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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of January 2024
Commission file number: 001-39838
Gracell Biotechnologies Inc.
Building 12, Block B, Phase II
Biobay Industrial Park
218 Sangtian St.
Suzhou Industrial Park, 215123
People’s Republic of China
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F ☒    Form 40-F ☐

 
NOTICE OF EXTRAORDINARY GENERAL MEETING
Gracell Biotechnologies Inc. (the “Company” or “Gracell”) will disseminate a Notice of Extraordinary General Meeting of Shareholders of the Company (the “Notice”), together with the proxy statement accompanying the Notice (the “Proxy Statement”), with attached annexes (collectively, the “Proxy Materials”), to Gracell shareholders of record as of the close of business in the Cayman Islands on January 8, 2024. The Proxy Materials are included in this report on Form 6-K.
As previously announced, the Extraordinary General Meeting (the “EGM”) will be held at 2:00 p.m. (China Standard Time) on February 19, 2024 (1:00 a.m. (Eastern Standard Time)) at 35th Floor, Two Exchange Square, 8 Connaught Place, Central, Hong Kong and virtually via live webcast to approve and authorize the execution, delivery and performance by the Company of the Agreement and Plan of Merger (the “Merger Agreement”), dated as of December 23, 2023, by and among the Company, AstraZeneca Treasury Limited, a private limited company incorporated under the laws of England and Wales (“Parent”), and Grey Wolf Merger Sub, an exempted company with limited liability incorporated under the Laws of the Cayman Islands and a wholly owned subsidiary of Parent, a copy of which is included as Annex A to the Proxy Statement, the Plan of Merger, a copy of which is attached as Annex B to the Proxy Statement, and the other agreements or documents contemplated thereby or any documents or instruments delivered in connection thereunder to which the Company is a party, and the consummation of the transactions contemplated by the Merger Agreement and the Contingent Value Rights Agreement, in the form attached as Exhibit B to the Merger Agreement and included as Annex D to the Proxy Statement, including the Merger (the “Transactions”).
Cautionary Note Regarding Forward-Looking Statements
Certain statements contained in this Form 6-K contain “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995. Statements that are not historical or current facts, including statements about the beliefs and expectations and statements relating to the proposed Transactions, are forward-looking statements. The words “anticipate,” “look forward to,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including, but not limited to: the satisfaction of the conditions precedent to the consummation of the Transactions, including, the receipt of shareholder approval and regulatory clearances; the possibility that the milestone related to the contingent value right will not be achieved, even if the Transactions are consummated; unanticipated difficulties or expenditures relating to the Transactions; legal proceedings, judgments or settlements, including those that may be instituted against the Company, the Company’s board of directors and executive officers and others following the announcement of the Transactions; disruptions of current plans and operations caused by the announcement of the Transactions; potential difficulties in employee retention due to the announcement of the Transactions; and other risks and uncertainties and the factors discussed in the section entitled “Risk Factors” in the Company’s most recent annual report on Form 20-F, as well as discussions of potential risks, uncertainties, and other important factors in the Company’s subsequent filings with the Securities and Exchange Commission (the “SEC”). Any forward-looking statements contained in this Form 6-K speak only as of the date hereof. Except as may be required by law, neither the Company nor Parent undertakes any duty to update these forward-looking statements.
Additional Information and Where to Find It
In connection with the Transactions, the Company intends to file or furnish relevant materials with or to the SEC, including the Proxy Materials furnished on this Form 6-K. Promptly after furnishing this Form 6-K to the SEC, the Company will mail or otherwise provide the Proxy Materials to each of its shareholders entitled to vote at the EGM. This communication is not a substitute for the Proxy Materials or any other document that the Company may file or furnish with or to the SEC or disseminate to its shareholders in connection with the Transactions. BEFORE MAKING ANY VOTING DECISION, SHAREHOLDERS OF THE COMPANY ARE URGED TO READ THE PROXY MATERIALS (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS IN CONNECTION WITH THE TRANSACTIONS THAT THE COMPANY WILL FILE OR
 

 
FURNISHED WITH OR TO THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE TRANSACTIONS AND THE PARTIES TO THE TRANSACTIONS. The Proxy Materials and other relevant materials in connection with the Transactions (when they become available), and any other documents filed or furnished with or to the SEC by the Company, may be obtained free of charge at the SEC’s website at www.sec.gov or at the Company’s website at www.gracellbio.com.
Participants in the Solicitation
The Company and certain of its directors, executive officers and other members of management and employees may, under SEC rules, be deemed to be “participants” in the solicitation of proxies from the Company’s shareholders with respect to the Transactions. Information regarding the persons who may be considered “participants” in the solicitation of proxies will be set forth or incorporated by reference in the proxy statement relating to the Transactions when it is filed or furnished with or to the SEC. Additional information regarding the interests of such potential participants will be included in the proxy statement and the other relevant documents filed or furnished with or to the SEC when they become available.
No Offer or Solicitation
This Form 6-K is neither a solicitation of a proxy, an offer to purchase nor a solicitation of an offer to sell any securities and it is not a substitute for any proxy statement or other filings that may be made with the SEC should the Transactions proceed.
EXHIBITS
Exhibit No.
Description
99.1
 

 
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Gracell Biotechnologies Inc.
By:
/s/ William Wei Cao
Name:
William Wei Cao
Title:
Chairman and Chief Executive Officer
Date: January 17, 2024
 

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Exhibit 99.1
[MISSING IMAGE: lg_gracell-4c.jpg]
Gracell Biotechnologies Inc.
Building 12, 218 Sangtian St.
Suzhou BioBay Park, Suzhou, 215000
People’s Republic of China
January 17, 2024
Dear Gracell Shareholders:
You are cordially invited to attend an extraordinary general meeting (the “Extraordinary General Meeting”) of shareholders of Gracell Biotechnologies Inc. (“Gracell,” the “Company,” “we,” “our” or “us”), to be held on February 19, 2024, at 2:00 p.m. (China Standard Time) at 35th Floor, Two Exchange Square, 8 Connaught Place, Central, Hong Kong and virtually via live webcast at https://gracellbio.zoom.us/j/2239616669, and on such other date and at such other place (including virtually) to which the meeting may be adjourned. We are pleased to utilize virtual shareholder meeting technology to provide ready access for Gracell shareholders.
On December 23, 2023, Gracell entered into an Agreement and Plan of Merger with AstraZeneca Treasury Limited, a private limited company incorporated under the laws of England and Wales (“Parent”), and Grey Wolf Merger Sub, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of Parent (“Merger Sub”). Such Agreement and Plan of Merger, as may be amended and restated from time to time, is referred to herein as the “Merger Agreement.” Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”) with the Company continuing as the surviving company and becoming a wholly owned subsidiary of Parent as a result of the Merger. The Extraordinary General Meeting will be held for the purposes of considering and voting upon, and if through fit passing and approving, the following resolutions:
1.
Proposal No. 1 — The Merger Proposal — as a special resolution, that the execution, delivery and performance by Gracell of the Merger Agreement, a copy of which is included as Annex A to the accompanying proxy statement, the Plan of Merger, a copy of which is included as Annex B to the accompanying proxy statement and other agreements or documents contemplated by the Merger Agreement or any document or instrument delivered in connection thereunder (the “Transaction Documents”) to which Gracell is a party, and the consummation of the transactions contemplated by the Merger Agreement and the Contingent Value Rights Agreement, in the form attached as Exhibit B to the Merger Agreement and included as Annex D to the accompanying proxy statement (the “CVR Agreement”) (collectively, the “Transactions”) (including the Merger), upon the terms and subject to the conditions set forth therein, be approved and authorized in all respects.
2.
Proposal No. 2 — The Adjournment Proposal — as an ordinary resolution, that the Extraordinary General Meeting be adjourned to a later date or dates to be determined by the chairman of the Extraordinary General Meeting if necessary, (a) to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Extraordinary General Meeting, there are insufficient votes to approve the Merger Proposal, (b) to the extent necessary, to ensure that any required supplement or amendment to the accompanying proxy statement is provided to Gracell shareholders, or (c) if, as of the time for which the Extraordinary General Meeting is scheduled, there are insufficient ordinary shares, par value of $0.0001 each, of Gracell (“Gracell ordinary shares”) represented (either in person (including by virtual attendance) or by proxy) to constitute a quorum necessary to conduct business at the Extraordinary General Meeting.
Under the terms of the Merger Agreement, Parent will acquire all of Gracell’s fully diluted share capital (including Gracell ordinary shares represented by American Depositary Shares (“Gracell ADSs”)) through
 

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the Merger for a price of $2.00 per Gracell ordinary share (or $10.00 per Gracell ADS) in cash without interest less any applicable withholding taxes at the closing of the Transactions, plus one non-tradable contingent value right (“CVR”) representing the right to receive a contingent payment of $0.30 per Gracell ordinary share (or five CVRs per Gracell ADS representing the right to receive a contingent payment of $1.50 per Gracell ADS) in cash without interest less any applicable withholding taxes payable upon achievement of a specified regulatory milestone as set forth in, and subject to and in accordance with the terms and conditions of the CVR Agreement. Pursuant to the terms of the Deposit Agreement, the Gracell ADS holders will pay any applicable fees, charges and expenses of the ADS Depositary, stock transfer or other taxes and other government charges due to or incurred by the ADS Depositary in connection with the cancellation, termination or surrender of their Gracell ADSs, which will be deducted from the cash consideration payable to the ADS holders. The upfront cash portion of the consideration represents a transaction value of approximately $1.0 billion, a 62% premium to Gracell ADS’s closing market price on December 22, 2023 and a 154% premium to the 60-day volume-weighted average price (“VWAP”) of $3.94 per Gracell ADS before the announcement of the Transactions on December 26, 2023. Combined, the upfront and potential contingent value payments represent, if achieved, a transaction value of approximately $1.2 billion, an 86% premium to Gracell ADS’s closing market price on December 22, 2023 and a 192% premium to such 60-day VWAP.
If the Merger is completed, Gracell will continue its operations as a privately held company and will be a wholly owned subsidiary of Parent and the Gracell ADSs, each representing five Gracell ordinary shares, will no longer be listed on the Nasdaq Global Select Market (“Nasdaq”) and the Gracell ADS program for the Gracell ordinary shares will terminate.
After careful consideration, the Board of Directors of Gracell (the “Board of Directors”) unanimously adopted resolutions: (a) determining that it is fair to, and in the commercial interests of, Gracell and declared that it is advisable, to enter into the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party; (b) approving the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger, and the other Transaction Documents to which Gracell is a party, and the consummation of the Merger and the other Transactions upon the terms and subject to the conditions set forth in the Merger Agreement and the CVR Agreement; (c) determining to recommend the approval and authorization of the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party, and the consummation of the Transactions (including the Merger) to the shareholders of Gracell at the Extraordinary General Meeting; and (d) directing that the Merger Agreement, the Merger and the other Transactions be submitted to the shareholders of Gracell at the Extraordinary General Meeting for their approval.
The Board of Directors unanimously recommends that you vote or give instruction to vote (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented.
The enclosed proxy statement provides detailed information about the Extraordinary General Meeting, the Merger Agreement and the Transactions (including the Merger).
The proxy statement also describes the actions and determinations of the Board of Directors in connection with its evaluation of the Merger Agreement, the Plan of Merger, the other Transaction Documents to which Gracell is a party and the Transactions (including the Merger). You should carefully read and consider the entire enclosed proxy statement and its annexes, including the Merger Agreement and the Plan of Merger, as they contain important information about, among other things, the Merger and how it affects you. You may also obtain more information about Gracell from documents Gracell has filed with or furnished to the United States Securities and Exchange Commission (the “SEC”), which are available for free at the SEC’s website at www.sec.gov.
Regardless of the number of Gracell ordinary shares that you own, your vote is very important. The Merger and the other Transactions cannot be completed unless the Merger Proposal is approved and authorized by a special resolution representing an affirmative vote of the holders of Gracell ordinary shares representing at least two-thirds of the votes cast by such Gracell shareholders as, being entitled to do so, attend and vote in person (including by virtual attendance) or by proxy, at the Extraordinary General Meeting where a quorum is present.
 

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Whether or not you plan to attend the Extraordinary General Meeting, please complete the proxy card attached to the accompanying proxy statement as Annex G, in accordance with the instructions set forth on the proxy card, as promptly as possible. The deadline to lodge your proxy card is February 14, 2024 at 5:00 p.m. (New York City time) (or if the Extraordinary General Meeting is adjourned, such later time as may be notified by the Company). Completing the proxy card in accordance with the instructions set forth on the proxy card will not deprive you of your right to attend the Extraordinary General Meeting and vote your Gracell ordinary shares at the Extraordinary General Meeting. Please note, however, that if your Gracell ordinary shares are held of record by a broker, bank or other nominee and you wish to vote at the Extraordinary General Meeting, you must obtain from the record holder a proxy issued in your name. If you submit a signed proxy card without indicating how you wish to vote, the Gracell ordinary shares represented by your proxy card will be voted (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented.
Only Gracell shareholders of record as of the close of business in the Cayman Islands on January 8, 2024 (the “Share Record Date”), are entitled to notice of the Extraordinary General Meeting and to vote at the Extraordinary General Meeting or any adjournment, postponement or other delay thereof. Holders of Gracell ADSs as of the ADS Record Date (as defined below) will not be able to attend or vote at the Extraordinary General Meeting but are entitled to instruct The Bank of New York Mellon (the “ADS Depositary”), in its capacity as the ADS Depositary and the holder of the Gracell ordinary shares underlying the Gracell ADSs, to vote at the Extraordinary General Meeting.
As the record holder of the Gracell ordinary shares represented by Gracell ADSs, the ADS Depositary, in its capacity as the ADS Depositary and the holder of the Gracell ordinary shares underlying the Gracell ADSs, will endeavor to vote (or will endeavor to cause the vote of) the Gracell ordinary shares represented by the Gracell ADSs as of the ADS Record Date at the Extraordinary General Meeting in accordance with the voting instructions as provided on the ADS voting instruction card attached to the accompanying proxy statement as Annex H timely received (or deemed received) from holders of Gracell ADSs as of the close of business in New York City on January 8, 2024 (the “ADS Record Date”). The ADS Depositary must receive such instructions no later than 12:00 p.m. (New York City time) on February 14, 2024 (or if the Extraordinary General Meeting is adjourned, such later time as may be notified by the Company or the ADS Depositary) (the “ADS Voting Cutoff Time”). Pursuant to Section 4.7 of the Deposit Agreement, dated January 7, 2021, among the Company, the ADS Depositary and all holders from time to time of Gracell ADSs (the “Deposit Agreement”), the ADS Depositary will not itself exercise any voting discretion in respect of any Gracell ordinary shares represented by Gracell ADSs and will not vote any Gracell ordinary shares represented by Gracell ADSs other than in accordance with signed voting instructions from the relevant Gracell ADS holder, except as discussed below. Under the Deposit Agreement, subject to certain conditions contained therein, Gracell ADS holders as of the ADS Record Date whose voting instructions are not received by the ADS Voting Cutoff Time or are timely received but fail to specify the manner in which the ADS Depositary is to vote will be deemed to have instructed the ADS Depositary to give a discretionary proxy to a person designated by the Company to vote the Gracell ordinary shares represented by the relevant Gracell ADSs, in each case pursuant to the terms of the Deposit Agreement; provided, however, that no such discretionary proxy will be given by the ADS Depositary with respect to any matter to be voted upon at the Extraordinary General Meeting unless Gracell has confirmed to the ADS Depositary (i) that it wishes such proxy to be given, (ii) that Gracell reasonably does not know of any substantial opposition to the matters to be voted on at the Extraordinary General Meeting and (iii) that the matters to be voted on at the Extraordinary General Meeting are not materially adverse to the interests of holders of Gracell ordinary shares. If the conditions provided for in the Deposit Agreement are satisfied with respect to discretionary proxies, Gracell intends to instruct the ADS Depositary to give such discretionary proxy to the chairman of the Extraordinary General Meeting. Accordingly, any Gracell ordinary shares represented by Gracell ADSs for which voting instructions are not received by the ADS Voting Cutoff Time or are timely received but fail to specify the manner in which the ADS Depositary is to vote, will be voted (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented. If you hold your Gracell ADSs in a brokerage, bank or other nominee account, you must follow the procedures of the broker, bank or other nominee through which you hold your Gracell ADSs if you wish to vote.
Registered holders of Gracell ordinary shares who validly exercise and have not effectively withdrawn or lost their right to dissent from the Merger will have the right to receive the payment of the fair value of their
 

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Gracell ordinary shares as determined by the Grand Court of the Cayman Islands (the “Court”) in accordance with Section 238 of the Companies Act, subject to Section 239 of the Companies Act, if the Merger is completed, but only if they deliver to the Company, before the vote to authorize and approve the Merger is taken at the Extraordinary General Meeting, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Companies Act for the exercise of dissenters’ rights, a copy of which is attached as Annex F to the accompanying proxy statement. The fair value of their Gracell ordinary shares, as determined by the Court under the Companies Act could be more than, the same as, or less than the merger consideration they would receive pursuant to the Merger Agreement if they do not exercise dissenters’ rights with respect to their Gracell ordinary shares. Parent, Merger Sub and the Company respectively agreed that the Per Share Merger Consideration is equal to or greater than the fair value of the Gracell ordinary shares for the purposes of Section 238(8) of the Companies Act.
GRACELL ADS HOLDERS WILL NOT HAVE THE RIGHT TO EXERCISE DISSENTERS’ RIGHTS AND RECEIVE PAYMENT OF THE FAIR VALUE OF THE GRACELL ORDINARY SHARES UNDERLYING THEIR GRACELL ADSs. THE ADS DEPOSITARY WILL NOT ATTEMPT TO EXERCISE ANY DISSENTERS’ RIGHTS WITH RESPECT TO ANY OF THE GRACELL ORDINARY SHARES THAT IT HOLDS, EVEN IF A GRACELL ADS HOLDER REQUESTS THE ADS DEPOSITARY TO DO SO. GRACELL ADS HOLDERS WISHING TO EXERCISE DISSENTERS’ RIGHTS MUST SURRENDER THEIR GRACELL ADSs TO THE ADS DEPOSITARY, PAY THE ADS DEPOSITARY’S FEES REQUIRED FOR THE CANCELLATION OF THEIR GRACELL ADSs ($5.00 OR LESS PER 100 GRACELL ADSs CANCELLED AND ANY OTHER FEES AND CHARGES PAYABLE PURSUANT TO THE TERMS OF THE DEPOSIT AGREEMENT), AND ANY APPLICABLE TAXES OR GOVERNMENT CHARGES, PROVIDE INSTRUCTIONS FOR THE REGISTRATION OF THE CORRESPONDING GRACELL ORDINARY SHARES IN THE COMPANY’S REGISTER OF MEMBERS, CERTIFY THAT THEY HAVE NOT GIVEN, AND WILL NOT GIVE, VOTING INSTRUCTIONS AS TO THEIR GRACELL ADSs (OR, ALTERNATIVELY, THAT THEY WILL NOT VOTE THE CORRESPONDING GRACELL ORDINARY SHARES) AND BECOME REGISTERED HOLDERS OF GRACELL ORDINARY SHARES PRIOR TO THE EXTRAORDINARY GENERAL MEETING (OR IF THE EXTRAORDINARY GENERAL MEETING IS ADJOURNED, SUCH LATER TIME AS MAY BE NOTIFIED BY THE COMPANY OR THE ADS DEPOSITARY). THEREAFTER, SUCH FORMER GRACELL ADS HOLDERS MUST COMPLY WITH THE PROCEDURES AND REQUIREMENTS FOR EXERCISING DISSENTERS’ RIGHTS WITH RESPECT TO THE GRACELL ORDINARY SHARES UNDER SECTION 238 OF THE COMPANIES ACT. IF THE MERGER IS NOT COMPLETED, THE COMPANY WOULD CONTINUE TO BE A PUBLIC COMPANY IN THE UNITED STATES AND THE GRACELL ADSs WOULD CONTINUE TO BE LISTED ON NASDAQ. GRACELL ORDINARY SHARES ARE NOT LISTED AND CANNOT BE TRADED ON ANY STOCK EXCHANGE. AS A RESULT, IF A FORMER GRACELL ADS HOLDER HAS CANCELLED HIS, HER OR ITS GRACELL ADSs TO EXERCISE DISSENTERS’ RIGHTS AND THE MERGER IS NOT COMPLETED AND SUCH FORMER GRACELL ADS HOLDER WISHES TO BE ABLE TO SELL HIS, HER OR ITS GRACELL ORDINARY SHARES ON A STOCK EXCHANGE, SUCH FORMER GRACELL ADS HOLDER WOULD NEED TO DEPOSIT HIS, HER OR ITS GRACELL ORDINARY SHARES INTO THE COMPANY’S ADS PROGRAM FOR THE ISSUANCE OF THE CORRESPONDING NUMBER OF GRACELL ADSs, SUBJECT TO THE TERMS AND CONDITIONS OF APPLICABLE LAW AND THE DEPOSIT AGREEMENT, INCLUDING PAYMENT OF RELEVANT FEES OF THE ADS DEPOSITARY FOR THE ISSUANCE OF GRACELL ADSs ($5.00 OR LESS PER 100 GRACELL ADSs ISSUED) AND APPLICABLE SHARE TRANSFER TAXES (IF ANY) AND RELATED CHARGES PURSUANT TO THE DEPOSIT AGREEMENT.
PLEASE DO NOT SEND YOUR GRACELL ORDINARY SHARE CERTIFICATES OR CERTIFICATES EVIDENCING GRACELL ADSs (“ADRs”) AT THIS TIME. IF THE MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR GRACELL ORDINARY SHARE CERTIFICATES OR ADRs.
On behalf of the Board of Directors, I thank you for your support and appreciate your consideration of this matter.
 

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Sincerely,
/s/ William Wei Cao
William Wei Cao
Chairman of the Board of Directors and Chief
Executive Officer
 

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Gracell Biotechnologies Inc.
Building 12, 218 Sangtian St.
Suzhou BioBay Park, Suzhou, 215000
People’s Republic of China
NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 19, 2024
Notice is hereby given that an extraordinary general meeting of shareholders (including any adjournments or postponements thereof, the “Extraordinary General Meeting”) of Gracell Biotechnologies Inc., an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Gracell,” the “Company,” “we,” “our,” or “us”), will be held on February 19, 2024, at 2:00 p.m. (China Standard Time) at 35th Floor, Two Exchange Square, 8 Connaught Place, Central, Hong Kong and virtually via live webcast at https://gracellbio.zoom.us/j/2239616669, for the following purposes:
1.
Proposal No. 1 — The Merger Proposal — to consider and vote on the proposal, as a special resolution, to approve and authorize the execution, delivery and performance by Gracell of the Agreement and Plan of Merger (the “Merger Agreement”), dated as of December 23, 2023, by and among AstraZeneca Treasury Limited, a private limited company incorporated under the laws of England and Wales (“Parent”), Grey Wolf Merger Sub, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a wholly owned Subsidiary of Parent (“Merger Sub”), and the Company, a copy of which is included as Annex A to the accompanying proxy statement, the Plan of Merger, a copy of which is included as Annex B to the accompanying proxy statement and other agreements or documents contemplated by the Merger Agreement or any document or instrument delivered in connection thereunder (the “Transaction Documents”) to which Gracell is a party, and the consummation of the transactions contemplated by the Merger Agreement and the Contingent Value Rights Agreement, in the form attached as Exhibit B to the Merger Agreement and included as Annex D to the accompanying proxy statement (the “CVR Agreement”) (collectively, the “Transactions”) (including the Merger), upon the terms and subject to the conditions set forth therein. Pursuant to the Merger Agreement, in accordance with the applicable provisions of the Companies Act (As Revised) of the Cayman Islands (the “Companies Act”), Merger Sub will merge with and into the Company at the effective time of the Merger, with the Company continuing as the surviving company and becoming a wholly owned subsidiary of Parent (the “Merger”).
2.
Proposal No. 2 — The Adjournment Proposal — To consider and vote on any proposal, as an ordinary resolution, to adjourn the Extraordinary General Meeting to a later date or dates to be determined by the chairman of the Extraordinary General Meeting if necessary, (a) to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Extraordinary General Meeting, there are insufficient votes to approve the Merger Proposal, (b) to the extent necessary, to ensure that any required supplement or amendment to the accompanying proxy statement is provided to Gracell shareholders, or (c) if, as of the time for which the Extraordinary General Meeting is scheduled, there are insufficient ordinary shares, par value of $0.0001 each, of Gracell (“Gracell ordinary shares”) represented (either in person (including by virtual attendance) or by proxy) to constitute a quorum necessary to conduct business at the Extraordinary General Meeting.
Only Gracell shareholders of record as of the close of business in the Cayman Islands on January 8, 2024, are entitled to notice of the Extraordinary General Meeting and to vote at the Extraordinary General Meeting or any adjournment, postponement or other delay thereof.
The Board of Directors of Gracell (the “Board of Directors”), after careful consideration, has unanimously adopted resolutions: (a) determining that it is fair to, and in the commercial interests of, Gracell and declared
 

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that it is advisable, to enter into the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party; (b) approving the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger, and the other Transaction Documents to which Gracell is a party, and the consummation of the Merger and the other Transactions upon the terms and subject to the conditions set forth the Merger Agreement and the CVR Agreement; (c) determining to recommend the approval and authorization of the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party, and the consummation of the Transactions (including the Merger) to the shareholders of Gracell at the Extraordinary General Meeting; and (d) directing that the Merger Agreement, the Merger and the other Transactions be submitted to the shareholders of Gracell at the Extraordinary General Meeting for their approval.
The Board of Directors unanimously recommends that you vote or give instruction to vote (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented.
Regardless of the number of Gracell ordinary shares that you own, your vote is very important. The Merger and the other Transactions cannot be completed unless the Merger Proposal is approved and authorized by a special resolution by the affirmative vote of the holders of Gracell ordinary shares representing at least two-thirds of the votes cast by such Gracell shareholders as, being entitled to do so, attend and vote in person (including by virtual attendance) or by proxy, at the Extraordinary General Meeting where a quorum is present.
By Order of the Board of Directors,
/s/ William Wei Cao
Dr. William Wei Cao
Chairman of the Board and Chief Executive Officer
Dated: January 17, 2024
 

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YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE EXTRAORDINARY GENERAL MEETING IN PERSON (INCLUDING BY VIRTUAL ATTENDANCE), PLEASE ENSURE THAT YOUR GRACELL ORDINARY SHARES CAN BE VOTED AT THE EXTRAORDINARY GENERAL MEETING BY SUBMITTING YOUR PROXY OR CONTACTING YOUR BROKER, BANK OR OTHER NOMINEE.
If your Gracell ordinary shares are registered in the name of a broker, bank or other nominee:   check the voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that your Gracell ordinary shares are voted at the Extraordinary General Meeting. Brokers, banks and other nominees who hold Gracell ordinary shares for their customers do not have discretionary authority to provide Gracell with voting instructions on how to vote the Gracell ordinary with respect to the Merger Proposal and the Adjournment Proposal. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owner of Gracell ordinary shares, they may not provide Gracell with voting instructions on how to vote the Gracell ordinary shares with respect to the Merger Proposal and the Adjournment Proposal.
If your Gracell ordinary shares are registered in your name:   submit your proxy as soon as possible (but in any event prior to 5:00 p.m. (New York City time) on February 14, 2024) by signing, dating and returning the proxy card attached to the accompanying proxy statement as Annex G in the enclosed postage-paid envelope, so that your Gracell ordinary shares can be voted at the Extraordinary General Meeting in accordance with your instructions. If you submit your signed proxy card without indicating how you wish to vote, the Gracell ordinary shares represented by your proxy will be voted (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented, unless you appoint a person other than the chairman of the meeting as proxy, in which case the Gracell ordinary shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.
If your Gracell ADSs are registered in the name of a broker, bank or other nominee:   check the Gracell ADS voting instructions card forwarded by your broker, bank or other nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that the shares represented by your Gracell ADSs are voted at the Extraordinary General Meeting. Brokers, banks and other nominees who hold Gracell ADSs for their customers do not have discretionary authority to provide the ADS Depositary with voting instructions on how to vote the Gracell ordinary shares underlying the Gracell ADSs with respect to the Merger Proposal and the Adjournment Proposal. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owner of Gracell ADSs, they may not provide the ADS Depositary with voting instructions on how to vote the Gracell ordinary shares underlying the Gracell ADSs with respect to the Merger Proposal and the Adjournment Proposal. If no voting instructions are received by the ADS Depositary from your broker, bank or other nominee, the ADS Depositary may give a discretionary proxy to a person designated by the Company to vote the Gracell ordinary shares represented by the relevant Gracell ADSs as described below.
If your Gracell ADSs are registered in your name:   submit your Gracell ADS voting instructions card as soon as possible by signing, dating and returning the Gracell ADS voting instructions card attached to the accompanying proxy statement as Annex H in the enclosed postage-paid envelope, so that the Gracell ordinary shares represented by your Gracell ADSs can be voted at the Extraordinary General Meeting by the ADS Depositary, as the registered holder of the Gracell ordinary shares represented by your Gracell ADSs. Pursuant to Section 4.7 of the Deposit Agreement, the ADS Depositary will not itself exercise any voting discretion in respect of any Gracell ordinary shares represented by Gracell ADSs and will not vote any Gracell ordinary shares represented by Gracell ADSs other than in accordance with signed voting instructions from the relevant Gracell ADS holder, except as discussed below. Under the Deposit Agreement, subject to certain conditions contained therein, Gracell ADS holders as of the ADS Record Date whose voting instructions are not received by the ADS Voting Cutoff Time or are timely received but fail to specify the manner in which the ADS Depositary is to vote will be deemed to have instructed the ADS Depositary to give a discretionary proxy to a person designated by the Company to vote the Gracell ordinary shares represented by the relevant Gracell ADSs, in each case pursuant to the terms of the Deposit Agreement; provided, however, that no such discretionary proxy will be given by the ADS Depositary with respect to any matter to be voted upon at the Extraordinary General Meeting unless Gracell has confirmed to the ADS Depositary (i) that it wishes such
 

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proxy to be given, (ii) that Gracell reasonably does not know of any substantial opposition to the matters to be voted on at the Extraordinary General Meeting and (iii) that the matters to be voted on at the Extraordinary General Meeting are not materially adverse to the interests of holders of Gracell ordinary shares. If the conditions provided for in the Deposit Agreement are satisfied with respect to discretionary proxies, Gracell intends to instruct the ADS Depositary to give such discretionary proxy to the chairman of the Extraordinary General Meeting. Accordingly, any Gracell ordinary shares represented by Gracell ADSs for which voting instructions are not received by the ADS Voting Cutoff Time or are timely received but fail to specify the manner in which the ADS Depositary is to vote, will be voted (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented.
You should carefully read and consider the entire accompanying proxy statement and its annexes, including the Merger Agreement, along with all of the documents incorporated by reference into the accompanying proxy statement, as they contain important information about, among other things, the Merger and how it affects you. If you have any questions concerning the Merger Agreement, the Merger, the Extraordinary General Meeting or the accompanying proxy statement, or would like additional copies of the accompanying proxy statement please contact:
[MISSING IMAGE: lg_mackenzie-bw.jpg]
1407 Broadway, 27th Floor
New York, New York 10018
proxy@mackenziepartners.com
Call Collect: (212) 929-5500
or
Toll-Free (800) 322-2885
 

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Annexes
Annex A   The Merger Agreement
Annex B   The Plan of Merger
Annex C   Opinion of Centerview Partners LLC
Annex D   CVR Agreement
Annex E   Support Agreement
Annex F   Companies Act (Revised) of the Cayman Islands – Section 238
Annex G   Form of Proxy Card
Annex H   Form of ADS Voting Instruction Card
 
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SUMMARY
This summary highlights selected information from this proxy statement related to the merger of Grey Wolf Merger Sub with and into Gracell Biotechnologies Inc. (the “Merger”), and may not contain all of the information that is important to you. To understand the Merger and the other Transactions more fully and for a more complete description of the legal terms of the Merger and the other Transactions, you should carefully read and consider this entire proxy statement and the annexes to this proxy statement, including the Merger Agreement (as defined below) and the CVR Agreement (as defined below), along with all of the documents to which we refer in this proxy statement, as they contain important information about, among other things, the Merger and the other Transactions and how it affects you. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under the caption, “Where You Can Find More Information.” The Merger Agreement (as defined below) is attached as Annex A to this proxy statement. You should carefully read and consider the entire Merger Agreement, which is the legal document that governs the Merger.
Except as otherwise specifically noted in this proxy statement, “Gracell,” “we,” “our,” “us,” the “Company” and similar words refer to Gracell Biotechnologies Inc. and references to “subsidiaries” of Gracell refer to each subsidiary of Gracell, including its variable interest entity and any subsidiary of such variable interest entity. Throughout this proxy statement, we refer to AstraZeneca Treasury Limited as “Parent” and Grey Wolf Merger Sub as “Merger Sub.” In addition, throughout this proxy statement we refer to the Agreement and Plan of Merger, dated December 23, 2023, by and among Gracell, Parent and Merger Sub, as the “Merger Agreement,” our ordinary shares, par value $0.0001 per share as “Gracell ordinary shares,” our American depositary shares, each of which represents five Gracell ordinary shares as “Gracell ADSs,” the holders of Gracell ordinary shares as “Gracell shareholders” and the transactions contemplated by the Merger Agreement and the CVR Agreement (as defined below) as the “Transactions.” All references to “dollars” and “$” in this proxy statement are to U.S. dollars. Unless indicated otherwise, any other capitalized term used herein but not otherwise defined herein has the meaning assigned to such term in the Merger Agreement.
Parties Involved in the Merger
Gracell Biotechnologies Inc.
Gracell is a global clinical-stage biopharmaceutical company dedicated to discovering and developing breakthrough cell therapies to address major industry challenges and fulfill unmet medical needs in the treatment of cancer. Gracell ADS is listed on The Nasdaq Stock Market LLC (“Nasdaq”) under the symbol “GRCL.”
AstraZeneca Treasury Limited
Parent was formed on March 18, 1994 and is an indirect wholly owned subsidiary of AstraZeneca PLC (“AstraZeneca”), a global, science-led biopharmaceutical company that focuses on the discovery, development, and commercialization of prescription medicines in Oncology, Rare Diseases, and BioPharmaceuticals, including Cardiovascular, Renal & Metabolism, and Respiratory & Immunology.
Grey Wolf Merger Sub
Merger Sub is a wholly owned subsidiary of Parent and was incorporated on December 19, 2023, solely for the purpose of engaging in the transactions contemplated by the Merger Agreement and has not engaged in any business activities other than in connection with the transactions contemplated by the Merger Agreement.
The Merger
Upon the terms and subject to the conditions of the Merger Agreement, a copy of which is included as Annex A to this proxy statement, at the Effective Time (as defined below), Merger Sub will merge with and into Gracell and the separate corporate existence of Merger Sub will cease, with Gracell continuing as the surviving company and as a wholly owned subsidiary of Parent (the “Surviving Company”). As a result of the Merger, Gracell ADSs will no longer be publicly traded and will be delisted from Nasdaq. In addition, Gracell ADSs will be deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
 
