time and (b) in no event, pursuant to the terms of this Agreement, shall, on any given date, a Seller be obligated to forfeit a number of Buyer Shares that is greater than the number of Buyer Shares Subject to Forfeiture held by such Seller.

 

9.4.

In the event of a Buyer Change in Control or upon an IPO, the Sellers shall not be liable for any Claim (other than a Payroll Tax Claim, a Notified Claim or with respect to fraud) and any Buyer Shares Subject to Forfeiture, following the consummation such Buyer Change in Control or the listing of the shares pursuant to an IPO, shall no longer be subject to forfeiture.

 

9.5.

In addition to any other limitation on transfer created by applicable securities laws, no Seller shall sell, assign, hypothecate, donate, encumber or otherwise dispose of any interest in any Buyer Shares Subject to Forfeiture while such shares are subject to forfeiture in accordance with this Agreement.

 

10.	PROCEDURE FOR CLAIMS

 

10.1.

If the Buyer becomes aware of a matter which may give rise to a Claim being made, the Buyer shall as soon as reasonably practicable give written notice to the Sellers’ Representative (a “Claim Notice”):

 

(a)

stating the estimated quantum of such Claim (including any interest thereon); and

 

(b)

stating the basis for the Claim.

 

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10.2.

No delay in providing such Claim Notice shall affect the Buyer’s rights hereunder, unless (and then only to the extent that) the Sellers are materially prejudiced thereby. Any Claim Notice may be updated and amended from time to time by the Buyer delivering an updated or amended Claim Notice, so long as the delivery of the original Claim Notice is made within the applicable claims period set out in paragraph 3 of Schedule 7.

 

10.3.

If the Sellers’ Representative does not contest, by written notice to the Buyer (a “Disagreement Notice”), any Notified Claim within the twenty (20) Business Day period immediately following receipt of the Claim Notice by the Sellers’ Representative, then the Notified Claim shall be considered an Agreed Claim for the purpose of this Agreement.

 

10.4.

If the Sellers’ Representative gives a Disagreement Notice within the twenty (20) Business Day period immediately following receipt of the Claim Notice, the Buyer and the Sellers’ Representative shall attempt in good faith for a period of ten (10) days immediately after the Buyer’s receipt of the Disagreement Notice to reach an agreement in respect thereof (and if such agreement is reached, such Notified Claim shall become an Agreed Claim for the purpose of this Agreement). If they are unable to reach an agreement, the Buyer shall apply to an English court of competent jurisdiction for a determination in relation to such Notified Claim.

 

10.5.

If any Notified Claim is Agreed on terms pursuant to which the Sellers (or any Seller) would not have any liability or reduced liability to the Buyer and if the Buyer has deducted from, or set off against, the amount of the Notified Claim, from any recognised Milestone Amount the Buyer shall either: (i) promptly issue such Loan Note in accordance with the procedure set out in clause 3.4(iv)(B); or (ii) redeem such Loan Note, and the Sellers (or any Seller) shall have no further liability with respect to such Agreed Claim.

 

11.	RELEASE OF ASSURANCES

Each Seller shall, at the cost of that Seller, execute and deliver all documents, and use all reasonable endeavours to take all other actions as the Buyer may reasonably request from time to time after Completion, in order to effect the release and discharge in full (on a non-recourse basis to the Buyer and the Company) of any Assurance given by the Company (other than any Assurance in relation to any directors’ and officers’ liability insurance policy maintained by the Company) to any person in respect of any obligation of that Seller or any Associate of that Seller.

 

12.	WARRANTIES

 

12.1.

Subject to the terms and provisions of this Agreement, each Seller warrants to the Buyer, as at the date of this Agreement and in respect of that Seller only, in the terms set out in the Fundamental Warranties.

 

12.2.

Subject to the terms and provisions of this Agreement, the Warrantors warrant to the Buyer as at the date of this Agreement in the terms set out in the Business Warranties and the Tax Warranties.

 

12.3.

The parties agree that no matter may be Disclosed against any of the Fundamental Warranties. The provisions of this clause 12.3 shall prevail over any provision to the contrary in the Disclosure Letter.

 

12.4.

No matter may be Disclosed against the Payroll Tax Warranty, and no matter within the actual, imputed or constructive knowledge of the Buyer or any of its agents or advisors on or prior to the date of this Agreement shall be regarded as qualifying the Payroll Tax Warranty or as being Disclosed.

 

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12.5.

Each of the Warranties is separate and is to be construed independently of, and without reference to qualifications contained in, the other Warranties and any other provisions of this Agreement.

 

12.6.

Each Warrantor unconditionally and irrevocably waives any rights that Warrantor may have (in each case whether founded in negligence or otherwise) against the Company, or any director, employee, officer or agent of the Company, on whom that Warrantor has or may have relied in connection with preparing the Disclosure Letter or agreeing to any terms of this Agreement or any document to be entered into pursuant to it. Nothing in this clause 12.6 shall apply to restrict the ability of any Warrantor to make any claim against any person for fraud.

 

12.7.

Paragraph 2 of Part 3 of Schedule 5 (in the case of a Tax Claim) and Schedule 7 (in the case of a Warranty Claim and, where specified, a Tax Claim) shall apply to limit or exclude, in accordance with their respective terms, any liability which the Sellers might otherwise have in respect of any Warranty Claim or any Tax Claim.

 

13.	BUYER WARRANTIES

 

13.1.

The Buyer warrants to the Sellers as at the date of this Agreement that,

 

(a)

the Buyer has all necessary capacity, power and authority to enter into and perform its obligations under this Agreement and all agreements and documents to be executed or signed by or on behalf of the Buyer pursuant to this Agreement;

 

(b)

this Agreement, and all agreements and documents to be executed or signed by or on behalf of the Buyer pursuant to this Agreement, constitute, or will when executed or signed constitute, binding and enforceable obligations on the Buyer in accordance with their respective terms; and

 

(c)

the entering into and performance by the Buyer of its obligations under this Agreement and all agreements and documents to be executed or signed by or on behalf of the Buyer pursuant to this Agreement will not:

 

(i)

result in a breach of, or constitute a default under, any agreement or instrument under which the Buyer has rights or by which it is bound;

 

(ii)

result in a breach of, or default under, any order, judgment, decree or other decision or ruling of any court or governmental, administrative or regulatory body or agency in any jurisdiction under which the Buyer has rights or by which it is bound; and

 

(iii)

require the consent of any third party.

 

13.2.

No Insolvency Proceedings in relation to the Buyer or any part of its assets or undertaking have commenced or are pending or threatened and, so far as the Buyer is aware, there are no circumstances which entitle, or may entitle, any person to commence any such Insolvency Proceedings.

 

13.3.

The Buyer is able to pay its debts and the Buyer has not stopped or suspended payment of its debts.

 

13.4.

The share capital of the Buyer consists, as of the close of business on the date of this Agreement but prior to the issue of any of the Buyer Shares, of: (a) 9,333,330 common shares which are issued and outstanding; (b) 8,666,667 common shares which are reserved for issuance to the Buyer’s employees and consultants under the Buyer’s employee share incentive plan and of which 1,918,333 remain available for grant; and (c) 15,000,000 preferred shares which are issued and outstanding.

 

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13.5.

The Buyer Shares to be issued to the Sellers hereunder, when issued, sold and delivered in accordance with the terms of this Agreement, shall be duly and validly issued, fully paid, and non-assessable, issued in compliance with all applicable Laws, and free and clear of any liens or other restrictions on transfer of any kind (including, without limitation, pre-emptive rights), other than restrictions on transfer under this Agreement, the Buyer’s constitutional documents or under applicable securities Laws.

 

14.

TAXATION

 

14.1.

The provisions of Schedule 5 shall apply with immediate effect.

 

14.2.

The Disclosure Letter shall not qualify the Tax Covenant or the provisions of clause 17.5 or otherwise limit the liability of the Sellers in respect of any claim brought by the Buyer under the Tax Covenant or clause 17.5.

 

15.	PROTECTION OF THE INTERESTS OF THE BUYER

 

15.1.

For the purposes of this clause 15, the following words and expressions shall have the following meanings:

“Customer” means any person who was at any time during the period of 12 months ending on the Completion Date a customer of the Company;

“Key Employee” means the persons employed or engaged by the Company on the Completion Date, whose names are set forth in Part 2 of Schedule 2;

“Prospective Customer” means any person who has at any time before Completion discussed becoming and was at Completion reasonably likely to become, a customer of the Company; and

“Supplier” means any supplier of goods or services to the Company at any time during the period of 12 months ending on the Completion Date.

 

15.2.

Each of the Warrantors acknowledges that the Buyer is buying the Sale Shares in accordance with the terms of this Agreement and that the Buyer is therefore entitled to protect the goodwill of the Company. Accordingly, each of the Warrantors agrees with the Buyer that he shall not, directly or indirectly, alone or jointly with any other person, and whether as a shareholder, partner, director, principal, consultant or agent or in any other capacity:

 

(a)

for a period [***] starting on the Completion Date, carry on or be engaged, interested or concerned in, or be associated with, assist or lend money to any business within the field of the development of tumour infiltrating lymphocytes (“TILs”) which competes with any business carried on by the Company at Completion;

 

(b)

for a period of [***] starting on the Completion Date, and to the detriment of any business of the Company carried on at Completion, accept business from any Customer or from any Prospective Customer;

 

(c)

for a period of [***] starting on the Completion Date, and to the detriment of any business of the Company carried on at Completion, solicit business from any Customer or from any Prospective Customer;

 

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(d)

for a period of [***] starting on the Completion Date, and to the detriment of any business of the Company carried on at Completion, induce or endeavour to induce any Supplier to cease to supply, or to restrict or adversely to vary the terms of supply to, that business;

 

(e)

for a period of [***] starting on the Completion Date, and to the detriment of any business of the Company carried on at Completion, employ or engage the services of any Key Employee; or

 

(f)

for a period of [***] starting on the Completion Date, and to the detriment of any business of the Company carried on at Completion, induce, or endeavour to induce, any Key Employee to leave his position, whether or not that person would commit a breach of his contract by so leaving.

 

15.3.

Nothing in clause 15.2 shall prohibit:

 

(a)

any Warrantor from holding any interest in any securities listed or dealt in on any securities exchange or market if that Warrantor is interested in securities which amount to less than three per cent. (3%) of the issued securities of that class and which in all circumstances carry less than three per cent. (3%) of the voting rights (if any) attaching to the issued securities of that class, and if neither that Warrantor nor any Associate of that Warrantor is involved in the management of the business of the issuer of the securities or any subsidiary undertaking of that issuer except by virtue of the exercise of any voting rights attaching to the securities; or

 

(b)

the placing of a public advertisement for any post if the advertisement is not specifically targeted at any Key Employee, nor shall it prohibit the employment of any Key Employee who applies for a post so advertised.

 

15.4.

No Warrantor shall, at any time after Completion, disclose or use any confidential information relating to the Company or the Company’s customers or suppliers, save for the purposes only of any continuing employment or engagement of that Warrantor by the Company or any member of the Buyer’s Group, and each of the Warrantors shall use all reasonable endeavours to prevent the publication or disclosure of any such confidential information. This clause shall not prohibit the use or disclosure of any such confidential information to the extent permitted by clause 20.

 

15.5.

No Warrantor shall at any time after the Completion Date:

 

(a)

use in any manner in the course of any business, or (so far as within his power) permit or encourage to be so used (other than by the Company) the name Immetacyte Limited, or any other trade name, business name, mark, sign or logo used by the Company on or prior to Completion (or any confusingly similar name, mark, sign or logo); or

 

(b)

present himself or permit himself to be presented as in any way interested in any of the Sale Shares;

other than in relation to references to being a former shareholder of the Company.

 

15.6.

Each Warrantor shall ensure that none of his Associates takes or omits to take any action which, if taken or omitted by that Warrantor, would constitute a breach of clause 15.2, 15.4 or 15.5.

 

15.7.

Since the Warrantors have confidential information relating to the Company and a detailed awareness of the Company’s customer and supplier connections, and since the consideration payable for the Sale Shares has been calculated on the basis that each of the Warrantors would assume the obligations set out in this clause 15 the parties acknowledge that each of those obligations is reasonable as to subject matter, area and duration and is necessary to protect the Buyer’s legitimate interest in the goodwill of the Company.

 

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15.8.

Without prejudice to any other remedy which may be available to the Buyer, the parties agree that the Buyer shall be entitled to seek injunctive or other equitable relief in relation to any breach of clauses 15.2, 15.4, 15.5 and 15.6 it being acknowledged that an award of damages might not be an adequate remedy if there is such a breach.

 

15.9.

Each of the Warrantors and the Buyer acknowledges that he/it has entered into this Agreement on an arm’s length basis and that he/it has taken independent legal advice in so doing.

 

16.	PAYMENTS AND INTEREST

 

16.1.

Payments to be made to the Sellers (or any of them) under this Agreement shall be made in U.S. dollars by electronic transfer of immediately available funds to the accounts of which the Sellers’ Representative gives the Buyer at least three (3) Business Days’ notice from time to time.

 

16.2.

Payments to be made to the Buyer under this Agreement shall be made in U.S. dollars by electronic transfer of immediately available funds to the Buyer’s Solicitors or to any other single account of which the Buyer gives the Sellers’ Representative at least three (3) Business Days’ notice from time to time.

 

16.3.

Payment of any sum in accordance with clause 16.1 or clause 16.2 will discharge the obligations of the paying party to pay the sum in question and the paying party shall not be concerned to see the application of the monies so paid.

 

16.4.

Interest shall accrue on monies which are not paid when due under this Agreement from the due date for payment (or, if there is no due date for payment, from the date payment is demanded) until the date of actual payment at the rate of two (2) per cent above the base rate from time to time of Barclays Bank plc. Such interest shall accrue on a daily basis, both before and after judgment, and be compounded monthly and be payable on demand.

 

17.	WITHHOLDING, GROSS-UP AND PAYROLL TAX LIABILITY

 

17.1.

All payments to be made by the Sellers under this Agreement shall be made free and clear of all deductions, withholdings, counterclaims or set-off of any kind except for those required by law. Subject to clause 17.3, should any such deduction or withholding be required by law, the relevant Seller shall pay to the Buyer such sum as will, after the deduction or withholding, leave the Buyer with the same amount as the Buyer would have received had no deduction or withholding been made.

 

17.2.

If any sum paid or payable to the Buyer under this Agreement (or any sum payable to the Buyer which is discharged through any setting or netting off against or reduction in any other amount or forfeiture pursuant to clause 8) (the “original sum”) is or will be chargeable to Tax, the relevant Seller shall (subject to clause 17.3) be obliged to pay on demand such additional sum to the Buyer as will ensure that, after payment of the Tax, the Buyer is left with an amount equal to the original sum, and for these purposes a sum shall be regarded as chargeable to Tax in circumstances where it would have been chargeable to Tax but for some Relief available to the Buyer.

 

17.3.

If the Buyer assigns the benefit of this Agreement in accordance with clause 19, the Sellers shall not be liable to make any increased payment pursuant to the foregoing provisions of this clause, save to the extent the Sellers would otherwise have been liable had no such assignment occurred.

 

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17.4.

If the Buyer or the Company or any member of the Buyer’s Group has from time to time any obligation to account for any Tax in relation to any payment to be made to any Seller or anything to be done in relation to any Seller pursuant this Agreement (including pursuant to any Loan Note or any Buyer Share), the Buyer, the Company and any member of the Buyer’s Group shall be entitled to deduct or withhold an amount equal to such Tax from any payment to the Seller (or to reduce any Milestone Amount in respect of that Seller by a corresponding amount), provided that any such amount shall be treated as being received by the relevant Seller. Without limitation to any other remedies pursuant to this Agreement, if any Seller is liable to the Buyer in respect of any Payroll Tax Claim which has not been satisfied, the Buyer, the Company and any member of the Buyer’s Group shall be entitled to deduct or withhold an amount equal to such Tax from any payment to the Seller (or to reduce any Milestone Amount by a corresponding amount), whether such payment arises under this Agreement or otherwise, provided that the Payroll Tax Claim shall be treated as discharged to the extent of such deduction or withholding. Notwithstanding the foregoing, in reliance of the Payroll Tax Warranty given by the Warrantors, and without prejudice to any remedy which may be available to the Buyer, the Company or any member of the Buyer’s Group, the Buyer agrees that (other than as permitted by clause 17.5) it will not withhold or deduct any amount for or on account of Payroll Tax from any payment which it makes on Completion to the Sellers. For the avoidance of doubt, the Sellers acknowledge and confirm that they have taken their own legal and Tax advice in connection with the transactions contemplated by this Agreement and the Consideration and that none of the Company, the Buyer or the Buyer’s Solicitors are providing any advice or any representation or warranty to the Sellers in connection with such matters.

 

17.5.

Subject to the provisions of Schedule 7, each Seller severally covenants to pay to the Buyer an amount equal to any Payroll Tax Liability of the Company, the Buyer or any member of the Buyer’s Group relating to such Seller, subject to the provisions of this clause 17.5. Each Seller severally covenants with the Buyer to pay to the Buyer an amount equal to all reasonable third party costs and expenses properly incurred by the Buyer or any member of the Buyer’s Tax Group or the Company in bringing a Claim against such Seller under this clause 17.5 (but not, for the avoidance of doubt, any costs and expenses incurred by the Buyer under paragraph 5.3 of Part 3 of Schedule 5) in respect of which such Seller is liable. This clause 17.5 shall not cover a Payroll Tax Liability if and to the extent that the Buyer has been compensated for the Payroll Tax Liability under any other provision of this Agreement. If HMRC issues a Tax Demand that any Payroll Tax Liability is due then the provisions of paragraph 6 of Part 3 of Schedule 5 shall apply to such Tax Demand. References to “Warrantors” in paragraphs 5, 6, and 7 of Part 3 of Schedule 5 shall be construed for the purposes of a Payroll Tax Claim as references to “Sellers”. Paragraph 2.1(K) of Part 3 of Schedule 5 shall apply to any Payroll Tax Claim.

 

18.	FURTHER ASSURANCE

The parties hereto shall at their own cost execute all such documents and do or cause to be done all such other things as another party hereto may from time to time reasonably require in order to give full effect to this Agreement.

 

19.	ASSIGNMENT

 

19.1.

This Agreement shall be binding on and enure for the benefit of the successors and permitted assignees of the parties.

 

19.2.

Except as provided in clause 19.3, no party may assign or otherwise dispose of any rights under this Agreement, at law or in equity, including by way of declaration of trust. Any purported assignment in breach of this clause shall be void and confer no rights on the purported assignee.

 

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19.3.

The Buyer may assign all or any of its rights under this Agreement to any member of the Buyer’s Group, provided that: (i) any such member of the Buyer’s Group is in a position, in the reasonable opinion of the Buyer, to fulfil all of the Buyer’s obligations under this Agreement and, if not, the prior written consent of the Sellers’ Representative (such consent not to be unreasonably withheld, conditioned or delayed) shall be required prior to such assignment; and (ii) any such member of the Buyer’s Group shall cease to be entitled to exercise those rights, and shall reassign those rights to the Buyer, on ceasing to be a member of the Buyer’s Group, and provided also that the liability of the Sellers to any such assignee shall not be greater than their liability to the Buyer if that assignment had not occurred. If there is any such assignment, references to the Buyer (other than in this clause) shall be construed as references to the holder, at any relevant time, of the Buyer’s rights under this Agreement.

 

20.	ANNOUNCEMENTS AND CONFIDENTIALITY

 

20.1.

No party may make or permit any other person to make any press release or other public announcement about this Agreement or the transactions contemplated by it.

 

20.2.

Clause 20.1 shall not apply to any public announcement of the acquisition of the Sale Shares made by the Buyer, including any announcement to the customers or suppliers of (a) the Company or (b) any other member of the Buyer’s Group, which contains no material information relating to this Agreement and the transactions contemplated by it.

 

20.3.

Subject to clauses 20.4 and 20.6, each party shall treat the following information as confidential and shall not disclose or use it:

 

(a)

details of the provisions of this Agreement and any agreement, document or arrangement entered into in connection with this Agreement;

 

(b)

information relating to the negotiations leading to the execution of this Agreement and any agreement, document or arrangement entered into in connection with this Agreement; and

 

(c)

(to the extent obtained as a result of or in connection with entering into, or fulfilling obligations under, this Agreement) information relating to the other party or, in the case of the Buyer, any member of the other party’s corporate group.

 

20.4.

Any party may disclose or use information otherwise required by clause 15.4 or clause 20.3 to be treated as confidential:

 

(a)

if disclosed to or used by that party’s insurers, professional advisers, auditors or bankers (at any relevant time); any other member of the Buyer’s Group; or the insurers, professional advisers, auditors or bankers (at any relevant time) of any other member of the Buyer’s Group;

 

(b)

if and to the extent required for the purpose of any legal (including arbitration and regulatory) proceedings arising out of this Agreement or any other agreement, document or arrangement entered into in connection with this Agreement;

 

(c)

if and to the extent the information is or comes into the public domain through no fault of that party; or

 

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(d)

if disclosed to or used by any permitted assignee, or any prospective buyer of any of the Sale Shares or any material assets of the Company, or any prospective investor in the Buyer’s Group after Completion.

 

20.5.

Each party shall ensure that any person to whom confidential information is disclosed pursuant to clause 20.4(a) or 20.4(d) is made aware of the obligations of confidentiality contained in this clause and complies with clause 15.4 and clause 20.3 as if binding on it directly.

 

20.6.

Any party may disclose or use information otherwise required by clause 15.4 or clause 20.3 to be treated as confidential, or may make, or permit any person to make, any press release or other public announcement:

 

(a)

if and to the extent required by applicable law or regulation in any relevant jurisdiction;

 

(b)

if and to the extent required or requested by any court, competent regulatory or governmental body, Tax Authority or securities exchange in any relevant jurisdiction, whether or not the requirement or request has the force of law; and

 

(c)

if and to the extent that such disclosure is made to a Tax Authority in connection with the Tax affairs of the disclosing party;

and, provided that (other than in a case within clause 20.6(c)) any party using such information or making or permitting such disclosure, press release or announcement shall take all such steps as are reasonably practicable in the circumstances and permitted by law, to notify the other parties before the relevant disclosure, release or announcement is made.

 

21.

COSTS

 

21.1.

Unless expressly provided otherwise in this Agreement, [***] costs and expenses (including all legal, accounting and other professional fees) in connection with the preparation, negotiation, execution and performance of this Agreement and the documents referred to in it.

 

21.2.

[***] shall be responsible for paying any United Kingdom stamp duty and stamp duty reserve tax arising or payable in connection with the agreement by the Sellers to transfer the Sale Shares to the Buyer pursuant to this Agreement and the transfer of the Sale Shares pursuant to this Agreement.

 

22.	THE SELLERS’ REPRESENTATIVE

 

22.1.

Any notice to be given under this Agreement to or by any Seller may be given to or by the Sellers’ Representative in accordance with clause 23.

 

22.2.

The Sellers may notify the Buyer that they have chosen a different person to be the Sellers’ Representative to replace the then acting Sellers’ Representative. Any such notice shall, notwithstanding clause 22.1, be valid only if signed by (or on behalf of) each Seller and otherwise shall be given in accordance with clause 23. The change in identity of the Sellers’ Representative shall take effect immediately after notice of the change is received by the Buyer or (if later) on the date (if any) specified in the notice. Until any such notice is received by the Buyer, the Buyer shall continue to be entitled to give notices to, and to rely on notices given (and other actions taken) by, the last Sellers’ Representative of whom it had actual knowledge.

 

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22.3.

The Sellers agree that the Buyer shall be entitled to rely on notices given to and by the Sellers’ Representative under this Agreement as if given to and by each of the Sellers (or the relevant Seller, as appropriate) and shall be entitled to rely on the exercise by the Sellers’ Representative of any of the other rights and powers conferred on him by this Agreement irrespective of whether the exercise of any of those rights or powers in a particular way, or at all, is consented to or not by any Seller. The appointment of the Sellers’ Representative shall be conclusively binding on each Seller in favour of the Buyer.

 

23.

NOTICES

 

23.1.

Any notice, consent or other communication given under this Agreement shall be in writing and in English and signed by or on behalf of the party giving it, and shall be delivered by hand or sent by prepaid recorded or special delivery post (or prepaid international recorded airmail if sent internationally) or sent by email in accordance with the details set out below:

to the Buyer:

For the attention of: Bronson Crouch, Chief Executive Officer

at

[***]

with a copy (which shall not constitute notice) to the Buyer’s Solicitors for the attention of [***] at their main London office at the relevant time; and

to the Sellers (or any of them) and the Sellers’ Representative:

For the attention of: Robert Hawkins

at

[***]

with a copy (which shall not constitute notice) to the Sellers’ Solicitors for the attention of [***] at their main London office at the relevant time.

 

23.2.

The parties may from time to time notify each other of any other person or address for the receipt of notices or copy notices. Any such change shall take effect five (5) Business Days after notice of the change is received or (if later) on the date (if any) specified in the notice as the date on which the change is to take place.

 

23.3.

Any notice, consent or other communication given in accordance with clause 23.1 and received after 5.30 p.m. on a Business Day, or on any day which is not a Business Day, shall for the purposes of this Agreement be regarded as received on the next Business Day.

 

23.4.

The provisions of this clause 23 shall not apply in relation to the service of process in any legal proceedings arising out of or in connection with this Agreement.

 

24.	THIRD PARTY RIGHTS

 

24.1.

The directors, employees, officers and agents of the Company may rely upon and enforce the terms of clause 12.6, the Company and other members of the Buyer’s Group may rely upon and enforce the terms of clause 17.4 and any person to whom the Buyer may assign rights pursuant to clause 19.3 may rely upon and enforce those rights.

 

24.2.

The terms and rights referred to in clause 24.1 may be enforced by the third parties referred to in that clause only with the prior written consent of the Buyer.

 

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24.3.

Notwithstanding any other provision of this Agreement, the Sellers and the Buyer may by agreement in writing rescind or vary any of the provisions of this Agreement without the consent of any third party, and accordingly section 2(1) Contracts (Rights of Third Parties) Act 1999 shall not apply.

 

24.4.

No third party may enforce any term of this Agreement unless it has first (and as a pre-condition of commencing any legal proceedings in relation to such enforcement) confirmed in writing to each of the parties to this Agreement that in doing so, it agrees to be bound by the terms of clause 31.

 

24.5.

Except as otherwise stated in this Agreement, a person who is not a party to this Agreement shall have no right pursuant to the Contracts (Rights of Third Parties) Act 1999 to rely upon or enforce any term of this Agreement. This clause shall not affect any right or remedy of a third party which exists or is available apart from that Act.

 

25.

WAIVER

No delay, failure or omission (in whole or part) in enforcing, exercising or pursuing any right, power, privilege, claim or remedy conferred by or arising under this Agreement or by law shall be deemed to be, or be construed as, a waiver of that or any other right, power, privilege, claim or remedy, or operate so as to bar the enforcement, exercise or pursuance of that or any other right, power, privilege, claim or remedy, in any other instance at any other time.

 

26.

SEVERANCE

 

26.1.

If any provision of this Agreement is found by any court or administrative or regulatory body of competent jurisdiction to be invalid or unenforceable, such invalidity or unenforceability shall not affect the other provisions of this Agreement which shall remain in full force and effect.

 

26.2.

If any provision of this Agreement is so found to be invalid or unenforceable, but would be valid or enforceable if some part of the provision were deleted, restricted or limited in a particular manner, the provision in question shall apply with such deletions, restrictions or limitations as may be necessary to make it valid.

 

27.	SEVERAL LIABILITY

Unless expressly provided otherwise, all obligations entered into and liabilities incurred by the Sellers in or under this Agreement are entered into or incurred by each of them severally.

 

28.

NO MERGER

The provisions of this Agreement shall remain in full force and effect notwithstanding Completion.

 

29.	COUNTERPARTS

This Agreement may be executed in any number of counterparts and by the parties to it on separate counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. This Agreement shall not be effective until each of the parties has executed at least one counterpart.

 

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30.	ENTIRE AGREEMENT AND FRAUD

 

30.1.

This Agreement and the documents referred to in it together constitute the entire agreement and understanding of the parties relating to the transactions contemplated by this Agreement and those documents, and supersede any previous agreement between any of the parties relating to the subject matter of this Agreement and those documents, which shall cease to have any further effect.

 

30.2.

Nothing in this Agreement shall limit or exclude the liability of any party for the fraud of that party or any of its directors, employees, officers, agents or advisers.

 

31.	APPLICABLE LAW AND JURISDICTION

 

31.1.

The validity, construction and performance of this Agreement and any claim, dispute or matter (whether contractual or non-contractual) arising under or in connection with this Agreement or its enforceability shall be governed by and construed in accordance with the law of England.

 

31.2.

Each party irrevocably submits to the exclusive jurisdiction of the courts of England over any claim, dispute or matter arising under or in connection with this Agreement or its enforceability or the legal relationships established by this Agreement (including non-contractual disputes or claims) and waives any objection to proceedings being brought in such courts on the grounds of venue or on the grounds that proceedings have been brought in an inconvenient forum. Each party further irrevocably agrees that a judgment in any proceedings brought in the courts of England shall be conclusive and binding upon each party and may be enforced in the courts of any other jurisdiction.

 

31.3.

Nothing in this Agreement shall affect the right to serve process in any manner permitted by law.

THIS AGREEMENT has been executed by or on behalf of the parties on the date at the top of page 1.

 

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DETAILS OF THE COMPANY

Part 1 – Details of the Company

 

Name:		Immetacyte Limited
Date and place of incorporation:		29 September 2008, England
Registered number:		06709883
Registered office:		48 Grafton Street, Manchester, England, M13 9XX
Issued share capital:		3,165,200 ordinary shares of £0.01 each
Directors:		Ryan Guest
		Robert Hawkins
		Neill Mackenzie
		Nicola Price
Secretary:		Nicola Price
Accounting reference date:		30 September
Charges:		None
PROOF details:		616KOB

 

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Part 2 – Key Employees

Robert Hawkins

Neill Mackenzie

Ryan Guest

Nicola Price

 

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SCHEDULE 1

Completion Obligations

 

1.	On or prior to Completion, the Sellers shall deliver or make available to the Buyer:

 

1.1.	transfers (in the Agreed Form) of the Sale Shares in favour of the Buyer, or any nominee specified by the Buyer for the purpose, duly executed by each of the Sellers;

 

1.2.	the share certificates representing the Sale Shares or an indemnity in the Agreed Form for any missing share certificates, duly executed as a deed;

 

1.3.	the resignation from their respective offices of each of the directors (other than Robert Hawkins and Neill Mackenzie) and the secretary of the Company in the Agreed Form, duly executed as deeds;

 

1.4.	voting powers of attorney in favour of the Buyer in the Agreed Form duly executed by each Seller as a deed;

 

1.5.	statements for each bank account of the Company at the close of business on the last Business Day preceding Completion;

 

1.6.	the seal (if any), statutory registers, certificate of incorporation and any certificate of incorporation on change of name of the Company, complete and up-to-date up to (but not including) Completion;

 

1.7.

an original signed copy of the minutes of a meeting of the directors of the Company, in the Agreed Form, resolving that the Company should execute or sign each document to be executed or signed by or on behalf of it at Completion, authorising the execution or signing of those documents by each person signing on behalf of the Company, and taking any other action required by the Buyer as a result of Completion;

 

1.8.	an original copy of the SHA Termination Deed executed by each relevant Seller;

 

1.9.	valid elections under section 431(1) ITEPA in the form set out in Schedule 9 executed by each Seller (other than David Gilham) covering all Buyer Shares to be acquired by such Seller (other than David Gilham); and

 

1.10.

a properly completed United States Internal Revenue Service Form W-8BEN (or other applicable form) in respect of each Seller certifying that such Seller is the beneficial owner of the Relevant Sale Shares and is not a United States citizen or tax resident and properly claiming the benefits of the Income Tax Convention between the United States and the United Kingdom including specifically an exemption from United States withholding tax applicable to interest payable to a United Kingdom tax resident.

