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Khosla Ventures Acquisition (KVSA)

Filed: 22 Oct 21, 4:11pm
Table of Contents

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-257591

 

PROXY STATEMENT FOR

SPECIAL MEETING OF

KHOSLA VENTURES ACQUISITION CO.

(A DELAWARE CORPORATION)

PROSPECTUS FOR

236,455,190 SHARES OF CLASS A COMMON STOCK

OF

KHOSLA VENTURES ACQUISITION CO.

(WHICH WILL BE RENAMED “VALO HEALTH HOLDINGS, INC.”

IN CONNECTION WITH THE BUSINESS COMBINATION DESCRIBED HEREIN)

On June 9, 2021, we entered into an Agreement and Plan of Merger with Killington Merger Sub Inc., a Delaware corporation and a direct, wholly owned subsidiary of KVSA, Valo Health, LLC, a Delaware limited liability company (“Valo Holdco”) and Valo Health, Inc., a Delaware corporation (“Valo” and, together with Valo Holdco, the “Valo Parties”), as amended by that certain Amendment No. 1 to Agreement and Plan of Merger dated September 22, 2021 (as amended, the “Merger Agreement”). The transactions contemplated by the Merger Agreement are referred to herein as the “Transactions”.

As a result of and upon the closing of the Transactions, among other things, (i) all outstanding shares of capital stock of Valo, including restricted shares of Valo common stock, will be cancelled in exchange for the right to receive an aggregate of 220,691,502 shares of New Valo common stock (at a deemed value of $10.00 per share) and (ii) all outstanding options to purchase shares of Valo common stock will be exchanged for options to purchase an aggregate of 10,205,856 shares of New Valo common stock (“New Valo Options”) (at a deemed weighted average value of $4.22 per share assuming that all New Valo Options are net settled), representing a pre-transaction equity value of Valo of $2.25 billion (the “Aggregate Merger Consideration”). In connection with the Transactions, KVSA will change its name to “Valo Health Holdings, Inc.”

KVSA has also entered into subscription agreements, pursuant to which certain investors have agreed to purchase at the closing of the Transactions an aggregate of 20,086,250 shares of New Valo common stock, for a price of $10.00 per share for an aggregate purchase price of $200,862,500. In addition, in connection with the closing of KVSA’s initial public offering, KVSA entered into a forward purchase agreement pursuant to which Khosla Ventures SPAC Sponsor LLC agreed to purchase, upon the closing of the Transactions if necessary to meet the Minimum Cash Condition, up to an aggregate of 2,500,000 shares of New Valo common stock for an aggregate purchase price of $25,000,000, or $10.00 per share of New Valo common stock.

It is anticipated that, following the Business Combination, (1) KVSA’s public stockholders are expected to own approximately 11.5% of the outstanding New Valo common stock, (2) Valo Stockholders (without taking into account any public shares held by the Valo Stockholders prior to the consummation of the Business Combination and including the Valo PIPE Investors) are expected to own approximately 79.5% of the outstanding New Valo common stock, (3) the Sponsor and related parties (including the Sponsor Related PIPE Investors) are expected to collectively own approximately 5.6% of the outstanding New Valo common stock and (4) the Third Party PIPE Investors are expected to own approximately 3.5% of the outstanding New Valo common stock. These percentages assume (i) that no public stockholders exercise their redemption rights in connection with the Business Combination, (ii) (a) the vesting of all shares of New Valo common stock received in respect of the New Valo Restricted Shares, (b) the vesting and exercise of all New Valo Options for shares of New Valo common stock that are issued and outstanding as of the Closing, and (c) that New Valo issues shares of New Valo common stock as the Aggregate Merger Consideration pursuant to the Merger Agreement, which in the aggregate equals 230,897,358 shares of New Valo common stock (including 10,205,856 shares of New Valo common stock issuable upon exercise of New Valo Options), (iii) New Valo issues 20,086,250 shares of New Valo common stock to the PIPE Investors pursuant to the PIPE Investment, (iv) New Valo issues zero shares of New Valo common stock to Sponsor (together with any permitted transferees under the Forward Purchase Agreement) pursuant to the Forward Purchase Agreement, (v) the conversion of all outstanding KVSA Class B common stock shares into an aggregate of 6,088,229 shares of New Valo common stock, (vi) the conversion of all outstanding KVSA Class K common stock shares into an aggregate of 8,697,479 shares of New Valo common stock and (vii) the vesting of all shares of New Valo common stock issuable upon the conversion of the KVSA Class K common stock. If the actual facts are different from these assumptions, the percentage ownership retained by the Company’s existing stockholders in the combined company will be different.

KVSA’s Class A common stock is currently listed on the Nasdaq Stock Market (the “Nasdaq”) under the symbol “KVSA”. KVSA intends to apply for listing, effective at the time of the Closing, of New Valo common stock on the New York Stock Exchange under the symbol “VH”. This proxy statement/prospectus provides stockholders of KVSA with detailed information about the proposed business combination and other matters to be considered at the special meeting of KVSA. We encourage you to read this entire document, including the Annexes and other documents referred to herein, carefully and in their entirety. You should also carefully consider the risk factors described in the section entitled “Risk Factors” beginning on page 38 of this proxy statement/prospectus.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS, PASSED UPON THE MERITS OR FAIRNESS OF THE BUSINESS COMBINATION OR RELATED TRANSACTIONS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.

This proxy statement/prospectus is dated October 22, 2021,

and is first being mailed to KVSA’s stockholders on or about October 22, 2021.


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KHOSLA VENTURES ACQUISITION CO.

A Delaware Corporation

2128 Sand Hill Road

Menlo Park, California 94025

Dear Khosla Ventures Acquisition Co. Stockholders:

On behalf of the Khosla Ventures Acquisition Co. board of directors (the “KVSA Board”), we cordially invite you to a special meeting (the “special meeting”) of stockholders of Khosla Ventures Acquisition Co., a Delaware corporation (“KVSA”, “we” or “our” and, following the Closing, as described below, “New Valo”), to be held via live webcast at 10:00 a.m. Eastern Time, on November 16, 2021. The special meeting can be accessed by visiting www.virtualshareholdermeeting.com/KVSA2021SM, where you will be able to listen to the meeting live and vote during the meeting. Please note that you will only be able to access the special meeting by means of remote communication.

On June 9, 2021, we entered into an Agreement and Plan of Merger with Killington Merger Sub Inc., a Delaware corporation and a direct, wholly owned subsidiary of KVSA (“Merger Sub”), Valo Health, LLC, a Delaware limited liability company (“Valo Holdco”) and Valo Health, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Valo Holdco (“Valo” and, together with Valo Holdco, the “Valo Parties”), as amended by that certain Amendment No. 1 to Agreement and Plan of Merger dated September 22, 2021 (as amended, the “Merger Agreement”). The transactions contemplated by the Merger Agreement are referred to herein as the “Transactions”. A copy of the Merger Agreement is attached to the accompanying proxy statement as Annex A.

As a result of and upon the closing of the Transactions, among other things, (i) all outstanding shares of capital stock of Valo, including restricted shares of Valo common stock, will be cancelled in exchange for the right to receive an aggregate of 220,691,502 shares of New Valo common stock (at a deemed value of $10.00 per share) and (ii) all outstanding options to purchase shares of Valo common stock will be exchanged for options to purchase an aggregate of 10,205,856 shares of New Valo common stock (“New Valo Options”) (at a deemed weighted average value of $4.22 per share assuming that all New Valo Options are net settled), representing a pre-transaction equity value of Valo of $2.25 billion (the “Aggregate Merger Consideration”). In connection with the Transactions, KVSA will change its name to “Valo Health Holdings, Inc.”

KVSA has also entered into subscription agreements, pursuant to which certain investors have agreed to purchase at the closing of the Transactions an aggregate of 20,086,250 shares of New Valo common stock, for a price of $10.00 per share for an aggregate purchase price of $200,862,500. In addition, in connection with the closing of KVSA’s initial public offering, KVSA entered into a forward purchase agreement pursuant to which Khosla Ventures SPAC Sponsor LLC agreed to purchase, upon the closing of the Transactions if necessary to meet the Minimum Cash Condition, up to an aggregate of 2,500,000 shares of New Valo common stock for an aggregate purchase price of $25,000,000, or $10.00 per share of New Valo common stock (the “Forward Purchase Agreement”).

At the special meeting, KVSA stockholders will be asked to consider and vote upon:

 

  

Proposal No. 1 — The BCA Proposal — to consider and vote upon a proposal to approve the business combination described in this proxy statement/prospectus, including (a) adopting the Merger Agreement, a copy of which is attached to the accompanying proxy statement/prospectus as Annex A, which, among other things, provides for the merger of Merger Sub with and into Valo, with Valo surviving the merger as a wholly owned subsidiary of KVSA (the “Business Combination” or the “Merger”) and (b) approving the transactions contemplated by the Merger Agreement and related agreements described in this proxy statement/prospectus (the “BCA Proposal”);

Proposal No. 2 — The Charter Proposal — to consider and vote upon a proposal to approve and adopt the third amended and restated certificate of incorporation of KVSA (the “Proposed Charter”) in the form attached hereto as Annex C (the “Charter Proposal”);

 

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Proposal No. 3— The Advisory Charter Amendments Proposals — to consider and vote upon, on a non-binding advisory basis, certain governance provisions in the Proposed Charter, presented separately in accordance with the United States Securities and Exchange Commission (“SEC”) requirements (the “Advisory Charter Amendments Proposals”);

Proposal No. 4 — The Stock Issuance Proposal — to consider and vote upon a proposal to approve, for purposes of complying with the applicable provisions of Nasdaq Stock Exchange Listing Rule 5635, the issuance of (a) an aggregate of 20,086,250 shares of New Valo common stock to the PIPE Investors, including the Sponsor Related PIPE Investor and the Valo PIPE Investors, pursuant to the PIPE Investment, (b) 230,897,358 shares of New Valo common stock (including those shares that underlie equity awards) in connection with the Business Combination and (c) up to an aggregate of 2,500,000 shares of New Valo common stock to Khosla Ventures SPAC Sponsor LLC (or its assigns) under the Forward Purchase Agreement (the “Stock Issuance Proposal”);

Proposal No. 5 — The Incentive Award Plan Proposal — to consider and vote upon a proposal to approve the Valo Health Holdings, Inc. 2021 Stock Option and Incentive Plan, a copy of which is attached to the accompanying proxy statement/prospectus as Annex L (the “Incentive Award Plan Proposal”);

Proposal No. 6 — The ESPP Proposal — to consider and vote upon a proposal to approve the Valo Health Holdings, Inc. 2021 Employee Stock Purchase Plan, a copy of which is attached to the accompanying proxy statement/prospectus as Annex M (the “ESPP Proposal”); and

Proposal No. 7 — The Adjournment Proposal — to consider and vote upon a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of one or more proposals at the special meeting (the “Adjournment Proposal”).

Each of the BCA Proposal, the Charter Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal and the ESPP Proposal (each a “Condition Precedent Proposal” and collectively, the “Condition Precedent Proposals”) is cross-conditioned on the approval of each other. Each of the Advisory Charter Amendments Proposals and the Adjournment Proposal is not conditioned upon the approval of any other proposal set forth in this proxy statement/prospectus.

Each of these proposals is more fully described in the attached proxy statement/prospectus, which we encourage you to read carefully and in its entirety before voting. Only holders of record of KVSA common stock at the close of business on October 13, 2021 are entitled to notice of the special meeting and to vote and have their votes counted at the special meeting and any adjournments or postponements thereof.

After careful consideration, the KVSA Board has determined that the BCA Proposal, the Charter Proposal, the Advisory Charter Amendments Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal, the ESPP Proposal and the Adjournment Proposal, if presented, are advisable, fair to and in the best interests of KVSA and its stockholders and unanimously recommends that you vote or give instruction to vote “FOR” the BCA Proposal, “FOR” the Charter Proposal, “FOR” the Advisory Charter Amendments Proposal, “FOR” the Stock Issuance Proposal, “FOR” the Incentive Award Plan Proposal, “FOR” the ESPP Proposal and “FOR” the Adjournment Proposal, if presented. When you consider the KVSA Board’s recommendation of these proposals, you should keep in mind that our directors and officers have interests in the business combination that are different from, or in addition to, the interests of KVSA stockholders generally. Please see the section entitled “BCA Proposal—Interests of KVSA’s Directors and Executive Officers in the Business Combination” for additional information. The KVSA Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Transactions and in recommending to the KVSA stockholders that they vote in favor of the proposals presented at the special meeting.

Consummation of the Transactions is conditioned on the approval of each of the Condition Precedent Proposals. If any of the Condition Precedent Proposals are not approved, we may not consummate the Transactions.

 

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In connection with the Merger Agreement, Khosla Ventures SPAC Sponsor LLC, a Delaware limited liability company and a stockholder of KVSA (the “Sponsor”), and each member, director and officer of KVSA and Sponsor, as applicable, have agreed to, among other things, vote their shares of KVSA common stock in favor of the BCA Proposal and the other proposals included in the accompanying proxy statement/prospectus, and to waive their redemption rights in connection with the consummation of the Business Combination with respect to any shares of KVSA common stock held by them, in each case, subject to the terms and conditions contemplated by the Sponsor Support Agreement, dated June 9, 2021, a copy of which is attached to the accompanying proxy statement/prospectus as Annex E (the “Sponsor Support Agreement”).

All KVSA stockholders are cordially invited to attend the special meeting and we are providing the accompanying proxy statement/prospectus and proxy card in connection with the solicitation of proxies to be voted at the special meeting (or any adjournment or postponement thereof). To ensure your representation at the special meeting, however, you are urged to complete, sign, date and return the enclosed proxy card as soon as possible. If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares or, if you wish to attend the special meeting and vote, obtain a proxy from your broker or bank.

KVSA’s Class A common stock is listed on the Nasdaq Stock Market (“Nasdaq”) under the symbol “KVSA”.

Pursuant to KVSA’s current certificate of incorporation, KVSA’s public stockholders may demand that KVSA redeem their public shares for cash if the business combination is consummated. Public stockholders will be entitled to receive cash for their shares of KVSA Class A common stock without voting and, if they do vote, irrespective of whether they vote for or against the BCA proposal. If the business combination is not completed, these shares of KVSA’s Class A common stock will not be redeemed. If a public stockholder properly demands redemption, KVSA will redeem each share of KVSA’s Class A common stock for a pro rata portion of the trust account holding the proceeds from KVSA’s initial public offering, calculated as of two business days prior to the Closing.

YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING OR NOT, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENVELOPE PROVIDED. IF YOUR SHARES ARE HELD IN “STREET NAME” OR ARE IN A MARGIN OR SIMILAR ACCOUNT, YOU SHOULD CONTACT YOUR BROKER TO ENSURE THAT VOTES RELATED TO THE SHARES YOU BENEFICIALLY OWN ARE PROPERLY COUNTED.

This proxy statement/prospectus provides stockholders of KVSA with detailed information about the proposed Merger and other matters to be considered at the special meeting of stockholders and special meeting of KVSA. We encourage you to read this entire document, including the Annexes and other documents referred to herein, carefully and in their entirety. You should also carefully consider the risk factors described in “Risk Factors” beginning on page 38 of this proxy statement/prospectus.

On behalf of KVSA’s board of directors, I would like to thank you for your support and look forward to the successful completion of the Business Combination.

Sincerely,

LOGO

Samir Kaul

Chairman and Chief Executive Officer

 

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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS, PASSED UPON THE MERITS OR FAIRNESS OF THE BUSINESS COMBINATION OR RELATED TRANSACTIONS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.

The accompanying proxy statement/prospectus is dated October 22, 2021 and is first being mailed to stockholders on or about October 22, 2021.

 

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KHOSLA VENTURES ACQUISITION CO.

A Delaware Corporation

2128 Sand Hill Road

Menlo Park, California 94025

NOTICE OF SPECIAL MEETING

TO BE HELD ON NOVEMBER 16, 2021

TO THE STOCKHOLDERS OF KHOSLA VENTURES ACQUISITION CO.:

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Khosla Ventures Acquisition Co., a Delaware corporation (“KVSA”, “we” or “our”), will be held via live webcast at 10:00 a.m. Eastern Time, on November 16, 2021. The special meeting can be accessed by visiting www.virtualshareholdermeeting.com/KVSA2021SM, where you will be able to listen to the meeting live and vote during the meeting. Please note that you will only be able to access the special meeting by means of remote communication.