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Gracell will no longer file periodic reports with the United States Securities and Exchange Commission (the “SEC”). If the Merger is completed, you will not own any share capital of the Surviving Company. The time at which the Merger will become effective will occur when the plan of merger, in the form attached to this proxy statement as Annex B (the “Plan of Merger”), is registered with the Registrar of Companies in the Cayman Islands (the “Registrar of Companies”) in accordance with Section 233 of the Companies Act (As Revised) of the Cayman Islands (the “Companies Act”) or such other date as specified in the Plan of Merger in accordance with the Companies Act (such time and date being referred to herein as the “Effective Time”).
Merger Consideration
Treatment of Gracell ordinary shares and Gracell ADSs
At the Effective Time, (a) each Gracell ordinary share issued and outstanding immediately prior to the Effective Time (other than Gracell ordinary shares (including Gracell ordinary shares represented by Gracell ADSs) held by Parent, Merger Sub, Gracell or any of their subsidiaries and Gracell ordinary shares (including Gracell ADSs corresponding to Gracell ordinary shares) held by the Company or the ADS Depositary (as defined below) and reserved for issuance and allocation pursuant to Gracell’s equity incentive plans (collectively, “Excluded Shares”), Gracell ordinary shares represented by Gracell ADSs, and Gracell ordinary shares held by holders who will have exercised and not withdrawn or otherwise lost their rights to dissent from the Merger in accordance with the Companies Act, will be cancelled and will thereafter represent only the right to receive (i) $2.00 per Gracell ordinary share (the “Per Share Closing Amount”) in cash without interest and (ii) one contingent value right (each a “CVR”) per Gracell ordinary share representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone (as defined below) (the Per Share Closing Amount plus one CVR, the “Per Share Merger Consideration”), in each case subject to any applicable withholding taxes; (b) each Gracell ADS issued and outstanding immediately prior to the Effective Time (other than Gracell ADSs representing the Excluded Shares), together with the underlying Gracell ordinary shares represented by such Gracell ADSs, will be cancelled and will thereafter represent only the right to receive (i) $10.00 per Gracell ADS (the “Per ADS Closing Amount”) in cash without interest and (ii) five CVRs per Gracell ADS representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone (the Per ADS Closing Amount plus five CVRs, the “Per ADS Merger Consideration”), in each case, subject to any applicable withholding taxes and pursuant to the terms and conditions set forth in the Merger Agreement and the Deposit Agreement, dated January 7, 2021, among Gracell, The Bank of New York Mellon (the “ADS Depositary”) and all holders from time to time of Gracell ADSs issued thereunder (the “Deposit Agreement”), and in the event of any conflict between the Merger Agreement and the Deposit Agreement, the Merger Agreement will prevail and apply; and (c) each Gracell ordinary share that is issued and outstanding immediately prior to the Effective Time and is held by a holder of Gracell ordinary shares who will have validly exercised and not effectively withdrawn or have not otherwise lost their rights to dissent from the Merger in accordance with Section 238 of the Companies Act (the “Dissenting Shares”, and holders of the Dissenting Shares collectively, the “Dissenting Shareholders”) will be entitled to receive only the payment of the fair value of such Dissenting Shares held by them as determined by the Grand Court of the Cayman Islands (the “Court”) in accordance with the provisions of Section 238 of the Companies Act, subject to Section 239 of the Companies Act (the “Dissenting FV Payment”), which will be cancelled and cease to exist. Pursuant to the terms of the Deposit Agreement, the Gracell ADS holders will pay any applicable fees, charges and expenses of the ADS Depositary, stock transfer or other taxes and other government charges due to or incurred by the ADS Depositary in connection with the cancellation, termination or surrender of their Gracell ADSs, which will be deducted from the Per ADS Closing Amount.
At the Effective Time, each ordinary share of Merger Sub issued and outstanding immediately prior to the Effective Time will be cancelled and the Surviving Company will issue to Parent such validly issued, fully paid and non-assessable ordinary shares of the Surviving Company as set out in the Plan of Merger, and such ordinary shares of the Surviving Company will constitute the only issued and outstanding share capital of the Surviving Company upon the Effective Time.
Treatment of Company Warrants
At the Effective Time, each warrant to purchase Gracell ordinary shares (each, a “Company Warrant”) outstanding and not exercised immediately prior to the Effective Time will be cancelled and thereafter
 
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represent only the right to receive an amount in cash, without interest, equal to the Black Scholes Value (which is equal to $1.26618 per Gracell ordinary share underlying such Company Warrant) of the remaining unexercised portion of each Company Warrant in accordance with its terms (the “Company Warrant Consideration”), subject to any applicable withholding taxes. A holder of Company Warrants may exercise any Company Warrant held by it for an exercise price of $1.116 per Gracell ordinary share issuable upon exercise of such Company Warrant at any time prior to the date of the Extraordinary General Meeting by following the instructions for exercise set forth in the Company Warrant, including payment of the aggregate exercise price. Each Gracell ordinary share issued upon the exercise of any Company Warrant prior to the Effective Time will receive the same consideration as any other Gracell ordinary share in the Merger, as further described above under the section captioned “The Merger Agreement — Merger Consideration — Treatment of Gracell ordinary shares and Gracell ADSs”).
Treatment of Company Options and Company RSU Awards
At the Effective Time, options to acquire Gracell ordinary shares (“Company Options”) outstanding immediately prior to the Effective Time will automatically accelerate and become fully vested and exercisable effective immediately prior to, and contingent upon, the Effective Time, and (a) each Company Option that is outstanding as of immediately prior to the Effective Time with a per-share exercise price that is less than the Per Share Closing Amount (an “In-the-Money Company Option”) will be cancelled and converted at the Effective Time into the right to receive (i) an amount in cash, without interest, equal to the product of (A) the total number of Gracell ordinary shares subject to such In-the-Money Company Option multiplied by (B) the amount by which the Per Share Closing Amount exceeds the exercise price payable per Gracell ordinary share subject to such In-the-Money Company Option and (ii) one CVR per Gracell ordinary share subject to such In-the-Money Company Option, representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone in accordance with the terms of the CVR Agreement (as defined below), in each case subject to any required tax withholding, (b) each Company Option that is outstanding as of immediately prior to the Effective Time with a per-share exercise price that is equal to or greater than the Per Share Closing Amount but less than the sum of the Per Share Closing Amount plus $0.30 (each, an “Underwater Company Option”) will be cancelled and converted into the right to receive, upon the achievement of the Milestone in accordance with the terms of the CVR Agreement, an amount of cash, without interest, equal to the product of (i) the total number of Gracell ordinary shares subject to such Underwater Company Option as of immediately prior to the Effective Time multiplied by (ii) the amount, if any, by which (A) the Per Share Closing Amount plus $0.30 exceeds (B) the exercise price payable per Gracell ordinary share subject to such Underwater Company Option, less any required tax withholdings and (c) each Company Option that is outstanding as of immediately prior to the Effective Time and has a per-share exercise price that is equal to or greater than the sum of the Per Share Closing Amount plus $0.30 will be cancelled for no consideration.
Each restricted stock unit that corresponds to a Gracell ordinary share (each, a “Company RSU”) that is outstanding as of immediately prior to the Effective Time will accelerate and become fully vested effective immediately prior to, and contingent upon, the Effective Time, and as of the Effective Time, will be cancelled and converted into the right to receive (a) an amount in cash, without interest, equal to the Per Share Closing Amount multiplied by the aggregate number of Gracell ordinary shares issuable in settlement of such Company RSU immediately prior to the Effective Time and (b) one CVR with respect to each Gracell ordinary share issuable in settlement of such Company RSU, representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone in accordance with the terms of the CVR Agreement, in each case subject to any required tax withholding.
Contingent Value Rights Agreement
Pursuant to the Merger Agreement, at or immediately prior to the Effective Time, Parent and a rights agent selected by Parent and reasonably acceptable to Gracell (the “Rights Agent”) will enter into a Contingent Value Rights Agreement (“CVR Agreement”), in the form included as Annex D to this proxy statement, governing the terms of the CVRs issued pursuant to the Merger Agreement. The Rights Agent will keep a register of the holders of CVRs (the “Holders”). Holders will not be permitted to transfer CVRs (subject to certain limited exceptions).
 
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Each CVR represents the right to receive $0.30, in cash, without interest, subject to any applicable withholding taxes, with such payment conditioned upon the achievement of one of the following milestones (the “Milestone”): (a) receipt of an accelerated approval, on or prior to December 31, 2028, granted by the United States Food and Drug Administration or any successor thereto (the “FDA”) of a biologics license application for authorization to market or sell (a “BLA”) any biologic product that contains the product candidate referred to by Gracell as “GC012F” and the composition of matter of which is covered by any issued patent right of Gracell in the U.S. (the “Product”) for the treatment of multiple myeloma, or (b) receipt of a regulatory approval (excluding an accelerated approval), on or prior to December 31, 2029, granted by the FDA of a BLA for the Product for the first-line or second-line treatment of multiple myeloma. Such Milestone may be achieved by Parent, any of its permitted assignees, any of their respective affiliates, or any entity that has obtained rights to file a BLA for the Product or to register, develop or commercialize the Product in the U.S.
Parent is obligated to use certain specified efforts and resources to achieve the foregoing Milestone until the earlier of achievement or December 31, 2029. However, there can be no assurance that the Milestone will be achieved or that the $0.30 Milestone payment will be made.
Support Agreements
On December 23, 2023, in connection with the execution of the Merger Agreement, Gracell Venture Holdings Limited, OrbiMed Genesis Master Fund, L.P., The Biotech Growth Trust Plc, OrbiMed Asia Partners III, L.P., and OrbiMed Partners Master Fund Limited, shareholders of Gracell affiliated with certain directors of the Company (collectively, the “Supporting Shareholders”) entered into Voting and Support Agreements with Parent (the “Support Agreements”), a copy of the form of which is included as Annex E to this proxy statement. Under the terms of the Support Agreements, the Supporting Shareholders have agreed, among other things, to vote their Gracell ordinary shares in favor of the approval and authorization of the Merger Agreement and the Merger at the Extraordinary General Meeting and, subject to certain exceptions, not to transfer any of their Gracell ordinary shares or Gracell ADSs. As of the close of business in the Cayman Islands on January 8, 2024 (the “Share Record Date”), the Supporting Shareholders beneficially owned an aggregate of approximately 25.2% of the outstanding Gracell ordinary shares (including Gracell ordinary shares represented by Gracell ADSs). The Support Agreement will terminate upon termination of the Merger Agreement and certain other specified events.
Material U.S. Federal Income Tax Consequences of the Merger
The receipt of cash and CVRs in exchange for Gracell ordinary shares and Gracell ADSs in the Merger will be a taxable transaction for U.S. federal income tax purposes. The amount of gain or loss recognized, and the timing and character of such gain or loss, depend in part on the U.S. federal income tax treatment of the CVRs, with respect to which there is some uncertainty. To the extent relevant, Parent intends to treat a shareholder’s or a holder’s receipt of the CVRs pursuant to the Merger for U.S. federal and applicable state and local income tax purposes as additional consideration paid for Gracell ordinary shares and Gracell ADSs pursuant to the Merger. Gracell shareholders and Gracell ADS holders should read the section of this proxy statement captioned “The Merger — Material U.S. Federal Income Tax Consequences of the Merger.”
Gracell shareholders and Gracell ADS holders should also consult their own tax advisors concerning the U.S. federal income tax consequences relating to the Merger in light of their particular circumstances and any consequences arising under U.S. federal estate, gift and other non-income tax laws or the laws of any state, local or non-U.S. taxing jurisdiction.
PRC Tax Consequences
Gracell does not believe that it should be considered a PRC resident enterprise under the PRC Enterprise Income Tax Law (the “EIT Law”) or that the gains recognized on the receipt of cash for the Gracell ordinary shares or Gracell ADSs should otherwise be subject to PRC tax to holders of such Gracell ordinary shares or Gracell ADSs that are not PRC residents. However, there is uncertainty regarding whether the PRC tax authorities would deem Gracell to be a PRC resident enterprise. If the PRC tax authorities were to determine that Gracell should be considered a PRC resident enterprise, then gains recognized on the receipt of cash for the Gracell ordinary shares or Gracell ADSs pursuant to the Merger by Gracell shareholders or Gracell ADS holders who are not PRC residents could be treated as PRC-source income that would be subject to PRC
 
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income tax at a rate of 10% in the case of enterprises or 20% in the case of individuals (subject to applicable tax treaty relief, if any), and, even in the event that Gracell is not considered a PRC resident enterprise, gains recognized on the receipt of cash for Gracell ordinary shares or Gracell ADSs will be subject to PRC tax if the holders of such Gracell ordinary shares or Gracell ADSs are PRC residents. It is unclear whether in practice non-PRC holders of our Gracell ordinary shares or Gracell ADSs will be able to obtain the benefits of any applicable tax treaties if Gracell is considered a PRC resident enterprise for PRC tax purposes. Gracell does not believe that the Merger is without reasonable commercial purpose for purposes of Bulletin 37 and Bulletin 7, and, as a result, it is intended that no amounts will be withheld on account of PRC tax (under Bulletin 7 and Bulletin 37) from the Per Share Merger Consideration, the Per ADS Merger Consideration or the Dissenting FV Payment to be paid to holders of Gracell ordinary shares or Gracell ADSs. However, there is uncertainty as to the application of Bulletin 7 and Bulletin 37 by PRC tax authorities. You should consult your own tax advisor for a full understanding of the tax consequences of the Merger to you, including any PRC tax consequences.
Gracell shareholders and Gracell ADS holders should read the section of this proxy statement captioned “The Merger — PRC Tax Consequences.”
Cayman Islands Tax Consequences
The Cayman Islands currently has no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. No taxes, fees or charges will be payable (either by direct assessment or withholding) to the government or other taxing authority in the Cayman Islands under the laws of the Cayman Islands in respect of the Merger or the receipt of cash for the Gracell ordinary shares and Gracell ADSs under the terms of the Merger Agreement. This is subject to the qualifications that (a) Cayman Islands stamp duty may be payable if any original transaction documents are brought into or executed or produced before a court in the Cayman Islands (for example, for enforcement), (b) registration fees will be payable to the Registrar of Companies in the Cayman Islands to register the Plan of Merger and (c) fees will be payable to the Cayman Islands Government Gazette Office to publish the notice of the Merger in the Cayman Islands Government Gazette.
Gracell shareholders and Gracell ADS holders should read the section of this proxy statement captioned “The Merger — Cayman Islands Tax Consequences.”
Dissenters’ Rights
Gracell shareholders who exercise dissenters’ rights will have the right to receive payment of the fair value of their Gracell ordinary shares if the Merger is completed, but only if they deliver to Gracell, before the vote is taken, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Companies Act for the exercise of dissenters’ rights, a copy of which is attached as Annex F to this proxy statement. The fair value of their Gracell ordinary shares as determined under that statute could be more than, the same as, or less than the merger consideration they would receive pursuant to the Merger Agreement if they do not exercise dissenters’ rights with respect to their Gracell ordinary shares. These procedures are complex and you should consult your Cayman Islands legal counsel. If you do not fully and precisely satisfy the procedural requirements of the Companies Act, you may lose your dissenters’ rights. Parent, Merger Sub and the Company respectively agreed that the Per Share Merger Consideration is equal to or greater than the fair value of the Gracell ordinary shares for the purposes of Section 238(8) of the Companies Act. For more information, please see the section of this proxy statement captioned “The Merger — Dissenters’ Rights.”
Regulatory Approvals Required for the Merger
Gracell and Parent have agreed to use their respective reasonable best efforts to take all action necessary to comply with all regulatory notification requirements, and to obtain all regulatory approvals required to consummate the Merger and the other Transactions, subject to certain limitations.
Under the Merger Agreement, the Merger and the other Transactions cannot be completed until the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) (and any extensions therefore, including any voluntary agreements with a governmental entity not to
 
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consummate the Transactions for any period of time, if any), have expired or otherwise been terminated. Gracell and Parent made the filings required under the HSR Act on January 10, 2024.
The expiration of the waiting period under the HSR Act (and any extensions therefore, including any voluntary agreements with a governmental entity not to consummate the Transactions for any period of time, if any) is the only regulatory approval that is a condition to the obligations of Gracell or Parent and Merger Sub to consummate the Merger.
For more information, please see the section of this proxy captioned “The Merger — Regulatory Approvals Required for the Merger.”
Closing Conditions
The obligations of Gracell, on the one hand, and Parent and Merger Sub, on the other hand, to consummate the Merger are subject to the satisfaction or waiver of customary conditions, including (among other conditions), the following:

the approval and authorization of the Merger Proposal (as defined below) by the affirmative vote of the holders of Gracell ordinary shares representing at least two-thirds of the votes cast by such Gracell shareholders as, being entitled to do so, attend and vote in person (including by virtual attendance) or by proxy, at the Extraordinary General Meeting where a quorum is present;

the absence of any order, action taken by any governmental entity or law in effect, issued, enacted, promulgated, entered, enforced, deemed applicable, that prohibits, makes illegal, enjoins or otherwise prevents the consummation of the Merger;

the expiration or termination of the waiting period under the HSR Act (and any extensions therefore, including any voluntary agreements with a governmental entity not to consummate the Transactions for any period of time, if any);

subject to certain materiality exceptions, the accuracy of representations and warranties of the other party or parties contained in the Merger Agreement and the compliance by the other party or parties of the covenants contained in the Merger Agreement;

in the case of Parent and Merger Sub only, the absence of a material adverse effect with respect to Gracell after the date of the Merger Agreement that is continuing; and

the effectiveness of the CVR Agreement.
Funds Required to Consummate the Merger
The Merger is not subject to any financing condition by Parent. Gracell and Parent estimate that the total amount of funds necessary at closing to complete the Transactions that occur at closing, including the Merger, will be approximately $1 billion, assuming no exercise of dissenters’ rights by Gracell shareholders. Parent will have cash resources in immediately available funds and in an amount sufficient to consummate the Transactions and satisfy all of Parent’s obligations under the Merger Agreement.
Shareholder Vote Required to Approve the Merger Agreement and the Plan of Merger
Under the Companies Act and the Merger Agreement, in order for the Merger to be completed, the Merger Proposal must be approved by a special resolution (as defined in the Companies Act) of Gracell’s shareholders, which requires the affirmative vote of the holders of Gracell ordinary shares representing at least two-thirds of the votes cast by such Gracell shareholders as, being entitled to do so, attend and vote in person (including by virtual attendance) or by proxy, at the Extraordinary General Meeting where a quorum is present (the “Company Requisite Vote”). If the Company Requisite Vote is not obtained, the Merger will not be completed.
As of the Share Record Date, the Supporting Shareholders beneficially own in the aggregate 121,792,605 Gracell ordinary shares, which represents approximately 25.2% of the outstanding Gracell ordinary shares (including Gracell ordinary shares represented by Gracell ADSs).
 
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The Extraordinary General Meeting
Date, Time and Place
An extraordinary general meeting of Gracell shareholders to consider and vote on the proposal to approve and authorize the Merger Agreement will be held on February 19, 2024, at 2:00 p.m. (China Standard Time) at 35th Floor, Two Exchange Square, 8 Connaught Place, Central, Hong Kong and virtually via live webcast at https://gracellbio.zoom.us/j/2239616669 (the “Extraordinary General Meeting”).
Record Date and Procedures for Voting
You are entitled to attend and vote at the Extraordinary General Meeting if you have Gracell ordinary shares registered in your name as of the close of business in the Cayman Islands on January 8, 2024 (the “Share Record Date”). If you wish to vote at the Extraordinary General Meeting please visit https://gracellbio.zoom.us/j/2239616669 at the time of the Extraordinary General Meeting and enter the password contained on your proxy card. Gracell shareholders wanting to vote by proxy should simply indicate on their proxy card attached to this proxy statement as Annex G how they want to vote, sign and date the proxy card, and mail the proxy card in the return envelope as soon as possible but in any event so that it is received by Gracell no later than 5:00 p.m. (New York City time) on February 14, 2024, the deadline to lodge the proxy card. If you submit your signed proxy card without indicating how you wish to vote, the Gracell ordinary shares represented by your proxy will be voted (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented, unless you appoint a person other than the chairman of the meeting as proxy, in which case the Gracell ordinary shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.
If your Gracell ordinary shares are registered in the name of a broker, bank or other nominee check the voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that your Gracell ordinary shares are voted at the Extraordinary General Meeting. Brokers, banks and other nominees who hold Gracell ordinary shares for their customers do not have discretionary authority to provide Gracell with voting instructions on how to vote the Gracell ordinary with respect to the Merger Proposal and the Adjournment Proposal. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owner of Gracell ordinary shares, they may not provide Gracell with voting instructions on how to vote the Gracell ordinary shares with respect to the Merger Proposal and the Adjournment Proposal.
An abstention or broker non-vote will be counted towards the quorum requirement but will not count as a vote cast at the Extraordinary General Meeting.
If you own Gracell ADSs as of the ADS Record Date (as defined below) registered in your name, you cannot vote directly nor are you able to attend the Extraordinary General Meeting, but you may instruct the ADS Depositary (as the registered holder of the Gracell ordinary shares underlying your Gracell ADSs) on how to vote the Gracell ordinary shares underlying your Gracell ADSs.
Gracell has instructed the ADS Depositary to deliver to ADS holders (as of the close of business in New York City on January 8, 2024 (the “ADS Record Date”)) an ADS voting instruction card, the form of which is attached as Annex H to this proxy statement, and Gracell ADS holders as of the ADS Record Date will have the right to instruct the ADS Depositary how to vote the Gracell ordinary shares underlying their Gracell ADSs at the Extraordinary General Meeting, subject to and in accordance with the terms of the Deposit Agreement. A copy of the Deposit Agreement is available free of charge at the SEC’s website at www.sec.gov.
The ADS Depositary must receive your instructions no later than 12:00 p.m. (New York City time) on February 14, 2024 (or if the Extraordinary General Meeting is adjourned, such later time as may be notified by the Company or the ADS Depositary) (the “ADS Voting Cutoff Time”) in order to ensure the Gracell ordinary shares underlying your Gracell ADSs are voted at the Extraordinary General Meeting.
Pursuant to Section 4.7 of the Deposit Agreement, the ADS Depositary will not itself exercise any voting discretion in respect of any Gracell ordinary shares represented by Gracell ADSs and will not vote any Gracell ordinary shares represented by Gracell ADSs other than in accordance with signed voting instructions from
 
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the relevant Gracell ADS holder, except as discussed below. Under the Deposit Agreement, subject to certain conditions contained therein, Gracell ADS holders as of the ADS Record Date whose voting instructions are not received by the ADS Voting Cutoff Time or are timely received but fail to specify the manner in which the ADS Depositary is to vote will be deemed to have instructed the ADS Depositary to give a discretionary proxy to a person designated by the Company to vote the Gracell ordinary shares represented by the relevant Gracell ADSs, in each case pursuant to the terms of the Deposit Agreement; provided, however, that no such discretionary proxy will be given by the ADS Depositary with respect to any matter to be voted upon at the Extraordinary General Meeting unless Gracell has confirmed to the ADS Depositary (i) that it wishes such proxy to be given, (ii) that Gracell reasonably does not know of any substantial opposition to the matters to be voted on at the Extraordinary General Meeting and (iii) that the matters to be voted on at the Extraordinary General Meeting are not materially adverse to the interests of holders of Gracell ordinary shares. If the conditions provided for in the Deposit Agreement are satisfied with respect to discretionary proxies, Gracell intends to instruct the ADS Depositary to give such discretionary proxy to the chairman of the Extraordinary General Meeting. Accordingly, any Gracell ordinary shares represented by Gracell ADSs for which voting instructions are not received by the ADS Voting Cutoff Time or are timely received but fail to specify the manner in which the ADS Depositary is to vote, will be voted (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented.
If you hold your Gracell ADSs in a brokerage, bank or other nominee account, you must rely on the procedures of the broker, bank or other nominee through which you hold your Gracell ADSs if you wish to vote. Brokers, banks and other nominees who hold Gracell ADSs for their customers do not have discretionary authority to provide the ADS Depositary with voting instructions on how to vote the Gracell ordinary shares underlying the Gracell ADSs with respect to the Merger Proposal and the Adjournment Proposal. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owner of Gracell ADSs, they may not provide the ADS Depositary with voting instructions on how to vote the Gracell ordinary shares underlying the Gracell ADSs with respect to the Merger Proposal and the Adjournment Proposal. If no voting instructions are received by the ADS Depositary from your broker, bank or other nominee, the ADS Depositary may give a discretionary proxy to a person designated by the Company to vote the Gracell ordinary shares represented by the relevant Gracell ADSs as described above.
Quorum
A quorum of Gracell’s shareholders is necessary to have a valid shareholders’ meeting. The presence, in person (including by virtual attendance) or by proxy (or in the case of a shareholder being a corporation, by its duly authorized corporate representative), of one or more shareholders (if being individuals present in person (including by virtual attendance) or by proxy, or if being a corporation or other non-natural person by its duly authorized representative or proxy) having a right to attend and vote at the Extraordinary General Meeting, together holding not less than an aggregate of 50% of the votes attached to the issued and outstanding Gracell ordinary shares entitled to vote at the Extraordinary General Meeting will constitute a quorum for the Extraordinary General Meeting. In the event that a quorum is not present at the Extraordinary General Meeting, we currently expect that we will adjourn the Extraordinary General Meeting to solicit additional proxies in favor of the authorization and approval of the Merger Proposal.
Matters to be Voted On
At the Extraordinary General Meeting, you will be asked to vote on the following proposals:

Proposal No. 1 — The Merger Proposal — as a special resolution, to approve and authorize the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party, and the consummation of the Transactions (including the Merger) upon the terms and subject to the conditions set forth therein (the “Merger Proposal”); and

Proposal No. 2 — The Adjournment Proposal — as an ordinary resolution, to approve the adjournment of the Extraordinary General Meeting to a later date or dates to be determined by the chairman of the Extraordinary General Meeting if necessary, (a) to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Extraordinary General Meeting, there are insufficient votes to approve any of the Merger Proposal, (b) to the extent necessary, to ensure that any required
 
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supplement or amendment to this proxy statement is provided to Gracell shareholders, or (c) if, as of the time for which the Extraordinary General Meeting is scheduled, there are insufficient Gracell ordinary shares represented (either in person (including by virtual attendance) or by proxy) to constitute a quorum necessary to conduct business at the Extraordinary General Meeting (the “Adjournment Proposal”).
Recommendation of the Gracell Board of Directors
The Board of Directors of Gracell (the “Board of Directors”) has unanimously adopted resolutions: (a) determining that it is fair to, and in the commercial interests of, Gracell and declared that it is advisable, to enter into the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party; (b) approving the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger, and the other Transaction Documents to which Gracell is a party, and the consummation of the Merger and the other Transactions upon the terms and subject to the conditions set forth in the Merger Agreement and the CVR Agreement; (c) determining to recommend the approval and authorization of the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party, and the consummation of the Transactions (including the Merger) to the shareholders of Gracell at the Extraordinary General Meeting (such recommendation, the “Recommendation”); and (d) directing that the Merger Agreement, the Merger and the other Transactions be submitted to the shareholders of Gracell at the Extraordinary General Meeting for their approval.
The Board of Directors unanimously recommends that you vote or give instruction to vote (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented.
Prior to the approval and authorization of the Merger Proposal by Gracell shareholders, under certain limited circumstances, the Board of Directors may withdraw or change the Merger Proposal recommendation if it determines in good faith (after consultation with its financial advisor and its outside legal counsel) that failure to do so would be inconsistent with the Board of Directors’ fiduciary duties under applicable law. However, the Board of Directors cannot withdraw or change the Merger Proposal recommendation unless it complies with certain procedures in the Merger Agreement, including negotiating with Parent and its representatives in good faith for four business days so that a failure to make a Change of Recommendation (as defined in the section of this proxy statement captioned “The Merger Agreement — The Board of Directors’ Recommendation; Change of Recommendation”) would no longer be inconsistent with the Board of Directors’ fiduciary duties under applicable law. The termination of the Merger Agreement by Gracell following the Board of Directors’ authorization for Gracell to enter into a definitive agreement with respect to a Superior Proposal (as defined in the section of this proxy statement captioned “The Merger Agreement — The Board of Directors’ Recommendation; Change of Recommendation”) will result in the payment by Gracell of a termination payment of $33.8 million (plus applicable VAT). For more information, please see the section of this proxy statement captioned “The Merger Agreement — The Board of Directors’ Recommendation; Change of Recommendation.”
Opinion of Centerview Partners LLC
Gracell retained Centerview Partners LLC (“Centerview”) as financial advisor to the Board of Directors in connection with the proposed Merger and the other transactions contemplated by the Merger Agreement and the CVR Agreement, which are collectively referred to as the “Transaction” throughout this section and the summary of Centerview’s opinion below under the section captioned “The Merger — Opinion of Centerview Partners LLC”. In connection with this engagement, the Board of Directors requested that Centerview evaluate the fairness, from a financial point of view, to the holders of Gracell ADSs (other than Excluded ADSs (as defined below)) of the Per ADS Merger Consideration proposed to be paid to such holders pursuant to the Merger Agreement. On December 23, 2023, Centerview rendered to the Board of Directors its oral opinion, which was subsequently confirmed by delivery of a written opinion dated December 23, 2023 that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, the Per ADS Merger Consideration proposed to be paid to the holders of Gracell ADSs (other than Excluded ADSs) pursuant to the Merger Agreement was fair, from a financial point of view, to such holders.
 
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The full text of Centerview’s written opinion, dated December 23, 2023, which describes the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, is attached as Annex C and is incorporated herein by reference. Centerview’s financial advisory services and opinion were provided for the information and assistance of the Board of Directors (in their capacity as directors and not in any other capacity) in connection with and for purposes of its consideration of the Transaction and Centerview’s opinion addressed only the fairness, from a financial point of view, as of the date thereof, to the holders of Gracell ADSs (other than Excluded ADSs) of the Per ADS Merger Consideration to be paid to such holders pursuant to the Merger Agreement. Centerview’s opinion did not address any other term or aspect of the Merger Agreement or the Transaction and does not constitute a recommendation to any shareholder of Gracell or any other person as to how such shareholder or other person should vote with respect to the Merger or otherwise act with respect to the Transaction or any other matter.
The full text of Centerview’s written opinion should be read carefully in its entirety for a description of the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion.
For more information, see the section of this proxy statement captioned “The Merger — Opinion of Centerview Partners LLC.”
Interests of Gracell’s Directors and Executive Officers in the Merger
When considering the foregoing recommendation of the Board of Directors that you vote to approve and authorize the Merger Proposal, Gracell shareholders and Gracell ADS holders should be aware that Gracell’s directors and executive officers may have interests in the Merger that are different from, or in addition to, Gracell shareholders and Gracell ADS holders more generally. In (a) evaluating and negotiating the Merger Agreement, (b) approving the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger, and the other Transaction Documents to which Gracell is a party, and the consummation of the Merger and the other Transactions upon the terms and subject to the conditions set forth in the Merger Agreement and the CVR Agreement and (c) recommending that the Merger Proposal be approved and authorized by the Gracell shareholders, the Board of Directors was aware of and considered these interests, among other matters, to the extent that these interests existed at the time. These interests include:

at the Effective Time, each Company Option and Company RSU will receive the treatment described in the section of this proxy statement captioned “The Merger — Interests of Gracell’s Directors and Executive Officers in the Merger — Treatment of Company Options and Company RSUs”;

continued eligibility of certain of Gracell’s executive officers to receive benefits under their employment agreements, as described in more detail in the section of this proxy statement captioned “The Merger — Interests of Gracell’s Directors and Executive Officers in the Merger — Payments Upon Termination At or Following Change in Control”;

Dr. Cao entered into a retention agreement with Parent in connection with the execution and delivery by Gracell of the Merger Agreement, as described in more detail in the section of this proxy statement captioned “The Merger — Interests of Gracell’s Directors and Executive Officers in the Merger — Arrangements with Parent”;

Dr. Cao entered into a side letter agreement with Parent in connection with the execution and delivery of the Merger Agreement, as described in more detail in the section of this proxy statement captioned “The Merger — Interests of Gracell’s Directors and Executive Officers in the Merger — Arrangements with Parent”; and

continued indemnification and directors’ and officers’ liability insurance to be provided by the Surviving Company.
If the Merger Proposal is approved, the Gracell ordinary shares and Gracell ADSs held by Gracell directors and executive officers will be treated in the same manner as the outstanding Gracell ordinary shares held by all other Gracell shareholders and the outstanding Gracell ADSs held by all other Gracell ADS holders. For more information, see the section of this proxy statement captioned “The Merger — Interests of Gracell’s Directors and Executive Officers in the Merger.
 
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No Solicitation of Acquisition Proposals
Under the Merger Agreement, from the date of the Merger Agreement until the Effective Time (or the earlier termination of the Merger Agreement), Gracell may not: (a) solicit, initiate or take any other action to knowingly facilitate or knowingly encourage (including by way of furnishing information) any inquiries regarding, or the making, submission, modification or amendment or announcement of any proposal or offer, including any proposal or offer to its shareholders, that constitutes, or would reasonably be expected to lead to, an Acquisition Proposal (as defined in the section of this proxy statement captioned “The Merger Agreement — No Solicitation of Acquisition Proposals.”) or (b) enter into, engage in, continue or otherwise participate in any manner in any discussions or negotiations regarding an Acquisition Proposal or any inquiry, proposal or offer that would reasonably be expected to lead to an Acquisition Proposal.
Notwithstanding the foregoing restrictions, under certain limited circumstances, at any time prior to the approval and authorization of the Merger Proposal by Gracell shareholders, Gracell may contact, provide information to, and engage or participate in any discussions or negotiations with, a person who has made an unsolicited bona fide written Acquisition Proposal (in each case, if requested by such person and such Acquisition Proposal did not result from any breach of Gracell’s non-solicitation obligations as set forth in the Merger Agreement (other than immaterial non-compliance that does not adversely affect Parent or Merger Sub)) if (and only if), subject to complying with certain procedures described in the Merger Agreement, the Board of Directors determines in good faith (after consultation with its financial advisor and its outside legal counsel) that such Acquisition Proposal constitutes, or would reasonably be expected to lead to, a Superior Proposal, and, in each case, the failure to take such action would be inconsistent with the Board of Directors’ fiduciary duties under applicable law. For more information, please see the section of this proxy statement captioned “The Merger Agreement — No Solicitation of Acquisition Proposals.”
Prior to the approval and authorization of the Merger Proposal by Gracell shareholders, Gracell is entitled to terminate the Merger Agreement for the purpose of entering into a definitive agreement in respect of a Superior Proposal if it complies with certain procedures in the Merger Agreement, including negotiating with Parent in good faith over a four business day period in an effort to modify the terms and conditions of the Merger Agreement, so that such Superior Proposal no longer constitutes a “Superior Proposal” relative to the transactions contemplated by the Merger Agreement, as amended pursuant to such negotiations.
The termination of the Merger Agreement by Gracell following the Board of Directors’ authorization for Gracell to enter into a definitive agreement in respect of a Superior Proposal will result in the payment by Gracell of a termination payment of $33.8 million (plus applicable VAT) to Parent. For more information, please see the section of this proxy statement captioned “The Merger Agreement — The Board of Directors’ Recommendation; Change of Recommendation.”
Termination of the Merger Agreement
In addition to the circumstances described above, Parent and Gracell have certain rights to terminate the Merger Agreement, including by mutual agreement, the imposition of laws or non-appealable court orders that make the Merger illegal or otherwise prohibit the Merger, an uncured breach of the Merger Agreement by the other party that would cause a related condition not to be satisfied, if the Merger has not been consummated by 11:59 p.m., London Time on June 23, 2024 (as such date may be extended by three months on no more than two occasions in certain circumstances as further described in the section of this proxy statement captioned “The Merger Agreement — Termination of the Merger Agreement”), or if Gracell shareholders fail to approve and authorize the Merger Proposal at the Extraordinary General Meeting (or any adjournment or postponement thereof). Under certain specified circumstances, (a) Gracell is required to pay Parent a termination payment equal to $33.8 million (plus applicable VAT); and (b) Parent is required to pay Gracell a termination payment equal to $41.6 million (plus applicable VAT). Please see the section of this proxy statement captioned “The Merger Agreement — Termination Payment.”
 
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Effect on Gracell if the Merger is Not Completed
If the Merger Proposal is not approved and authorized by Gracell shareholders, or if the Merger is not completed for any other reason:

the Gracell shareholders and Gracell ADS holders will not be entitled to, nor will they receive, any payment for their respective Gracell ordinary shares or Gracell ADSs pursuant to the Merger Agreement;

the Company Options and Company RSUs will continue to be outstanding and vest in accordance with the terms thereof and will not accelerate and become fully vested as provided in the Merger Agreement;

the Company Warrants will continue to be outstanding in accordance with the terms thereof and will not receive any payment for their respective Company Warrants pursuant to the Merger Agreement;

(a) Gracell will remain an independent public company; (b) Gracell ADSs will continue to be listed and traded on Nasdaq and registered under the Exchange Act; and (c) Gracell will continue to file periodic reports with the SEC; and

under certain specified circumstances, Gracell will be required to pay Parent a termination payment of $33.8 million (plus applicable VAT) upon the termination of the Merger Agreement, and under other certain specified circumstances, Parent will be required to pay Gracell a termination payment of $41.6 million (plus applicable VAT). For more information, please see the section of this proxy statement captioned “The Merger Agreement — Termination Payment.”
 