 

2.	At Completion, the Sellers shall procure that the Company pay [***] by electronic transfer of £[***].

 

3.	Subject to the Sellers complying with paragraphs 1 and 2, the Buyer shall:

 

3.1.

deliver to the Sellers’ Solicitors a copy of the minutes of a meeting of the directors of the Buyer resolving that the Buyer should enter into and complete this Agreement, and execute or sign each other document to be executed or signed by or on behalf of it at Completion, and authorising the execution or signing of those documents by each person signing on behalf of the Buyer;

 

3.2.	execute the Loan Note Instrument;

 

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3.3.	pay the aggregate sum of £610,000 to the Sellers in accordance with clause 3.1(b); and

 

3.4.	issue in aggregate 4,700,000 Buyer Shares to the Sellers in the proportions shown opposite their respective names in column (D) of Schedule 1.

 

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SCHEDULE 2

Warranties

Part 1 – Title and Capacity

 

1.	DEFINITIONS

In this Part 1, “Insolvency Proceedings” means any insolvency related proceedings, whether in or out of court, including proceedings or steps leading to any form of bankruptcy, liquidation, administration, receivership, arrangement or scheme with creditors, moratorium, stay or limitation of creditors’ rights, interim or provisional supervision by a court or court appointee, winding up or striking off, or any distress, execution, commercial rent arrears recovery or other process levied or exercised, or any event similar to any such events in any jurisdiction outside England.

 

2.

TITLE

 

2.1.	Each of the Sellers is the sole legal and beneficial owner of his Relevant Sale Shares and is entitled to enjoy and exercise all his rights as a member in relation to the Company.

 

2.2.	No Seller has been a party to any transaction pursuant to, or as a result of, which any of his Relevant Sale Shares are, or may become, liable to be transferred or re-transferred to another person.

 

3.

CAPACITY

 

3.1.	Each Seller has all necessary capacity, power and authority to enter into and perform his obligations under this Agreement and all agreements and documents to be executed or signed by or on behalf of that Seller pursuant to this Agreement.

 

3.2.	This Agreement, and all agreements and documents to be executed or signed by or on behalf of a Seller pursuant to this Agreement, constitute, or will when executed or signed constitute, binding and enforceable obligations on that Seller in accordance with their respective terms.

 

3.3.	The entering into and performance by each Seller of his obligations under this Agreement and all agreements and documents to be executed or signed by or on behalf of that Seller pursuant to this Agreement will not:

 

(a)

result in a breach of, or constitute a default under, any agreement or instrument under which that Seller has rights or by which he is bound;

 

(b)

result in a breach of, or default under, any order, judgment, decree or other decision or ruling of any court or governmental, administrative or regulatory body or agency in any jurisdiction under which that Seller has rights or by which he is bound; or

 

(c)

require the consent of any third party.

 

3.4.

No Insolvency Proceedings in relation to any Seller or any part of his assets or undertaking have commenced or, so far as that Seller is aware, are pending or threatened and, so far as that Seller is aware, there are no circumstances which entitle, or may entitle, any person to commence any such Insolvency Proceedings.

 

3.5.	No Seller is unable to pay his debts and no Seller has stopped or suspended payment of his debts.

 

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Part 2 – General

 

Part 2 – General

 

1.	SALE SHARES AND OTHER SECURITIES

 

1.1.	The issued share capital set out in column (B) of Schedule 1 constitutes the entire issued share capital of the Company.

 

1.2.	No person has a right (whether exercisable now or at a future date and whether contingent or not) to subscribe for, convert any security into or otherwise acquire, any Sale Shares, debentures or other securities of the Company, including pursuant to an option or warrant.

 

1.3.	No share in the capital of the Company has been allotted at a discount or otherwise than as fully paid.

 

1.4.	No shares in the capital of the Company have been issued, and no transfer of any such shares has been registered, except in accordance with all applicable laws and the memorandum and articles of association of the Company and all such transfers have been duly stamped (where applicable).

 

2.	INSOLVENCY

 

2.1.	The Company is able to pay its debts, whether within the meaning of section 123 Insolvency Act 1986 (without any requirement to prove any matter referred to in that section to the satisfaction of the court) or otherwise, and the Company has not stopped or suspended payment of its debts.

 

2.2.

No Insolvency Proceedings (as defined in Part 1 of Schedule 4) in relation to the Company or (if applicable) any part of its assets or undertaking have commenced or are pending or threatened and, so far as the Warrantors are aware, there are no circumstances which entitle or may entitle any person to commence any such Insolvency Proceedings.

 

3.	CONSTITUTIONAL MATTERS

 

3.1.	The Company has been duly incorporated or formed and is validly existing under the laws of England and Wales.

 

3.2.	A complete and accurate copy of the Company’s articles of association is included in the Disclosure Documents.

 

4.	MATERIAL INFORMATION

All of the information set out in Schedule 2 is complete and accurate.

 

5.	SUBSIDIARIES AND BRANCHES

 

5.1.	The Company has no interest in any Sale Shares, debentures, or other securities of, or any other membership interest in, any undertaking and the Company is not under a subsisting obligation to acquire any such interest.

 

5.2.	The Company has no agency, branch or other place of business or permanent establishment outside the United Kingdom.

 

6.	SHADOW DIRECTORS

No person is a shadow director (within the meaning of the Companies Act 2006) of the Company.

 

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Part 2 – General

 

7.	BUSINESSES OF THE COMPANY

 

7.1.

No business of the Company as carried on at the date of this Agreement requires the provision of any goods or services by, or the use of any assets owned or leased by, any Warrantor or any Associate of any Warrantor, save for any services provided by a Warrantor in his or her capacity as an employee of the Company.

 

7.2.	No Warrantor and no Associate of any Warrantor is engaged, interested or concerned, directly or indirectly, in any TIL business which is competitive with the business of the Company.

 

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Part 3 – Accounts, Financial, Banking and Current Trading

Part 3 – Accounts, Financial, Banking and Current Trading

 

1.	THE ACCOUNTS

 

1.1.	The Accounts complied with law and UK GAAP applicable as at the Accounts Date.

 

1.2.	The Accounts give a true and fair view of the state of affairs of the Company as at the Accounts Date and of the profit or loss of the Company for the financial year ended on such date.

 

1.3.

The Accounts have been prepared applying accounting principles, bases, policies, methods and techniques in a manner consistent with the way in which the same were applied in the preparation of the annual accounts of the Company in each of the two (2) financial years prior to the financial year ending on the Accounts Date.

 

1.4.	The Accounts were not affected by any unusual or non-recurring items or transactions not on an arm’s length basis.

 

1.5	A complete copy of the Accounts is included in the Disclosure Documents.

 

2.	MANAGEMENT ACCOUNTS

 

2.1.	The Management Accounts:

 

(a)

have been prepared in accordance with and with the same accounting policies used in preparing the Accounts, with due care and on a basis consistent with that adopted in the preparation of the management accounts of the Company for each month during the twelve month period prior to the Accounts Date; and

 

(b)

as at the date they were prepared, show accurately (taking into account the purpose for which they have been prepared), the Company’s assets and liabilities, and the profit or loss of the Company for the period in respect of which they were prepared.

 

2.2.	A complete copy of the Management Accounts is included in the Disclosure Documents.

 

3.	DISTRIBUTIONS

 

3.1.

All dividends and distributions declared, made or paid by the Company at any time in the three (3) years prior to the date of this Agreement were declared, made or paid in accordance with applicable law, the then articles of association or equivalent constitutional document of the Company and any applicable agreement with any third party.

 

3.2.	Since 29 September 2019, no dividends or distributions have been declared, made or paid by the Company.

 

4.	DEBTORS AND CREDITORS

 

4.1.	There are no debts owing to the Company (whether or not due for payment) other than trade debts incurred in the ordinary and proper course of business.

 

4.2.	No debtor has notified the Company that it intends to exercise any right of counterclaim, deduction or set off in relation to any debt owed by it or has requested that the Company extend the time in which it is required to make payment of any debt.

 

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Part 3 – Accounts, Financial, Banking and Current Trading

 

4.3.	The Disclosure Documents include an accurate list of all of the trade debtors (showing names and amounts owing) of the Company which as at the Business Day prior to the date of this Agreement were unpaid at thirty (30) days after invoice.

 

4.4.	The Disclosure Documents include an accurate list of all of the trade creditors (showing names and amounts owing) of the Company which as at the Business Day prior to the date of this Agreement were unpaid at thirty (30) days after invoice.

 

4.5.	Save as Disclosed, the Company has no liability (whether actual or contingent) to pay any sum, (including any commission) to its auditors, solicitors or other professional advisers, in relation to the sale, or preparation for the sale, of the Sale Shares.

 

5.	SIGNIFICANT CUSTOMERS AND SUPPLIERS

 

5.1.	The Disclosure Letter contains an accurate list of:

 

(a)

all current significant customers (or groups of connected customers) of the Company; and

 

(b)

all current significant suppliers (or groups of connected suppliers) of the Company’s supplies.

 

5.2.

So far as the Warrantors are aware, having made no enquiry, no customer or supplier referred to in paragraph 5.1 is likely to cease to deal with the Company, or to deal with the Company on a smaller scale, or to change the terms on which it deals with the Company to the detriment of the Company, after the date of this Agreement or as a result of the proposed acquisition of the Sale Shares.

 

6.	BORROWINGS AND ENCUMBRANCES

 

6.1.	In this paragraph 6, “Facilities” means any financial facility available to the Company.

 

6.2.	The Company has no Borrowings or Facilities, including, for the avoidance of doubt, any Borrowings in relation to any loan(s) made available to the Company by Hawkins Medical Limited and Funding Circle Limited.

 

6.3.	No event of default has occurred and, so far as the Warrantors are aware, there are no circumstances which are likely:

 

(a)

to entitle any person to require the early repayment of any Borrowings or the creation or enforcement of any Encumbrance; or

 

(b)

to crystallise any Encumbrance,

 

in	either case in accordance with the terms of any relevant agreement or instrument, and no steps for any such early repayment, creation or enforcement have been taken or threatened.

 

6.4.	The Company has not granted, or agreed to grant, any Encumbrance over any of its assets other than pursuant to a document, a complete and accurate copy of which is included in the Disclosure Documents.

 

6.5.	All charges in favour of the Company which require registration have been duly registered and are valid and enforceable.

 

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7.	BANK ACCOUNTS

The Disclosure Letter contains accurate account details of all current, deposit and foreign currency accounts of the Company.

 

8.	POSITION SINCE THE ACCOUNTS DATE

Since the Accounts Date:

 

8.1.	the Company has carried on its business in the ordinary and proper course and the Company has not entered into any agreement, commitment or arrangement otherwise than in good faith and on arms’ length terms;

 

8.2.	there has been no material adverse change in the financial or trading position of the Company;

 

8.3.

the Company has not disposed of or acquired, or agreed to dispose of or acquire, or is negotiating to dispose of or acquire any interest in: (a) the business of, or all or substantially all of the assets of, any undertaking; or (b) any Sale Shares, debentures or other securities or rights to share in the capital or profits of any undertaking;

 

8.4.	the Company has not written off or released, or agreed to write off or release, any debt owing to it other than in accordance with the Company’s current accounting policies.

 

8.5.	the Company has not made or agreed to make capital expenditure exceeding £[***] nor has the Company made or agreed to make capital expenditure in aggregate exceeding £[***];

 

8.6.	the Company has not declared, made or paid any dividend or other distribution and the Company has not agreed to do so;

 

8.7.	the Company has not incurred, or agreed to incur, any liability (whether actual or contingent) other than in the ordinary and proper course of its business;

 

8.8.	no resolution of the shareholders of the Company has been passed or proposed or circulated to those shareholders; and

 

8.9.

no customer or supplier (referred to in paragraph 5.1) of the Company has ceased to deal, or has notified the Company that it intends to cease to deal or to deal on a smaller scale, with the Company or has changed, or notified the Company that it wishes to change, the terms on which it deals with the Company to the disadvantage of the Company.

 

9.	GOVERNMENT GRANTS

The Company has not applied for or received any grant, investment, subsidy or financial assistance from any governmental department or agency or any local or other authority.

 

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Part 4 – Compliance and Litigation

Part 4 – Compliance and Litigation

 

1.	DEFINITIONS

In this Part 4:

 

1.1.	“Authority” means any governmental, administrative, regulatory, law-enforcement, judicial or other body, authority or agency of competent jurisdiction in any jurisdiction;

 

1.2.	“Investigation” means any investigation, inquiry or enforcement proceedings or other process (whether criminal or otherwise) by any Authority in any jurisdiction; and

 

1.3.	“Proceedings” means any litigation, arbitration, mediation, conciliation, expert determination, adjudication or other dispute resolution process or criminal, regulatory or administrative proceedings in any jurisdiction.

 

2.	CONDUCT OF BUSINESS

 

2.1.

The Company has not (and, so far as the Warrantors are aware, no officer, agent, employee or other person acting or performing services for or on behalf of the Company, has in the course of his duties) done or omitted to do any act or thing in contravention of any material applicable law or regulation in any jurisdiction.

 

2.2.	The Company holds, and has at all times held, all registrations, licences, authorisations and consents required to carry on its business in all jurisdictions in the manner in which it now carries on business.

 

2.3.	The Company has not breached any material provision of any registration, licence, authorisation or consent referred to in paragraph 2.2 of this Part 4, and, so far as the Warrantors are aware, there are no circumstances likely to give rise to any such breach.

 

2.4.	So far as the Warrantors are aware, the Company has fully implemented all corrective actions as detailed in the Company’s correspondence with the Medicines and Healthcare Products Regulatory Agency, dated 5 July 2019.

 

3.	ANTI-CORRUPTION

In this paragraph 3, “Anti-Bribery Laws” means the UK Bribery Act 2010, the US Foreign Corrupt Practices Act 1977 or any other anti-bribery or anti-corruption legislation in other jurisdictions in which the Company operates.

 

3.1.	The Company has not at any time committed any offence under, or otherwise contravened any, Anti-Bribery Laws.

 

3.2.	The Company has conducted its business and corporate affairs in accordance with its constitutional documents and in all material respects in compliance with Anti-Bribery Laws.

 

3.3.

The Company has in place (and has had in place at all relevant times) adequate procedures designed to prevent any officer, agent or employee of the Company, or any other person who performs services for or on behalf of the Company, from undertaking any conduct which could result in the Company committing an offence under Anti-Bribery Laws.

 

4.	COMPETITION LAW

 

4.1.	So far as the Warrantors are aware, the Company is not nor has been a party to or concerned in any agreement, concerted practice or course of conduct which in whole or in part infringes Competition Law.

 

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Part 4 – Compliance and Litigation

 

4.2.	The Company is not the subject of any investigation, inquiry or proceedings in connection with any actual or alleged infringement of Competition Law.

 

4.3.	No such investigation, inquiry or proceedings as mentioned in paragraph 4.2 has been threatened or, so far as the Warrantors are aware, is pending, and there are no circumstances likely to give rise to any such investigation, inquiry or proceedings.

 

4.4.

So far as the Warrantors are aware, the Company is not affected by any existing or pending decisions, judgments, orders or rulings of any relevant government body, agency, authority or court responsible for enforcing Competition Law and has not given any undertakings or commitments to such bodies which affect the conduct of the business of the Company.

 

5.	DATA PROTECTION

 

5.1.	The Company has complied in all material respects with:

 

(a)

all Data Protection Legislation;

 

(b)

all contractual commitments that it has entered into with respect to Personal Data; and

 

(c)

all of its then-current Privacy Policies.

 

5.2.	Each of the Privacy Policies provides or provided (as applicable) accurate and sufficient notice of the:

 

(a)

Company’s then current privacy practices (including, the collection, processing, use, storage, retention, disclosure, security and transfer of any Personal Data); and

 

(b)

the legal basis / lawful ground relied upon in respect of each processing activity carried out by the Company,

in each case, in the fashion and to the standard required by applicable Data Protection Legislation.

 

5.3.	The Company is in compliance in all material respects with and has for the past five (5) years complied with all Applicable Laws relating to data protection. The Company’s employees, contractors, consultants and other personnel:

 

(a)

receive all appropriate and necessary training regarding the applicable requirements of the Data Protection Legislation, to such standard and with such frequency as accords with industry best practice; and

 

(b)

have at all times complied in all material respects with the applicable requirements of the Data Protection Legislation.

 

5.4.	The Company:

 

(a)

has undertaken appropriate due diligence on any third parties it has appointed to process Personal Data on its behalf (together, “Company Processors”);

 

(b)

has an agreement in force and effect with each Company Processor (copies of which are included in the Disclosure Documents), which incorporates the terms stipulated by Article 28 of the GDPR and complies with all other applicable requirements of the Data Protection Laws; and

 

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Part 4 – Compliance and Litigation

 

(c)

has not disclosed (intentionally or otherwise) any Personal Data to any third party otherwise than pursuant to an agreement Disclosed in response to paragraph 5.4(b).

 

5.5.	The Company has:

 

(a)

appointed a data protection officer (as that role is described in Section 4 of the GDPR) if required to do so under the Data Protection Legislation, and details of such appointment are set out in the Disclosure Letter;

 

(b)

maintained complete, accurate and up to date records of all its Personal Data processing activities as required by the Data Protection Legislation;

 

(c)

carried out and maintained complete, accurate and up to date records of, all: (i) data protection impact assessments; and (ii) ‘legitimate interest assessments’ (as that term is commonly understood in the context of the processing of Personal Data), in each case, as required by the Data Protection Legislation; and

 

(d)

put in place an data breach response plan (a copy of which has been Disclosed), which accord with standards required by industry best practices, that enables the Company to comply with: (i) the related requirements of the Data Protection Legislation; and (ii) its applicable contractual commitments to third parties, in the event of a Security Breach.

 

5.6.

The Company has implemented, followed and, if required by Applicable Laws relating to data protection, notified any Supervisory Authority of its data privacy, data protection and data security practices regarding the processing of personal information in connection with the operation of its business.

 

5.7.	So far as the Warrantors are aware, no Personal Data held by the Company is inaccurate and there has been no loss, damage, or unauthorised access, use, modification, or other misuse or unlawful processing of any Personal Data.

 

5.8.	So far as the Warrantors are aware, the execution, delivery and performance of this Agreement and the transactions contemplated therein will not result in any breach or other violation of:

 

(a)

any applicable Company Privacy Policy;

 

(b)

any Data Protection Legislation; or

 

(c)

any contractual commitment made by the Company that is applicable to Personal Data processed, held or controlled by the Company.

 

5.9.	The Company has duly complied with all applicable notification or registration obligations and paid the appropriate level of fees or charges in respect of its processing activities, in each case as required by the Data Protection Legislation.

 

5.10.

In respect of the Company’s notifications or registrations referred to in paragraph 5.9 above: (i) the details contained therein are correct, proper and suitable for the purpose(s) for which the Company processes the Personal Data which are the subject of them; and (ii) the contents of all such notifications or registrations have been disclosed in the Disclosure Letter.

 

5.11.

The Company uses, and has used, efforts, which accord with standards required by industry best practices, to ensure that all Personal Data in its possession or under its control is protected against loss, damage, and unauthorised access, use, modification, or other misuse or unlawful processing, having regard to the nature of the Personal Data which is to be protected.

 

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Part 4 – Compliance and Litigation

 

5.12.

The Company has all authority necessary to receive, access, use and disclose all Personal Data in its possession or under its control in the conduct and operation of the Business as now conducted.

 

5.13.

The Company has not transferred or otherwise made available any Personal Data to any person located outside the European Economic Area otherwise than in accordance with applicable Data Protection Legislation.

 

5.14.

The Company has not received any claim, notice, letter, complaint or notification of a request for assessment or other communication from any person (including a Supervisory Authority or any data subject to whom the Personal Data relates) alleging breach by the Company of any Data Protection Legislation, and, so far as the Warrantors are aware, there are no circumstances which might give rise to any such notice, letter, complaint, or notification being served, given or made.

 

5.15.

No individual has been awarded, or otherwise received, compensation by or from the Company (whether pursuant to court proceedings or not) under the Data Protection Legislation, no claim for such compensation is outstanding and there are no circumstances which might lead to any claim for such compensation being made.

 

5.16.

There are no outstanding information, enforcement or audit notices or requests under applicable Data Protection Legislation currently outstanding against the Company, nor any outstanding appeal against any such notices or requests, nor are there any circumstances which may give rise to the giving of any such notices or requests.

 

5.17.

The Company has complied with all data subject requests in respect of Personal Data controlled by the Company, including any requests for blocking, erasure, portability or rectification of Personal Data, or for the cessation or restriction of specified processing activities, and there are no such requests outstanding at the Completion Date.

 

6.	BOOKS, RECORDS AND RETURNS

 

6.1.	The register of members, minute books, other statutory books and registers of the Company have been properly kept, are in the possession and ownership or under the control of the Company and are up to date and contain true and accurate records of all matters required to be dealt with therein.

 

6.2.	No claim has been received by the Company that any of the books, registers or records referred to in paragraph 6.1 is incorrect or should be rectified.

 

6.3.	All accounts and annual or other returns in relation to the Company required to be filed with the Registrar of Companies have been duly and properly filed.

 

7.	LITIGATION

 

7.1.	The Company:

 

(a)

is not engaged, or has during the period of three (3) years ending on the date of this Agreement been engaged, in any Proceedings, whether as claimant or defendant or in any other capacity;

 

(b)

has not received notice that it is subject to any Investigation, and so far as the Warrantors are aware, is not the subject of any existing or pending order, judgment or other decision or ruling of any Authority or of any other court, tribunal or arbitrator in any jurisdiction;

 

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Part 4 – Compliance and Litigation

 

(c)

has not given any undertaking or assurance which remains in force (whether or not legally binding) to any third party arising out of, or in connection with, any Proceedings or Investigation, or to any Authority; or

 

(d)

is not in material dispute with any person in relation to any matter.

 

7.2.	No Proceedings or Investigations are pending or threatened by or against the Company and, so far as the Warrantors are aware, there are no circumstances which are likely to give rise to any such Investigation or Proceedings.

 

7.3.

No officer, agent, employee or other person acting on behalf of the Company is engaged in or subject to any Proceedings or Investigation which could result in liability or loss for the Company, no such Proceedings or Investigations are pending or threatened against any such person and, so far as the Warrantors are aware, there are no circumstances which are likely to give rise to any such Proceedings or Investigation.

 

7.4.	So far as the Warrantors are aware, no officer, agent, employee or other person who performs services for or on behalf of the Company:

 

(a)

is engaged in or subject to any Proceedings or Investigation; or

 

(b)

has done or omitted to do any act or thing in contravention of any law or regulation;

in each case which would be likely to have an adverse effect on the reputation or goodwill of the Company. So far as the Warrantors are aware, no such Proceedings or Investigations are pending or threatened against any such person and there are no circumstances which are likely to give rise to any such Proceedings or Investigations.

 

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Part 5 – Contracts

Part 5 – Contracts

 

1.	DEFINITIONS

In this Part 5:

 

1.1.	“Material Agreement” means an agreement under which the Company has rights or by which the Company is bound and which is of material importance to the financial or trading position, operations or prospects of the Company.

 

2.	COMPANY CONTRACTS

 

2.1.	The Warrantors have Disclosed all Material Agreements with any third party to which the Company is a party.

 

2.2.	The Company has not entered into any contract:

 

(a)

which is not in the ordinary course of business or which is not on arm’s length terms;

 

(b)

which involves or may involve obligations, restrictions or expenditure of an unusual, onerous or exceptional nature, or which is or is likely to be loss-making;

 

(c)

which is not capable in accordance with its terms of being performed in full within six (6) months of the date on which it was entered into;

 

(d)

under which an aggregate amount of more than £100,000 is, or is likely to become, payable by or to the Company;

 

(e)

which provides for the Company to receive any sum, right or other asset, or discharge any liability, whose amount or value is expressed in or by reference to any currency other than pounds sterling or under which any right or obligation of the Company may be modified if there is any change in currency exchange rates;

 

(f)

which limits the ability of the Company to carry on any business anywhere in the world in any manner it thinks fit;

 

(g)

under which any exclusive or sole rights are granted by or to the Company;

 

(h)

which involves partnership, consortium, joint venture or other arrangements for sharing income, profits, losses or expenses;

 

(i)

which provides for any receivables owing to the Company to be sold or discounted on a non-recourse basis;

 

(j)

under which the Company uses or has been supplied with goods (including any plant or equipment) or materials on terms that property in them passes when full payment is made or all indebtedness is discharged; or

 

(k)

pursuant to which the Company has acquired or disposed of any Sale Shares or any business and remains subject to any actual or contingent liability.

 

2.3.	Each Material Agreement is binding and enforceable in accordance with its terms and no Material Agreement is voidable by any party to it.

 

2.4.

The Company is not in breach of any material obligation in any agreement under which it has rights or by which it is bound and the Company is not in default in any material respect under any such agreement. The Company has not received any allegation of any such breach or default and, so far as the Warrantors are aware, there are no circumstances which are likely to give rise to any such breach or default.

 

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Part 5 – Contracts

 

2.5.

The Company has not given notice to a counterparty to any agreement with it of any breach of, or default under, that agreement by the counterparty and, so far as the Warrantors are aware, no such counterparty is in breach of, or default under, any such agreement and there are no circumstances which are likely to give rise to any such breach or default.

 

2.6.	The Company has not given or received notice to terminate or vary any Material Agreement and, so far as the Warrantors are aware, there are no circumstances which are likely to lead to any such notice being given or received.

 

2.7.

The Company is not, and never has been, in breach of any of the terms of the following agreements and, so far as the Warrantors are aware, there are no circumstances that could lead to termination of the agreement and/or a claim for indemnification (or otherwise) being brought against the Company in relation to any of the following agreements, and with respect to the agreements stated in paragraphs 2.7(d) and 2.7(e) only, and, so far as the Warrantors are aware, there are no circumstances that would give rise to a re-assignment of the relevant intellectual property:

 

(a)

a supply agreement entered into by the Company and Cancer Research UK dated [***];

 

(b)

a material transfer agreement entered into by the Company and The University of Manchester dated [***];

 

(c)

a material transfer agreement entered into by the Company and NHS Blood and Transplant (trading as National Blood Service) dated [***];

 

(d)

an assignment agreement entered into by the Company and The University of Manchester dated [***]; or

 

(e)

a knowledge transfer partnership agreement entered into by the Company and Manchester Metropolitan University dated [***] and commencing on [***].

 

3.	POWERS OF ATTORNEY AND AUTHORITIES

So far as the Warrantors are aware, the Company has not given any power of attorney, or express authority to bind or commit it to any obligation, which is subsisting.

 

4.	NON LEGALLY BINDING ARRANGEMENTS

The Company is not party to, or otherwise subject to, any non-legally binding arrangement or understanding which is material in the context of the business of the Company.

 

5.	GUARANTEES

 

5.1.	No third party has given any Assurance or entered into any security agreement or similar agreement, which is subsisting at the date of this Agreement, in respect of any obligation of the Company, and nor has any third party agreed to do so.

 

5.2.	The Company has not given any Assurance or entered into any security agreement or similar agreement, which is subsisting at the date of this Agreement, in respect of any obligation of any person (other than the Company), and nor has the Company agreed to do so.

 

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Part 5 – Contracts

 

6.	CONTRACTS AND ARRANGEMENTS WITH THE SELLERS

 

6.1.	The Company has not transferred any asset to or received any asset from any Seller or any Associate of any Seller other than by way of sale for market value or by way of lawfully declared dividend.

 

6.2.	Except for any contract of employment included in the Disclosure Documents:

 

(a)

there is no subsisting agreement or arrangement between the Company and any Seller or any Associate of any Seller (including any agreement or arrangement pursuant to which a management charge is payable by the Company); and

 

(b)

the Company is not a party to any agreement or arrangement in which any Seller or any Associate of any Seller is interested (whether directly or indirectly),

and no such agreement or arrangement has subsisted at any time during the period of three (3) years ending on the date of this Agreement.

 

6.3.	No Seller and no Associate of any Seller has any right to make any claim against the Company except in respect of accrued and unpaid salary or unreimbursed expenses.

 

6.4.	The Company is not engaged or interested (whether directly or indirectly) in any Proceedings (as defined in paragraph 1.3 of Part 4) in which any Seller or any Associate of any Seller is engaged or interested (whether directly or indirectly).

 

7.	EFFECT OF AGREEMENT

The sale of the Sale Shares to the Buyer and the performance by the parties of their obligations under this Agreement:

 

7.1.	will not result in a breach of, or constitute a default under, any Material Agreement or any registration, licence, authorisation or consent referred to in paragraph 2.2 of Part 4;

 

7.2.	will not entitle any party to a Material Agreement to be released from any of that party’s obligations or to terminate or vary its rights or obligations under that Material Agreement; and

 

7.3.	will not create or accelerate any obligation of the Company or cause or require the Company to lose or dispose of any right or asset or any interest in any right or asset, including by way of the imposition or crystallisation of any Encumbrance.

 

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Part 6 – Assets and Insurance

Part 6 – Assets and insurance

 

1.	ASSETS SUFFICIENT FOR THE BUSINESS

The assets and rights owned by or licensed to the Company, together with any assets held under a finance lease, hire purchase agreement, rental agreement or credit sale agreement listed in the Disclosure Letter, comprise materially all of the assets and rights necessary to continue the business of the Company as carried on at the date of this Agreement and to fulfil all of its existing agreements and commitments.

 

2.	OWNERSHIP AND POSSESSION OF ASSETS

 

2.1.	All of the tangible assets owned by the Company, or which the Company has the right to use, are in the possession and ownership or under the control of the Company.