On behalf of KVSA’s board of directors (the “KVSA Board”), you are cordially invited to attend the special meeting, to conduct the following business items:

 

  

Proposal No. 1 — The BCA Proposal — to consider and vote upon a proposal to approve the business combination described in this proxy statement/prospectus, including (a) adopting the Agreement and Plan of Merger, dated June 9, 2021, as amended by that certain Amendment No. 1 to Agreement and Plan of Merger dated September 22, 2021 (as amended, the “Merger Agreement”), by and among KVSA, Killington Merger Sub Inc., a newly formed Delaware corporation and a direct, wholly owned subsidiary of KVSA (“Merger Sub”), Valo Health, LLC, a Delaware limited liability company (“Valo Holdco”) and Valo Health, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Valo Holdco (“Valo” and, together with Valo Holdco, the “Valo Parties”), a copy of which is attached to the accompanying proxy statement/prospectus as Annex A, which, among other things, provides for the merger of Merger Sub with and into Valo, with Valo surviving the merger as a wholly owned subsidiary of KVSA (the “Business Combination” or the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Transactions”) and (b) approving the transactions contemplated by the Merger Agreement and related agreements described in this proxy statement/prospectus (the “BCA Proposal”);

Proposal No. 2 — The Charter Proposal — to consider and vote upon a proposal to approve and adopt the third amended and restated certificate of incorporation of KVSA (the “Proposed Charter”) in the form attached hereto as Annex C (the “Charter Proposal”);

Proposal No. 3— The Advisory Charter Amendments Proposals — to consider and vote upon, on a non-binding advisory basis, certain governance provisions in the Proposed Charter, presented separately in accordance with the United States Securities and Exchange Commission (“SEC”) requirements (the “Advisory Charter Amendments Proposals”);

Proposal No. 4 — The Stock Issuance Proposal — to consider and vote upon a proposal to approve, for purposes of complying with the applicable provisions of Nasdaq Listing Rule 5635, the issuance of (a) an aggregate of 20,086,250 shares of New Valo common stock to the PIPE Investors, including the Sponsor Related PIPE Investor and the Valo PIPE Investors, pursuant to the PIPE Investment, (b) 230,897,358 shares of New Valo common stock (including those shares that underlie equity awards) in connection with the Business Combination and (c) up to an aggregate of 2,500,000 shares of New Valo common stock to Khosla Ventures SPAC Sponsor LLC (the “Sponsor”) or its assigns under the forward purchase agreement entered into by KVSA and the Sponsor on March 3, 2021 (the “Stock Issuance Proposal”);

Proposal No. 5 — The Incentive Award Plan Proposal — to consider and vote upon a proposal to approve the Valo Health Holdings, Inc. 2021 Stock Option and Incentive Plan, a copy of which is attached to the accompanying proxy statement/prospectus as Annex L (the “Incentive Award Plan Proposal”);

 

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Proposal No. 6 — The ESPP Proposal — to consider and vote upon a proposal to approve the Valo Health Holdings, Inc. 2021 Employee Stock Purchase Plan, a copy of which is attached to the accompanying proxy statement/prospectus as Annex M (the “ESPP Proposal”); and

Proposal No. 7 — The Adjournment Proposal — to consider and vote upon a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of one or more proposals at the special meeting (the “Adjournment Proposal”).

Each of the BCA Proposal, the Charter Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal and the ESPP Proposal (each a “Condition Precedent Proposal” and collectively, the “Condition Precedent Proposals”) is cross-conditioned on the approval of each other. Each of the Advisory Charter Amendment Proposals and the Adjournment Proposal is not conditioned upon the approval of any other proposal set forth in this proxy statement/prospectus.

Each of these proposals is more fully described in the accompanying proxy statement/prospectus, which we encourage you to read carefully and in its entirety before voting. Only holders of record of KVSA common stock at the close of business on October 13, 2021 are entitled to notice of the special meeting and to vote and have their votes counted at the special meeting and any adjournments or postponements thereof.

After careful consideration, the KVSA Board has determined that the BCA Proposal, the Charter Proposal, the Advisory Charter Amendments Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal, the ESPP Proposal and the Adjournment Proposal are fair to and in the best interests of KVSA and its stockholders and unanimously recommends that you vote or give instruction to vote “FOR” the BCA Proposal, “FOR” the Charter Proposal, “FOR” the Advisory Charter Amendment Proposals, “FOR” the Incentive Award Plan Proposal, “FOR” the ESPP Proposal, “FOR” the Stock Issuance Proposal and “FOR” the Adjournment Proposal, if presented. When you consider the KVSA Board’s recommendation of these proposals, you should keep in mind that our directors and officers have interests in the Business Combination that are different from, or in addition to, the interests of KVSA stockholders generally. Please see the section entitled “BCA Proposal — Interests of KVSA’s Directors and Executive Officers in the Business Combination” for additional information. The KVSA Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Transactions and in recommending to the KVSA stockholders that they vote in favor of the proposals presented at the special meeting.

In connection with the Merger Agreement, Khosla Ventures SPAC Sponsor LLC, a Delaware limited liability company and a stockholder of KVSA (the “Sponsor”), and each member, director and officer of KVSA and Sponsor, as applicable, have agreed to, among other things, vote their shares of KVSA common stock in favor of the BCA Proposal and the other proposals included in the accompanying proxy statement/prospectus, and to waive their redemption rights in connection with the consummation of the Business Combination with respect to any shares of KVSA common stock held by them, in each case, subject to the terms and conditions contemplated by the Sponsor Support Agreement, dated June 9, 2021, a copy of which is attached to the accompanying proxy statement/prospectus as Annex E (the “Sponsor Support Agreement”).

Consummation of the Transactions is conditioned on the approval of each of the Condition Precedent Proposals. If any of the Condition Precedent Proposals are not approved, we may not consummate the Transactions.

To raise additional proceeds to fund the Transactions, KVSA entered into subscription agreements (containing commitments to funding that are subject only to conditions that are generally aligned with the conditions set forth in the Merger Agreement), pursuant to which certain investors have agreed to purchase an aggregate of 20,086,250 shares of New Valo common stock, which we refer to as the “PIPE Investment,” for a price of $10.00 per share for an aggregate commitment of $200,862,500. In addition, in connection with the closing of KVSA’s initial public offering, KVSA entered into a forward purchase agreement pursuant to which the Sponsor (and its

 

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transfers and assigns, if any), agreed to purchase, upon the closing of KVSA’s initial business combination if necessary to meet the Minimum Cash Condition, an aggregate of up to 2,500,000 shares of New Valo common stock for an aggregate purchase price of $25,000,000, or $10.00 per share of New Valo common stock.

Pursuant to KVSA’s current certificate of incorporation, its public stockholders may demand that KVSA redeem their shares of KVSA Class A common stock for cash if the Business Combination is consummated. Public stockholders will be entitled to receive cash for their shares of KVSA Class A common stock without voting and, if they do vote, irrespective of whether they vote for or against the BCA Proposal. If the Business Combination is not completed, these shares of KVSA Class A common stock will not be redeemed. If a public stockholder properly demands redemption, KVSA will redeem each share of KVSA Class A common stock for a pro rata portion of the trust account holding the proceeds from KVSA’s initial public offering, calculated as of two business days prior to the Closing.

All KVSA stockholders are cordially invited to attend the special meeting and we are providing the accompanying proxy statement/prospectus and proxy card in connection with the solicitation of proxies to be voted at the special meeting (or any adjournment or postponement thereof). To ensure your representation at the special meeting, however, you are urged to complete, sign, date and return the enclosed proxy card as soon as possible. If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares or, if you wish to attend the special meeting and vote, obtain a proxy from your broker or bank.

Your vote is important regardless of the number of shares you own. Whether you plan to attend the special meeting or not, please sign, date and return the enclosed proxy card as soon as possible in the envelope provided. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted.

Thank you for your participation. We look forward to your continued support.

 

By Order of the Board of Directors
LOGO
Samir Kaul
Chairman

October 22, 2021

IF YOU RETURN YOUR PROXY CARD WITHOUT AN INDICATION OF HOW YOU WISH TO VOTE, YOUR SHARES WILL BE VOTED IN FAVOR OF EACH OF THE PROPOSALS.

TO EXERCISE YOUR REDEMPTION RIGHTS, YOU MUST DEMAND IN WRITING THAT YOUR PUBLIC SHARES ARE REDEEMED FOR A PRO RATA PORTION OF THE FUNDS HELD IN THE TRUST ACCOUNT AND DELIVER YOUR SHARES TO KVSA’S TRANSFER AGENT AT LEAST TWO BUSINESS DAYS PRIOR TO THE VOTE AT THE SPECIAL MEETING. YOU MAY DELIVER YOUR SHARES BY EITHER DELIVERING YOUR SHARE CERTIFICATE TO THE TRANSFER AGENT OR BY DELIVERING YOUR SHARES ELECTRONICALLY USING THE DEPOSITORY TRUST COMPANY’S DWAC (DEPOSIT WITHDRAWAL AT CUSTODIAN) SYSTEM. IN ADDITION, YOU MUST IDENTIFY YOURSELF IN WRITING AS A BENEFICIAL HOLDER OF THE SHARES YOU ARE SEEKING TO REDEEM, AND PROVIDE YOUR LEGAL NAME, PHONE NUMBER AND ADDRESS TO THE TRANSFER AGENT. IF THE BUSINESS COMBINATION IS NOT CONSUMMATED, THEN THESE SHARES WILL BE RETURNED TO YOU OR YOUR ACCOUNT. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK OR BROKER TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS.

 

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TABLE OF CONTENTS

 

   Page 

REFERENCES TO ADDITIONAL INFORMATION

   iii 

TRADEMARKS

   iv 

SELECTED DEFINITIONS

   v 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

   ix 

QUESTIONS AND ANSWERS FOR STOCKHOLDERS OF KVSA

   xi 

SUMMARY OF THE PROXY STATEMENT/PROSPECTUS

   1 

SELECTED HISTORICAL FINANCIAL INFORMATION OF KVSA

   31 

SELECTED HISTORICAL FINANCIAL AND OPERATING DATA OF VALO HOLDCO

   32 

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

   34 

COMPARATIVE PER SHARE DATA

   36 

MARKET PRICE AND DIVIDEND INFORMATION

   37 

RISK FACTORS

   38 

SPECIAL MEETING OF KVSA

   113 

BCA PROPOSAL

   119 

CHARTER PROPOSAL

   162 

ADVISORY CHARTER AMENDMENT PROPOSALS

   165 

STOCK ISSUANCE PROPOSAL

   168 

INCENTIVE AWARD PLAN PROPOSAL

   170 

ESPP PROPOSAL

   175 

ADJOURNMENT PROPOSAL

   179 

U.S. FEDERAL INCOME TAX CONSIDERATIONS

   180 

PRE-CLOSING RESTRUCTURING

   186 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

   187 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

   195 

INFORMATION ABOUT KVSA

   200 

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

   207 

INFORMATION ABOUT VALO

   212 

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

   279 

MANAGEMENT OF NEW VALO FOLLOWING THE BUSINESS COMBINATION

   294 

EXECUTIVE COMPENSATION

   302 

DIRECTOR COMPENSATION

   309 

 

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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information that is not included in or delivered with this proxy statement/prospectus. This information is available for you to review through the SEC’s website at www.sec.gov.

You may request copies of this proxy statement/prospectus and any of the documents incorporated by reference into this proxy statement/prospectus or other publicly available information concerning KVSA, without charge, by written request to Secretary at Khosla Ventures Acquisition Co., 2128 Sand Hill Road, Menlo Park, California 94025, or by telephone request at (650) 376-8500; or D.F. King & Co., Inc., KVSA’s proxy solicitor, by calling (800) 487-4870 or banks and brokers can call collect at (212) 269-5550, or by emailing KVSA@dfking.com, or from the SEC through the SEC website at the address provided above.

In order for KVSA’s stockholders to receive timely delivery of the documents in advance of the special meeting of KVSA to be held on November 16, 2021, you must request the information no later than November 9, 2021, five business days prior to the date of the special meeting.

 

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TRADEMARKS

This document contains references to trademarks and service marks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this proxy statement/prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names. KVSA does not intend its use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of it by, any other companies.

 

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SELECTED DEFINITIONS

Unless otherwise stated in this proxy statement/prospectus or the context otherwise requires, references to:

 

  

“2021 Plan” are to the Valo Health Holdings, Inc. 2021 Stock Option and Incentive Plan attached to this proxy statement/prospectus as Annex L;

 

  

“Available Cash” are to the amount as calculated by adding the Trust Amount, the PIPE Investment Amount and the Forward Purchase Amount;

 

  

“Business Combination” or “business combination” means the Merger and the other transactions contemplated by the Merger Agreement and related agreements;

 

  

“Closing” are to the closing of the Business Combination;

 

  

“Company,” “we,” “us” and “our” are to KVSA prior to the Business Combination and to New Valo after the Business Combination, including after its change of name to Valo Health Holdings, Inc.;

 

  

“Condition Precedent Approvals” are to approval at the special meeting of the Condition Precedent Proposals;

 

  

“Condition Precedent Proposals” are to the BCA Proposal, the Charter Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal and the ESPP Proposal, collectively;

 

  

“Continental” are to Continental Stock Transfer & Trust Company, as transfer agent and trustee, as applicable;

 

  

“DGCL” are to the General Corporation Law of the State of Delaware;

 

  

“ESPP” are to the Valo Health Holdings, Inc. 2021 Employee Stock Purchase Plan attached to this proxy statement/prospectus as Annex M;

 

  

“Exchange Act” are to the Securities Exchange Act of 1934, as amended;

 

  

“Exchange Ratio” are to the quotient obtained by dividing (i) 225,000,000 by (ii) the aggregate fully—diluted number of shares of Valo common stock issued and outstanding immediately prior to the Merger (with respect to options to purchase Valo common stock, calculated on a treasury stock method basis (at a deemed value of $10.00 per share of New Valo common stock));

 

  

“Existing Bylaws” are to KVSA’s Bylaws;

 

  

“Existing Charter” are to KVSA’s Second Amended and Restated Certificate of Incorporation, as amended from time to time;

 

  

“Existing Organizational Documents” are to the Existing Bylaws and the Existing Charter;

 

  

“Forward Purchase Agreement” are to the Forward Purchase Agreement entered into as of March 3, 2021, between KVSA and Sponsor, as further amended, restated, modified or supplemented from time to time.

 

  

“Forward Purchase Amount” are to the aggregate amount of cash that has been funded to and remains with KVSA pursuant to the Forward Purchase Agreement;

 

  

“forward-purchase shares” are to shares of KVSA Class A common stock to be issued to the Khosla Entities pursuant to the Forward Purchase Agreement;

 

  

“founder shares” are to the KVSA Class B common stock and KVSA Class K common stock purchased by the Sponsor in a private placement prior to the initial public offering, and the KVSA Class A common stock that will be issued upon the conversion thereof;

 

  

“GAAP” are to accounting principles generally accepted in the United States of America;

 

  

“HSR Act” are to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;

 

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“initial public offering” are to KVSA’s initial public offering that was consummated on March 8, 2021;

 

  

“IPO registration statement” are to the Registration Statement on Form S-1 (333-253096) filed by KVSA in connection with its initial public offering, which became effective on March 3, 2021;

 

  

“IRS” are to the U.S. Internal Revenue Service;

 

  

“JOBS Act” are to the Jumpstart Our Business Startups Act of 2012;

 

  

“Khosla Entities” are to the Sponsor and any successors or assigns of the Sponsor, if any, under the Forward Purchase Agreement;

 

  

“KVSA” are to Khosla Ventures Acquisition Co. prior to the Business Combination;

 

  

“KVSA Board” are to the board of directors of KVSA;

 

  

“KVSA Class A common stock” are to KVSA’s Class A common stock, par value $0.0001 per share;

 

  

“KVSA Class B common stock” are to KVSA’s Class B common stock, par value $0.0001 per share;

 

  

“KVSA Class K common stock” are to KVSA’s Class K common stock, par value $0.0001 per share;

 

  

“KVSA common stock” are to (i) the shares of KVSA Class A common stock, KVSA Class B common stock and KVSA Class K common stock prior to the Closing and (ii) shares of KVSA Class A common stock, par value $0.0001 per share, after the Closing (also referred to herein as “New Valo common stock”).

 

  

“Liquidation Date” are to March 9, 2023 (or June 9, 2023 if KVSA has executed a letter of intent, agreement in principle or definitive agreement for an initial business combination within 24 months from the closing of the initial public offering but has not completed the initial business combination within such 24-month period or, if such date is extended at a duly called special meeting, such later date);

 

  

“Merger” are to the merger of Merger Sub with and into Valo, with Valo surviving the merger as a wholly owned subsidiary of New Valo;

 

  

“Minimum Cash Condition” are to the Available Cash being equal to or greater than $450.0 million;

 

  

“Nasdaq” are to the Nasdaq Global Select Market or the Nasdaq Capital Market, as applicable;

 

  

“New Valo” means KVSA after the Business Combination, which is expected to be renamed “Valo Health Holdings, Inc.” upon the consummation of the Business Combination.