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QUESTIONS AND ANSWERS
The following questions and answers address some commonly asked questions regarding the Merger, the Merger Agreement and the Extraordinary General Meeting. These questions and answers may not address all questions that are important to you. You should carefully read and consider the more detailed information contained elsewhere in this proxy statement and the annexes to this proxy statement, including the Merger Agreement, along with all of the documents we refer to in this proxy statement, as they contain important information about, among other things, the Merger and how it affects you. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under the caption, “Where You Can Find More Information.
Q:
Why am I receiving these materials?
A:
On December 23, 2023, we entered into the Merger Agreement with Parent and Merger Sub. You are receiving this proxy statement in connection with the solicitation of proxies by the Board of Directors in favor of the proposal to authorize and approve the Merger Proposal and, if necessary, the Adjournment Proposal at the Extraordinary General Meeting or at any adjournment of the Extraordinary General Meeting.
Q:
When and where is the Extraordinary General Meeting?
A:
The Extraordinary General Meeting will take place on February 19, 2024, at 2:00 p.m. (China Standard Time) at 35th Floor, Two Exchange Square, 8 Connaught Place, Central, Hong Kong and virtually via live webcast at https://gracellbio.zoom.us/j/2239616669.
Q:
What am I being asked to vote on at the Extraordinary General Meeting?
A:
You are being asked to vote on the following proposals:

Proposal No. 1 — The Merger Proposal — as a special resolution, to approve and authorize the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party, and the consummation of the Transactions (including the Merger) upon the terms and subject to the conditions set forth therein; and

Proposal No. 2 — The Adjournment Proposal — as an ordinary resolution, to approve the adjournment of the Extraordinary General Meeting to a later date or dates to be determined by the chairman of the Extraordinary General Meeting if necessary, (a) to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Extraordinary General Meeting, there are insufficient votes to approve any of the Merger Proposal, (b) to the extent necessary, to ensure that any required supplement or amendment to this proxy statement is provided to Gracell shareholders, or (c) if, as of the time for which the Extraordinary General Meeting is scheduled, there are insufficient Gracell ordinary shares represented (either in person (including by virtual attendance) or by proxy) to constitute a quorum necessary to conduct business at the Extraordinary General Meeting.
Q:
What is the Merger?
A:
Pursuant to the Merger Agreement, once the Merger Agreement, the Merger and the other Transactions are approved and authorized by the shareholders of the Company and the other closing conditions under the Merger Agreement are satisfied or waived, Merger Sub will merge with and into the Company and cease to exist, with the Company continuing as the Surviving Company after the Merger.
Q:
Who is entitled to vote at the Extraordinary General Meeting?
A:
Only shareholders entered in the register of members of Gracell as of the close of business in the Cayman Islands on January 8, 2024 or their proxy holders are entitled to vote at the Extraordinary General Meeting or any adjournment thereof. Only Gracell ADS holders as of the close of business in New York City on January 8, 2024 are entitled to instruct the ADS Depositary to vote at the Extraordinary General Meeting.
 
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Q:
What will I receive for my Gracell ordinary shares and Gracell ADSs if the Merger is completed?
A:
If you own Gracell ordinary shares immediately prior to the Effective Time (other than the Excluded Shares, Gracell ordinary shares represented by Gracell ADSs and Dissenting Shares) and the Merger is completed, you will be entitled to receive the Per Share Closing Amount of $2.00 in cash without interest, less any applicable withholding taxes, for each Gracell ordinary share that you own and one CVR per Gracell ordinary share representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone, less any applicable withholding taxes. For example, if you own 100 Gracell ordinary shares, you will receive $200 in cash in exchange for your Gracell ordinary shares, less any applicable withholding taxes, and an additional $30 in cash in exchange for your Gracell ordinary shares upon the achievement of the Milestone, less any applicable withholding taxes.
Dissenting Shares will be cancelled and cease to exist at the Effective Time, and the holders of such Dissenting Shares will not be entitled to receive the Per Share Closing Amount per Gracell ordinary share and will instead be entitled to receive only the payment of the fair value of the Dissenting Shares as determined in accordance with the provisions of Section 238 of the Companies Act.
If you own Gracell ADSs immediately prior to the Effective Time (other than Gracell ADSs representing Excluded Shares) and the Merger is completed, you will be entitled to receive the Per ADS Closing Amount of $10.00 in cash without interest, less any applicable withholding taxes, for each Gracell ADS that you own and five CVRs per Gracell ADS representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone, less any applicable withholding taxes. For example, if you own 20 Gracell ADSs, you will receive $200 in cash in exchange for your Gracell ADSs, less any applicable withholding taxes, and an additional $30 in cash in exchange for your Gracell ADSs upon the achievement of the Milestone, less any applicable withholding taxes. Pursuant to the terms of the Deposit Agreement, the Gracell ADS holders will pay any applicable fees, charges and expenses of the ADS Depositary, stock transfer or other taxes and other government charges due to or incurred by the ADS Depositary in connection with the cancellation, termination or surrender of their Gracell ADSs, which will be deducted from the Per ADS Closing Amount.
Please see the section of this proxy statement captioned “The Merger — Material U.S. Federal Income Tax Consequences of the Merger,” “The Merger — PRC Tax Consequences” and “The Merger — Cayman Islands Tax Consequences” for a more detailed description of the tax consequences of the Merger. You should consult with your own tax advisor for a full understanding of how the Merger will affect your U.S. federal, state, local, foreign and other taxes.
Q:
What will I receive for my Company Warrants if the Merger is completed?
A:
If you own Company Warrants immediately prior to the Effective Time and the Merger is completed, you will receive an amount in cash without interest equal to the Black Scholes Value (which is equal to $1.26618 per Gracell ordinary share underlying such Company Warrant) of the remaining unexercised portion of each Company Warrant in accordance with its terms, subject to any applicable withholding taxes.
If you exercise your Company Warrants at any time at least three business days prior to the Effective Time by following the instructions for exercise contained in the Company Warrants, including payment of the exercise price of $1.116 per Gracell ordinary share underlying such Company Warrant, and you continue to hold the Gracell ordinary shares issued upon exercise of the Company Warrant as of immediately prior to the Effective Time, will be entitled to receive the Per Share Closing Amount of $2.00 in cash without interest, less any applicable withholding taxes, for each Gracell ordinary share and one CVR per Gracell ordinary share representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone, less any applicable withholding taxes. Accordingly, each Gracell ordinary share underlying such Company Warrant would, if such Company Warrant is exercised, entitle the holder to $0.884 per Gracell ordinary share if the Milestone is not achieved or $1.184 per Gracell ordinary share if the Milestone is achieved, in each case after subtracting the exercise price per Company Warrant, subject to any withholding taxes. In order to be timely recorded in the Company’s register of members prior to the Effective Time, holders who intend to exercise their
 
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Company Warrants should promptly notify the Company of such intention prior to the Extraordinary General Meeting and deliver the exercise notice and pay the required exercise price on or prior to the date of the Extraordinary General Meeting.
Q:
What will I receive for my Company Options and Company RSUs if the Merger is completed?
A:
If you own Company Options immediately prior to the Effective Time, your Company Options will automatically accelerate and become fully vested and exercisable effective immediately prior to, and contingent upon, the Effective Time, and (a) each In-the-Money Company Option will be cancelled and converted at the Effective Time into the right to receive (i) an amount in cash, without interest, equal to the product of (A) the total number of Gracell ordinary shares subject to such In-the-Money Company Option multiplied by (B) the amount by which the Per Share Closing Amount exceeds the exercise price payable per Gracell ordinary share subject to such In-the-Money Company Option and (ii) one CVR per Gracell ordinary share subject to such In-the-Money Company Option, representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone in accordance with the terms of the CVR Agreement, in each case subject to any required tax withholding, (b) each Underwater Company Option will be cancelled and converted into the right to receive, upon the achievement of the Milestone in accordance with the terms of the CVR Agreement, an amount of cash, without interest, equal to the product of (i) the total number of Gracell ordinary shares subject to such Underwater Company Option as of immediately prior to the Effective Time multiplied by (ii) the amount, if any, by which (A) the Per Share Closing Amount plus $0.30 exceeds (B) the exercise price payable per Gracell ordinary share subject to such Underwater Company Option, less any required tax withholdings and (c) each Company Option that is outstanding as of immediately prior to the Effective Time and has a per-share exercise price that is equal to or greater than the sum of the Per Share Closing Amount plus $0.30 will be cancelled for no consideration.
If you own Company RSUs immediately prior to the Effective Time, your Company RSUs will accelerate and become fully vested effective immediately prior to, and contingent upon, the Effective Time, and as of the Effective Time, will be cancelled and converted into the right to receive (a) an amount in cash, without interest, equal to the Per Share Closing Amount multiplied by the aggregate number of Gracell ordinary shares issuable in settlement of such Company RSU immediately prior to the Effective Time and (b) one CVR with respect to each Gracell ordinary share issuable in settlement of such Company RSU, representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone in accordance with the terms of the CVR Agreement, in each case subject to any required tax withholding.
Q:
What is a CVR and how does it work?
A:
Each CVR represents the right to receive $0.30, in cash, without interest, subject to any applicable withholding taxes, with such payment conditioned upon the achievement of one of the following milestones: (a) receipt of an accelerated approval, on or prior to December 31, 2028, granted by the FDA of a BLA for the authorization to market or sell any biologic product that contains the Product for the treatment of multiple myeloma, or (b) receipt of a regulatory approval (excluding an accelerated approval), or on prior to December 31, 2029, granted by the FDA of a BLA for the Product for the first-line or second-line treatment of multiple myeloma. Such milestones may be achieved by Parent, any of its permitted assignees, any of their respective affiliates, or any entity that has obtained rights to file a BLA for the Product or to register, develop or commercialize the Product in the U.S.
Parent is obligated to use certain specified efforts and resources to achieve the foregoing Milestone until the earlier of achievement or December 31, 2029. However, there can be no assurance that the Milestone will be achieved or that the $0.30 Milestone payment will be made.
The right to payment described above is solely a contractual right governed by the terms and conditions of the CVR Agreement. The CVRs will not be evidenced by a certificate or other instrument, will not have any voting or dividend rights, will not represent any equity or ownership interests in Parent or the Surviving Company and will not be transferable except in limited circumstances. No interest will accrue or be payable in respect of any of the amounts that may be payable in respect of the CVRs. As a holder of
 
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a CVR, you will have no greater rights against Parent than those accorded to general, unsecured creditors with respect to the Milestone payment amounts that may be payable. For more information on the CVRs, see the section of this proxy statement captioned “The Merger — CVR Agreement.”
Q:
What vote is required to approve the proposals presented at the Extraordinary General Meeting?
A:
The following votes are required for each proposal at the Extraordinary General Meeting:
The Merger Proposal must be authorized and approved by a special resolution (as defined in the Companies Act) of Gracell shareholders, which requires an affirmative vote of holders of Gracell ordinary shares representing at least two-thirds of the votes cast by such Gracell shareholders as, being entitled to do so, attend and vote in person (including by virtual attendance) or by proxy, at the Extraordinary General Meeting where a quorum is present.
As of the close of business in the Cayman Islands on January 8, 2024, the Share Record Date for the Extraordinary General Meeting, 483,561,767 Gracell ordinary shares were issued and outstanding and entitled to vote at the Extraordinary General Meeting (including Gracell ordinary shares represented by Gracell ADSs but excluding 18,728,899 ordinary shares issued to the ADS Depositary for bulk issuance of Gracell ADSs reserved for future issuances upon the exercise or vesting of awards granted under our share incentive plans).
Pursuant to the Support Agreements, among other things, the Supporting Shareholders have agreed to vote in favor of authorization and approval of the Merger Proposal. As of the close of business in the Cayman Islands on January 8, 2024, the Supporting Shareholders beneficially owned an aggregate of approximately 25.2% of the outstanding Gracell ordinary shares (including Gracell ordinary shares represented by Gracell ADSs).
The Adjournment Proposal must be authorized and approved by an ordinary resolution under Cayman Islands law and the memorandum and articles of association of Gracell, which requires an affirmative vote of holders of Gracell ordinary shares representing a simple majority of the votes cast by such shareholders as, being entitled to do so, attend and vote in person (including by virtual attendance) or by proxy, or in the case of corporations or other non-natural persons, by their duly authorized representatives, as a single class at the Extraordinary General Meeting.
An abstention or broker non-vote will be counted towards the quorum requirement but will not count as a vote cast at the Extraordinary General Meeting.
Q:
What happens if the Merger is not completed?
A:
If the Merger Proposal is not authorized and approved by the Gracell shareholders or if the Merger is not completed for any other reason, Gracell shareholders will not receive any payment for their Gracell ordinary shares or Gracell ADSs. Instead, Gracell will remain an independent public company, Gracell ADSs will continue to be listed and traded on the Nasdaq and registered under the Exchange Act, and we will continue to file periodic reports with the SEC. In addition, the Company Options and Company RSUs will continue to be outstanding and vest in accordance with the terms thereof and will not accelerate and become fully vested as provided in the Merger Agreement and the Company Warrants will continue to be outstanding in accordance with the terms thereof and will not receive any payment for their respective Company Warrants pursuant to the Merger Agreement.
Under specified circumstances, (a) Gracell will be required to pay Parent a termination payment of $33.8 million (plus applicable VAT) upon the termination of the Merger Agreement and (b) Parent will be required to pay Gracell a termination payment of $41.6 million (plus applicable VAT), as described in the section of this proxy statement captioned “The Merger Agreement — Termination Payment.”
Q:
What happens if I sell my Gracell ordinary shares or Gracell ADSs before the Extraordinary General Meeting?
A:
The Share Record Date for voting at the Extraordinary General Meeting is earlier than the date of the Extraordinary General Meeting and the date that the Merger is expected to be consummated. If you
 
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transfer your Gracell ordinary shares after the Share Record Date for voting but before the Extraordinary General Meeting, you will retain your right to vote at the Extraordinary General Meeting unless you have given, and not revoked, a proxy to the person to whom you transfer your Gracell ordinary shares, but will transfer the right to receive the Per Share Merger Consideration to such person, so long as such person is registered as the owner of such Gracell ordinary shares when the Merger is consummated.
If you transfer your Gracell ADSs after the ADS Record Date but before the Extraordinary General Meeting, you will retain your right to instruct the ADS Depositary to vote at the Extraordinary General Meeting, but will transfer the right to receive the Per ADS Merger Consideration to the person to whom you transfer your Gracell ADSs, so long as such person owns such Gracell ADSs when the Merger is consummated.
Q:
How may I vote if my Gracell ordinary shares are registered in my name?
A:
If Gracell ordinary shares are registered in your name (that is, you do not hold Gracell ADSs or otherwise hold through a bank, broker or other nominee) as of the Share Record Date, you should simply indicate on your proxy card attached to this proxy statement as Annex G how you want to vote, and sign and mail your proxy card in the accompanying return envelope as soon as possible so that it is received by Gracell no later than 5:00 p.m. (New York City time) on February 14, 2024, the deadline to lodge your proxy card, so that your Gracell ordinary shares may be represented and voted at the Extraordinary General Meeting.
Alternatively, you can attend the Extraordinary General Meeting and vote virtually by visiting https://gracellbio.zoom.us/j/2239616669 at the time of the Extraordinary General Meeting and entering the password on your proxy card.
If you decide to sign and send in your proxy card, and do not indicate how you want to vote, Gracell ordinary shares represented by your proxy will be voted (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal.
If your Gracell ordinary shares are held by your broker, bank or other nominee, please see below for additional information.
An abstention or broker non-vote will be counted towards the quorum requirement but will not count as a vote cast at the Extraordinary General Meeting.
Q:
How may I vote if I own Gracell ADSs?
A:
Gracell has instructed the ADS Depositary to deliver to ADS holders as of the close of business in New York City on January 8, 2024 an ADS voting instruction card, the form of which is attached as Annex H to this proxy statement, and Gracell ADS holders as of the ADS Record Date will have the right to instruct the ADS Depositary how to vote Gracell ordinary shares underlying their Gracell ADSs at the Extraordinary General Meeting, subject to and in accordance with the terms of the Deposit Agreement. A copy of the Deposit Agreement is available free of charge at the SEC’s website at www.sec.gov.
If you own Gracell ADSs as of the ADS Record Date registered in your name, you cannot attend and vote at the Extraordinary General Meeting directly (whether in person (including by virtual attendance) or by proxy), but you may instruct the ADS Depositary (as the registered holder of Gracell ordinary shares underlying your Gracell ADSs) how to vote the Gracell ordinary shares underlying your Gracell ADSs by completing and signing the ADS voting instruction card and returning it in accordance with the instructions printed on it as soon as possible. The ADS Depositary must receive such instructions no later than 12:00 p.m. (New York City time) on February 14, 2024 in order to ensure Gracell ordinary shares underlying your Gracell ADSs are voted at the Extraordinary General Meeting. The ADS Depositary will endeavor to vote (or will endeavor to cause the vote of) (in person (including by virtual attendance) or by proxy), insofar as practicable and permitted under applicable law, the provisions of the Deposit Agreement and the memorandum and articles of association of Gracell, the Gracell ordinary shares represented by the Gracell ADSs at the Extraordinary General Meeting in accordance with the voting instructions timely received (or deemed received) from holders of Gracell ADSs by the ADS Voting
 
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Cutoff Time. Pursuant to Section 4.7 of the Deposit Agreement, the ADS Depositary will not itself exercise any voting discretion in respect of any Gracell ordinary shares represented by Gracell ADSs and it will not vote any Gracell ordinary shares represented by Gracell ADSs other than in accordance with signed voting instructions from the relevant Gracell ADS holder, except as discussed below. Under the Deposit Agreement, subject to certain conditions contained therein, ADS holders as of the ADS Record Date whose voting instructions are not received by the ADS Voting Cutoff Time or are timely received but fail to specify the manner in which the ADS Depositary is to vote will be deemed to have instructed the ADS Depositary to give a discretionary proxy to a person designated by Gracell to vote the Gracell ordinary shares represented by the relevant Gracell ADSs, in each case pursuant to the terms of the Deposit Agreement; provided, however, that no such discretionary proxy will be given by the ADS Depositary with respect to any matter to be voted upon at the Extraordinary General Meeting unless Gracell has confirmed to the ADS Depositary (i) that it wishes such proxy to be given, (ii) that Gracell reasonably does not know of any substantial opposition to the matters to be voted on at the Extraordinary General Meeting and (iii) that the matters to be voted on at the Extraordinary General Meeting are not materially adverse to the interests of holders of Gracell ordinary shares. If the conditions provided for in the Deposit Agreement are satisfied with respect to discretionary proxies, Gracell intends to instruct the ADS Depositary to give such discretionary proxy to the chairman of the Extraordinary General Meeting. Accordingly, any Gracell ordinary shares represented by Gracell ADSs for which voting instructions are not received by the ADS Voting Cutoff Time or are timely received but fail to specify the manner in which the ADS Depositary is to vote, will be voted (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented.
If you hold your Gracell ADSs in a brokerage, bank, or other nominee account, you must rely on the procedures of the broker, bank or other nominee through which you hold your Gracell ADSs if you wish to vote.
Q:
If my broker, bank or nominee holds my Gracell ordinary shares or Gracell ADSs in “street name,” will my broker, bank or nominee vote my Gracell ordinary shares or Gracell ADSs for me?
A:
Your broker, bank or other nominee will only vote your Gracell ordinary shares on your behalf or give voting instructions with respect to Gracell ordinary shares underlying your Gracell ADSs if you instruct it how to vote. Therefore, it is important that you promptly follow the directions provided by your broker, bank or other nominee regarding how to instruct it to vote your Gracell ordinary shares or Gracell ADSs. If you do not instruct your broker, bank or other nominee how to vote your Gracell ordinary shares that it holds, those Gracell ordinary shares may not be voted. If you do not instruct your broker, bank or other nominee how to vote your Gracell ADSs that it holds, such broker, bank or other nominee may not provide the ADS Depositary with voting instructions on how to vote the Gracell ordinary shares underlying the Gracell ADSs with respect to the Merger Proposal and the Adjournment Proposal. If no voting instructions are received by the ADS Depositary from your broker, bank or other nominee, the ADS Depositary may give a discretionary proxy to a person designated by the Company to vote the Gracell ordinary shares represented by the relevant Gracell ADSs as described above. You should contact that broker, bank or nominee to determine the date by which you must instruct them to act in order that the necessary processing can be completed in time. An abstention or broker non-vote will be counted towards the quorum requirement but will not count as a vote cast at the Extraordinary General Meeting.
Q:
May I change my vote after I have mailed my signed and dated proxy card?
A:
Yes. If you are a holder of record of Gracell ordinary shares and you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:

you may send another signed proxy card to Mackenzie Partners, Inc., 1407 Broadway, 27th Floor, New York, New York 10018 Attention: Gracell Biotechnologies Proxy so that it is received no later than 48 hours before the time appointed for the holding of the Extraordinary General Meeting (or, in the case of an adjournment, no later than 48 hours before the time appointed for the holding of the adjourned meeting); or

you may attend the Extraordinary General Meeting and vote in person or virtually over the Internet by joining the live audio webcast and vote electronically during the Extraordinary General Meeting,
 
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although your attendance alone will not revoke any proxy that you have previously given. Your proxy will only be revoked if you actually vote at the Extraordinary General Meeting.
If you hold Gracell ordinary shares through a broker, bank or other nominee and have instructed the broker, bank or other nominee to vote your Gracell ordinary shares, you must follow directions received from the broker, bank or other nominee to change your instructions.
Registered owners of Gracell ADSs may revoke their voting instructions to the ADS Depositary prior to 12:00 p.m. (New York City time) on February 14, 2024 by submitting a new ADS voting instruction card, specific to that registered owner, to the ADS Depositary.
If you hold your Gracell ADSs through a broker, bank or other nominee and you have instructed your broker, bank or other nominee to give ADS voting instructions to the ADS Depositary, you must follow the directions of your broker, bank or other nominee to change those instructions.
Q:
After the Merger is consummated, how will I receive the Per Share Merger Consideration for my Gracell ordinary shares?
A:
If you are a registered holder of Gracell ordinary shares represented by the register of members of Gracell (in each case, other than Excluded Shares, Gracell ordinary shares represented by Gracell ADSs and Dissenting Shares), promptly after the Effective Time, a paying agent appointed by Parent and reasonably acceptable to Gracell will mail you (a) a form of letter of transmittal specifying how the delivery of the Merger consideration to you will be effected and risk of loss and title to the Gracell ordinary shares will pass, only upon delivery of the certificates representing such Gracell ordinary shares (the “Certificates”) to the paying agent and (b) instructions for effecting the surrender of any Certificates (or affidavits and indemnities of loss in lieu of Certificates) in exchange for the Per Share Closing Amount for such Gracell ordinary shares, without interest and subject to any applicable withholding taxes.
If you are a registered holder of Gracell ordinary shares held in book-entry form (“Book-Entry Shares”) (other than Excluded Shares, Gracell ordinary shares represented by Gracell ADSs and Dissenting Shares), promptly after the Effective Time, a paying agent appointed by Parent and reasonably acceptable to Gracell will mail you (a) a form of letter of transmittal specifying how the delivery of the Merger consideration to you will be effected, and risk of loss and title will pass only upon delivery of an “agent’s message” and (b) instructions for effecting the exchange of Book-Entry Shares in exchange for the Per Share Closing Amount for such Gracell ordinary shares, without interest and subject to any applicable withholding taxes.
If your Gracell ordinary shares are held through your broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee on how to surrender your Gracell ordinary shares and receive the Per Share Closing Amount for such Gracell ordinary shares, without interest and subject to any applicable withholding taxes.
The CVRs will be distributed and any Milestone payments will be paid in accordance with the CVR Agreement.
For more information please see the sections of this proxy statement captioned “The Merger — CVR Agreement” and “The Merger Agreement — Exchange and Payment Procedures.”
Q:
After the Merger is consummated, how will I receive the Per ADS Merger Consideration for my Gracell ADSs?
A:
If you are a registered holder of Gracell ADSs that are evidenced by certificates, prior to the Effective Time, the Depositary, a paying agent and rights agent appointed by Parent and reasonably acceptable to Gracell will ensure that Milestone payments are made to holders of Gracell ADSs (other than Gracell ADSs representing Excluded Shares) and that (a) the Paying Agent will transmit to the Depositary on the Closing Date and as promptly as reasonably practicable following the Effective Time an amount in cash in immediately available funds equal to the product of (i) the number of Gracell ADSs issued and outstanding immediately prior to the Effective Time (other than Gracell ADSs representing Excluded Shares) and (ii) the Per ADS Closing Amount, and (b) the Depositary will distribute the aggregate Per
 
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ADS Merger Consideration to holders of Gracell ADSs pro rata to their holdings of Gracell ADSs (other than ADSs representing Excluded Shares) upon surrender by them of the Gracell ADSs and/or the cancellation of such Gracell ADSs by the ADS Depositary in accordance with the Merger Agreement, the CVR Agreement and the Deposit Agreement. Pursuant to the terms of the Deposit Agreement, the Gracell ADS holders will pay any applicable fees, charges and expenses of the ADS Depositary, stock transfer or other taxes and other government charges due to or incurred by the ADS Depositary in connection with the cancellation, termination or surrender of their Gracell ADSs, which will be deducted from the Per ADS Closing Amount. The amount of any such payments may be reduced by any applicable withholding taxes.
If your Gracell ADSs are held through your broker, bank or other nominee at the Depository Trust Company (“DTC”), you will not be required to take any action to receive the Per ADS Closing Amount for your Gracell ADSs as the Gracell ADSs will be surrendered within DTC and the remittance of the Per ADS Closing Amount (net of applicable fees, taxes or governmental charges, including US$5.00 or less per 100 Gracell ADSs cancelled and any other fees and charges payable pursuant to the terms of the Deposit Agreement) for distribution to your broker, bank or other nominee on your behalf. If you have any questions concerning the receipt of the Per ADS Merger Consideration, please contact your broker, bank or other nominee.
The CVRs will be distributed and any Milestone payments will be paid in accordance with the CVR Agreement.
For more information please see the sections of this proxy statement captioned “The Merger — CVR Agreement” and “The Merger Agreement — Exchange and Payment Procedures.” and the terms of the Deposit Agreement.
Q:
What should I do if I receive more than one set of voting materials?
A:
You may receive more than one set of voting materials, including multiple copies of this proxy statement or multiple proxies or voting instruction cards. For example, if you hold your Gracell ordinary shares or Gracell ADSs in more than one brokerage, bank, or other nominee account, you will receive a separate voting instruction card for each brokerage, bank or other nominee account in which you hold Gracell ordinary shares or Gracell ADSs. If you are a holder of record and your Gracell ordinary shares or your Gracell ADSs are registered in more than one name, you will receive more than one proxy or voting instruction card. Please submit each proxy card that you receive.
Q:
Where can I find the voting results of the Extraordinary General Meeting?
A:
Gracell intends to publish final voting results in a Current Report on Form 6-K to be furnished to the SEC following the Extraordinary General Meeting. All reports that Gracell files with the SEC are publicly available when filed. For more information, please see the section of this proxy statement captioned “Where You Can Find More Information.
Q:
When do you expect the Merger to be completed?
A:
We are working toward completing the Merger as quickly as possible and currently expect to complete the Merger in the first calendar quarter of 2024, after all conditions to the Merger have been satisfied or waived. In order to complete the Merger, we must obtain shareholder approval of the Merger Proposal at the Extraordinary General Meeting and the other closing conditions under the Merger Agreement must be satisfied or waived in accordance with the Merger Agreement.
Q:
Am I entitled to dissenters’ rights?
A:
Registered holders of Gracell ordinary shares who validly exercise and have not effectively withdrawn or lost their right to dissent from the Merger will have the right to receive payment of the fair value of their Gracell ordinary shares as determined by the Court in accordance with Section 238 of the Companies Act, subject to Section 239 of the Companies Act, if the Merger is consummated, but only if they deliver to Gracell, before the vote to authorize and approve the Merger is taken at the Extraordinary General
 
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Meeting, a written objection to the Merger and subsequently comply with all procedures and requirements of Section 238 of the Companies Act for the exercise of dissenters’ rights, a copy of which is attached as Annex F to this proxy statement. The fair value of each of their Gracell ordinary shares as determined by the Court under the Companies Act could be more than, the same as, or less than the Per Share Merger Consideration they would receive pursuant to the Merger Agreement if they do not exercise dissenters’ rights with respect to their Gracell ordinary shares. Parent, Merger Sub and the Company respectively agreed that the Per Share Merger Consideration is equal to or greater than the fair value of the Gracell ordinary shares for the purposes of Section 238(8) of the Companies Act.
Gracell ADS holders will not have the right to exercise dissenters’ rights and receive payment of the fair value of the Gracell ordinary shares underlying their Gracell ADSs as determined by the Court. The ADS Depositary will not exercise or attempt to exercise any dissenters’ rights with respect to any of Gracell ordinary shares that it holds, even if a Gracell ADS holder requests the ADS Depositary to do so. Gracell ADS holders wishing to exercise dissenters’ rights must surrender their Gracell ADSs to the ADS Depositary, pay the ADS Depositary’s fees required for the cancellation of their Gracell ADSs ($5.00 or less per 100 Gracell ADSs cancelled and any other fees and charges payable pursuant to the terms of the Deposit Agreement), and any applicable taxes or government charges, provide instructions for the registration of the corresponding Gracell ordinary shares in Gracell’s register of members, certify that they have not given, and will not give, voting instructions as to their Gracell ADSs (or alternatively, that they will not vote the corresponding Gracell ordinary shares), and become registered holders of Gracell ordinary shares prior to the Extraordinary General Meeting. Thereafter, such former Gracell ADS holders must comply with the procedures and requirements for exercising their dissenters’ rights with respect to the Gracell ordinary shares under Section 238 of the Companies Act. For more information, we encourage you to please see the section of this proxy statement captioned “The Merger — Dissenters’ Rights” and to consult your own Cayman Islands legal counsel if you desire to exercise your dissenters’ rights.
Q:
Who pays for the proxy solicitation and how will Gracell solicit votes?
A:
We will bear the expense of printing, mailing and distributing these proxy materials and soliciting votes. In addition to the solicitation of proxies by mail, our directors, officers and other employees may solicit proxies by personal interview, telephone, electronic communications or otherwise. They will not be paid any additional compensation for such solicitation. We will request brokers and nominees who hold shares of our securities in their names to furnish proxy materials to beneficial owners of the securities. We will reimburse such brokers and nominees for their expenses incurred in forwarding solicitation materials to such beneficial owners. Our proxy solicitor, Mackenzie Partners, Inc., may also solicit proxies by personal interview, telephone, electronic communications or otherwise. Mackenzie Partners, Inc. will be paid its customary fee of approximately $12,500, plus out-of-pocket expenses for its proxy solicitation services.
Q:
What do I need to do now?
A:
We urge you to read this Proxy Statement carefully, including its annexes, exhibits, attachments and the other documents referred to or incorporated by reference herein and to consider how the Merger affects you as a shareholder. After you have done so, please vote as soon as possible.
 
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Q:
Who can help answer my questions?
A:
If you have any questions concerning the Merger, the Extraordinary General Meeting or the proxy statement or would like additional copies of the proxy statement, please contact
[MISSING IMAGE: lg_mackenzie-bw.jpg]
1407 Broadway, 27th Floor
New York, New York 10018
proxy@mackenziepartners.com
Call Collect: (212) 929-5500
or
Toll-Free (800) 322-2885
 
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FORWARD-LOOKING STATEMENTS
This proxy statement, and any documents to which Gracell refers to in this proxy statement, contains not only historical information, but also forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent Gracell’s current expectations or beliefs concerning future events, including the expected completion and timing of the proposed transaction, expected benefits and costs of the proposed transaction, management plans and other information relating to the proposed transaction, strategies and objectives of Gracell for future operations and other information relating to the proposed transaction. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “forecasts,” “should,” “estimates,” “contemplate,” “future,” “goal,” “potential,” “predict,” “project,” “projection,” “target,” “seek,” “may,” “will,” “could,” “should,” “would,” “assuming,” “depend” and similar expressions are intended to identify forward-looking statements. Shareholders are cautioned that any forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements. These risks and uncertainties include, but are not limited to, the risks detailed in our filings with the SEC, including in our most recent filings on Form 20-F, factors and matters described or incorporated by reference in this proxy statement, and the following factors:

the inability to complete the Merger due to the failure to obtain shareholder approval or failure to satisfy the other conditions to the completion of the Merger, including the expiration or termination of the waiting period under the HSR Act (and any extensions therefore, including any voluntary agreements with a governmental entity not to consummate the Transactions for any period of time, if any);

the risk that the Merger Agreement may be terminated in certain circumstances that require us to pay Parent a termination payment of $33.8 million (plus applicable VAT);

the outcome of any legal proceedings, regulatory proceedings or enforcement matters that may be instituted against us and others related to the Merger Agreement;

risks that the proposed Merger disrupts our current operations or affects our ability to retain or recruit key employees;

the fact that receipt of the Per Share Merger Consideration and Per ADS Merger Consideration would be taxable to Gracell shareholders and Gracell ADS holders that are treated as U.S. Holders (as defined under the caption “The Merger — Material U.S. Federal Income Tax Consequences of the Merger”) for U.S. federal income tax purposes;

the fact that, if the Merger is completed, shareholders will forgo the opportunity to realize the potential long-term value of the successful execution of Gracell’s current strategy as an independent public company;

the fact that under the terms of the Merger Agreement, Gracell is unable to solicit other Acquisition Proposals;

the effect of the announcement or pendency of the Merger on our business relationships, operating results and business generally;

the amount of the costs, fees, expenses and charges related to the Merger Agreement or the Merger;

risks related to the Merger diverting management’s or employees’ attention from ongoing business operations;

risks that the price of the Gracell ADSs may decline significantly if the Merger is not completed; and

risks that we may not achieve the specified Milestone upon which the non-tradable CVRs will become payable.
Consequently, all of the forward-looking statements that we make in this proxy statement are qualified by the information contained or incorporated by reference herein, including: (a) the information contained under this caption; and (b) the information contained under the caption “Risk Factors,” and information in our
 
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consolidated financial statements and notes thereto included in our most recent filings on Form 20-F. No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.
Except as required by applicable law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. Shareholders are advised to consult any future disclosures that we make on related subjects as may be detailed in our other filings made from time to time with the SEC.
 
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THE EXTRAORDINARY GENERAL MEETING
The enclosed proxy is solicited on behalf of the Board of Directors for use at the Extraordinary General Meeting.
Date, Time and Place
We will hold the Extraordinary General Meeting February 19, 2024, at 2:00 p.m. (China Standard Time) at 35th Floor, Two Exchange Square, 8 Connaught Place, Central, Hong Kong and virtually via live webcast at https://gracellbio.zoom.us/j/2239616669.
Purpose of the Extraordinary General Meeting
At the Extraordinary General Meeting, we will ask shareholders to vote on the following proposals:

Proposal No. 1 — The Merger Proposal — as a special resolution, to approve and authorize the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party, and the consummation of the Transactions (including the Merger), upon the terms and subject to the conditions set forth therein; and

Proposal No. 2 — The Adjournment Proposal — as an ordinary resolution, to approve the adjournment of the Extraordinary General Meeting to a later date or dates to be determined by the chairman of the Extraordinary General Meeting if necessary, (a) to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the Extraordinary General Meeting, there are insufficient votes to approve any of the Merger Proposal, (b) to the extent necessary, to ensure that any required supplement or amendment to this proxy statement is provided to Gracell shareholders, or (c) if, as of the time for which the Extraordinary General Meeting is scheduled, there are insufficient Gracell ordinary shares represented (either in person (including by virtual attendance) or by proxy) to constitute a quorum necessary to conduct business at the Extraordinary General Meeting.
Record Date; Shares Entitled to Vote; Quorum
You are entitled to attend and vote at the Extraordinary General Meeting if you have Gracell ordinary shares registered in your name as of the Share Record Date, which is the close of business in the Cayman Islands on January 8, 2024. If you own Gracell ordinary shares as of the Share Record Date, the deadline for you to lodge your proxy card and vote is 5:00 p.m. (New York City time) on February 14, 2024.
If you own Gracell ADSs as of the ADS Record Date, which is the close of business in New York City on January 8, 2024, you cannot vote directly nor are you able to attend the Extraordinary General Meeting, but you may instruct the ADS Depositary (as the registered holder of the Gracell ordinary shares underlying your Gracell ADSs) on how to vote Gracell ordinary shares underlying your Gracell ADSs. The ADS Depositary must receive your voting instructions no later than 12:00 p.m. (New York City time) on February 14, 2024 in order to ensure the Gracell ordinary shares underlying your Gracell ADSs are voted at the Extraordinary General Meeting.
A quorum of Gracell’s shareholders is necessary to have a valid shareholders’ meeting. The presence, in person (including by virtual attendance) or by proxy (or in the case of a shareholder being a corporation, by its duly authorized corporate representative), of one or more shareholders (if being individuals present in person (including by virtual attendance) or by proxy, or if being a corporation or other non-natural person by its duly authorized representative or proxy) having a right to attend and vote at the Extraordinary General Meeting, together holding not less than 50% of the votes attached to the issued and outstanding Gracell ordinary shares entitled to vote at the Extraordinary General Meeting will constitute a quorum for the Extraordinary General Meeting. In the event that a quorum is not present at the Extraordinary General Meeting, we currently expect that we will adjourn the Extraordinary General Meeting to solicit additional proxies in favor of the authorization and approval of the Merger Proposal.
As of the Share Record Date, 241,780,884 Gracell ordinary shares are required to achieve a quorum, which represents 50% of the Gracell ordinary shares outstanding and entitled to vote at the Extraordinary General Meeting as of the Share Record Date (including Gracell ordinary shares represented by Gracell ADSs).
 