 

2.2.	The Company has not been a party to any transaction pursuant to, or as a result of, which any material asset or right owned or purportedly owned by the Company is, or may become, liable to be transferred or re-transferred to another person.

 

3.

INSURANCE

 

3.1.	The Disclosure Documents include complete and accurate copies of all subsisting insurance policies maintained by or on behalf of the Company.

 

3.2.	The Company maintains, and has at all material times maintained, adequate insurance against all risks required by applicable law or regulation to be covered by insurance.

 

3.3.

All conditions of the subsisting insurance policies of the Company have been complied with, all premiums due on such policies have been paid and, so far as the Warrantors are aware, there are no circumstances in relation to the Company which are likely to result in an increase in premium or to affect renewal adversely.

 

3.4.	So far as the Warrantors are aware, no act or omission by or on behalf of the Company has rendered void or voidable, or given rise to any breach of, any subsisting insurance policy of the Company.

 

3.5.	The Company has not been refused insurance during the period of three (3) years ending on the date of this Agreement.

 

3.6.

The Disclosure Letter contains a complete and accurate list of all insurance claims in excess of £10,000 made by the Company during the period of twenty-four (24) months ending on the date of this Agreement, and so far as the Warrantors are aware, there are no circumstances which entitle or might (with the passage of time) entitle the Company to make such a claim.

 

4.	CONDITION AND MAINTENANCE OF FACILITIES

All plant, machinery, vehicles and office and other equipment owned or used by the Company are in good repair and condition (subject to fair wear and tear) and have been regularly maintained in accordance with applicable laws and regulations and in accordance with the provisions of any applicable finance leases and hire purchase, rental, credit sale and other similar agreements.

 

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Part 7 – Property

Part 7 – Property

 

1.

TITLE

 

1.1.	Except for the Leasehold Properties, the Company does not own, let, occupy or otherwise use any property or have any legal or equitable right in relation to any property.

 

1.2.	The Leasehold Properties are all occupied solely by the Company.

 

2.	INFORMATION

 

2.1.	All of the information contained in Schedule 6 is complete and accurate.

 

2.2.	Complete and accurate copies of the Leases are included in the Disclosure Documents.

 

3.	ENCUMBRANCES

 

3.1.	The Leasehold Properties are free from Encumbrances and from any other matters of an onerous nature which are likely to affect their value.

 

3.2.	The Leasehold Properties are not subject to outgoings other than business and water rates, rent, insurance premiums, service charges and other payments due under the relevant Lease.

 

4.	LIABILITIES

 

4.1.	The Company has no liability (whether actual or contingent) in respect of any land or buildings formerly owned or occupied by it or in respect of any related documentation.

 

4.2.	The Company has no liability (whether actual or contingent) under any guarantee or indemnity in respect of any land or buildings other than pursuant to the Leases.

 

5.	COMPLIANCE, ADVERSE NOTICES AND DISPUTES

 

5.1.	The Company has not failed to comply with:

 

(a)

any planning law or regulation or statutory obligation affecting any of the Leasehold Properties or their use; or

 

(b)

any environmental or health and safety law or regulation in relation to any of the Leasehold Properties or in relation to the operation of the business of the Company.

 

5.2.	The Company has not been notified of any outstanding compulsory purchase notice, closing demolition or clearance order, enforcement notice or stop notice affecting any of the Leasehold Properties.

 

5.3.

The Company is not in dispute with any neighbouring owner with respect to any boundary wall or fence relating to any of the Leasehold Properties, any easement or right over or means of access to or from any of the Leasehold Properties, or any other matter relating to any of the Leasehold Properties and, so far as the Warrantors are aware, there are no circumstances which are likely to give rise to any such dispute.

 

5.4.	The Company has obtained and complied with all registrations, licences, authorisations, permits and consents which it is required to have under environmental or health and safety law or regulation for the operation of its business.

 

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Part 7 – Property

 

6.	CONDITION OF THE LEASEHOLD PROPERTIES

 

6.1.	The buildings and other structures on or comprising the Leasehold Properties are in good and substantial repair and condition and fit for the purposes for which they are used and enjoy all necessary mains services.

 

6.2.	All means of access to and from the Leasehold Properties are over roads to which the public has access and are not subject to any determination rights.

 

7.	LEASEHOLD PROPERTIES

 

7.1.	In relation to each Leasehold Property set against its name in Schedule 6, the Company has paid the rent and observed and performed the covenants on the part of the tenant and the conditions contained in the relevant Lease and in any supplemental or collateral documentation.

 

7.2.	All notices given and requirements notified by the landlord under any Lease have been complied with.

 

7.3.	All the Leases are in full force.

 

7.4.	The licences, consents and approvals required from the landlords and any superior landlords under the Leases have been obtained.

 

7.5.	No rent review is outstanding or in progress under any of the Leases.

 

7.6.	The landlord has not exercised the option to tax or elected to waive VAT exemption in respect of any Leasehold Property.

 

7.7.	No notice to determine any Lease has been served on or by the Company.

 

7.8.	So far as the Warrantors are aware, the landlord of each Leasehold Property has observed and performed the covenants on the part of the landlord and the conditions contained in the relevant Lease and in any supplemental or collateral documentation.

 

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Part 8 – Employment

Part 8 – Employment

 

1.	DEFINITIONS

In this Part 8:

 

1.1.	“Consultant” means any individual who is not an Employee who has undertaken to do or perform personally, or is supplied to do or perform personally, any work or services for the Company;

 

1.2.	“Employee” means any director or other individual employed by the Company under an employment contract; and

 

1.3.	“Relevant Transfer” means a relevant transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006.

 

2.	TERMS OF EMPLOYMENT OR ENGAGEMENT

 

2.1.	The Disclosure Letter contains in relation to each Employee and Consultant in the Company complete and accurate details of:

 

(a)

such Employee’s or Consultant’s current remuneration (including any benefits and privileges provided or which the Company is bound to provide to him or his dependants, whether now or in the future);

 

(b)

the commencement date of each contract of employment or engagement, and if an Employee, the date on which continuous service began;

 

(c)

the length of notice required to terminate each contract of employment or engagement or, if a fixed term, the expiry date of the fixed term and details of any previous renewals;

 

(d)

the type of employment or engagement (whether full or part time or other); and

 

(e)

if any Employee or Consultant works or is paid outside England;

 

(f)

the country in which that Employee or Consultant works or performs services; and

 

(g)

the law governing the contract of employment or engagement.

 

2.2.	The Disclosure Documents include:

 

(a)

complete and accurate copies of all standard contracts, handbooks, policies and other documents which apply to the employment or engagement of any of the Employees and Consultants;

 

(b)

complete and accurate copies of all agreements and commitments entered into by the Company in relation to any Employee or Consultant; and

 

(c)

complete and accurate details of any outstanding offer of employment or engagement to provide work or services, made to any individual by the Company.

 

2.3.	No contract of any Employee or Consultant deviates from the standard contracts, handbooks, policies and other documents referred to in paragraph 2.2(a).

 

2.4.	Since 29 December 2019, the Company has not made an offer of employment, nor entered in a proposal, commitment or contract with any Employee or Consultant.

 

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Part 8 – Employment

 

2.5.	No proposal or commitment has been communicated to any Employee or Consultant regarding the introduction, award, increase or improvement of any basic annual salary, fee or any material benefit.

 

2.6.	The Company is not under any obligation to make any payment on redundancy in excess of the statutory redundancy payment.

 

2.7.	The Disclosure Letter contains a complete and accurate list of all Employees and Consultant, including Employees and Consultants who are on secondment, maternity, paternity, adoption, shared parental or other leave or absent due to ill health or for any other reason.

 

3.	BONUS, PROFIT SHARING AND SHARE OPTION SCHEMES

 

3.1.

There is no scheme or arrangement in operation by or in relation to the Company under which any Employee or Consultant is entitled (or may become entitled) to any payment calculated by reference to the whole or part of the turnover, profits or sales of the Company or to any other form of bonus, commission or incentive and there is no subsisting commitment to introduce any such scheme or arrangement.

 

3.2.

The Company does not operate any scheme or arrangement under which share benefits are provided in respect of any Employee or Consultant (or any former Employee or Consultant) and there is no subsisting commitment to introduce any such scheme or arrangement. No other company provides any such scheme or arrangement in respect of any Employee or Consultant.

 

4.	TERMINATION OF CONTRACTS OF EMPLOYMENT OR ENGAGEMENT

 

4.1.	The Company has not given or received notice terminating the employment or engagement of any Employee or Consultant which has not yet expired.

 

4.2.	No Employee or Consultant is entitled to terminate his employment or engagement or to receive any payment or other benefit as a result of the sale of the Sale Shares to the Buyer or the performance by the parties of their obligations under this Agreement.

 

5.	COMPLIANCE

 

5.1.	The Company has complied:

 

(a)

with all material obligations imposed on it contractually in relation to each Employee and Consultant (and each former Employee and Consultant); and

 

(b)

with all material obligations imposed on it at any time by any law, regulation or code of practice relevant to the relations between it and any or all of its Consultants or Employees (or former Consultants or Employees) or between it and any recognised trade union.

 

5.2.	No Employee is subject to a current disciplinary warning or procedure including in relation to his performance.

 

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Part 8 – Employment

 

5.3.	During the year ending on the date of this Agreement, the Company has not:

 

(a)

given, or been required to give, notice of any redundancies to the relevant Secretary of State; or

 

(b)

undertaken to provide information to, or consult with, (or been required to provide information to, or consult with,) any trade union or employee representatives in relation to potential redundancies or otherwise.

 

5.4.	Every person employed or engaged by the Company has current and appropriate permission to work in the United Kingdom.

 

5.5.	So far as the Warrantors are aware, no Consultant or Employee is suffering from a condition which requires or might reasonably require any adjustment within the work place in relation to his disability.

 

5.6.

The Company has not (and, so far as the Warrantors are aware, no predecessor or previous owner of the whole or any part of the Company’s business has) been party to a Relevant Transfer affecting any of the Employees (or former Employees) or any other person engaged (or formerly engaged) in the business of the Company and there has been no variation (or purported variation) of the terms of employment or engagement of any Employee, former Employee or such other person for any reason as a result of or connected with a Relevant Transfer. There are no circumstances which are likely to give rise to a Relevant Transfer affecting any of the Employees or any other person engaged in the business of the Company.

 

6.	LOANS TO EMPLOYEES OR CONSULTANTS

Other than season ticket loans, the Company has not made any loan or advance to any Employee or Consultant (or former Employee or Consultant) that is still outstanding and the Company is not under any subsisting obligation to make any such loan or advance.

 

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Part 9 – Pensions

Part 9 – Pensions

 

1.	DEFINITIONS

In this Part 9:

 

1.1.

“Employee Benefit Scheme” means any agreement, commitment, arrangement, scheme, custom or practice (in each case whether or not (a) enforceable, (b) a registered pension scheme under the Finance Act 2004 and/or (c) funded for in advance) for the payment of any pension, allowance, lump sum or other benefit on or after death, accident, retirement or termination of employment (whether voluntary or not) or during any period of sickness or disablement;

 

1.2.	“Pension Scheme” means the scheme known as the Immetacyte Auto Enrolment Personal Pension Plan operated by Royal London; and

 

1.3.	“Relevant Employee” means any employee or director, or any former employee or director, of the Company or any other individual who at any time has undertaken to do or perform personally, or has been supplied to do or perform personally, any work or services for the Company.

 

2.	PENSION ARRANGEMENTS

 

2.1.	Except for the Pension Scheme, the Company:

 

(a)

does not operate, has not operated and has not agreed to operate;

 

(b)

has not announced any proposal to enter into or establish; or

 

(c)

does not contribute to and has not contributed to

any Employee Benefit Scheme for or in respect of any Relevant Employee or any dependent or beneficiary of any Relevant Employee.

 

2.2.	All material information relating to the Pension Scheme is included in the Disclosure Documents.

 

3.	CONTRIBUTIONS AND BENEFITS

The Company has paid all contributions due from it under the Pension Scheme.

 

4.	MORAL HAZARD ISSUES

 

4.1.

The Company is not nor has been an employer in relation to any defined benefit occupational pension scheme and the Company is not nor has been connected with, nor is or has been an associate of, an employer (within the meaning of sections 249 and 435 Insolvency Act 1986 respectively) in relation to any defined benefit occupational pension scheme.

 

4.2.

No contribution notice or financial support direction has been issued by the Pensions Regulator against the Company and no debt has been triggered under section 75 or 75A Pensions Act 1995 by or in respect of the Company. There are no circumstances which are likely to give rise to a liability on the Company or the Buyer arising out of the operation of sections 38 to 57 (inclusive) Pensions Act 2004.

 

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Part 9 – Pensions

 

5.

DISPUTES

No Pension Scheme or the Company is engaged or involved in any complaint, investigation, claim or proceedings which relates to, or is in connection with, the provision by the Company of (or failure by the Company to provide) any Employee Benefit Scheme (or any benefits under any such scheme) to a Relevant Employee and, so far as the Warrantors are aware, no such complaint, investigation, claim or proceedings is pending or threatened and there are no circumstances which are likely to give rise to any such complaint, investigation, claim or proceedings.

 

6.	LEGAL COMPLIANCE

 

6.1.

The Company has not discriminated against, or in relation to, any Relevant Employee on grounds of age, sex, disability, marital status, hours of work, fixed-term or temporary agency worker status, sexual orientation, religion or belief in respect of the provision of (or failure to provide) any Employee Benefit Scheme or any benefits under any such scheme.

 

6.2.

The Company has complied with all applicable legal and administrative requirements in force from time to time as regards its automatic enrolment obligations and, so far as the Warrantors are aware, there are no circumstances which are likely to give rise to the applicable pensions’ regulator issuing a notice, fine or other sanction for non-compliance.

 

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Part 10 – Intellectual Property

Part 10 – Intellectual Property

 

1.	DEFINITIONS

In this Part 10:

 

1.1.	“Applications” means applications for Registered Intellectual Property;

 

1.2.	“Business Intellectual Property” means Intellectual Property in existence at the date of this Agreement that is material to or used in connection with the business of the Company;

 

1.3.

“Control” means, with respect to any Intellectual Property, the possession by the Company of, or the ability (whether by ownership, license or other right) to grant access to or a licence or sublicence of, such Intellectual Property without violating the terms of any agreement or other arrangement with any other person and “Controlled” should be construed accordingly;

 

1.4.

“Intellectual Property” means all intellectual property, including patents, rights in goodwill, database rights and rights in data, rights in designs, copyrights and topography rights (whether or not any of these rights are registered, and including applications and the right to apply for registration of any such rights) and all inventions, rights in know-how, trade secrets and confidential information, customer and supplier lists and other proprietary knowledge and information and all rights under licences and consents in relation to any such rights and all rights and forms of protection of a similar nature or having equivalent or similar effect to any of these which may subsist anywhere in the world for their full term, including any renewals and extensions;

 

1.5.	“Licence” means any licence in respect of the use or exploitation of any Intellectual Property (including any unwritten or informal licensing arrangement) and any arrangement of which any licence forms part;

 

1.6.	“Registered Intellectual Property” means patents, registered copyrights, registered Trade Marks, registered designs and all other registered intellectual or industrial property rights in any part of the world;

 

1.7.	“Software” means computer software; and

 

1.8.	“Trade Marks” means all trade marks, service marks, domain names, business and trading names, styles, logos and get-ups (whether registered or unregistered) in any part of the world.

 

2.	OWNERSHIP AND LICENCES

 

2.1.	The Company does not own any Trade Marks or any other Registered Intellectual Property (other than patents).

 

2.2.	The Disclosure Documents include a complete and accurate copy of all material Licences under which the Company has rights to use or exploit Registered Intellectual Property owned by a third party (other than Licences to use generally commercially available Software on standard terms).

 

2.3.	The Company is the sole legal and beneficial owner of, or has a valid and subsisting Licence in writing to use and exploit, all of the other Intellectual Property that is and used in connection with its business.

 

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Part 10 – Intellectual Property

 

2.4.

The Business Intellectual Property which is owned or Controlled by the Company (other than any pending applications for the registration of any such Business Intellectual Property) and, so far as the Warrantors are aware, all other Business Intellectual Property is valid, enforceable and subsisting. So far as the Warrantors are aware, no circumstances exist which may prevent any pending applications for the registration of any Business Intellectual Property which is owned or Controlled by the Company from proceeding to grant as currently filed.

 

3.	MAINTENANCE

 

3.1.	All Licences and documents (if any) material to the right, title and interest of the Company to any Business Intellectual Property are in the possession and ownership of the Company.

 

3.2.

The Company has at the due time paid all application, renewal and maintenance fees, taxes and other payments due in respect of the Registered Intellectual Property that it owns (whether solely or jointly) and any Applications that are in its name (whether solely or jointly) and has taken all other steps reasonably necessary to maintain and protect such Registered Intellectual Property and Applications.

 

3.3.	There is no Business Intellectual Property which will expire within six (6) months following the date of this Agreement.

 

4.	ADEQUACY OF RIGHTS

 

4.1.

No Business Intellectual Property is subject to any Encumbrance or limitation or restriction (whether as to term, territory, the scope of rights granted or otherwise, including moral rights) or any right of termination or reassignment, which is inconsistent with the operation of the Company’s business.

 

4.2.	None of the Business Intellectual Property is subject to any pending or outstanding injunction, directive, order, judgment, opposition or other disposition of dispute that adversely restricts the use, transfer, registration or licensing of any such Business Intellectual Property.

 

4.3.

So far as the Warrantors are aware, there is no Intellectual Property owned by any third party that (i) the Warrantors in good faith believe is valid and enforceable, (ii) is required by the Company to conduct its business as currently conducted and (iii) the Company is not currently authorised to use.

 

5.

DEALINGS

 

5.1.	The Company has not authorised or otherwise permitted, expressly or by implication, any use of any Business Intellectual Property nor granted to any third party any right (including any license or option), interest, waiver or covenant not to assert in respect of any Business Intellectual Property.

 

5.2.	So far as the Warrantors are aware, nothing has been done or omitted to be done which would jeopardise the validity, enforceability or subsistence of any Business Intellectual Property (including any acquiescence in the activities of third parties).

 

6.	INFRINGEMENTS

 

6.1.

So far as the Warrantors are aware, no goods, services or activities of the Company infringe or have infringed any Intellectual Property of a third party or involve or have involved the unlicensed use of a third party’s confidential information or give or have given rise to liability to pay compensation.

 

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Part 10 – Intellectual Property

 

6.2.

So far as the Warrantors are aware, no third party has made or is making any unauthorised use or exploitation of any Business Intellectual Property or has infringed or is infringing any Business Intellectual Property and no third party or competent authority has made any claim, challenge or opposition against the Company in relation to any Business Intellectual Property.

 

7.	CREATION OF INTELLECTUAL PROPERTY

All persons retained, commissioned, employed or otherwise engaged by the Company from time to time and who, in the course of such engagement created, discovered, conceived or developed work in which Intellectual Property subsists or might reasonably have been expected to subsist, are bound by agreements with the Company whereby all such Intellectual Property vests in the Company and all moral rights are irrevocably and unconditionally waived. All such agreements contain terms which prevent such parties disclosing confidential information about the Company and its business. No such person has, or has made any claim to, any right, title or interest in or in respect of such Intellectual Property or to any compensation or remuneration in relation to such Intellectual Property, whether under section 40 Patents Act 1977 (or equivalent law or regulation in any jurisdiction) or otherwise.

 

8.	USE OF NAME

The Company does not trade or carry on business under or use any name or style other than its corporate name.

 

9.	CONFIDENTIAL INFORMATION AND KNOW-HOW

 

So

far as the Warrantors are aware, all confidential information, trade secrets and know-how of the Company (including client databases and details of the Company’s potential clients) have at all times been kept confidential and have not been disclosed to any third party (other than subject to a binding confidentiality agreement). The Company complies with, enforces and operates procedures which maintain such confidentiality.

 

10.	DOMAIN NAMES

In relation to each domain name which is owned or used by the Company:

 

(a)

the Company is the sole named registrant and does not hold the domain name on behalf of any third party;

 

(b)

the expiry date of the registration is listed in the Disclosure Letter; and

 

(c)

no such domain name is an abusive registration or susceptible to recovery by a third party.

 

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Part 11 – Information Technology

Part 11 – Information Technology

 

1.	DEFINITIONS

In this Part 11:

 

1.1.	“Hardware” means computer hardware or networks;

 

1.2.	“Software” means computer software; and

 

1.3.	“Systems” means the Hardware and the Software and (in each case) associated documentation.

 

2.

HARDWARE

The Company owns the Hardware (and any associated documentation) used by it as at the date of this Agreement.

 

3.

SOFTWARE

The Company either owns, or has a valid and subsisting licence to use, all Software used by it as at the date of this Agreement, all of which (in the case of Software used under licence) comprises generally commercially available Software licensed on standard terms.

 

4.

SYSTEMS

 

4.1.	All Systems used by the Company are in good working order and function in accordance with all specifications and any other descriptions under which they have been supplied.

 

4.2.	The Systems used by the Company have been and continue to be the subject of warranty and maintenance arrangements that are adequate for the requirements of the Company and sufficient to remedy or compensate for any material defect.

 

4.3.	There has been no material disruption or interruption to the business of the Company in the 12 month period ending on the date of this Agreement due to failure or breakdown of the Systems used by it or any part of them.

 

4.4.	No third party provides any part of the Systems used by the Company under any outsourcing, services, application service provider, hosting or similar arrangement (formal or informal).

 

5.	SECURITY OF THE SYSTEMS

The Company maintains and keeps up-to-date:

 

5.1.	adequate (for the requirements of the Company) procedures, processes and software to protect the Systems used by it and any data, (including any Personal Data) held on such Systems and to prevent unauthorised access or the introduction of viruses or similar destructive code;

 

5.2.	adequate (for the requirements of the Company) procedures for the taking and storing of any data held on the Systems; and

 

5.3.

adequate (for the requirements of the Company) back-up systems and disaster recovery systems and procedures to enable it to continue to function without any material disruption or interruption if there is a failure or breakdown of any part of the Systems used by it or the destruction, corruption or loss of access to any of the data held on the Systems.

 

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SCHEDULE 3

Taxation

Part 1 – Tax Definitions and Interpretation

 

1.	Definitions

Words and expressions defined in or for the purposes of the Agreement shall, except where expressly defined in this Schedule or where the context otherwise requires, have the same meanings in this Schedule and:

“Anticipated Liability” means Payroll Tax of £[***] payable in respect of the January 2020 payroll of the Company;

“Buyer’s Relief” means (i) any Relief attributable to a period after Completion or arising in respect of any Event occurring or deemed to occur after Completion, or (ii) any Relief of any member of the Buyer’s Tax Group (other than the Company);

“Buyer’s Tax Group” means the Buyer and any company or entity which at any relevant time is connected or associated with or in the same group of companies or fiscal unity or consolidation as the Buyer for the purposes of any Tax or Relief, and ‘member of the Buyer’s Tax Group’ shall have a corresponding meaning;

“CAA” means the Capital Allowances Act 2001;

“CFA 2017” means the Criminal Finances Act 2017;

“CTA 2009” means the Corporation Tax Act 2009;

“CTA 2010” means the Corporation Tax Act 2010;

“Event” means any act, omission, event, transaction or occurrence and includes, without limitation, the receipt or accrual of any income, profit or gains, the declaration, making or payment of any distribution, becoming, being or ceasing to be a member of any group, fiscal unity, consolidation or partnership or associated or connected with any person, death, any winding up or dissolution, any residence or change in residence of any person for Tax purposes, the expiry of any period, the entering into of this Agreement and Completion;

“HMRC” means HM Revenue & Customs;

“ITA” means the Income Tax Act 2007;

“Payroll Tax” means employer’s and employee’s national insurance contributions, apprenticeship levy and Tax in respect of PAYE income (as defined pursuant to ITEPA and the PAYE regulations made thereunder), and any similar Tax and social security contributions in any jurisdiction, together with all penalties, fines, charges, surcharges and interest relating to any of the foregoing;

“Payroll Tax Claim” means any Claim pursuant to clause 17.5;

“Payroll Tax Liability” means any Tax Liability which comprises Payroll Tax and which arises in respect of or by consequence of or by reference to any provision of or right to receive or forfeiture or clawback of Consideration, including, without limitation, any right to acquire, or the allotment, issuance, holding, vesting, forfeiture, clawback, disposal of, or the lifting or variation of any restrictions relating to, any Buyer Shares, or any right to acquire or the issuance, holding, redemption, disposal of any Loan Notes or the making of an election under section 431 ITEPA;

 

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“R&D Claim” means any claim for relief for expenditure on research and development under any of the provisions of Part 13 CTA 2009 or an R&D expenditure credit (as defined for the purposes of section 1040A CTA 2009) under any of the provisions of Chapter 6A of Part 3 CTA 2009;

“R&D Credit Payment” means a payment received by the Company from HMRC in respect of an R&D Claim on or before Completion, but shall not include any payment (or any amount so set off or netted off) in respect of any R&D Claim in respect of the accounting period of the Company beginning on 1 October 2018;

“Relief” means any relief, loss, allowance, claim, credit, deduction, exemption or set-off in respect of Tax or relevant to the computation of Tax or any income, profits or gains for the purposes of Tax, or any Right to Repayment, including any amount payable by a Tax Authority as a result of any R&D Claim, and:

 

(a)

any reference to the ‘use or set-off’ of a Relief shall be construed accordingly and shall include use or set-off in part;

 

(b)

references to the ‘loss’ of a Relief shall include the loss, non-availability, non-existence, reduction, counteraction, disallowance, clawback, cancellation or failure to obtain such Relief, and shall also include such Relief being available only in a reduced amount, and ‘lose’ and ‘lost’ shall be construed accordingly;

“Tax” or “Taxation” means all forms of direct and indirect tax, duty, levy, charge, contribution, rate, tariff and impost whether of the United Kingdom or any other jurisdiction and any other amount payable to any Tax Authority (including, for the avoidance of doubt, national insurance contributions in the United Kingdom and corresponding obligations elsewhere), all related withholdings or deductions and all penalties, fines, charges, surcharges and interest relating to any of the foregoing or resulting from a failure to comply with the provisions of any enactment relating to any Taxation within this definition, including in connection with the failure to make any return, the making of any incomplete or incorrect return, the failure to maintain records or pursuant to Part 3 CFA 2017;

“Tax Authority” means HMRC and any other authority, body or official (whether in the United Kingdom or elsewhere) competent to assess, demand, impose, administer or collect Tax or make any decision or ruling on any matter relating to Tax and any other person who has a right to demand or recover amounts of, or in respect of, or on account of, Tax or a Tax Liability;

“Tax Demand” means any notice, demand, assessment, self-assessment, letter or other document or action taken by or on behalf of any Tax Authority from which it appears that there is or may be a Tax Liability or other liability in respect of which a Tax Claim may be made for which the Warrantors or the Sellers are or may be liable;

“Tax Documents” has the meaning given in paragraph 5.1 of Part 3 of this Schedule 5;

“Tax Expert” means a barrister who has specialised in relevant Tax matters for at least fifteen (15) years;

“Tax Liability” means:

 

(c)

any liability to make an actual payment or increased payment of, or in respect of, or on account of, Tax (whether or not presently payable), in which case the amount of the Tax Liability shall be the amount of the actual payment or the increase in the amount of the payment; and

 

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(d)

the use or set-off (in whole or in part) of any Buyer’s Relief to reduce or eliminate any liability to make an actual payment of Tax in respect of which, but for such use or set-off, the Warrantors would have been liable in respect of a Tax Claim, in which case the amount of the Tax Liability shall be the amount for which the Warrantors would have been liable but for such use or set-off,

in each case regardless of whether there is or may be any right of reimbursement or recovery against any other person;

“TCGA” means the Taxation of Chargeable Gains Act 1992; and

“VAT Refund” means any refund of VAT received by the Company from a Tax Authority on or before Completion.

 

2.	Interpretation

In this Schedule:

 

(A)

persons shall, without limitation, be treated as “connected” for the purposes of this Schedule if they are connected within the meaning of section 993 and section 994 ITA;

 

(B)

“profits” includes income, profits or gains of any description and from any source and any other consideration, value, receipt or measure by reference to which Tax is chargeable or assessed, and profits earned on or before a certain date or in respect of a certain period and includes profits treated as, or deemed to be, earned on or before that date or in respect of that period for Tax purposes;

 

(C)

any reference to an Event or the consequence of an Event occurring on or before Completion shall include, without limitation:

 

(1)

any Event which is deemed for relevant Tax purposes to be the case or to occur for Tax purposes on or before Completion; and

 

(2)

the combined effect of any two (2) or more Events all of which shall have taken place or be deemed for relevant Tax purposes to have taken place on or before Completion;

 

(D)

for the purposes only of determining whether the Warrantors are liable in respect of any Tax Liability in connection with any disallowance or clawback after Completion of a Relief that arose and was claimed before Completion, such clawback or disallowance after Completion shall be deemed to be an Event which occurred on or before Completion;

 

(E)

in any case falling within (b), (c) or (d) of the definition of Tax Liability, the Tax Liability shall be treated as arising in respect of an Event which occurred on or before Completion;

 

(F)

any reference to any form of Tax, Relief, legislation, law or legal or Tax concept which exists in the United Kingdom includes a reference to any equivalent or substantially equivalent Tax, Relief, legislation, law or legal or Tax concept in any other relevant jurisdiction; and

 

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(G)

any stamp duty which is charged or chargeable on any document (or in the case of a document which is outside the United Kingdom would be so charged or chargeable if the document were in the United Kingdom) and which it is necessary to incur or which is incurred in order to:

 

(1)

establish or register the title of the Company to any asset;

 

(2)

prove to a Tax Authority any expenditure incurred by the Company; or

 

(3)

enable the Company or the Buyer to produce the relevant document in evidence in any civil proceedings or before any arbitrator or referee or to use the document for any other official purpose,

and any interest, penalty, charge, surcharge, fine or other similar imposition relating to such stamp duty shall be deemed to be a liability of the Company to make an actual payment of Tax, and the execution of the document or (in the case of a bearer instrument) the issue of the instrument shall be deemed to be the Event which gave rise to such liability.

 

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Part 2 – Tax Warranties

 

1.	Payments of Tax

 

1.1.

The Company has duly and punctually paid all Tax which it has become liable to pay, and deducted, withheld or collected for payment (as appropriate) all Tax due to have been deducted, withheld or collected for payment and has accounted for or paid all such Tax to the relevant Tax Authority to the extent due to be paid prior to the date of this Agreement.

 

1.2.

The Company is not, and has not at any time within the last six (6) years been, liable to pay any interest, penalty or surcharge in respect of any unpaid Tax or as a result of a default in respect of any Tax matter or has otherwise been subject to the operation of any penal provision under any enactment relating to Tax.