 

  

“New Valo Options” are to options to purchase shares of New Valo common stock;

 

  

“New Valo Restricted Stock Award” are to awards of restricted shares of New Valo common stock;

 

  

“Person” are to any individual, firm, corporation, partnership, limited liability company, incorporated or unincorporated association, joint venture, joint stock company, governmental authority or instrumentality or other entity of any kind;

 

  

“PIPE Investment” are to the purchase of shares of New Valo common stock pursuant to the Subscription Agreements;

 

  

“PIPE Investment Amount” are to the aggregate gross purchase price received by KVSA prior to or substantially concurrently with Closing for the shares in the PIPE Investment;

 

  

“PIPE Investors” are to those certain investors participating in the PIPE Investment pursuant to the Subscription Agreements;

 

  

“private placement shares” are to the KVSA private placement shares outstanding as of the date of this proxy statement/consent solicitation statement/prospectus, other than the founder shares;

 

  

“pro forma” are to giving pro forma effect to the Business Combination;

 

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“Proposed Bylaws” are to the amended and restated bylaws of the Company after the Business Combination;

 

  

“Proposed Charter” are to the third amended and restated certificate of incorporation of the Company after the Business Combination attached to this proxy statement/prospectus as Annex C;

 

  

“Proposed Organizational Documents” are to the Proposed Bylaws and the Proposed Charter;

 

  

“public stockholders” are to holders of public shares, whether acquired in KVSA’s initial public offering or acquired in the secondary market;

 

  

“public shares” are to the shares of KVSA Class A common stock that were offered and sold by KVSA in its initial public offering and registered pursuant to the IPO registration statement;

 

  

“redemption” are to each redemption of public shares for cash pursuant to the Existing Organizational Documents;

 

  

“Registration Rights Agreement” are to the Registration Rights Agreement to be entered into at Closing, by and among New Valo, the Sponsor, certain former stockholders of Valo and certain stockholders of KVSA;

 

  

“Sarbanes Oxley Act” are to the Sarbanes-Oxley Act of 2002;

 

  

“SEC” are to the United States Securities and Exchange Commission;

 

  

“Securities Act” are to the Securities Act of 1933, as amended;

 

  

“Sponsor” are to Khosla Ventures SPAC Sponsor LLC, a Delaware limited liability company;

 

  

“Sponsor Earnout Shares” are to the 8,697,479 shares of New Valo common stock to be issued upon conversion of the KVSA Class K common stock held by Sponsor;

 

  

“Sponsor Related PIPE Investor” are to a PIPE Investor that is an affiliate of the Sponsor (together with their permitted transferees);

 

  

“Sponsor Support Agreement” are to that certain Sponsor Support Agreement, dated June 9, 2021, by and among the the Valo Parties, Sponsor, KVSA, each member, officer and director of KVSA and Sponsor, as applicable, as amended and modified from time to time;

 

  

“Sponsor Vesting Agreement” are to that certain Sponsor Vesting Agreement, dated June 9, 2021, by and among, Sponsor, KVSA and the Valo Parties;

 

  

“Stock Exchange” are to (i) Nasdaq prior to such time as the KVSA Class A common stock is listed on the New York Stock Exchange (such time the “Listing Change”) or (ii) the New York Stock Exchange after the Listing Change, as applicable;

 

  

“Subscription Agreements” are to the subscription agreements pursuant to which the PIPE Investment will be consummated;

 

  

“Third Party PIPE Investment” are to any PIPE Investment made by a Third Party PIPE Investor;

 

  

“Third Party PIPE Investment Amount” are to the aggregate gross purchase price received by KVSA prior to or substantially concurrently with Closing for the shares in the Third Party PIPE Investment;

 

  

“Third Party PIPE Investor” are to any PIPE Investor who is not (i) a Sponsor Related PIPE Investor, (ii) the Sponsor, or (iii) a Valo PIPE Investor;

 

  

“trust account” are to the trust account established at the consummation of KVSA’s initial public offering at JP Morgan Chase Bank, N.A. and maintained by Continental Stock Transfer & Trust Company, acting as trustee;

 

  

“Trust Agreement” are to the Investment Management Trust Agreement, dated March 3, 2021, by and between KVSA and Continental Stock Transfer & Trust Company, as trustee;

 

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“Trust Amount” are to the amount of cash available in the trust account as of the Closing, after deducting the amount required to satisfy KVSA’s obligations to its stockholders (if any) that exercise their redemption rights;

 

  

“Valo” are to Valo Health, Inc., a Delaware corporation, prior to the Business Combination;

 

  

“Valo Awards” are to Valo Options and Valo Restricted Stock Awards;

 

  

“Valo common stock” are to shares of Valo common stock, par value $0.001 per share, prior to the consummation of the Business Combination;

 

  

“Valo Holdco” are to Valo Health, LLC, a Delaware limited liability company;

 

  

“Valo Options” are to options to purchase shares of Valo common stock;

 

  

“Valo Parties” are to Valo and Valo Holdco (each, a “Valo Party”);

 

  

“Valo PIPE Investor” are to a PIPE Investor that is an equity holder of Valo Holdco or holders securities exercisable for or convertible into Valo Holdco equity as of the date of the Merger Agreement and is not a Sponsor Related PIPE Investor;

 

  

“Valo Restricted Stock Awards” are to awards of restricted shares of Valo common stock; and

 

  

“Valo Stockholders” are to the stockholders of Valo and holders of Valo Options prior to the Business Combination.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus contains statements that are forward-looking and as such are not historical facts. This includes, without limitation, statements regarding the financial position, business strategy and the plans and objectives of management for future operations, including as they relate to the potential Business Combination, of KVSA. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this proxy statement/prospectus, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “strive,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. When the KVSA discusses its strategies or plans, including as they relate to the potential Business Combination, it is making projections, forecasts or forward-looking statements. Such statements are based on the beliefs of, as well as assumptions made by and information currently available to, the KVSA’s management.

Forward-looking statements in this proxy statement/prospectus and in any document incorporated by reference in this proxy statement/prospectus may include, for example, statements about:

 

  

KVSA’s ability to complete the Business Combination or, if KVSA does not consummate such Business Combination, any other initial business combination;

 

  

satisfaction or waiver (if applicable) of the conditions to the Merger, including, among other things:

 

  

(i) approval of the Business Combination and related agreements and transactions by the respective stockholders of KVSA and Valo, (ii) effectiveness of the registration statement of which this proxy statement/prospectus forms a part of, (iii) the receipt of certain regulatory approvals (including, but not limited to, approval for listing on Nasdaq or the New York Stock Exchange of the shares of New Valo common stock to be issued in connection with the Merger and the expiration or early termination of the waiting period or periods under the HSR Act), (iv) that KVSA have at least $5,000,001 of net tangible assets upon Closing, (v) the absence of any injunctions and (vi) solely as it relates to Valo’s obligation to consummate the Merger, the Minimum Cash Condition;

 

  

the occurrence of any other event, change or other circumstances that could give rise to the termination of the Merger Agreement;

 

  

the market opportunity of New Valo;

 

  

the ability to obtain or maintain the listing of New Valo common stock on Nasdaq or the New York Stock Exchange following the Business Combination;

 

  

our public securities’ potential liquidity and trading;

 

  

our ability to raise financing in the future;

 

  

our success in retaining or recruiting, or changes required in, our officers, key employees or directors following the completion of the Business Combination;

 

  

KVSA officers and directors allocating their time to other businesses and potentially having conflicts of interest with KVSA’s business or in approving the Business Combination;

 

  

the use of proceeds not held in the trust account or available to us from interest income on the trust account balance;

 

  

the impact of the regulatory environment and complexities with compliance related to such environment; and

 

  

factors relating to the business, operations and financial performance of Valo and its subsidiaries, including:

 

  

the ability of Valo to maintain an effective system of internal controls over financial reporting;

 

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the ability of Valo to grow market share in its existing markets or any new markets it may enter;

 

  

the ability of Valo to respond to general economic conditions;

 

  

the ability of Valo to manage its growth effectively;

 

  

the ability of Valo to achieve and maintain profitability in the future;

 

  

the ability of Valo to access sources of capital to finance operations and growth;

 

  

the success of strategic relationships with third parties;

 

  

the impact of the COVID-19 pandemic; and

 

  

other factors detailed under the section entitled “Risk Factors.”

The forward-looking statements contained in this proxy statement/prospectus and in any document incorporated by reference in this proxy statement/prospectus are based on current expectations and beliefs concerning future developments and their potential effects on us or Valo. There can be no assurance that future developments affecting us or Valo will be those that KVSA or Valo have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond KVSA’s control or the control of Valo) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” beginning on page 38 of this proxy statement/prospectus. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. KVSA and Valo undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Before any KVSA stockholder grants its proxy or instructs how its vote should be cast or votes on the proposals to be put to the special meeting, such stockholder should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this proxy statement/ prospectus may adversely affect us.

 

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QUESTIONS AND ANSWERS FOR STOCKHOLDERS OF KVSA

The questions and answers below highlight only selected information from this document and only briefly address some commonly asked questions about the proposals to be presented at the special meeting, including with respect to the proposed Business Combination. The following questions and answers do not include all the information that is important to KVSA’s stockholders. KVSA urges stockholders to read this proxy statement/prospectus, including the Annexes and the other documents referred to herein, carefully and in their entirety to fully understand the proposed Business Combination and the voting procedures for the special meeting, which will be held virtually via live webcast at www.virtualshareholdermeeting.com/KVSA2021SM at 10:00 a.m., Eastern Time, on November 16, 2021. To participate in the special meeting, visit www.virtualshareholdermeeting.com/KVSA2021SM and enter the 16-digit control number included on your proxy card. You may register for the meeting as early as 9:45 a.m., Eastern Time, on November 16, 2021. If you hold your shares through a bank, broker or other nominee, you will need to take additional steps to participate in the meeting, as described in this proxy statement.

 

Q:

Why am I receiving this proxy statement/prospectus?

 

A:

KVSA stockholders are being asked to consider and vote upon, among other proposals, a proposal to approve and adopt the Merger Agreement and approve the Business Combination. The Merger Agreement provides for, among other things, the merger of Merger Sub with and into Valo, with Valo surviving the merger as a wholly owned subsidiary of KVSA, in accordance with the terms and subject to the conditions of the Merger Agreement as more fully described elsewhere in this proxy statement/prospectus. A copy of the Merger Agreement is attached to this proxy statement/prospectus as Annex A and you are encouraged to read it in its entirety. See the section entitled “BCA Proposal” for more detail.

Stockholders of KVSA will also be asked to consider and vote upon certain other proposals at the special meeting, including proposals to approve material differences between the Existing Charter and the Proposed Charter. Please see “What proposals are stockholders of KVSA being asked to vote upon?” below.

THE VOTE OF STOCKHOLDERS IS IMPORTANT. STOCKHOLDERS ARE ENCOURAGED TO VOTE AS SOON AS POSSIBLE AFTER CAREFULLY REVIEWING THIS PROXY STATEMENT/PROSPECTUS, INCLUDING THE ANNEXES AND THE ACCOMPANYING FINANCIAL STATEMENTS OF KVSA AND VALO, CAREFULLY AND IN ITS ENTIRETY.

 

Q:

What proposals are stockholders of KVSA being asked to vote upon?

 

A:

At the special meeting, KVSA is asking holders of KVSA common stock to consider and vote upon:

 

  

a proposal to approve and adopt the Merger Agreement (the “BCA Proposal”);

 

  

a proposal to approve, assuming the BCA Proposal is approved and adopted, the Proposed Charter, which will amend and restate the Existing Charter, and which Proposed Charter will be in effect when duly filed with the Secretary of State of the State of Delaware in connection with the Closing (the “Charter Proposal”)

 

  

several proposals to approve, on a non-binding advisory basis, the following material differences between the Proposed Charter and the Current Charter, which are being presented in accordance with the requirements of the SEC as seven separate sub-proposals (the “Advisory Charter Amendment Proposals”):

 

 a.

Advisory Charter Amendment Proposal A — to change the corporate name of KVSA after the Business Combination to “Valo Health Holdings, Inc.”;

 

 b.

Advisory Charter Amendment Proposal B — to increase KVSA’s capitalization so that it will have 600,000,000 authorized shares of a single series of common stock and 50,000,000 authorized shares of preferred stock;

 

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 c.

Advisory Charter Amendment Proposal C — to reclassify and convert the 5,000,000 shares of KVSA Class K common stock into 8,697,479 shares of KVSA Class A common stock immediately prior to the Closing;

 

 d.

Advisory Charter Amendment Proposal D — to provide that the removal of any director be only for cause and by the affirmative vote of the holders of not less than two-thirds of New Valo’s then-outstanding shares of capital stock entitled to vote generally in the election of directors;

 

 e.

Advisory Charter Amendment Proposal E — to provide that certain amendments to provisions of the Proposed Charter will require the approval of the holders of a majority of New Valo’s then-outstanding shares of capital stock entitled to vote on such amendment;

 

 f.

Advisory Charter Amendment Proposal F — to make New Valo’s corporate existence perpetual as opposed to KVSA’s corporate existence, which is required to be dissolved and liquidated 24 months following the closing of its initial public offering, and to remove from the Proposed Charter the various provisions applicable only to special purpose acquisition companies;

 

 g.

Advisory Charter Amendment Proposal G — to provide that New Valo will not be subject to Section 203 of the DGCL, which prohibits Delaware corporations from entering into business combinations with interested stockholders, defined as those that hold 15% or more of the corporation’s voting stock, absent the receipt of specific approvals specified in Section 203 of the DGCL; and

 

 h.

Advisory Charter Amendment Proposal H — to remove the provisions setting the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain stockholder actions.

 

  

a proposal to approve, for purposes of complying with the applicable provisions of Nasdaq Listing Rule 5635, the issuance of New Valo common stock to (a) the PIPE Investors, including the Sponsor Related PIPE Investor and the Valo PIPE Investors, pursuant to the PIPE Investment, (b) the New Valo stockholders pursuant to the Merger Agreement and (c) the Sponsor (or its assigns) pursuant to the Forward Purchase Agreement (the “Stock Issuance Proposal”);

 

  

a proposal to approve the Valo Health Holdings, Inc. 2021 Stock Option and Incentive Plan, a copy of which is attached to this proxy statement/prospectus as Annex L (the “Incentive Award Plan Proposal”);

 

  

a proposal to approve the Valo Health Holdings, Inc. 2021 Employee Stock Purchase Plan, a copy of which is attached to this proxy statement/prospectus as Annex M (the “ESPP Proposal”); and

 

  

a proposal to approve the adjournment of the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for the approval of one or more proposals at the special meeting (the “Adjournment Proposal”).

If KVSA’s stockholders do not approve each of the Condition Precedent Proposals, then unless certain conditions in the Merger Agreement are waived by the applicable parties to the Merger Agreement, the Merger Agreement could terminate and the Business Combination may not be consummated. See the sections entitled “BCA Proposal,” “Charter Proposal,” “Stock Issuance Proposal,” “Incentive Award Plan Proposal,” “ESPP Proposal” and “Adjournment Proposal.”

KVSA will hold the special meeting to consider and vote upon these proposals. This proxy statement/prospectus contains important information about the Business Combination and the other matters to be acted upon at the special meeting. Stockholders of KVSA should read it carefully.

After careful consideration, KVSA’s board of directors has determined that the BCA Proposal, each of the Charter Proposal, the Advisory Charter Amendments Proposals, the Stock Issuance Proposal, the Incentive Award Plan Proposal, the ESPP Proposal and the Adjournment Proposal, if necessary, are in the best interests of KVSA and its stockholders, and unanimously recommends that you vote or give instruction to vote “FOR” each of those proposals, if presented to the special meeting.

 

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The existence of financial and personal interests of one or more of KVSA’s directors may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of KVSA and its stockholders and what he, she or they may believe is best for himself, herself or themselves in determining to recommend that stockholders vote for the proposals. In addition, KVSA’s officers have interests in the Business Combination that may conflict with your interests as a stockholder. See the section entitled “BCA Proposal — Interests of KVSA’s Directors and Executive Officers in the Business Combination” for a further discussion of these considerations.

 

Q:

Are the proposals conditioned on one another?

 

A:

Yes. The Business Combination is conditioned on the approval of each of the Condition Precedent Proposals at the special meeting. Each of the Condition Precedent Proposals is cross-conditioned on the approval of each other. The Adjournment Proposal and the Advisory Charter Amendment Proposals are each not conditioned upon the approval of any other proposal.

 

Q:

Why is KVSA proposing the Business Combination?

 

A:

KVSA was organized to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination, with one or more businesses or entities.

Based on its due diligence investigations of the Valo Parties and the industry in which they operate, including the financial and other information provided by the Valo Parties in the course of KVSA’s due diligence investigations, the KVSA board of directors (the “KVSA Board”) believes that the Business Combination with Valo is in the best interests of KVSA and its stockholders and presents an opportunity to increase stockholder value. However, there is no assurance of this. See “BCA Proposal — The KVSA Board’s Reasons for the Business Combination” as well as “Risk Factors — Risks Related to Valo’s Business and Industry” for additional information.

 

Q:

What will Valo Stockholders receive in return for KVSA’s acquisition of all of the issued and outstanding equity interests of Valo?

 

A:

At the effective time of the Merger, among other things, (i) all outstanding shares of capital stock of Valo, including restricted shares of Valo common stock, will be cancelled in exchange for the right to receive an aggregate of 220,691,502 shares of New Valo common stock (at a deemed value of $10.00 per share) and (ii) all outstanding options to purchase shares of Valo common stock will be exchanged for options to purchase an aggregate of 10,205,856 shares of New Valo common stock (“New Valo Options”) (at a deemed weighted average value of $4.22 per share assuming that all New Valo Options are net settled), representing a pre-transaction equity value of Valo of $2.25 billion (the “Aggregate Merger Consideration”). Specifically, each share of Valo common stock will be canceled and converted into the right to receive a number of shares of New Valo common stock equal to the Exchange Ratio, which is the quotient obtained by dividing (x) the number of shares of New Valo common stock constituting the Aggregate Merger Consideration by (y) the aggregate number of fully diluted shares of Valo common stock (with respect to options to purchase Valo common stock, calculated on a treasury stock method basis (at a deemed value of $10.00 per share of New Valo common stock)). The Exchange Ratio is expected to be 1.0. The Aggregate Merger Consideration does not take into account certain additional issuances which may be made under the terms of the Merger Agreement, including: (i) to the PIPE Investors pursuant to the PIPE Investment which may be made under the terms of the respective Subscription Agreements, or (ii) to Valo management and employees pursuant to the Valo Health Holdings, Inc. 2021 Stock Option and Incentive Plan or the Valo Health Holdings, Inc. 2021 Employee Stock Purchase Plan, in each case as more fully described elsewhere in this proxy statement/prospectus. For further details, see “BCA Proposal — The Merger Agreement —Consideration — Aggregate Merger Consideration.”

 

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Q:

What is the value of the consideration to be received in the Merger?

 

A:

The exact value of the consideration to be received by holders of equity interests of Valo at the Closing will depend on the price of shares of common stock of KVSA as of such time and the aggregate fully diluted number of shares of Valo common stock as of such time, and will not be known with certainty until the Closing.

For informational purposes only, assuming (i) a purchase price of $2.25 billion, (ii) aggregate fully diluted number of shares of Valo common stock as of Closing of 225,000,000 (and a resulting Exchange Ratio of approximately 1.0) and (iii) a market price of KVSA public shares of $9.88 per share (based on the closing price of KVSA public shares on Nasdaq on September 29, 2021), if the Closing had occurred on September 30, 2021, then, giving effect to the merger, (a) all outstanding shares of capital stock of Valo, including restricted shares of Valo common stock, will be cancelled in exchange for the right to receive an aggregate of 220,691,502 shares of New Valo common stock (at a deemed value of $10.00 per share) and (b) all outstanding options to purchase shares of Valo common stock will be exchanged for options to purchase an aggregate of 10,205,856 shares of New Valo common stock (“New Valo Options”) (at a deemed weighted average value of $4.22 per share assuming that all New Valo Options are net settled) with an aggregate market value (based on the market price of KVSA public shares as of such date) of approximately $2.25 billion.

We have provided the above calculations for informational purposes only based on the assumptions set forth above. The actual Exchange Ratio will be determined at the Closing pursuant to the formula and terms set forth in the Merger Agreement. The aggregate number of fully diluted shares of Valo common stock as of Closing, and the market price of public shares assumed for purposes of the foregoing illustration are each subject to change, and the actual values for such inputs at the time of the Closing could result in the actual Exchange Ratio and the value of the consideration to be received by holders of equity interests in Valo being more or less than the amounts reflected above. We urge you to obtain current market quotations for public shares.