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Vote Required
The Merger Proposal must be approved by a special resolution (as defined in the Companies Act) of Gracell’s shareholders, which requires the affirmative vote of holders of Gracell ordinary shares representing at least two-thirds of the votes cast by such Gracell shareholders as, being entitled to do so, attend and vote in person (including by virtual attendance) or by proxy, at the Extraordinary General Meeting where a quorum is present. If this vote is not obtained, the Merger will not be completed.
The approval of the Adjournment Proposal, if presented, will require an ordinary resolution under Cayman Islands law and the memorandum and articles of association of Gracell, being the affirmative vote of the holders of a simple majority of the votes cast by such shareholders as, being entitled to do so, attend and vote in person (including by virtual attendance) or by proxy, or in the case of corporations, by their duly authorized representatives, as a single class at the Extraordinary General Meeting.
As of the Share Record Date, there were 483,561,767 Gracell ordinary shares issued and outstanding (including Gracell ordinary shares represented by ADSs but excluding 18,728,899 ordinary shares issued to the ADS Depositary for bulk issuance of Gracell ADSs reserved for future issuances upon the exercise or vesting of awards granted under our share incentive plans), all of which are entitled to vote on the proposals at the Extraordinary General Meeting, subject to the procedures described below under “The Extraordinary General Meeting — Procedures for Voting.”
As of the Share Record Date, the Supporting Shareholders beneficially owned in the aggregate 121,792,605 Gracell ordinary shares, which represent approximately 25.2% of the outstanding Gracell ordinary shares outstanding on the Share Record Date (including Gracell ordinary shares represented by Gracell ADSs).
Gracell Ordinary Shares Beneficially Owned by Gracell’s Directors and Executive Officers
As of the Share Record Date, our directors and executive officers beneficially owned, in the aggregate, 84,608,020 Gracell ordinary shares, representing approximately 17.21% of the Gracell ordinary shares outstanding as of the Share Record Date (including Gracell ordinary shares issuable pursuant to the exercise of Company Options or settlement of Company RSUs, in each case, that are currently vested or will vest within 60 days of January 8, 2024 and Gracell ordinary shares represented by Gracell ADSs). For more information see the section of this proxy statement captioned “Security Ownership of Certain Beneficial Owners and Management.”
Our directors and executive officers have informed us that they currently intend to vote all of their respective Gracell ordinary shares (1) “FOR” the Merger Proposal and (2) “FOR” Adjournment Proposal, if presented.
Procedures for Voting
Gracell ordinary shares
Only registered shareholders entered in the register of members of Gracell as of the Share Record Date will receive the proxy statement and proxy card directly from Gracell. Gracell shareholders registered in the register of members of Gracell as of the Share Record Date or their proxy holders are entitled to vote at and may participate in the Extraordinary General Meeting or any adjournment thereof. Gracell shareholders who have acquired Gracell ordinary shares after the Share Record Date may not attend the Extraordinary General Meeting unless they receive a proxy from the person or entity who had transferred to them the Gracell ordinary shares.
If you wish to vote at the Extraordinary General Meeting please visit https://gracellbio.zoom.us/j/2239616669 at the time of the Extraordinary General Meeting and enter the password contained on your proxy card. Gracell shareholders wanting to vote by proxy should simply indicate on their proxy card attached to this proxy statement as Annex G how they want to vote, sign and date the proxy card, and mail the proxy card in the return envelope as soon as possible but in any event so that it is received by Gracell no later than 5:00 p.m. (New York City time) on February 14, 2024, the deadline to lodge the proxy card. If you submit your signed proxy card without indicating how you wish to vote, the Gracell ordinary shares represented by your proxy will be voted (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented, unless
 
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you appoint a person other than the chairman of the meeting as proxy, in which case the Gracell ordinary shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.
If your Gracell ordinary shares are registered in the name of a broker, bank or other nominee check the voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that your Gracell ordinary shares are voted at the Extraordinary General Meeting. Brokers, banks and other nominees who hold Gracell ordinary shares for their customers do not have discretionary authority to provide Gracell with voting instructions on how to vote the Gracell ordinary with respect to the Merger Proposal and the Adjournment Proposal. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owner of Gracell ordinary shares, they may not provide Gracell with voting instructions on how to vote the Gracell ordinary shares with respect to the Merger Proposal and the Adjournment Proposal.
An abstention or broker non-vote will be counted towards the quorum requirement but will not count as a vote cast at the Extraordinary General Meeting.
Gracell shareholders who have questions or need additional copies of this proxy statement should contact:
[MISSING IMAGE: lg_mackenzie-bw.jpg]
1407 Broadway, 27th Floor
New York, New York 10018
proxy@mackenziepartners.com
Call Collect: (212) 929-5500
or
Toll-Free (800) 322-2885
Gracell ADSs
Gracell has instructed the ADS Depositary to deliver to Gracell ADS holders as of the ADS Record Date an ADS voting instruction card, the form of which is attached as Annex H to this proxy statement, and Gracell ADS holders as of the ADS Record Date will have the right to instruct the ADS Depositary how to vote the Gracell ordinary shares underlying their Gracell ADSs at the Extraordinary General Meeting, subject to and in accordance with the terms of the Deposit Agreement. A copy of the Deposit Agreement is available free of charge at the SEC’s website at www.sec.gov.
Holders of Gracell ADSs as of the ADS Record Date cannot attend or vote at the Extraordinary General Meeting directly (whether in person (including by virtual attendance) or by proxy), but may instruct the ADS Depositary how to vote the Gracell ordinary shares underlying the Gracell ADSs by, in the case of registered Gracell ADS holders, completing and signing the ADS voting instruction card provided by the ADS Depositary and returning it in accordance with the instructions printed on the card. The ADS Depositary must receive the ADS voting instruction card no later than 12:00 p.m. (New York City time) on February 14, 2024 (or if the Extraordinary General Meeting is adjourned, such later time as may be notified by the Company or the ADS Depository). Upon the receipt from a Gracell ADS holder as of the ADS Record Date of voting instructions by the ADS Voting Cutoff Time in the manner specified by the ADS Depositary, the ADS Depositary will endeavor, insofar as practicable and permitted under applicable law, the provisions of the Deposit Agreement and the memorandum and articles of association of Gracell, to vote or cause to be voted the Gracell ordinary shares (in person (including by virtual attendance) or by proxy) represented by Gracell ADSs in accordance with your voting instructions.
Furthermore, pursuant to Section 4.7 of the Deposit Agreement, the ADS Depositary will not itself exercise any voting discretion in respect of any Gracell ordinary shares represented by Gracell ADSs and it will not vote any Gracell ordinary shares represented by Gracell ADSs other than in accordance with signed voting instructions from the relevant Gracell ADS holder, except as discussed below. Under the Deposit Agreement, subject to certain conditions contained therein, Gracell ADS holders as of the ADS Record Date whose
 
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voting instructions are not received by the ADS Voting Cutoff Time or are timely received but fail to specify the manner in which the ADS Depositary is to vote will be deemed to have instructed the ADS Depositary to give a discretionary proxy to a person designated by Gracell to vote the Gracell ordinary shares represented by the relevant Gracell ADSs, in each case pursuant to the terms of the Deposit Agreement; provided, however, that no such discretionary proxy will be given by the ADS Depositary with respect to any matter to be voted upon at the Extraordinary General Meeting unless Gracell has confirmed to the ADS Depositary (a) that it wishes such proxy to be given, (b) that Gracell reasonably does not know of any substantial opposition to the matters to be voted on at the Extraordinary General Meeting and (c) that the matters to be voted on at the Extraordinary General Meeting are not materially adverse to the interests of holders of Gracell ordinary shares. If the conditions provided for in the Deposit Agreement are satisfied with respect to discretionary proxies, Gracell intends to instruct the ADS Depositary to give such discretionary proxy to the chairman of the Extraordinary General Meeting. Accordingly, any Gracell ordinary shares represented by Gracell ADSs for which voting instructions are not received by the ADS Voting Cutoff Time or are timely received but fail to specify the manner in which the ADS Depositary is to vote, will be voted (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented.
If you hold your Gracell ADSs in a brokerage, bank or other nominee account, you must follow the procedures of the broker, bank or other nominee through which you hold your Gracell ADSs if you wish to vote. Brokers, banks and other nominees who hold Gracell ADSs for their customers do not have discretionary authority to provide the ADS Depositary with voting instructions on how to vote the Gracell ordinary shares underlying the Gracell ADSs with respect to the Merger Proposal and the Adjournment Proposal. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owner of Gracell ADSs, they may not provide the ADS Depositary with voting instructions on how to vote the Gracell ordinary shares underlying the Gracell ADSs with respect to the Merger Proposal and the Adjournment Proposal. If no voting instructions are received by the ADS Depositary from your broker, bank or other nominee, the ADS Depositary may give a discretionary proxy to a person designated by the Company to vote the Gracell ordinary shares represented by the relevant Gracell ADSs as described above.
Holders of Gracell ADSs who have questions should contact:
[MISSING IMAGE: lg_mackenzie-bw.jpg]
1407 Broadway, 27th Floor
New York, New York 10018
proxy@mackenziepartners.com
Call Collect: (212) 929-5500
or
Toll-Free (800) 322-2885
Proxy Holders for Registered Shareholders
Gracell shareholders registered in the register of members of Gracell as of the Share Record Date who are unable to participate in the Extraordinary General Meeting may appoint as a representative another shareholder, a third party or Gracell as proxy holder by completing and returning the form of proxy in accordance with the instructions printed thereon. With regard to the items listed on the agenda and without any explicit instructions to the contrary, Gracell as proxy holder will vote in favor of the resolutions proposed at the Extraordinary General Meeting according to the recommendation of the Board of Directors. If new proposals (other than those on the agenda) are put forth before the Extraordinary General Meeting, Gracell as proxy holder will vote in accordance with the position of the Board of Directors.
Voting of Proxies and Failure to Vote
All Gracell ordinary shares represented by valid proxies will be voted at the Extraordinary General Meeting in the manner specified by the holder.
Gracell shareholders wanting to vote by proxy should simply indicate on their proxy card attached to this proxy statement as Annex G how they want to vote, sign and date the proxy card, and mail the proxy card in
 
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the return envelope as soon as possible but in any event so that it is received by Gracell no later than 5:00 p.m. (New York City time) on February 14, 2024, the deadline to lodge the proxy card. If you submit your signed proxy card without indicating how you wish to vote, the Gracell ordinary shares represented by your proxy will be voted (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented, unless you appoint a person other than the chairman of the meeting as proxy, in which case the Gracell ordinary shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines.
If your Gracell ordinary shares are registered in the name of a broker, bank or other nominee check the voting instruction card forwarded by your broker, bank or other nominee to see which voting options are available or contact your broker, bank or other nominee in order to obtain directions as to how to ensure that your Gracell ordinary shares are voted at the Extraordinary General Meeting. Brokers, banks and other nominees who hold Gracell ordinary shares for their customers do not have discretionary authority to provide Gracell with voting instructions on how to vote the Gracell ordinary with respect to the Merger Proposal and the Adjournment Proposal. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owner of Gracell ordinary shares, they may not provide Gracell with voting instructions on how to vote the Gracell ordinary shares with respect to the Merger Proposal and the Adjournment Proposal.
An abstention or broker non-vote will be counted towards the quorum requirement but will not count as a vote cast at the Extraordinary General Meeting.
Holders of Gracell ADSs as of the close of business in New York City on January 8, 2024 cannot attend or vote at the Extraordinary General Meeting directly (whether in person (including by virtual attendance) or by proxy), but may instruct the ADS Depositary how to vote the Gracell ordinary shares underlying the Gracell ADSs by, if they are a registered Gracell ADS holder, completing and signing an ADS voting instruction card provided by the ADS Depositary and returning it in accordance with the instructions printed on the card. The ADS Depositary must receive the ADS voting instruction card no later than 12:00 p.m. (New York City time) on February 14, 2024. Upon the timely receipt (or deemed receipt) from a Gracell ADS holder as of the ADS Record Date of voting instructions in the manner specified by the ADS Depositary, the ADS Depositary will endeavor, insofar as practicable and permitted under applicable law, the provisions of the Deposit Agreement and the memorandum and articles of association of Gracell, to vote or cause to be voted the Gracell ordinary shares represented by Gracell ADSs in accordance with the Gracell ADS holder’s voting instructions. Pursuant to Section 4.7 of the Deposit Agreement, the ADS Depositary will not itself exercise any voting discretion in respect of any Gracell ordinary shares represented by Gracell ADSs and it will not vote any Gracell ordinary shares represented by Gracell ADSs other than in accordance with signed voting instructions from the relevant Gracell ADS holder except as discussed below. Under the Deposit Agreement, subject to certain conditions contained therein, ADS holders as of the ADS Record Date whose voting instructions are not received or are timely received but fail to specify the manner in which the ADS Depositary is to vote will be deemed to have instructed the ADS Depositary to give a discretionary proxy to a person designated by Gracell to vote the Gracell ordinary shares represented by the relevant Gracell ADSs, in each case pursuant to the terms of the Deposit Agreement; provided, however, that no such discretionary proxy will be given by the ADS Depositary with respect to any matter to be voted upon at the Extraordinary General Meeting unless Gracell has confirmed to the ADS Depositary (a) that it wishes such proxy to be given, (b) that Gracell reasonably does not know of any substantial opposition to the matters to be voted on at the Extraordinary General Meeting and (c) that the matters to be voted on at the Extraordinary General Meeting are not materially adverse to the interests of holders of Gracell ordinary shares. If the conditions provided for in the Deposit Agreement are satisfied with respect to discretionary proxies, Gracell intends to instruct the ADS Depositary to give such discretionary proxy to the chairman of the Extraordinary General Meeting. Accordingly, any Gracell ordinary shares represented by Gracell ADSs for which voting instructions are not received by the ADS Voting Cutoff Time or are timely received but fail to specify the manner in which the ADS Depositary is to vote, will be voted (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented.
If you hold your Gracell ADSs in a brokerage, bank or other nominee account, you must rely on the procedures of the broker, bank or other nominee through which you hold your Gracell ADSs if you wish to vote. Brokers, banks and other nominees who hold Gracell ADSs for their customers do not have discretionary authority to provide the ADS Depositary with voting instructions on how to vote the Gracell ordinary shares underlying the Gracell ADSs with respect to the authorization and approval of the Merger Proposal.
 
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Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owner of Gracell ADSs, they may not provide the ADS Depositary with voting instructions on how to vote the Gracell ordinary shares underlying the Gracell ADSs with respect to the authorization and approval of the Merger Proposal. If no voting instructions are received by the ADS Depositary from your broker, bank or other nominee, the ADS Depositary may give a discretionary proxy to a person designated by the Company to vote the Gracell ordinary shares represented by the relevant Gracell ADSs as described above.
Revocability of Proxies
If you are a holder of record of Gracell ordinary shares and you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:

you may send another signed proxy card to MacKenzie Partners, Inc.,1407 Broadway, 27th Floor, New York, New York 10018 Attention: Gracell Biotechnologies Proxy so that it is received no later than 48 hours before the time appointed for the holding of the Extraordinary General Meeting (or, in the case of an adjournment, no later than 48 hours before the time appointed for the holding of the adjourned meeting); or

you may attend the Extraordinary General Meeting and vote in person or virtually over the Internet by joining the live audio webcast and vote electronically through the web portal during the Extraordinary General Meeting, although your attendance alone will not revoke any proxy that you have previously given. Your proxy will only be revoked if you actually vote at the Extraordinary General Meeting.
Registered owners of Gracell ADSs may revoke their voting instructions to the ADS Depositary prior to 12:00 p.m. (New York City time) on February 14, 2024 by submitting a new ADS voting instruction card, specific to that registered owner, to the ADS Depositary.
If you hold your Gracell ADSs through a broker, bank or other nominee and you have instructed your broker, bank or other nominee to give ADS voting instructions to the ADS Depositary, you must follow the directions of your broker, bank or other nominee to change those instructions.
Board of Directors’ Recommendation
After careful consideration, the Board of Directors has unanimously adopted resolutions: (a) determining that it is fair to, and in the commercial interests of, Gracell and declared that it is advisable, to enter into the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party; (b) approving the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger, and the other Transaction Documents to which Gracell is a party, and the consummation of the Merger and the other Transactions upon the terms and subject to the conditions set forth in the Merger Agreement and the CVR Agreement; (c) determining to recommend the approval and authorization of the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party, and the consummation of the Transactions (including the Merger) to the shareholders of Gracell at the Extraordinary General Meeting; and (d) directing that the Merger Agreement, the Merger and the other Transactions be submitted to the shareholders of Gracell at the Extraordinary General Meeting for their approval.
The Board of Directors unanimously recommends that you vote or give instruction to vote (1) “FOR” the Merger Proposal and (2) “FOR” the Adjournment Proposal, if presented.
When you consider the Board of Directors’ recommendation of the Merger Proposal, you should keep in mind that Gracell’s directors and executive officers have interests in the Merger that may conflict with, or are different from, your interests as a Gracell shareholder.
Solicitation of Proxies
Gracell is soliciting proxies on behalf of its Board of Directors. This solicitation is being made by mail but also may be made by telephone or in person. Gracell and its directors, officers and employees may also solicit proxies in person by telephone or by other electronic means. Gracell will bear the cost of the solicitation.
 
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Gracell will ask banks, brokers and other institutions, nominees and fiduciaries to forward the proxy materials to their principals and to obtain their authority to execute proxies and voting instructions, and will reimburse such parties for their expenses in forwarding soliciting materials to beneficial owners of Gracell ordinary shares and in obtaining voting instructions from those owners.
Gracell’s directors and executive officers may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.
Gracell’s proxy solicitor, Mackenzie Partners, Inc., may also solicit proxies by personal interview, telephone, electronic communications or otherwise. Mackenzie Partners, Inc. will be paid its customary fee of approximately $12,500, plus out-of-pocket expenses for its proxy solicitation services.
Anticipated Date of Completion of the Merger
Assuming timely satisfaction of necessary closing conditions, including the approval by shareholders of the Merger Proposal, we anticipate that the Merger will be consummated in the first calendar quarter of 2024.
Delisting and Deregistration of Gracell ADSs
If the Merger is completed, the Gracell ADSs will be delisted from Nasdaq and deregistered under the Exchange Act, and Gracell ADS will no longer be publicly traded.
Other Matters
At this time, we know of no other matters to be voted on at the Extraordinary General Meeting. If any other matters properly come before the Extraordinary General Meeting, your Gracell ordinary shares will be voted in accordance with the discretion of the appointed proxy holders.
Questions and Additional Information
If you have any questions concerning the Merger, the Extraordinary General Meeting or this proxy statement, or would like additional copies of this proxy statement, please contact:
[MISSING IMAGE: lg_mackenzie-bw.jpg]
1407 Broadway, 27th Floor
New York, New York 10018
proxy@mackenziepartners.com
Call Collect: (212) 929-5500
or
Toll-Free (800) 322-2885
 
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THE MERGER
This discussion of the Merger is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. You should carefully read and consider the entire Merger Agreement, which is the legal document that governs the Merger, because this document contains important information about the Merger and how it affects you.
Parties Involved in the Merger
Gracell Biotechnologies Inc.
Building 12, Block B, Phase II
Biobay Industrial Park
218 Sangtian St.
Suzhou Industrial Park, 215123
People’s Republic of China
Gracell is a global clinical-stage biopharmaceutical company dedicated to discovering and developing breakthrough cell therapies to address major industry challenges and fulfill unmet medical needs in the treatment of cancer. Gracell ADS is listed on Nasdaq under the symbol “GRCL.”
AstraZeneca Treasury Limited
1 Francis Crick Avenue, Cambridge Biomedical Campus
Cambridge, United Kingdom, CB2 0AA
Parent was formed on March 18, 1994 and is an indirect wholly owned subsidiary of AstraZeneca, a global, science-led biopharmaceutical company that focuses on the discovery, development, and commercialization of prescription medicines in Oncology, Rare Diseases, and BioPharmaceuticals, including Cardiovascular, Renal & Metabolism, and Respiratory & Immunology.
Grey Wolf Merger Sub
P.O. Box 309, Ugland House
Grand Cayman, KY-1104, Cayman Islands
Merger Sub is a wholly owned subsidiary of Parent and was incorporated on December 19, 2023, solely for the purpose of engaging in the transactions contemplated by the Merger Agreement and has not engaged in any business activities other than in connection with the transactions contemplated by the Merger Agreement.
Effect of the Merger
Upon the terms and subject to the conditions of the Merger Agreement, Merger Sub will merge with and into Gracell and the separate corporate existence of Merger Sub will cease, with Gracell continuing as the Surviving Company and as a wholly owned subsidiary of Parent. As a result of the Merger, Gracell ADSs will no longer be publicly traded and will be delisted from Nasdaq. In addition, Gracell ADSs will be deregistered under the Exchange Act, and Gracell will no longer file periodic reports with the SEC. If the Merger is completed, you will not own any share capital of the Surviving Company. The Merger will become effective as of the Effective Time.
Effect on Gracell if the Merger is Not Completed
If the Merger Proposal is not approved and authorized by shareholders of Gracell, or if the Merger is not completed for any other reason:

the Gracell shareholders (including holders of ADSs) will not be entitled to, nor will they receive, any payment for their respective Gracell ordinary shares or Gracell ADSs pursuant to the Merger Agreement;
 
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the Company Options and Company RSUs will continue to be outstanding and vest in accordance with the terms thereof and will not accelerate and become fully vested as provided in the Merger Agreement;

the Company Warrants will continue to be outstanding in accordance with the terms thereof and holders thereof will not receive any payment for their Company Warrants pursuant to the Merger Agreement;

(a) Gracell will remain an independent public company; (b) Gracell ADSs will continue to be listed and traded on Nasdaq and registered under the Exchange Act; and (c) Gracell will continue to file periodic reports with the SEC;

we anticipate that (a) management will operate the business in a manner similar to that in which it is being operated today and (b) Gracell shareholders will be subject to similar types of risks and uncertainties as those to which they are currently subject, including risks and uncertainties with respect to Gracell’s business, prospects and results of operations, as such may be affected by, among other things, the highly competitive industry in which Gracell operates and economic conditions;

the price of Gracell ADSs may decline significantly, and if that were to occur, it is uncertain when, if ever, the price of Gracell ADSs would return to the price at which it trades as of the date of this proxy statement;

the Board of Directors will continue to evaluate and review Gracell’s business operations, strategic alternatives and capitalization, among other things, and will make such changes as are deemed appropriate; irrespective of these efforts, it is possible that no other transaction acceptable to the Board of Directors will be offered or that Gracell’s business, prospects and results of operations will be adversely impacted; and

under specified circumstances, Gracell will be required to pay Parent a termination payment of $33.8 million (plus applicable VAT) upon the termination of the Merger Agreement, and under other certain specified circumstances, Parent will be required to pay Gracell a termination payment of $41.6 million (plus applicable VAT), as described in the section of this proxy statement captioned “The Merger Agreement — Termination Payment.”
Merger Consideration
At the Effective Time, (a) each Gracell ordinary share issued and outstanding immediately prior to the Effective Time (other than Excluded Shares, Gracell shares represented by ADSs and Dissenting Shares), will be cancelled and will thereafter represent only the right to receive (i) the Per Share Closing Amount in cash without interest, less any applicable withholding taxes, and (ii) one CVR per Gracell ordinary share representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone, less any applicable withholding taxes; and (b) each Gracell ADS issued and outstanding immediately prior to the Effective Time (other than Gracell ADSs representing the Excluded Shares), together with the underlying Gracell ordinary shares represented by such Gracell ADSs, will be cancelled and will thereafter represent only the right to receive (i) the Per ADS Closing Amount in cash without interest less any applicable withholding taxes and (ii) five CVRs per Gracell ADS representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone, less any applicable withholding taxes. Pursuant to the terms of the Deposit Agreement, the Gracell ADS holders will pay any applicable fees, charges and expenses of the ADS Depositary, stock transfer or other taxes and other government charges due to or incurred by the ADS Depositary in connection with the cancellation, termination or surrender of their Gracell ADSs, which will be deducted from the Per ADS Closing Amount.
At the Effective Time, each ordinary share of Merger Sub issued and outstanding immediately prior to the Effective Time will be cancelled and the Surviving Company will issue to Parent such validly issued, fully paid and non-assessable ordinary shares of the Surviving Company as set out in the Plan of Merger, and such ordinary shares of the Surviving Company will constitute the only issued and outstanding share capital of the Surviving Company upon the Effective Time.
 
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Treatment of Company Warrants
At the Effective Time, each warrant to purchase Gracell ordinary shares (each, a “Company Warrant”) outstanding and not exercised immediately prior to the Effective Time will be cancelled and thereafter represent only the right to receive an amount in cash, without interest, equal to the Black Scholes Value (which is equal to $1.26618 per Gracell ordinary share underlying such Company Warrant) of the remaining unexercised portion of each Company Warrant in accordance with its terms (the “Company Warrant Consideration”), subject to any applicable withholding taxes. A holder of Company Warrants may exercise any Company Warrant held by it for an exercise price of $1.116 per Gracell ordinary share issuable upon exercise of such Company Warrant at any time prior to the date of the Extraordinary General Meeting by following the instructions for exercise set forth in the Company Warrant, including payment of the aggregate exercise price. Each Gracell ordinary share issued upon the exercise of any Company Warrant prior to the Effective Time will receive the same consideration as any other Gracell ordinary share in the Merger, as further described above under the section captioned “The Merger Agreement — Merger Consideration — Treatment of Gracell ordinary shares and Gracell ADSs”).
Treatment of Company Options and Company RSU Awards
Each Company Options that is outstanding as of immediately prior to the Effective Time will automatically accelerate and become fully vested and exercisable effective immediately prior to, and contingent upon, the Effective Time, and (a) each In-the-Money Company Option will be cancelled and converted at the Effective Time into the right to receive (i) an amount in cash, without interest, equal to the product of (A) the total number of Gracell ordinary shares subject to such In-the-Money Company Option multiplied by (B) the amount by which the Per Share Closing Amount exceeds the exercise price payable per Gracell ordinary share subject to such In-the-Money Company Option and (ii) one CVR per Gracell ordinary share subject to such In-the-Money Company Option, representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone in accordance with the terms of the CVR Agreement, in each case subject to any required tax withholding, (b) each Underwater Company Option will be cancelled and converted into the right to receive, upon the achievement of the Milestone in accordance with the terms of the CVR Agreement, an amount of cash, without interest, equal to the product of (i) the total number of Gracell ordinary shares subject to such Underwater Company Option as of immediately prior to the Effective Time multiplied by (ii) the amount, if any, by which (A) the Per Share Closing Amount plus $0.30 exceeds (B) the exercise price payable per Gracell ordinary share subject to such Underwater Company Option, less any required tax withholdings and (c) each Company Option that is outstanding as of immediately prior to the Effective Time and has a per-share exercise price that is equal to or greater than the sum of the Per Share Closing Amount plus $0.30 will be cancelled for no consideration.
Each Company RSU that is outstanding as of immediately prior to the Effective Time will accelerate and become fully vested effective immediately prior to, and contingent upon, the Effective Time, and as of the Effective Time, will be cancelled and converted into the right to receive (a) an amount in cash, without interest, equal to the Per Share Closing Amount multiplied by the aggregate number of Gracell ordinary shares issuable in settlement of such Company RSU immediately prior to the Effective Time and (b) one CVR with respect to each Gracell ordinary share issuable in settlement of such Company RSU, representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone in accordance with the terms of the CVR Agreement, in each case subject to any required tax withholding.
CVR Agreement
Pursuant to the Merger Agreement, at or immediately prior to the Effective Time, Parent and the Rights Agent will enter into the CVR Agreement governing the terms of the CVRs issued pursuant to the Merger Agreement. The Rights Agent will keep a register of the Holders.
Each CVR represents the right to receive $0.30, in cash, without interest, subject to any applicable withholding taxes, with such payment conditioned upon the achievement of one of the following milestones: (a) receipt of an accelerated approval, on or prior to December 31, 2028, granted by the FDA of a BLA for the authorization to market or sell any biologic product that contains the Product for the treatment of multiple myeloma or (b) receipt of a regulatory approval (excluding an accelerated approval), on or prior to December 31, 2029, granted by the FDA of a BLA for the Product for the first-line or second-line treatment of multiple myeloma.
 
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Such Milestone may be achieved by Parent, any of its permitted assignees, any of their respective affiliates, or any entity that has obtained rights to file a BLA for the Product or to register, develop or commercialize the Product in the U.S., whether such entity obtained such rights through license, sublicense, asset transfer or otherwise. Parent is obligated to use certain specified efforts and resources to achieve the Milestone until the earlier to occur of the date on which the milestone is achieved and December 31, 2029. However, there can be no assurance that the Milestone will be achieved or that the $0.30 Milestone payment will be made.
The right to payment described above is solely a contractual right governed by the terms and conditions of the CVR Agreement. The CVRs will not be evidenced by a certificate or other instrument, will not have any voting or dividend rights, will not represent any equity or ownership interests in Parent or the Surviving Company and will not be transferable except in limited circumstances. No interest will accrue or be payable in respect of any of the amounts that may be payable in respect of the CVRs. As a holder of a CVR, you will have no greater rights against Parent than those accorded to general, unsecured creditors with respect to the Milestone payment amounts that may be payable.
Support Agreements
On December 23, 2023, in connection with the execution of the Merger Agreement, Gracell Venture Holdings Limited, OrbiMed Genesis Master Fund, L.P., The Biotech Growth Trust Plc, OrbiMed Asia Partners III, L.P., and OrbiMed Partners Master Fund Limited, shareholders of the Company affiliated with certain directors of the Company entered into the Support Agreements with Parent. Under the terms of the Support Agreements, the Supporting Shareholders have agreed, among other things, to vote their shares in favor of the approval and authorization of the Merger Proposal at the Extraordinary General Meeting and, subject to certain exceptions, not to transfer any of their Gracell ordinary shares or Gracell ADSs. As of the Share Record Date, the Supporting Shareholders owned an aggregate of approximating 25.2% of the outstanding Gracell ordinary shares (including Gracell ordinary shares represented by Gracell ADSs). The Support Agreement will terminate upon termination of the Merger Agreement and certain other specified events.
Background of the Merger
Gracell is a global clinical-stage biopharmaceutical company dedicated to discovering and developing breakthrough cell therapies for the treatment of cancers and autoimmune diseases. Its lead product candidate GC012F — Gracell’s BCMA/CD19 dual-targeting autologous CAR-T cell therapy enabled by Gracell’s next-day autologous CAR-T cell manufacturing platform FasTCAR — is currently being evaluated in clinical studies in multiple hematological cancers as well as autoimmune diseases. From time to time, the Board of Directors reviews, with the assistance of Gracell management and outside advisors, Gracell’s business, financial plan, prospects, and long-term strategies to increase shareholder value, including seeking opportunities to fund the clinical development and commercialization of GC012F and its other product candidates through financing, licensing or partnering transactions.
From March of 2022 until executing the exclusivity agreement with AstraZeneca on December 12, 2023, at the direction of the Board of Directors, Gracell management contacted approximately 20 strategic parties (including AstraZeneca Pharmaceuticals LP (“AZ LP”), an affiliate of AstraZeneca), comprised of global biopharmaceutical companies in the oncology and immunology space, to discuss potential licensing and partnering opportunities with respect to its lead product candidate GC012F. Gracell entered into confidentiality agreements, none of which included a standstill provision, with seven of such parties (including AZ LP) for the purposes of facilitating general discussions regarding potential licensing and partnering discussions, and discussions with the other parties were preliminary in nature based on general and publicly available information. As of January 17, 2024, other than AstraZeneca, no such parties submitted a proposal for a strategic transaction with Gracell.
On March 27, 2023, representatives of AstraZeneca visited Gracell’s headquarters in Shanghai and met with Gracell management to discuss AstraZeneca’s interest in GC012F and Gracell’s FasTCAR platform generally. No proposal for partnering, licensing or any other strategic transaction was discussed at this time.
On April 16, 2023, representatives of each of Gracell and AstraZeneca met in person at the American Association for Cancer Research Annual Meeting in Orlando, Florida to further discuss the clinical development of GC012F generally, Gracell’s FasTCAR platform and AstraZeneca’s general interest in
 
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pursuing a potential licensing or partnering transaction with Gracell. No proposal for partnering, licensing or any other strategic transaction was discussed at this time, and Gracell and AstraZeneca agreed to continue discussions under a confidentiality agreement.
On May 16, 2023, to facilitate further discussions of a potential licensing or partnering transaction, Gracell Biopharmaceuticals, Inc. (“Gracell Biopharmaceuticals”), a subsidiary of Gracell, entered into a Reciprocal Confidentiality Agreement (the “AZ NDA”) with AZ LP. The AZ NDA did not contain a standstill provision.
At the direction of the Board of Directors, beginning on June 13, 2023, Gracell management provided limited due diligence information regarding its clinical data, CMC and intellectual property to AstraZeneca through a virtual data room and held meetings with representatives of AstraZeneca to facilitate discussions regarding a potential licensing or partnering transaction.
On August 7, 2023, Gracell announced it had entered into a subscription agreement with a select group of institutional healthcare specialist investors for the private placement of Gracell ordinary shares at a purchase price equivalent to $3.60 per ADS for an aggregate purchase price of $100 million and warrants at an exercise price equivalent to $5.58 per ADS for an aggregate exercise price of $50 million.
From August 11, 2023 until September 7, 2023, representatives of Gracell management and AstraZeneca had several conversations by telephone regarding a potential licensing or partnering transaction.
On September 7, 2023, William Wei Cao, Ph.D., founder, Chairman of the Board of Directors and Chief Executive Officer of Gracell, and Samuel Zhang, Ph.D., Chief Business Officer of Gracell, met with representatives of AstraZeneca, including Gayatri Varma, Ph.D., AstraZeneca’s Executive Director and Head of Transactions, Oncology Business Development & Licensing, at AstraZeneca’s offices in Gaithersburg, Maryland, to continue discussions regarding a potential licensing or partnering transaction.
On September 11, 2023, Dr. Varma and Dr. Zhang had a conversation by telephone during which Dr. Varma inquired generally whether Gracell would be open to discussing a potential acquisition of Gracell by AstraZeneca instead of a licensing or partnering transaction. Dr. Zhang indicated that they would need to consider such proposal as well as a potential licensing or partnering transaction. No proposal for partnering, licensing or any strategic transaction was submitted at this time.
After market close in the U.S. on September 26, 2023, Gracell announced that the first patient had been dosed in a Phase 1b/2 clinical trial evaluating GC012F in patients with relapsed or refractory multiple myeloma (“RRMM”) in the U.S., and prior to market open in the U.S. on September 27, 2023, Gracell announced positive clinical data from an ongoing Phase 1 investigator-initiated trial evaluating GC012F as a frontline treatment for patients with transplant-eligible, high-risk, newly diagnosed multiple myeloma (“NDMM”). Following such announcements, on September 27, 2023, Gracell ADSs closed at $3.05 per Gracell ADS, a 3.4% increase from the closing price on the immediately prior trading day.
On November 3, 2023, Pascal Soriot, Executive Director and Chief Executive Officer of AstraZeneca, and Dr. Cao met in person in Shanghai. No proposal for a strategic transaction was discussed at this meeting.
On November 13, 2023, Gracell reported financial results for the third quarter ended September 30, 2023 and provided a corporate update, which included, among other things, expected timing for a Phase 1/2 clinical trial in the PRC evaluating GC012F in RRMM and a statement that Gracell was on track to submit Investigational New Drug (“IND”) filings for planned Phase 1 clinical trials of GC012F in refractory systemic lupus erythematosus (“rSLE”) in 2023 in both the U.S. and the PRC. In its report, Gracell also noted that it had suspended the Phase 2 trial evaluating GC007g, HLA-matched donor-derived allogeneic CD19-targeted CAR-T cell therapy, for the treatment of B-cell acute lymphoblastic leukemia in order to focus its resources on its most innovative, differentiated product candidates, including GC012F. Following the announcement, on November 13, 2023, Gracell ADSs closed at $4.59 per Gracell ADS, a 4.3% increase from the closing price on the immediately prior trading day.
On November 15, 2023, representatives of each of AstraZeneca, Freshfields Bruckhaus Deringer LLP, AstraZeneca’s outside legal counsel (“Freshfields”), and Cooley LLP, Gracell’s outside counsel (“Cooley”), met by videoconference to discuss certain due diligence questions to enable AstraZeneca to further evaluate whether to proceed with a licensing and partnering transaction or a potential strategic transaction with Gracell.
 