 

2.	Compliance

 

2.1.

All returns, computations, accounts, reports, statements, assessments, claims, elections, disclaimers, notices and any other information which are or have been required to be made or given by the Company for any Tax purposes have been made or given both within the requisite periods and on a proper basis and were when made and remain true and accurate and none of them is, so far as the Warrantors are aware, or is likely to be, the subject of any enquiry, query or dispute with HMRC or other Tax Authority.

 

2.2.	The Company has complied at all times with all statutory requirements, regulations, notices, orders, directions and conditions relating to all relevant Taxes, including the terms of any agreement made with any Tax Authority.

 

2.3.	The Company has maintained complete and accurate records, invoices and other information in relation to Tax that meet all legal requirements and enable the Company to calculate any Tax liability or Relief and to deliver correct and complete returns.

 

3.	Tax Disputes

The Company is not, nor has it been at any time within the last six (6) years, involved in any dispute with or investigation, audit, discovery or enquiry by any Tax Authority or any enquiry into any Tax return and, so far as the Warrantors are aware, no such dispute, investigation, audit, discovery or enquiry is, planned, threatened or likely to arise.

 

4.	Provisions in Accounts

The provisions or reserve for Tax appearing in the Accounts are sufficient to cover all Tax for which the Company was at the Accounts Date, or may after that date become, liable to pay or account in respect of any period ended on or before the Accounts Date.

 

5.	Position since the Accounts Date

 

5.1.

In respect of the period starting immediately after the Accounts Date, the Company has no liabilities for Tax other than income tax payable pursuant to PAYE and national insurance contributions, in each case, payable in respect of amounts that the Company is contractually obliged to pay to its employees and directors in respect of that period or bonus payments made in the ordinary course of business.

 

5.2.	The Company has no liability for Tax that is due for payment on or before Completion, other than Tax which has been reflected in the determination of the Cash Consideration.

 

5.3.	No accounting period of the Company for corporation tax purposes has ended, and the Company has not made any distribution, since the Accounts Date.

 

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6.	Secondary Liabilities

The Company is not, nor is likely to become, liable to make to any person (including any Tax Authority) any payment in respect of any liability to Tax which is primarily or directly chargeable against, or attributable to, any person other than the Company.

 

7.	Obligation to Deduct or Withhold Tax

The Disclosure Letter contains full details of any circumstances in which there is or would be an obligation on the Company to deduct or withhold tax on repayment of any borrowings which the Company has in respect of any premium, interest or other amount comprised in those borrowings and whether there is or would be any obligation on the Company to pay an increased sum.

 

8.	Clearances, Consents and Special Arrangements

All clearances and consents obtained by the Company from any Tax Authority have been fully disclosed in the Disclosure Letter and were based on full and accurate disclosure of all the facts and circumstances material to the decision of the Tax Authority. The Company has complied in all respects with any conditions to which any such consents or clearances are subject and has not taken any action which might alter, prejudice or in any way disturb any such consent or clearance nor will anything done pursuant to this Agreement have such an effect. No Tax Authority has agreed to operate any special arrangement (being an arrangement not based on a strict and detailed application of the relevant legislation) in relation to the affairs of the Company.

 

9.	Close Companies

 

9.1.	The Company has not been treated as making a distribution within section 1064 CTA 2010 (payments, etc. to participators and associates).

 

9.2.

No loan or advance or debt within sections 455, 459 or 460 CTA 2010 has been (or treated as having been) incurred, made or agreed to be made by the Company, and the Company has not since the Accounts Date released, written off or agreed to release or write off the whole or part of any such loan or advance.

 

9.3.	No arrangements are or have been in place that give rise or could give rise to a charge to tax under section 464A CTA 2010.

 

10.	Inheritance Tax

The Company is not liable, and there are no circumstances in existence as a result of which it may become liable, to be assessed to inheritance tax or any other Taxation as donor or donee of any gift, or transferor or transferee of value and there are no other circumstances by reason of which any liability in respect of inheritance tax has arisen or could arise for the Company or any charge in relation to unpaid inheritance tax has arisen or could arise in respect of the assets of the Company or the Sale Shares.

 

11.	Residence and Presence Outside the UK

 

11.1.

The Company is, always has been and will be at Completion resident in the United Kingdom for Tax purposes. The Company is not, never has been and will not be at Completion resident for any purpose in any other jurisdiction and does not have, has never had and will not have at Completion any branch, office, permanent establishment or other taxable presence in any other jurisdiction.

 

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11.2.

The Company is not and never has been liable for any Tax as the agent of any other person, business or enterprise and does not constitute and never has constituted the permanent establishment of any other person, business or enterprise for any Tax purposes.

 

11.3.

Each Seller is resident for Tax purposes solely in the United Kingdom and is not liable to Tax in any other jurisdiction.

 

12.	Employment

 

12.1.

No person has acquired a right to acquire shares or securities, or has acquired any shares or securities, which in either case may give rise to a liability in respect of any Payroll Tax for the Company upon the exercise or disposal of that right or upon the acquisition or disposal of those shares or securities. None of the Sale Shares are “restricted securities” within the meaning of section 423 ITEPA. No part of the consideration for the sale of the Sale Shares pursuant to this Agreement will be treated as employment income for UK tax purposes. David Gilham is not and has not been an employee or office-holder of the Company or any subsidiary undertaking of the Company and the shares held by David Gilham were not acquired by virtue of a right or opportunity made available by reason of an employment with the Company or any subsidiary undertaking of the Company for the purposes of section 421B ITEPA.

 

12.2.

Neither the Company nor any employee benefit trust or other third party has made, or agreed to make, any payment to, or provided or agreed to provide any benefit for, any director or former director, officer or employee (or associate of any of the foregoing) of the Company, whether as compensation for loss of office, termination of employment or otherwise, which is not allowable as a deduction in calculating the profits of the Company for Tax purposes.

 

12.3.

The Disclosure Letter contains details of any payments or loans made to, any assets made available or transferred to, or any assets earmarked, however informally, for the benefit of, any employee or former employee (or anyone linked with such employee or former employee) of the Company by an employee benefit trust or another third party, falling within the provisions of Part 7A ITEPA and details of any trust or arrangement capable of conferring such a benefit.

 

12.4.

There is no arrangement, formal or informal:

 

(a)

Involving any Seller to redistribute (or which has the effect of redistributing) any consideration receivable under the Agreement; or

 

(b)

for any payment to be made to, or for any benefit to be received by, any current, former or prospective employee or office holder in connection with this Agreement or the transactions contemplated by this Agreement.

 

13.	R&D Claims

All R&D Claims made by the Company in the last six (6) years have been duly made on a proper basis within applicable time limits, and HMRC have not disputed or challenged and have no grounds to dispute or challenge the Company’s entitlement to make any such claim and/or the amount of any such claim. Any expenditure by the Company which has been included in such R&D Claim or to which such R&D Claim relates qualifies for relief under one or more of Chapters 2 to 4 of Part 13 CTA 2009.

 

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14.

Groups

The Company is not and has never been a member of a group of companies for any Tax purposes, including for the purposes of section 170 TCGA, Part 5 CTA 2010 or VAT, except any group consisting only of Immetacyte Limited and Cellular Therapeutics Limited.

 

15.	Transfer Pricing

All transactions or arrangements made or entered into by the Company with any Associate have been made on arm’s length terms and the processes by which prices and terms have been arrived at have, in each case, been fully documented to the extent required by law. The Company is not nor has it been involved in any correspondence, enquiry or dispute or received any notice in any jurisdiction concerning the adjustment of profits of associated enterprises for Tax purposes.

 

16.	Loan Relationships

All financing costs arising on or before Completion, including interest, discounts and premiums payable by the Company in respect of its loan relationships within the meaning of Chapter 2 Part 5 CTA 2009 are eligible to be brought into account by the Company as a debit for the purposes of that Chapter and to the extent that they are from time to time recognised in the Company’s accounts (assuming that the accounting policies and methods adopted for the purpose of the Accounts continue to be so adopted).

 

17.	Stamp Taxes

There is no instrument to which the Company is a party and which is necessary to establish the Company’s rights or title to any asset, which is or could be liable to stamp duty (or any similar duty or Tax in a jurisdiction outside the United Kingdom) which has not been duly stamped or in respect of which the relevant duty or Tax has not been paid.

 

18.	Tax Avoidance

The Company has not been involved in any scheme, arrangement, transaction or series of transactions in which main purpose, or one of the main purpose was or might be held to have been: (i) the avoidance, deferral or reduction of Tax; (ii) that produced a loss for Tax purposes with no corresponding commercial loss, or (iii) containing one or more steps which have no commercial purpose other than avoiding, deferring or saving Tax or obtaining a Tax advantage.

 

19.	Corporate Criminal Offence

The Company has in place (and has had in place at all times since 30 September 2017) such prevention procedures (as defined in sections 45(3) and 46(4) CFA 2017) as are proportionate to its business risk and are in line with any guidance published from time to time pursuant to section 47 CFA 2017.

 

20.

VAT

 

20.1.

The Company (i) is, where it ought to have been so registered, a duly registered taxable person for the purposes of VAT (or other equivalent sales or similar Tax in any jurisdiction), (ii) is not, nor has in the last three (3) years been, wholly or partly exempt for such purposes, and (iii) is not subject to any conditions imposed by or agreed with any Tax Authority.

 

20.2.

All claims made by the Company for refunds of VAT have been made on a proper basis within applicable time limits, and HMRC have not disputed or challenged, and have no grounds to dispute or challenge, the Company’s entitlement to make any such claim and/or the amount of any such claim.

 

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Part 3 – Tax Covenant

 

1.	Covenant to pay

 

1.1.	Liability to pay

The Warrantors covenant with the Buyer to pay to the Buyer an amount equal to any Tax Liability of the Company arising directly or indirectly in respect of or as a consequence of or by reference to:

 

(A)

any income, profits or gains earned, accrued or received on or before Completion;

 

(B)

any Event which occurred on or before Completion;

 

(C)

any liability for inheritance tax which:

 

(1)

has at Completion given rise to a charge on any of the shares or assets of the Company or given rise to a power to sell, mortgage or charge any of the shares or assets of the Company; or

 

(2)

after Completion gives rise to a charge on any of the shares or assets of the Company or gives rise to a power to sell, mortgage or charge any of the shares or assets of the Company and which arises as a result of a transfer of value occurring or being deemed to occur on or before Completion (whether or not in conjunction with the death of any person whenever occurring),

provided that any right to pay Tax by instalments shall be disregarded and the provisions of section 213 Inheritance Tax Act 1984 shall not apply to any payment falling to be made under this Schedule;

 

(D)

a failure to discharge Tax by any company or person with which the Company has been, or has been treated as being, connected or otherwise associated on or before Completion, or by any company or person which at any time after Completion is treated as connected or associated in any way with, any Seller for any Tax purpose (other than the Company, the Buyer or any member of the Buyer’s Tax Group);

 

(E)

save in respect of the Share Trigger Shares, the Indemnity Shares and/or the Loan Notes, an option or other right to acquire securities or interest in securities granted or acquired prior to Completion or in respect of the exercise of any such option or right or any other Event in relation to such option or right, in each case where such option or right relates to securities in the Company or was granted by the Company or acquired by any officer or employee of the Company;

 

(F)

save in respect of the Share Trigger Shares, the Indemnity Shares and/or the Loan Notes, any employment-related securities (as defined for the purposes of Part 7 ITEPA) or interest in any employment-related securities acquired before Completion or as a result of a right or obligation (whether or not legally binding) created before Completion;

 

(G)

a relevant step (as defined in Part 7A ITEPA (“Part 7A”)) being taken by a relevant third party person (as defined in Part 7A) pursuant to an arrangement entered into on or before Completion by, or on behalf of, or involving any Seller, the Company or any employee benefit trust or in connection with any incentive arrangements to which any Seller or the Company is a party;

 

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(H)

any person (other than the Company, the Buyer or any member of the Buyer’s Tax Group) making a payment or providing a benefit (otherwise than with the express written agreement of the Buyer or, after Completion, the Company) to any person to the extent that, and in circumstances where, such payment or benefit constitutes remuneration for acts undertaken for, or services rendered to, the Company by any current or former officer or employee of the Company before Completion;

 

(I)

any Event contemplated by this Agreement, including, without limitation, any provision of, or right to receive, Consideration, any right to acquire, or the allotment, issuance, holding, vesting, forfeiture, clawback or disposal of any Buyer Shares, or any right to acquire or the issuance, holding, redemption or disposal of any Loan Notes, in each case to the extent that such Tax Liability comprises Payroll Tax, and in each case to the extent that the Buyer is not able to recover an amount equal to such Tax Liability pursuant to clause 16; or

 

(J)

the failure or delay by any person to reimburse any amount in respect of income tax arising in connection with any of the circumstances or Events described in sub-paragraphs (E) to (I).

 

1.2.	R&D Claims and VAT Refunds

Without prejudice to the provisions of paragraph 1.1, the Warrantors severally covenant with the Buyer to pay to the Buyer an amount equal to any R&D Credit Payment or VAT Refund to a Tax Authority that is required to be repaid or otherwise accounted for to a Tax Authority as a consequence of or by reference to any R&D Claim or claim in respect of the VAT Refund made by the Company on or before Completion being wholly or partially disallowed by any Tax Authority.

 

1.3.	Costs and expenses

Without prejudice to the provisions of paragraphs 1.1 and 1.2, the Warrantors severally covenant with the Buyer to pay to the Buyer an amount equal to all reasonable third party costs and expenses properly incurred or payable by the Buyer or the Company in connection with or in consequence of any liability in respect of which the Warrantors are liable under this paragraph 1.

 

2.	Exclusions

 

2.1.	Exclusions

The covenants in paragraphs 1.1 and 1.2 shall not cover any Tax Liability or payment under paragraph 1.2 and the Warrantors shall not be liable for a claim for breach of the Tax Warranties (together the “Settled Tax Claim”) if and to the extent that:

 

(A)

the Settled Tax Claim is an Anticipated Liability;

 

(B)

the Settled Tax Claim was paid or discharged before Completion and such payment or discharge was reflected in the determination of the Cash Consideration;

 

(C)

the Settled Tax Claim arises as a result of any increase in rates of Tax made after Completion or of any change in legislation or the generally published practice or interpretation of legislation by a Tax Authority which is announced and comes into force after Completion, other than a change introduced to target Tax avoidance;

 

 

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(D)

the Settled Tax Claim arises as a result of a change after Completion in any accounting policy, or the length of any accounting period for Tax purposes, of the Company other than a change in accounting policy required to bring the accounting principles and practices of the Company into line with generally accepted accounting principles;

 

(E)

the Settled Tax Claim results directly from a voluntary act or omission of the Company or the Buyer or any member of the Buyer’s Tax Group after Completion outside the ordinary course of the business of the Company or the Buyer or the member of the Buyer’s Tax Group, as the case may be, as carried on immediately prior to Completion and which act or omission the Company or the Buyer or the member of the Buyer’s Tax Group (as appropriate) was aware, or ought reasonably to have been aware, would give rise to such Settled Tax Claim, save where such act is:

 

(1)

pursuant to a legally binding obligation of the Company entered into prior to Completion;

 

(2)

provided for by this Agreement;

 

(3)

at the written request of any of the Sellers;

 

(4)

pursuant to an obligation imposed on the Company or any member of the Buyer’s Tax Group by any law, regulation or directive or the published practice of any Tax Authority; or

 

(5)

necessary to comply with any decision of any court or tribunal,

provided that, for the avoidance of doubt, any disclosure to or filing or other communication with any Tax Authority which the Buyer reasonably considers is required by applicable legislation shall not be a voluntary act to which this sub-paragraph 2.1(E) applies;

 

(F)

the Settled Tax Claim arises by reason of a voluntary disclaimer by the Company after Completion of the whole or part of any allowance to which it is entitled under the CAA;

 

(G)

the Settled Tax Claim would not have arisen but for a cessation of, or any change in the nature or conduct of, any trade or business carried on by the Company, being a cessation or change occurring after Completion;

 

(H)

the Buyer has been compensated for the Settled Tax Claim under any other provision of this Agreement;

 

(I)

the Settled Tax Claim has been reduced or eliminated by a Relief (other than a Buyer’s Relief) arising to the Company or could have been reduced or eliminated if the Relief had not been utilised after Completion in reducing or eliminating a Tax Liability or other liability in respect of which the Warrantors would not have otherwise have been liable under this Agreement (disregarding for these purposes any financial limitations);

 

(J)

the Settled Tax Claim could properly be recovered from the Sellers under clause 17.5;

 

(K)

the Settled Tax Claim arises or is increased as a result of any failure by the Company after Completion or the Buyer or any Associate of Buyer to comply with any of their respective obligations under paragraphs 5 or 6 of this Part 3; or

 

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(L)

the Settled Tax Claim arises in respect of any R&D Claim in respect of the accounting period of the Company beginning on 1 October 2018.

 

2.2.	Further exclusions

Schedule 7 shall also apply to limit or exclude, in accordance with its specific terms, the liability of the Warrantors in respect of Tax Claims.

 

3.	Overprovisions

If any amount of Tax provided for as an Anticipated Liability has proved to be an overprovision, and is certified as such by the auditors of the Company at the request of the Sellers’ Representative and at the cost of the Warrantors:

 

(A)

the amount of the overprovision shall first be set off against any payment then due from the Warrantors under this Schedule;

 

(B)

to the extent there is an excess, a refund shall be made to the Warrantors of any previous payment or payments made by the Warrantors under this Schedule and not previously refunded to the Warrantors, up to the amount of such excess; and

to the extent that the excess referred to in sub-paragraph (B) is not exhausted under that sub-paragraph, then the remainder of that excess shall be carried forward and set off against any future payment or payments which become due from the Warrantors under this Schedule.

 

4.	Recovery from third parties and Reliefs

 

4.1.

Recovery

If any payment is made by the Warrantors under this Schedule in full discharge of a Settled Tax Claim and the Buyer or the Company receives, or is or becomes entitled to recover or obtain, from any person (other than the Buyer, any member of the Buyer’s Tax Group, the Company or a current or former officer or employee of any of them) a payment or Relief relating to or arising from the Settled Tax Claim in question which would not otherwise have arisen, which in each case is not a Buyer’s Relief, is not attributable to any change in law after Completion, to a voluntary act of the Buyer or the Company or to the utilisation of a Buyer’s Relief then:

 

(A)

if so requested in writing by the Sellers’ Representative and at the Warrantors’ sole expense and upon the Warrantors providing such indemnity as the Buyer and/or the Company shall reasonably require against all costs and expenses to be incurred or any additional Tax liability of the Company, the Buyer or any member of the Buyer’s Tax Group which may arise, the Buyer shall take (or shall procure that the Company shall take) such action as the Sellers’ Representative may reasonably request (subject to paragraph 4.4) to enforce such recovery or to obtain such payment or Relief (unless any action or other step is taken or legal proceedings are started to put any of the Warrantors into bankruptcy or to enter into arrangements with their creditors pursuant to parts I or VII of the Insolvency Act 1986); and

 

(B)

if the Buyer or the Company receives or obtains such payment or Relief the provisions of paragraph 4.2 shall apply.

 

4.2.	Timing and amount of payments

Where the provisions of this paragraph 4.2 apply:

 

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(A)

in a case where the Buyer or the Company receives a payment, within ten (10) Business Days of the receipt thereof the lesser of:

 

(1)

the amount paid by the Warrantors to the Buyer in respect of the relevant Settled Tax Claim under paragraph 1; and

 

(2)

an amount equal to the payment (including interest (if any)) received (less (i) all costs and expenses incurred by the Company, the Buyer or the relevant member of the Buyer’s Tax Group in obtaining such payment and (ii) any Tax paid or payable by the Company, the Buyer or any member of the Buyer’s Tax Group in respect of such receipt (or any Tax which would have been payable but for the availability of a Relief)); and

 

(B)

in a case where the Buyer or the Company obtains a Relief, on or before the later of (i) the date on which Tax would have become due to a Tax Authority but for the use of such Relief (provided, for the avoidance of doubt, that the Company or the Buyer shall not be required to use such Relief in priority to any other Relief) and (ii) the auditors for the time being the Company certifying (at the request of the Sellers’ Representative and at the cost of the Warrantors) the existence and amount of the Relief so obtained that would not otherwise have arisen, the lesser of:

 

(1)

the amount of Tax which the Company would have been liable to pay but for obtaining the Relief, as certified by the auditors of the Company at the expense of the Warrantors; and

 

(2)

the amount paid by the Warrantors under paragraph 1 in respect of the Settled Tax Claim giving rise to the Relief,

shall first be set off against any payment then due from the Warrantors under this Schedule and secondly, to the extent there is an excess, a refund shall be made to the Warrantors of any previous payment or payments made by the Warrantors under this Schedule (save to the extent that any amount paid by the Warrantors in respect of the Settled Tax Claim in question has previously been refunded under any provision of this Agreement or otherwise).

 

4.3.	Date on which payment of Tax would have been due

For the purposes of the provisions in sub-paragraph 4.2(B) above, it shall be assumed that the latest date on which a payment of Tax would have been due but for the use of a Relief is the last date on which an actual payment of Tax would have had to have been paid but for the use of the Relief without incurring any interest, charge, penalty, fine or surcharge in respect thereof.

 

4.4.	Action not required

The action which the Sellers’ Representative may request the Buyer or the Company to take under paragraph 4.1 does not include:

 

(A)

any action which, in the Buyer’s reasonable opinion, would or might be unlawful or materially prejudice the business or Tax affairs of the Buyer or the Company or any other member of the Buyer’s Tax Group; or

 

(B)

allowing the Seller’s Representative or the Warrantors (or any person nominated by them) to undertake the conduct of any action necessary to effect recovery of the amount in question.

 

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5.	Tax affairs

 

5.1.	Assistance

The Sellers’ Representative and the Warrantors shall give the Buyer such assistance, information and documentation as may reasonably be required to enable the Buyer to prepare, submit and deal with all computations, returns, claims and other documentation of or correspondence to or from the Company relating to Tax (including Payroll Tax) (the “Tax Documents”), and deal with all matters relating to such Tax Documents, in respect of all fiscal or accounting periods of any Company ending on or before Completion and in respect of the accounting period current at Completion in respect of any Event occurring (or deemed for Tax purposes to occur) on or before Completion.

 

5.2.

Comments

The Buyer shall not submit any Tax Document in respect of the Company for any fiscal or accounting periods of the Company ending on or before Completion and in respect of the accounting period current at Completion in respect of any Event occurring (or deemed for Tax purposes to occur) on or before Completion, where such Tax Document would reasonably be expected to result in liability of the Warrantors under paragraphs 1.1 or 1.2, without giving the Sellers’ Representative a reasonable opportunity to comment thereon, and including all reasonable representations made by the Sellers’ Representative.

 

5.3.	Payroll Tax

The Buyer shall not, and shall procure that the Company and each member of the Buyer’s Tax Group shall not, (i) submit any Tax Document to a Tax Authority where such Tax Document would reasonably be expected to result in a Tax liability which is inconsistent with the Expected Tax Consequences and for which the Sellers may be liable, or (ii) otherwise treat payments of the Consideration in a way which is inconsistent with the Expected Tax Treatment, unless (a) there has been a change of law or in HMRC’s published interpretation of the law, or as a result of a Tax Demand received from HMRC or an Agreed Claim, or (b) the Buyer has first notified the Sellers’ Representative, given the Sellers’ Representative a reasonable opportunity to comment on such Tax Document or proposed treatment, and included any reasonable comments made by the Sellers’ Representative. In the event that there is disagreement between the Buyer and the Sellers’ Representative as to whether any such comments are reasonable, the Buyer shall not, and shall procure that the Company and each member of the Buyer’s Tax Group shall not, submit such Tax Document or so treat payments of Consideration unless the Buyer has obtained and delivered to the Sellers’ Representative written advice from a Tax Expert that the comments from the Sellers’ Representative are not reasonable. If the Sellers’ Representative has not provided any comments within twelve Business Days after the date on which notice is given to the Sellers’ Representative under this paragraph 5.3, the Buyer may submit the Tax Document or so treat payments of Consideration, provided that the Buyer has first served on the Sellers’ Representative written notice of its intention to do so and the Sellers’ Representative has not provided comments in accordance with this paragraph within three (3) Business Days of such notification. The Buyer acknowledges, without prejudice to any rights or remedy which may be available to the Buyer, the Company or any member of the Buyer’s Group, that, on the basis of the information reviewed and advice obtained by it at the time of this Agreement, it considers the Expected Tax Consequences to be reasonable.

 

5.4.

Priority

For the avoidance of doubt, the provisions of paragraph 5.3 shall take precedence over the provisions of paragraph 5.2 and paragraph 6 shall take precedence over the provisions of this paragraph 5.

 

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6.	Notification of claims and conduct of disputes

 

6.1.	Notification of claims

If the Buyer or the Company becomes aware of any Tax Demand, the Buyer shall give notice to the Sellers’ Representative of that Tax Demand (including so far as practicable reasonably sufficient details of such Tax Demand, the due date for any payment and the time limits for any appeal, and so far as practicable the amount of any Tax Claim in respect thereof) as soon as reasonably practicable (and in any event not more than twenty-eight (28) days after the Buyer becomes aware of such Tax Demand), provided that the giving of such notice shall not be a condition precedent to the liability of the Warrantors under this Schedule. If any Warrantor becomes aware of any Tax Demand (prior to the Sellers’ Representative being notified by the Buyer), they shall, or shall procure that the Sellers’ Representative shall, promptly give notice in writing of such Tax Demand to the Buyer specifying the details of which they are aware.

 

6.2.	Conduct of dispute

Subject to paragraph 6.3, if so requested in writing by the Sellers’ Representative and if the Warrantors indemnify the Buyer to the Buyer’s reasonable satisfaction against the Tax, any additional Tax Liability and all third party costs and expenses which the Buyer or the Company may reasonably and properly incur as a result of any action taken pursuant to this paragraph 6, the Sellers’ Representative shall be entitled to direct that the Buyer take, or procure that the Company shall take, such action and give such information and assistance in connection with the Company’s Tax affairs or a Payroll Tax Liability which may reasonably be expected to give rise to a Payroll Tax Claim as the Sellers’ Representative may reasonably and promptly request to dispute, resist, appeal or compromise the Tax Liability that is the subject of the Tax Demand, provided that:

 

(A)

the Buyer shall not be required to delegate or procure that the Company delegate the conduct of such action to the Warrantors or the Sellers’ Representative or any agent or professional adviser of the Warrantors or the Sellers’ Representative;

 

(B)

the Buyer shall not be required to make or procure that the Company make a formal appeal beyond the First Tier Tax Tribunal unless the Sellers’ Representative, at the expense of the Warrantors and after disclosure of all relevant information and documents, obtains and delivers to the Buyer written advice from a Tax Expert that the appeal will, on the balance of probabilities, be successful;

 

(C)

the Buyer shall or shall procure that the Company shall keep the Sellers’ Representative informed as to all material developments of such action and provide the Sellers’ Representative with copies of all material correspondence with any Tax Authority relating to the relevant Tax Demand;

 

(D)

the Buyer shall not be required to make or procure that the Company makes any settlement or compromise of the relevant Tax Demand or Tax Liability or takes any action which is likely materially to adversely affect any post-Completion Tax Liability or the Tax affairs of the Company or any company in the Buyer’s Tax Group; and

 

(E)

no material written communication pertaining to the Tax Demand shall be sent to the relevant Tax Authority without the prior written approval of the Sellers’ Representative (such approval not to be unreasonably withheld or delayed).

 

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6.3.	Buyer’s entitlement to settle etc.

The Buyer or the Company shall, without reference to the Sellers’ Representative or the Warrantors, be entitled to admit, compromise, settle, discharge or otherwise deal with a Tax Demand on such terms as it may, in its absolute discretion, think fit and without prejudice to any right or remedy under this Schedule:

 

(A)

if the Sellers’ Representative has not made the request or the Warrantors have not provided the indemnity referred to in paragraph 6.2 by the date being twelve Business Days after the date on which notice of the Tax Demand was given pursuant to paragraph 6.1 (provided that the Buyer has first served on the Sellers’ Representative written notice of its intention so to deal and the Sellers’ Representative has not notified the Buyer in accordance with this paragraph within three (3) Business Days of such notification);

 

(B)

if written notice is served on the Company or the Buyer by the Sellers’ Representative to the effect that they consider that the Tax Demand should no longer be resisted;

 

(C)

upon the expiry of any period prescribed by applicable legislation for the making of an appeal against either the Tax Liability in question or the decision of any court tribunal in respect of any such Tax Liability, as the case may be unless the period expires during such notice periods provided for under this paragraph 6 in which case the Buyer shall procure that the Company appeals such Tax Demand until the last day on which such notice period lapses;

 

(D)

if a Tax Authority alleges in writing that while the Company was under the control of the Sellers there was any act or failure to act by the Company or the Sellers in connection with the Tax Liability or Tax Demand which involves dishonesty or constitutes fraud; or

 

(E)

if any action or other step is taken or legal proceedings are started to put any of the Warrantors into bankruptcy or to enter into arrangements with their creditors pursuant to parts I or VII of the Insolvency Act 1986.

 

7.	Due Date of Payment

 

7.1.	Due date of payment

Where the Warrantors become liable to make any payment pursuant to a Tax Claim, the due date for the making of the payment shall be the date falling five (5) Business Days after the date of service by the Buyer of a written notice on the Sellers’ Representative demanding payment or (if later):

 

(A)

in the case of a Tax Liability or other liability which involves an actual payment of Tax, five (5) Business Days before the latest date on which such payment of Tax is due to be made to the relevant Tax Authority;

 

(B)

in the case of an obligation to make a repayment to a Tax Authority under paragraph 1.2, the date falling five (5) Business Days before the repayment is required to be made; and

 

(C)

in the case of a Tax Liability which results from the use or set-off of a Buyer’s Relief, the latest date on which the relevant Tax would have been due but for such use or set-off.

 

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7.2.	Due date of Tax

For the purposes of the provisions in paragraph 7.1 above, it shall be assumed that the latest date on which a payment of Tax is due is the last date on which payment can be made to the relevant Tax Authority without incurring any interest, charge, penalty, fine or surcharge in respect thereof and on the assumption that no appeal is made against any assessment or Tax Demand.