The 34,500,000 shares of New Valo common stock collectively held by KVSA’s public stockholders, if unrestricted and freely tradable, would have had an aggregate market value of approximately $341.9 million based upon the closing price of $9.91 per share on Nasdaq on October 18, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus. Based on the above assumed prices, the aggregate value KVSA public stockholders will receive with the Business Combination and related transactions is approximately $341.9 million. The 14,493,478 shares of New Valo common stock into which the 9,760,000 founder shares held by the Sponsor will automatically convert in connection with the Merger, if unrestricted, fully vested and freely tradable, would have had an aggregate market value of approximately $143.6 million based upon the closing price of $9.91 per share on Nasdaq on October 18, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus. The 292,230 shares of New Valo common stock into which the 240,000 shares of KVSA Class B common stock held by KVSA’s independent directors will automatically convert in connection with the Merger, if unrestricted and freely tradable, would have had an aggregate market value of approximately $2.9 million based upon the closing price of $9.91 per share on Nasdaq on October 18, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus. The 990,000 shares of New Valo common stock representing the 990,000 private placement shares held by the Sponsor, if unrestricted and freely tradable, would have had an aggregate market value of approximately $9.8 million based upon the closing price of $9.91 per share on the Nasdaq on October 18, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus. The Sponsor Related PIPE Investors have subscribed for $10,000,000 of the PIPE Investment, for which they will receive 1,000,000 shares of New Valo common stock, which, if unrestricted and freely tradable, would have had an aggregate market value of approximately $9.9 million based upon the closing price of $9.91 per share on Nasdaq on October 18, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus. Based on the current price, the aggregate value Sponsor and related parties will receive with the Business Combination and related transactions is approximately $166.2 million, all of which will be subject to a lock-up and in the case of the New Valo common stock issuable upon conversion of the KVSA Class K common stock, price vesting.

 

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Q:

What equity stake will current KVSA stockholders and Valo Stockholders hold in New Valo immediately after the consummation of the Business Combination?

 

A:

As of the date of this proxy statement/prospectus, there are 45,490,000 shares of KVSA common stock issued and outstanding, which includes the 10,000,000 founder shares held by the Sponsor and related parties (without giving effect to the conversion of the founder shares into New Valo common stock in connection with the closing of the Business Combination), the 990,000 private placement shares held by the Sponsor and the 34,500,000 public shares. Therefore, as of the date of this proxy statement/prospectus (without giving effect to the Business Combination), the KVSA fully diluted share capital would be 45,490,000.

It is anticipated that, following the Business Combination, (1) KVSA’s public stockholders are expected to own approximately 11.5% of the outstanding New Valo common stock, (2) Valo Stockholders (without taking into account any public shares held by the Valo Stockholders prior to the consummation of the Business Combination and including the Valo PIPE Investors) are expected to own approximately 79.5% of the outstanding New Valo common stock, (3) the Sponsor and related parties (including the Sponsor Related PIPE Investors) are expected to collectively own approximately 5.6% of the outstanding New Valo common stock and (4) the Third Party PIPE Investors are expected to own approximately 3.5% of the outstanding New Valo common stock. These percentages assume (i) that no public stockholders exercise their redemption rights in connection with the Business Combination, (ii) (a) the vesting of all shares of New Valo common stock received in respect of the New Valo Restricted Shares, (b) the vesting and exercise of all New Valo Options for shares of New Valo common stock that are issued and outstanding as of the Closing, and (c) that New Valo issues shares of New Valo common stock as the Aggregate Merger Consideration pursuant to the Merger Agreement, which in the aggregate equals 230,897,358 shares of New Valo common stock (including 10,205,856 shares of New Valo common stock issuable upon exercise of New Valo Options), (iii) New Valo issues 20,086,250 shares of New Valo common stock to the PIPE Investors pursuant to the PIPE Investment, (iv) New Valo issues zero shares of New Valo common stock to Sponsor (together with any permitted transferees under the Forward Purchase Agreement) pursuant to the Forward Purchase Agreement, (v) the conversion of all outstanding KVSA Class B common stock shares into an aggregate of 6,088,229 shares of New Valo common stock, (vi) the conversion of all outstanding KVSA Class K common stock shares into an aggregate of 8,697,479 shares of New Valo common stock and (vii) the vesting of all shares of New Valo common stock issuable upon the conversion of the KVSA Class K common stock. If the actual facts are different from these assumptions, the percentage ownership retained by the Company’s existing stockholders in the combined company will be different.

 

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The following table illustrates varying ownership levels in New Valo immediately following the consummation of the Business Combination based on the assumptions above (except as noted in the footnotes below).

 

   Share Ownership in New Valo 
   Assuming No Redemptions  Assuming Maximum
Redemptions (1)
 
   Number of
Shares
   Percentage of
Outstanding
Shares
  Number of
Shares
  Percentage of
Outstanding
Shares
 

Valo Stockholders BCA Consideration (2)

   230,897,358    76.6  230,897,358   79.2

KVSA public shareholders

   34,500,000    11.5  22,413,226   7.7

Sponsor & related parties founder shares (3)

   15,775,708    5.2  15,775,708   5.4

Valo PIPE Investors

   8,650,000    2.9  8,650,000   3.0

Sponsor Related PIPE Investors

   1,000,000    0.3  3,500,000 (4)   1.2

Third Party PIPE Investors

   10,436,250    3.5  10,436,250   3.6
  

 

 

   

 

 

  

 

 

  

 

 

 

Total

   301,259,316    100.0  291,672,542   100.0
  

 

 

   

 

 

  

 

 

  

 

 

 

 

 (1)

Assumes redemptions of 12,086,774 shares of KVSA common stock in connection with the Business Combination (the estimated maximum number of shares of KVSA common stock that could be redeemed in connection with the Business Combination in order to satisfy the Minimum Cash Condition based on: (i) trust account figures as of June 30, 2021, (ii) a redemption price of approximately $10.00 per share and (iii) the issuance of 2,500,000 shares of New Valo common stock to Sponsor pursuant to the Forward Purchase Agreement).

 (2)

Includes 220,691,502 shares of New Valo common stock expected to be issued to existing Valo Stockholders in connection with the Business Combination and 10,205,856 shares of New Valo common stock underlying New Valo Options issued in connection with the Business Combination. Excludes amounts set forth opposite “Valo PIPE Investors.”

 (3)

Includes 6,088,229 shares of New Valo common stock issued upon conversion of the KVSA Class B Common Stock held by Sponsor and certain directors of Sponsor, 8,697,479 shares of New Valo common stock issued upon conversion of the KVSA Class K Common Stock held by Sponsor and the 990,000 private placement shares held by Sponsor. Excludes amounts set forth opposite “Sponsor Related PIPE Investors.”

 (4)

Includes 2,500,000 shares of New Valo common stock subscribed for by Sponsor in connection with the Forward Purchase Agreement.

For further details, see “BCA Proposal — The Merger Agreement — Consideration — Aggregate Merger Consideration.”

 

Q:

What is the maximum number of shares that may be redeemed in order for KVSA to satisfy the Minimum Cash Condition?

 

A:

Assuming the PIPE Investment is completed and the full amount of the Forward Purchase Agreement is funded to KVSA (resulting in the issuance of 2,500,000 shares of New Valo common stock to Sponsor pursuant to the Forward Purchase Agreement), the maximum number of shares that may be redeemed in order for KVSA to satisfy the Minimum Cash Condition is 12,086,774.

 

Q:

How has the announcement of the Business Combination affected the trading price of the KVSA Class A public shares?

 

A:

On June 8, 2021, the trading date before the public announcement of the Business Combination, KVSA’s public shares closed at $10.22. On October 18, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus, KVSA’s public shares closed at $9.91.

 

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Q:

Will the Company obtain new financing in connection with the Business Combination?

 

A:

Yes. The PIPE Investors have agreed to purchase in the aggregate 20,086,250 shares of New Valo common stock, for $200,862,500 of gross proceeds, in the PIPE Investment, a portion of which is expected to be funded by the Sponsor Related PIPE Investor and Valo PIPE Investors. The PIPE Investment is contingent upon, among other things, the closing of the Business Combination. See “BCA Proposal —Related Agreements —Subscription Agreements.”

 

Q:

Do I have redemption rights?

 

A:

If you are a holder of public shares, you have the right to request that we redeem all or a portion of your public shares for cash provided that you follow the procedures and deadlines described elsewhere in this proxy statement/prospectus. Public stockholders may elect to redeem all or a portion of the public shares held by them regardless of if or how they vote in respect of the BCA Proposal. If you wish to exercise your redemption rights, please see the answer to the next question: “How do I exercise my redemption rights?

Notwithstanding the foregoing, a public stockholder, together with any affiliate of such public stockholder or any other person with whom such public stockholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from redeeming its public shares with respect to more than an aggregate of 15% of the public shares. Accordingly, if a public stockholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the public shares, then any such shares in excess of that 15% limit would not be redeemed for cash.

The Sponsor and KVSA’s independent directors have agreed to waive their redemption rights with respect to all of the founder shares in connection with the consummation of the Business Combination. The founder shares will be excluded from the pro rata calculation used to determine the per-share redemption price.

 

Q:

How do I exercise my redemption rights?

 

A:

If you are a public stockholder and wish to exercise your right to redeem the public shares, you must:

 

 i.

hold public shares;

 

 ii.

submit a written request, in which you identify yourself as a beneficial holder and provide your legal name, phone number and address, to Continental, KVSA’s transfer agent, that New Valo redeem all or a portion of your public shares for cash; and

 

 iii.

deliver your public shares to Continental, KVSA’s transfer agent, physically or electronically through The Depository Trust Company (“DTC”).

Holders must complete the procedures for electing to redeem their public shares in the manner described above prior to 5:00 p.m., Eastern Time, on November 12, 2021 (two business days before the special meeting) in order for their shares to be redeemed.

The address of Continental, KVSA’s transfer agent, is listed under the question “Who can help answer my questions?” below.

Public stockholders will be entitled to request that their public shares be redeemed for a pro rata portion of the amount then on deposit in the trust account calculated as of two business days prior to the consummation of the Business Combination including interest earned on the funds held in the trust account and not previously released to us (net of taxes payable). For illustrative purposes, as of June 30, 2021, this would have amounted to approximately $10.00 per issued and outstanding public share. However, the proceeds deposited in the trust account could become subject to the claims of KVSA’s creditors, if any, which could have priority over the claims of the public stockholders, regardless of whether such public stockholder votes or, if they do vote, irrespective of if they vote for or against the BCA Proposal. Therefore, the per share distribution from the trust account in such a situation may be less than originally expected due to such claims. Whether you vote, and if you do vote irrespective of how you vote, on any proposal,

 

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including the BCA Proposal, will have no impact on the amount you will receive upon exercise of your redemption rights. It is expected that the funds to be distributed to public stockholders electing to redeem their public shares will be distributed promptly after the consummation of the Business Combination.

Any request for redemption, once made by a holder of public shares, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with KVSA’s consent, until the time the vote is taken with respect to the BCA Proposal at the special meeting. If you deliver your shares for redemption to Continental, KVSA’s transfer agent, and later decide prior to the special meeting not to elect redemption, you may request that KVSA’s transfer agent return the shares (physically or electronically) to you. You may make such request by contacting Continental, KVSA’s transfer agent, at the phone number or address listed at the end of this section.

Any corrected or changed written exercise of redemption rights must be received by Continental, KVSA’s transfer agent, prior to the vote taken on the BCA Proposal at the special meeting. No request for redemption will be honored unless the holder’s public shares have been delivered (either physically or electronically) to Continental, KVSA’s transfer agent, at least two business days prior to the vote at the special meeting.

If a demand to exercise redemption rights is properly made as described above, then, if the business combination is consummated, KVSA will redeem these shares for a pro rata portion of funds deposited in the trust account. If you exercise your redemption rights, then you will be exchanging your public shares for cash.

 

Q:

What are the U.S. federal income tax consequences of exercising my redemption rights?

 

A:

It is expected that a U.S. Holder (as defined in “U.S. Federal Income Tax Considerations”) that exercises its redemption rights to receive cash from the trust account in exchange for its KVSA common stock will generally be treated as selling such KVSA common stock resulting in the recognition of capital gain or capital loss. There may be certain circumstances, however, in which the redemption may be treated as a distribution for U.S. federal income tax purposes depending on the amount of our common stock that such U.S. Holder owns or is deemed to own. For a more complete discussion of the U.S. federal income tax considerations of an exercise of redemption rights, see “U.S. Federal Income Tax Considerations.”

All holders considering exercising redemption rights are urged to consult their tax advisor on the tax consequences to them of an exercise of redemption rights, including the applicability and effect of U.S. federal, state, local and non-U.S. tax laws.

 

Q:

What happens to the funds deposited in the trust account after consummation of the Business Combination?

 

A:

Following the closing of KVSA’s initial public offering, a total of $345,000,000, comprised of proceeds from KVSA’s initial public offering and certain proceeds from the sale of the private placement shares, was placed in the trust account. As of June 30, 2021, funds in the trust account totaled $345,005,244 and were invested in U.S. government treasury bills with a maturity of 185 days or less or in money market funds investing solely in U.S. Treasuries and meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended. These funds will remain in the trust account, except for the withdrawal of interest to fund KVSA’s working capital requirements, subject to an annual limit of $500,000, and/or to pay taxes, if any, until the earliest of (1) the completion of a business combination (including the closing of the Business Combination), (2) the redemption of any public shares properly tendered in connection with a stockholder vote to amend the Existing Organizational Documents to modify the substance or timing of KVSA’s obligation to redeem 100% of the public shares if it does not complete a business combination within 24 months from the closing of the initial public offering or (ii) with respect to any other provisions relating to stockholders’ rights or pre-initial business combination activity, and (c) the redemption of all of the Company’s public shares if it is unable to complete its business combination within 24 months from the closing of the initial public offering, subject to applicable law.

 

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Upon consummation of the Business Combination, the funds deposited in the trust account will be released to pay holders of public shares who properly exercise their redemption rights; to pay transaction fees and expenses associated with the Business Combination; and for working capital and general corporate purposes of New Valo following the Business Combination. See “Summary of the Proxy Statement/Prospectus —Sources and Uses of Funds for the Business Combination.”

 

Q:

What happens if a substantial number of the public stockholders vote in favor of the BCA Proposal and exercise their redemption rights?

 

A:

Our public stockholders are not required to vote in respect of the Business Combination in order to exercise their redemption rights. Accordingly, the Business Combination may be consummated even though the funds available from the trust account and the number of public stockholders are reduced as a result of redemptions by public stockholders.

The Merger Agreement provides that the obligations of Valo to consummate the Merger are conditioned on, among other things, the satisfaction of the Minimum Cash Condition. If such condition is not met, and such condition is not waived under the terms of the Merger Agreement, then the Merger Agreement could terminate and the proposed Business Combination may not be consummated. There can be no assurance that Valo would waive the Minimum Cash Condition. In addition, pursuant to the Existing Organizational Documents, in no event will we redeem public shares in an amount that would cause New Valo’s net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) to be less than $5,000,001.

 

Q:

What conditions must be satisfied to complete the Business Combination?

 

A:

The Merger Agreement is subject to the satisfaction or waiver of certain customary closing conditions, including, among others, (i) approval of the Transactions and related matters by KVSA’s stockholders and equity holders of the Valo Parties, (ii) the effectiveness of the Registration Statement of which this proxy statement/prospectus forms a part, (iii) the receipt of certain regulatory approvals (including, but not limited to, approval for listing on Nasdaq or the New York Stock Exchange of the shares of New Valo common stock to be issued in connection with the Merger and the expiration or early termination of the waiting period or periods under the HSR Act), (iv) that KVSA has at least $5,000,001 of net tangible assets upon Closing and (v) the absence of any injunctions.

Valo’s obligation to consummate the Merger is also conditioned on the requirement that as of the Closing, the Available Cash (the sum of the Trust Amount, the PIPE Investment Amount and the Forward Purchase Amount) is equal to or greater than $450.0 million.

For more information about conditions to the consummation of the Business Combination, see “BCA Proposal — The Merger Agreement.”

 

Q:

When do you expect the Business Combination to be completed?

 

A:

It is currently expected that the Business Combination will be consummated in the fourth quarter of 2021. This date depends, among other things, on the approval of the proposals to be put to KVSA stockholders at the special meeting. However, such meetings could be adjourned if the Adjournment Proposal is adopted at the special meeting, and KVSA elects to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for the approval of one or more proposals at the special meeting. For a description of the conditions for the completion of the Business Combination, see “BCA Proposal — The Merger Agreement.”

 

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Q:

What happens if the Business Combination is not consummated?

 

A:

If KVSA is not able to complete the Business Combination with Valo by the Liquidation Date and is not able to complete another business combination by such date, in each case, as such date may be extended pursuant to the Existing Organizational Documents, KVSA will: (1) cease all operations except for the purpose of winding up; (2) as promptly as reasonably possible, but not more than 10 business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (less up to $100,000 of interest to pay dissolution expenses and which interest shall be net of taxes payable), divided by the number of then issued and outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law; and (3) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.

 

Q:

Do I have appraisal rights in connection with the proposed Business Combination?

 

A:

KVSA’s stockholders do not have appraisal rights in connection with the Business Combination under the DGCL.

 

Q:

What do I need to do now?

 

A:

KVSA urges you to read this proxy statement/prospectus, including the Annexes and the documents referred to herein, carefully and in their entirety and to consider how the Business Combination will affect you as a stockholder. KVSA’s stockholders should then vote as soon as possible in accordance with the instructions provided in this proxy statement/prospectus and on the enclosed proxy cards, as applicable.

 

Q:

How do I vote?

