CALA Calithera Biosciences Inc

Item 1A. Risk Factors.

Our business involves significant risks, some of which are described below. You should carefully consider these risks, in addition to the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes and the section of this Annual Report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events or developments described in the following risk factors and the risks described elsewhere in this report could harm our business, financial condition, results of operations, cash flows, the trading price of our common stock and our growth prospects. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described in the following risk factors and the risks described elsewhere in this Annual Report.

The holder of our Series A preferred stock has liquidation and other rights that are senior to the rights of the holders of shares of our common stock.

On January 9, 2023, we announced, after extensive consideration of potential strategic alternatives, that our Board of Directors had unanimously approved the dissolution and liquidation of Calithera pursuant to a Plan of Dissolution, subject to stockholder approval. In connection with the Plan of Dissolution, we began discontinuing all clinical programs and commenced reducing our workforce, which includes the planned termination of most employees by the end of the first quarter, and began the wind-up of our operations. We are currently seeking to sell all of our clinical assets and programs.

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As of December 31, 2022, we had 1,000,000 shares of Series A preferred stock outstanding and Takeda Ventures is the sole holder of our Series A preferred stock. Pursuant to the certificate of designations which defines the rights, preferences and privileges of the Series A preferred stock, upon our dissolution and wind-up the Series A preferred stock is entitled to have set apart, or to be paid, out of our assets available for distribution to stockholders after provision for payment of all of our debts and liabilities in accordance with the Delaware General Corporation Law, before any distribution or payment is made with respect to any shares of junior securities, including shares of our common stock, an amount per share equal to the greater of (i) $35.00 per share, being the issuance price per share of Series A preferred stock, for an aggregate amount of $35.0 million, and (ii) such amount as would have been payable on the number of shares of common stock into which the shares of Series A preferred stock could have been converted immediately prior to such event. As of the date of the filing of this Annual Report on Form 10-K with the SEC, we do not have sufficient assets after provision for the payment of our debts and liabilities, to satisfy in full the amount required to be set apart for the Series A preferred stock. If we are unable to satisfy in full the amount required to be set apart for the Series A preferred stock, absent a waiver or other arrangement with the holder of Series A preferred stock, no amounts will be distributed to the holders of common stock.

To the extent our liabilities, other obligations and expenses or claims against us are higher than we currently anticipate or larger contingency reserves are established, the amount available for distribution to our stockholders will be diminished.

As of December 31, 2022, we had $25.5 million in cash and cash equivalents. We expect to establish a reserve in connection with the Plan of Dissolution, which will be used to pay all expenses, including operating expenses up until the filing of the certificate of dissolution, or the Certificate of Dissolution, and other known, non-contingent liabilities, and which also includes reasonable provision for expenses of liquidation and potential, contingent and unknown liabilities as required by Delaware law. The amount of cash ultimately distributed to our stockholders in the liquidating distributions depends on the amount of our liabilities, obligations and expenses and claims against us, and contingency reserves that we establish during the liquidation process. While we will attempt to estimate reasonable reserves for such liabilities, obligations, expenses and claims against us, those estimates may be inaccurate. Factors that could impact our estimates include the following:

If any of the foregoing occurs, the amount we distribute to our stockholders may be substantially less.

We may not be successful in selling our clinical assets and programs, which would decrease the amount of cash available to distribute to our stockholders.

We have recently been focusing our efforts on the sale of our clinical assets and programs and expect to continue pursuing the Plan of Dissolution in the near term. We may have significant expenses in connection with sale of our clinical assets and programs, which expenses will decrease the remaining cash available for use in our business and may diminish or delay any distributions to our stockholders in connection with the Plan of Dissolution.

We cannot assure you of the exact amount or timing of any liquidating distributions to our stockholders under the Plan of Dissolution.

The dissolution and liquidation process is subject to numerous uncertainties, and may not result in any remaining capital for liquidating distributions to the holder of our Series A preferred stock or any other common stockholders after satisfaction of the amount required to be distributed to the holder of our Series A preferred stock. If we are unable to satisfy in full the amount required to be set apart for the Series A preferred stock, absent a waiver or other arrangement with the holder of our Series A preferred stock, no amounts will be distributed to the holders of common stock. The precise amount and timing of any liquidating distribution to our stockholders will depend on and could be delayed by, among other things, sales of our non-cash assets, any unexpected claims from third parties, including governmental authorities, and unexpected or greater than expected expenses.