 

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SCHEDULE 4

Leasehold Properties

 

Registered proprietor (owner)

Date and type of lease

Parties

Term

Current rental

Short description of property

Current use

The University of Manchester Innovation Centre Limited

4 February 2020 – fixed term lease

The University of Manchester Innovation Centre Limited and Immetacyte Limited

1 August 2019 to [***]

£5,459 per annum

Lease relating to GC11 office on the Ground floor of Manchester Incubator Building

Use of the property for research and development, manufacturing and all uses ancillary thereto

The University of Manchester Innovation Centre Limited

4 February 2020 – fixed term lease

The University of Manchester Innovation Centre Limited and Immetacyte Limited

1 August 2019 to [***]

£77,987 per annum

Lease relating to Laboratories 2, 3 and 4 and adjoining office spaces on the second floor, East Wing of Manchester Incubator Building

Use of the property for research and development, manufacturing and all uses ancillary thereto

The University of Manchester Innovation Centre Limited

4 February 2020 – fixed term lease

The University of Manchester Innovation Centre Limited and Immetacyte Limited

4 February 2020 to [***]

£15,470 per annum

Lease relating to office 7,8 and 9 on the ground floor, Manchester Incubator Building

Use of the property for research and development, manufacturing and all uses ancillary thereto

The University of Manchester Innovation Centre Limited

4 February 2020 – fixed term lease

The University of Manchester Innovation Centre Limited and Immetacyte Limited

4 February 2020 to [***]

£125,388 per annum

Room [***] (storage unit) Ground Floor, Core Technology Facility

Use of the property for research and development, manufacturing and all uses ancillary thereto

 

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SCHEDULE 5

Limitations on Sellers’ Liability

 

1.

LIABILITY

Notwithstanding the provisions of clause 12.2 and Part 3 of Schedule 5, and subject to the provisions of this Schedule 7, the parties agree that each Seller shall be liable for any Agreed Claim which is a Business Warranty Claim, a Tax Warranty Claim or a Claim under the Tax Covenant in accordance with such Seller’s Pro-Rata Proportion. For the avoidance of doubt, the liability of each Seller for all Agreed Claims shall not exceed that Seller’s Pro-Rata Proportion of the Consideration.

 

2.	FINANCIAL LIMITS

 

2.1.

Each Seller shall not be liable in respect of any Fundamental Warranty Claim, any Business Warranty Claim or any Tax Claim unless the liability in respect of that Claim would exceed $[***]. For the purposes of this paragraph, Fundamental Warranty Claims, Business Warranty Claims or Tax Claims arising from the same events or causes shall be regarded as a single Fundamental Warranty Claim, Business Warranty Claim or Tax Claim.

 

2.2.

Each Seller shall not be liable in respect of any Fundamental Warranty Claim, Business Warranty Claim or Tax Warranty Claim unless the aggregate liability in respect of all such Claims (excluding Claims for which the Sellers have no liability by reason of paragraph 2.1) would exceed $[***], in which circumstances the relevant Seller in respect of a Fundamental Warranty Claim or the Sellers in respect of a Business Warranty Claim or a Tax Warranty Claim shall be liable for the entire amount and not just the excess over $[***]. The Sellers shall not be liable in respect of any Claims under the Tax Covenant (other than in respect of Payroll Tax) unless the aggregate liability in respect of all Claims under the Tax Covenant exceeds $[***], in which circumstances the Sellers shall be liable for the excess.

 

2.3.	Subject to paragraph 2.6, the aggregate liability of the Sellers for:

 

(a)

all Business Warranty Claims and all Tax Warranty Claims shall not exceed the total aggregate value of the Indemnity Shares (as determined in accordance with clause 8.4); and

 

(b)

all Claims under the Tax Covenant shall not exceed the total aggregate value of the Indemnity Shares (as determined in accordance with clause 8.4) plus any future Milestone Amount that would otherwise be recognised and any issued but unredeemed Loan Notes,

in each case, to the extent not otherwise withheld against another Agreed Claim.

 

2.4.

The liability of each Seller for a Fundamental Warranty Claim in respect of that Seller (together with all other Claims), and including any liability for costs and interest, shall not exceed the sum of: (i) the aggregate value of the Indemnity Shares issued to such Seller (as determined in accordance with clause 8.4); (ii) such Seller’s Pro Rata Proportion of the Cash Consideration (as set out in the column (C) of Schedule 1); (iii) the amount of any cash previously received by the relevant Seller upon the redemption of any Loan Notes; and (iv) any future Milestone Amount that would otherwise be recognised in respect of such Seller or any amount otherwise payable to such Seller on the redemption of an issued but unredeemed Loan Note.

 

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2.5.

The liability of each Seller for a Payroll Tax Claim in respect of that Seller (together with all other Claims), and including any liability for costs and interest, shall not exceed the sum of: (i) the aggregate value of the Indemnity Shares issued to such Seller (as determined in accordance with clause 8.4); (ii) such Seller’s Pro Rata Proportion of the Cash Consideration (as set out in the column (C) of Schedule 1); (iii) the amount of any cash previously received by the relevant Seller upon the redemption of any Loan Notes; and (iv) any future Milestone Amount that would otherwise be recognised in respect of such Seller or any amount otherwise payable to such Seller on the redemption of an issued but unredeemed Loan Note.

 

2.6.	The liability of each Seller for each Business Warranty Claim and each Tax Claim (other than a Payroll Tax Claim) shall be limited to the percentage of the total amount of that Business Warranty Claim or Tax Claim, as the case may be, set against that Seller’s name in column (H) of Schedule 1.

 

2.7.

Subject to the provisions of paragraph 4 of this Schedule 7, the Buyer shall have the right to set off any and all (i) Fundamental Warranty Claims; (ii) Payroll Tax Claims; and (iii) Claims under the Tax Covenant against any future Milestone Amount that would otherwise be recognised or any amount payable on the redemption of an issued but unredeemed Loan Note.

 

3.	TIME LIMITS

 

3.1.	The Sellers shall not be liable in respect of any Business Warranty Claim or any Tax Warranty Claim unless a Claim Notice in respect of such Claim is provided on or within eighteen (18) months of the Completion Date.

 

3.2.	Each Seller shall not be liable in respect of any Fundamental Warranty Claim unless a Claim Notice in respect of such Claim is provided on or within eighteen (18) months of the Completion Date.

 

3.3.	The Sellers shall not be liable in respect of any Claim under the Tax Covenant unless a Claim Notice in respect of such Claim is provided on or before the fourth anniversary of Completion.

 

3.4.	Each Seller shall not be liable in respect of any Payroll Tax Claim unless a Claim Notice in respect of such Claim is provided on or before the fourth anniversary of the latter of the Longstop Date and the last date on which any Loan Note has been issued pursuant to this Agreement.

 

3.5.	The Sellers and the Buyer agree not to rely on the provisions of the Limitation Act 1980 in any legal proceedings relating to any claim made within the time limits set out in paragraphs 3.3 or 3.4.

 

3.6.	The Sellers shall not be liable in respect of any Warranty Claim unless legal proceedings are validly issued and served on the Sellers on or before the date falling twelve (12) months after the date on which that Warranty Claim is made.

 

4.	ORDER OF RECOVERY

 

4.1.

All amounts outstanding in respect of all Agreed Claims shall be recovered first through the forfeiture of the Indemnity Shares in accordance with clause 8 and, only after all of the relevant Indemnity Shares have been forfeited (or have ceased to be subject to forfeiture in accordance with clause 8.2), in respect of any outstanding amounts:

 

(a)

arising from Claims under the Tax Covenant only, and in accordance with clause 3.4(iv), the Buyer shall be entitled solely to deduct from, and set off against, any future Milestone Amount that would otherwise be recognised or any amount otherwise payable on the redemption of an issued but unredeemed Loan Note;

 

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(b)

in respect of Fundamental Warranty Claims, for each relevant Seller the Buyer shall be entitled solely: (i) to deduct from, and set off against, any future Milestone Amount that would otherwise be recognised or any amount otherwise payable on the redemption of an issued but unredeemed Loan Note; and/or (ii) to pursue cash damages up to an amount equal to the relevant Seller’s Pro Rata Proportion of the Cash Consideration, as set out in column (C) of Schedule 1; and

 

(c)

in respect of Payroll Tax Claims, for each relevant Seller the Buyer shall be entitled solely: (i) to deduct from, and set off against, any future Milestone Amount that would otherwise be recognised or any amount otherwise payable on the redemption of an issued but unredeemed Loan Note; and/or (ii) to pursue cash damages up to an amount equal to the sum of: (a) the relevant Seller’s Pro Rata Proportion of the Cash Consideration, as set out in the column (C) of Schedule 1, and (b) the amount of any cash previously received by the relevant Seller upon the redemption of any Loan Notes.

 

4.2.

For the avoidance of doubt, the sole recourse of the Buyer in respect of any amounts outstanding in respect of any Agreed Claims (other than Claims under the Tax Covenant, Fundamental Warranty Claims and Payroll Tax Claims or claims for fraud) shall be to the Indemnity Shares and the liability of a Seller for all Agreed Claims shall not exceed the Consideration that the relevant Seller is or would otherwise be entitled to receive pursuant to this Agreement.

 

5.	MATTERS INCLUDED IN ACCOUNTS

The Sellers shall not be liable for a Warranty Claim to the extent of any specific provision or accrual made in the Accounts or the Management Accounts for the matter giving rise to that Warranty Claim.

 

6.	BUYER’S ACTIONS

 

6.1.	The Sellers shall not be liable in respect of a Warranty Claim to the extent that the matter giving rise to it results from:

 

(a)

any act or omission done or omitted to be done before Completion at the written request of or with the written approval of the Buyer or any other member of the Buyer’s Group; or

 

(b)

any act or omission done or omitted to be done on or after Completion by or on behalf of the Buyer or any member of the Buyer’s Group; or

 

(c)

any change after Completion in the accounting policies or practices used in preparing the Company’s annual accounts or in the accounting reference date of the Company.

 

7.	CHANGES IN LAW AND REGULATION

 

7.1.	The Sellers shall not be liable in respect of any Warranty Claim to the extent that the matter giving rise to it results from:

 

(a)

any act, event, or omission after Completion compelled by law; or

 

(b)

the enactment, amendment, or change in the generally accepted interpretation or application, of any law, rule or regulation, or any change in the practice of any governmental, regulatory or other body (including a Tax Authority) after Completion, or the imposition of any Tax not in force at Completion, or any change, after Completion, in the rates of Taxation or availability of any Relief.

 

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8.	THIRD PARTY CLAIMS AND RIGHTS OF RECOVERY AGAINST THIRD PARTIES

 

8.1.

If any third party asserts a claim against the Buyer or the Company which gives rise or is likely to give rise to a Warranty Claim (“Third Party Claim”), or if the Buyer or the Company has or acquires a right to make recovery from a third party in respect of any matter giving rise or likely to give rise to a Warranty Claim, but excluding any right under a policy of insurance that is not in force at Completion (“Right of Recovery”), then the Buyer shall, or as the case may be shall ensure that the Company shall:

 

(a)

provide the Sellers or the Warrantors (as applicable) on request with copies of all documents in relation to the relevant Third Party Claim or Right of Recovery, save where to do so would result in a breach of any obligation of confidentiality or the loss of legal professional privilege; and

 

(b)

consult with the Sellers or the Warrantors (as applicable) as soon as reasonably practicable with regard to the Third Party Claim or Right of Recovery in question;

 

(c)

take reasonable account of the views of the Sellers or the Warrantors (as applicable) before taking action in relation to the same.

 

8.2.

If the Buyer or the Company receives any sum or other benefit by reason of the enforcement of any Right of Recovery, then any subsequent liability of the Sellers in respect of any Warranty Claim in relation to which the Right of Recovery has arisen shall be reduced by the sum or benefit so received, less any Taxation thereon and less any costs and expenses (and VAT thereon except insofar as recoverable as input VAT) incurred by the Buyer or the Company in enforcing that Right of Recovery.

 

8.3.

If any Warranty Claim, in relation to which a Right of Recovery has arisen, is made and satisfied (in whole or in part) before the Buyer or the Company receives any sum or other benefit by reason of the enforcement of the Right of Recovery, then the Buyer shall pay to the Sellers or the Warrantors (as applicable) within five (5) Business Days of receiving that sum or benefit the lesser of:

 

(a)

the sum or benefit so received, less any Taxation thereon and less any costs and expenses (and VAT thereon except insofar as recoverable as input VAT) incurred by the Buyer or the Company in enforcing that Right of Recovery; and

 

(b)

the amount paid in satisfaction of the relevant Warranty.

 

9.

GENERAL

The Buyer shall comply with its obligations at common law to mitigate any loss it may have arising from any breach of the Warranties or the Tax Warranties.

 

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SCHEDULE 6

ADDITIONAL CONSIDERATION

 

1.	DEFINITIONS

Words and expressions defined in or for the purposes of the Agreement shall, except where expressly defined in this Schedule or where the context otherwise requires, have the same meanings in this Schedule and:

 

“Additional Consideration”		has the meaning given to it in paragraph 3.1 of this Schedule 8;
“Affiliate”		means any individual, corporation, association or other business entity that directly or indirectly controls, is controlled by, or is under common control with the Buyer. As used in this definition of “Affiliate,” the term “control” shall mean the direct or indirect ownership of more than fifty percent (>50%) of the stock having the right to vote for directors thereof or the ability to otherwise control the management of the Buyer whether through the ownership of voting securities, by contract or otherwise;
“Asia”		means China and Japan;
“BLA”		means a Biologics license application (or supplement thereto) or similar application that is submitted to the FDA, or a foreign equivalent of the FDA, for marketing approval of a Product in the U.S. or any other country in the Territory, respectively;
“Clinical Trial”		means any human or animal clinical trial of a Product, such as those described in 21 C.F.R. § 312.21 as to human clinical trials, or a human or animal clinical trial prescribed by the Regulatory Authorities in a foreign country;
“Commercially Reasonable Efforts”		shall mean in respect of the performance of the obligations in paragraph 5 of this Schedule 8 to achieve the Milestones efforts and resources that are reasonable (it being understood and agreed if relevant that: (A) such efforts shall be substantially equivalent to those efforts and resources that the Buyer would use for a pharmaceutical product owned by it or to which it has exclusive rights, which product is at a similar stage in its development or product life and is of similar market potential, taking into account efficacy, safety, proposed labelling, the competitiveness of alternative products in the marketplace, the Patent and other proprietary position of the product, the likelihood of Regulatory Approval, the potential profitability of the product, and all other relevant factors; and (B) a delay or cessation of efforts to achieve one or more applicable Milestones may be consistent with Commercially Reasonable Efforts, to the extent that legal, medical, scientific, commercial or other factors would render it not commercially reasonable to continue efforts to achieve such Milestone(s)). If it further agreed that the Buyer shall, in using Commercially Reasonable Efforts, comply with the Company’s obligations as set out in the Innovate Grants;

 

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“Company Know-How”		means all Information that is Controlled by the Company as of the Completion Date;
“Company Patent”		means any Patent (other than a Patent that is jointly owned by the Company and the Buyer) that is Controlled by the Company as of the Completion Date. “Company Patents” includes the Patents set forth on Exhibit B and any Patent Controlled by the Company that claims priority, directly or indirectly, from the Patents set forth on Exhibit B;
“Completion”		means, with respect to a Clinical Trial, [***];
“Control”		means, with respect to any Information, material or intellectual property right, that the Company has the right to grant to the Buyer access, a license, or a sublicense (as applicable) to such Information or intellectual property right without violating any applicable law, or the terms of any then-existing agreement or other arrangement with any third party;
“CoStAR”		means the Company’s proprietary technology used in engineering of costimulatory receptors that combine antigen specific binding linked to intracellular signaling to provide costimulation using, for example, [***];
“Distinct Product”		means a Product for which a separate and distinct IND application or BLA, or their non-US equivalents, is required by a Regulatory Authority to be filed with respect thereto to clinically develop in humans and obtain approval to market such product. If a Product covers more than one Indication, each Product shall be treated as a Distinct Product for each Indication. For the avoidance of doubt, any combination product comprising a Product on the one hand, and another active agent (whether or not another Product), on the other hand, shall be deemed to be a Distinct Product separate from any such Product, if the combination product is subject to a separate and distinct IND or BLA, or their non-US equivalents. For further avoidance of doubt, a Product which is administered as a concurrent therapy (and not a combination product) along with another product which contains a different active agent, wherein each product is subject to a separate IND or BLA (or their non-US equivalents), shall not be considered a different Distinct Product from the Product when administered alone;
“EU” or “European Union”		means the European Union member states as then constituted and will include the United Kingdom following the United Kingdom’s exit from the European Union. As of the Effective Date, the European Union member states are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and United Kingdom;
“FD&C Act”		means the U.S. Federal Food, Drug and Cosmetic Act, as amended, and applicable regulations promulgated thereunder by the FDA;

 

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“FDA”		means the U.S. Food and Drug Administration or any successor entity;
“First Commercial Sale”		means, on a product-by-product and country-by-country basis, the first sale by or on behalf of the Buyer or any of its Affiliates to a third Party for end use or consumption of a Product in a given country in the Territory after Regulatory Approval has been granted with respect to such Product in such country;
“Genetically Engineered”		means, with respect to TILs, TILs gene modified to only contain either CoStAR and/or T Switch technologies;
“IND”		means (a) an Investigational New Drug Application as defined in the FD&C Act and applicable regulations promulgated thereunder by the FDA, or (b) the equivalent application to the equivalent agency in any other regulatory jurisdiction, the filing of which is necessary to initiate or conduct a Clinical Trial of a pharmaceutical product in humans in such jurisdiction;
“Indication”		means with respect to a Product, a diagnostic, prophylactic or therapeutic use for a particular disease or condition, with respect to which use at least one Clinical Trial is required to support the inclusion of such disease or condition in the indication statement of a package insert approved by a Regulatory Authority for such Product and for which an MAA (or a supplement, extension or amendment thereto) must be filed to obtain such approval by such Regulatory Authority; provided that for clarity, the use of a Product for a disease or condition for a patient population that is a subset of the patient population for which such Product has already received Regulatory Approval for such disease or condition is eligible to be an additional Indication but only if it meets the foregoing requirements;
“Information”		means any and all data, results, technology, business or financial information or information of any type whatsoever, in any tangible or intangible form, including know-how, trade secrets, practices, techniques, methods, processes, developments, specifications, formulations, or formulae of any type or kind (patentable or otherwise), software, algorithms, marketing reports, expertise, technology, test data (including pharmacological, biological, chemical, biochemical, clinical test data and data resulting from non-clinical studies), chemistry, manufacture and control information, stability data and other study data and procedures;
“Innovate Grant”		Shall mean any grant funded by Innovate UK in support of research and development currently undertaken by the Company;
“Marketing Authorization”		shall mean an application for all approvals necessary from the relevant Regulatory Authority to permit a Party or its sublicensee(s) to market and sell a Product in a particular country, including without limitation a NDA and BLA, but excluding Pricing Approvals;
“Milestone Amount”		has the meaning given to it in paragraph 3.1 of this Schedule 8;

 

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“Milestone Maximum Amount”		has the meaning given to in paragraph 3.7(c) of this Schedule 8;
“Milestones”		has the meaning given to it in paragraph 3.1 of this Schedule 8;
“OVSTAR Study”		means the OVSTAR Trial with non-Genetically Engineered and/or Genetically Engineered TIL Product;
“OVSTAR Trial”		means a Clinical Trial involving the use of a Product including for the treatment of advanced ovarian cancer;
“Patent”		means (a) pending patent applications, issued patents, utility models and designs; (b) reissues, substitutions, confirmations, registrations, validations, re-examinations, additions, continuations, continued prosecution applications, continuations-in-part, or divisions of or to any of the foregoing; and (c) extensions, renewals or restorations of any of the foregoing by existing or future extension, renewal or restoration mechanisms, including supplementary protection certificates or the equivalent thereof;
“PETIL Study”		means a Clinical Trial involving the use of a Product for the treatment of metastatic melanoma after failure of treatment with checkpoint inhibitors;
“Phase 1 Clinical Trial”		means a Clinical Trial that would satisfy the requirements for a Phase 1 study as defined in 21 CFR § 312.21(a) (or any amended or successor regulations) or any equivalent regulations in other countries in the Territory, regardless of where such Clinical Trial is conducted;
“Phase 2 Clinical Trial”		means a Clinical Trial that would satisfy the requirements for a Phase 2 study as defined in 21 CFR § 312.21(b) (or any amended or successor regulations) or any equivalent regulations in other countries in the Territory, regardless of where such Clinical Trial is conducted. For clarity, a Phase 2 Clinical Trial may be deemed a Registrational Clinical Trial or may be combined with a Phase 1 Clinical Trial;
“Phase 3 Clinical Trial”		means a Clinical Trial that would satisfy the requirements for a Phase 3 study as defined in 21 CFR § 312.21(c) (or any amended or successor regulations) or any equivalent regulations in other countries in the Territory, regardless of where such Clinical Trial is conducted. For clarity, Phase 3 Clinical Trials are designed to be registrational, wherein the Product is compared to an active control arm in a randomised setting;
“Pricing Approval”		means any pricing and reimbursement approvals of a competent Governmental Authority for a product required for the marketing and sale of such product in a given jurisdiction under Applicable Law (including the statutes, rules, regulations, orders, judgments, or ordinances of the competent Governmental Authority);

 

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“Product”		means any form of TIL therapy that (i) results from the use of the Company Know-How or (ii) would be covered within the claim of any Company Patent, including but not limited to, use of TILs obtained from cancerous tumours resulting in autologous cellular therapy and all dosage and/or formulation forms
“Registrational Clinical Trial”		means either a Phase 2 Clinical Trial or a Phase 3 Clinical Trial with a defined dose or a set of defined doses of Product that is either (i) designed to ascertain efficacy and safety of such Product, in a manner that is generally consistent with 21 CFR § 312.21(c) (or any amended or successor regulations) or (ii) intended to obtain sufficient data to support the preparation and submission of a Marketing Authorization for such Product;
“Regulatory Approval”		means all approvals (including Pricing Approvals) from the relevant Regulatory Authority in a given country or regulatory jurisdiction of the Regulatory Approval Application for a Product, including all licenses and registrations, that are necessary for the sale of such Product, including clinical testing, manufacture, distribution, or use of such Product, in such country or regulatory jurisdiction;
“Regulatory Application”		Approval means an application to the appropriate Regulatory Authority for approval to sell a Product in any particular jurisdiction, including a BLA in the U.S. or an NDA;
“Regulatory Authority”		means, in a particular country or jurisdiction, any applicable Governmental Authority that has the authority to regulate the manufacture, marketing, testing, pricing, or sale of drug products in such country or jurisdiction;
“SLAMF1”		means signalling lymphocyte activation molecule family member 1.
“Sublicensee”		means any non-Affiliate third party to whom the Buyer or any of its Affiliates grants a license or sublicense to make, have made, use, sell, have sold, offer for sale or import any Product;
“Territory”		means all of the countries of the world;
“TILs”		means lymphocytes and all their related cells associated with tumours, including, but not limited to all their associated biomarkers and cell specific receptors;
“T Switch”		means the technology used in developing an engineered receptor based on the [***] or similar receptor that can provide T-cell (and TIL) proliferative signals only in the presence [***], in which [***] domains are engineered to improve efficacy and safety and to improve survival of T-cells in the presence or absence of tumour;
“U.S.”		means the United States of America, including all possessions and territories thereof;

 

2.

NATURE

 

2.1.	Quantification of the amount and the timing of the satisfaction of Additional Consideration (if any) shall be determined in accordance with this Schedule 8.

 

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3.	MILESTONES

 

3.1.

The Sellers shall also be entitled to further consideration for the Sale Shares upon the achievement of the milestone events (“Milestones”) as set out in this paragraph 3 (such further consideration, to be satisfied through the issue of Loan Notes (as further provided in paragraph 3.3 and paragraph 4 of this Schedule 8), in amounts reflecting the “Milestone Amounts”, as set out below, and together the Loan Notes shall constitute the “Additional Consideration”). Other than as expressly provided for in this Agreement, any Loan Note recognizing a Milestone Amount will not be subject to reduction or set-off.

 

3.2.	The “Milestones – First Distinct Product” shall be recognised upon achievement of the following Milestones set forth below for the first Distinct Product in [***]:

 

Milestone		Milestone Amount
(a)   [***]		[***]
(b)   [***]		[***]
(c)   [***]		[***]
(d)   [***]		[***]
(e)   [***]		[***]
(f)   [***]		[***]
(g)   [***]		[***]

For clarity, if the Buyer triggers the Milestone set forth in paragraph 3.2(c) but the Milestone in paragraph 3.2(b) has not been recognised, both Milestones shall be recognised simultaneously.

 

3.3.	The “Milestones – Second Distinct Product” shall be recognised upon achievement of the following Milestones set forth below for the second Distinct Product [***]:

 

Milestone		Milestone Amount
(a)   [***]		[***]
(b)   [***]		[***]
(c)   [***]		[***]
(d)   [***]		[***]
(e)   [***]		[***]
(f)   [***]		[***]

 

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For clarity, if the Buyer triggers the Milestone set forth in paragraph 3.3(d) but the Milestone in paragraph 3.3(a), 3.3(b) or 3.3(c) have not been recognised, earlier Milestones shall be recognised simultaneously with paragraph 3.3(d).

 

3.4.	The “[***] Distinct Product Milestones” shall be recognised upon achievement of the following Milestones set forth below for the first two (2) [***] Distinct Products in [***]:

 

Milestone		Milestone Amount
(a)   [***]		[***]
(b)   [***]		[***]
(c)   [***]		[***]
(d)   [***]		[***]
(e)   [***]		[***]

For clarity, if the Buyer triggers the Milestone set forth in paragraph 3.4(c) but the Milestone in paragraph 3.4(b) has not been recognised, both Milestones shall be recognised simultaneously.

 

3.5.	The “[***] Distinct Product Milestones” shall be recognised upon achievement of the following Milestones set forth below for the first two (2) [***] Distinct Products in [***]:

 

Milestone		Milestone Amount
(a)   [***]		[***]
(b)   [***]		[***]
(c)   [***]		[***]
(d)   [***]		[***]
(e)   [***]		[***]

For clarity, if the Buyer triggers the Milestone set forth in paragraph 3.5(c) but the Milestone in paragraph 3.5(b) has not been recognised, both Milestones shall be recognised simultaneously.

 

3.6.	For the avoidance of doubt, the first and subsequent Indications to achieve a Milestone shall be determined in respect of each Milestone on an individual Milestone basis.

 

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3.7.	In respect of the Milestones:

 

(a)

each Milestone represents a separate milestone event (i.e., there are a total of twenty-three (23) potential separate milestone events). More than one Milestone may be achieved at the same time, but each Milestone Amount for a Milestone shall be recognised only once, upon the first time such Milestone is reached by the Buyer or any of its Affiliates, any Sublicensee or the Company other than those Milestones covered in paragraph 3.4 and 3.5 which can be recognised twice for each Distinct Product.

 

(b)

[***]; and

 

(c)

notwithstanding anything to the contrary in this Agreement, the cumulative total amount of Milestone Amounts recognised by the Buyer under this Agreement shall not in any circumstances exceed Fourteen Million Seven Hundred Fifty Thousand Dollars ($14,750,000) (the “Milestone Maximum Amount”).

 

4.	ISSUING OF LOAN NOTES

 

4.1.	For all Milestones the Buyer shall notify the Sellers’ Representative in writing or by electronic mail (to the relevant address set forth in clause 23) within [***] following the achievement of each Milestone (each, a “Milestone Notification”).

 

4.2.

Additional Consideration shall be recognised via issuance of Loan Notes in accordance with clauses 3.1(c) and 3.4 and in accordance with each of the Seller’s Pro Rata Proportion (as near as reasonably practicable) as set out in Schedule 1 (subject to any amount permitted to be set off by the Buyer pursuant to clause 3.4(iv) and Schedule 7).

 

4.3.	Within [***] of sending the Milestone Notification, the Buyer will, in accordance with clauses 3.1(c) and 3.4, issue Loan Notes, make appropriate recordings in the register of noteholders and issue Loan Note Certificates in respect the Milestone Amount.

 

5.	DILIGENCE OBLIGATIONS

From and after Completion, the Buyer shall use Commercially Reasonable Efforts to satisfy the development Milestones set forth in paragraph 3.2. Except as expressly set forth in this paragraph 5, the Buyer shall not be obligated to make any particular level of efforts or engage in any particular activity in connection with its acquisition of the Company or in connection with the milestone events. Subject to its obligations under this Schedule 8, the Buyer shall have sole discretion with respect to the performance or development of (including obtaining Regulatory Approval for), or commercialization activities with respect to a Product after Completion.

 

6.	REPORTING; INFORMATION AND AUDIT RIGHTS

 

6.1.

From the Completion Date until the date the Buyer and the Sellers’ Representative determines in good faith, after reasonable consultation, that any applicable Milestone would not reasonably be expected to be achieved, the Buyer shall provide the Sellers’ Representative, within [***] after the end of each calendar year following the Completion Date, with an annual written report describing the Buyer’s progress towards achievement of the Milestones and, to the extent applicable, notification of abandonment or discontinuation of development of a Product. If after delivery of a report, the Sellers’ Representative requests in writing a meeting with representatives of the Buyer to discuss such report, the Buyer shall make available in person or by phone (at the Buyer’s option) for such a meeting appropriate representative(s) of the Buyer or its Affiliates with representatives of the Sellers’ Representative.

 

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6.2.

The Sellers’ Representative right to review or receive any information or documents pursuant to or contemplated by this Agreement shall be conditioned on the execution and delivery to the Buyer by the Sellers’ Representative of a confidentiality agreement reasonably satisfactory to the Buyer, which agreement shall include: (A) a prohibition on providing information to third parties unless such third parties execute a confidentiality agreement reasonably satisfactory to the Buyer; and (B) a prohibition on providing any information contained in the reports contemplated by this paragraph 6.2 to any Seller other than: (1) information that has been made available to the public by the Buyer; or (2) summary information that has been reviewed and approved by the Buyer acting in good faith provided, however, that nothing shall prohibit the Sellers’ Representative from disclosing such reports to a Seller who has executed a confidentiality agreement reasonably satisfactory to the Buyer or to share such information with advisors of the Sellers’ Representative subject to an ongoing obligation of confidentiality at least as stringent as the confidentiality terms set forth herein.

 

6.3.	Milestone Amounts: Generally

The parties acknowledge and agree that the Buyer or the Company’s achievement of the Milestones are material factors in determining the valuation of the Company by the Buyer. Therefore, the Sellers shall have no right to receive any particular Milestone Amount (or any portion thereof) unless and until the particular Milestone that must be achieved in order for the Seller to receive such Milestone Amount is achieved as determined pursuant to this paragraph 6.

 

6.4.	Milestone Rights Not Transferable

The right of any Seller to receive any Milestone Amount: (i) does not give the Seller dividend rights, voting rights, liquidation rights, pre-emptive rights or other rights of holders of capital stock of the Company; (ii) shall not be evidenced by a certificate or other instrument; (iii) shall not be assignable or otherwise transferable by such Seller, except by will, upon death or by operation of law; and (iv) does not represent any right other than the right to receive the consideration set forth in this Schedule 8. Any attempted transfer of the right to any Milestone Amount by any holder thereof (other than as specifically permitted by the immediately preceding sentence) shall be null and void.