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On November 22, 2023, AstraZeneca provided Gracell a non-binding, written proposal for an acquisition of Gracell for an upfront purchase price of $7.50 per Gracell ADS (or $1.50 per Gracell ordinary share), representing a 52% premium to Gracell’s closing price on November 20, 2023, and a contingent value right (“CVR”) providing for an additional payment of $2.00 per Gracell ADS (or $0.40 per ordinary share) upon the U.S. FDA approval of GC012F in multiple myeloma, collectively representing a 92% premium to Gracell’s closing price on November 20, 2023 (the “Initial AstraZeneca Proposal”). The Initial AstraZeneca Proposal was conditioned upon, among other things, completion of customary due diligence and the execution of a mutually acceptable exclusivity agreement through December 31, 2023.
On November 23, 2023, the Board of Directors held a meeting to discuss the Initial AstraZeneca Proposal, with Gracell’s management and representatives of Cooley in attendance. Representatives of Cooley reviewed with the Board of Directors its fiduciary duties in evaluating a strategic transaction, including a potential sale of Gracell. The Board of Directors reviewed with Gracell management potential strategic alternatives to a sale of Gracell, including out-licensing, advancing Gracell’s clinical trials and operations through a partnering transaction with a global pharmaceutical company and remaining as a standalone company. The Board of Directors noted, among other things, (i) that out-licensing might not present the best value to Gracell and its shareholders, (ii) the potentially significant additional capital required to fund the development and commercialization of GC012F and its other pipeline product candidates and the significant dilutive impact such financing could have on the current Gracell shareholder base, if Gracell were to pursue development and commercialization on a stand-alone basis and (iii) that partnering with a global pharmaceutical party could potentially result in a slower pace for the development and commercialization and present a challenge with respect to competitive positioning of its products even if successfully developed and commercialized. The Board of Directors also noted that, since Gracell’s initial outreach to global pharmaceutical companies in March 2022, no parties submitted a proposal for a strategic transaction with Gracell, other than AstraZeneca. Following these discussions, the Board of Directors authorized management to (i) communicate to AstraZeneca that the AstraZeneca Initial Proposal was inadequate to warrant an exclusive discussion but that Gracell was open to further discussing a potential strategic transaction at a higher valuation representative of Gracell’s intrinsic value, without offering a specific counterproposal and (ii) engage a financial advisor with a strong reputation and experience, knowledge of and involvement in recent transactions in the biopharmaceutical industry, to provide financial advisory services in connection with a potential strategic transaction.
On November 24, 2023, Gracell management had an initial call with a representative of Centerview Partners LLC (“Centerview”) regarding the engagement of Centerview as a financial advisor. Centerview was contacted given its reputation and experience and its knowledge of and involvement in recent transactions in the biopharmaceutical industry. It was understood that the Board of Directors would require a comprehensive review of the terms of engagement and disclosure of conflicts, if any, before the Board of Directors formally engaged Centerview as its financial advisor.
On November 28, 2023, Dr. Cao informed Shaun Grady, Senior Vice President, Business Development Operations at AstraZeneca that Gracell was receptive to further discussions regarding a potential strategic transaction with AstraZeneca at a higher valuation than the valuation implied by the Initial AstraZeneca Proposal. Mr. Grady asked Dr. Cao to provide a valuation range that would be acceptable to Gracell. Dr. Cao responded that, while the Board of Directors had not determined a value threshold, it had determined that the Initial AstraZeneca Proposal presented inadequate value to Gracell and its shareholders.
On November 30, 2023, at the direction of Gracell, a representative of Centerview spoke with Mr. Grady and asked Mr. Grady to provide an improved offer with a higher valuation. Mr. Grady responded that he would discuss with senior executives of AstraZeneca whether AstraZeneca would be prepared to revert with an updated offer in the absence of a specific counteroffer from Gracell.
On December 4, 2023, Dr. Cao and Mr. Grady spoke by telephone, and Mr. Grady notified Dr. Cao that he would receive a revised non-binding written proposal on the same day.
Later that same day, Gracell received from AstraZeneca a revised non-binding, written proposal for an acquisition of Gracell for an upfront purchase price of $9.00 per Gracell ADS (or $1.80 per Gracell ordinary share), representing a 70% premium to Gracell’s closing price on December 1, 2023, and a CVR providing for an additional payment of $1.00 per Gracell ADS (or $0.20 per Gracell ordinary share) upon the U.S. FDA
 
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approval of GC012F in multiple myeloma, collectively representing an 89% premium to Gracell’s closing price on December 1, 2023 (the “Revised AstraZeneca Proposal”). The Revised AstraZeneca Proposal was conditioned upon, among other things, completion of customary due diligence and the execution of a mutually acceptable exclusivity agreement providing for exclusivity through January 12, 2024.
On December 6, 2023, the Board of Directors held a meeting to discuss the Revised AstraZeneca Proposal, with Gracell management and representatives of each of Centerview and Cooley in attendance. Gracell management provided an update on discussions with AstraZeneca, and representatives of Centerview reviewed with the Board of Directors the Revised AstraZeneca Proposal from a financial point of view and Gracell management’s preliminary long-term financial projections and the material assumptions included therein. Representatives of Cooley provided to the Board of Directors a preliminary overview of regulatory aspects of a potential transaction with AstraZeneca. In the Board of Directors’ evaluation of the Revised AstraZeneca Proposal and the request for exclusive negotiations, the Board of Directors discussed the risk of additional outreach to third parties to gauge their interest in pursuing an acquisition of Gracell, including the risk of leaks or other disruptions and risks to the ability to enter into an agreement with AstraZeneca if the process were significantly delayed. The Board of Directors further noted that, other than AstraZeneca, no other party had submitted a proposal for a strategic transaction with Gracell since Gracell’s initial outreach to various strategic parties in March 2022. Following such discussions, the Board of Directors agreed that until Gracell agreed to enter into exclusive discussions with AstraZeneca, Gracell should continue its potential licensing and partnering discussions to preserve the option of executing on another strategic transaction that would enhance the long-term value of Gracell if AstraZeneca did not increase its offer to an acceptable price. The Board of Directors agreed that the Revised AstraZeneca Proposal was still inadequate to warrant exclusive negotiations with AstraZeneca, and as a condition to entering exclusivity and providing more extensive due diligence information, Gracell would require a proposal with an increased price and a customary standstill agreement binding on AstraZeneca. Following discussions, the Board of Directors instructed representatives of Centerview to further negotiate with and make a counteroffer to AstraZeneca of a total purchase price of $15.00 per Gracell ADS (or $3.00 per Gracell ordinary share).
Later on the same day, Centerview provided to the Board of Directors a customary relationship disclosure letter as of December 6, 2023.
On December 7, 2023, a representative of Centerview called Mr. Grady to communicate the Board of Directors’ feedback that the Revised AstraZeneca Proposal was still inadequate and provided Gracell’s counteroffer of $3.00 per Gracell ordinary share (or $15.00 per Gracell ADS). Mr. Grady communicated to the representative of Centerview that AstraZeneca would not be willing to pay total consideration of $15.00 per Gracell ADS, regardless of whether all in an upfront cash payment or in a combination of an upfront cash payment and a CVR.
On December 8, 2023, Mr. Grady told a representative of Centerview that AstraZeneca would not be able to offer $3.00 per Gracell ordinary share (or $15.00 per Gracell ADS) but would be submitting a revised offer, emphasizing that such offer should be considered as AstraZeneca’s best and final offer. Mr. Soriot then called Dr. Cao and indicated the same. Later that day, Gracell received from AstraZeneca a revised non-binding, written proposal for an acquisition of Gracell for an upfront purchase price of $2.00 per Gracell ordinary share (or $10.00 per Gracell ADS), representing a 95% premium to Gracell’s closing price on December 7, 2023, and a CVR providing for an additional payment of $0.30 per Gracell ordinary share (or $1.50 per Gracell ADS) upon the U.S. FDA approval of GC012F in multiple myeloma, collectively representing a 124% premium to Gracell’s closing price on December 7, 2023 (the “Final AstraZeneca Proposal”) and a draft exclusivity agreement. The Final AstraZeneca Proposal was conditioned upon, among other things, completion of customary due diligence and the execution of a mutually acceptable exclusivity agreement providing for exclusivity through January 12, 2024.
On December 9, 2023, the Board of Directors held a meeting to discuss the Final AstraZeneca Proposal, with Gracell management and representatives of each of Centerview and Cooley in attendance. Representatives of Centerview and Dr. Cao summarized their discussions with AstraZeneca and the increase in value since the Initial AstraZeneca Proposal, and representatives of Centerview reviewed the Final AstraZeneca Proposal from a financial point of view. Gracell management further reported that Gracell was expecting to announce on Monday, December 11, 2023 updated results from the clinical investigator-initiated trial of GC012F for treatment of NDMM. The Board of Directors then reviewed with Gracell management and Centerview
 
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Gracell management’s long-term financial projections and the material assumptions included therein (defined as “Projections” and further summarized under the section below captioned “The Merger — Certain Financial Projections”) that were substantially the same as the preliminary projections reviewed by the Board of Directors on December 6, 2023, other than immaterial refinements, and approved such Projections for use by Centerview in connection with the rendering of its fairness opinion to the Board of Directors and performing its related financial analyses. The Board of Directors reviewed the terms of the exclusivity agreement and an amendment to the AZ NDA to, among other things, add a standstill provision (the “AZ NDA Amendment”). The Board of Directors noted that other than AstraZeneca, no party had submitted a proposal for any strategic transaction with Gracell since the initial outreach by Gracell to approximately 20 strategic parties in March 2022 to discuss potential licensing and partnering opportunities with respect to its lead product candidate GC012F. The Board of Directors also agreed that the Final AstraZeneca Proposal likely represented the highest price AstraZeneca was willing to pay and the highest price reasonably obtainable by Gracell under the circumstances and that there was substantial risk of losing AstraZeneca’s best and final offer if Gracell continued to pursue a higher price and engaged in protracted negotiations. Following discussions, the Board of Directors approved entering into exclusive negotiations with AstraZeneca based on the offer price in the Final AstraZeneca Proposal and approved providing comprehensive due diligence information to AstraZeneca once the AZ NDA Amendment was executed. Without the presence of the representatives of Centerview, the Board of Directors also reviewed Centerview’s relationship disclosure letter as well as the negotiated terms of the proposed engagement of Centerview as its exclusive financial advisor and approved such engagement.
On December 9, 2023, Dr. Cao and a representative of Centerview called Mr. Soriot to let him know that the Board of Directors had approved entering into exclusive negotiations with AstraZeneca based on the offer price in the Final AstraZeneca Proposal.
On December 9, 2023, at the direction of Gracell management, representatives of Cooley sent to AstraZeneca a revised draft of the exclusivity agreement and a draft of the AZ NDA Amendment.
On December 10, 2023, representatives of each of AstraZeneca, Freshfields, Gracell, Centerview and Cooley had a call to discuss next steps, providing access to more comprehensive due diligence information through the virtual data room, the negotiation of the draft definitive agreements and a timeline to signing and announcing the definitive merger agreement. On the same day, representatives of Freshfields sent to Cooley a revised draft of the exclusivity agreement and AZ NDA Amendment.
On December 11, 2023, Gracell executed an engagement letter with Centerview as its financial advisor.
On the same day, Gracell announced the positive updated results from the clinical investigator-initiated trial of GC012F for treatment of NDMM presented at the 65th American Society of Hematology Annual Meeting & Exposition. Following the announcement, on December 12, 2023, Gracell ADSs closed at $5.41 per Gracell ADS, an 11.1% increase from the closing price on the immediately prior trading day.
On the same day, Cooley and Freshfields continued to exchange drafts of the exclusivity agreement and the AZ NDA Amendment.
On the same day, representatives of Freshfields sent to Cooley an initial draft of the Merger Agreement that contemplated, among other things: (i) a reverse triangular merger structure in accordance with Part XVI of the Companies Act (As Revised) of the Cayman Islands; (ii) certain unspecified Gracell shareholders executing a Support Agreement; (iii) the possibility of certain unspecified Gracell employees entering into retention agreements; (iv) a customary “fiduciary out” to allow the Board of Directors to consider potential alternative, unsolicited offers following entry into the Merger Agreement (with an unspecified termination payment, which termination payment (the “Gracell Termination Payment”) would be payable by Gracell to AstraZeneca under certain circumstances, including in connection with Gracell terminating the Merger Agreement to accept a superior acquisition proposal); and (v) a provision that disclaimed any obligation of AstraZeneca to take certain remedial actions in order to obtain applicable antitrust and other regulatory approval but did not provide for any reverse termination payment payable by AstraZeneca to Gracell if the Merger Agreement was terminated in certain circumstances related to the failure to obtain required antitrust or other regulatory approvals. No drafts of the Support Agreement or retention agreement were provided by Freshfields to Cooley at this time. No discussions regarding executive or other key employee retention were held at this time.
 
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On December 12, 2023, Gracell and AstraZeneca UK Limited (“AZ UK”), an affiliate of AstraZeneca, executed the exclusivity agreement providing for exclusivity until January 12, 2024, and Gracell Biopharmaceuticals, Gracell, AZ LP and AZ UK executed the AZ NDA Amendment, which included a six-month standstill obligation for the benefit of Gracell with customary fall-away provisions. Following the execution of the AZ NDA Amendment, Gracell granted representatives of AstraZeneca and Freshfields expanded access to Gracell’s virtual data room containing due diligence materials to facilitate AstraZeneca’s and Freshfields’ due diligence review in connection with the potential acquisition transaction.
Over the course of the following ten days, representatives of Gracell and AstraZeneca and their respective advisors participated in a number of finance, tax, clinical, legal and other due diligence calls and discussed and exchanged additional due diligence information in connection with the parties’ exploration of the potential acquisition transaction.
On December 13, 2023, representatives of each of AstraZeneca, Freshfields, Gracell, Centerview and Cooley spoke by video conference to discuss timing of draft definitive agreements and due diligence. Representatives of AstraZeneca indicated that their goal was to sign and announce the transaction before December 25, 2023. Later on the same day, representatives of Cooley and Gracell management spoke by video conference to discuss the material issues in the draft Merger Agreement. In addition, on the same day, representatives of Cooley sent to Freshfields an initial draft of the CVR Agreement, which, among other things, proposed that AstraZeneca be required to use certain commercially reasonable efforts to achieve the milestone required for the CVR to become payable and that there would be no outside date for the achievement of the milestone.
On December 14, 2023, representatives of Cooley sent to Freshfields a revised draft of the Merger Agreement. The revised draft of the Merger Agreement contemplated, among other things: (i) a Gracell Termination Payment equal to 2.0% of the transaction equity value; (ii) a reverse termination payment of 6.0% of the transaction equity value payable by AstraZeneca if the Merger Agreement was terminated in certain circumstances related to the failure to obtain required antitrust and other regulatory approvals (the “AstraZeneca Termination Payment”); (iii) a carve-out for certain regulatory and clinical matters to what would constitute a material adverse effect; and (iv) willingness to provide Support Agreements by Gracell Venture Holdings Limited and shareholders affiliated with OrbiMed, each of which was affiliated with members on the Board of Directors.
On the same day, representatives of Freshfields sent to representatives of Cooley an initial draft of the Support Agreement.
On December 15, 2023, representatives of AstraZeneca, Freshfields, Gracell, Centerview and Cooley spoke by videoconference to discuss the status of draft definitive agreements and due diligence.
On December 16, 2023, representatives of Cooley sent an initial draft of the disclosure schedules to Freshfields, and representatives of Freshfields sent to Cooley a revised draft of the CVR Agreement that contemplated, among other things, an outside date of June 30, 2028 for achievement of the milestone.
On the same day, representatives of Cooley sent to Freshfields a revised draft of the Support Agreement.
On December 17, 2023, representatives of Freshfields sent to Cooley a revised draft of the Merger Agreement that contemplated, among other things: (i) a Gracell Termination Payment of 3.5% of the transaction equity value (increased from 2.0% in Cooley’s December 14, 2023 draft); (ii) the acceptance of the concept of an AstraZeneca Termination Payment with a reduction of the payment to 3.5% (decreased from 6.0% in Cooley’s December 14, 2023 draft); (iii) a carve-out for the results, outcomes, data, adverse events or side effects arising from any clinical trials conducted by or on behalf of Gracell (other than if related to safety) to what would constitute a material adverse effect; and (iv) that the list of the Gracell shareholders that would be required to sign a Support Agreement was subject to ongoing discussion.
On December 19, 2023, representatives of AstraZeneca indicated to Centerview that AstraZeneca would like the approval of the Board of Directors to engage in employment discussions with Dr. Cao and possibly certain other non-executive key employees prior to signing the Merger Agreement. Following such discussions, representatives of Centerview and Cooley discussed AstraZeneca’s request and relayed the request to the Board of Directors. No request for retention of Dr. Cao was made by AstraZeneca until this time.
 
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On the same day, representatives of Cooley sent to Freshfields a revised draft of the Merger Agreement that contemplated, among other things: (i) a Gracell Termination Payment of 2.75% of the transaction equity value; (ii) an AstraZeneca Termination Payment of 4.75% of the transaction equity value; and (iii) a carve-out for regulatory matters to Freshfield’s formulation of the clinical trials carve-out to what would constitute a material adverse effect.
On the same day, representatives of Cooley sent to Freshfields a revised draft of the CVR Agreement that contemplated, among other things, the eight-year anniversary of the closing as the outside date for the milestone achievement.
On the same day, representatives of Freshfields sent to Cooley a revised draft of the Support Agreement.
On December 20, 2023, representatives of Freshfields sent to Cooley comments on the draft disclosure schedules and a revised draft of the CVR Agreement that contemplated, among other things, an outside date for the milestone achievement of December 31, 2029, which was one year longer than the outside date proposed in Freshfield’s December 16, 2023 draft of the CVR Agreement, but contemplated that the milestone trigger be limited to regulatory approval for first-line or second-line treatment of multiple myeloma.
On the same day, representatives of each of Cooley and Freshfields finalized the draft of the Support Agreement, which draft was agreed to by the Supporting Shareholders later that day, subject to the approval of the Merger Agreement by the Board of Directors and execution of the Merger Agreement.
On the same day, representatives of AstraZeneca communicated to Dr. Cao that AstraZeneca would like to engage in employment discussions with Dr. Cao and possibly certain other non-executive key employees prior to signing the Merger Agreement.
On the same day, the Board of Directors held a meeting, with Gracell’s management and representatives of each of Centerview and Cooley in attendance. Gracell management and representatives of Centerview updated the Board of Directors on the discussions with AstraZeneca and the significant progress made on due diligence in a short period of time. Representatives of Cooley then reviewed with the Board of Directors a summary of the Merger Agreement and other transaction documents, as well as key open issues that were being discussed and the proposed timeline to signing and announcing the Merger Agreement. The Board of Directors was generally satisfied with the terms of the Merger Agreement and the other transaction documents and instructed Gracell management and Cooley to finalize negotiation with the goal to execute the Merger Agreement and announce the transaction on the timing discussed in the meeting. Dr. Cao then reported to the Board of Directors that, as a condition to execution of the Merger Agreement, AstraZeneca required a retention agreement with Dr. Cao and certain other unspecified non-executive key employees that would only become effective upon the closing of the proposed Merger. Dr. Cao volunteered to abstain from any further negotiations with AstraZeneca, and the Board of Directors noted that any material change to the terms of the Merger Agreement or other transaction documents would continue to be reviewed by the Board of Directors. In an executive session and after Dr. Cao left the meeting, the Board of Directors approved the engagement of separate counsel for Dr. Cao in connection with the review of such retention agreement and the reimbursement of reasonable fees of such counsel.
Later on the same day, after the Board of Directors meeting, representatives of Freshfields sent to Cooley a revised draft of the Merger Agreement that contemplated, among other things: (i) retention agreements with Dr. Cao and other non-executive key employees as a condition to the execution of the Merger Agreement; (ii) a Gracell Termination Payment of 3.25% of the transaction equity value; (iii) a AstraZeneca Termination Payment of 3.25% of the transaction equity value; and (iv) the acceptance of the clinical trials and regulated regulatory matters formulation carve-out to what would constitute a material adverse effect.
On December 21, 2023, Gracell announced that the Center for Drug Evaluation of China’s National Medical Products Administration cleared Gracell’s IND application for GC012F for the treatment of rSLE and that Gracell planned to initiate a Phase 1/2 clinical study in China to further evaluate GC012F in rSLE patients. Following the announcement, on December 21, 2023, Gracell ADSs closed at $6.40 per Gracell ADS, a 5.8% increase from the closing price on the immediately prior trading day.
On the same day, representatives of AstraZeneca discussed with representatives of Centerview the possibility of requiring additional Gracell shareholders not represented on the Board of Directors to sign a Support
 
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Agreement, and representatives of Centerview then communicated this possibility to Gracell and Cooley. Given the parties’ desire to execute and announce the Merger Agreement in the following days prior to December 25, 2023, the delay in execution and announcement of the Merger Agreement that could be caused by informing such shareholders of the potential transaction and requesting that they review and sign a Support Agreement and the increased risk of a public leak of the transaction due to informing such shareholders of the potential transaction, representatives of AstraZeneca later agreed not to require any additional Gracell shareholders to sign a Support Agreement. Representatives of AstraZeneca and representatives of Centerview also discussed the proposed transfer of shares held by Dr. Cao and one other individual, as nominee shareholders, of a certain subsidiary of Gracell structured as a variable interest entity to a nominee shareholder designated by AstraZeneca or other restructuring of such entity to occur after the closing of the proposed transaction. Representatives of Centerview then communicated the content of these discussions to Gracell and Cooley.
On the same day, representatives of Cooley sent to Freshfields (i) a revised draft of the disclosure schedules, (ii) a revised draft of the CVR Agreement that, among other things, did not contain the limitation to first-line or second-line treatment for the regulatory approval milestone and (iii) the Merger Agreement that, among other things, contained a Gracell Termination Payment of 3.25% (as proposed in Freshfields’ December 20, 2023 draft) of transaction equity value and an AstraZeneca Termination Payment of 4.75% of the transaction equity value (increased from 3.25% of the transaction equity value).
On the same day, representatives of Cooley and representatives of Freshfields spoke by videoconference to discuss the remaining open issues in the Merger Agreement and the CVR Agreement.
On the same day, Dr. Cao received from representatives of Freshfields and AstraZeneca a draft retention agreement.
On the same day, representatives of Cooley notified Freshfields that the Support Agreement draft was acceptable to the Supporting Shareholders.
Also on the same day, representatives of each of Freshfields and Cooley had a call during which representatives of Freshfields informed Cooley that AstraZeneca would require Dr. Cao to execute a letter agreement related to the variable interest entity share transfer or restructuring (the “VIE Letter Agreement”).
On December 22, 2023, the Board of Directors held a meeting with Gracell management and representatives of each of Centerview, Cooley and Harney Westwood & Riegels, Gracell’s outside Cayman Islands counsel (“Harneys”), in attendance. Representatives of Cooley summarized to the Board of Directors the open issues in the Merger Agreement and the CVR Agreement. Representatives of Harneys reviewed with the Board of Directors its fiduciary duties. Representatives of Centerview reviewed with the Board of Directors Centerview’s financial analyses of the Per ADS Merger Consideration. After Dr. Cao left the meeting, representatives of Cooley reviewed with the Board of Directors the compensation and retention arrangements of the retention agreement negotiated between AstraZeneca and Dr. Cao.
On the same day, representatives of Freshfields sent to Cooley a revised draft of (i) the disclosure schedules, (ii) the CVR Agreement (reverting to the requirement that the milestone trigger be limited to regulatory approval for first-line or second-line treatment of multiple myeloma) and (iii) the Merger Agreement that contemplated, among other things, an AstraZeneca Termination Payment of 4.0% of the transaction equity value.
On the same day, representatives of Freshfields sent to Cooley and Dr. Cao a draft of the VIE Letter Agreement. Over the course of December 22, 2023 and December 23, 2023, Dr. Cao, with the assistance of outside advisors, and representatives of Freshfields exchanged drafts of the VIE Letter Agreement and finalized the VIE Letter Agreement, as more fully described in the section captioned “The Merger — Interests of Gracell’s Directors and Executive Officers in the Merger.”
Later on the same day, the Board of Directors held a meeting, with Gracell management and representatives of each of Centerview, Cooley and Harneys in attendance. Representatives of Cooley summarized to the Board of Directors the remaining open issues in the Merger Agreement and the CVR Agreement, including the size of the AstraZeneca Termination Payment and the requirement that the milestone trigger to be limited to regulatory approval for first-line or second-line treatment of multiple myeloma. After the summary provided
 
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by representatives of Cooley, the Board of Directors continued to discuss the potential transaction with AstraZeneca, the assessment of risks relating to obtaining the requisite antitrust approval, Gracell management’s estimate as to the probability and timing of achieving the milestone (in light of the outside date of December 31, 2029 for the achievement of the milestone) as proposed by AstraZeneca, Gracell’s various strategic alternatives, including its prospects as a stand-alone company, and the other terms of the Merger Agreement and the CVR Agreement, and following such discussion, the Board of Directors directed Gracell management and Cooley to accept the 4.0% AstraZeneca Termination Payment and the requirement that the milestone trigger to be limited to regulatory approval for first-line or second-line treatment of multiple myeloma.
Following the Board of Directors meeting on December 22, 2023, representatives of Cooley sent to Freshfields a proposed execution draft of the Merger Agreement, accepting the 4.0% AstraZeneca Termination Payment, and notified Freshfields that the Freshfield’s last draft of the CVR Agreement was acceptable to Gracell.
Over the course of December 22 and December 23, 2023, representatives of Cooley and Freshfields continued to exchange drafts of the disclosure schedules and finalized the disclosure schedules.
On December 23, 2023, the Board of Directors held a meeting, with Gracell management and representatives of each of Centerview, Cooley and Harneys in attendance. Gracell management updated the Board of Directors on the discussions with AstraZeneca, and representatives of Cooley reported to the Board of Directors how the key open issues in the transaction agreements were resolved and summarized the terms of the Merger Agreement, the CVR Agreement and the other Transaction Documents. Representatives of Centerview reviewed with the Board of Directors Centerview’s financial analyses of the Per ADS Merger Consideration and rendered to the Board of Directors an oral opinion, which was subsequently confirmed by delivery of a written opinion dated December 23, 2023 that, as of such date and based upon and subject to various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken in preparing its opinion, the Per ADS Merger Consideration to be paid to the holders of Gracell ADSs (other than as specified in such opinion) pursuant to the Merger Agreement was fair, from a financial point of view, to such holders. For a detailed discussion of Centerview’s opinion, please see below under the section captioned “The Merger — Opinion of Centerview Partners LLC”. After carefully considering the proposed terms of the Merger Agreement, and taking into consideration the matters and reasons discussed during that meeting and prior meetings of the Board of Directors (for additional detail, see below under the section entitled “The Merger — Reasons for the Merger”), the Board of Directors unanimously adopted resolutions: (i) determining that it is fair to, and in the commercial interests of, Gracell and declaring it advisable, for Gracell to enter into the Merger Agreement and Plan of Merger and other Transaction Documents to which is a party, (ii) approving the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger, and the other Transaction Documents to which Gracell is a party, and the consummation of the Merger and the other Transactions upon the terms and subject to the conditions set forth in the Merger Agreement and the CVR Agreement, (iii) determining to recommend the approval and authorization of the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party, and the consummation of the Transactions (including the Merger) by the shareholders of Gracell at the Extraordinary General Meeting, and (iv) directing that the Merger Agreement, the Merger and the other Transactions be submitted to the shareholders of Gracell at the Extraordinary General Meeting for their approval.
Following the Board of Directors meeting, representatives of Cooley sent to Freshfields a proposed execution draft of the Merger Agreement adjusting the date of the agreement to December 23, 2023. Gracell, AstraZeneca and Merger Sub then entered into the Merger Agreement, and contemporaneously therewith, the Support Agreements, the Retention Agreements and the VIE Letter Agreement were each executed and delivered by the parties thereto.
In the early hours of the morning in the U.S. and the UK on December 26, 2023, before the opening of trading of the stock markets in the U.S. and the UK, each of Gracell and AstraZeneca issued their respective press releases announcing the execution and delivery of the Merger Agreement.
Recommendation of the Board of Directors
The Board of Directors has unanimously adopted resolutions: (a) determining that it is fair to, and in the commercial interests of, Gracell and declared that it is advisable, to enter into the Merger Agreement, the Plan of
 
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Merger and the other Transaction Documents to which Gracell is a party; (b) approving the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger, and the other Transaction Documents to which Gracell is a party, and the consummation of the Merger and the other Transactions upon the terms and subject to the conditions set forth the Merger Agreement and the CVR Agreement; (c) determining to recommend the approval and authorization of the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party, and the consummation of the Transactions (including the Merger) to the shareholders of Gracell at the Extraordinary General Meeting; and (d) directing that the Merger Agreement, the Merger and the other Transactions be submitted to the shareholders of Gracell at the Extraordinary General Meeting for their approval.
The Board of Directors unanimously recommends that you vote or give instruction to vote (1) “FOR” the Merger Proposal; and (2) “FOR” the Adjournment Proposal, if presented.
Reasons for the Merger
In evaluating the Merger Agreement and the Transactions, including the Merger, the Board of Directors consulted with the Company’s senior management and the Company’s outside legal and financial advisors, and considered and analyzed a wide and complex range of reasons as discussed below.

Financial Terms of the Merger & Certainty of Value.   The Board of Directors considered the aggregate potential value and form of the consideration to be received in the Merger by Gracell’s shareholders and holders of Gracell ADSs, and considered, among other things:

the current and historical market prices of the Gracell ADSs, including the market performance of the Gracell ADSs relative to general market indices, and the fact that (i) the $10.00 per Gracell ADS (equivalent to $2.00 per Gracell ordinary share) upfront cash portion of the consideration (excluding the CVR) represents (A) an approximately 62% premium over the closing price per Gracell ADS on December 22, 2023, the last trading day prior to the public announcement of the execution of the Merger Agreement, (B) an approximately 95% premium over the volume weighted average price per Gracell ADS during the preceding 30-day trading period ending on December 22, 2023 and (C) an approximately 154% premium over the volume weighted average price per Gracell ADS during the preceding 60-day trading period ending on December 22, 2023, and (ii) $10.00 per Gracell ADS (equivalent to $2.00 per Gracell ordinary share) upfront cash portion of the consideration plus the amount payable per CVR if the Milestone is achieved represents (A) an approximately 86% premium over the closing price per Gracell ADS on December 22, 2023, the last trading day prior to the public announcement of the execution of the Merger Agreement, (B) an approximately 124% premium over the volume weighted average price per Gracell ADS during the preceding 30-day trading period ending on December 22, 2023 and (C) an approximately 192% premium over the volume weighted average price per Gracell ADS during the preceding 60-day trading period ending on December 22, 2023;

the fact that the consideration to be received by Gracell shareholders and holders of Gracell ADSs in the Merger will consist of significant upfront cash, which provides liquidity and certainty of value to Gracell shareholders and holders of Gracell ADSs, and the Board of Directors’ assessment that Gracell’s standalone strategy was not reasonably likely to present opportunities for creating greater value for Gracell shareholders and holders of Gracell ADSs than the upfront cash consideration, taking into account the timeframe on which such value would be realized and the risks associated with the execution of the future clinical trials for GC012F and its other product candidates and the commercialization of GC012F and its other product candidates on a standalone basis;

the fact that, in addition to the upfront cash portion of the consideration, Gracell shareholders and holders of Gracell ADSs will receive one CVR per Gracell ordinary share and five CVRs per one Gracell ADS, which provides Gracell’s shareholders and holders of Gracell ADSs an opportunity to realize additional value through a $0.30 per CVR cash payment to the extent that the Milestone set forth in the CVR Agreement is achieved on or prior to December 31, 2029, representing an illustrative risk-adjusted net present value of $0.064 per CVR as calculated by Centerview based on Gracell’s senior management’s assessments as to the probability and timing of achieving the Milestone;
 
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the fact that Parent is obligated to use certain commercially reasonable efforts to achieve the Milestone until December 31, 2029 and the extensive experience, capabilities and resources of Parent in, among other things, biopharmaceutical clinical trials, regulatory submissions and approval and product development, particularly as such experience and resources relate to the potential achievement of the Milestone;

the Board of Directors’ belief that (i) there was substantial risk of losing Parent’s offer of the Per ADS Merger Consideration and Per Share Merger Consideration if Gracell continued to pursue a higher price and (ii) based on the conversations and negotiations with Parent through the date of the Merger Agreement, the Per ADS Merger Consideration and Per Share Merger Consideration, as applicable, represented the highest price Parent was willing to pay and the highest price reasonably obtainable by Gracell under the circumstances, and there was substantial risk of losing Parent’s best and final offer if Gracell continued to pursue a higher price, as described in more detail in “The Merger — Background of the Merger”;

the fact that none of the approximately 20 strategic parties (other than Parent) who had discussions with Gracell regarding potential licensing and partnering opportunities with respect to GC012F had submitted a proposal for a strategic transaction with Gracell, and the Board of Directors’ belief that any third party who would have been interested in exploring a transaction with Gracell had already been contacted by Gracell;

that, following the consideration of potential strategic alternatives, including (i) out-licensing, which might not present the best value to Gracell and its shareholders or holders of Gracell ADSs, (ii) advancing Gracell’s clinical trials and operations through a partnering transaction with a global pharmaceutical company, which could potentially result in a slower pace for the development and commercialization and present a challenge with respect to competitive positioning of its products even if successfully developed and commercialized, and (iii) remaining a standalone company, which would be accompanied by the need to raise a significant amount of additional capital as further described below captioned “The Merger — Reasons for the Merger — Risks Relating to Remaining a Standalone Company”), the Board of Directors determined that none of the possible alternatives was reasonably likely to present superior opportunities for Gracell to create greater value for Gracell’s shareholders or holders of Gracell ADSs compared to Parent’s best and final offer;

the fact that the Per ADS Merger Consideration and Per Share Merger Consideration is payable solely in cash, which allows Gracell’s shareholders and holders of Gracell ADSs to realize immediate and certain value in respect of their Gracell ADSs and/or Gracell ordinary shares, especially when viewed against the internal and external risks and uncertainties associated with Gracell’s standalone strategy, including risks of executing future clinical trials for GC012F, obtaining marketing approval for GC012F, and the potential impact of such risks and uncertainties on the trading price of the Gracell ADSs;

that the Supporting Shareholders that held, in the aggregate, approximately 25.2% of the voting power of the outstanding Gracell ordinary shares (including Gracell ordinary shares represented by Gracell ADSs) as of December 23, 2023, entered into Support Agreements obligating each of them during the term of such agreement, among other things, to vote their Gracell ordinary shares (including Gracell ordinary shares represented by Gracell ADSs) in favor of the approval and authorization of the Merger Agreement and the Merger at the Extraordinary General Meeting and, subject to certain exceptions, not to transfer any of their shares (including Gracell ordinary shares represented by Gracell ADSs); and

the oral opinion of Centerview rendered to the Board of Directors of the Company on December 23, 2023, which was subsequently confirmed by delivery of a written opinion dated such date that, as of such date and based upon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, the Per ADS Merger Consideration to be paid to the holders of Gracell ADSs (other than as specified in such opinion) pursuant to the Merger Agreement was fair, from a financial point of view, to such holders, as more fully described in the section below captioned “The Merger — Opinion of Centerview Partners LLC”.
 
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Likelihood and Speed of Consummation of the Merger.   The Board of Directors considered the likelihood that the Transactions will be consummated in a timely manner, including:

the anticipated timing of the consummation of the Transactions, including the timing of the Extraordinary General Meeting followed by the Merger, with the anticipated result of allowing shareholders who do not validly exercise dissenters’ rights to receive the Per Share Closing Amount in a relatively short time frame;

the potential for closing within a relatively short time frame could also reduce the amount of time in which Gracell’s business would be subject to the potential uncertainty inherent to the pendency of the Transactions;

the financial strength of Parent and its ability to fund the aggregate Per ADS Closing Amount and Per Share Closing Amount with available cash and later make the $0.30 per CVR Milestone payment;

the absence of any financing condition in the Merger Agreement;

the business reputation and capabilities of Parent, including Parent’s track record of successfully completing merger and acquisition transactions and Parent’s ability to successful drive commercial value through effective product life-cycle management, as well as its ability to conduct clinical development and obtain regulatory approval of product candidates;

the fact that the review pursuant to the HSR Act is the only regulatory approval required as a condition to consummate the Merger under the Merger Agreement, and that the obligations of the parties and the Parent Termination Payment contemplated by the Merger Agreement with respect to obtaining any regulatory clearance would incentivize the parties to work to increase both the speed and likelihood of obtaining such clearance;

the fact that the limited nature of the conditions to Parent’s obligations to consummate the Merger, including the definition of “Material Adverse Effect” in the Merger Agreement, which excludes of the results, data and adverse events arising from any clinical trials conducted by or on behalf of Gracell and regulatory matters related thereto, provides a high degree of likelihood that the Merger will be consummated; and

the fact that Parent and Gracell have both agreed, subject to certain conditions, to use their respective reasonable best efforts to take all actions to consummate the Merger, including to obtain the expiration or termination of waiting periods or other regulatory approvals from governmental entities.