 

A:

If you are a holder of record of KVSA Class A common stock and KVSA Class B common stock on the record date for the special meeting, you may vote in person virtually at the special meeting or by submitting a proxy for the special meeting. You may submit your proxy by completing, signing, dating and returning the enclosed proxy cards, as applicable, in the accompanying pre-addressed postage-paid envelope. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or nominee, you should contact your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the broker, bank or nominee with instructions on how to vote your shares or, if you wish to virtually attend the special meeting and vote in person, obtain a valid proxy from your broker, bank or nominee. In most cases you may vote by telephone or over the Internet as instructed.

 

Q:

If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?

 

A:

No. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street name.” If this is the case, this proxy statement/prospectus may have been forwarded to you by your brokerage firm, bank or other nominee, or its agent, and you may need to obtain a proxy form from the institution that holds your shares and follow the instructions included on that form regarding how to instruct your broker, bank or nominee as to how to vote your shares. Under the rules of various national and regional securities exchanges, your broker, bank, or nominee cannot vote your shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank, or nominee. We believe all the proposals presented to the stockholders will be considered

 

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 non-discretionary and therefore your broker, bank, or nominee cannot vote your shares without your instruction. Your bank, broker, or other nominee can vote your shares only if you provide instructions on how to vote. As the beneficial holder, you have the right to direct your broker, bank or other nominee as to how to vote your shares and you should instruct your broker to vote your shares in accordance with directions you provide. If you do not provide voting instructions to your broker on a particular proposal on which your broker does not have discretionary authority to vote, your shares, as applicable, will not be voted on that proposal. This is called a “broker non-vote.” A broker non-vote will not be counted towards the quorum requirement, as we believe all proposals presented to the stockholders will be considered non-discretionary, or count as a vote cast at the special meeting.

 

Q:

When and where will the special meeting be held?

 

A:

The special meeting will be held will be held virtually via live webcast at www.virtualshareholdermeeting.com/KVSA2021SM at 10:00 a.m., Eastern Time, on November 16, 2021, or such other date, time and place to which such meeting may be adjourned or postponed, to consider and vote upon the proposals.

 

Q:

How do I attend a virtual meeting?

 

A:

The special meeting will take place on November 16, 2021 at 10:00 a.m., Eastern Time. We have determined to hold the special meeting virtually in light of the continued public health and travel concerns posed by the coronavirus (COVID-19). You will not be able to physically attend the special meeting.

To attend and participate in the special meeting, you will need to visit the virtual meeting website at www.virtualshareholdermeeting.com/KVSA2021SM (the “Meeting Website”) and enter the control number found on your proxy card. If you are a beneficial owner of shares held in street name and wish to attend the special meeting, you will need to follow the instructions on your voting instruction form provided by your bank, broker or other organization that holds your shares. Only one stockholder per control number can access the Meeting Website. You may vote and submit questions while attending the special meeting by following the instructions available on the Meeting Website at the time of the special meeting. On the date of the special meeting, online access to the special meeting will open at 9:45 a.m., Eastern Time, to allow time for stockholders to log-in prior to the start of the live audio webcast of the special meeting at 10:00 a.m., Eastern Time. We encourage you to log-in prior to the start time of the special meeting. If you are having trouble logging in, please call the support number on the pre-meeting website.

 

Q:

Who is entitled to vote at the special meeting?

 

A:

KVSA has fixed October 13, 2021 as the record date for the special meeting. If you were a stockholder of KVSA at the close of business on the record date, you are entitled to vote on matters that come before the special meeting. However, a stockholder may only vote his or her shares if he or she is present in person virtually or is represented by proxy at the special meeting.

 

Q:

How many votes do I have?

 

A:

KVSA stockholders are entitled to:

 

 (i)

one vote at the special meeting for each share of KVSA Class A common stock held of record as of the record date; and

 

 (ii)

1.217646 votes at the special meeting for each share of KVSA Class B common stock held of record as of the record date.

The holders of outstanding shares of KVSA Class K common stock are not entitled to vote except as provided by law or our certificate of incorporation.

 

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As of the close of business on the record date for the special meeting, there were 35,490,000 shares of KVSA Class A common stock issued and outstanding (of which 34,500,000 were issued and outstanding public shares), 5,000,000 shares of KVSA Class B common stock issued and outstanding and 5,000,000 shares of KVSA Class K common stock issued and outstanding.

 

Q:

What constitutes a quorum?

 

A:

A quorum of KVSA stockholders is necessary to hold a valid meeting. A quorum will be present at the special meeting if the holders of outstanding KVSA common stock representing a majority of the voting power of all outstanding shares entitled to vote at the special meeting are represented in person or by proxy at the special meeting. A quorum for purposes of the Charter Proposal also requires that holders of shares of KVSA Class B common stock representing a majority of the voting power of the outstanding shares of KVSA Class B common stock be represented in person or by proxy at the special meeting. As of the record date for the special meeting, an aggregate of 20,789,115 shares of KVSA Class A common stock and KVSA Class B common stock (on an as-converted basis) and, solely with respect to the Charter Proposal, 2,500,001 shares of KVSA Class B common stock would be required to achieve a quorum.

 

Q:

What vote is required to approve each proposal at the special meeting?

 

A:

The following votes are required for each proposal at the special meeting:

 

 i.

BCA Proposal: The approval of the BCA Proposal requires the affirmative vote of holders of a majority of the shares of KVSA Class A common stock and KVSA Class B common stock that are voted at the special meeting.

 

 ii.

Charter Proposals: The approval of the Charter Proposal requires (1) the affirmative vote of holders of a majority of the voting power of the outstanding shares of KVSA Class A common stock and KVSA Class B common stock, voting together as a single class, (2) the affirmative vote or written consent of the holders of a majority of the voting power of the outstanding shares of KVSA Class K common stock, voting separately as a series (which consent has already been obtained prior to the special meeting) and (3) the affirmative vote or written consent of the holders of a majority of the voting power of the outstanding shares of KVSA Class B common stock, voting separately as a series. The parties have also agreed to condition the Charter Proposal on the affirmative vote of the holders of a majority of the shares of KVSA Class A common stock then outstanding and entitled to vote thereon, voting separately as a single series.

 

 iii.

Advisory Charter Amendment Proposals: The approval of the Advisory Charter Amendment Proposals requires the affirmative vote of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon, voting together as a single class.

 

 iv.

Stock Issuance Proposal: The approval of the Stock Issuance Proposal requires the affirmative vote of the holders of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon, voting together as a single class.

 

 v.

Incentive Award Plan Proposal: The approval of the Incentive Award Plan Proposal requires the affirmative vote of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon, voting together as a single class.

 

 vi.

ESPP Proposal: The approval of the ESPP Proposal requires the affirmative vote of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon, voting together as a single class.

 

 vii.

Adjournment Proposal: The approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon, voting together as a single class.

 

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Q:

What are the recommendations of KVSA’s board of directors?

 

A:

KVSA’s board of directors believes that the BCA Proposal and the other proposals to be presented at the special meeting are in the best interest of KVSA’s stockholders, and unanimously recommends that you vote or give instruction to vote “FOR” the BCA Proposal, “FOR” the Charter Proposal, “FOR” each of the separate Advisory Charter Amendment Proposals, “FOR” the Stock Issuance Proposal, “FOR” the Incentive Award Plan Proposal, “FOR” the ESPP Proposal, and “FOR” the Adjournment Proposal, in each case, if presented to the special meeting.

The existence of financial and personal interests of one or more of KVSA’s directors may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of KVSA and its stockholders and what he, she or they may believe is best for himself, herself or themselves in determining to recommend that stockholders vote for the proposals. In addition, KVSA’s officers have interests in the Business Combination that may conflict with your interests as a stockholder. See the section entitled “BCA Proposal — Interests of KVSA’s Directors and Executive Officers in the Business Combination” for a further discussion of these considerations.

 

Q:

How does the Sponsor intend to vote its shares?

 

A:

Unlike some other blank check companies in which the initial stockholders agree to vote their shares in accordance with the majority of the votes cast by the public stockholders in connection with an initial business combination, the Sponsor and all of its directors and officers have agreed to vote all of the shares of KVSA common stock they may hold in favor of all the proposals being presented at the special meeting. As of the date of this proxy statement/prospectus, the Sponsor and KVSA’s independent directors collectively own shares of KVSA common stock representing approximately 17% of the outstanding voting power.

At any time at or prior to the Business Combination, subject to applicable securities laws (including with respect to material nonpublic information), the Sponsor, the existing stockholders of Valo or our or their respective directors, officers, advisors or respective affiliates may (i) purchase public shares from institutional and other investors who vote, or indicate an intention to vote, against any of the Condition Precedent Proposals, or elect to redeem, or indicate an intention to redeem, public shares, (ii) execute agreements to purchase such shares from such investors in the future or (iii) enter into transactions with such investors and others to provide them with incentives to acquire public shares, vote their public shares in favor of the Condition Precedent Proposals or not redeem their public shares. Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of KVSA’s shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that the Sponsor, the existing stockholders of Valo or our or their respective directors, officers, advisors, or respective affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. The purpose of such stock purchases and other transactions would be to (x) increase the likelihood of approving the Condition Precedent Proposals and (y) limit the number of public shares electing to redeem, including to satisfy any redemption threshold.

Entering into any such arrangements may have a depressive effect on KVSA common stock (e.g., by giving an investor or holder the ability to effectively purchase shares at a price lower than market, such investor or holder may therefore become more likely to sell the shares he or she owns, either at or prior to the Business Combination). If such transactions are effected, the consequence could be to cause the Business Combination to be consummated in circumstances where such consummation could not otherwise occur. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the proposals to be presented at the special meeting and would likely increase the chances that such proposals would be approved. KVSA will file or submit a Current Report on Form 8-K to disclose any material arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote on the proposals to be put to the special meeting or the redemption threshold. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.

 

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The existence of financial and personal interests of one or more of KVSA’s directors may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of KVSA and its stockholders and what he, she or they may believe is best for himself or themselves in determining to recommend that stockholders vote for the proposals. In addition, KVSA’s officers have interests in the Business Combination that may conflict with your interests as a stockholder. See the section entitled “BCA Proposal — Interests of KVSA’s Directors and Executive Officers in the Business Combination” for a further discussion of these considerations.

 

Q:

What happens if I sell my KVSA common stock before the special meeting?

 

A:

The record date for the special meeting is earlier than the date of the special meeting and earlier than the date that the Business Combination is expected to be completed. If you transfer your public shares after the applicable record date, but before the special meeting, unless you grant a proxy to the transferee, you will retain your right to vote at such special meeting, as applicable, but the transferee, and not you, will have the ability to redeem such shares (if time permits).

 

Q:

May I change my vote after I have mailed my signed proxy card(s)?

 

A:

Yes. Stockholders may send later-dated, signed proxy card(s) to KVSA’s Secretary at KVSA’s address set forth below so that such proxy card(s) received by KVSA’s Secretary prior to the vote at the special meeting, as applicable (which is scheduled to take place on November 16, 2021) or virtually attend the special meeting, as applicable, in person and vote. Stockholders also may revoke their proxy by sending a notice of revocation to KVSA’s Secretary, which must be received by KVSA’s Secretary prior to the vote at the special meeting, as applicable. However, if your shares are held in “street name” by your broker, bank or another nominee, you must contact your broker, bank or other nominee to change your vote.

 

Q:

What happens if I fail to take any action with respect to the special meeting?

 

A:

If you fail to take any action with respect to the special meeting and the Business Combination is approved by stockholders and the Business Combination is consummated, you will become a stockholder of New Valo. If you fail to take any action with respect to the special meeting and the Business Combination is not approved, you will remain a stockholder of KVSA. However, if you fail to vote with respect to the special meeting, you will nonetheless be able to elect to redeem your public shares in connection with the Business Combination (if time permits).

 

Q:

What should I do with my share certificates?

 

A:

Our stockholders who exercise their redemption rights must deliver (either physically or electronically) their share certificates to Continental, KVSA’s transfer agent, prior to the special meeting. In addition, a stockholder wishing to exercise its redemption rights must identify itself, in writing, as a beneficial holder and provide its legal name, phone number and address to Continental Stock Transfer & Trust Company, in order to validly redeem its shares.

Holders must complete the procedures for electing to redeem their public shares in the manner described above prior to 5:00 p.m., Eastern Time, on November 12, 2021 (two business days before the special meeting) in order for their shares to be redeemed.

Public stockholders who do not elect to have their public shares redeemed for the pro rata share of the trust account should not submit the certificates relating to their public shares.

Upon the completion of the Merger, holders of KVSA Class A common stock, KVSA Class B common stock and KVSA Class K common stock will receive shares of New Valo common stock without needing to take any action and, accordingly, such holders should not submit any certificates relating to their KVSA Class A common stock (unless such holder elects to redeem the public shares in accordance with the procedures set forth above), KVSA Class B common stock or KVSA Class K common stock.

 

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Q:

What should I do if I receive more than one set of voting materials?

 

A:

Stockholders may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card for each applicable meeting. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast a vote with respect to all of your KVSA common stock.

 

Q:

Who will solicit and pay the cost of soliciting proxies for the special meeting?

 

A:

KVSA will pay the cost of soliciting proxies for the special meeting. KVSA has engaged D.F. King to assist in the solicitation of proxies for the special meeting. KVSA has agreed to pay D.F. King a fee of $25,000, plus disbursements (to be paid with non-trust account funds). KVSA will also reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of KVSA Class A common stock for their expenses in forwarding soliciting materials to beneficial owners of KVSA Class A common stock and in obtaining voting instructions from those owners. KVSA’s directors and 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.

 

Q:

Where can I find the voting results of the special meeting?

 

A:

The preliminary voting results will be expected to be announced at the special meeting, as applicable. KVSA will publish final voting results of the special meeting in a Current Report on Form 8-K within four business days after the special meeting.

 

Q:

Who can help answer my questions?

 

A:

If you have questions about the Business Combination or if you need additional copies of the proxy statement/prospectus, any document incorporated by reference in this proxy statement/prospectus or the enclosed proxy cards, you should contact:

D.F. King & Co., Inc.

48 Wall Street, 22nd Floor

New York, NY 10005

Banks and Brokers Call Collect: (212) 269-5550

All Others Call Toll-Free: (800) 487-4870

Email: KVSA@dfking.com

You also may obtain additional information about KVSA from documents filed with the SEC by following the instructions in the section entitled “Where You Can Find More Information; Incorporation by Reference.” If you are a holder of public shares and you intend to seek redemption of your public shares, you will need to deliver your public shares (either physically or electronically) to Continental, KVSA’s transfer agent, at the address below prior to the special meeting. Holders must complete the procedures for electing to redeem their public shares in the manner described above prior to 5:00 p.m., Eastern Time, on November 12, 2021 (two business days before the special meeting) in order for their shares to be redeemed. If you have questions regarding the certification of your position or delivery of your stock, please contact:

Continental Stock Transfer & Trust Company

1 State Street 30th Floor

New York, New York 10004

Attention: Mark Zimkind

Email: mzimkind@continentalstock.com

 

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SUMMARY OF THE PROXY STATEMENT/PROSPECTUS

This summary highlights selected information from this proxy statement/prospectus and does not contain all of the information that is important to you. To better understand the proposals to be submitted for a vote at the special meeting, including the Business Combination, you should read this proxy statement/ prospectus, including the Annexes and other documents referred to herein, carefully and in their entirety. The Merger Agreement is the primary legal document that governs the Business Combination and the other transactions that will be undertaken in connection with the Business Combination. The Merger Agreement is also described in detail in this proxy statement/prospectus in the section entitled “BCA Proposal — The Merger Agreement.”

Unless otherwise specified, all share calculations assume no exercise of redemption rights by the public stockholders in connection with the Business Combination.

Combined Business Summary

We are a technology company built to transform drug discovery and development using human-centric data and artificial intelligence (AI). We believe that for the first time, the scope, scale and quality of human data coupled with analytical capabilities and computational power are enabling the potential for a foundational shift in the biopharmaceutical landscape. This is our vision: to seize upon the opportunity afforded by human-centric data and compute to build a digital model for biopharmaceutical drug discovery and development—one with the potential to overcome the intrinsic historical limitations of the existing approach. Our strategic goal is to apply compute with the intent to make better medicines that are designed to better treat patients and doing so with a greater chance of success than traditional approaches.

Valo was founded on the belief that the $1.25 trillion biopharmaceutical industry is at a major inflection point: Increasing pricing pressures, falling research and development (R&D) productivity, and divergent stakeholders have put increasing pressure on the legacy system for drug discovery and development. These industry dynamics have created a unique opportunity for a technology-driven transformation of how life-changing therapeutics are created and developed to address unmet medical needs, potentially at lower costs and with greater chance of success.

Flagship Pioneering launched Valo in 2019. Valo is based on the research of a Flagship Labs innovation team led by Dr. David Berry, which examined how large-scale clinical and molecular data could be used to make predictive analyses that transform drug development. Valo aims to create the first fully-integrated, end-to-end human-centric drug discovery and development platform designed with the goal of potentially shortening the time and lowering the cost of drug discovery and development while increasing the overall probability of technical and regulatory success (PTRS). In so doing, we aim to enhance the net present value (NPV) of a given drug asset and portfolio of assets. We set out with the ambition to use data and computation to build a new drug discovery and development model that would:

 

  

Substantially improve the current 5% biopharmaceutical success rate;

 

  

Make better medicines with enhanced features against known drug targets;

 

  

Make medicines against targets currently understood as “undruggable”;

 

  

Create a fully-integrated process to align decision-making;

 

  

Use analytics to identify and mitigate risks earlier;

 

  

Enable better targeted portfolio design;

 

  

Reduce dependency on surrogate systems (e.g., cells, mice etc.), with a focus on human data in the discovery and development process; and

 

  

Convert serial processes to parallel approaches.

 

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Our model is powered by our proprietary Valo Opal Computational PlatformTM, which we refer to as Opal, that is designed to be an end-to-end drug discovery and development platform with an integrated and unified architecture, built upon differentiated human-centric data and AI-anchored computation. We use multidimensional data sets, which include electronic, medical, genomic, proteomic data, among others, which are collectively referred to herein as “-omics.”