 

7.	ASSIGNMENT

 

7.1.

In the event that (i) the Buyer sells, transfers or assigns to a third party any interest in the Products at any time prior to the Longstop Date and (ii) the Buyer has not issued Loan Notes to the Company equalling the Milestone Maximum Amount as of the date of such sale, transfer or assignment, such Third Party shall assume as a matter of law or otherwise the obligation to satisfy any Milestone Amounts that become recognised, subject to and in accordance with the terms of this Agreement. For the avoidance of doubt, the total Milestone Amounts recognizable under this Agreement by the Buyer and any of its successors or assignees, as applicable, shall not exceed the Milestone Maximum Amount.

 

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EXHIBIT B

 

Title		Application Numbers (pending and lapsed)
Biomarker Predictive of Tumour Infiltrating Lymphocyte therapy and the uses thereof (SLAM)		PCT/GB2019/050188, GB1801067.8
Aseptic Tissue Processing Method, Kit and Device		EP 18,701791, GB1700621.4, PCT/GB2018/050088
Cells expressing recombinant growth factor receptors (TPO)		EP 16816352.5, PCTGB2016/053949, GB1522097.3, US 16/061,435, GB1810181.6
Chimeric growth factor receptors (rGFR)		PCT/GB2019/051745, GB1810181.6
Tumor Infiltrating Lymphocyte Therapy and Uses Thereof (SLAM)		GB1910605.3, US 62/878,001
Methods of Isolating Tumor Infiltrating Lymphocytes and Uses Thereof		GB18791791.3, US 62/951,559
Receptors providing targeted costimulation for adoptive cell therapy (CoStar)		GB1900858.0, PCT/GB2020/050120, US 62/951,770
Device and methods for isolating unmodified tumor infiltrating lymphocytes and subsequent expansion of cell populations		US 62/982470

 

84

Exhibit 10.3

 

 

 

 

INSTIL BIO, INC.

2018 STOCK INCENTIVE PLAN

Adopted by the Board on September 20, 2018

Approved by the Stockholders on October 3, 2018

 

 

 

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TABLE OF CONTENTS

 

				Page
SECTION 1. PURPOSE					1
SECTION 2. DEFINITIONS					1
2.1		“Affiliate”			1
2.2		“Award”			1
2.3		“Award Agreement”			1
2.4		“Board”			1
2.5		“Cause”			1
2.6		“Change in Control”			2
2.7		“Code”			3
2.8		“Committee”			3
2.9		“Company”			3
2.10		“Consultant”			3
2.11		“Disability”			3
2.12		“Employee”			3
2.13		“Exchange Act”			3
2.14		“Exercise Price”			3
2.15		“Fair Market Value”			3
2.16		“Immediate Family”			3
2.17		“ISO”			3
2.18		“NSO”			3
2.19		“Option”			3
2.20		“Other Stock Award”			3
2.21		“Outside Director”			4
2.22		“Parent”			4
2.23		“Participant”			4
2.24		“Plan”			4
2.25		“Purchase Price”			4
2.26		“Restricted Stock Award”			4
2.27		“Restricted Stock Unit”			4
2.28		“Securities Act”			4
2.29		“Service”			4
2.30		“Share”			4
2.31		“Stock”			5
2.32		“Stock Appreciation Right” or “SAR”			5
2.33		“Subsidiary”			5
2.34		“Ten-Percent Stockholder”			5
SECTION 3. ADMINISTRATION					5
3.1		General Rule			5
3.2		Board Authority and Responsibility			5
SECTION 4. ELIGIBILITY					5

 

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SECTION 5. STOCK SUBJECT TO PLAN					6
5.1		Share Limit			6
5.2		Additional Shares			6
5.3		Incentive Stock Option Limit			6
5.4		Substitution and Assumption of Awards			6
SECTION 6. RESTRICTED STOCK					6
6.1		Restricted Stock Award			6
6.2		Duration of Offers and Nontransferability of Rights			7
6.3		Consideration			7
6.4		Vesting Restrictions			7
SECTION 7. STOCK OPTIONS					7
7.1		Stock Option Award			7
7.2		Number of Shares; Kind of Option			7
7.3		Exercise Price			7
7.4		Term			8
7.5		Exercisability			8
7.6		Transferability of Options			8
7.7		Exercise of Options on Termination of Service			8
7.8		No Rights as a Stockholder			9
7.9		Modification, Extension and Renewal of Options			9
SECTION 8. STOCK APPRECIATION RIGHTS					9
8.1		Stock Appreciation Right Award			9
8.2		Number of Shares			9
8.3		Exercise Price			9
8.4		Term			10
8.5		Exercisability			10
8.6		Exercise of SARs			10
8.7		Transferability of SARs			10
8.8		Exercise of SARs on Termination of Service			10
8.9		No Rights as a Stockholder			11
8.10		Modification, Extension and Renewal of SARs			11
SECTION 9. RESTRICTED STOCK UNITS AND OTHER STOCK AWARDS					11
9.1		Restricted Stock Unit Award			11
9.2		Number of Shares; Payment			11
9.3		Vesting Conditions			11
9.4		Settlement of Restricted Stock Units			11
9.5		Transfer Restrictions			12
9.6		No Rights as a Stockholder			12
9.7		Other Stock Awards			12
SECTION 10. PAYMENT FOR SHARES					12
10.1		General			12
10.2		Surrender of Stock			12
10.3		Services Rendered			12
10.4		Promissory Notes			12

 

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10.5		Exercise/Sale			13
10.6		Exercise/Pledge			13
10.7		Net Exercise			13
10.8		Other Forms of Payment			13
SECTION 11. ADJUSTMENT OF SHARES					13
11.1		General			13
11.2		Dissolution or Liquidation			13
11.3		Mergers, Consolidations and Other Corporate Transactions			14
11.4		Reservation of Rights			14
11.5		Buyout Provisions			15
SECTION 12. TRANSFER RESTRICTIONS AND REPURCHASE RIGHTS					15
12.1		Transfer Restrictions			15
12.2		Company’s Right to Repurchase Shares			16
SECTION 13. WITHHOLDING AND OTHER TAXES					16
13.1		General			16
13.2		Share Withholding			16
13.3		Cashless Exercise/Pledge			16
13.4		Other Forms of Payment			16
13.5		Employer Fringe Benefit Taxes			16
13.6		Section 409A			16
SECTION 14. LEGAL AND REGULATORY REQUIREMENTS					17
SECTION 15. NO RETENTION RIGHTS					17
SECTION 16. DURATION AND AMENDMENTS					17
16.1		Term of the Plan			17
16.2		Right to Amend or Terminate the Plan			17
16.3		Effect of Amendment or Termination			18
SECTION 17. EXECUTION					19

 

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INSTIL BIO, INC.

2018 STOCK INCENTIVE PLAN

SECTION 1. PURPOSE.

The Plan was adopted by the Board of Directors effective September 20, 2018. The purpose of the Plan is to offer selected service providers the opportunity to acquire equity in the Company through awards of Options (which may constitute incentive stock options or nonstatutory stock options), Restricted Stock Awards, Stock Appreciation Rights, Restricted Stock Units and Other Stock Awards.

The Awards under the Plan are intended to be exempt from the securities qualification requirements of the California Corporations Code by satisfying the exemption under section 25102(o) of the California Corporations Code. However, Awards may be made in reliance upon other state securities law exemptions. To the extent that other state exemptions are relied upon, the terms of this Plan which are included only to comply with section 25102(o) shall be disregarded to the extent provided in the applicable Award Agreement. In addition, to the extent that section 25102(o) or the regulations promulgated thereunder are amended to delete any requirements set forth in such law or regulations, the terms of this Plan which are included only to comply with section 25102(o) or the regulations promulgated thereunder as in effect prior to any such amendment shall be disregarded to the extent permitted by applicable law.

SECTION 2. DEFINITIONS.

 

2.1	“Affiliate” shall mean any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity.

 

2.2	“Award” shall mean, individually or collectively, a grant under the Plan of Options, Restricted Stock Awards, Stock Appreciation Rights, Restricted Stock Units or Other Stock Awards.

 

2.3	“Award Agreement” shall mean the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan, as determined by the Board. The Award Agreement is subject to the terms and conditions of the Plan.

 

2.4	“Board” shall mean the Board of Directors of the Company, as constituted from time to time.

 

2.5

“Cause” shall mean (i) in the case where the Employee, Consultant or Outside Director does not have an employment agreement, consulting agreement or similar agreement in effect with the Company or its affiliate at the time of grant of the Award or where there is such an agreement but it does not define “cause” (or words of like import), conduct related to the Employee’s, Consultant’s or Outside Director’s service to the Company or an affiliate for which either criminal or civil penalties against the Employee, Consultant or Outside Director may be sought, misconduct, insubordination, material violation of the Company’s or its affiliate’s policies, disclosing or misusing any confidential information or material concerning the Company or an affiliate or material breach of any employment agreement, consulting agreement or similar agreement, or (ii) in the case where the Employee, Consultant or Outside Director has an employment agreement, consulting

 

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agreement or similar agreement in effect with the Company or its affiliate at the time of grant of the Award that defines a termination for “cause” (or words of like import), “cause” as defined in such agreement; provided, however, that with regard to any agreement that defines “cause” on occurrence of or in connection with a change in control, such definition of “cause” shall not apply until a change in control actually occurs and then only with regard to a termination thereafter. Notwithstanding the foregoing, in the case of an Award which is intended to comply with section 25102(o) of the California Corporations Code, such event must also constitute “cause” under applicable law.

 

2.6	“Change in Control” shall mean the occurrence of any of the following events:

 

(a)

The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization fifty percent (50%) or more of the voting power of the outstanding securities of each of (A) the continuing or surviving entity and (B) any direct or indirect parent corporation of such continuing or surviving entity;

 

(b)

The consummation of the sale, transfer or other disposition of all or substantially all of the Company’s assets or the stockholders of the Company approve a plan of complete liquidation of the Company; or

 

(c)

Any “person” (as defined below) who, by the acquisition or aggregation of securities, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the “Base Capital Stock”); except that any change in the relative beneficial ownership of the Company’s securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person’s ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person’s beneficial ownership of any securities of the Company.

For purposes of Section 2.6(c), the term “person” shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude (1) a trustee or other fiduciary holding securities under an employee benefit plan maintained by the Company or a Parent or Subsidiary and (2) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the Stock.

Notwithstanding the foregoing, the term “Change in Control” shall not include (a) a transaction the sole purpose of which is to change the state of the Company’s incorporation, (b) a transaction the sole purpose of which is to form a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction, (c) a transaction the sole purpose of which is to make an initial public offering of the Company’s capital stock or (d) any change in the beneficial ownership of the securities of the Company as a result of a private financing of the Company that is approved by the Board.

 

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2.7	“Code” shall mean the Internal Revenue Code of 1986, as amended.

 

2.8	“Committee” shall mean the committee designated by the Board, which is authorized to administer the Plan, as described in Section 3 hereof.

 

2.9	“Company” shall mean InsTIL Bio, Inc., a Delaware corporation.

 

2.10	“Consultant” shall mean a consultant or advisor who is not an Employee or Outside Director and who performs bona fide services for the Company, a Parent, a Subsidiary or an Affiliate.

 

2.11

“Disability” shall mean a condition that renders an individual unable to engage in substantial gainful activity by reason of any medically determinable physical or mental impairment as determined by the Committee; provided, however, that the Committee has no obligation to investigate whether Disability exists unless the Participant or representative thereof puts the Company on notice within ninety (90) days after the Participant’s termination of Service.

 

2.12	“Employee” shall mean any individual who is a common-law employee of the Company, a Parent, a Subsidiary or an Affiliate and who is an “employee” within the meaning of section 3401(c) of the Code and regulations issued thereunder.

 

2.13	“Exchange Act” shall mean the U.S. Securities and Exchange Act of 1934, as amended.

 

2.14	“Exercise Price” shall mean the amount for which one Share may be purchased upon the exercise of an Option, or the amount from which appreciation is measured upon exercise of a Stock Appreciation Right, as specified in an Award Agreement.

 

2.15	“Fair Market Value” means, with respect to a Share, the market price of one Share of Stock, determined by the Board in good faith. Such determination shall be conclusive and binding on all persons.

 

2.16	“Immediate Family” shall mean a person’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, domestic partner, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships.

 

2.17	“ISO” shall mean an incentive stock option described in section 422(b) of the Code.

 

2.18	“NSO” shall mean a stock option that is not an ISO.

 

2.19	“Option” shall mean an ISO or NSO granted under the Plan and entitling the holder to purchase Shares.

 

2.20	“Other Stock Award” shall mean an Award based in whole or in part by reference to Stock which is granted pursuant to the terms and conditions of Section 9.7 of the Plan.

 

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2.21	“Outside Director” shall mean a member of the Board of the Company, a Parent or a Subsidiary who is not an Employee.

 

2.22

“Parent” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

 

2.23	“Participant” shall mean the holder of an outstanding Award.

 

2.24	“Plan” shall mean the InsTIL Bio, Inc. 2018 Stock Incentive Plan.

 

2.25	“Purchase Price” shall mean the consideration for which one Share may be acquired under the Plan pursuant to a Restricted Stock Award.

 

2.26	“Restricted Stock Award” shall mean an award or sale of Shares pursuant to the terms and conditions of Section 6 of the Plan.

 

2.27

“Restricted Stock Unit” shall mean an Award of an unfunded and unsecured right to receive Shares (or cash or a combination of Shares and cash, as determined in the sole discretion of the Board) upon settlement of the Award, which is granted pursuant to the terms and conditions of Section 9 of the Plan.

 

2.28	“Securities Act” shall mean the U.S. Securities Act of 1933, as amended.

 

2.29

“Service” shall mean service as an Employee, a Consultant or an Outside Director, subject to such further limitations as may be set forth in the applicable Award Agreement. Service shall be deemed to continue during a bona fide leave of absence approved by the Company in writing if and to the extent that continued crediting of Service for purposes of the Plan is expressly required by the terms of such leave or by applicable law, as determined by the Company. However, for purposes of determining whether an Option is entitled to ISO status, and to the extent required under the Code, an Employee’s employment will be treated as terminating three (3) months after such Employee went on leave, unless such Employee’s right to return to active work is guaranteed by law or by a contract or such Employee immediately returns to active work. The Company determines which leaves count toward Service, and when Service terminates for all purposes under the Plan. In the absence of such determination, vesting of an Award shall be tolled during any unpaid leave (unless otherwise required by applicable law); provided, however, that upon a Participant’s return from military leave (under conditions that would entitle the Participant to protection upon such return under the Uniformed Services Employment and Reemployment Rights Act), the Participant shall be given vesting credit with respect to Awards to the same extent as would have applied had the Participant continued to provide services to the Company (or any Parent or Subsidiary, if applicable) throughout the leave on the same terms as the Participant was providing services immediately prior to such leave.

 

2.30	“Share” shall mean one share of Stock, as adjusted in accordance with Section 11 (if applicable).

 

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2.31	“Stock” shall mean the common stock of the Company.

 

2.32	“Stock Appreciation Right” or “SAR” shall mean a stock appreciation right which is granted pursuant to the terms and conditions of Section 8 of the Plan.

 

2.33

“Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

 

2.34

“Ten-Percent Stockholder” means an individual who owns more than ten percent (10%) of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its Subsidiaries. In determining stock ownership for purposes of this Section 2.34, the attribution rules of section 424(d) of the Code shall be applied.

SECTION 3. ADMINISTRATION.

 

3.1

General Rule. The Plan shall be administered by the Board. However, the Board may delegate any or all administrative functions under the Plan otherwise exercisable by the Board to one or more Committees. Each Committee shall consist of at least one member of the Board who has been appointed by the Board. Each Committee shall have the authority and be responsible for such functions as the Board has assigned to it. If a Committee has been appointed, any reference to the Board in the Plan shall be construed as a reference to the Committee to whom the Board has assigned a particular function. To the extent permitted by applicable law, the Board may also authorize one or more officers of the Company to designate Employees, other than such authorized officer or officers, to receive Awards and/or to determine the number of such Awards to be received by such persons; provided, however, that the Board shall specify the total number of Awards that such officer or officers may so award.

 

3.2

Board Authority and Responsibility. Subject to the provisions of the Plan, the Board shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan. All decisions, interpretations and any other actions of the Board with respect to the Plan shall be final and binding on all persons deriving rights under the Plan.

SECTION 4. ELIGIBILITY.

Only Employees of the Company, a Parent or Subsidiary shall be eligible for the grant of ISOs. Employees of an Affiliate shall not be eligible for the grant of ISOs unless such entity is classified as a “disregarded entity” of the Company or the applicable Subsidiary under the Code and such Employees are treated as employees of the Company or applicable Subsidiary for purposes of Section 3401(c) of the Code. Only Employees, Consultants and Outside Directors shall be eligible for the grant of NSOs, Restricted Stock Awards, Stock Appreciation Rights, Restricted Stock Units or Other Stock Awards. Consultants which are entities shall be eligible for the grant of Awards (other than ISOs) subject to compliance with applicable securities law requirements.

 

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SECTION 5. STOCK SUBJECT TO PLAN.

 

5.1

Share Limit. Subject to Section 11, the aggregate number of Shares which may be issued under the Plan shall be 5,666,667 Shares (the “Authorized Share Limit”). The number of Shares which are subject to Options or other rights to acquire Shares pursuant to Awards which are outstanding at any time shall not exceed the number of Shares which then remain available for issuance under the Plan. The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan. Shares offered under the Plan may be authorized but unissued Shares or treasury Shares.

 

5.2

Additional Shares. Shares subject to Awards that are cancelled, forfeited, settled in cash or expire by their terms, and Shares subject to Awards that are used to pay withholding obligations or the Exercise Price of an Option, will again be available for grant and issuance in connection with other Awards. However, Shares that have actually been issued under the Plan will not be added back to the number of Shares available for issuance under the Plan unless reacquired by the Company pursuant to a forfeiture provision.

 

5.3

Incentive Stock Option Limit. Subject to the foregoing limits, the aggregate number of Shares that may be issued under the Plan upon the exercise of ISOs shall not exceed ten times the Authorized Share Limit set forth in Section 5.1 (as amended from time to time and as adjusted pursuant to Section 11), plus, only to the extent allowable under section 422 of the Code, any Shares previously issued under the Plan (other than pursuant to Section 5.4 below) that are reacquired by the Company pursuant to a forfeiture provision.

 

5.4

Substitution and Assumption of Awards. The Board may make Awards under the Plan by assumption, substitution or replacement of stock options, stock appreciation rights, stock units or similar awards granted by another entity (including a Parent or Subsidiary), if such assumption, substitution or replacement is in connection with an asset acquisition, stock acquisition, merger, consolidation or similar transaction involving the Company (and/or its Parent or Subsidiary) and such other entity (and/or its affiliate). The terms of such assumed, substituted or replaced Awards shall be as the Board, in its discretion, determines is appropriate, notwithstanding limitations on Awards in the Plan. Any such substitute or assumed Awards shall not count against the Authorized Share Limit set forth in Section 5.1 (nor shall Shares subject to such Awards be added to the Shares available for Awards under the Plan as provided in Section 5.2 above), except that Shares acquired by exercise of substitute ISOs will count against the maximum number of Shares that may be issued pursuant to the exercise of ISOs under the Plan.

SECTION 6. RESTRICTED STOCK.

 

6.1

Restricted Stock Award. Subject to the terms of the Plan, the Board may grant Restricted Stock Awards to Participants in such amounts as the Board, in its sole discretion, may determine. Each award or sale of Shares pursuant to a Restricted Stock Award under the Plan shall be evidenced by an Award Agreement between the Participant and the Company. Such award or sale shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions imposed by the Board, as set forth in the Award Agreement, that are not inconsistent with the Plan. The provisions of such Award Agreements need not be identical.

 

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6.2

Duration of Offers and Nontransferability of Rights. Any right to acquire Shares pursuant to a Restricted Stock Award shall automatically expire if not exercised by the Participant within thirty (30) days after the Company communicates the grant of such right to the Participant, unless otherwise determined by the Board. Such right shall be nontransferable and shall be exercisable only by the Purchaser to whom the right was granted, except to the extent otherwise determined by the Board in its sole discretion.

 

6.3

Consideration. To the extent an Award consists of newly issued Shares, the Award recipient shall furnish consideration having a value not less than the par value of such Shares as determined by the Board. Subject to the foregoing in this Section 6.3, the Board shall determine the amount of the Purchase Price in its sole discretion. The Purchase Price shall be payable in a form described in Section 10.

 

6.4

Vesting Restrictions. Each award or sale of Shares shall be subject to such vesting and forfeiture conditions as the Board may determine. Such restrictions shall be set forth in the applicable Award Agreement and, unless otherwise provided in the Award Agreement, shall apply to any dividends paid with respect to such Shares. The vesting of a Restricted Stock Award granted to a Participant for Service as an Outside Director shall be automatically accelerated in full in the event of a Change in Control.

SECTION 7. STOCK OPTIONS.

 

7.1

Stock Option Award. Subject to the terms of the Plan, the Board may grant Options to Participants in such amounts as the Board, in its sole discretion, may determine. Each grant of an Option under the Plan shall be evidenced by an Award Agreement between the Participant and the Company. The Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions imposed by the Board, as set forth in the Option Award Agreement, which are not inconsistent with the Plan. The provisions of the various Option Award Agreements entered into under the Plan need not be identical.

 

7.2

Number of Shares; Kind of Option. Each Option Award Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 11. The Award Agreement shall also specify whether the Option is intended to be an ISO or an NSO.

 

7.3	Exercise Price. Each Award Agreement shall set forth the Exercise Price, which shall be payable in a form described in Section 10. Subject to the following requirements, the Exercise Price under any Option shall be determined by the Board in its sole discretion:

 

(a)

Minimum Exercise Price for ISOs. The Exercise Price per Share of an ISO shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date of grant; provided, however, that the Exercise Price per Share of an ISO granted to a Ten-Percent Stockholder shall not be less than one hundred ten percent (110%) of the Fair Market Value of a Share on the date of grant.

 

(b)

Minimum Exercise Price for NSOs. The Exercise Price per Share of an NSO shall not be less than one-hundred percent (100%) of the Fair Market Value of a Share on the date of grant.

 

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7.4

Term. Each Award Agreement shall specify the term of the Option. The term of an Option shall in no event exceed ten (10) years from the date of grant. The term of an ISO granted to a Ten-Percent Stockholder shall not exceed five (5) years from the date of grant. Subject to the foregoing, the Board in its sole discretion shall determine when an Option shall expire.

 

7.5

Exercisability. Each Award Agreement shall specify the date when all or any installment of the Option is to become exercisable; provided, however, that no Option shall be exercisable unless the Participant has delivered to the Company an executed copy of the Award Agreement. Subject to the following restrictions, the Board in its sole discretion shall determine when all or any installment of an Option is to become exercisable and may, in its discretion, provide for accelerated exercisability in the event of a Change in Control or other events:

 

(a)

Options Granted to Outside Directors. The vesting and exercisability of an Option granted to a Participant for Service as an Outside Director shall be automatically accelerated in full in the event of a Change in Control.

 

(b)

Early Exercise. An Option Award Agreement may permit the Participant to exercise the Option prior to the time that it has become vested provided that the Shares acquired on exercise will be treated as unvested and subject to a right of repurchase by the Company and any other restrictions that the Board determines appropriate as set forth in the Award Agreement.

 

7.6

Transferability of Options. During a Participant’s lifetime, his or her Options shall be exercisable only by the Participant or by the Participant’s guardian or legal representatives, and shall not be transferable other than by beneficiary designation, will or the laws of descent and distribution. Notwithstanding the foregoing, however, to the extent permitted by the Board in its sole discretion, an NSO may be transferred by the Participant to a revocable trust or to one or more family members or a trust established for the benefit of the Participant and/or one or more family members to the extent permitted by section 260.140.41(c) of Title 10 of the California Code of Regulations and Rule 701 of the Securities Act.

 

7.7

Exercise of Options on Termination of Service. Each Option shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant’s Service. Each Award Agreement shall provide the Participant with the right to exercise the Option following the Participant’s termination of Service during the Option term, to the extent the Option was exercisable for vested Shares upon termination of Service, for at least thirty (30) days if termination of Service is due to any reason other than Cause, death or Disability, and for at least six (6) months after termination of Service if due to death or Disability (but in no event later than the expiration of the Option term). If the Participant’s Service is terminated for Cause, the Option Award Agreement may provide that the Participant’s right to exercise the Option terminates immediately on the effective date of the Participant’s termination. To the extent the Option was not exercisable for vested Shares upon termination of Service, the Option shall terminate when the Participant’s Service terminates; provided, however, that if the Board or its duly authorized delegate amends the Option within thirty (30) days following the Participant’s termination

 

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of Service other than for Cause (but in no event later than the expiration of the term of the Option) to increase the number of vested Shares for which the Option would be exercisable, the Option shall not be considered to have terminated upon termination of Service with respect to such additional number of vested Shares, and such amendment shall be given effect as of the date of termination of Service. Subject to the foregoing, such provisions shall be determined in the sole discretion of the Board, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service.

 

7.8

No Rights as a Stockholder. A Participant, or a transferee of a Participant, shall have no rights as a stockholder with respect to any Shares covered by the Option until such person becomes entitled to receive such Shares by filing a notice of exercise and paying the Exercise Price pursuant to the terms of the Option. No adjustments shall be made, except as provided in Section 11.

 

7.9

Modification, Extension and Renewal of Options. Within the limitations of the Plan, the Board may modify, extend or renew outstanding Options or may accept the cancellation of outstanding Options (to the extent not previously exercised), whether or not granted hereunder, in return for the grant of new Options for the same or a different number of Shares and at the same or a different Exercise Price, or in return for the grant of a different Award for the same or a different number of Shares. The foregoing notwithstanding, except for a modification required to comply with any applicable law, regulation or rule, no modification of an Option shall, without the consent of the Participant, materially impair his or her rights or increase the Participant’s obligations under such Option; provided, however, that a modification which may cause an ISO to become an NSO shall not be treated as materially impairing a Participant’s rights or increasing a Participant’s obligations under an Award.

SECTION 8. STOCK APPRECIATION RIGHTS.

 

8.1

Stock Appreciation Right Award. Subject to the terms of the Plan, the Board may grant Stock Appreciation Rights to Participants in such amounts as the Board, in its sole discretion, may determine. Each grant of a Stock Appreciation Right under the Plan shall be evidenced by an Award Agreement between the Participant and the Company. The Stock Appreciation Right shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions imposed by the Board, as set forth in the Award Agreement, which are not inconsistent with the Plan. The provisions of the various Stock Appreciation Right Award Agreements entered into under the Plan need not be identical.

 

8.2	Number of Shares. Each Award Agreement shall specify the number of Shares to which the SAR pertains and shall provide for the adjustment of such number in accordance with Section 11.

 

8.3	Exercise Price. Each Award Agreement shall specify the Exercise Price of the SAR. The Exercise Price shall not be less than 100% of the Fair Market Value of a Share on the date of grant.

 

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8.4	Term. Each Award Agreement shall specify the term of the SAR. The term of a SAR shall in no event exceed ten (10) years from the date of grant. Subject to the foregoing, the Board in its sole discretion shall determine when an Option shall expire.

 

8.5

Exercisability. Each Award Agreement shall specify the date when all or any installment of the SAR is to become exercisable; provided, however, that no SAR shall be exercisable unless the Participant has delivered to the Company an executed copy of the Award Agreement. The Board in its sole discretion shall determine when all or any installment of a SAR is to become exercisable and may, in its discretion, provide for accelerated exercisability in the event of a Change in Control or other events. The vesting and exercisability of a SAR granted to a Participant for Service as an Outside Director shall be automatically accelerated in full in the event of a Change in Control. SARs may be awarded in combination with Options, and such Awards may provide that the SARs will not be exercisable unless the related Options are forfeited.

 

8.6

Exercise of SARs. Upon exercise of a SAR, the Participant (or any person having the right to exercise the SAR after his or her death) shall receive from the Company (a) Shares, (b) cash or (c) a combination of Shares and cash, as the Board shall determine. The amount of cash and/or the Fair Market Value of Shares received upon exercise of SARs shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Shares subject to the SARs exceeds the Exercise Price.

 

8.7

Transferability of SARs. During a Participant’s lifetime, his or her SARs shall be exercisable only by the Participant or by the Participant’s guardian or legal representatives, and shall not be transferable other than by beneficiary designation, will or the laws of descent and distribution. Notwithstanding the foregoing, however, to the extent permitted by the Board in its sole discretion, a SAR may be transferred by the Participant to a revocable trust or to one or more family members or a trust established for the benefit of the Participant and/or one or more family members to the extent permitted by section 260.140.41(c) of Title 10 of the California Code of Regulations and Rule 701 of the Securities Act.

 

8.8

Exercise of SARs on Termination of Service. Each SAR shall set forth the extent to which the Participant shall have the right to exercise the SAR following termination of the Participant’s Service. Each Award Agreement shall provide the Participant with the right to exercise the SAR following the Participant’s termination of Service during the SAR term, to the extent the SAR was vested upon termination of Service, for at least thirty (30) days if termination of Service is due to any reason other than Cause, death or Disability, and for at least six (6) months after termination of Service if due to death or Disability (but in no event later than the expiration of the SAR term). If the Participant’s Service is terminated for Cause, the SAR Award Agreement may provide that the Participant’s right to exercise the SAR terminates immediately on the effective date of the Participant’s termination. To the extent the SAR was not vested upon termination of Service, the SAR shall terminate when the Participant’s Service terminates; provided, however, that if the Board or its duly authorized delegate amends the SAR within thirty (30) days following the Participant’s termination of Service other than for Cause (but in no event later than the expiration of the term of the SAR) to increase the number of vested Shares for which the SAR would be exercisable, the SAR shall not be considered to have terminated upon

 

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termination of Service with respect to such additional number of vested Shares, and such amendment shall be given effect as of the date of termination of Service. Subject to the foregoing, such provisions shall be determined in the sole discretion of the Board, need not be uniform among all SARs issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service.

 

8.9

No Rights as a Stockholder. A Participant, or a transferee of a Participant, shall have no rights as a stockholder with respect to any Shares covered by the SAR unless and until such person becomes entitled to receive Shares upon exercise of the SAR. No adjustments shall be made, except as provided in Section 11.