Opportunity to Receive an Unsolicited Acquisition Proposal and Terminate the Merger Agreement in Order to Accept a Superior Acquisition Proposal and other Terms of the Merger Agreement.   The Board of Directors considered the following:

Gracell’s right, subject to certain conditions, to respond to and negotiate unsolicited acquisition proposals that are made on or after December 23, 2023 and prior to the approval of the Merger Agreement, the Plan of Merger and the Transactions by special resolution passed by the holders of Gracell ordinary shares, being the affirmative vote of the holders of Gracell ordinary shares representing at least two-thirds of the votes cast by such holders as, being entitled to do so, vote in person or by proxy at the Extraordinary General Meeting where quorum is present;

the provision in the Merger Agreement allowing the Board of Directors to terminate the Merger Agreement in order to accept and enter into a definitive agreement with respect to an unsolicited superior acquisition proposal, subject to payment of a termination payment of $33,800,000 (plus applicable VAT), which amount the Board of Directors believed to be reasonable under the circumstances, taking into account the range of such termination payments in similar transactions, and the unlikelihood that a fee of such size would be a meaningful deterrent to alternative acquisition proposals;

the ability of the Board of Directors under the Merger Agreement to withdraw, amend or modify its recommendation that Gracell shareholders approve the execution, delivery and performance
 
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by Gracell of the Merger Agreement and the consummation of the Transactions in certain circumstances, including in connection with a superior acquisition proposal or certain material intervening events;

the provision in the Merger Agreement that would require Parent to pay a $41,600,000 (plus applicable VAT) termination payment to Gracell under certain circumstances relating to the termination of the Merger Agreement as a result of failure to obtain regulatory clearance and approval as provided in the Merger Agreement, and such termination payment would sufficiently incentivize Parent to use its reasonable best efforts to obtain such regulatory clearance and approval and compensate Gracell for any transaction costs and expenses if the transaction was not able to be consummated as a result of failure to obtain regulatory clearances;

the fact that the outside date of June 23, 2024 under the Merger Agreement (on or after which either party, subject to certain exceptions, can terminate the Merger Agreement by written notice) allows for sufficient time to consummate the Transactions and may be extended to December 23, 2024 if conditions to the Merger relating to antitrust approvals, the absence of legal restraints under antitrust or foreign investment laws with respect to the Transactions are the only remaining conditions to the Merger to be satisfied;

the provision in the Merger Agreement allowing Gracell to, under certain circumstances, adjourn or postpone the Extraordinary General Meeting if Gracell believes in good faith that such adjournment or postponement is reasonably necessary to allow reasonable additional time to solicit additional proxies necessary to achieve quorum or obtain approval of the Merger Agreement by special resolution passed by the holders of Gracell ordinary shares, being the affirmative vote of the holders of Gracell ordinary shares representing at least two-thirds of the votes cast by such holders as, being entitled to do so, vote in person or by proxy at the Extraordinary General Meeting;

the availability of the remedy of specific performance to Gracell under the Merger Agreement, in the event of breaches by Parent;

the availability of shareholders of Gracell to exercise rights to dissent from the Merger in accordance with Section 238 of the Companies Act.

Risks Relating to Remaining a Standalone Company.   The Board of Directors considered Gracell’s prospects and risks if Gracell were to remain an independent company, including certain financial projections for Gracell prepared by Gracell’s management, which reflected certain assumptions of Gracell’s management, as further discussed below captioned “The Merger — Certain Financial Projections”. The Board of Directors considered Gracell’s current business and financial plans, including the risks and uncertainties associated with achieving and executing on Gracell’s business and financial plans in the short- and long-term, as well as the general risks of market conditions that could reduce the price of Gracell ordinary shares and Gracell ADSs. Among the potential risks and uncertainties identified by the Board of Directors were:

the challenges associated with designing and conducting future clinical trials for GC012F or any other product candidate, the outcome of which is inherently uncertain and may not support regulatory approval; the challenges associated with obtaining approvals from regulatory authorities, which can take years to complete, and the receipt of which are not guaranteed; that if a product candidate is approved, regulators may limit the indications or the patient populations for which the product may be marketed, require extensive warnings, precautions or contraindications on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval; and the business’ substantial dependence on the successful clinical development and regulatory approval of GC012F and its other product candidates, as well as other risks associated with product development, regulatory approval and commercialization described below captioned “The Merger — Reasons for the Merger — Product Development and Commercialization Risks”;

the fact that Gracell may not be able to achieve profitability;
 
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that positive operational performance by companies with similar market capitalization to Gracell in the biopharmaceutical industry has not necessarily translated into increased shareholder value for such companies;

the challenges faced by the biopharmaceutical industry, which could impact material growth in Gracell’s core businesses, including current and potential future competition, macroeconomic trends and the fact that the industry is subject to complex regulatory and political regimes and evolving pricing environment, particularly with respect to generating revenue and profitability in light of the increasing scrutiny of pharmaceutical pricing and proposals to address the perceived high cost of pharmaceuticals;

the current state of the PRC, U.S. and global economies, including increased inflation and volatility resulting from escalating political and global trade tensions, and the current and potential impact in both the short- and long-term on the biopharmaceutical industry and the future commercialization efforts required if any of Gracell’s product candidates are approved for sale, including the numerous risks, costs and uncertainties associated with research, development and commercialization of Gracell’s pipeline programs and candidates that Gracell may develop;

the challenges associated with Gracell’s need for significant additional capital to support the development and commercialization of GC012F and its other pipeline product candidates, including for clinical trials and to expand the scale of its operations, including the difficult current financing environment for biopharmaceutical companies, the uncertainty that Gracell would be able to raise sufficient cash to fund its business, and the significant dilutive impact any financing would have on Gracell’s shareholders if Gracell were to issue significant additional equity;

the fact that the manufacture and delivery of CAR-T cell therapies involves complex, integrated processes that are more variable, difficult and costly to reproduce and are susceptible to product loss or failure, Gracell has not yet manufactured or processed any product candidates on a commercial scale and may not be able to do so, and Gracell may encounter various difficulties in production and assuring reliability of its manufacturing process; and

the various additional risks and uncertainties that are set forth in Section D of Item 3 of Gracell’s Annual Report on Form 20-F for the year ended December 31, 2022, filed with the SEC on April 22, 2023, as updated by Gracell’s subsequent filings with the SEC.

Product Development and Commercialization Risks.   The Board of Directors’ assessment of Gracell’s prospects for substantially increasing shareholder value as a standalone company in excess of the Per ADS Merger Consideration and Per Share Merger Consideration, as applicable, given the risks and uncertainties in Gracell’s business, including:

the fact that Gracell has never commercialized a product and the fact that neither GC012F nor any of Gracell’s other product candidates has obtained regulatory approvals;

the status and prospects for Gracell’s current product and pipeline, including the fact that Gracell is heavily dependent on the success of GC012F, which is in early stages of clinical development;

the significant risks and challenges associated with commercializing GC012F and Gracell’s other product candidates, including product development and pre-commercial operations, the costs associated with successfully scaling commercial operations globally, the possible failure or delays and risks of executing current or future preclinical studies or clinical trials and the risk that Gracell is unable to generate adequate product revenue or achieve profitability;

the fact that public perception and awareness of cell therapy safety issues may adversely influence the willingness of subjects to participate in clinical trials of GC012F or Gracell’s other product candidates, or if approved, of physicians to prescribe Gracell’s products;

the risk in Gracell’s ability to successfully enter into and monetize its assets through license, collaboration or co-promote agreements or partnerships with industry members that possess comparable resources, commitment to research and development and track record of successfully commercializing drug candidates, and the risks associated with any such agreements or partnerships, including that they could potentially lock up Gracell’s lead product candidate;
 
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the reliance on third parties or partners to conduct clinical trials and the risks and costs of hiring additional personnel as Gracell’s pre-commercial and clinical activities increase;

the risks and costs of developing a commercial infrastructure in anticipation of obtaining marketing approval of GC012F and Gracell’s other product candidates;

adverse side effects or other safety risks associated with GC012F or Gracell’s other product candidates could delay or preclude approval, cause suspension or discontinuation of clinical trials or abandonment of further development, if any;

the risks inherent in obtaining regulatory approvals from regulatory authorities and adequate reimbursement from regulatory authorities and other third party payors to be able to sell GC012F or any other product candidates;

the fact that regulatory authorities have limited experience with CAR-T cell therapies for cancer;

the fact that regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in the future, and that only a few CAR-T cell therapy products have been approved in the PRC; and

the outcome, timing and costs of seeking regulatory and marketing approvals for Gracell’s drug candidates and other product development programs.
The Board of Directors also considered a variety of risks and other potentially negative reasons in determining whether to approve the Merger Agreement and the Transactions, including the following:

the fact that the Per ADS Closing Amount and Per Share Closing Amount, while providing relative certainty of value, would not allow Gracell’s shareholders to participate in the possible growth and potential future appreciation in the value or earnings of Gracell following the completion of the Transactions, except to the extent the $0.30 per CVR Milestone payments are made pursuant to the CVR Agreement;

the fact that the Milestone may not be achieved by the December 31, 2029 outside date such that Gracell shareholders will not receive the $0.30 per CVR Milestone payments;

the amount of time it could take to complete the Merger, including the risk that Parent may not receive the necessary regulatory approvals or clearances to complete the Merger, or that governmental authorities could attempt to condition their approvals or clearances of the Merger on one or more of the parties’ compliance with certain burdensome terms or conditions which may cause one or more of the conditions to the Merger not to be satisfied;

the fact that the pendency of the Merger may cause Gracell to experience disruptions to its business operations and future prospects, including its relationships with its employees, vendors and partners and others that do business or may do business in the future with Gracell or as a result of certain restrictions on the conduct of Gracell’s business imposed by pre-closing covenants in the Merger Agreement, and the effect of such disruptions on Gracell’s operations in the event that the Transactions are not consummated in a timely manner;

the possibility that the Transactions, including the Merger, might not be consummated, and the fact that if the Merger is not consummated, (i) Gracell’s directors, senior management and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the transaction, (ii) Gracell will have incurred significant transaction costs, (iii) Gracell’s continuing business relationships with licensors, vendors business partners and employees may be adversely affected, (iv) the trading price of the Gracell ADSs could be adversely affected and (v) the market’s perceptions of Gracell’s prospects could be adversely affected;

the interests of Gracell’s executive officers and directors and the fact that Gracell’s executive officers and directors may be deemed to have interests in the Transactions that may be different from or in addition to those of Gracell’s shareholders, generally, as described below captioned “The Merger — Interests of Gracell Directors and Executive Officers in the Merger”;

the costs involved in connection with entering into and completing the Transactions and related actions;
 
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the risk that the Merger and other Transactions are not consummated in a timely manner or at all, and the effect of a resulting public announcement of the termination of the Merger Agreement (other than in connection with a superior acquisition proposal) on:

the trading price of the Gracell ADSs, which could be adversely affected by many factors, including (i) the reason the Merger Agreement was terminated and whether such termination results from factors adversely affecting Gracell, (ii) the possibility that the marketplace would consider Gracell to be an unattractive acquisition candidate and (iii) the possible sale of Gracell ADSs by investors following the announcement of a termination of the Merger Agreement; and

Gracell’s ability to attract and retain key personnel and other employees and the possible loss of key management or other personnel during the pendency of the Merger;

the effect of the non-solicitation provisions of the Merger Agreement that restrict Gracell’s ability to solicit or, subject to certain exceptions, engage in discussions or negotiations with third parties regarding a proposal to acquire Gracell, and the fact that, upon termination of the Merger Agreement under certain specified circumstances, Gracell would be required to pay a termination payment of $33,800,000 (plus applicable VAT), which could discourage certain alternative proposals for an acquisition of Gracell within 12 months of the date of termination of the Merger Agreement or adversely affect the valuation that might be proposed by a third party;

the fact that the gain realized by Gracell shareholders as a result of the Merger generally will be taxable to the shareholders for U.S. federal income tax purposes;

the fact that the completion of the Merger will require HSR antitrust clearance, which clearance could subject the Merger to unforeseen delays and risks;

the unlikely possibility that Parent will be unable to pay the Per ADS Merger Consideration or Per Share Merger Consideration, as applicable;

the risk of litigation arising in respect of the Transactions; and

other risks of the type and nature as further described above captioned “Forward-Looking Statements.”
In light of these various reasons and having weighed the risks, uncertainties, restrictions and potentially negative reasons associated with the Transactions with the potential benefits of the Transactions, the Board of Directors unanimously adopted resolutions (i) determining that it is fair to, and in the commercial interests of, Gracell and declared that it is advisable, for Gracell to enter into the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party, (ii) approving the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger, and the other Transaction Documents to which Gracell is a party, and the consummation of the Merger and the other Transactions upon the terms and subject to the conditions set forth therein, (iii) determining to recommend the approval and authorization of the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party, and the consummation of the Transactions (including the Merger) to the shareholders of Gracell at the Extraordinary General Meeting and (iv) directing that the Merger Agreement, the Merger and the other Transactions be submitted to the shareholders of Gracell at the Extraordinary General Meeting for their approval.
The foregoing discussion of the Board of Directors’ reasons for its recommendation that Gracell shareholders approve and authorize the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger and the other Transaction Documents to which Gracell is a party, and the consummation of the Transactions (including the Merger) is not meant to be exhaustive, but addresses the material information and reasons considered by the Board of Directors in connection with its recommendation. In view of the wide variety of reasons considered by the Board of Directors in connection with the evaluation of the Merger and the complexity of these matters, the Board of Directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific reasons considered in reaching its determination and recommendation. Rather, Gracell’s directors made their determinations and recommendations based on the totality of the information presented to them, and the judgments of individual members of the Board of Directors may have been influenced to a greater or lesser degree by different reasons.
 
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Opinion of Centerview Partners LLC
On December 23, 2023, Centerview rendered to the Board of Directors its oral opinion, subsequently confirmed in a written opinion dated December 23, 2023, that, as of such date and based upon and subject to various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, the Per ADS Merger Consideration to be paid to the holders of Gracell ADSs (other than Excluded ADSs) pursuant to the Merger Agreement was fair, from a financial point of view, to such holders.
The full text of Centerview’s written opinion, dated December 23, 2023, which describes the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, is attached as Annex C and is incorporated herein by reference. The summary of the written opinion of Centerview set forth below is qualified in its entirety by the full text of Centerview’s written opinion attached as Annex C. Centerview’s financial advisory services and opinion were provided for the information and assistance of the Board of Directors (in their capacity as directors and not in any other capacity) in connection with and for purposes of its consideration of the Transaction and Centerview’s opinion only addressed the fairness, from a financial point of view, as of the date thereof, to the holders of Gracell ADSs (other than Excluded ADSs) of the Per ADS Merger Consideration to be paid to such holders pursuant to the Merger Agreement and the CVR Agreement. Centerview’s opinion did not address any other term or aspect of the Merger Agreement, the CVR Agreement or the Transaction and does not constitute a recommendation to any shareholder of Gracell or any other person as to how such shareholder or other person should vote with respect to the Merger or otherwise act with respect to the Transaction or any other matter.
The full text of Centerview’s written opinion should be read carefully in its entirety for a description of the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion.
In connection with rendering the opinion described above and performing its related financial analyses, Centerview reviewed, among other things:

a draft of the Merger Agreement dated December 22, 2023 and the draft of the form of the CVR Agreement attached thereto, referred to in this summary of Centerview’s opinion as the “Draft Agreements”;

Annual Reports on Form 20-F of Gracell for the years ended December 31, 2022, December 31, 2021 and December 31, 2020;

certain interim reports to shareholders on Form 6-K of Gracell;

certain publicly available research analyst reports for Gracell;

certain other communications from Gracell to its shareholders; and

certain internal information relating to the business, operations, earnings, cash flow, assets, liabilities and prospects of Gracell, including certain financial forecasts, analyses and projections and probabilities of success relating to Gracell and the probability of realizing the Milestone under the CVR Agreement prepared by management of Gracell and furnished to Centerview by Gracell for purposes of Centerview’s analysis (as used in this summary of Centerview’s opinion, the “Projections”) (collectively, as used in this summary of Centerview’s opinion, the “Internal Data”).
Centerview also participated in discussions with members of the senior management and representatives of Gracell regarding their assessment of the Internal Data, and conducted such other financial studies and analyses and took into account such information as Centerview deemed appropriate.
Centerview assumed, without independent verification or any responsibility therefor, the accuracy and completeness of the financial, legal, regulatory, tax, accounting and other information supplied to, discussed with, or reviewed by Centerview for purposes of its opinion and, with Gracell’s consent, Centerview relied upon such information as being complete and accurate. In that regard, Centerview assumed, at Gracell’s direction, that the Internal Data (including, without limitation, the Projections) were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Gracell as to the matters covered thereby and Centerview relied, at Gracell’s direction, on the Internal Data for purposes of
 
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Centerview’s analysis and opinion. Centerview expressed no view or opinion as to the Internal Data or the assumptions on which it was based. In addition, at Gracell’s direction, Centerview did not make any independent evaluation or appraisal of any of the assets or liabilities (contingent, derivative, off-balance-sheet or otherwise) of Gracell, nor was Centerview furnished with any such evaluation or appraisal, and was not asked to conduct, and did not conduct, a physical inspection of the properties or assets of Gracell. Centerview assumed, at Gracell’s direction, that the final executed Merger Agreement and the form of CVR Agreement attached thereto would not differ in any respect material to Centerview’s analysis or opinion from the Draft Agreements reviewed by Centerview. Centerview also assumed, at Gracell’s direction, that the Transaction will be consummated on the terms set forth in the Merger Agreement and CVR Agreement and in accordance with all applicable laws and other relevant documents or requirements, without delay or the waiver, modification or amendment of any term, condition or agreement, the effect of which would be material to Centerview’s analysis or Centerview’s opinion and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the Transaction, no delay, limitation, restriction, condition or other change will be imposed, the effect of which would be material to Centerview’s analysis or Centerview’s opinion. Centerview did not evaluate and did not express any opinion as to the solvency or fair value of Gracell, or the ability of Gracell to pay its obligations when they come due, or as to the impact of the Transaction on such matters, under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. Centerview is not a legal, regulatory, tax or accounting advisor, and Centerview expressed no opinion as to any legal, regulatory, tax or accounting matters.
Centerview’s opinion expressed no view as to, and did not address, Gracell’s underlying business decision to proceed with or effect the Transaction, or the relative merits of the Transaction as compared to any alternative business strategies or transactions that might be available to Gracell or in which Gracell might engage. Centerview’s opinion was limited to and addressed only the fairness, from a financial point of view, as of the date of Centerview’s written opinion, to the holders of the Gracell ADSs (other than Excluded ADSs) of the Per ADS Merger Consideration to be paid to such holders pursuant to the Merger Agreement and the CVR Agreement. For purposes of its opinion, Centerview was not asked to, and Centerview did not, express any view on, and its opinion did not address, any other term or aspect of the Merger Agreement, CVR Agreement or the Transaction, including, without limitation, the structure or form of the Transaction, the form or terms of the CVR with respect to transferability, illiquidity or otherwise, or any other agreements or arrangements contemplated by the Merger Agreement or entered into in connection with or otherwise contemplated by the Transaction, including, without limitation, the fairness of the Transaction or any other term or aspect of the Transaction to, or any consideration to be received in connection therewith by, or the impact of the Transaction on, the holders of any other class of securities, creditors or other constituencies of Gracell or any other party. In addition, Centerview expressed no view or opinion as to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to be paid or payable to any of the officers, directors or employees of Gracell or any party, or class of such persons in connection with the Transaction, whether relative to the Per ADS Merger Consideration to be paid to the holders of the Gracell ADSs (other than Excluded ADSs) pursuant to the Merger Agreement, the CVR Agreement or otherwise. Centerview’s opinion was necessarily based on financial, economic, monetary, currency, market and other conditions and circumstances as in effect on, and the information made available to Centerview as of, the date of Centerview’s written opinion, and Centerview does not have any obligation or responsibility to update, revise or reaffirm its opinion based on circumstances, developments or events occurring after the date of Centerview’s written opinion. Centerview’s opinion does not constitute a recommendation to any shareholder of Gracell or any other person as to how such shareholder or other person should vote with respect to the Merger or otherwise act with respect to the Transaction or any other matter. Centerview’s financial advisory services and its written opinion were provided for the information and assistance of the Board of Directors (in their capacity as directors and not in any other capacity) in connection with and for purposes of its consideration of the Transaction. The issuance of Centerview’s opinion was approved by the Centerview Partners LLC Fairness Opinion Committee.
Summary of Centerview Financial Analysis
The following is a summary of the material financial analyses prepared and reviewed with the Board of Directors in connection with Centerview’s opinion, dated December 23, 2023. The summary set forth below does not purport to be a complete description of the financial analyses performed or factors considered by, and underlying the opinion of, Centerview, nor does the order of the financial analyses described represent the relative
 
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importance or weight given to those financial analyses by Centerview. Centerview may have deemed various assumptions more or less probable than other assumptions, so the reference ranges resulting from any particular portion of the analyses summarized below should not be taken to be Centerview’s view of the actual value of Gracell. In performing its analyses, Centerview made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Gracell or any other parties to the Transaction. None of Gracell, Parent, Merger Sub or Centerview or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of Gracell do not purport to be appraisals or reflect the prices at which Gracell may actually be sold. Accordingly, the assumptions and estimates used in, and the results derived from, the financial analyses are inherently subject to substantial uncertainty. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before December 22, 2023 (the last trading day before the public announcement of the Transaction) and is not necessarily indicative of current market conditions.
Analysis of Consideration
Centerview conducted an analysis of the Per ADS Merger Consideration to be paid to the holders of Gracell ADSs (other than (1) any Gracell ADSs representing Gracell ordinary shares held by Parent, Merger Sub, Gracell or any of their subsidiaries and (2) any Gracell ADSs representing Gracell ordinary shares held by Gracell or the the ADS Depositary, as depositary, and reserved for issuance and allocation pursuant to Gracell’s equity incentive plans (together with any Gracell ADSs representing Gracell ordinary shares held by any affiliate of Gracell or Parent, “Excluded ADSs”) pursuant to the Merger Agreement and the CVR Agreement. Such consideration is equal to (a) $10.00 per Gracell ADS in cash without interest together, and not separately, with (b) five CVRs per Gracell ADS representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone set forth in, and subject to and in accordance with the terms and conditions of, the CVR Agreement, as described more fully in the section above captioned “The Merger — CVR Agreement”, in each case, subject to any applicable withholding Taxes and pursuant to the terms and conditions set forth in the Merger Agreement and the Deposit Agreement.
For analytical purposes, Centerview calculated an illustrative risk-adjusted net present value for five CVRs of $0.32, assuming that CVR holders receive a gross payment of $1.50 per five CVRs upon the achievement of the Milestone, which was risk-adjusted based solely on the assessments of Gracell management as to the probability and the timing of achievement of the Milestone, and was discounted to present value as of December 31, 2023 using a discount rate of 14.75% (based on the midpoint of the range suggested by Centerview’s analysis of Gracell’s weighted average cost of capital).
Solely for purposes of the financial analyses summarized below, the term “Implied Consideration Value” refers to an aggregate assumed implied per Gracell ADS value of the Per ADS Merger Consideration of $10.32, equal, on a per Gracell ADS basis, to $10.00 upfront consideration plus the illustrative risk-adjusted net present value of five CVRs of $0.32, based on the midpoint of the range of discount rates, as set forth above. However, there is no guarantee that any of the conditions for the Milestone Payment pursuant to the CVR Agreement will be satisfied, and if satisfied, when such conditions will be satisfied.
Discounted Cash Flow Analysis
Centerview performed a discounted cash flow analysis of Gracell based on the Projections, which reflect certain assumptions, including projected future financing needs of Gracell. A discounted cash flow analysis is a traditional valuation methodology used to derive a valuation of an asset or set of assets by calculating the “present value” of estimated future cash flows of the asset or set of assets. “Present value” refers to the current value of future cash flows and is obtained by discounting those future cash flows by a discount rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors.
In performing this analysis, Centerview calculated a range of equity values for the Gracell ADSs by (a) discounting to present value, as of December 31, 2023, using discount rates ranging from 13.5% to 16.0% (based on Centerview’s analysis of Gracell’s weighted average cost of capital) and using a mid-year convention:
 
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(i) the forecasted risk-adjusted, after-tax unlevered free cash flows of Gracell over the period beginning on January 1, 2024 and ending on December 31, 2050, as set forth in the Projections, utilized by Centerview at the direction of Gracell management and as approved by Gracell Board for use by Centerview as set forth in the section below captioned “The Merger — Certain Financial Projections”, (ii) an implied terminal value of Gracell, calculated by Centerview by assuming, as directed by Gracell’s management, that Gracell’s unlevered free cash flows would decline in perpetuity after December 31, 2050 at a rate of free cash flow decline of 20% year-over-year and (iii) tax savings from usage of Gracell’s federal net operating losses and Gracell’s future losses, as provided by Gracell management, (b) adding to the foregoing results Gracell’s estimated net cash balance of $183 million as of December 31, 2023, as provided by Gracell management.
Centerview then calculated a range of implied equity values per Gracell ADS (a) by dividing the result of the foregoing calculations by Gracell’s fully-diluted outstanding Gracell ADSs (determined using the treasury stock method and taking into account outstanding In-the-Money Company Options, Company Warrants and Company RSUs) as of December 19, 2023 and as set forth in the Internal Data and (b) taking into account the impact of assumed equity raises in 2024, 2025, 2026 and 2027 on a per Gracell ADS basis, as instructed by Gracell management. This resulted in an implied per Gracell ADS equity value range for the Gracell ADSs of approximately $8.90 to $11.95, rounded to the nearest $0.05. Centerview then compared this range to the Implied Consideration Value of $10.32 per Gracell ADS to be paid to the holders of Gracell ADSs (other than Excluded ADSs) pursuant to the Merger Agreement and CVR Agreement.
Other Factors
Centerview noted for the Board of Directors certain additional factors solely for reference and informational purposes only, including, among other things, the following:

Historical Stock Trading Price Analysis.   Centerview reviewed historical closing trading prices of the Gracell ADSs during the 52-week period ended December 22, 2023 (the last trading day before the public announcement of the Transaction), which reflected low and high stock closing prices for Gracell during such period of approximately $1.45 to $6.40 per Gracell ADS;

Analyst Price Target Analysis.   Centerview reviewed Gracell ADS price targets for the Gracell ADSs in Wall Street research analyst reports publicly available as of December 22, 2023 (the last trading day before the public announcement of the Transaction), which indicated low and high share price targets for Gracell ranging from $7.00 to $20.00 per Gracell ADS; and

Precedent Premia Paid Analysis.   Centerview performed an analysis of premiums paid in selected transactions that were announced since 2019 involving publicly traded biopharmaceutical companies with a lead asset in Phase 1 or 2 and in excess of $500 million in offer value for which premium data were available. The premiums in this analysis were calculated by comparing the per share acquisition price in each transaction (excluding contingent consideration, if any) to the closing price of the target company’s common stock for the date one day prior to the date on which the trading price of the target’s common stock was perceived to be affected by a potential transaction. Based on such analysis and other considerations that Centerview deemed relevant in its professional judgment, Centerview applied a range of 70% to 110% to Gracell’s closing Gracell ADS price on December 22, 2023 (the last trading day before the public announcement of the Transaction) of $6.19, and a range of 70% to 140% to Gracell’s 30-day volume-weighted average price on December 22, 2023 of $5.13, which resulted in an implied price range of $10.50 to $13.00 per Gracell ADS and $8.70 to $12.30 per Gracell ADS, respectively, in each case rounded to the nearest $0.05.
General
The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. In arriving at its opinion, Centerview did not draw, in isolation, conclusions from or with regard to any factor or analysis that it considered. Rather, Centerview made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses.
 
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Centerview’s financial analyses and opinion were only one of many factors taken into consideration by the Board of Directors in its evaluation of the Transaction. Consequently, the analyses described above should not be viewed as determinative of the views of the Board of Directors or management of Gracell with respect to the Per ADS Merger Consideration or as to whether the Board of Directors would have been willing to determine that a different consideration was fair. The consideration for the Transaction was determined through arm’s-length negotiations between Gracell and Parent and was approved by the Board of Directors. Centerview provided advice to Gracell during these negotiations. Centerview did not, however, recommend any specific amount of consideration to Gracell or the Board or that any specific amount of consideration constituted the only appropriate consideration for the Transaction.
Centerview is a securities firm engaged directly and through affiliates and related persons in a number of investment banking, financial advisory and merchant banking activities. In the two years prior to the date of its written opinion, except for Centerview’s current engagement with respect to the Transaction, Centerview had not been engaged to provide financial advisory or other services to Gracell, and Centerview did not receive any compensation from Gracell during such period. In the two years prior to the date of Centerview’s written opinion, Centerview had been engaged to provide financial advisory services to AstraZeneca, the parent of Parent, including in connection with its acquisition of Alexion Pharmaceuticals, Inc. in 2021, and Centerview received approximately $25 million to $30 million in aggregate compensation from AstraZeneca for such services. Centerview may provide financial advisory and other services to or with respect to Gracell, AstraZeneca, Parent or their respective affiliates in the future, for which Centerview may receive compensation. Certain (i) of Centerview’s and its affiliates’ directors, officers, members and employees, or family members of such persons, (ii) of Centerview’s affiliates or related investment funds and (iii) investment funds or other persons in which any of the foregoing may have financial interests or with which they may co-invest, may at any time acquire, hold, sell or trade, in debt, equity and other securities or financial instruments (including derivatives, bank loans or other obligations) of, or investments in, Gracell, AstraZeneca, Parent, or any of their respective affiliates, or any other party that may be involved in the Transaction.
The Board of Directors selected Centerview as its financial advisor in connection with the Transaction based on Centerview’s reputation and experience. Centerview is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Transaction.
In connection with Centerview’s services as the financial advisor to the Board of Directors, Gracell has agreed to pay Centerview an aggregate fee of approximately $24 million, $1 million of which was payable upon the rendering of Centerview’s opinion and the remainder of which is payable contingent upon consummation of the Transaction. In addition, Gracell has agreed to reimburse certain of Centerview’s expenses arising, and to indemnify Centerview against certain liabilities that may arise, out of Centerview’s engagement.
Certain Financial Projections
Gracell does not, as a matter of course, regularly prepare long-range projections or publicly disclose long-range forecasts or internal projections as to future performance or results of operations due to the inherent unpredictability of the underlying assumptions and such projections.
However, in connection with the Board of Directors’ review of its evaluation of the proposed Merger, Gracell’s senior management, at the direction of the Board of Directors, prepared unaudited financial projections for fiscal years 2024 through 2050 of Gracell on a stand-alone basis (as summarized below), reflecting the best currently available estimates and judgments of the senior management of Gracell on a risk adjusted basis (the “Projections”). As summarized under the section above captioned “The Merger — Background of the Merger,” the Board of Directors approved the Projections and directed Centerview to use the Projections in connection with the rendering of its fairness opinion to the Board of Directors and performing its related financial analyses.
The Projections reflect estimates and assumptions made by Gracell’s senior management with respect to, among other things, launch year, probability of success, peak sales, loss of exclusivity, costs and expenses, general business, economic, competitive, regulatory and other market and financial conditions and other future events, all of which are difficult to predict and many of which are beyond Gracell’s control. In particular, the Projections, while presented with numerical specificity, necessarily were based on numerous variables and assumptions that are inherently uncertain. Because the Projections cover multiple years, by their nature, they
 
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become subject to greater uncertainty with each successive year and are unlikely to anticipate each and every circumstance that could have an effect on Gracell’s business and its results of operations. The Projections were developed solely using the information available to Gracell’s senior management at the time they were created and reflect assumptions as to certain business decisions that are subject to change. Important factors that may affect actual results or that may result in the Projections not being achieved include, the ability to generate revenue for GC012F and other Gracell pipeline assets; the ability to obtain regulatory approval and the effect of regulatory actions, including the impact on product launch years; the effectiveness of Gracell’s commercial execution; the decisions of third-party partners and potential third-party partners, the ability to partner and terms of any such partnering transactions; the success of clinical testing and development, manufacturing and supply availability, patent life and other exclusivity; the effect of global economic conditions, and increases in regulatory oversight; and other risk factors described under the caption “Risk Factors,” in Gracell’s annual report on Form 20-F for the fiscal year ended December 31, 2022 filed with the SEC and any discussions of potential risks, uncertainties, and other important factors in the Company’s subsequent filings with the SEC, including reports on Form 6-K furnished with the SEC. The Projections also reflect assumptions as to certain business decisions that are subject to change. Modeling and forecasting the future in the biopharmaceutical industry, in particular, is a highly speculative endeavor.
None of Gracell, Parent or any of their respective affiliates, advisors or other representatives makes any representation to any shareholder regarding the validity, reasonableness, accuracy or completeness of the Projections or the ultimate performance of Gracell relative to the Projections. The Projections were not prepared with a view toward public disclosure or toward complying with U.S. GAAP (“GAAP”) or the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither Gracell’s independent registered public accounting firm, nor any other independent accountants, has audited, reviewed, compiled or performed any procedures with respect to the Projections or expressed any opinion or any form of assurance related thereto. The inclusion of the Projections in this proxy statement does not constitute an admission or representation of Gracell that the Projections or the information contained therein is material. Except as required by applicable law, neither Gracell nor any of its affiliates intends to, and each of them disclaims any obligation to, update, correct or otherwise revise the Projections if any or all of them have changed or change or otherwise have become, are or become inappropriate (even in the short term).
The Projections should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding Gracell in its public filings with the SEC. The Projections were developed by Gracell’s senior management on a standalone basis without giving effect to the Merger or the other transactions contemplated by the Merger Agreement, and therefore the Projections do not give effect to the proposed Merger or any changes to Gracell’s operations or strategy that may be implemented after the consummation of the Merger, including any costs incurred in connection with the proposed Merger. Furthermore, the Projections do not take into account the effect of any failure of the proposed Merger to be completed and should not be viewed as accurate or continuing in that context.
The Projections further reflect subjective judgment in many respects and, therefore, are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. The inclusion of the Projections should not be regarded as an indication that Gracell or anyone who received the Projections then considered, or now considers, the Projections to be necessarily predictive of actual future events, and this information should not be relied upon as such. Gracell’s senior management views the Projections as being subject to inherent risks and uncertainties associated with such long-range projections.
The risk-adjusted non-GAAP total net revenue, non-GAAP operating income and unlevered free cash flow contained in the Projections set forth below are “non-GAAP financial measures,” which are financial performance measures that are not calculated in accordance with GAAP. Non-GAAP financial measures should not be viewed as a substitute for GAAP financial measures and may be different from non-GAAP financial measures used by other companies. Furthermore, there are limitations inherent in non-GAAP financial measures because they exclude charges and credits that are required to be included in a GAAP presentation. Accordingly, non-GAAP financial measures should be considered together with, and not as an alternative to, financial measures prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures to a GAAP financial measure were not provided to or relied upon by the Board of Directors or Centerview in connection with the Merger. Accordingly, Gracell has not provided a reconciliation of the
 