At Valo, we describe this step function change as our drug acceleration model, which we are currently deploying to advance an internal supply chain, which includes three product candidates (two of which are licensed from Sanofi and one that was acquired in connection with our acquisition of Courier Therapeutics, Inc. (Courier)) and 14 other discovery-stage programs, with additional preclinical programs in early/exploratory discovery. We have a deep bench of assets poised behind these product candidates and discovery-stage programs, which, collectively, we consider to be a “supply chain” because we believe Opal will enable us to continuously advance early discovery programs and then progress them through the drug development process. Additionally, we aspire to launch collaborations and partnerships to use Opal to develop drug programs with external parties, or what we refer to as our “external,” supply chain of programs. To date, none of the programs being developed through the Opal platform have completed molecule discovery and we have not yet conducted any clinical trials.

Realizing this vision requires high quality human-centric data on a large scale. To this end, we have unique and/or exclusive relationships with national, fully-integrated payer-providers that give us access to, in the aggregate, over 125 million patient-years of high quality de-identified patient data. The scale of our data lake — coupled with our data acquisition strategy and internally-generated large proprietary data sets — raises the barrier to entry into this space, providing a protective “moat” to our growing Opal capabilities, and thus extending what we believe is a core competitive advantage. As of the date of this proxy statement/prospectus, our data foundation includes:

 

  

High density longitudinal data from over 7 million patients;

 

  

Over 22 trillion multi-omic data points;

 

  

Over 5 billion total drug-like compounds; and

 

  

Over 2 billion computation model predictions.

With a combination of high-quality, large-scale, human-centric data and computational capacity, we are designing Opal to provide a fully-integrated drug discovery and development capability spanning early R&D efforts through to drug approval into a single unified process, including:

Biological Discovery employs our chemical, biological, -omic and longitudinal data to uncover previously unknown biology, which is not limited to targets but also how to intervene pharmacologically to have a desired therapeutic effect. Opal is being designed to identify human targets and treat human disease with enhanced clinical development profiles based on genotype-, phenotype-, and causality linkages, because we think the best way to understand humans and their diseases is to use human data.

Therapeutic Design, which is initially focused on small molecules. This is a closed-loop, active learning, self-reinforcing in silico-experimental platform created to rapidly design, develop, and advance preclinical candidates. Our process is designed to make computational predictions in parallel with real-world molecule design and synthesis to generate better optimized compounds with each subsequent cycle. We couple this with an active learning layer and a real-world lab capability with more than 40,000 square feet, which houses DNA-encoded libraries (DEL) of more than 5 billion drug-like compounds, four automated high-throughput screening platforms, automated chemical synthesis capabilities, and a high-throughput screening (HTS) library of more than 500,000 compounds. This allows our laboratory scientists at Valo to begin anywhere in the process without the typical limitations of disintegrated AI molecule design, and make our own proprietary molecules

 

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using a feed of internally generated information designed to optimize predictions. As of the date of this proxy statement/prospectus, we have deployed more than 30,000 predictive models which have made over 2 billion predictions, evaluated against a multitude of optimization criteria, generating data we believe has the potential to accelerate learning at each cycle, allowing us to hone leads and identify what we believe may be promising drug candidates. So far, we have obtained key support for our preclinical capabilities, including:

 

  

Independently re-discovering clinically validated targets;

 

  

Repeatedly and reproducibly identifying causal biomarkers in two months;

 

  

Completing new target identification in days-to-weeks versus the current industry standard of six to 12 months;

 

  

Achieving new molecule identification, validation and transition to hit-to-leads in weeks-to-months, versus six to 12 months;

 

  

Optimizing leads in months versus the current two-year average standard; and

 

  

Third-party blinded tests of our toxicity prediction capabilities, for example, were performed on 154 compounds blinded to us, and showed a greater than 90% accuracy for off-target binding, giving increased confidence preclinically for one of the major causes of clinical-stage failures.

Clinical Development, which is focused on understanding who, how, and when to treat. We aspire to develop products more efficiently than current industry standards while maintaining high safety standards, using biomarkers and surrogate endpoints while also focusing on efficacy in order to have real impact on disease. We are developing tools designed to inform patient selection, trial design, and disease indication, which we believe will have the potential to more accurately predict safety and efficacy. We aim to computationally define clinical hypotheses a priori and continuously refine them throughout development. At the same time, we recognize that the discovery and development process is inherently uncertain and there can be no guarantee that we will be able to develop product candidates that have an increased chance of approval.

Initially focused on three lead product candidates (two of which are licensed from Sanofi and one that was acquired in connection with our acquisition of Courier), we are utilizing Opal to help us identify our preferred therapeutic indications for clinical development and are incorporating measures of disease prognosis and outcome into our planned clinical studies with biomarkers.

The integrated framework and foundation of curated high quality human data powers what we call Opal’s self-reinforcing, active learning flywheel of data g compute g drug. Opal’s flywheel takes Valo’s data foundation and iteratively increases the capabilities of Opal as additional human-centric data is ingested and curated. This makes our human-centric data a critical enabler and one that translates into a growing competitive advantage that is reinforced on an ongoing basis. Every experiment we run generates data that feeds back into our flywheel, designed to make our system, models, predictions and simulations more accurate and more scalable. The more data is integrated, the better we believe our system becomes.

 

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LOGO

The self-reinforcing nature of Opal’s flywheel is designed to enable increasing utility. Target ID = Target Identification; RWE = Real-World Evidence; Lead Opt = Lead Optimization; Reg = Regulatory; Comm = Commercial; AI = Artificial Intelligence.

We are harnessing and building Opal’s capabilities to identify and advance our internal supply chain of programs, with the goal of developing product candidates more efficiently than current industry standards, including our three lead product candidates (two of which are licensed from Sanofi and one that was acquired in connection with our acquisition of Courier) and 14 other discovery-stage programs. We focus on programs that we believe each have the potential for over $1 billion in peak annual sales across cardiovascular-metabolic-renal, oncology, and neurodegenerative disease areas. Our most advanced assets, OPL-0301 and OPL-0401, are expected to enter Phase 2 clinical trials in 2021 and 2022, respectively. We have in-licensed these assets and submitted our own IND for OPL-0301 in the third quarter of 2021 and plan to submit our own IND for OPL-0401 in the first half of 2022 ahead of the upcoming Phase 2 clinical trials. In addition, we aspire to create a repeatable flow of two to three preclinical drug candidates annually, starting in 2022, based on our supply chain of programs, each with the Opal advantage tied to them. We have built our pipeline and other discovery-stage programs with a portfolio theory that addresses correlations across assets with differentiated therapeutic areas, modalities, and biological risk profiles, which we believe has potential to mathematically increase pipeline value. Disease doesn’t wait and neither can we.

Transforming a Legacy System

The biopharmaceutical industry generates $1.25 trillion in revenues annually worldwide, but industry trends are putting pressure on incumbents and new entrants. Decreasing R&D productivity has increased the costs of bringing new drugs to market, while increasing pricing pressures are squeezing bottom lines across the value chain.

 

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At the heart of all of this, we believe, is the biopharmaceutical industry’s dependency on a legacy R&D approach. This legacy model is point-to-point and focused on specific stages, each with their own data, architecture, metrics, and decision making. It is localized, intrinsically disintegrated, surrogate-dependent (i.e. using mice, cells and similar to develop drugs for humans), and serial. Historically, this system has been costly, slow, and with a less than a 5% success rate from program initiation to an approved therapeutic.

Valo is targeting this market opportunity. In the legacy model, the average time from discovery through approval for a drug is 13.5 years with an average cost per launch of $873 million and an overall PTRS of 4%. Our goal is to use the Opal platform to potentially develop product candidates more efficiently than current industry standards. We are pursuing our goal across the various stages of drug discovery and development, with the aim of reducing time and cost and increasing PTRS across the historical phases through the implementation of Opal. If Valo is able to achieve this goal, it could significantly improve the drug development process and potentially lead to drugs reaching the market more quickly than traditional drug development has historically taken and at lower cost. Our product candidates developed using Opal will be subject to the same regulatory standards as other similar drugs, including a demonstration that the drug is safe for its intended use and the provision of substantial evidence of effectiveness.

We intend to utilize our Opal platform on all stages of drug discovery and development, as early as target identification and compound conception. However, we believe there is vast opportunity for improvement in the process, and thus the market opportunity, that occurs after compositions are identified and their corresponding patents are filed. In fact, because the patent exclusivity clock starts when patents are filed, improvements in the early stage of molecular development, prior to the initial patent filings, are less consequential to the market opportunity than later stage innovation (and related patent filings). Furthermore, we believe clinical development couples the highest cost components with significant attrition rates. Therefore, having an impact end-to-end, including after the identification of drug composition, allows us, we believe, to impact the most important drivers of program viability.

In the current legacy approach, drug discovery typically starts with a biological hypothesis that ultimately leads to a new drug target, such as a protein or enzyme, with which a drug interacts to effect a change in the disease biology. Having identified such a target, the search for a drug begins. In small molecule development, this typically involves randomly screening larger numbers of molecules against the target to identify potential hits, and subsequently optimizing the chemistry of those molecules to enrich for favorable properties such as absorption, distribution, metabolism, excretion, and toxicity (ADMET), ultimately resulting in a drug candidate. Currently, the vast majority of targets come from cell and animal surrogate models, and optimization also relies on such surrogates, with different surrogates used at different stages, often, in our opinion, selected for ease of screening rather than predictive qualities. Subsequently, the compound is tested in preclinical animal models to demonstrate initial safety and efficacy, culminating, if successful, in a package of data for submission to health authorities to enter into human clinical trials. Then begins clinical development, in which the compound is tested in human subjects for the first time after what could be years of optimizing to cells, mice, rats, pigs, ferrets, monkeys and other animals. Phase 1 clinical trials focus primarily on safety, often testing the compound in healthy humans, a necessary step since up to 30% of failures in Phase 1 are attributed to safety issues. Phase 2 focuses on evaluating efficacy and is typically the first time the drug is tested in the target patients with the disease against which the drug is being developed. Finally, Phase 3 focuses on testing the drug in a larger patient population to demonstrate the statistical rigor of the efficacy endpoint. If these trials are successful, and the respective health authorities have a positive view of the data as supportive of a marketing application, the drug is submitted to the regulatory authorities for approval to launch. On average, this process takes 13.5 years from target identification to marketed drug. This approach is the product of progressive evolution rather than the answer to the foundational question of what model would be the best based on the most up-to-date capabilities.

 

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Valo started by asking the question of how we can use human data and computation to build a new model — one anchored in increasing probability of success, while reducing risk, cost, and time. We believe that Valo is uniquely positioned to take advantage of the opportunity to bring forth such a transformation. Simply applying AI to the current system is not enough, as that retains the challenges of the legacy approach: localization, serial development, disintegration, and surrogacy. But diseases are complex, and we need to embrace that complexity to address important diseases. We believe this is achievable by leveraging human-centric data, artificial intelligence, and integration.

Our drug development model is unified, integrated, human-centric, and parallelized. We believe this can allow for data and insights to be shared across the drug discovery and development process, enabling alignment and progressive learning as well as mitigating late-stage risk. Moreover, our focus on human-centric data means that Opal-generated insights are designed to be derived from actual human biology as opposed to surrogate models. We envision a full system transformation, and are learning from legacy challenges to build a new model. For example, we have applied our data fusion approach in the context of target discovery to identify novel targets through the integration of longitudinal, chemistry, and biological data. To support clinical development, we can utilize operational, chemistry, and biological data to analyze the probability of success of a given clinical trial. Our product candidates developed using Opal will be subject to the same regulatory standards as other similar drugs, including a demonstration that the drug is safe for its intended use and the provision of substantial evidence of effectiveness.

 

 

LOGO

Valo is a technology company built to transform drug discovery and development using human-centric data and computation. Opal is designed to enable a new model of drug discovery and development rather than applying AI to the constrained legacy approach. [1] Paul, Steven M., et al. “How to improve R&D productivity: the pharmaceutical industry’s grand challenge.” Nat Rev Drug Discov 9, 203–214 (Mar 2010). [2] Hughes, James P., et al. “Principles of Early Drug Discovery.” British Journal of Pharmacology 162.6, 1239-1249 (Mar 2011). [3] Konersmann, Todd., et al. “Innovating R&D with the Cloud: Business Transformation Could Require Cloud-Enabled Ecosystems, and Services.” Deloitte Insights, Deloitte Center for Health Solutions, (Dec 2020). [4] See, for example, Seoka, Junhee, et al. “Genomic Responses in Mouse Models Poorly Mimic Human Inflammatory Diseases.” PNAS, 110 (9) 3507-3512. (Feb 26, 2013). [5] The Opal platform is being designed and built with the goal of developing product candidates more efficiently than current industry standards, which we refer to as the Valo Drug Development Model.

 

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Our Value-Creation Strategy

We believe the industry needs a new model for drug discovery and development. We are developing Opal to be that new model.

Our initial strategic focus is building what we believe to be the first digitally-native fully-integrated biopharmaceutical company, using Opal to support the development of our progressively-scalable internal supply chain of programs. Our pipeline and discovery-stage programs have been designed with the goal of reducing portfolio exposure and increasing value. We plan to initiate a Phase 2 clinical trial this year for OPL-0301, and have multiple clinical trial starts planned in 2022, with a goal of having a steady flow of three or more new clinical trial starts each year thereafter. To date, we have only filed an original IND for OPL-0301 and have not filed an original IND for our other product candidates.

Powered by Opal, Valo aspires to transform the biopharmaceutical industry. We are:

 

  

Optimizing the portfolio across our three lead product candidates (two of which are licensed from Sanofi and one that was acquired in connection with our acquisition of Courier) and 14 active discovery-stage programs with high impact potential;

 

  

Expecting several near-term clinical development milestones in a variety of therapeutic areas, including a target IND submission in the first half of 2022 for OPL-0401 and a target IND submission in the second half of 2022 for OPL-0101, depending on FDA interactions in the coming quarters; and

 

  

Aiming to create a repeatable flow of two to three preclinical drug candidates annually, starting in 2022.

We are also planning to launch and scale an external supply chain of programs, thereby increasing the velocity of Opal’s flywheel. We believe there is an opportunity for Opal to become the standard technology platform for drug development via a combination of asset purchases, license agreements, partnerships, collaborations and software solutions, among others. With three product candidates in our current pipeline (two of which are licensed from Sanofi and one that was acquired in connection with our acquisition of Courier), 14 other discovery-stage programs and 202 targets actioned as of the date of this proxy statement/prospectus, we believe we are building a valuable and scalable supply chain of progressing assets. Through our data g compute g drug flywheel, we are increasing the influx of data into our human-centric data lake, and iteratively enhancing the capabilities of our Opal platform.

Our current pipeline is shown below. We use the prefix “OPL-” to refer to product candidates and “OPAL-” to refer to programs.

 

 

LOGO

Our most advanced assets are poised to enter Phase 2 clinical trials this year and in 2022, followed by additional Opal-enabled programs. [1] Previously known as SAR247799. Valo in-licensed OPL-0301 from Sanofi in February 2021. [2] Previously known as SAR407899. Valo in-licensed OPL-0401 from Sanofi in May 2021. [3] Valo acquired OPL-0101 in May 2021 in connection with its acquisition of Courier.

 

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In addition to our pipeline above, we also are deploying our Opal platform to advance multiple preclinical discovery-stage cardiovascular metabolic renal, oncology, and neurodegenerative programs. As with our lead product candidates, these programs leverage Opal.

In the future, we intend to focus on the external development of our drug development capabilities by building collaborations with academia, pharma and biotech companies, and industry R&D participants, to extend the capabilities of Opal, and generate revenue/value creation opportunities. We intend to launch such external efforts in 2022.

We believe the continued expansion of our programs, both internal and external, will continue to develop Opal’s flywheel, leveraging our distinctive high-quality human-centric data foundation and unique integrated platform, thus creating a progressive and growing advantage while enhancing R&D internally and across the industry.

Our long-term aspiration is to be the catalyst for helping transform how therapeutics are discovered, designed, validated, and delivered to patients.

The Parties to the Business Combination

KVSA

Khosla Ventures Acquisition Co. is a blank check company formed in order to effect a merger, capital stock exchange, asset acquisition or other similar business combination with one or more businesses or entities. KVSA was incorporated under the laws of Delaware on January 15, 2021.

On March 8, 2021, KVSA closed its initial public offering of 34,500,000 public shares, including the issuance of 4,500,000 public shares as a result of the underwriters’ exercise of their over-allotment option in full. The public shares from the initial public offering were sold at an offering price of $10.00 per public share, generating total gross proceeds of $345,000,000. Simultaneously with the consummation of the initial public offering, KVSA consummated the private sale of 990,000 private placement shares to the Sponsor at $10.00 per share for an aggregate purchase price of $9,900,000. A total of $345,000,000 was deposited into the trust account and the remaining proceeds became available to be used as working capital to provide for business, legal and accounting due diligence on prospective business combinations and continuing general and administrative expenses. The initial public offering was conducted pursuant to a registration statement on Form S-1 (Reg. No. 333-253096) that became effective on March 3, 2021. As of October 13, 2021, the record date, there was $345,010,544.46 held in the trust account.

KVSA’s public shares are listed on Nasdaq under the symbol KVSA. As of June 8, 2021, the date preceding public announcement of the Merger Agreement, the closing price of the public shares was $10.22 per share.

The mailing address of KVSA’s principal executive office is 2128 Sand Hill Rd, Menlo Park, CA 94025. Its telephone number is (650) 376-8500. After the consummation of the Business Combination, its principal executive office will be that of Valo.

Merger Sub

Killington Merger Sub Inc. (“Merger Sub”) is a Delaware corporation and a wholly owned subsidiary of KVSA. The Merger Sub does not own any material assets or operate any business.

Valo

Valo Holdco is a Delaware limited liability company formed on June 3, 2019. Valo Holdco is a technology company built to transform drug discovery and development using human-centric data and artificial intelligence.