 

8.10

Modification, Extension and Renewal of SARs. Within the limitations of the Plan, the Board may modify, extend or renew outstanding SARs or may accept the cancellation of outstanding SARs (to the extent not previously exercised), whether or not granted hereunder, in return for the grant of new SARs for the same or a different number of Shares and at the same or a different Exercise Price, or in return for the grant of a different Award for the same or a different number of Shares. The foregoing notwithstanding, except for a modification required to comply with any applicable law, regulation or rule, no modification of a SAR shall, without the consent of the Participant, materially impair his or her rights or increase the Participant’s obligations under such SAR.

SECTION 9. RESTRICTED STOCK UNITS AND OTHER STOCK AWARDS.

 

9.1

Restricted Stock Unit Award. Subject to the terms of the Plan, the Board may grant Restricted Stock Units to Participants in such amounts as the Board, in its sole discretion, may determine. Each Award of Restricted Stock Units under the Plan shall be evidenced by an Award Agreement between the Participant and the Company. Such Award shall be subject to all applicable terms and conditions of the Plan and any other terms and conditions imposed by the Board, as set forth in the Award Agreement, that are not inconsistent with the Plan. The provisions of the various Restricted Stock Unit Award Agreements entered into under the Plan need not be identical.

 

9.2

Number of Shares; Payment Each Restricted Stock Unit Award Agreement shall specify the number of Shares that are subject to the Award and shall provide for the adjustment of such number in accordance with Section 11. Unless otherwise provided in the Award Agreement, no consideration other than services shall be required of the Participant for a Restricted Stock Unit Award.

 

9.3

Vesting Conditions. Each Award of Restricted Stock Units may or may not be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Award Agreement. The Board may determine, at the time of granting Restricted Stock Units or thereafter, that all or part of such Award shall become vested in the event that a Change in Control occurs with respect to the Company. The vesting of a Restricted Stock Unit Award granted to a Participant for Service as an Outside Director shall be automatically accelerated in full in the event of a Change in Control.

 

9.4

Settlement of Restricted Stock Units. Unless otherwise provided in the Award Agreement, Restricted Stock Units shall be settled when they vest. The Award Agreement may provide that settlement may be deferred to any later date, provided that the terms of such deferral satisfy the requirements of section 409A of the Code. Settlement of the Restricted Stock Units may be made in the form of cash or whole Shares or a combination thereof, as determined by the Board in its sole discretion.

 

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9.5	Transfer Restrictions. Unless otherwise provided in the Award Agreement, Restricted Stock Units may not be transferred other than by beneficiary designation, will or the laws of descent and distribution.

 

9.6

No Rights as a Stockholder. A Participant, or a transferee of a Participant, shall have no voting, dividend or other rights as a stockholder with respect to any Shares covered by a Restricted Stock Unit Award until such person receives such Shares upon settlement of the Award. Unless the Award Agreement provides otherwise, the Participant shall have no right to be credited with amounts equal to dividends paid on Shares subject to the Restricted Stock Unit Award. A Participant shall have no rights under a Restricted Stock Unit Award other than those of a general creditor of the Company.

 

9.7

Other Stock Awards. The Board may grant other forms of Award under the Plan that are based in whole or in part on Stock or the value thereof. Subject to the provisions of the Plan, the Board shall have authority in its sole discretion to determine the terms and conditions of such Other Stock Awards, including the number of Shares (or the cash equivalent thereof) to be granted pursuant to such Awards.

SECTION 10. PAYMENT FOR SHARES.

 

10.1	General. The entire Purchase Price of Shares or Exercise Price of Options issued under the Plan shall be payable in cash, cash equivalents or one of the other forms provided in this Section 10, to the extent provided under applicable law.

 

10.2

Surrender of Stock. To the extent permitted by the Board in its sole discretion, payment may be made in whole or in part by surrendering (in good form for transfer), or attesting to ownership of, Shares which have already been owned by the Participant; provided, however, that payment may not be made in such form if such action would cause the Company to recognize any (or additional) compensation expense with respect to the Award for financial reporting purposes. Such Shares shall be valued at their Fair Market Value on the date of surrender.

 

10.3	Services Rendered. As determined by the Board in its discretion, Shares may be awarded under the Plan in consideration of past or future services rendered to the Company, a Parent, a Subsidiary or an Affiliate.

 

10.4

Promissory Notes. To the extent permitted by the Board in its sole discretion, payment may be made in whole or in part with a full-recourse promissory note executed by the Participant. The interest rate payable under the promissory note shall not be less than the minimum rate required to avoid the imputation of income for U.S. federal income tax purposes. Shares shall be pledged as security for payment of the principal amount of the promissory note, and interest thereon; provided that if the Participant is a Consultant, such note must be collateralized with such additional security to the extent required by applicable laws. In no event shall the stock certificate(s) representing such Shares be released to the Participant until such note is paid in full. Subject to the foregoing, the Board shall determine the term, interest rate and other provisions of the note.

 

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10.5

Exercise/Sale. To the extent permitted by the Board in its sole discretion, and if a public market for the Shares exists, payment may be made in whole or in part by delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sale proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes.

 

10.6

Exercise/Pledge. To the extent permitted by the Board in its sole discretion, and if a public market for the Shares exists, payment may be made in whole or in part by delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker or lender approved by the Company to pledge Shares, as security for a loan, and to deliver all or part of the loan proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes.

 

10.7

Net Exercise. To the extent permitted by the Board in its sole discretion, payment of the Exercise Price may be made by a “net exercise” arrangement pursuant to which the number of Shares issuable upon exercise of the Option shall be reduced by the largest whole number of Shares having an aggregate Fair Market Value that does not exceed the aggregate Exercise Price (plus tax withholdings, if applicable) and any remaining balance of the aggregate Exercise Price (and/or applicable tax withholdings) not satisfied by such reduction in the number of whole Shares to be issued shall be paid by the Participant in cash or other form of payment permitted under the Option Award Agreement.

 

10.8	Other Forms of Payment. To the extent permitted by the Board in its sole discretion, payment may be made in any other form that is consistent with applicable laws, regulations and rules.

SECTION 11. ADJUSTMENT OF SHARES.

 

11.1

General. In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a declaration of an extraordinary dividend payable in a form other than Shares in an amount that has a material effect on the Fair Market Value of the Stock, a combination or consolidation of the outstanding Stock into a lesser number of Shares, a recapitalization, a spin-off, a reclassification, or a similar occurrence, the Board shall make appropriate adjustments to the following: (i) the number and class of Shares available for future Awards under Section 5; (ii) the number and class of Shares covered by each outstanding Award; (iii) the Exercise Price under each outstanding Award; and (iv) the price of Shares subject to the Company’s right of repurchase; 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 Board.

 

11.2	Dissolution or Liquidation. To the extent not previously exercised or settled, Awards shall terminate immediately prior to the dissolution or liquidation of the Company.

 

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11.3

Mergers, Consolidations and Other Corporate Transactions. In the event that the Company is a party to a merger or other consolidation, or in the event of a transaction providing for the sale of all or substantially all of the Company’s stock or assets, or in the event of such other corporate transaction, such as a separation or reorganization, outstanding Awards shall be treated as the Board determines, in each case without the Participant’s consent. Subject to compliance with Section 409A of the Code, the Board may provide, without limitation, for one or more of the following: (i) the continuation of the outstanding Awards by the Company, if the Company is a surviving corporation; (ii) the assumption, in whole or in part, of the outstanding Awards by the surviving corporation or a successor entity or its parent; (iii) the substitution, in whole or in part, by the surviving corporation or a successor entity or its parent of its own awards for such outstanding Awards; (iv) exercisability and settlement, in whole or in part, of outstanding Awards to the extent vested and exercisable (if applicable) under the terms of the Award Agreement followed by the cancellation of such Awards (whether or not then vested or exercisable) upon or immediately prior to the effectiveness of the transaction; or (v) settlement of the intrinsic value of the outstanding Awards to the extent vested and exercisable (if applicable) under the terms of the Award Agreement, with payment made in cash or cash equivalents or property (including cash or property subject to deferred vesting and delivery consistent with the vesting restrictions applicable to such Awards or the underlying Shares) followed by the cancellation of such Awards (whether or not then vested or exercisable) (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the Board determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment). For avoidance of doubt, the value of any property, including the value of property provided in settlement of an Award, shall be determined by the Board and, to the extent permitted under Section 409A of the Code, the settlement of an Award may provide for payment to be made on a delayed basis and/or contingent basis in recognition of and a reflection of escrows, earn-outs, or other limitations, conditions, contingencies or holdbacks applicable to holders of Stock in connection with the transaction. Any acceleration of payment of an amount that is subject to section 409A of the Code will be delayed, if necessary, until the earliest time that such payment would be permissible under Section 409A without triggering any additional taxes applicable under Section 409A. The Company will have no obligation to treat all Awards, all Awards held by a Participant, or all Awards of the same type, similarly. The Board shall also have discretion to suspend the right of Participants to exercise outstanding Awards during a limited period of time preceding the closing of the transaction if such suspension is administratively necessary to facilitate the closing of the transaction, and may terminate the right of holders of Options to exercise Options prior to vesting in the Shares subject to the Option (i.e., “early exercise”), such that following the closing of the transaction the Option may only be exercised to the extent it is vested.

 

11.4

Reservation of Rights. Except as provided in this Section 11, a Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend or any other increase or decrease in the number of shares of stock of any class. Any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Award. The grant of an Award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

 

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11.5

Buyout Provisions. The Board may at any time (a) offer to buy out for a payment in cash or cash equivalents an Award previously granted, or (b) authorize a Participant to elect to cash out an Award previously granted, in either case at such time and based upon such terms and conditions as the Board shall establish.

SECTION 12. TRANSFER RESTRICTIONS AND REPURCHASE RIGHTS.

 

12.1

Transfer Restrictions. No person who shall have acquired Shares or shall have any right to acquire Shares under the Plan shall sell, assign, pledge or otherwise transfer (each, a “Transfer”) any such Shares or any right or interest therein (including, without limitation, any Option) (such Shares or right or interest therein, including without limitation any Option, collectively the “Securities”), whether voluntarily, involuntarily, by operation of law, by gift or otherwise, without the prior written consent of the Company, evidenced by a writing approved by the Board (the “Transfer Restriction”). The Transfer Restriction shall not apply to any of the following exempt Transfers:

 

(a)

A person’s Transfer of any or all Securities held either during such person’s lifetime or on death by will or intestacy (1) to such person’s Immediate Family, (2) to any custodian or trustee for the account or the benefit of such person or such person’s Immediate Family, or (3) to any limited partnership or limited liability company with respect to which the ownership interests are wholly owned by the person, members of such person’s Immediate Family or any trust for the account or benefit of such person or such person’s Immediate Family;

 

(b)

A person’s bona fide pledge or mortgage of any Securities with a commercial lending institution that creates a mere security interest, provided that any subsequent Transfer of such Securities by such institution shall be subject to this Section 12; or

 

(c)

A person’s Transfer of any or all of such person’s Securities to the Company;

provided that with respect to Transfers pursuant to subsections (a) and (b) above, the Transferee shall receive and hold such Shares subject to the provisions of this Section 12.1, and there shall be no further Transfer of such Shares except in accord with this Section 12.1. The provisions of this Section 12.1 may be waived with respect to any Transfer by the stockholders, upon the written consent of the owners of a majority of the voting power of the Company (excluding the votes represented by those Shares to be Transferred by any Transferring stockholder). The provisions of this Section 12.1 shall terminate immediately prior to the date of the closing of a firm commitment underwritten public offering of the Company’s Stock pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission under the Securities Act. Any Transfer, or purported Transfer, of Securities of the Company shall be null and void unless the terms, conditions and provisions of this Section 12.1 are strictly observed and followed. The restrictions contained in this Section 12.1 shall be in addition to any restrictions on transfer that may otherwise be applicable, including without limitation those contained in the Company’s bylaws or pursuant to applicable securities laws.

 

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12.2

Company’s Right to Repurchase Shares. Shares acquired through an Award shall also be subject to such forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Board may determine. Such restrictions shall be set forth in the applicable Award Agreement and, unless otherwise provided in the Award Agreement, shall apply to any dividends paid with respect to such Shares. Such restrictions shall apply in addition to any restrictions otherwise applicable to holders of Shares generally.

SECTION 13. WITHHOLDING AND OTHER TAXES.

 

13.1

General. A Participant or his or her successor shall pay, or make arrangements satisfactory to the Board for the satisfaction of, any federal, state, local or foreign withholding tax obligations that may arise in connection with the Plan. The Company shall not be required to issue any Shares or make any cash payment under the Plan if such obligations are not timely satisfied.

 

13.2

Share Withholding. The Board may permit a Participant to satisfy all or part of his or her withholding tax obligations by having the Company withhold all or a portion of any Shares that would otherwise be issued to him or her upon exercise or settlement of an Award, or by surrendering all or a portion of any Shares that he or she previously acquired; provided, however, that in no event may a Participant surrender Shares in excess of the legally required maximum tax withholding amount. Such Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. Any payment of taxes by assigning Shares to the Company may be subject to restrictions, including any restrictions required by rules of any federal or state regulatory body or other authority. All elections by Participants to have Shares withheld for this purpose shall be made in such form and under such conditions as the Board may deem necessary or advisable.

 

13.3	Cashless Exercise/Pledge. The Board may provide that if Company Shares are publicly traded at the time of exercise, arrangements may be made to meet the Participant’s withholding obligation by cashless exercise or pledge.

 

13.4	Other Forms of Payment. The Board may permit such other means of tax withholding as it deems appropriate.

 

13.5

Employer Fringe Benefit Taxes. To the extent permitted by applicable federal, state, local and foreign law, a Participant shall be liable for any fringe benefit tax that may be payable by the Company and/or the Participant’s employer in connection with any award granted to the Participant under the Plan, which the Company and/or employer may collect by any reasonable method established by the Company and/or employer.

 

13.6

Section 409A. Each Award that provides for “nonqualified deferred compensation” within the meaning of section 409A of the Code shall be subject to such additional rules and requirements as specified by the Board from time to time in order to comply with Section 409A. If any amount under such an Award is payable upon a “separation from service” (within the meaning of section 409A) to a Participant 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 Participant’s separation from service, or (ii) the Participant’s death, but only to the extent such delay is necessary to prevent the Award from being subject to interest, penalties and/or

 

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additional tax imposed pursuant to section 409A. In addition, the settlement of any such Award may not be accelerated except to the extent permitted by section 409A. The provisions of the Plan and each Award Agreement are intended to comply with or be exempt from the provisions of section 409A and shall be interpreted in a manner consistent therewith. Notwithstanding any other provision of the Plan or an Award Agreement to the contrary, the Board may in its sole discretion (but without any obligation to do so) amend the terms of any Award to the extent it determines necessary to comply with section 409A.

SECTION 14. LEGAL AND REGULATORY REQUIREMENTS.

Shares shall not be issued under the Plan unless the issuance and delivery of such Shares complies with (or is exempt from) all applicable requirements of law, including (without limitation) the Securities Act, the rules and regulations promulgated thereunder, state securities laws and regulations and the regulations of any stock exchange on which the Company’s securities may then be listed, and the Company has obtained the approval or favorable ruling from any governmental agency which the Company determines is necessary or advisable. The Company shall not be liable to a Participant or other persons as to: (a) the non-issuance or sale of Shares as to which the Company has not obtained from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares under the Plan; and (b) any tax consequences expected, but not realized, by any Participant or other person due to the receipt, exercise or settlement of any Award granted under the Plan.

SECTION 15. NO RETENTION RIGHTS.

No provision of the Plan, or any Award granted under the Plan, shall be construed to give any Participant any right to become an Employee or other Service provider, to be treated as an Employee, or to continue in Service for any period of time, or restrict in any way the rights of the Company (or Parent or Subsidiary to whom the Participant provides Service), which rights are expressly reserved, to terminate the Service of such person at any time and for any reason, with or without cause.

SECTION 16. DURATION AND AMENDMENTS.

 

16.1

Term of the Plan. The Plan, as set forth herein, shall become effective on the date of its adoption by the Board, subject to the approval of the Company’s stockholders. In the event that the stockholders fail to approve the Plan within twelve (12) months after its adoption by the Board, any grants, exercises or sales that have already occurred under the Plan shall be rescinded, and no additional grants, exercises or sales shall be made under the Plan after such date. The Plan shall terminate automatically ten (10) years after the later of (i) its adoption by the Board, or (ii) the most recent increase in the number of Shares reserved under Section 5 (other than pursuant to Section 11) that was approved by stockholders on or within twelve (12) months after the Board’s approval of such increase. The Plan may be terminated on any earlier date pursuant to Section 16.2 below.

 

16.2

Right to Amend or Terminate the Plan. The Board may amend, suspend, or terminate the Plan at any time and for any reason. An amendment of the Plan shall not be subject to the approval of the Company’s stockholders unless it (i) increases the number of Shares available for issuance under the Plan (except as provided in Section 11) or (ii) materially changes the class of persons who are eligible for the grant of Awards. Options may be

 

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granted and Shares may be issued which are in each instance in excess of the number of Shares then available for issuance under the Plan, provided any excess Shares actually issued under those Awards shall be held in escrow until there is obtained stockholder approval of an amendment sufficiently increasing the number of Shares available for issuance under the Plan. If such stockholder approval is not obtained within 12 months after the date the first such excess grants or issuances are made, then (1) any unexercised Options granted on the basis of such excess Shares shall terminate and (2) the Company shall promptly refund to the Participants the exercise or purchase price paid for any excess Shares issued under the Plan and held in escrow, together with interest (at the Internal Revenue Service short term Applicable Federal Rate) for the period the Shares were held in escrow, and such Shares shall thereupon be automatically cancelled and cease to be outstanding.

 

16.3

Effect of Amendment or Termination. No Shares shall be issued or sold under the Plan after the termination thereof, except upon exercise or settlement of an Award granted prior to such termination. Except as otherwise permitted by the Plan or an Award Agreement or as required to comply with any applicable law, regulation or rule, the termination of the Plan, or any amendment thereof, shall not have a material adverse effect on any Award previously granted under the Plan without the holder’s consent; provided, however, that an amendment which may cause an ISO to become an NSO shall not be treated as having a material adverse effect on an Award.

[Remainder of Page Intentionally Left Blank]

 

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SECTION 17. EXECUTION.

To record the adoption of the Plan by the Board on September 20, 2018, effective on such date, the Company has caused its authorized officer to execute the same.

 

InsTIL Bio, Inc.
By:		/s/ Bronson Crouch
Name:		Bronson Crouch
Title:		Chief Executive Officer

 

INSTIL BIO, INC.

2018 STOCK INCENTIVE PLAN

SIGNATURE PAGE

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INSTIL BIO, INC. 2018 STOCK INCENTIVE PLAN

APPENDIX REGARDING PLAN AMENDMENTS

 

Description		No. Shares Subject to Plan				Board Approval		Stockholder Approval
Initial Adoption of Plan			5,666,667			September 20, 2018		October 3, 2018
Amendment			8,666,667			March 4, 2019		March 4, 2019
Amendment			10,666,667			May 28, 2020		May 28, 2020
Amendment			16,872,341			June 30, 2020		June 30, 2020
Amendment			21,784,148			December 29, 2020		December 29, 2020

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INSTIL BIO, INC.

2018 STOCK INCENTIVE PLAN

STOCK OPTION AGREEMENT

SECTION 18. KIND OF OPTION. This Option is intended to be either an incentive stock option intended to meet the requirements of Section 422 of the Code (an “ISO”) or a non-statutory option (an “NSO”), which is not intended to meet the requirements of an ISO, as indicated in the Notice of Stock Option Grant. Even if this Option is designated as an ISO, it shall be deemed to be an NSO to the extent required by the $100,000 annual limitation under Section 422(d) of the Code.

SECTION 19. VESTING. Subject to the terms and conditions of the Plan and this Stock Option Agreement (the “Agreement”), your Option will be exercisable with respect to the Shares that have become vested in accordance with the schedule set forth in the Notice of Stock Option Grant. If your Option is granted in consideration of your Service as an Employee or a Consultant, after your Service as an Employee or a Consultant terminates for any reason, vesting of your Shares subject to such Option immediately stops and such Option expires immediately as to the number of Shares that are not vested as of the date your Service as an Employee or a Consultant terminates, except as otherwise provided under the Plan. If your Option is granted in consideration of your Service as an Outside Director, after your Service as a member of the Board of the Company, a Parent or Subsidiary (a “Director”) terminates for any reason, vesting of your Shares subject to such Option immediately stops and such Option expires immediately as to the number of Shares that are not vested as of the date your Service as a Director terminates, except as otherwise provided under the Plan.

SECTION 20. TERM. Your Option will expire in any event at the close of business at Company headquarters on the date that is ten (10) years after the Date of Grant; provided, however, that if your Option is an ISO it will expire five (5) years after the Date of Grant if you are a Ten-Percent Stockholder of the Company (the “Expiration Date”). Also, your Option will expire earlier if your Service terminates, as described below.

SECTION 21. REGULAR TERMINATION.

 

21.1

If your Service terminates for any reason except death or Disability, the vested portion of your Option will expire at the close of business at Company headquarters on the date three (3) months after your termination of Service. During that three (3) month period, you may exercise the portion of your Option that was vested on your termination date. Notwithstanding the foregoing, the Option may not be exercised after the Expiration Date determined under Section 3 above.

 

21.2

If your Option is an ISO and you exercise it more than three months after termination of your Service as an Employee for any reason other than death or Disability expected to result in death or to last for a continuous period of at least twelve (12) months, your Option will cease to be eligible for ISO tax treatment.

 

21.3

Your Option will cease to be eligible for ISO tax treatment if you exercise it more than three months after the first day following three months of a bona fide leave of absence approved by the Company, unless you return to employment immediately upon termination of such leave or your right to reemployment after your leave was guaranteed by statute or contract.

 

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SECTION 22. DEATH. If you die while in Service with the Company, the vested portion of your Option will expire at the close of business at Company headquarters on the date twelve (12) months after the date of your death. During that twelve (12) month period, your estate, legatees or heirs may exercise that portion of your Option that was vested on the date of your death. Notwithstanding the foregoing, the Option may not be exercised after the Expiration Date determined under Section 3 above.

SECTION 23. DISABILITY.

 

23.1

If your Service terminates because of a Disability, the vested portion of your Option will expire at the close of business at Company headquarters on the date twelve (12) months after your termination date. During that twelve (12) month period, you may exercise that portion of your Option that was vested on the date of your Disability. “Disability” means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment as determined by the Company; provided, however, that the Company has no obligation to investigate whether Disability is applicable unless you or your representative put the Company on notice within ninety (90) days after your termination of Service. Notwithstanding the foregoing, the Option may not be exercised after the Expiration Date determined under Section 3 above.

 

23.2

If your Option is an ISO and your Disability is not expected to result in death or to last for a continuous period of at least twelve (12) months, your Option will be eligible for ISO tax treatment only if it is exercised within three (3) months following the termination of your Service as an Employee.

SECTION 24. EXERCISING YOUR OPTION. To exercise your Option, you must execute the Notice of Exercise and Common Stock Purchase Agreement (the “Exercise Notice”), attached as Exhibit A. You must submit this form, together with full payment, to the Company. Your exercise will be effective when it is received by the Company. If someone else wants to exercise your Option after your death, that person must prove to the Company’s satisfaction that he or she is entitled to do so.

SECTION 25. PAYMENT FORMS. When you exercise your Option, you must include payment of the Exercise Price for the Shares you are purchasing in cash or cash equivalents. Alternatively, you may pay all or part of the Exercise Price by surrendering, or attesting to ownership of, Shares already owned by you, unless such action would cause the Company to recognize any (or additional) compensation expense with respect to the Option for financial reporting purposes. Such Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value on the date of Option exercise. To the extent that a public market for the Shares exists and to the extent permitted by applicable law, in each case as determined by the Company, you also may exercise your Option by delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker to sell Shares and to deliver all or part of the sale proceeds to the Company in payment of the aggregate Exercise Price and, if requested, applicable withholding taxes. The Company will provide the forms necessary to make such a cashless exercise. The Board may permit such other payment forms as it deems appropriate, subject to applicable laws, regulations and rules.

 

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SECTION 26. TAX WITHHOLDING AND REPORTING.

 

26.1

You will not be allowed to exercise this Option unless you pay, or make acceptable arrangements to pay, any taxes required to be withheld as a result of the Option exercise or the sale of Shares acquired upon exercise of this Option. You hereby authorize withholding from payroll or any other payment due you from the Company or your employer to satisfy any such withholding tax obligation.

 

26.2	If you sell or otherwise dispose of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, you shall immediately notify the Company in writing of such disposition.

 

26.3

By signing this Agreement, you explicitly and unambiguously consent and agree to assume any liability for fringe benefit tax that may be payable by the Company and/or your employer in connection with the Option granted under this Agreement to the extent permitted under applicable law. Further, by signing this Agreement, you agree that the Company and/or your employer may collect the fringe benefit tax from you by any reasonable method established by the Company and/or your employer. You further agree to execute any other consents or elections required to accomplish the above, promptly upon request of the Company and/or your employer.

SECTION 27. TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL. In the event that you propose to sell, pledge or otherwise transfer to a third party any Shares acquired under this Agreement, or any interest in such Shares, you will be subject to the “Transfer Restriction” set forth in Section 12.1 of the Plan (as amended from time to time), and the Company shall have a “Right of First Refusal” with respect to such Shares in accordance with the provisions of the Exercise Notice.

SECTION 28. RESALE RESTRICTIONS/MARKET STAND-OFF. In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the U.S. Securities Act of 1933, as amended, including the Company’s initial public offering, you may be prohibited from engaging in any transaction with respect to any of the Company’s common stock without the prior written consent of the Company or its underwriters in accordance with the provisions of the Exercise Notice.

SECTION 29. TRANSFER OF OPTION. Prior to your death, only you may exercise this Option. This Option and the rights and privileges conferred hereby cannot be sold, pledged or otherwise transferred (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment, levy or similar process. For instance, you may not sell this Option or use it as security for a loan. If you attempt to do any of these things, this Option will immediately become invalid. You may, however, dispose of this Option in your will. Regardless of any marital property settlement agreement, the Company is not obligated to honor an Exercise Notice from your spouse or former spouse, nor is the Company obligated to

 

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recognize such individual’s interest in your Option in any other way. Notwithstanding the foregoing, however, to the extent permitted by the Board in its sole discretion, an NSO may be transferred by you to a revocable trust or to one or more family members or to a trust established for your benefit and/or one or more of your family members to the extent permitted by the Plan.

SECTION 30. RETENTION RIGHTS. This Agreement does not give you the right to be retained by the Company in any capacity. The Company reserves the right to terminate your Service at any time and for any reason without thereby incurring any liability to you.

SECTION 31. STOCKHOLDER RIGHTS. Neither you nor your estate or heirs have any rights as a stockholder of the Company until a certificate for the Shares acquired upon exercise of this Option has been issued. No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued, except as described in the Plan.

SECTION 32. ADJUSTMENTS. In the event of a stock split, a stock dividend or a similar change in the Company’s Stock, the number of Shares covered by this Option and the Exercise Price per share may be adjusted pursuant to the Plan. Your Option shall be treated as the Board determines in the event the Company is subject to a merger, liquidation or reorganization as set forth in the Plan.

SECTION 33. LEGENDS. All certificates representing the Shares issued upon exercise of this Option shall, where applicable, have endorsed thereon the following legends:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF U.S. FEDERAL, STATE AND APPLICABLE FOREIGN SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND QUALIFICATION UNDER U.S. FEDERAL, STATE AND APPLICABLE FOREIGN SECURITIES LAWS IS NOT REQUIRED.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF THE COMPANY’S STOCK PLAN AND A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE INITIAL HOLDER HEREOF. SUCH PLAN AND AGREEMENT PROVIDE FOR CERTAIN TRANSFER RESTRICTIONS, INCLUDING RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SECURITIES AND CERTAIN REPURCHASE RIGHTS IN FAVOR OF THE COMPANY. THE COMPANY SHALL NOT REGISTER OR OTHERWISE RECOGNIZE OR GIVE EFFECT TO ANY PURPORTED TRANSFER OF SECURITIES THAT DOES NOT COMPLY WITH SUCH TRANSFER RESTRICTIONS. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH PLAN AND AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.

 

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If the Option is an ISO, then the following legend should be included:

THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED UPON EXERCISE OF AN INCENTIVE STOCK OPTION, AND THE COMPANY MUST BE NOTIFIED IF THE SHARES SHALL BE TRANSFERRED BEFORE THE LATER OF THE TWO (2) YEAR ANNIVERSARY OF THE DATE OF GRANT OF THE OPTION OR THE ONE (1) YEAR ANNIVERSARY OF THE DATE ON WHICH THE OPTION WAS EXERCISED. THE REGISTERED HOLDER MAY RECOGNIZE ORDINARY INCOME IF THE SHARES ARE TRANSFERRED BEFORE SUCH DATE.

SECTION 34. TAX DISCLAIMER.

You agree that you are responsible for consulting your own tax advisor as to the tax consequences associated with your Option. The tax rules governing options are complex, change frequently and depend on the individual taxpayer’s situation. For your information, a memorandum that briefly summarizes current U.S. federal income tax law relating to certain aspects of stock options is attached hereto as Exhibit B. Please note that this memorandum does not purport to be complete. Although the Company will make available to you general tax information about stock options, you agree that the Company shall not be held liable or responsible for making such information available to you or for any tax or financial consequences that you may incur in connection with your Option.

In addition, as noted in Exhibit B, options granted at a discount from fair market value may be considered “deferred compensation” subject to adverse tax consequences under Section 409A of the Code. The Board has made a good faith determination that the exercise price per share of the Option is not less than the fair market value of the Shares underlying your Option on the Date of Grant. It is possible, however, that the Internal Revenue Service could later challenge that determination and assert that the fair market value of the Shares underlying your Option was greater on the Date of Grant than the exercise price determined by the Board, which could result in immediate income tax upon the vesting of your Option (whether or not exercised) and a 20% tax penalty, as well as the loss of incentive stock option status (if applicable). The Company gives no assurance that such adverse tax consequences will not occur and specifically assumes no responsibility therefor. By accepting this Option, you acknowledge that any tax liability or other adverse tax consequences to you resulting from the grant of the Option will be the responsibility of, and will be borne entirely by, you. YOU ARE THEREFORE ENCOURAGED TO CONSULT YOUR OWN TAX ADVISOR BEFORE ACCEPTING THE GRANT OF THIS OPTION.

SECTION 35. THE PLAN AND OTHER AGREEMENTS. The text of the Plan is incorporated in this Agreement by reference. Certain capitalized terms used in this Agreement are defined in the Plan. The Notice of Stock Option Grant, this Agreement, including its attachments, and the Plan constitute the entire understanding between you and the Company regarding this Option. Any prior agreements, commitments or negotiations concerning this Option are superseded.