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Although our Board of Directors has not established a firm timetable for liquidating distributions to the holder of our Series A preferred stock or any common stockholders, assuming our stockholders approve the Plan of Dissolution, the Board of Directors intends, subject to contingencies inherent in winding down our business, to make such liquidating distributions, if any, as promptly as practicable as creditor claims and contingent liabilities are paid or settled. However, we are currently unable to predict the precise timing of any such liquidating distributions or whether any liquidating distributions will occur at all. The timing of any such liquidating distributions will depend on and could be delayed by, among other things, the timing of sales of our non-cash assets and claim settlements with creditors. Additionally, a creditor could seek an injunction against the making of such distributions to our stockholders on the ground that the amounts to be distributed were needed to provide for the payment of our liabilities and expenses. Any action of this type could delay or substantially diminish the amount available for such distribution to our stockholders.

We will continue to incur claims, liabilities and expenses that will reduce the amount available for distribution to stockholders.

Claims, liabilities and expenses from operations, such as operating costs, salaries, insurance, payroll and local taxes, legal, accounting and consulting fees and miscellaneous expenses, will continue to be incurred as we wind-up. In connection with the Plan of Dissolution, we will also dissolve our non-U.S. subsidiaries. These non-U.S. subsidiaries may be subject to differing laws, regulations and standards in each jurisdiction where such non-U.S. subsidiary operates, which include, but are not limited to, regulations and standards applicable to liabilities and expenses arising from salaries, insurance, payroll and local taxes, legal and miscellaneous expenses. These expenses will reduce the amount of assets available for ultimate distribution to the holder of our Series A preferred stock and common stockholders.

If we fail to create an adequate contingency reserve for payment of our expenses and liabilities, any stockholder receiving liquidating distributions could be held liable for payment to our creditors of their pro rata share of amounts owed to creditors in excess of the contingency reserve, up to the amount actually distributed to such stockholder in dissolution.

If the Plan of Dissolution is approved by our stockholders, we will file the Certificate of Dissolution with the Delaware Secretary of State dissolving Calithera Biosciences, Inc. Pursuant to the Delaware General Corporation Law, or the DGCL, we will continue to exist for three years after our dissolution or for such longer period as the Delaware Court of Chancery shall direct, for the purpose of prosecuting and defending suits against us and enabling us gradually to close our business, to dispose of our property, to discharge our liabilities (and those of our non-U.S. subsidiaries) and to distribute to our stockholders any remaining assets. Under the DGCL, in the event we fail to create an adequate contingency reserve for payment of our expenses and liabilities, each stockholder of record as of the date of the filing of the Certificate of Dissolution, which is referred to hereinafter as the final record date, could be held liable for payment to our creditors of such stockholder’s pro rata share of amounts owed to creditors in excess of the contingency reserve, up to the amount actually distributed to such stockholder in dissolution.

Although the liability of any stockholder is limited to the amounts previously received by such stockholder from us (and from any liquidating trust or trusts) pursuant to the Plan of Dissolution, this means that a stockholder could be required to return all liquidating distributions previously made to such stockholder and receive nothing from us under the Plan of Dissolution. Moreover, in the event a stockholder has paid taxes on amounts previously received, a repayment of all or a portion of such amount could result in a stockholder incurring a net tax cost if the stockholder’s repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable. While we will endeavor to make adequate reserves for all known, contingent, and unknown liabilities, there is no guarantee that the reserves established by us will be adequate to cover all such expenses and liabilities.

Our stock transfer books will be closed at the close of business on the date we file the Certificate of Dissolution with the Delaware Secretary of State, after which it will not be possible for stockholders to publicly trade our stock.

On the date we file the Certificate of Dissolution with the Delaware Secretary of State, we intend to close our stock transfer books and discontinue recording transfers of our common stock. Thereafter, certificates or book entries representing our common stock will not be assignable or transferable on our books except by will, intestate succession or operation of law. The proportionate interests of all of our stockholders will be fixed on the basis of their respective stock holdings at the close of business on the final record date, and, after such date, any distributions made by us will be made solely to the stockholders of record at the close of business on the final record date, except as may be necessary to reflect subsequent transfers recorded on our books as a result of any assignments by will, intestate succession or operation of law.

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Risks Related to Our Securities

We may be required to issue a significant number of additional shares of common stock for no additional consideration to the holder of our Series A preferred stock pursuant to certain price-based anti-dilution provisions.