 

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Valo Holdco’s principal executive office is located at 399 Boylston Street, Boston, MA 02116. Their telephone number is (617) 237-6080.

Valo is a Delaware corporation incorporated on October 24, 2018. Valo is a wholly-owned subsidiary of Valo Holdco (prior to the Pre-Closing Restructuring, as described in further detail in the section titled “Pre-Closing Restructuring”). Valo’s principal executive office is located at 399 Boylston Street, Boston, MA 02116. Their telephone number is (617) 237-6080.

Proposals to be Put to the Stockholders of KVSA at the Special Meeting

The following is a summary of the proposals to be put to the special meeting of KVSA and certain transactions contemplated by the Merger Agreement. Each of the proposals below, except the Advisory Charter Amendment Proposals and the Adjournment Proposal, is cross-conditioned on the approval of each other. The Advisory Charter Amendment Proposals and the Adjournment Proposal are not conditioned upon the approval of any of the other proposals set forth in this proxy statement/prospectus. The transactions contemplated by the Merger Agreement will be consummated only if the Condition Precedent Proposals are approved at the special meeting.

BCA Proposal

As discussed in this proxy statement/prospectus, KVSA is asking its stockholders to approve and adopt the Agreement and Plan of Merger, dated as June 9, 2021, as amended by that certain Amendment No. 1 to Agreement and Plan of Merger dated September 22, 2021, by and among KVSA, Merger Sub and the Valo Parties, a copy of which is attached to the accompanying proxy statement/ prospectus as Annex A. The Merger Agreement provides for, among other things, the merger of Merger Sub with and into Valo (the “Merger”), with Valo surviving the merger as a wholly owned subsidiary of KVSA, in accordance with the terms and subject to the conditions of the Merger Agreement as more fully described elsewhere in this proxy statement/prospectus. After consideration of the factors identified and discussed in the section entitled “BCA Proposal — The KVSA Board’s Reasons for the Business Combination,” KVSA’s board of directors concluded that the Business Combination met all of the requirements disclosed in the prospectus for KVSA’s initial public offering, including that the business of Valo and its subsidiaries had a fair market value equal to at least 80% of the net assets held in trust (excluding the deferred underwriting commissions and taxes payable on the income earned on the trust account). For more information about the transactions contemplated by the Merger Agreement, see “BCA Proposal.”

Aggregate Merger Consideration

As a result of and upon the closing of the Merger (the “Closing”), among other things, (i) all outstanding shares of capital stock of Valo, including restricted shares of Valo common stock, will be cancelled in exchange for the right to receive an aggregate of 220,691,502 shares of New Valo common stock (at a deemed value of $10.00 per share) and (ii) all outstanding options to purchase shares of Valo common stock will be exchanged for options to purchase an aggregate of 10,205,856 shares of New Valo common stock (“New Valo Options”) (at a deemed weighted average value of $4.22 per share assuming that all New Valo Options are net settled), representing a pre-transaction equity value of Valo of $2.25 billion (the “Aggregate Merger Consideration”). The Aggregate Merger Consideration does not take into account certain additional issuances (i) to the PIPE Investors pursuant to the PIPE Investment which may be made under the terms of the respective Subscription Agreements, (ii) to Sponsor which may be made pursuant to the terms of the Forward Purchase Agreement, or (iii) to Valo management and employees pursuant to the 2021 Incentive Plan. For further details, see “BCA Proposal — The Merger Agreement — Consideration — Aggregate Merger Consideration.”

 

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Closing Conditions

The Merger Agreement is subject to the satisfaction or waiver of certain customary closing conditions, including, among others, (i) approval of the Transactions and related matters by KVSA’s stockholders and equity holders of the Valo Parties, (ii) the effectiveness of the registration statement of which this proxy statement/ prospectus forms a part, (iii) the receipt of certain regulatory approvals (including, but not limited to, approval for listing on Nasdaq or the New York Stock Exchange of the shares of New Valo common stock to be issued in connection with the Merger and the expiration or early termination of the waiting period or periods under the HSR Act), (iv) that KVSA has at least $5,000,001 of net tangible assets upon Closing, (v) the Pre-Closing Restructuring having been completed no later than one business day prior to the closing date, and (vi) the absence of any injunctions.

Other conditions to Valo’s obligations to consummate the Merger include, among others, that as of the Closing, (i) the Existing Organizational Documents shall have been amended and restated, and (ii) the satisfaction of the Minimum Cash Condition.

The Minimum Cash Condition is for the sole benefit of Valo. If such condition is not met, and such condition is not waived under the terms of the Merger Agreement, then the Merger Agreement could terminate and the proposed Business Combination may not be consummated. In addition, pursuant to the Existing Organizational Documents, in no event will KVSA redeem public shares in an amount that would cause New Valo’s net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) to be less than $5,000,001.

For further details, see “BCA Proposal — The Merger Agreement.

Charter Proposal

If the BCA Proposal is approved, KVSA will ask its stockholders to approve the Charter Proposal in connection with the replacement of the Existing Charter with the Proposed Charter under the DGCL. KVSA’s board of directors has approved the Charter Proposal and believes such proposal is necessary to adequately address the needs of New Valo after the Business Combination. Approval of the Charter Proposal is a condition to the consummation of the Business Combination. A brief summary of the Charter Proposal is set forth below. These summaries are qualified in their entirety by reference to the complete text of the Proposed Organizational Documents.

(a) to change the corporate name of KVSA after the Business Combination to “Valo Health Holdings, Inc.”;

(b) to increase KVSA’s capitalization so that it will have 600,000,000 authorized shares of a single series of common stock and 50,000,000 authorized shares of preferred stock;

(c) to provide that the removal of any director be only for cause and by the affirmative vote of the holders of not less than two-thirds of New Valo’s then-outstanding shares of capital stock entitled to vote generally in the election of directors;

(d) to provide that certain amendments to provisions of the Proposed Charter will require the approval of the holders of a majority of New Valo’s then-outstanding shares of capital stock entitled to vote on such amendment;

(e) to make New Valo’s corporate existence perpetual as opposed to KVSA’s corporate existence, which is required to be dissolved and liquidated 24 months following the closing of its initial public offering, and to remove from the Proposed Charter the various provisions applicable only to special purpose acquisition companies;

 

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(f) to provide that New Valo will not be subject to Section 203 of the DGCL, which prohibits Delaware corporations from entering into business combinations with interested stockholders, defined as those that hold 15% or more of the corporation’s voting stock, absent the receipt of specific approvals specified in Section 203 of the DGCL; and

(g) to remove the provisions setting the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain stockholder actions.

The Proposed Organizational Documents differ in certain material respects from the Existing Organizational Documents and KVSA encourages stockholders to carefully review the information set out in the section entitled “Charter Proposal” and the full text of the Proposed Organizational Documents of New Valo.

Advisory Charter Amendment Proposals

Assuming the BCA Proposal, the Charter Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal and the ESPP Proposal are approved, KVSA’s stockholders are also being asked to approve the Advisory Charter Amendments Proposals in connection with the replacement of the Existing Charter with the Proposed Charter under the DGCL. In accordance with SEC guidance, this proposal is being presented separately and will be voted upon on a non-binding advisory basis. KVSA’s Board has approved the Advisory Charter Amendment Proposals and believes such proposals are necessary to adequately address the needs of New Valo after the Business Combination.

(a) Advisory Charter Amendment Proposal A — to change the corporate name of KVSA after the Business Combination to “Valo Health Holdings, Inc.”;

(b) Advisory Charter Amendment Proposal B — to increase KVSA’s capitalization so that it will have 600,000,000 authorized shares of a single series of common stock and 50,000,000 authorized shares of preferred stock;

(c) Advisory Charter Amendment Proposal C —  to reclassify and convert the 5,000,000 shares of KVSA Class K common stock into 8,697,479 shares of KVSA Class A common stock immediately prior to the Closing;

(d) Advisory Charter Amendment Proposal D — to provide that the removal of any director be only for cause and by the affirmative vote of the holders of not less than two-thirds of New Valo’s then-outstanding shares of capital stock entitled to vote generally in the election of directors;

(e) Advisory Charter Amendment Proposal E — to provide that certain amendments to provisions of the Proposed Charter will require the approval of the holders of a majority of New Valo’s then-outstanding shares of capital stock entitled to vote on such amendment;

(f) Advisory Charter Amendment Proposal F — to make New Valo’s corporate existence perpetual as opposed to KVSA’s corporate existence, which is required to be dissolved and liquidated 24 months following the closing of its initial public offering, and to remove from the Proposed Charter the various provisions applicable only to special purpose acquisition companies;

(g) Advisory Charter Amendment Proposal G — to provide that New Valo will not be subject to Section 203 of the DGCL, which prohibits Delaware corporations from entering into business combinations with interested stockholders, defined as those that hold 15% or more of the corporation’s voting stock, absent the receipt of specific approvals specified in Section 203 of the DGCL; and

(h) Advisory Charter Amendment Proposal H — to remove the provisions setting the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain stockholder actions.

 

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Stock Issuance Proposal

Assuming the BCA Proposal, the Charter Proposal, the Incentive Award Plan Proposal and the ESPP Proposal are approved, KVSA’s stockholders are also being asked to approve the Stock Issuance Proposal. For additional information, see “Stock Issuance Proposal.”

Incentive Award Plan Proposal

Assuming the BCA Proposal, the Charter Proposal, the Stock Issuance Proposal and the ESPP Proposal are approved, KVSA’s stockholders are also being asked to approve the 2021 Plan, in order to comply with Nasdaq Listing Rule 5635 and the Internal Revenue Code. For additional information, see “Incentive Award Plan Proposal.”

ESPP Proposal

Assuming the BCA Proposal, the Charter Proposal, the Stock Issuance Proposal and the Incentive Award Plan Proposal are approved, KVSA’s stockholders are also being asked to approve the ESPP, in order to comply with Nasdaq Listing Rule 5635 and the Internal Revenue Code. For additional information, see “ESPP Proposal.”

Adjournment Proposal

If, based on the tabulated vote, there are not sufficient votes at the time of the special meeting to authorize KVSA to consummate the Business Combination (because any of the Condition Precedent Proposals have not been approved (including as a result of the failure of any other cross-conditioned Condition Precedent Proposals to be approved)), KVSA’s board of directors may submit a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies. For additional information, see “Adjournment Proposal.”

The KVSA Board’s Reasons for the Business Combination

KVSA was organized for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

In evaluating the Business Combination, the KVSA Board and management considered (i) the general criteria and guidelines that KVSA believed would be important in evaluating prospective target businesses as described in the prospectus for KVSA’s initial public offering and (ii) that they could enter into a business combination with a target business that does not meet those criteria and guidelines. In the prospectus for its initial public offering, KVSA stated that it intended to seek a business combination with a business:

 

  

addressing a large market that creates the opportunity for attractive long-term growth prospects;

 

  

protected by proprietary technology advantages;

 

  

that has achieved sufficient technology and business maturity while maintaining significant topline growth potential;

 

  

with a creative and ambitious management team with a proven track record of success;

 

  

pursuing significant technology innovation that has the potential to have a significant positive impact on the world;

 

  

with rapid innovation cycles;

 

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that maintains strong and defensible competitive advantages, which KVSA believes over time will lead to durable and profitable growth; and

 

  

where KVSA can materially impact the value of the company in partnership with management.

The KVSA Board determined that the Business Combination was an attractive business opportunity that met the vast majority of the criteria and guidelines above. The KVSA Board considered a number of additional factors pertaining to the Business Combination as generally supporting its decision to enter into the Merger Agreement and the transactions contemplated thereby, including but not limited to, the following material factors:

 

  

Promising pipeline of product candidates. The Valo Parties have two clinical stage candidates. OPL-0301 is a small molecule, G-protein biased S1P1 receptor (S1P1R) functional agonist in development for the treatment of heart failure and kidney injury. The Valo Parties expect to file an IND (and filed such IND in September 2021) and initiate a Phase 2 clinical trial in heart failure in 2021 and thereafter initiate a Phase 2 clinical trial in acute kidney injury. OPL-0401 is an oral, small molecule ROCK1/2 inhibitor in development for the treatment of diabetic retinopathy and other complications of diabetes. The Valo Parties expect to initiate a Phase 2 clinical trial in diabetic retinopathy in 2022. With the foregoing in-licensed clinical stage assets addressing widespread medical conditions and 14 discovery-stage programs across cardiovascular metabolic renal, oncology, and neurodegenerative diseases, the KVSA Board believes that the Valo Parties are advancing a promising product pipeline.

 

  

Scalable, differentiated technology platform. Although the KVSA Board acknowledges that the most advanced internally developed programs from Valo Health’s platform are currently in molecule discovery, the KVSA Board believes that the Valo Parties’ proposed use of artificial intelligence across its programs, from target discovery and therapeutic development, to clinical development, trial design, and patient care if their products are approved, both gives the Valo Parties potentially significant advantages over companies that have largely focused artificial intelligence on trying to improve single points of the therapeutic pipeline. In addition, the KVSA Board believes that the Valo Parties’ core platform technology has the potential to be scalable and repeatable across diseases and therapeutic areas, although this has not yet been demonstrated in clinical development.

 

  

Extensive, high-quality patient data sources provide significant competitive advantages. The Valo Parties have a vision to become the first digitally-native fully-integrated biopharmaceutical company, utilizing its Opal computational platform, which is designed to use human data and artificial intelligence as the foundation for drug discovery and development. To that end, the Valo Parties have access to over 125 million patient-years of de-identified patient data generated by third parties and exclusive access to one of the largest prospective studies spanning pan-omics, imaging and medical records. In addition, the Valo Parties generate their own data through every experiment that they run. The KVSA Board believes that the scale and quality of the Valo Parties’ sourced data lake, together with its internally-generated proprietary datasets, provides significant advantages over competitors focused on traditional drug development processes.

 

  

Experienced, proven and committed management team. The KVSA Board considered the fact that New Valo will be led by the senior management team of the Valo Parties. Valo’s Chief Executive Officer, David Berry, MD, Ph.D. has co-founded more than 20 companies across the life sciences and sustainability sectors. Dr. Berry has assembled a team of experts in technology development and therapeutic research and development. The KVSA Board also believes that the willingness of the Valo Parties’ management team to roll over all of their equity stake and agree to prohibitions on the transfer of their New Valo equity for up to 180 days following the consummation of the Business Combination reflected management’s belief in and commitment to New Valo’s continued growth following the consummation of the Business Combination.

 

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Backed by strong investor syndicate. Valo was founded by Flagship Pioneering and its existing investors also include Koch Disruptive Technologies and the Public Sector Pension Investment Board, all of which have committed to invest further in New Valo through the PIPE Investment. Flagship Pioneering has deep domain expertise along with a successful track record of conceiving, creating, resourcing and developing first-in-category bioplatform companies. The KVSA Board believes these investors provide additional validation to the Valo Parties’ business strategies, innovation and high-growth potential.

 

  

Financial analysis conducted by KVSA. The financial analysis conducted by KVSA’s management team and reviewed by the KVSA Board supported the equity valuation of the Valo Parties. See “—Summary of KVSA Financial Analysis.”

 

  

Other alternatives. The KVSA Board believes, after a review of other business combination opportunities reasonably available to KVSA, that the Business Combination represents the best initial business combination for KVSA and the most attractive opportunity for KVSA’s management to accelerate its business plan based upon the process used to evaluate and assess other potential acquisition targets, and the KVSA Board’s belief that such process has not presented a better alternative.

 

  

Negotiated transaction. The financial and other terms of the Merger Agreement and the fact that such terms and conditions are reasonable and were the product of arm’s length negotiations between KVSA and the Valo Parties.

The KVSA Board also considered a variety of uncertainties and risks and other potentially negative factors concerning the Business Combination, including, but not limited to, the following:

 

  

Valo’s business risks. The KVSA Board considered that KVSA stockholders would be subject to the execution risks associated with New Valo if they retained their public shares following the Closing, which were different from the risks related to holding public shares of KVSA prior to the Closing. In this regard, the KVSA Board considered that there were risks associated with successful implementation of New Valo’s long term business plan and strategy and New Valo realizing the anticipated benefits of the Business Combination on the timeline expected or at all, including due to factors outside of the parties’ control, such as the potential negative impact of the COVID-19 pandemic and related macroeconomic uncertainty. The KVSA Board considered that the failure of any of these activities to be completed successfully may decrease the actual benefits of the Business Combination and that KVSA stockholders may not fully realize these benefits to the extent that they expected to retain the public shares following the completion of the Business Combination. For an additional description of these risks, please see “Risk Factors.”

 

  

Liquidation of KVSA. The risks and costs to KVSA if the Business Combination is not completed, including the risk of diverting management focus and resources from other businesses combination opportunities, which could result in KVSA being unable to effect a business combination within the timeframe provided for under its Existing Charter and forcing KVSA to liquidate.

 

  

Exclusivity. The fact that the Merger Agreement includes an exclusivity provision that prohibits KVSA from soliciting other business combination proposals and restricts KVSA’s ability to consider other potential business combinations so long as the Merger Agreement is in effect.

 

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Stockholder vote. The risk that KVSA’s stockholders may fail to provide the respective votes necessary to effect the Business Combination.

 

  

Redemption risk. The KVSA Board considered the risk that the current public stockholders of KVSA would redeem their public shares for cash in connection with consummation of the Business Combination, thereby reducing the amount of cash available to New Valo following the consummation of the Business Combination and potentially allowing Valo to terminate the Business Combination or,

 

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at Valo’s election, waive the condition under the Merger Agreement requiring that the funds in the trust account (after giving effect to redemptions but before the payment of deferred underwriting commissions or transaction expenses of KVSA or Valo), together with the PIPE Investment Amount and the amounts funded under the Forward Purchase Agreement (if any), is equal to or exceeds $450.0 million, in order for the Business Combination to be consummated. As of June 30, 2021, without giving effect to any future redemptions that may occur, the trust account had approximately $345.0 million invested in U.S. Treasury securities and money market funds that invest in U.S. government securities.