 

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SECTION 36. MISCELLANEOUS PROVISIONS.

 

36.1

You understand and acknowledge that (i) the Plan is entirely discretionary, (ii) the Company and your employer have reserved the right to amend, suspend or terminate the Plan at any time, (iii) the grant of an option does not in any way create any contractual or other right to receive additional grants of options (or benefits in lieu of options) at any time or in any amount and (iv) all determinations with respect to any additional grants, including (without limitation) the times when options will be granted, the number of Shares offered, the Exercise Price and the vesting schedule, will be at the sole discretion of the Company.

 

36.2

The value of this Option shall be an extraordinary item of compensation outside the scope of your employment contract, if any, and shall not be considered a part of your normal or expected compensation for purposes of calculating severance, resignation, redundancy or end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.

 

36.3	You understand and acknowledge that participation in the Plan ceases upon termination of your Service for any reason, except as may explicitly be provided otherwise in the Plan or this Agreement.

 

36.4

You hereby authorize and direct your employer to disclose to the Company or any Subsidiary any information regarding your employment, the nature and amount of your compensation and the fact and conditions of your participation in the Plan, as your employer deems necessary or appropriate to facilitate the administration of the Plan.

 

36.5

You consent to the collection, use and transfer of personal data as described in this Subsection. You understand and acknowledge that the Company, your employer and the Company’s other Subsidiaries hold certain personal information regarding you for the purpose of managing and administering the Plan, including (without limitation) your name, home address, telephone number, date of birth, social insurance number, salary, nationality, job title, any Shares or directorships held in the Company and details of all options or any other entitlements to Shares awarded, canceled, exercised, vested, unvested or outstanding in your favor (the “Data”). You further understand and acknowledge that the Company and/or its Subsidiaries will transfer Data among themselves as necessary for the purpose of implementation, administration and management of your participation in the Plan and that the Company and/or any Subsidiary may each further transfer Data to any third party assisting the Company in the implementation, administration and management of the Plan. You understand and acknowledge that the recipients of Data may be located in the United States or elsewhere. You authorize such recipients to receive, possess, use, retain and transfer Data, in electronic or other form, for the purpose of administering your participation in the Plan, including a transfer to any broker or other third party with whom you elect to deposit Shares acquired under the Plan of such Data as may be required for the administration of the Plan and/or the subsequent holding of Shares on your behalf. You may, at any time, view the Data, require any necessary modifications of Data or withdraw the consents set forth in this Subsection by contacting the Human Resources Department of the Company in writing.

 

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SECTION 37. APPLICABLE LAW; VENUE. This Agreement and all disputes or controversies arising out of or relating thereto shall be governed by, and construed in accordance with, the internal laws of the State of Delaware as to matters within the scope thereof, and as to all other matters, the internal laws of the State of California, without regard to the laws of any other jurisdiction that might be applied because of the conflicts of laws principles of any state. The parties agree that any action brought by either party to interpret or enforce any provision of this Agreement shall be brought in, and each party agrees to, and does hereby, submit to the jurisdiction and venue of, the appropriate state court or federal district court for the area in which the Company’s headquarters is located.

 

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Standard Exercise

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE U.S. SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF U.S. FEDERAL AND STATE AND APPLICABLE FOREIGN SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND QUALIFICATION UNDER U.S. FEDERAL AND STATE AND APPLICABLE FOREIGN SECURITIES LAWS IS NOT REQUIRED.

INSTIL BIO, INC.

2018 STOCK INCENTIVE PLAN

NOTICE OF STOCK OPTION GRANT

Instil Bio, Inc. (the “Company”) hereby grants you the following Option to purchase shares of its common stock (“Shares”). The terms and conditions of this Option are set forth in the Stock Option Agreement and the Instil Bio, Inc. 2018 Stock Incentive Plan (the “Plan”), both of which are attached to and made a part of this document.

 

Date of Grant:
Name of Optionee:
Number of Option Shares:
Exercise Price per Share:		$
Vesting Start Date:
Type of Option:		ISO
Vesting Schedule:		Subject to the terms and conditions set forth in Section 2 of the Stock Option Agreement, the Option vests over four years. The Option vests with respect to the first 25% of the total Option Shares when the Optionee completes 12 months of continuous Service as an Employee after the Vesting Start Date, and with respect to an additional 1/48th of the total Option Shares when the Optionee completes each full month of continuous Service as an Employee thereafter.   Fractional vested Shares shall be rounded down to the nearest whole number at all times.

 

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By signing this document, which may be accomplished by e-signature or other electronic indication of acceptance, you acknowledge receipt of a copy of the Plan, and agree that (a) you have carefully read, fully understand and agree to all of the terms and conditions described in the attached Stock Option Agreement, the Plan document and “Notice of Exercise and Common Stock Purchase Agreement” (the “Exercise Notice”); (b) you hereby make the purchaser’s investment representations contained in the Exercise Notice with respect to the grant of this Option; (c) you understand and agree that the Stock Option Agreement, including its cover sheet and attachments, constitutes the entire understanding between you and the Company regarding this Option, and that any prior agreements, commitments or negotiations concerning this Option are replaced and superseded; and (d) you have been given an opportunity to consult your own legal and tax counsel with respect to all matters relating to this Option prior to signing this cover sheet and that you have either consulted such counsel or voluntarily declined to consult such counsel.

 

OPTIONEE:						COMPANY:   INSTIL BIO, INC.
By:
Name:						By:
						Name:		Bronson Crouch
Address:						Title:		Chief Executive Officer

 

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INSTIL BIO, INC.

2018 STOCK INCENTIVE PLAN

NOTICE OF EXERCISE AND COMMON STOCK PURCHASE AGREEMENT

THIS AGREEMENT is dated as of _______________, between Instil Bio, Inc. (the “Company”), and [Name of Optionee] (“Purchaser”).

W I T N E S S E T H:

WHEREAS, the Company granted Purchaser a stock option on [Date of Grant] (the “Date of Grant”) pursuant to a stock option agreement (the “Option Agreement”) under which Purchaser has the right to purchase up to [Number of Shares] shares of the Company’s common stock (the “Option Shares”); and

WHEREAS, the Option is exercisable with respect to certain of the Option Shares as of the date hereof; and

WHEREAS, pursuant to the Option Agreement, Purchaser desires to purchase shares of the Company as herein described, on the terms and conditions set forth in this Agreement, the Option Agreement and the Instil Bio, Inc. 2018 Stock Incentive Plan (the “Plan”). Certain capitalized terms used in this Agreement are defined in the Plan.

NOW, THEREFORE, it is agreed between the parties as follows:

1. Purchase of Shares.

1.1 Pursuant to the terms of the Option Agreement, Purchaser hereby agrees to purchase from the Company and the Company agrees to sell and issue to Purchaser _________ shares of the Company’s common stock (the “Common Stock”) for the Exercise Price per share specified in the Notice of Stock Option Grant payable by personal check, cashier’s check, money order or otherwise as permitted by the Option Agreement. Payment shall be delivered at the Closing, as such term is defined below.

1.2 The closing (the “Closing”) under this Agreement shall occur at the offices of the Company as of the date hereof, or such other time and place as may be designated by the Company (the “Closing Date”).

2. Adjustment of Shares. Subject to the provisions of the Certificate of Incorporation of the Company, if (a) there is any stock dividend or liquidating dividend of cash and/or property, stock split or other change in the character or amount of any of the outstanding securities of the Company, or (b) there is any consolidation, merger or sale of all or substantially all of the assets of the Company, then, in such event, any and all new, substituted or additional securities or other cash or property to which Purchaser is entitled by reason of Purchaser’s ownership of the shares shall be immediately subject to the Transfer Restriction and Right of First Refusal, as defined below, with the same force and effect as the shares subject to the Transfer Restriction and Right of First Refusal. Appropriate adjustments shall be made to the number and/or class of shares subject to the Transfer Restriction and Right of First Refusal to reflect the exchange or distribution of such securities. In the event of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, the Transfer Restriction and Right of First Refusal may be enforced or exercised by the Company’s successor.

 

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3. Transfer Restriction and Right of First Refusal. Purchaser acknowledges that the Shares received under this Agreement are subject to the transfer restriction set forth in Section 12.1 of the Plan (as may be amended from time to time) (the “Transfer Restriction”). In addition, before any shares of Common Stock registered in the name of Purchaser may be sold or transferred, such shares shall first be offered to the Company pursuant to the right of first refusal contained in the Company’s bylaws, as amended from time to time, and in the absence of any such provision in the bylaws, then in accordance with the following (the “Right of First Refusal”):

3.1 Purchaser shall promptly deliver a notice (“Notice”) to the Company stating (i) Purchaser’s bona fide intention to sell or transfer such shares, (ii) the number of such shares to be sold or transferred, and the basic terms and conditions of such sale or transfer, (iii) the price for which Purchaser proposes to sell or transfer such shares, (iv) the name of the proposed purchaser or transferee, and (v) proof satisfactory to the Company that the proposed sale or transfer will not violate any applicable U.S. federal, state or foreign securities laws. The Notice shall be signed by both Purchaser and the proposed purchaser or transferee and must constitute a binding commitment subject to the Company’s Right of First Refusal as set forth herein.

3.2 Within thirty (30) days after receipt of the Notice, the Company may elect to purchase all or any portion of the shares to which the Notice refers, at the price per share specified in the Notice. If the Company elects not to purchase all or any portion of the shares, the Company may assign its right to purchase all or any portion of the shares. The assignees may elect within thirty (30) days after receipt by the Company of the Notice to purchase all or any portion of the shares to which the Notice refers, at the price per share specified in the Notice. If the price specified in the Notice consists of no legal consideration (as, for example, in the case of a transfer by gift), the purchase price will be the fair market value of the shares as determined in good faith by the Company. An election to purchase shall be made by written notice to Purchaser. Payment for shares purchased pursuant to this Section 3 shall be made within thirty (30) days after receipt of the Notice by the Company and, at the option of the Company, may be made by cancellation of all or a portion of outstanding indebtedness, if any, or in cash or both.

3.3 If all or any portion of the shares to which the Notice refers are not elected to be purchased, as provided in Section 3.2, Purchaser may sell those shares to any person named in the Notice at the price specified in the Notice, provided that such sale or transfer is consummated within sixty (60) days of the date of said Notice to the Company, and provided, further, that any such sale is made in compliance with applicable U.S. federal, state and foreign securities laws and not in violation of any other contractual restrictions to which Purchaser is bound. The third-party purchaser shall be bound by, and shall acquire the shares of stock subject to, the provisions of this Agreement, including the Company’s Right of First Refusal, and shall execute and file with the Secretary of the Company a copy of the attached Annex I.

3.4 Any proposed transfer on terms and conditions different from those set forth in the Notice, as well as any subsequent proposed transfer shall again be subject to the Company’s Right of First Refusal and shall require compliance with the procedures described in this Section 3.

 

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3.5 Purchaser agrees to cooperate affirmatively with the Company, to the extent reasonably requested by the Company, to enforce rights and obligations pursuant to this Agreement.

3.6 Notwithstanding the above, neither the Company nor any assignee of the Company under this Section 3 shall have any right under this Section 3 at any time subsequent to the closing of a public offering of the common stock of the Company pursuant to a registration statement declared effective under the U.S. Securities Act of 1933, as amended (the “Securities Act”).

3.7 This Section 3 shall not apply to a transfer, including by will or intestate succession, to one or more members of Purchaser’s Immediate Family or to a trust established by Purchaser for the benefit of Purchaser and/or one or more members of Purchaser’s Immediate Family, provided that the transferee agrees in writing on a form prescribed by the Company to be bound by all of the provisions of this Agreement to the same extent as they apply to Purchaser. The transferee shall execute a copy of the attached Annex I and file the same with the Secretary of the Company.

3.8 In the event of any transfer by operation of law or other involuntary transfer (including death, whether by will or intestate succession, or divorce, but excluding a transfer to Immediate Family as set forth in Section 3.7 above) of all or a portion of the shares of Common Stock by the record holder thereof, the Company’s Right of First Refusal shall consist of an option to purchase all of the shares transferred at the greater of the purchase price paid by the Purchaser pursuant to this Agreement or the Fair Market Value of the shares on the date of transfer (as determined by the Board). Upon such a transfer, the person acquiring the shares shall promptly notify the Secretary of the Company of such transfer. The right to purchase such shares shall be provided to the Company for a period of thirty (30) days following receipt by the Company of written notice by the person acquiring the shares.

3.9 Notwithstanding anything to the contrary set forth in this Agreement, Purchaser hereby agrees to be bound by any and all restrictions on the transfer of shares of Common Stock as set forth in the Company’s bylaws (as may be amended from time to time) and that such transfer restrictions shall supersede all other agreements, whether written or oral, in place by and between the Company and Purchaser regarding the transfer of the shares of Common Stock.

4. Purchaser’s Rights After Exercise of Right of First Refusal. If the Company makes available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Common Stock to be repurchased in accordance with the provisions of Section 3 of this Agreement, then from and after such time the person from whom such shares are to be repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Agreement). Such shares shall be deemed to have been repurchased in accordance with the applicable provisions hereof, whether or not the certificate(s) therefor have been delivered as required by this Agreement.

 

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5. Legend of Shares. All certificates representing the Common Stock purchased under this Agreement shall, where applicable, have endorsed thereon the following legends and any other legends required by applicable securities laws:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF U.S. FEDERAL AND STATE AND APPLICABLE FOREIGN SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND QUALIFICATION UNDER U.S. FEDERAL AND STATE AND APPLICABLE FOREIGN SECURITIES LAWS IS NOT REQUIRED.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF THE COMPANY’S STOCK PLAN AND A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE INITIAL HOLDER HEREOF. SUCH PLAN AND AGREEMENT PROVIDE FOR CERTAIN TRANSFER RESTRICTIONS. THE COMPANY SHALL NOT REGISTER OR OTHERWISE RECOGNIZE OR GIVE EFFECT TO ANY PURPORTED TRANSFER OF SECURITIES THAT DOES NOT COMPLY WITH SUCH TRANSFER RESTRICTIONS. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH PLAN AND AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.

If the Option is an ISO, then the following legend should be included:

THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED UPON EXERCISE OF AN INCENTIVE STOCK OPTION, AND THE COMPANY MUST BE NOTIFIED IF THE SHARES SHALL BE TRANSFERRED BEFORE THE LATER OF THE TWO (2) YEAR ANNIVERSARY OF THE DATE OF GRANT OF THE OPTION OR THE ONE (1) YEAR ANNIVERSARY OF THE DATE ON WHICH THE OPTION WAS EXERCISED. THE REGISTERED HOLDER MAY RECOGNIZE ORDINARY INCOME IF THE SHARES ARE TRANSFERRED BEFORE SUCH DATE.

6. Purchaser’s Investment Representations.

6.1 This Agreement is made with Purchaser in reliance upon Purchaser’s representation to the Company, which by Purchaser’s acceptance hereof Purchaser confirms, that the Common Stock which Purchaser will receive will be acquired with Purchaser’s own funds for investment for an indefinite period for Purchaser’s own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that Purchaser has no present intention of selling, granting participation in, or otherwise distributing the same, but subject, nevertheless, to any requirement of law that the disposition of Purchaser’s property shall at all times be within Purchaser’s control. By executing this Agreement, Purchaser further represents that Purchaser does not have any contract, understanding or agreement with any person to sell, transfer, or grant participation to such person or to any third person, with respect to any of the Common Stock.

 

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6.2 Purchaser understands that the Common Stock will not be registered or qualified under applicable U.S. federal, state or foreign securities laws on the ground that the sale provided for in this Agreement is exempt from registration or qualification under applicable U.S. federal, state or foreign securities laws and that the Company’s reliance on such exemption is predicated on Purchaser’s representations set forth herein.

6.3 Purchaser agrees that in no event shall Purchaser make a disposition of any of the Common Stock (including a disposition under Section 3 of this Agreement), unless and until (i) Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition and (ii) Purchaser shall have furnished the Company with an opinion of counsel satisfactory to the Company to the effect that (A) such disposition will not require registration or qualification of such Common Stock under applicable U.S. federal, state or foreign securities laws or (B) appropriate action necessary for compliance with the applicable U.S. federal, state or foreign securities laws has been taken or (iii) the Company shall have waived, expressly and in writing, its rights under clauses (i) and (ii) of this Section.

6.4 With respect to a transaction occurring prior to such date as the Plan and Common Stock thereunder are covered by a valid Form S-8 or similar U.S. federal registration statement, this Subsection shall apply unless the transaction is covered by the exemption in California Corporations Code section 25102(o) or a similar broad-based exemption. In connection with the investment representations made herein, Purchaser represents that Purchaser is able to fend for himself or herself in the transactions contemplated by this Agreement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of Purchaser’s investment, has the ability to bear the economic risks of Purchaser’s investment and has been furnished with and has had access to such information as would be made available in the form of a registration statement together with such additional information as is necessary to verify the accuracy of the information supplied and to have all questions answered by the Company.

6.5 Purchaser understands that if the Company does not register with the U.S. Securities and Exchange Commission pursuant to section 12 of the U.S. Securities Exchange Act of 1934, as amended, or if a registration statement covering the Common Stock (or a filing pursuant to the exemption from registration under Regulation A of the Securities Act) under the Securities Act is not in effect when Purchaser desires to sell the Common Stock, Purchaser may be required to hold the Common Stock for an indeterminate period. Purchaser also acknowledges that Purchaser understands that any sale of the Common Stock which might be made by Purchaser in reliance upon Rule 144 under the Securities Act may be made only in limited amounts in accordance with the terms and conditions of that Rule.

7. No Duty to Transfer in Violation of This Agreement. The Company shall not be required (a) to transfer on its books any shares of Common Stock of the Company which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares shall have been so transferred. Any sale or transfer of the Company’s Shares shall be void unless the provisions of this Agreement are satisfied.

 

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8. Rights of Purchaser.

8.1 Except as otherwise provided herein, Purchaser shall, during the term of this Agreement, exercise all rights and privileges of a stockholder of the Company with respect to the Common Stock.

8.2 Nothing in this Agreement shall be construed as a right by Purchaser to be retained by the Company, or a parent or subsidiary of the Company in any capacity. The Company reserves the right to terminate Purchaser’s Service at any time and for any reason without thereby incurring any liability to Purchaser.

9. Approved Sale.

Purchaser hereby agrees that in connection with any Change in Control approved by the Board, Purchaser shall:

9.1 if stockholder approval is required, vote Purchaser’s Shares in favor of the transactions constituting such Change in Control, and in opposition to any and all other proposals that could reasonably be expected to delay or jeopardize the consummation thereof;

9.2 if the Change in Control requires the sale of Shares by Purchaser, sell Purchaser’s Shares on the same terms and conditions, and in the same proportion, as approved by the Board; and

9.3 refrain from exercising any dissenters’ rights or rights of appraisal under applicable law with respect to such transactions.

Purchaser further agrees to execute and deliver all reasonably required documentation and take such other action as is reasonably requested in order to consummate the transactions constituting such Change in Control.

10. Waiver of Statutory Information Rights. Purchaser hereby acknowledges and agrees that until the first sale of the Company’s Common Stock to the public pursuant to an effective registration statement filed under the Securities Act, Purchaser will be deemed to have waived any rights that Purchaser might otherwise have had under Section 220 of the Delaware General Corporation Law to inspect for any proper purpose and to make copies and extracts from the Company’s stock ledger, a list of stockholders and its other books and records or the books and records of any subsidiary. This waiver applies only in Purchaser’s capacity as a stockholder and does not affect any other inspection rights Purchaser may have under other law or pursuant to a written agreement with the Company.

11. Resale Restrictions/Market Stand-Off. Purchaser hereby agrees that in connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company’s initial public offering, Purchaser shall not, directly or indirectly, engage in any transaction prohibited by

 

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the underwriter, or sell, make any short sale of, contract to sell, transfer the economic risk of ownership in, loan, hypothecate, pledge, grant any option for the purchase of, or otherwise dispose or transfer for value or agree to engage in any of the foregoing transactions with respect to any Common Stock without the prior written consent of the Company or its underwriters, for such period of time after the effective date of such registration statement as may be requested by the Company or such underwriters. Such period of time shall not exceed one hundred eighty (180) days; provided, however, that if either (a) during the last seventeen (17) days of such one hundred eighty (180) day period, the Company issues an earnings release or material news or a material event relating to the Company occurs or (b) prior to the expiration of such one hundred eighty (180) day period, the Company announces that it will release earnings results during the sixteen (16) day period beginning on the last day of the one hundred eighty (180) day period, then the restrictions imposed during such one hundred eighty (180) day period shall continue to apply until the expiration of the eighteen (18) day period beginning on the issuance of the earnings release or the occurrence of the material news or material event; and provided, further, that in the event the Company or the underwriter requests that the one hundred eighty (180) day period be extended or modified pursuant to then-applicable law, rules, regulations or trading policies, the restrictions imposed during the one hundred eighty (180) day period shall continue to apply to the extent requested by the Company or the underwriter to comply with such law, rules, regulations or trading policies. Purchaser hereby agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. To enforce the provisions of this Section, the Company may impose stop-transfer instructions with respect to the Common Stock until the end of the applicable stand-off period.

12. Other Necessary Actions. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.

13. Notice. Any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon the earliest of personal delivery, receipt or the third full day following deposit in the United States Post Office with postage and fees prepaid, addressed to the other party hereto at the address last known or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto.

14. Successors and Assigns. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, be binding upon Purchaser and Purchaser’s heirs, executors, administrators, successors and assigns. The failure of the Company in any instance to exercise the Transfer Restrictions or Right of First Refusal described herein shall not constitute a waiver of any other Transfer Restriction or Right of First Refusal that may subsequently arise under the provisions of this Agreement. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of a like or different nature.

15. Applicable Law; Venue. This Agreement and all disputes or controversies arising out of or relating thereto shall be governed by, and construed in accordance with, the internal laws of the State of Delaware as to matters within the scope thereof, and as to all other matters, the internal laws of the State of California, without regard to the laws of any other jurisdiction that

 

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might be applied because of the conflicts of laws principles of any state. The parties agree that any action brought by either party to interpret or enforce any provision of this Agreement shall be brought in, and each party agrees to, and does hereby, submit to the jurisdiction and venue of, the appropriate state court or federal district court for the area in which the Company’s headquarters is located.

16. No State Qualification. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

17. No Oral Modification. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto.

18. Entire Agreement. This Agreement, the Option Agreement and the Plan constitute the entire complete and final agreement between the parties hereto with regard to the subject matter hereof.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

 

COMPANY:   INSTIL BIO, INC.						PURCHASER:

By:						By:

Name: Title:						Name: [Name of Optionee]

INSTIL BIO, INC.

NOTICE OF EXERCISE AND COMMON STOCK PURCHASE AGREEMENT

SIGNATURE PAGE

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ANNEX I

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ACKNOWLEDGMENT OF AND AGREEMENT TO BE BOUND

BY THE NOTICE OF EXERCISE AND

COMMON STOCK PURCHASE AGREEMENT OF

INSTIL BIO, INC.

The undersigned, as transferee of shares of Instil Bio, Inc. hereby acknowledges that he or she has read and reviewed the terms of the Notice of Exercise and Common Stock Purchase Agreement of Instil Bio, Inc. and hereby agrees to be bound by the terms and conditions thereof, as if the undersigned had executed said Agreement as an original party thereto.

Dated: ___________________.

 

By:
		(Signature of Transferee)

 

Name:
		(Printed Name of Transferee)

INSTIL BIO, INC.

NOTICE OF EXERCISE AND COMMON STOCK PURCHASE AGREEMENT

ANNEX I

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Standard Exercise

EXHIBIT B

U.S. FEDERAL TAX INFORMATION

(Last updated May 2018)

The following memorandum briefly summarizes current U.S. federal income tax law. The discussion is intended to be used solely for general information purposes and does not make specific representations to any participant. A taxpayer’s particular situation may be such that some variation of the basic rules is applicable to him or her. In addition, the U.S. federal income tax laws and regulations are revised frequently and may change again in the future, and the Company undertakes no obligation to update this memorandum. Each participant is urged to consult a tax advisor, both with respect to U.S. federal income tax consequences as well as any foreign, state or local tax consequences, before exercising any option or before disposing of any shares of stock acquired under the Plan.

Initial Grant of Options

The grant of an option, whether a nonqualified or nonstatutory stock option (“NSO”) or an incentive stock option (“ISO”), is not a taxable event for the optionee, and the Company obtains no deduction for the grant of the option. Note, however, that under Section 409A of the Internal Revenue Code, options granted at a discount from fair market value may be considered “deferred compensation” subject to adverse tax consequences, including immediate income tax upon the vesting of the option (whether or not exercised) and a 20% tax penalty.

Nonqualified or Nonstatutory Stock Options

The exercise of an NSO is a taxable event to the optionee. The amount by which the fair market value of the shares on the date of exercise exceeds the exercise price (the “spread”) will be taxed to the optionee as ordinary income. The spread will also be considered “wages” for purposes of FICA taxes. The Company will be entitled to a deduction in the same amount as the ordinary income recognized by the optionee from the exercise of the option that is reported to the IRS by the optionee or the Company. In general, the optionee’s tax basis in the shares acquired by exercising an NSO is equal to the fair market value of such shares on the date of exercise. Upon a subsequent sale of any such shares in a taxable transaction, the optionee will realize capital gain or loss (long-term or short-term, depending on whether the shares were held for the required holding period before the sale) in an amount equal to the difference between his or her basis in the shares and the sale price.

The capital gains tax rules are complex. If shares are held for more than one year, the maximum tax rate on the gain may be up to twenty percent (20%) to the extent that a taxpayer’s income exceeds certain thresholds. Higher income taxpayers may also be subject to a Medicare tax of 3.8% on some or all of their investment income, including capital gain income, if their income (both earned and investment) exceeds certain threshold amounts. Because the rules are complex and can vary in individual circumstances, each participant should consider consulting his or her own tax advisor.

 

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If an optionee exercises an NSO and pays the exercise price with previously acquired shares of stock, special rules apply. The transaction is treated as a tax-free exchange of the old shares for the same number of new shares, except as described below with respect to shares acquired pursuant to ISOs. The optionee’s basis in the new shares is the same as his or her basis in the old shares, and the capital gains holding period runs without interruption from the date when the old shares were acquired. The value of any new shares received by the optionee in excess of the number of old shares surrendered minus any cash the optionee pays for the new shares will be taxed as ordinary income. The optionee’s basis in the additional shares is equal to the fair market value of such shares on the date the shares were transferred, and the capital gain holding period commences on the same date. The effect of these rules is to defer recognition of any gain in the old shares when those shares are used to buy new shares. Stated differently, these rules allow an optionee to finance the exercise of an NSO by using shares of stock that he or she already owns, without paying current tax on any unrealized appreciation in those old shares.

Incentive Stock Options

The holder of an ISO will not be subject to U.S. federal income tax upon the exercise of the ISO, and the Company will not be entitled to a tax deduction by reason of such exercise, provided that the holder is employed by the Company on the exercise date (or the holder’s employment terminated within the three (3) months preceding the exercise date). Exceptions to this exercise timing requirement apply in the event the optionee dies or becomes disabled. A subsequent sale of the shares received upon the exercise of an ISO will result in the realization of long-term capital gain or loss in the amount of the difference between the amount realized on the sale and the exercise price for such shares, provided that the sale occurs more than one (1) year after the exercise of the ISO and more than two (2) years after the grant of the ISO. In general, if a sale or disposition of the shares occurs prior to satisfaction of the foregoing holding periods (referred to as a “disqualifying disposition”), the optionee will recognize ordinary income and the Company will be entitled to a corresponding deduction, generally equal to the amount of ordinary income recognized by the optionee from the disqualifying disposition that is reported to the IRS by the optionee or the Company.

Favorable tax treatment is accorded to an optionee only to the extent that the value of the shares (determined at the time of grant) covered by an ISO first exercisable in any single calendar year does not exceed one hundred thousand dollars ($100,000). If ISOs for shares whose aggregate value exceeds one hundred thousand dollars ($100,000) become exercisable in the same calendar year, the excess will be treated as NSOs.

A special rule applies if an optionee pays all or part of the exercise price of an ISO by surrendering shares of stock that he or she previously acquired by exercising any other ISO. If the optionee has not held the old shares for the full duration of the applicable holding periods, then the surrender of such shares to fund the exercise of the new ISO will be treated as a disqualifying disposition of the old shares. As described above, the result of a disqualifying disposition is the loss of favorable tax treatment with respect to the acquisition of the old shares pursuant to the previously exercised ISO.

Where the applicable holding period requirements have been met, the use of previously acquired shares of stock to pay all or a portion of the exercise price of an ISO may offer significant tax advantages. In particular, a deferral of the recognition of any appreciation in the surrendered shares is available in the same manner as discussed above with respect to NSOs.

 

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Alternative Minimum Tax

Alternative minimum tax is paid when such tax exceeds a taxpayer’s regular U.S. federal income tax. Alternative minimum tax is calculated based on alternative minimum taxable income, which is taxable income for U.S. federal income tax purposes, modified by certain adjustments and increased by tax preference items.

The “spread” under an ISO—that is, the difference between (a) the fair market value of the shares of stock at exercise and (b) the exercise price—is classified as alternative minimum taxable income for the year of exercise. Alternative minimum taxable income may be subject to the alternative minimum tax. However, if the shares of stock purchased upon the exercise of an ISO are sold in the same taxable year in which they are acquired, then the amount includible in the taxpayer’s alternative minimum taxable income will in no event exceed the amount realized upon such sale less the option exercise price paid for those shares.

In general, when a taxpayer sells stock acquired through the exercise of an ISO, only the difference between the fair market value of the shares on the date of exercise and the date of sale is used in computing any alternative minimum tax for the year of the sale. The portion of a taxpayer’s alternative minimum tax attributable to certain items of tax preference (including the spread upon the exercise of an ISO) can be credited against the taxpayer’s regular liability in later years subject to certain limitations.

Withholding Taxes

Exercise of an NSO produces taxable income which is subject to withholding. The Company will not deliver shares to the optionee unless the optionee has agreed to satisfactory arrangements for meeting all applicable U.S. federal, state and local withholding tax requirements.

U.S. federal tax law does not require unrecognized gain on exercise of an ISO to be treated as “wages” for the purposes of FICA taxes.

THIS TAX SUMMARY IS GENERAL IN NATURE AND SHOULD NOT BE RELIED UPON BY ANY PERSON IN DECIDING WHETHER OR WHEN TO EXERCISE AN OPTION. EACH PERSON SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THESE MATTERS.

 

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use in this Registration Statement on Form S-1 of our report dated February 26, 2021, relating to the financial statements of Instil Bio, Inc. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

/s/ Deloitte & Touche LLP

San Diego, California

February 26, 2021