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financial measures included in the Projections to the relevant GAAP financial measures. The Projections may differ from published analyst estimates and forecasts and do not take into account any events or circumstances after the date they were prepared, including the announcement of the Merger.
In light of the foregoing factors and uncertainties inherent in the Projections, holders of Gracell ordinary shares are cautioned not to place undue, if any, reliance on the summary of the Projections set forth below. The information and tables set forth below are included solely to give Gracell’s shareholders access to a summary of the Projections that were made available to the Board of Directors and Centerview and are not included in this proxy statement in order to influence any shareholder’s or other person’s decision as to how to vote with respect to the Merger or otherwise act with respect to the Transaction, including whether or not to seek appraisal rights with respect to their Gracell ordinary shares:
PROJECTIONS
(dollars in millions)
For the Fiscal Year Ended December 31,
‘24E
‘25E
‘26E
‘27E
‘28E
‘29E
‘30E
‘31E
‘32E
‘33E
‘34E
‘35E
‘36E
‘37E
‘38E
‘39E
‘40E
‘41E
‘42E
‘43E
‘44E
‘45E
‘46E
‘47E
‘48E
‘49E
‘50E
Total Revenue
$ 90 $ 56 $ 81 $ 248 $ 451 $ 671 $ 921 $ 1,161 $ 1,360 $ 1,470 $ 1,550 $ 1,622 $ 1,693 $ 1,765 $ 1,691 $ 1,627 $ 1,560 $ 1,502 $ 1,450 $ 1,406 $ 1,358 $ 1,316 $ 1,280 $ 1,240 $ 1,187
Operating Income(1)
(99) (70) (10) (116) (151) (51) 77 257 461 645 799 880 930 974 1,020 1,060 1,013 978 931 888 862 829 794 776 749 720 686
Operating Margin
n.a. n.a. n.a. n.a. n.a. n.a. 17% 38% 50% 56% 59% 60% 60% 60% 60% 60% 60% 60% 60% 59% 59% 59% 58% 59% 59% 58% 58%
Unlevered Free Cash
Flow(2)
(99) (70) (10) (119) (160) (76) 27 160 308 448 570 644 686 720 754 784 771 743 708 675 654 628 603 588 567 546 522
Memo: NOL Usage
61 206 369 182
(1)
Non-GAAP Operating Income is calculated as risk-adjusted non-GAAP Total Revenue less (i) cost of goods sold, less (ii) research and development expenses, less (iii) sales and marketing expenses, less (iv) general and administrative expenses.
(2)
Unlevered Free Cash Flow is calculated as non-GAAP Operating Income, less (i) estimated taxes, if profitable, payable at a tax rate of 25%, less (ii) changes in net working capital, less (iii) capital expenditures, plus (iv) depreciation and amortization. Equity-based compensation is treated as a cash expense.
In preparing the Projections, Gracell’s senior management assumed that during fiscal years 2024 through 2027 an aggregate of $1.05 billion in gross proceeds is raised through equity financings.
Interests of Gracell’s Directors and Executive Officers in the Merger
When considering the recommendation of the Board of Directors that you vote to approve and authorize the Merger Proposal, you should be aware that our directors and executive officers may have interests in the Merger that are different from, or in addition to, the interests of shareholders generally, as more fully described below. In (a) evaluating and negotiating the Merger Agreement, (b) approving the execution, delivery and performance by Gracell of the Merger Agreement, the Plan of Merger, and the other Transaction Documents to which Gracell is a party, and the consummation of the Merger and the other Transactions upon the terms and subject to the conditions set forth in the Merger Agreement and the CVR Agreement and (c) recommending that the Merger Proposal be approved and authorized by the Gracell shareholders, the Board of Directors was aware of and considered these interests, among other matters, to the extent that these interests existed at the time. These interests are described in more detail and, where applicable, are quantified in the narrative below.
Gracell’s directors and executive officers are the same individuals who are disclosed as “directors and senior management” in the Company’s most recent Annual Report on Form 20-F for the year ended December 31, 2023, which was filed with the SEC on April 25, 2023.
Arrangements with Parent
In connection with the execution of the Merger Agreement, Dr. William Wei Cao entered into a Retention Agreement with Parent dated December 22, 2023 (the “Retention Agreement”), retaining Dr. Cao as the Chief Executive Officer of the Surviving Company (as a wholly owned subsidiary of Parent) following the closing of the Merger. The Retention Agreement will be effective as of and contingent upon the closing of the Merger. Under the Retention Agreement, Dr. Cao will receive a base salary and be eligible for an annual bonus. The annual bonus will be subject to the terms and conditions of the applicable AstraZeneca bonus plan for Dr. Cao’s role that is in effect from time to time. Additionally, Dr. Cao will be eligible to receive an annual
 
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long term incentive award (the “LTI Award”). It is anticipated that the LTI Award will be subject to the achievement of performance measures that apply to all senior executives of AstraZeneca over the applicable performance period.
In addition, in connection with the execution of the Merger Agreement, Dr. Cao entered into a letter agreement with Parent related to a certain subsidiary of Gracell structured as a variable interest entity (the “Shanghai VIE Entity,” and together with its subsidiaries, the “VIE Entities,” and such letter agreement, the “VIE Letter Agreement”). Under the VIE Letter Agreement, from and after the Effective Time, Dr. Cao agreed, among other things, to remain a registered shareholder of the Shanghai VIE Entity and take such other actions with respect to the VIE Entities (including to transfer the equity interests in the Shanghai VIE Entity to an affiliate of Parent or its designee) reasonably requested or required by Parent, and to cooperate with Parent to make certain tax filings related thereto, and Parent agreed to indemnify Dr. Cao for certain tax liabilities he suffers in connection therewith.
Insurance and Indemnification of Directors and Executive Officers
From and after the Effective Time, the Surviving Company will, and Parent will cause the Surviving Company to, indemnify and hold harmless each present and former director and officer of Gracell or any of its subsidiaries against any costs or expenses (including reasonable attorneys’ fees and expenses), judgments, fines, losses, claims, damages, liabilities or awards paid in settlement incurred in connection with any actual or threatened action, whether civil, criminal, administrative or investigative and whether formal or informal, arising out of, relating to or in connection with such directorship or office at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent that Gracell would have been permitted under the applicable law and to the fullest extent required by the organizational documents of Gracell as in effect on the date of the Merger Agreement. The Surviving Company will, and Parent will cause the Surviving Company to, honor and perform the obligations under any indemnification provision, advance of expenses and any exculpation provision in the organizational documents and indemnification agreements of the Surviving Company. The provisions in the Surviving Company’s organizational documents with respect to indemnification, advancement of expenses and exculpation of director and officer liability will be no less favorable to the current or former directors and officers of Gracell and its subsidiaries than those set forth in Gracell’s organizational documents as of the date of the Merger Agreement. Parent will maintain, or will cause the Surviving Company to maintain, in effect for at least six years from the Effective Time the current policies of the directors’ and officers’ liability insurance and fiduciary liability insurance maintained by Gracell with respect to matters existing or occurring at or prior to the Effective Time and from insurance carriers having at least an “A” rating by A.M. Best with respect to directors’ and officers’ liability insurance; provided, however, that after the Effective Time, Parent and the Surviving Company will not be required to pay more than amount per annum equal to 300% of the last annual premium paid by Gracell prior to the date of the Merger Agreement (“the Maximum Annual Premium”).
In lieu of maintaining such directors’ and officers’ liability insurance policies, prior to the Effective Time, Gracell may, and at Parent’s request, will purchase a six-year prepaid “tail policy” providing at least the same coverage and amounts containing terms and conditions that are no less advantageous to the insured than the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by Gracell and its subsidiaries with respect to claims arising from facts or events that occurred at or before the Effective Time, including the Transactions, and from insurance carriers having at least an “A” rating by A.M. Best with respect to directors’ and officers’ liability insurance. If such “tail” policy is not available or the aggregate cost for such “tail” policy exceeds the Maximum Annual Premium, Gracell will obtain a “tail” policy with as much coverage as reasonably practicable for the Maximum Annual Premium. If Gracell elects to purchase such “tail policy”, the Surviving Company will maintain such “tail policy” in full force and effect and continue to honor their respective obligations thereunder. Parent agrees to honor and perform under, and to cause the Surviving Company to honor and perform under, for a period of six years after the Effective Time, all indemnification agreements.
Treatment of Company Options and Company RSUs
The Company from time to time has granted awards under Gracell’s Third Amended and Restated 2017 Employee Stock Option Plan and 2020 Share Incentive Plan of Company Options and Company RSUs.
 
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As of December 19, 2023, there were 13,898,525 Gracell ordinary shares subject to outstanding Company Options and 1,113,570 Gracell ordinary shares subject to outstanding Company RSUs.
Each Company Option that is outstanding as of immediately prior to the Effective Time will automatically accelerate and become fully vested and exercisable effective immediately prior to, and contingent upon, the Effective Time, and (a) each In-the-Money Company Option will be cancelled and converted at the Effective Time into the right to receive (i) an amount in cash, without interest, equal to the product of (A) the total number of Gracell ordinary shares subject to such In-the-Money Company Option multiplied by (B) the amount by which the Per Share Closing Amount exceeds the exercise price payable per Gracell ordinary share subject to such In-the-Money Company Option and (ii) one CVR per Gracell ordinary share subject to such In-the-Money Company Option representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone in accordance with the terms of the CVR Agreement, in each case subject to any required tax withholding, (b) each Underwater Company Option will be cancelled and converted into the right to receive, upon the achievement of the Milestone in accordance with the terms of the CVR Agreement, an amount of cash, without interest, equal to the product of (i) the total number of Gracell ordinary shares subject to such Underwater Company Option as of immediately prior to the Effective Time multiplied by (ii) the amount, if any, by which (A) the Per Share Closing Amount plus $0.30 exceeds (B) the exercise price payable per Gracell ordinary share subject to such Underwater Company Option, less any required tax withholdings and (c) each Company Option that is outstanding as of immediately prior to the Effective Time and has a per-share exercise price that is equal to or greater than the sum of the Per Share Closing Amount plus $0.30 will be cancelled for no consideration.
Each Company RSU that is outstanding as of immediately prior to the Effective Time will accelerate and become fully vested effective immediately prior to, and contingent upon, the Effective Time, and as of the Effective Time, will be cancelled and converted into the right to receive (a) an amount in cash, without interest, equal to the Per Share Closing Amount multiplied by the aggregate number of Gracell ordinary shares issuable in settlement of such Company RSU immediately prior to the Effective Time and (b) one CVR with respect to each Gracell ordinary share issuable in settlement of such Company RSU, representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone in accordance with the terms of the CVR Agreement, in each case subject to any required tax withholding.
Payments Upon Termination At or Following Change in Control
Other than as described below, upon the closing of the Merger, none of our executive officers has a right to any payments in connection with a termination at or following a change in control.
Pursuant to Dr. Cao’s employment agreement with Gracell Biotechnologies (Shanghai) Co., Ltd., following the termination of his employment, Dr. Cao is entitled to receive an amount equal to 30% of his total compensation received in the 12 months immediately prior to such termination, payable in 12 equal monthly installments following the termination, in consideration for Dr. Cao’s compliance with the non-competition obligations set forth in his employment agreement.
Pursuant to Mr. Yili Kevin Xie’s (our Chief Financial Officer’s) employment agreement with Gracell Biopharmaceutical, Inc., a subsidiary of Gracell, following the termination of his employment, Mr. Xie is entitled to receive a monthly payment equal to 50% of his monthly base salary in effect as of the termination date during the 12-month period immediately following the termination, subject to Mr. Xie’s compliance with the non-solicitation, non-competition and avoidance of conflicts obligations set forth in his employment agreement.
Funds Required to Consummate the Merger
The obligation of Parent and Merger Sub to consummate the Merger is not subject to any financing condition.
We anticipate that the total amount of funds necessary at closing to complete the Transactions to occur at the closing, including the Merger, will be approximately $1 billion, assuming no exercise of dissenters’ rights by the Gracell shareholders. Parent will have cash resources in immediately available funds and in an amount sufficient to consummate the Transactions and satisfy all of Parent’s obligations under the Merger Agreement.
 
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Closing and Effective Time
The closing of the Merger will take place on the third business day following the satisfaction or waiver in accordance with the Merger Agreement of all of the conditions to closing of the Merger (as described under the caption, “The Merger Agreement — Conditions to the Closing of the Merger”), other than conditions that by their terms are to be satisfied at the closing but subject to the satisfaction or waiver of such conditions or at such other time as the Company and Parent may agree in writing.
Dissenters’ Rights
A Dissenting Shareholder is entitled to payment of the fair value of its, his or her Gracell ordinary shares as determined by the Court upon validly dissenting from the Merger in accordance with Sections 238 and 239 of the Companies Act.
The valid exercise of your dissenters’ rights will preclude the exercise of any other rights by virtue of holding Gracell ordinary shares in connection with the Merger, other than the right to participate fully in proceedings to determine the fair value of Gracell ordinary shares held by such persons and to seek relief on the grounds that the Merger is void or unlawful. To exercise your dissenters’ rights, the following procedures must be followed:

You must give written notice of objection (“Notice of Objection”) to the Company prior to the vote to authorize and approve the Merger. The Notice of Objection must include a statement that you propose to demand payment for your Gracell ordinary shares if the Merger is authorized by the vote at the Extraordinary General Meeting.

Within 20 days immediately following the date on which the vote authorizing the Merger is made, the Company must give written notice of the authorization (“Authorization Notice”) to all Gracell shareholders who have served a notice of objection.

Within 20 days immediately following the date on which the Authorization Notice is given (the “Dissent Period”), any Gracell shareholder who elects to dissent must give a written notice of its, his or her decision to dissent (a “Notice of Dissent”) to the Company stating its, his or her name and address and the number and class of the Gracell ordinary shares with respect to which it, he or she dissents and demanding payment of the fair value of its, his or her Gracell ordinary shares. A Gracell shareholder who dissents must do so in respect of all the Gracell ordinary shares which it, he or she holds. Upon giving of the Notice of Dissent, the Gracell shareholder to whom the Notice of Dissent relates will cease to have any of the rights of a Gracell shareholder except the right to be paid the fair value of its, his or her Gracell ordinary shares, the right to participate fully in proceedings to determine the fair value of such Gracell ordinary shares and the right to seek relief on the grounds that the Merger is void or unlawful.

Within seven days immediately following (a) the date of expiry of the Dissent Period or (b) the date on which the Plan of Merger is filed with the Registrar of Companies, whichever is later, the Company, as the Surviving Company, must make a written offer (a “Fair Value Offer”) to each Dissenting Shareholder to purchase its, his or her Gracell ordinary shares at a price determined by the Company to be the fair value of such Gracell ordinary shares. Parent, Merger Sub and the Company respectively agreed that the Per Share Merger Consideration is equal to or greater than the fair value of the Gracell ordinary shares for the purposes of Section 238(8) of the Companies Act.

If, within 30 days immediately following the date of the Fair Value Offer, the Company and the Dissenting Shareholder fail to agree on a price at which the Company will purchase the Dissenting Shareholder’s Gracell ordinary shares, then, within 20 days immediately following the date of the expiry of such 30-day period, the Company must, and the Dissenting Shareholder may, file a petition with the Court for a determination of the fair value of the Gracell ordinary shares held by all Dissenting Shareholders who have served a Notice of Dissent, which petition by the Company must be accompanied by a verified list containing the names and addresses of all Gracell shareholders who have filed a Notice of Dissent and who have not agreed with the Company as to the fair value of such Gracell ordinary shares (if a Dissenting Shareholder files a petition, the Company must file such verified list within 10 days after service of such petition on the Company).
 
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If a petition is timely filed and served, the Court will determine at a hearing at which Dissenting Shareholders are entitled to participate, (a) the fair value of such Gracell ordinary shares held by those shareholders as the Court finds are involved with a fair rate of interest, if any, to be paid by the Company upon the amount determined to be the fair value and (b) the costs of the proceeding and the allocation of such costs upon the parties.
All notices and petitions must be executed by or for the Gracell shareholder of record or a person duly authorized on behalf of that Gracell shareholder, fully and correctly, as such Gracell shareholder’s name appears on the register of members of the Company. If Gracell ordinary shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, these notices must be executed by or for the fiduciary. If Gracell ordinary shares are owned by or for more than one person such notices and petitions must be executed by or for all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the notices or petitions for a Gracell shareholder of record. The agent must, however, identify the record owner and expressly disclose the fact that, in exercising the notice, he or she is acting as agent for the record owner. A person having a beneficial interest in Gracell ordinary shares held of record in the name of another person, such as a broker or other nominee, must act promptly to cause the record holder to follow the steps summarized above and in a timely manner to perfect whatever dissenters’ rights attached to such Gracell ordinary shares.
Gracell ADS holders wishing to exercise dissenters’ rights must surrender their Gracell ADSs to the ADS Depositary, pay the ADS Depositary’s fees required for the cancellation of their Gracell ADSs ($5.00 or less per 100 Gracell ADSs cancelled and any other fees and charges payable pursuant to the terms of the Deposit Agreement), and any applicable taxes or government charges, provide instructions for the registration of the corresponding Gracell ordinary shares in Gracell’s register of members, certify that they have not given, and will not give, voting instructions as to their Gracell ADSs (or alternatively, that they will not vote the corresponding Gracell ordinary shares), and become registered holders of Gracell ordinary shares prior to the Extraordinary General Meeting. Thereafter, such former Gracell ADS holders must comply with the procedures and requirements for exercising their dissenters’ rights with respect to the Gracell ordinary shares under Section 238 of the Companies Act. If the Merger is not completed, the Gracell ADSs would continue to be listed on Nasdaq. Gracell ordinary shares are not listed on Nasdaq and cannot be traded on any stock exchange. As a result, if a former Gracell ADS holder that has cancelled his, hers or its Gracell ADSs to exercise dissenters’ rights and the Merger is not completed and such former Gracell ADS holder wishes to be able to sell such Gracell ADSs on a stock exchange, such former Gracell ADS holder would need to deposit such Gracell ordinary shares into Gracell’s ADS program for the issuance of the corresponding number of Gracell ADSs, subject to the terms and conditions of applicable law and the Deposit Agreement, including payment of relevant fees of the ADS Depositary for the issuance of the Gracell ADSs ($5.00 or less per 100 ADSs issued) and applicable share transfer taxes (if any) and related charges pursuant to the Deposit Agreement.
If you do not satisfy each of these requirements and comply strictly with all precedents required by the Companies Act with regard to the exercise of dissenters’ rights, you cannot exercise dissenters’ rights and will be bound by the terms of the Merger Agreement and the Plan of Merger. Submitting a proxy card that does not direct how the Gracell ordinary shares represented by that proxy are to be voted will give the proxy holder discretion to vote as it determines appropriate. In addition, failure to vote your Gracell ordinary shares, or a vote against the proposal to authorize and approve the Merger Proposal, will not alone satisfy the notice requirement referred to above. You must send all notices to the Company at 41st Floor, Building A, No. 188 Hongbaoshi Road, Changning District, Shanghai 201103, the People’s Republic of China, Attention: Erin Li.
If you are considering dissenting, you should be aware that the fair value of your Gracell ordinary shares as determined by the Court under Section 238 of the Companies Act could be more than, the same as, or less than the merger consideration they would receive pursuant to the Merger Agreement if you do not exercise dissenters’ rights with respect to their Gracell ordinary shares. Depending on the outcome of any petition under Section 238 of the Companies Act, the Court may order you to pay the Company’s recoverable legal expenses of that petition.
The provisions of Section 238 of the Companies Act are technical and complex. If you fail to comply strictly with the procedures set forth in Section 238, you will lose your dissenters’ rights. You should consult your Cayman Islands legal counsel if you wish to exercise dissenters’ rights.
 
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Material U.S. Federal Income Tax Consequences of the Merger
The following is a discussion of U.S. federal income tax consequences to U.S. Holders (as defined below) that exchange Gracell ordinary shares and/or Gracell ADSs for cash and CVRs pursuant to the Merger. For purposes of this discussion, except as otherwise noted, references to Gracell ordinary shares include Gracell ADSs and ownership interests in Gracell ordinary shares represented by Gracell ADSs. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury Regulations promulgated thereunder, the income tax treaty between the United States and the PRC (the “Treaty”), administrative pronouncements, and judicial decisions as of the date hereof, all of which are subject to change, possibly on a retroactive basis, and to differing interpretation, which may result in tax consequences different from those described below. This discussion is not binding on the U.S. Internal Revenue Service (the “IRS”), and the IRS or a court in the event of an IRS dispute may challenge any of the conclusions set forth below.
This discussion is a summary for general information purposes only and does not consider all aspects of U.S. federal income taxation that may be relevant to particular shareholders in light of their individual investment circumstances or to certain types of shareholders subject to special tax rules, including (i) holders that are banks, financial institutions, or insurance companies, regulated investment companies, mutual funds, or real estate investment trusts, brokers or dealers in securities or currencies or traders in securities that elect to apply a mark-to-market accounting method, or tax-exempt organizations, (ii) holders that own Gracell ordinary shares as part of a straddle, hedge, constructive sale, conversion transaction, or other integrated investment, (iii) holders that acquired Gracell ordinary shares in connection with the exercise of employee share options or otherwise as compensation for services, (iv) holders that have a “functional currency” other than the U.S. dollar, (v) retirement plans, individual retirement accounts, or other tax-deferred accounts, (vi) holders that are subject to the alternative minimum tax provisions of the Code, (vii) holders that directly, indirectly or constructively own 10% or more of our stock or shares (by vote or value), (viii) S corporations, (ix) partnerships or other entities classified as partnerships for U.S. federal income tax purposes, or (x) holders that dissent from the Merger. In addition, this discussion does not address any U.S. federal estate, gift, or other non-income tax, or Medicare contribution tax, or any state, local, or non-U.S. tax consequences of the Merger. This discussion assumes that Shares are held as “capital assets” ​(generally, property held for investment) under the Code.
As used herein, a “U.S. Holder” is any beneficial owner of Gracell ordinary shares that is (i) an individual citizen or resident of the United States for U.S. federal income tax purposes, (ii) a corporation (or other 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, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (iv) a trust which (a) is subject to the primary jurisdiction of a court within the United States and for which one or more U.S. persons have authority to control all substantial decisions, or (b) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person for U.S. federal income tax purposes.
If a partnership (including any entity classified as a partnership for U.S. federal income tax purposes) is a beneficial owner of Gracell ordinary shares, the U.S. federal income tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. A U.S. Holder that is a partner of a partnership holding Gracell ordinary shares is urged to consult its own tax advisor.
ALL HOLDERS OF GRACELL ORDINARY SHARES SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR PARTICULAR SITUATIONS, INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL, NON-U.S. AND OTHER LAWS.
Consequences of Participation in the Merger
The receipt of cash and CVRs pursuant to the Merger, will be a taxable transaction for U.S. federal income tax purposes. The amount of gain or loss a U.S. Holder recognizes, and the timing and potential character of a portion of such gain or loss, depends in part on the U.S. federal income tax treatment of the CVRs and the application of the passive foreign investment company rules, each of which are discussed below.
 
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Contingent Value Rights
The receipt of the CVRs pursuant to the Merger should be treated as either a “closed transaction” or as an “open transaction” for U.S. federal income tax purposes. The installment method of reporting any gain attributable to the receipt of or payments on the CVRs will not be available to the extent the Gracell ordinary shares are traded on an established securities market.
There is no legal authority expressly addressing whether the receipt of contingent payment rights with characteristics similar to the rights under the CVRs should be treated as an open transaction or a closed transaction for U.S. federal income tax purposes. Under applicable U.S. Treasury regulations, the value of contingent payment obligations is considered not to be reasonably ascertainable and, therefore, subject to the open transaction method only in “rare and extraordinary” cases. If the fair market value of the CVRs is reasonably ascertainable, a U.S. Holder should treat the transaction as a closed transaction and include the fair market value of the CVRs as additional consideration received in the Merger for purposes of determining gain or loss. To the extent relevant, Parent intends to treat the CVRs received by a U.S. Holder with respect to the Gracell ordinary shares pursuant to the Merger for all U.S. federal and applicable state and local income tax purposes as additional consideration paid for the Gracell ordinary shares pursuant to the Merger as part of a closed transaction. U.S. Holders are urged to consult their own tax advisors regarding this proper method of tax accounting with respect to the CVR and how to accurately report their income under the closed transaction method or open transaction method, as applicable in their respective case.
If the receipt of a CVR is part of a closed transaction for U.S. federal income tax purposes, a U.S. Holder who exchanges Gracell ordinary shares pursuant to the Merger generally will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (i) the amount of cash received plus the fair market value (determined as of the closing of the Merger) of the CVRs received and (ii) the U.S. Holder’s adjusted tax basis in the Gracell ordinary shares sold or exchanged. No express guidance under current U.S. federal income tax law is available regarding the proper method for determining the fair market value of the CVRs. To the extent relevant, Parent may use the trading price of the Gracell ADSs prior to the closing of the Merger as the combined fair market value of the Per ADS Closing Amount and a CVR. Any capital gain or loss recognized will be long-term capital gain or loss if the U.S. Holder’s holding period for such Gracell ordinary shares exceeds one year. The deductibility of capital losses is subject to limitations. Gain or loss generally will be determined separately for each block of Gracell ordinary shares (that is, Gracell ordinary shares acquired at the same cost in a single transaction) exchanged pursuant to the Merger.
The character of any gain, income or loss recognized with respect to a payment on a CVR is uncertain. Such payments may be treated as payments with respect to a sale or exchange of a capital asset or as giving rise to ordinary income, including in part as imputed interest, as described more fully below. To the extent relevant, Parent intends to treat any payment received by a U.S. Holder in respect of a CVR (except to the extent any portion of such payment is required to be treated as imputed interest, as described below) as an amount realized on the disposition of the applicable CVR by the U.S. Holder. Under this method of reporting, a U.S. Holder should recognize gain equal to the difference between such payment (less any portion of such payment required to be treated as imputed interest, as described below) and the U.S. Holder’s adjusted tax basis in the applicable CVR and, if the CVR expires without the Milestone being achieved, loss equal to the U.S. Holder’s adjusted tax basis in the applicable CVR. A U.S. Holder’s adjusted basis in a CVR generally will equal the CVR’s fair market value when the CVR was received pursuant to the Merger. The gain or loss will be long-term capital gain or loss if the U.S. Holder has held the applicable CVR (or possibly the Gracell ordinary share in respect of which such CVR was received) for more than one year at the time of such payment or expiry. The deductibility of capital losses is subject to limitations.
If the receipt of a CVR pursuant to the Merger is treated under the open transaction method of accounting for U.S. federal income tax purposes, the fair market value of the CVR will not be treated as additional consideration for the Gracell ordinary shares at the time the CVR is received, and the U.S. Holder will not have any tax basis in the CVR. Instead, the U.S. Holder will take payments under a CVR into account when made or deemed made in accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes. Generally, a portion of such payments will be treated as imputed interest, as described in more detail below, and the balance as additional consideration recognized in exchange for the Gracell ordinary shares. The Per Share Closing Amount and the portion of payment on any CVR that is not treated as imputed interest will generally be applied first against a U.S. Holder’s adjusted tax basis in the Gracell ordinary shares
 
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and any excess thereafter treated as capital gain. A U.S. Holder will recognize capital loss with respect to a Gracell ordinary share to the extent that the holder’s adjusted tax basis in such Gracell ordinary share exceeds the Per Share Closing Amount plus the payment (other than imputed interest), if any, in respect of the CVR, and a U.S. Holder may not be able to recognize such loss until the resolution of all contingencies under the CVR. Any such capital gain or loss will be long-term capital gain or loss if the U.S. Holders’ holding period in the Gracell ordinary share exceeds one year. The deductibility of capital losses is subject to limitations. Gain or loss generally will be determined separately for each block of Gracell ordinary shares (that is, Gracell ordinary shares acquired at the same cost in a single transaction) exchanged pursuant to the Merger.
If payment with respect to a CVR is made more than six months after the closing of the Merger, a portion of the payment may be treated as imputed interest that is ordinary income to a U.S. Holder. The portion of any payment made with respect to a CVR treated as imputed interest will be determined at the time such payment is made and generally should equal the excess of (i) the amount of the payment in respect of the CVR over (ii) the present value of such amount as of the closing of the Merger, calculated using the applicable federal rate as the discount rate. A U.S. Holder must include in its taxable income imputed interest using such stockholder’s or shareholder’s regular method of accounting for U.S. federal income tax purposes.
Any gain or loss recognized by U.S. Holders will generally be treated as U.S. source gain or loss for U.S. foreign tax credit purposes. However, in the event that we are deemed to be a PRC “resident enterprise” under the PRC tax law and gain from the disposition of Gracell ordinary shares is subject to tax in the PRC (see under the section below captioned “The Merger — PRC Tax Consequences”) or you are subject to PRC income tax pursuant to Bulletin 7 or Bulletin 37 as described below under the section captioned “The Merger — PRC Tax Consequences,” you may be eligible to elect to treat such gain as PRC source gain under the Treaty. If we are not eligible for the benefits of the Treaty or you fail to make the election to treat any gain as PRC source, then you may not be able to use the foreign tax credit arising from any PRC tax imposed on the exchange of Gracell ordinary shares pursuant to the Merger against your U.S. income tax liability on such gain unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from non-U.S. sources. U.S. Holders are urged to consult their tax advisors regarding the tax consequences if PRC tax is imposed on gain on a disposition of the Gracell ordinary shares, including the availability of the foreign tax credit under their particular circumstances.
Passive Foreign Investment Company Considerations
A non-U.S. corporation, such as Gracell, will be classified as a passive foreign investment company or “PFIC” in any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. For this purpose, cash and assets readily convertible into cash are categorized as passive assets and the company’s goodwill and other unbooked intangibles are generally taken into account in determining the Company’s asset value. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. The Company will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which it owns, directly or indirectly, 25% or more (by value) of the stock or shares.
While we cannot express a definitive view about our PFIC status for 2023, based on our current estimates of the composition of our income and valuation of our assets for the taxable year ending December 31, 2023, the manner in which we conduct our business, relevant market data and our current expectations regarding the value and nature of our assets (including our intellectual property) and the sources and nature of our income, we do not believe we were a PFIC for the taxable year ending December 31, 2023. However, no assurances can be provided regarding our PFIC status for 2023 or any future taxable year because the determination of whether Gracell is a PFIC is a factual determination made annually that depends, in part, upon the composition of Gracell’s income and assets, and the IRS or courts may not agree with the methodology of our PFIC determination.
Although the law in this regard is not entirely clear, we treat the VIEs and their subsidiaries as being owned by us for U.S. federal income tax purposes because we control their management decisions and are entitled to substantially all of the economic benefits associated with them. As a result, we consolidate their result of operations in our consolidated U.S. GAAP financial statements.
 
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If we were a PFIC for any taxable year during which a U.S. Holder held Gracell ordinary shares and the U.S. Holder has not made a valid mark-to-market election (as discussed below), the U.S. Holder will generally be subject to special tax rules on any gain realized on the disposition of the Gracell ordinary shares. Under the PFIC rules (a) the gain will be allocated ratably over the U.S. Holder’s holding period for the Gracell ordinary share, (b) the amount allocated to the current year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we were a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income and (c) the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that year, increased by an additional tax equal to the interest on the resulting tax deemed deferred with respect to each such taxable year.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” ​(as defined below) in a PFIC that made a mark-to-market election with respect to the Gracell ADSs, would generally have (i) included as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of the Gracell ADSs held at the end of the taxable year over the adjusted tax basis of such Gracell ADSs and (ii) deducted as an ordinary loss the excess, if any, of the adjusted tax basis of the Gracell ADSs over the fair market value of such Gracell ADSs held at the end of the taxable year, but only to the extent of the amounts previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the Gracell ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of the Gracell ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.
The mark-to-market election is available only for “marketable stock,” which is stock or shares that are traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange or other market, as defined in applicable United States Treasury regulations. The Gracell ADSs are listed on Nasdaq, which is an established securities market in the United States. Consequently, we expect that the mark-to-market election would be available to a U.S. Holder that holds the Gracell ADSs were we to be or become a PFIC.
If a U.S. Holder makes an effective qualified electing fund election, or QEF election, the U.S. Holder will be required to include in gross income each year, whether or not Gracell makes distributions, as capital gains, such U.S. Holder’s pro rata share of our net capital gains and, as ordinary income, such U.S. Holder’s pro rata share of our earnings in excess of our net capital gains. Inclusions of net capital gains and ordinary income under a QEF election is required only for our taxable years in which we are a PFIC. An electing U.S. Holder’s basis in Gracell ordinary shares or ADSs will be increased to reflect the amount of any taxed but undistributed income. Distributions of income that had previously been taxed will result in a corresponding reduction of basis in the ordinary shares or ADSs and generally will not be taxed again as distributions to the U.S. Holder. In addition, a U.S. Holder that makes a QEF election will be taxed on the disposition of ordinary shares or ADSs as described in “Sale or Other Disposition” above. In order to apply the QEF regime in lieu of the general PFIC rules described above a U.S. Holder generally must make the QEF election for the first taxable year Gracell is treated as a PFIC.
A U.S. Holder can only make a QEF election with respect to ordinary shares or ADSs in a PFIC if the company agrees to furnish such U.S. Holder with certain information annually. If we determine that Gracell is a PFIC in any taxable year, we intend to make available to U.S. Holders, upon request and in accordance with applicable procedures, a “PFIC Annual Information Statement” with respect to Gracell for such taxable year. The “PFIC Annual Information Statement” may be used by U.S. Holders for purposes of complying with the reporting requirements applicable to a QEF election with respect to Gracell.
U.S. Holders should note that if they make a QEF election with respect to Gracell, they may be required to pay U.S. federal income tax with respect to their ordinary shares or ADSs for any taxable year significantly in excess of any cash distributions (which are expected to be zero) received on the ordinary shares or ADSs for such taxable year. U.S. Holders should consult their tax advisors regarding PFIC investments and making QEF elections based on their particular circumstances.
If the Company is a PFIC for any taxable year in which a U.S. Holder held Gracell ordinary shares, a U.S. Holder generally would be required to file IRS Form 8621 with respect to the disposition of Gracell ordinary
 
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shares. The PFIC rules are complex, and each U.S. Holder should consult its own tax advisors regarding the applicable consequences of the Merger to such U.S. Holder if the Company is a PFIC or has been a PFIC during any prior year in which a U.S. Holder held Gracell ordinary shares.
Information Reporting and Backup Withholding
Cash payments made to a holder of Gracell ordinary shares pursuant to the Merger may be subject to information reporting to the IRS and possible U.S. backup withholding at the applicable statutory rate (currently 24%). Backup withholding will not apply, however, if the holder of Gracell ordinary shares is a corporation, is a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification, or is otherwise exempt from backup withholding.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s U.S. federal income tax liability, and such holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS and furnishing any required information in a timely manner. Each U.S. Holder should consult its tax advisor regarding the application of the U.S. information reporting and backup withholding rules.
In addition, certain U.S. Holders who are individuals that hold certain foreign financial assets (which may include the Gracell ordinary shares) are required to report information relating to such assets, subject to certain exceptions. U.S. Holders are urged to consult their tax advisors regarding the effect, if any, of this requirement on their ownership and disposition of the Gracell ordinary shares.
All U.S. Holders of Gracell Ordinary Shares should consult their own tax advisors regarding the specific tax consequences of the Merger in the light of their particular situations, including the applicability of U.S. federal, state, local, or non-U.S. income and other tax laws.
PRC Tax Consequences
Under the EIT Law, which took effect on January 1, 2008, and was amended on February 24, 2017 and December 29, 2018 respectively, enterprises established outside of the PRC whose “de facto management bodies” are located in the PRC are considered “resident enterprises,” and thus will generally be subject to the enterprise income tax at the rate of 25% on their global income. On December 6, 2007, the State Council adopted the Regulation on the Implementation of Enterprise Income Tax Law, as amended on April 23, 2019, which defines the “de facto management body” as an establishment that has substantial management and control over the business, personnel, accounts and properties of an enterprise. The State Taxation Administration issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies (“Circular 82”) on April 22, 2009, and as amended on December 29, 2017. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore incorporated enterprise is located in the PRC. Under the EIT Law and its implementation regulations, the PRC enterprise income tax at the rate of 10% is applicable to any gain recognized on receipt of consideration by a “non-resident enterprise” from transfer of its equity in a PRC resident enterprise, provided that the “non-resident enterprise” does not have a de facto management body in the PRC and also (a) does not have an establishment or place of business in the PRC or (b) has an establishment or place of business in the PRC, but the relevant income is not effectively connected with the establishment or place of business, to the extent such gain is derived from sources within the PRC. Under the PRC Individual Income Tax Law, an individual who disposes a capital asset in the PRC is subject to PRC individual income tax at the rate of 20%. Reduction of or relief from these taxes may be sought under applicable income tax treaties with the PRC.
Gracell does not believe it is a PRC resident enterprise defined and regulated by the aforesaid regulations or that the gain recognized on the receipt of consideration for your Gracell ordinary shares or Gracell ADSs should otherwise be subject to PRC income tax to holders of such Gracell ordinary shares or Gracell ADSs that are not PRC residents, however, as there has not been a definitive determination of Gracell’s status by the PRC tax authorities, Gracell cannot confirm whether it would be considered a PRC resident enterprise under the EIT Law or whether the gain recognized on the receipt of consideration for Gracell ordinary shares or Gracell ADSs would otherwise be subject to PRC tax by holders of such Gracell ordinary shares or Gracell ADSs that are not PRC tax residents.
 