We may be required to issue a significant number of shares of common stock for no additional consideration to the holder of our Series A preferred stock, subject to certain beneficial ownership limitations described in the certificate of designations defining the rights of the holders of the Series A preferred stock. The terms of the Series A preferred stock provide that such shares will automatically convert into common stock on the earlier of: (i) the 18-month anniversary of the date of issuance, or the Mandatory Pricing Date, into 857,843 shares of common stock, subject to adjustment into additional shares of common stock if the volume weighted-average price of our common stock for the thirty trading days prior to the Mandatory Pricing Date is lower than $40.80 per share, and (ii) a qualified financing that results in net proceeds to us of at least $40.0 million, excluding any conversion of the Series A preferred stock, subject to adjustment into additional shares of common stock if the weighted-average price per paid by investors in such qualified financing is lower than $40.80 per share. The holders of Series A preferred stock also have the option, at any time prior to the Mandatory Pricing Date or such qualified financing to convert the Series A preferred stock into shares of common stock, subject to adjustment into additional shares of common stock if the volume weighted-average sales price of certain shares of common stock are sold from the issuance date of the Series A preferred stock through the date of the written election at an effective price less than $40.80 per share. Stockholders will incur dilution of their percentage ownership interest in our common stock to the extent we issue additional shares of common stock to the holder of the Series A preferred stock.

We cannot take certain actions without the consent of the holder of Series A preferred stock.

Certain matters require the approval of the Series A preferred stock, voting as a separate class, including to:

The interests of Takeda Ventures, the sole holder of our Series A preferred stock, and those of the holders of common stock may be inconsistent, which may result in our inability to obtain the consent of the holders of Series A preferred stock to matters that may be in the best interests of the common stockholders.

Our common stock is not listed on any national exchange and the trading price of our common stock is volatile and purchasers of our common stock could incur substantial losses.

In light of our planned dissolution, on January 24, 2023, we received written notice from The Nasdaq Stock Market LLC, or Nasdaq, advising us that based upon Nasdaq’s review and pursuant to Listing Rule 5101, Nasdaq believed that we were a “public shell,” and that the continued listing of our securities was no longer warranted. As a result, the trading of our common stock was suspended as of the opening of business on February 2, 2023, and on March 3, 2023, Nasdaq filed a Form 25-NSE with the SEC, which removed our common stock from listing and registration on Nasdaq. Our common stock is not listed on any national exchange and is currently traded “over-the-counter” via broker-dealer networks. Our stock is thinly traded, and our stock price has fluctuated in the past and is likely to be volatile in the future. As a result of this volatility, investors may experience losses on their investment in our common stock. In addition, in the past, stockholders have initiated class action lawsuits against companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources.

We have filed a Form 15 with the SEC and do not intend to file any periodic reports subsequent to the filing of this Annual Report on Form 10-K, which will limit public information regarding our business and status of our dissolution and wind-up.

On March 14, 2023, we filed a Form 15 with the SEC to terminate our registration under section 12(g) of the Exchange Act. Deregistration under section 12(g) will become effective 90 days after the filing of the Form 15, therefore we do not expect to file any periodic reports with the SEC following the filing of this Annual Report on Form 10-K. Although we plan to file a proxy statement for a special meeting of stockholders to approve the Plan of Dissolution, investors will not have current public information regarding the status of our business or wind-up activities following such special meeting.

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Concentration of ownership of our capital stock may prevent new investors from influencing significant corporate decisions.

Our executive officers, directors and current beneficial owners of 5% or more of our common stock, in the aggregate, beneficially own a significant percentage of our outstanding common stock. These persons, acting together, will be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions. The interests of this group of stockholders may not coincide with the interests of other stockholders.

Takeda Ventures beneficially owns a significant percentage of our total outstanding capital stock, which is initially convertible into 857,843 shares of our common stock, subject to price-based anti-dilution adjustments that if triggered would result in the issuance of additional shares of common stock. In no event will Takeda be entitled to cast votes in excess of, as of any date, 19.99% of our outstanding common stock. Takeda may be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions. The interests of Takeda may not coincide with the interests of other stockholders.

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

There are provisions in our certificate of incorporation and bylaws that may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change in control was considered favorable by our stockholders.

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

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibit a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Any provision in our certificate of incorporation or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and our amended and restated bylaws designate the federal district courts of the United States of America as the exclusive forums for substantially all disputes between us and our stockholders, which will restrict our stockholders' ability to choose the judicial forum for disputes with us or our directors, officers, or employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.

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The provisions would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims.

To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid and several state trial courts have enforced such provisions and required that suits asserting Securities Act claims be filed in federal court, there is no guarantee that courts of appeal will affirm the enforceability of such provisions and a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions. If a court were to find either exclusive forum provision in our amended and restated certificate of incorporation and/or our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with litigating Securities Act claims in state court, or both state and federal court, which could seriously harm our business, financial condition, results of operations, and prospects.

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