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In addition, under the Bulletin on Certain Issues of Enterprise Income Tax on Income Arising from Indirect Transfer of Assets by Non-resident Enterprises (“Bulletin 7”) issued by the State Taxation Administration, which became effective on February 3, 2015, and the Bulletin on the Source of Deduction of Income Tax for Non-resident Enterprises (“Bulletin 37”) issued by the State Taxation Administration, which became effective on December 1, 2017, if a non-PRC resident enterprise transfers PRC taxable assets indirectly by disposing of equity interests in an overseas holding company directly or indirectly holding such PRC taxable assets without any reasonable commercial purpose, the non-PRC resident enterprise may be subject to a 10% PRC enterprise income tax on the gain from such equity transfer, unless (i) the non-PRC resident enterprise derives income from the indirect transfer of PRC taxable assets by acquiring and selling shares of an overseas listed company which holds such PRC taxable assets on a public market or (ii) where there is an indirect transfer of PRC taxable assets, but if the non-resident enterprise had directly held and disposed of such PRC taxable assets, the income from the transfer would have been exempted from PRC enterprise income tax under an applicable tax treaty or arrangement (the “Safe Harbor Rules”). According to Bulletin 7, where a non-PRC resident enterprise indirectly holds and transfers equity of a PRC resident enterprise held through an offshore holding company, a list of factors set out by Bulletin 7 should be taken into consideration to assess whether the transfer arrangement would be deemed as having a reasonable commercial purpose. Where non-PRC resident enterprises indirectly transfer PRC resident enterprises’ equity and avoid obligations to pay enterprise income tax through arrangement without a reasonable commercial purpose, PRC taxation authorities have the power to redefine and deem the transaction as a direct transfer of PRC resident enterprises’ equity and impose a 10% enterprise income tax on the gain from such offshore share transfer unless the Safe Harbor Rules under Bulletin 7 are satisfied. Pursuant to Bulletin 37, where the party responsible to withhold such enterprise income tax did not or was unable to withhold, and non-PRC resident enterprises receiving such income failed to declare and pay the taxes that should have been withheld to the relevant tax authority, both the transferor and the transferee may be subject to penalties under PRC tax laws. Bulletin 37 or Bulletin 7 may be determined by the PRC tax authorities to be applicable to the Merger where non-PRC resident corporate shareholders or ADS holders are involved, if the Merger is determined by the PRC tax authorities to lack reasonable commercial purpose. Gracell does not believe that the Merger is without reasonable commercial purpose for purposes of Bulletin 37 and Bulletin 7, and, as a result, it is intended that no amounts will be withheld on account of PRC tax (under Bulletin 7 and Bulletin 37) from the Per Share Merger Consideration, the Per ADS Merger Consideration or the Dissenting FV Payment to be paid to holders of Gracell ordinary shares or Gracell ADSs. However, if PRC tax authorities were to invoke Bulletin 37 or Bulletin 7 and impose tax on the receipt of consideration for Gracell ordinary shares or Gracell ADSs, then any gain, to the extent attributable to the Chinese subsidiaries in the Gracell group, recognized on the receipt of consideration for such Gracell ordinary shares or Gracell ADSs pursuant to the Merger by Gracell’s non-PRC-resident enterprise shareholders could be treated as PRC-source income and thus be subject to PRC enterprise income tax at a rate of 10% (subject to applicable treaty relief).
On January 17, 2020, the Ministry of Finance and the State Taxation Administration jointly issued the Public Notice on Individual Income Tax (“IIT”) Policy Concerning Foreign Income (“Bulletin 3”) which applies to tax matters taking place in 2019 and onwards. Generally, income generated from the transfer of equity interest in a foreign entity is considered as foreign sourced income from PRC IIT perspective. However, Bulletin 3 introduces an exception to the above general principle. If the foreign entity has more than 50% of its value derived directly or indirectly from immovable properties in the PRC in any three years before the transfer, income from the transfer of equity interest in the foreign entity would be considered as PRC-source income and the non-PRC resident individual shareholders could be subject to PRC IIT at a rate of 20%.
You should consult your own tax advisor for a full understanding of the tax consequences of the Merger to you, including any PRC tax consequences.
Cayman Islands Tax Consequences
The Cayman Islands currently has no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. No taxes, fees or charges will payable (either by direct assessment or withholding) to the government or other taxing authority in the Cayman Islands under the laws of the Cayman Islands in respect of the Merger or the receipt of cash for Gracell ordinary shares and Gracell ADSs under the terms of the Merger. This is subject to the qualifications that (i) Cayman Islands stamp duty may be payable if any original transaction documents are brought into or executed or produced before a court in the Cayman Islands
 
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(for example, for enforcement), (ii) registration fees will be payable to the Registrar of Companies in the Cayman Islands to register the Plan of Merger and (iii) fees payable to the Cayman Islands Government Gazette Office to publish the notice of the merger in the Cayman Islands Government Gazette.
Regulatory Approvals Required for the Merger
General
Gracell and Parent have agreed to use their respective reasonable best efforts to take all action necessary to comply with all regulatory notification requirements, and to obtain all regulatory approvals required to consummate the Merger and the other Transactions, subject to certain limitations (as described below).
Under the Merger Agreement, the Merger and the other Transactions cannot be completed until the applicable waiting period under the HSR Act (and any extensions therefore, including any voluntary agreements with a governmental entity not to consummate the Transactions for any period of time, if any), have expired or otherwise been terminated. Gracell and Parent made the filings required under the HSR Act on January 10, 2024.
The expiration of the waiting period under the HSR Act (and any extensions therefore, including any voluntary agreements with a governmental entity not to consummate the Transactions for any period of time, if any) is the only regulatory approval that is a condition to the obligations of Gracell or Parent and Merger Sub to consummate the Merger.
HSR Act and U.S. Antitrust Matters
Under the HSR Act and the rules promulgated thereunder, certain acquisitions may not be completed until information has been furnished to the Antitrust Division of the U.S. Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”), and the applicable HSR Act waiting period (and any extensions therefore, including any voluntary agreements with a governmental entity not to consummate the Transactions for any period of time) has expired or been terminated. The waiting period under the HSR Act is 30 calendar days, unless the waiting period is terminated earlier or extended. If any waiting period expires on a Saturday, Sunday or federal holiday, then the period is extended until 11:59 p.m., Eastern time, on the next day that is not a Saturday, Sunday or federal holiday. The Merger is subject to the provisions of the HSR Act and therefore cannot be completed until each of Gracell and Parent file a notification and report form with the FTC and the DOJ under the HSR Act and the applicable waiting period has expired or been terminated. If the DOJ or FTC issues a request for additional information and documentary materials (a “Second Request”), the parties must observe a second 30 calendar day waiting period, which would begin to run only after both parties have substantially complied with the Second Request, unless the waiting period is terminated earlier or the parties agree with the DOJ or FTC to delay consummation of the Merger for a specified period of time. Gracell and Parent made the necessary filings with the FTC and the Antitrust Division of the DOJ on January 10, 2024. Gracell and Parent may also file pre-merger or post-merger notification filings, forms and submissions with other governmental authorities pursuant to other applicable antitrust laws in connection with the Merger to the extent required in the reasonable judgement of counsel to Parent and Gracell. The Merger Agreement provides that Gracell, Parent and Merger Sub will use reasonable best efforts to, among other things, obtain regulatory clearance, including, to the extent necessary to obtain clearance of the Merger pursuant to the HSR Act and any other antitrust laws applicable to the Merger, except that none of Parent, Merger Sub or any of their respective affiliates will be required to (and, without the prior written consent of Parent, none of the Company or its affiliates may) (A) take agree to make any divestiture or take certain other actions or agree to certain other remedies (x) with respect to any assets, categories of assets or portions of any business of the Company or any of its subsidiaries with a fair market value in excess of $5,000,000, or (y) with respect to any assets, categories of assets or portions of any business of Parent or its affiliates, (B) initiate, contest, defend or appeal any actions, whether judicial or administrative, against any governmental entities relating to challenges to the Merger Agreement or any of the Transactions or (C) commit to seek prior approval from any governmental entity of any future transaction.
At any time before or after consummation of the Merger, notwithstanding the termination or expiration of the waiting period under the HSR Act, the FTC or the DOJ could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the Merger,
 
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seeking divestiture of substantial assets of the parties, requiring the parties to license or hold separate assets or terminate existing relationships and contractual rights, or requiring the parties to agree to other remedies. At any time before or after the completion of the Merger, and notwithstanding the termination or expiration of the waiting period under the HSR Act, any state or foreign jurisdiction could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the Merger, seeking divestiture of substantial assets of the parties, requiring the parties to license or hold separate assets or terminate existing relationships and contractual rights, or requiring the parties to agree to other remedies. Private parties may also seek to take legal action under the antitrust laws under certain circumstances, including by seeking to intervene in the regulatory process or litigate to enjoin or overturn regulatory approvals, any of which actions could significantly impede or even preclude obtaining required regulatory approvals. We cannot be certain that a challenge to the Merger will not be made or that, if a challenge is made, we will prevail.
There is currently no way to predict how long it will take to obtain all of the required regulatory approvals or whether such approvals will ultimately be obtained and there may be a substantial period of time between the approval by shareholders and the completion of the Merger.
Although we expect that all required regulatory clearances and approvals will be obtained, we cannot assure you that these regulatory clearances and approvals will be timely obtained, obtained at all or that the granting of these regulatory clearances and approvals will not involve the imposition of additional conditions, restrictions, qualifications, requirements, or limitations on the completion of the Merger, including the requirement to divest assets, license or hold separate assets or terminate existing relationships and contractual rights, terminate existing relationships and contractual rights, agree to other remedies, or require changes to the terms of the Merger Agreement. These conditions or changes could result in the conditions to the Merger not being satisfied.
 
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THE MERGER AGREEMENT
The following summary describes the material provisions of the Merger Agreement. The descriptions of the Merger Agreement in this summary and elsewhere in this proxy statement are not complete and are qualified in their entirety by reference to the Merger Agreement and the Plan of Merger, a copy of which are attached to this proxy statement as Annex A and Annex B, and incorporated into this proxy statement by reference. You should carefully read and consider the entire Merger Agreement and the Plan of Merger, which are the legal documents that govern the Merger and the other Transactions, because this summary may not contain all the information about the Merger Agreement that is important to you. The rights and obligations of the parties are governed by the express terms of the Merger Agreement and not by this summary or any other information contained in this proxy statement.
The representations, warranties, covenants and agreements described below and included in the Merger Agreement (a) were made only for purposes of the Merger Agreement and as of specific dates; (b) were made solely for the benefit of the parties to the Merger Agreement; and (c) may be subject to important qualifications, limitations and supplemental information agreed to by Gracell, Parent and Merger Sub in connection with negotiating the terms of the Merger Agreement. In addition, the representations and warranties have been included in the Merger Agreement for the purpose of allocating contractual risk between Gracell, Parent and Merger Sub rather than to establish matters as facts, and may be subject to standards of materiality applicable to such parties that differ from those applicable to investors. Gracell shareholders and Gracell ADS holders are not third party beneficiaries under the Merger Agreement and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of Gracell, Parent or Merger Sub or any of their respective affiliates or businesses. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement. In addition, you should not rely on the covenants in the Merger Agreement as actual limitations on the respective businesses of Gracell, Parent and Merger Sub, because the parties may take certain actions that are either expressly permitted in the confidential disclosure letter to the Merger Agreement or as otherwise consented to by the appropriate party, which consent may be given without prior notice to the public. The Merger Agreement is described below, and included as Annex A, only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding Gracell, Parent, Merger Sub or their respective businesses. Accordingly, the representations, warranties, covenants and other agreements in the Merger Agreement should not be read alone, and you should read the information provided elsewhere in this document and in our filings with the SEC regarding Gracell and our business.
Effects of the Merger; Directors and Officers; Memorandum and Articles of Association
The Merger Agreement provides that, subject to the terms and conditions of the Merger Agreement, and in accordance with the Companies Act, at the Effective Time: (a) Merger Sub will merge with and into Gracell, with Gracell surviving the merger as a wholly owned subsidiary of Parent; and (b) Merger Sub will cease to exist and will be struck off of the Registrar of Companies. From and after the Effective Time, all properties, rights, privileges, powers and franchises of Gracell and Merger Sub will immediately vest in the Surviving Company, and all of the debts, liabilities and duties of Gracell and Merger Sub will become the debts, liabilities and duties of the Surviving Company in accordance with the Companies Act.
At the Effective Time, the board of directors of the Surviving Company will consist of the directors of Merger Sub as of immediately prior to the Effective Time, to hold office in accordance with the memorandum and articles of association of the Surviving Company until their successors are duly elected and qualified or until such director’s earlier death, resignation or removal. At the Effective Time, the officers of Merger Sub as of immediately prior to the Effective Time will be the officers of the Surviving Company, until their successors are duly elected and qualified or until such director’s earlier death, resignation or removal. At the Effective Time, the memorandum and articles of association of Gracell as the Surviving Company will be amended to read substantially identically to the memorandum and articles of association of Merger Sub as in effect immediately prior to the Effective Time.
Closing and Effective Time
The closing of the Merger will take place at 8:00 a.m., Eastern Standard Time, on the third business day following the satisfaction or waiver of all conditions to closing of the Merger (described below under the
 
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section captioned “The Merger Agreement — Conditions to the Closing of the Merger”) (other than those conditions to be satisfied at the closing of the Merger, but subject to the satisfaction or, to the extent permitted hereunder and by applicable law, waiver of such conditions at the closing) or such other time agreed to in writing by Parent and Gracell. On the closing date of the Merger, Parent, Company and Merger Sub will execute and file the Plan of Merger with the Registrar of Companies as provided by Section 233 of the Companies Act. The time at which the Merger will become effective will occur on the date such Plan of Merger is registered by the Registrar of Companies or on such other date as specified in the Plan of Merger in accordance with the Companies Act.
Merger Consideration
Treatment of Gracell ordinary shares and Gracell ADSs
At the Effective Time, (a) each Gracell ordinary share issued and outstanding immediately prior to the Effective Time (other than Excluded Shares, Gracell ordinary shares represented by ADSs, and Gracell ordinary shares held by holders who will have exercised and not withdrawn or otherwise lost their rights to dissent from the Merger in accordance with the Companies Act), will be cancelled and will thereafter represent only the right to receive the Per Share Closing Amount in cash without interest and one CVR per Gracell ordinary share representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of a Milestone, in each case subject to any applicable withholding taxes and (b) each Gracell ADS issued and outstanding immediately prior to the Effective Time (other than Gracell ADSs representing the Excluded Shares), together with the underlying Gracell ordinary shares represented by such ADSs, will be cancelled and will thereafter represent only the right to receive (i) $10.00 per ADS in cash without interest and (ii) five CVRs per Gracell ADS representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone, in each case, subject to any applicable withholding taxes. Pursuant to the terms of the Deposit Agreement, the Gracell ADS holders will pay any applicable fees, charges and expenses of the ADS Depositary, stock transfer or other taxes and other government charges due to or incurred by the ADS Depositary in connection with the cancellation, termination or surrender of their Gracell ADSs.
At the Effective Time, each ordinary share of Merger Sub issued and outstanding immediately prior to the Effective Time will be cancelled and the Surviving Company will issue to Parent such validly issued, fully paid and non-assessable ordinary shares of the Surviving Company as set out in the Plan of Merger, and such ordinary shares of the Surviving Company will constitute the only issued and outstanding share capital of the Surviving Company upon the Effective Time.
Company Warrants
At the Effective Time, each Company Warrant outstanding and not exercised immediately prior to the Effective Time will be cancelled and thereafter represent only the right to receive the Company Warrant Consideration, subject to any applicable withholding taxes. A holder of Company Warrants may exercise any Company Warrant held by it by delivering written notice in the form attached as Exhibit A to the Company Warrant to Gracell at least three business days prior to the Effective Time for an exercise price of $1.116 per Gracell ordinary share issuable upon exercise of such Company Warrant, subject to the terms and conditions of the Company Warrant. Each Gracell ordinary share issued upon the exercise of any Company Warrant prior to the Effective Time will receive the same consideration as any other Gracell ordinary share in the Merger, as further described above under the section captioned “The Merger Agreement — Treatment of Gracell ordinary shares and Gracell ADS”).
Outstanding Company Options and Company RSUs
Each Company Option that is outstanding as of immediately prior to the Effective Time will automatically accelerate and become fully vested and exercisable effective immediately prior to, and contingent upon, the Effective Time, and (a) each In-the-Money Company Option will be cancelled and converted at the Effective Time into the right to receive (i) an amount in cash, without interest, equal to the product of (A) the total number of Gracell ordinary shares subject to such In-the-Money Company Option multiplied by (B) the amount by which the Per Share Closing Amount exceeds the exercise price payable per Gracell ordinary share
 
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subject to such In-the-Money Company Option and (ii) one CVR per Gracell ordinary share subject to such In-the-Money Company Option representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone in accordance with the terms of the CVR Agreement, in each case subject to any required tax withholding, (b) each Underwater Company Option will be cancelled and converted into the right to receive, upon the achievement of the Milestone in accordance with the terms of the CVR Agreement, an amount of cash, without interest, equal to the product of (i) the total number of Gracell ordinary shares subject to such Underwater Company Option as of immediately prior to the Effective Time multiplied by (ii) the amount, if any, by which (A) the Per Share Closing Amount plus $0.30 exceeds (B) the exercise price payable per Gracell ordinary share subject to such Underwater Company Option, less any required tax withholdings and (c) each Company Option that is outstanding as of immediately prior to the Effective Time and has a per-share exercise price that is equal to or greater than the sum of the Per Share Closing Amount plus $0.30 will be cancelled for no consideration.
Each Company RSU that is outstanding as of immediately prior to the Effective Time will accelerate and become fully vested effective immediately prior to, and contingent upon, the Effective Time, and as of the Effective Time, will be cancelled and converted into the right to receive (a) an amount in cash, without interest, equal to the Per Share Closing Amount multiplied by the aggregate number of Gracell ordinary shares issuable in settlement of such Company RSU immediately prior to the Effective Time and (b) one CVR with respect to each Gracell ordinary share issuable in settlement of such Company RSU, representing the right to receive a contingent payment of $0.30 per CVR in cash without interest upon the achievement of the Milestone in accordance with the terms of the CVR Agreement, in each case subject to any required tax withholding.
Exchange and Payment Procedures
Prior to the closing of the Merger, Parent or Merger Sub will enter into an agreement in form and substance reasonably acceptable to the Company with a paying agent selected by Parent (the “Paying Agent”) to make payments of the Merger consideration to holders of Gracell ordinary shares (other than Excluded Shares, Gracell ordinary shares represented by Gracell ADSs and Dissenting Shares), Gracell ADSs (other than Gracell ADSs representing Excluded Shares) and Company Warrants. At or promptly following the Effective Time, Parent will deposit (or cause to be deposited) with the Paying Agent cash sufficient to pay the aggregate consideration payable to holders of Gracell ordinary shares (other than Excluded Shares, Gracell ordinary shares represented by Gracell ADSs and Dissenting Shares), Gracell ADSs (other than Gracell ADSs representing Excluded Shares) and Company Warrants as of the Effective Time.
Promptly following the Effective Time (and in any event within three business days), the Paying Agent will mail to each holder of Gracell ordinary shares of record (as of immediately prior to the Effective Time) and each holder of Company Warrants transmittal materials in such form and have such other provisions as Parent and Gracell may reasonably agree and instructions for use in effecting the surrender of such holder’s Gracell ordinary shares or Company Warrants represented by the Company Warrant register maintained by Gracell or book-entry shares or book-entry warrants in exchange for the aggregate Per Share Closing Amount or Company Warrant Consideration payable at the Effective Time in respect of such Gracell ordinary shares or Company Warrants. The amount of any such consideration paid to holders of Gracell ordinary shares or Company Warrants may be reduced by any applicable withholding taxes.
Promptly after the Effective Time (and in any event within three business days thereafter), the Paying Agent will mail or otherwise provide to each former holder of Gracell ordinary shares represented by the register of members of Gracell immediately prior to the Effective Time, and each former holder of record of Book-Entry Shares immediately prior to the Effective Time (in each case, other than holders of Excluded Shares, Dissenting Shares and Gracell ordinary shares represented by Gracell ADSs) and each former holder of certificates representing Company Warrants (the “Warrant Certificates”) and each former holder of Company Warrants held in book-entry form (“Book-Entry Warrants”) (A) transmittal materials, including a letter of transmittal in customary form, specifying that delivery shall be effected, and risk of loss and title to the Certificates and Warrant Certificates will pass, only upon delivery of the Certificates or Warrant Certificates to the Paying Agent or, with respect to Book-Entry Shares or Book-Entry Warrants, only upon delivery of an “agent’s message” regarding the book-entry transfer of Book-Entry Shares or Book-Entry Warrants (or such other evidence, if any, of the transfer as the Paying Agent may reasonably request), such transmittal materials to be in such form and have such other provisions as Parent and the Company may reasonably agree, and
 
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(B) instructions for use in effecting the surrender of Certificates or Warrant Certificates or exchange of Book-Entry Shares or Book-Entry Warrants, as applicable, for the aggregate Per Share Closing Amount or Company Warrant Consideration payable in respect thereof. The amount of any such payments may be reduced by any applicable withholding taxes.
Prior to the Effective Time, Parent and the Company will establish procedures with the Paying Agent, the Rights Agent and the Depositary to ensure that Milestone payments are made to holders of Gracell ADSs (other than Gracell ADSs representing Excluded Shares) pursuant to the Merger Agreement, the Deposit Agreement and the CVR Agreement and that (a) the Paying Agent will transmit to the Depositary as promptly as reasonably practicable following the Effective Time an amount in cash in immediately available funds equal to the product of (i) the number of Gracell ADSs issued and outstanding immediately prior to the Effective Time (other than Gracell ADSs representing Excluded Shares) and (ii) the Per ADS Closing Amount, and (b) the Depositary will distribute the aggregate Per ADS Merger Consideration to holders of Gracell ADSs pro rata to their holdings of Gracell ADSs (other than ADSs representing Excluded Shares) upon surrender by them of the Gracell ADSs and/or the cancellation of such Gracell ADSs by the Depositary, in accordance with the Merger Agreement, the CVR Agreement and the Deposit Agreement. Pursuant to the terms of the Deposit Agreement, the Gracell ADS holders will pay any applicable fees, charges and expenses of the ADS Depositary, stock transfer or other taxes and other government charges due to or incurred by the ADS Depositary in connection with the cancellation, termination or surrender of their Gracell ADSs. The amount of any such payments may be reduced by any applicable withholding taxes.
If any cash deposited with the Paying Agent is not claimed within 12 months following the Effective Time, such cash will be returned to Parent or the Surviving Company, as requested by Parent, upon demand, and any holders of Gracell ordinary shares who have not complied with the exchange procedures in the Merger Agreement will thereafter look only to Parent for payment of the relevant aggregate Per Share Closing Amount or Company Warrant Consideration. Any cash deposited with the Paying Agent that remains unclaimed by such former holders immediately prior to such time at which such amounts would otherwise escheat to or become property of any governmental entity will become, to the extent permitted by applicable law, the property of Parent, free and clear of all claims of interest of any person previously entitled thereto.
Representations and Warranties
The Merger Agreement contains representations and warranties of Gracell, Parent and Merger Sub.
Some of the representations and warranties in the Merger Agreement made by Gracell are qualified as to “materiality” or “Material Adverse Effect.” For purposes of the Merger Agreement, “Material Adverse Effect” means, with respect to Gracell, any event, development, change, effect or occurrence that, individually or in the aggregate with all other events, developments, changes, effects or occurrences (1) has had, or would reasonably be expected to have, a material adverse effect on the business, results of operation or financial condition, or assets of Gracell and its subsidiaries, taken as a whole or (2) would, or would reasonably be expected to, individually or in the aggregate, prevent, materially delay or have a material adverse effect on the ability of Gracell to consummate the Transactions or otherwise have a material adverse effect on the ability of Gracell to consummate the Transactions or otherwise have a material adverse effect on the ability of Gracell to perform its obligations under the Merger Agreement, except that, with respect to clause (1) only, none of the following will be deemed to be or constitute a Material Adverse Effect or will be taken into account when determining whether a Material Adverse Effect has occurred or is reasonably expected to occur, except in the cases of the first, second, fourth and fifth bullets below, to the extent that Gracell and its subsidiaries, taken as a whole, are disproportionately affected thereby as compared with other participants in the same industries in which the Gracell and its subsidiaries operate (in which case solely the incremental disproportionate impact or impacts may be taken into account in determining whether there has been or would reasonably be expected to be a Material Adverse Effect):

general changes or developments in the economy or the financial, debt, capital, credit or securities markets in the United States, the Peoples Republic of China (“PRC”) or elsewhere in the world in which Gracell or its subsidiaries have material operations or the economy generally;

general changes or developments in the industries in which Gracell or its subsidiaries operate;
 
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the execution and delivery of the Merger Agreement or the public announcement or pendency of the Merger or the other Transactions, the public announcement or disclosure of or performance of the Merger Agreement or the Transactions, the pendency or consummation of the Transactions, or the identity of the parties to the Merger Agreement, including any impact thereof on relationships, contractual or otherwise, with customers, employees, suppliers, licensors, licensees, distributors, providers, contractors, lenders, investors, partners of the Company or any of its subsidiaries (provided, that this clause will not apply to any representation or warranty to the extent the purpose of such representation or warranty is to directly address the consequences resulting from the execution and delivery of the Merger Agreement or the consummation of the Transactions (including the Merger), subject to the disclosures in the confidential disclosure letter);

changes in any applicable laws or regulations or applicable accounting regulations or principles or interpretation or enforcement thereof;

any hurricane, tornado, earthquake, flood, tsunami, natural or man-made disaster, act of God, escalation of hostilities or war (whether or not declared), military actions or any act of sabotage or terrorism, or national or international political or social conditions, epidemics, pandemic (including COVID-19) or other public health crises, other comparable events or outbreak;

any decline in the market price or trading volume of the Gracell ordinary shares or Gracell ADSs or the credit rating of Gracell (provided, that the facts, circumstances, developments, events, changes, effects or occurrences giving rise to or contributing to such decline that are not listed in the first through twelfth bullet may be deemed to constitute, or be taken into account in determining whether there has been or would reasonably be expected to, a Material Adverse Effect);

any failure by Gracell to meet any published analyst estimates or expectations of Gracell’s revenue, earnings or other financial performance or results of operations for any period, in and of itself, or any failure by Gracell to meet its internal or published projections, budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations (provided, that the facts, circumstances, developments, events, changes, effects or occurrences giving rise to or contributing to such decline may be deemed to constitute, or be taken into account in determining whether there has been or would reasonably be expected to, a Material Adverse Effect);

any adverse effect directly arising from or otherwise directly relating to any action taken by Gracell at the written direction of Parent;

changes or developments in or affecting regional, domestic or any foreign interest or exchange rates;

any action threatened, made or brought by any of the current or former shareholders of Gracell (or on their behalf or on behalf of Gracell) against Gracell or any of its directors, officers or employees arising out of the Merger Agreement or the Merger; and

any results, outcomes, data, adverse events or side effects arising from any clinical trials being conducted by or on behalf of Gracell or any regulatory matters related to such results, outcomes, data, adverse events or side effects (other than, in each case, if related to safety) or the announcements thereof.
In the Merger Agreement, Gracell has made customary representations and warranties to Parent and Merger Sub that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement. These representations and warranties relate to, among other things:

due organization, valid existence, good standing and authority and qualification to conduct business with respect to Gracell;

Gracell’s corporate power and authority to own, lease and operate its properties and assets in the manner in which they are currently owned, leased and operated and to conduct its business in the manner as presently conducted;

Gracell’s corporate power and authority to execute and deliver the Merger Agreement, and to perform its obligations hereunder and to consummate the Merger and the other Transactions;

the organizational documents of Gracell;

the necessary approval of the Board of Directors;
 
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the rendering of Centerview’s opinion to the Board of Directors;

the inapplicability of anti-takeover statutes to the Merger;

the necessary vote of Gracell shareholders in connection with the Merger Agreement;

the absence of any breach, conflict, violation or material alteration of any organizational documents, existing contracts, applicable laws to Gracell or the resulting creation of any lien upon Gracell’s assets due to the performance of the Merger Agreement;

required consents, approvals and regulatory filings in connection with the Merger Agreement and performance thereof;

the capital structure of Gracell;

the capital structure of Gracell’s subsidiaries;

the accuracy and required filings of Gracell’s SEC filings and financial statements;

Gracell’s disclosure controls and procedures;

Gracell’s internal accounting controls and procedures;

certain indebtedness of Gracell;

the absence of specified undisclosed liabilities;

the existence and enforceability of specified categories of Gracell’s material contracts, and any notices with respect to termination or intent not to renew those material contracts therefrom;

certain real property leased or subleased by Gracell;

environmental matters;

trademarks, patents, copyrights and other intellectual property matters including data security requirements and privacy;

tax matters;

employee benefit plans;

labor and employment matters;

Gracell’s compliance with laws, standards and requirements and possession of necessary permits;

the absence of certain changes or events;

regulatory matters;

litigation matters; and

insurance matters.
In the Merger Agreement, Parent and Merger Sub have made customary representations and warranties to Gracell that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement. These representations and warranties relate to, among other things:

due organization, good standing and authority and qualification to conduct business with respect to Parent and Merger Sub;

Parent’s and Merger Sub’s corporate authority to enter into and perform the Merger Agreement (and with respect to Parent, the CVR Agreement), the enforceability of the Merger Agreement (and with respect to Parent, the CVR Agreement);

the absence of any breach, conflict, violation or material alteration of any organizational documents, existing contracts, applicable laws or the resulting creation of any lien upon Parent or Merger Sub’s assets due to the performance of the Merger Agreement;

required consents and regulatory filings in connection with the Merger Agreement;
 
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the absence of litigation, orders and investigations;

the absence of ownership of Gracell ordinary shares and other equity interests of Gracell;

payment of fees to brokers in connection with the Merger Agreement;

operations of Parent and Merger Sub;

the absence of any required consent of holders of voting interests in Parent or Merger Sub;

matters with respect to Parent’s sufficiency of funds; and

the exclusivity and terms of the representations and warranties made by Gracell.
The representations and warranties contained in the Merger Agreement will not survive the consummation of the Merger.
Conduct of Business Pending the Merger
The Merger Agreement provides that, except as: (a) required or otherwise expressly provided for by the Transaction Documents; (b) as specifically set forth in the confidential disclosure letter to the Merger Agreement; (c) required to comply with applicable law; or (d) consented by Parent in writing (which consent will not be unreasonably withheld, conditioned or delayed), during the period of time between the date of the Merger Agreement until the earlier of the Effective Time and the valid termination of the Merger Agreement, Gracell will use its reasonable best efforts to, and will use its reasonable best efforts to cause each of its subsidiaries to, conduct its and their respective businesses and operations in all material respects in the ordinary course of business and preserve intact its and each of its subsidiaries’ business organization, including keeping available the services of current executive officers, and to preserve the present relationships with those persons having significant business relationships with Gracell.
In addition, Gracell has also agreed that it will not and will cause each of its subsidiaries not to, during the period of time between the date of the Merger Agreement until the earlier of the Effective Time and the valid termination of the Merger Agreement, among other things:

amend its organizational documents;

effect or commence any complete or partial liquidation or dissolution, merger, consolidation, restructuring, recapitalization, reorganization, or similar transaction;

merge or consolidate the Company or any of its subsidiaries with any other person, except for any such transactions among the Company and its wholly owned subsidiaries;

make any acquisition of (whether by merger, consolidation or acquisition of stock or shares or substantially all of the assets), or make any investment in any interest in, any business or any corporation, partnership or other business organization or division thereof or any property, assets or securities, subject to certain exceptions;

issue, sell, grant, authorize, pledge, encumber or dispose of (or authorize the issuance, sale, grant, authorization, pledge, encumbrance or disposition of) any equity securities of the Company or any of its subsidiaries, subject to certain exceptions;

reclassify, combine, split, subdivide, reverse split, consolidate, recapitalize, subdivide, redeem, purchase or otherwise acquire any equity security of the Company or any of its subsidiaries or consummate or authorize any other similar transaction with respect to shares of capital stock or share capital or ownership interests of the Company or any of its subsidiaries (or any warrants, options or other rights to acquire the foregoing), subject to certain exceptions;

create or incur any lien, other than permitted liens, on any assets of the Company or its subsidiaries, subject to certain exceptions;

authorize or make any loans, advances in excess of $500,000 in the aggregate, subject to certain exceptions;

sell, transfer or otherwise dispose of (whether by merger, consolidation or disposition of stock, shares or assets or otherwise) any corporation, partnership or other business organization or division thereof
 
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or otherwise sell, lease, assign, license, transfer, exchange, swap, abandon, knowingly fail to renew or permit to lapse or expire, grant an easement or covenant not to assert with respect to, grant any rights under, or subject to any lien (other than permitted liens), fail to maintain or defend in full force and effect (including any failure to protect the confidentiality of any material intellectual property, or disclose, license, release, deliver, escrow or otherwise make available or grant any rights to any source code), or dispose of any material assets, rights or properties (including material intellectual property), subject to certain exceptions;

unless mandated by a governmental entity, (A) make any changes to, discontinue, terminate or suspend any ongoing research and development program or clinical trial relating to a company product or (B) commence, alone or with any third party, any research and development program or clinical trial that has not been disclosed to Parent prior to the date of the Merger Agreement;

make any material submissions or filings to the FDA, National Medical Products Administration (formerly the China Food and Drug Administration) (“NMPA”) or any other applicable health regulatory governmental entity related to the Company’s business and operations or any company product, without, to the extent practicable and legally permissible, (A) providing Parent with a reasonable opportunity to review and comment on such submissions or filings and (B) using good faith efforts to incorporate any of Parent reasonable comments that are received in a timely fashion;

declare, set aside, establish a record date for, authorize, make or pay any dividend or other distribution, payable in cash, stock, shares, property or otherwise, with respect to any of the Company’s or its subsidiaries’ capital stock or share capital, (except for any dividend or distribution by a subsidiary of the Company to the Company or any subsidiary of the Company);

authorize, make or incur any capital expenditures or obligations or liabilities in connection therewith, other than (A) any capital expenditures contemplated by the capital expenditure budget of the Company and its subsidiaries made available to Parent, and (B) capital expenditures of less than $200,00 individually or $500,000 in the aggregate;

other than certain incidental contracts, (A) enter into any contract that would have been a material contract if it had been in effect as of the date of the Merger Agreement, except for any statement of work issued under an existing material contract, in each case not in excess of $500,000 individually, or (B) modify or amend in any material respect, terminate, permit to expire or waive any material rights or obligations under any material contract;

enter into any contract or make any other commitment pursuant to which the Company or any of its affiliates would receive, directly or indirectly, the benefit of any funding, grants, facilities, services or other resources of a governmental entity, including any such commitment pursuant to which such governmental entity would be entitled to any ownership interest or other right in or to any intellectual property;

voluntarily terminate, suspend, abrogate, amend, let lapse or modify any material permit in a manner materially adverse to the Company and its subsidiaries, taken as a whole;

except for certain intercompany loans, incur, prepay, issue, syndicate, refinance, or otherwise become liable for, indebtedness for borrowed money in excess of $500,000, or modify in any material respect the terms of any such indebtedness for borrowed money, or assume, guarantee or endorse the obligations of any person (other than a wholly owned subsidiary of the Company), in each case, in excess of $500,000, subject to certain exceptions;

increase employee compensation and benefits; grant or pay any cash or equity-based incentive compensation, change in control, retention, severance, termination pay or other similar arrangement; establish, enter into, amend, or terminate any Gracell employee benefit plan; grant, cancel or forgive any loan or advance of money or any other property to any employee; hire, promote or terminate any employee at the level of Vice President or above (other than a termination for cause); increase the use of labor dispatch employees; or take any action to accelerate vesting, funding or payment of any compensation or benefits;

change, in any material respect, any accounting principles, except as required to conform with changes in appliable law, GAAP or regulatory requirements;
 
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adopt or change any material tax accounting method or tax election or amend a material tax return or settle any tax claim or fail to file material tax returns or pay material taxes when due or change its annual tax accounting period or change its residence for Tax purpose or establish a permanent establishment in a jurisdiction where it is not already tax resident;

excepted to the extent required by applicable law or mandated by a governmental entity, enter into or negotiate any collective bargaining agreement, or organize or certify any labor union;

waive, release, settle or compromise any legal proceeding or other actions, subject to certain exceptions;

terminate or cancel, let lapse, or amend or modify in any material respect, other than renewals in the ordinary course of business, any material insurance policies maintained by it which are not promptly replaced by a comparable amount of insurance coverage;

enter any new line of business outside of its existing business as of the Merger Agreement that is material to the Company and its subsidiaries, taken as a whole; or

enter into agreements to do any of the foregoing.