 

  

Post-business combination corporate governance. The KVSA Board considered the corporate governance provisions of the Merger Agreement and the proposed material provisions of the Proposed Governing Documents and the effect of those provisions on the governance of New Valo. See “— The Merger Agreement” and “Management of New Valo Following the Business Combination” for detailed discussions of the terms and conditions of these documents.

 

  

Limitations of review. The KVSA Board considered that it was not obtaining a third-party valuation or fairness opinion from any independent investment banking or accounting firm. In addition, KVSA’s management and outside counsel reviewed only certain materials in connection with their due diligence review of the Valo Parties. Accordingly, the KVSA Board considered that KVSA may not have properly valued the Valo Parties.

 

  

No underwritten offering. The KVSA Board considered the risks to public stockholders who are not affiliates of the Sponsor of becoming stockholders of New Valo through the Business Combination rather than through an underwritten public offering, including that no independent due diligence review was conducted by an underwriter.

 

  

Closing conditions. The fact that completion of the Business Combination is conditioned on the satisfaction of certain closing conditions that are not within KVSA’s control.

 

  

KVSA stockholders holding a minority position in New Valo. The fact that KVSA’s stockholders will hold a minority position in the post-combination company (approximately 15% assuming that no shares of KVSA Class A common stock are elected to be redeemed by KVSA stockholders), which may reduce the influence that KVSA’s current stockholders have on the management of New Valo.

 

  

No survival of remedies for breach of representations, warranties or covenants of the Valo Parties. The KVSA Board considered that the terms of the Merger Agreement provide that KVSA will not have any surviving remedies against the Valo Parties after the Closing to recover for losses as a result of any inaccuracies or breaches of the Valo Parties’ representations, warranties or covenants set forth in the Merger Agreement. As a result, KVSA stockholders could be adversely affected by, among other things, a decrease in the financial performance or worsening of financial condition of the Valo Parties prior to the Closing, whether determined before or after the Closing, without any ability to reduce the number of shares of New Valo common stock to be issued in the Business Combination or recover for the amount of any damages. The KVSA Board determined that this structure was appropriate and customary in light of the fact that it is consistent with market practice for similar transactions and the Valo Parties would not have proceeded with the Business Combination otherwise.

 

  

Litigation. The possibility of litigation challenging the Business Combination or that an adverse judgment granting injunctive relief could indefinitely delay or otherwise permanently prohibit consummation of the Business Combination.

 

  

Fees and expenses. The fees and expenses associated with completing the Business Combination.

 

  

Other risks. Various other risks associated with the Business Combination, the business of KVSA and the business of the Valo Parties described under the section entitled “Risk Factors.”

 

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In addition to considering the factors described above, the KVSA Board also considered that certain officers and directors of KVSA may have interests in the Business Combination as individuals that are in addition to, and that may be different from, the interests of KVSA’s stockholders (see “ —Interests of KVSA’s Directors and Executive Officers in the Business Combination”). However, the KVSA Board concluded that the potentially disparate interests would be mitigated because, among other reasons, (i) certain of these interests were disclosed in the prospectus for KVSA’s initial public offering and are included in this proxy statement/prospectus, (ii) these disparate interests would exist with respect to a business combination by KVSA with any other target business or businesses and (iii) the Business Combination was structured so that it may be completed even if KVSA’s public stockholder redeem a substantial portion of the KVSA Class A common stock. In addition, KVSA’s independent directors reviewed and considered these interests during the negotiation of the Business Combination and in evaluating and approving, as members of the KVSA Board, the Merger Agreement and the transactions contemplated therein, including the Business Combination.

The KVSA Board concluded that the potential benefits that it expected KVSA and its stockholders to achieve as a result of the Business Combination outweighed the potentially negative factors associated with the Business Combination. Accordingly, the KVSA Board determined that the Merger Agreement and the Business Combination were advisable, fair to, and in the best interests of, KVSA and its stockholders.

For a more complete description of the KVSA board of directors’ reasons for approving the Business Combination, including other factors and risks considered by the KVSA board of directors, see the section entitled “BCA Proposal — The KVSA Board’s Reasons for the Business Combination.”

Related Agreements

This section describes certain additional agreements entered into or to be entered into pursuant to the Merger Agreement. For additional information, see “BCA Proposal — Related Agreements.”

Sponsor Support Agreement

In connection with the execution of the Merger Agreement, KVSA entered into a sponsor support agreement with the Valo Parties, Sponsor, and each member, officer and director of KVSA and Sponsor, as applicable, a copy of which is attached to the accompanying proxy statement/prospectus as Annex E (the “Sponsor Support Agreement”).

Pursuant to the Sponsor Support Agreement, the Sponsor and each member, officer and director of KVSA and Sponsor, as applicable agreed to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby, in each case, subject to the terms and conditions contemplated by the Sponsor Support Agreement. The Sponsor Support Agreement covers 10,990,000 shares of KVSA common stock, 5,990,000 of which are entitled to vote on the proposals being presented at the special meeting. For additional information, see “BCA Proposal — Related Agreements — Sponsor Support Agreement.

Sponsor Vesting Agreement

In connection with the execution of the Merger Agreement, the Sponsor entered into the Sponsor Vesting Agreement with KVSA and the Valo Parties, pursuant to which the parties thereto agreed to, among other things, certain vesting terms with respect to the shares of KVSA Class A common stock issuable upon conversion of the KVSA Class K common stock beneficially owned by the Sponsor as of the Closing on the terms and subject to the conditions set forth in the Sponsor Vesting Agreement, which vesting terms are substantially the same as those set forth in the Existing Charter. For additional information, see “BCA Proposal — Related Agreements — Sponsor Vesting Agreement.

 

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Member Support Agreement

In connection with the execution of the Merger Agreement, KVSA entered into a support agreement with the Valo Parties and certain equityholders and each director and officer of Valo Holdco (the “Valo Holdco Members”), a copy of which is attached to the accompanying proxy statement/prospectus as Annex F (the “Member Support Agreement”). Pursuant to Member Support Agreement, certain Valo Holdco Members agreed to, among other things, vote to adopt and approve the Merger Agreement and all other documents and transactions contemplated thereby, including the Pre-Closing Restructuring, in each case, subject to the terms and conditions of Member Support Agreement. For additional information, see “BCA Proposal — Related Agreements — Member Support Agreement.

Registration Rights Agreement

The Merger Agreement contemplates that, at the Closing, New Valo, Sponsor, certain former stockholders of Valo (the “Valo Stockholders”) and the other parties thereto will enter into a Registration Rights Agreement, a copy of which is attached to the accompanying proxy statement/prospectus as Annex I (the “Registration Rights Agreement”), pursuant to which New Valo will agree to register for resale, pursuant to Rule 415 under the Securities Act, up to 195,268,702 shares of New Valo common stock and other equity securities of New Valo that are held by the parties thereto from time to time (including shares of New Valo common stock underlying New Valo Options and assuming New Valo issues zero shares of New Valo common stock to Sponsor (together with any permitted transferees under the Forward Purchase Agreement) pursuant to the Forward Purchase Agreement). For additional information, see “BCA Proposal — Related Agreements — Registration Rights Agreement.

PIPE Subscription Agreements

In connection with the execution of the Merger Agreement, KVSA entered into Subscription Agreements with the PIPE Investors, a copy of the form of which is attached to the accompanying proxy statement/prospectus as Annex H, pursuant to which the PIPE Investors agreed to purchase, in the aggregate, 20,086,250 shares of New Valo common stock at $10.00 per share for an aggregate commitment amount of $200,862,500. The obligation of the parties to consummate the purchase and sale of the shares covered by the Subscription Agreement is conditioned upon (i) there not being in force any injunction or order enjoining or prohibiting the issuance and sale of the shares covered by the Subscription Agreement, (ii) there not being any amendment or modification of the terms of the Merger Agreement in a manner that is materially adverse to the PIPE Investor (in its capacity as such) and (iii) the prior or substantially concurrent consummation of the transactions contemplated by the Merger Agreement. The closings under the Subscription Agreements will occur substantially concurrently with the Closing. For additional information, see “BCA Proposal — Related Agreements — PIPE Subscription Agreements.

Lock-up Agreements

The Support Agreements contemplate that, at the Closing, New Valo and the Valo Holdco Members will enter into a lock-up agreement (the “Valo Holders Lock-Up Agreement”), and New Valo and the Sponsor Holders will enter into a separate lock-up agreement (the “Sponsor Lock-Up Agreement”), which agreements contain certain restrictions on transfer with respect to shares of New Valo common stock held by the Valo Holdco Members and the Sponsor Holders immediately following the Closing (other than shares purchased in the public market or, in the case of the Valo Holdco Members, in the PIPE Investment) and, in the case of the Valo Holdco Members, the shares of New Valo common stock issuable to such persons upon settlement or exercise of stock options or other equity awards outstanding as of immediately following the Closing in respect of Valo Awards outstanding immediately prior to the Closing. For additional information, see “BCA Proposal — Related Agreements —Lock-up Agreements.

 

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Forward Purchase Agreement

In connection with the closing of KVSA’s initial public offering, Sponsor entered into the Forward Purchase Agreement pursuant to which Sponsor (together with any permitted transferees under the Forward Purchase Agreement) agreed to purchase, upon the closing of KVSA’s initial business combination if necessary to meet the Minimum Cash Condition, an aggregate of up to 2,500,000 shares of KVSA Class A common stock, for an aggregate purchase price of up to $25,000,000, or $10.00 per share of KVSA Class A common stock. For additional information, see “BCA Proposal — Related Agreements — Forward Purchase Agreement.”

Ownership of New Valo following Business Combination

As of the date of this proxy statement/prospectus, there are 45,490,000 shares of KVSA common stock issued and outstanding, which includes the 10,000,000 founder shares held by the Sponsor and related parties (without giving effect to the conversion of the founder shares into New Valo common stock in connection with the closing of the Business Combination), the 990,000 private placement shares held by the Sponsor and the 34,500,000 public shares. Therefore, as of the date of this proxy statement/prospectus (without giving effect to the Business Combination), the KVSA fully diluted share capital would be 45,490,000.

It is anticipated that, following the Business Combination, (1) KVSA’s public stockholders are expected to own approximately 11.5% of the outstanding New Valo common stock, (2) Valo Stockholders (without taking into account any public shares held by the Valo Stockholders prior to the consummation of the Business Combination and including the Valo PIPE Investors) are expected to own approximately 79.5% of the outstanding New Valo common stock, (3) the Sponsor and related parties (including the Sponsor Related PIPE Investor) are expected to collectively own approximately 5.6% of the outstanding New Valo common stock and (4) the Third Party PIPE Investors are expected to own approximately 3.5% of the outstanding New Valo common stock. These percentages assume (i) that no public stockholders exercise their redemption rights in connection with the Business Combination, (ii) (a) the vesting of all shares of New Valo common stock received in respect of the New Valo Restricted Shares, (b) the vesting and exercise of all New Valo Options for shares of New Valo common stock that are issued and outstanding as of the Closing, and (c) that New Valo issues shares of New Valo common stock as the Aggregate Merger Consideration pursuant to the Merger Agreement, which in the aggregate equals 230,897,358 shares of New Valo common stock (including 10,205,856 shares of New Valo common stock issuable upon exercise of New Valo Options), (iii) New Valo issues 20,086,250 shares of New Valo common stock to the PIPE Investors pursuant to the PIPE Investment, (iv) New Valo issues zero shares of New Valo common stock to Sponsor (together with any permitted transferees under the Forward Purchase Agreement) pursuant to the Forward Purchase Agreement, (v) the conversion of all outstanding KVSA Class B common stock shares into an aggregate of 6,088,229 shares of New Valo common stock, (vi) the conversion of all outstanding KVSA Class K common stock shares into an aggregate of 8,697,479 shares of New Valo common stock and (vii) the vesting of all shares of New Valo common stock issuable upon the conversion of the KVSA Class K common stock. If the actual facts are different from these assumptions, the percentage ownership retained by the Company’s existing stockholders in the combined company will be different.

 

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The following table illustrates varying ownership levels in New Valo immediately following the consummation of the Business Combination based on the assumptions above (except as noted in the footnotes below).

 

   Share Ownership in New Valo 
   Assuming No Redemptions  Assuming Maximum
Redemptions (1)
 
   Number of
Shares
   Percentage of
Outstanding
Shares
  Number of
Shares
  Percentage of
Outstanding
Shares
 

Valo Stockholders BCA Consideration (2)

   230,897,358    76.6  230,897,358   79.2

KVSA public shareholders

   34,500,000    11.5  22,413,226   7.7

Sponsor & related parties founder shares (3)

   15,775,708    5.2  15,775,708   5.4

Valo PIPE Investors

   8,650,000    2.9  8,650,000   3.0

Sponsor Related PIPE Investor

   1,000,000    0.3  3,500,000 (4)   1.2

Third Party PIPE Investors

   10,436,250    3.5  10,436,250   3.6
  

 

 

   

 

 

  

 

 

  

 

 

 

Total

   301,259,316    100.0  291,672,542   100.0
  

 

 

   

 

 

  

 

 

  

 

 

 

 

(1)

Assumes redemptions of 12,086,774 shares of KVSA common stock in connection with the Business Combination (the estimated maximum number of shares of KVSA common stock that could be redeemed in connection with the Business Combination in order to satisfy the Minimum Cash Condition based on: (i) trust account figures as of June 30, 2021, (ii) a redemption price of approximately $10.00 per share and (iii) the issuance of 2,500,000 shares of New Valo common stock to Sponsor pursuant to the Forward Purchase Agreement).

(2)

Includes 220,691,502 shares of New Valo common stock expected to be issued to existing Valo Stockholders in connection with the Business Combination and 10,205,856 shares of New Valo common stock underlying New Valo Options issued in connection with the Business Combination. Excludes amounts set forth opposite “Valo PIPE Investors.”

(3)

Includes 6,088,229 shares of New Valo common stock issued upon conversion of the KVSA Class B Common Stock held by Sponsor and certain directors of Sponsor, 8,697,479 shares of New Valo common stock issued upon conversion of the KVSA Class K Common Stock held by Sponsor and the 990,000 private placement shares held by Sponsor. Excludes amounts set forth opposite “Sponsor Related PIPE Investor.”

(4)

Includes 2,500,000 shares of New Valo common stock subscribed for by Sponsor in connection with the Forward Purchase Agreement.

Date, Time and Place of Special Meeting of KVSA’s Stockholders

The special meeting of the stockholders of KVSA will be held virtually via live webcast at www.virtualshareholdermeeting.com/KVSA2021SM at 10:00 a.m., Eastern Time, on November 16, 2021, to consider and vote upon the proposals to be put to the special meeting, including if necessary, the Adjournment Proposal, to permit further solicitation and vote of proxies if, based upon the tabulated vote at the time of the special meeting, each of the Condition Precedent Proposals have not been approved.

Voting Power; Record Date

KVSA stockholders will be entitled to vote or direct votes to be cast at the special meeting if they owned KVSA Class A common stock or KVSA Class B common stock at the close of business on October 13, 2021, which is the “record date” for the special meeting. Stockholders will have one vote for each share of KVSA common stock owned at the close of business on the record date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that the shares you beneficially own are

 

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properly present at the meeting and voted. As of the close of business on the record date for the special meeting, there were 35,490,000 shares of KVSA Class A common stock issued and outstanding (of which 34,500,000 were issued and outstanding public shares), 5,000,000 shares of KVSA Class B common stock issued and outstanding and 5,000,000 shares of KVSA Class K common stock issued and outstanding.

Quorum and Vote of KVSA Stockholders

A quorum of KVSA stockholders is necessary to hold a valid meeting. A quorum will be present at the KVSA special meeting if holders of outstanding KVSA common stock representing a majority of the voting power of all outstanding shares entitled to vote at the special meeting are represented in person or by proxy at the special meeting. A quorum for purposes of the Charter Proposal also requires that holders of shares of KVSA Class B common stock representing a majority of the voting power of the outstanding shares of KVSA Class B common stock be represented in person or by proxy at the special meeting. Abstentions and broker non-votes, while considered present for the purposes of establishing a quorum, will not count as votes cast at the special meeting. As of the record date for the special meeting, an aggregate of 20,789,115 shares of KVSA Class A common stock and Class B common stock (on an as-converted basis) and, solely with respect to the Charter Proposal, 2,500,001 shares of KVSA Class B common stock would be required to achieve a quorum.

The Sponsor has agreed to vote all of its KVSA Class A common stock and KVSA Class B common stock in favor of the proposals being presented at the special meeting. As of the date of this proxy statement/prospectus, the Sponsor (including KVSA’s independent directors) owns shares of KVSA common stock representing approximately 17% of the outstanding voting power.

The proposals presented at the special meeting require the following votes:

 

  

BCA Proposal: The approval of the BCA Proposal requires the affirmative vote of holders of a majority of the shares of KVSA Class A common stock and KVSA Class B common stock that are voted at the special meeting.

 

  

Charter Proposal: The approval of the Charter Proposal requires (1) the affirmative vote of holders of a majority of the voting power of the outstanding shares of KVSA Class A common stock and KVSA Class B common stock, voting together as a single class, (2) the affirmative vote or written consent of the holders of a majority of the voting power of the outstanding shares of KVSA Class K common stock, voting separately as a series (which consent has already been obtained prior to the special meeting) and (3) the affirmative vote or written consent of the holders of a majority of the voting power of the outstanding shares of KVSA Class B common stock, voting separately as a series. The parties have also agreed to condition the Charter Proposal on the affirmative vote of the holders of a majority of the shares of KVSA Class A common stock then outstanding and entitled to vote thereon, voting separately as a single series.

 

  

Advisory Charter Amendment Proposals: The approval of the Advisory Charter Amendment Proposals requires the affirmative vote of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon, voting together as a single class.

 

  

Stock Issuance Proposal: The approval of the Stock Issuance Proposal requires the affirmative vote of the holders of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon, voting together as a single class.

 

  

Incentive Award Plan Proposal: The approval of the Incentive Award Plan Proposal requires the affirmative vote of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon, voting together as a single class.

 

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ESPP Proposal: The approval of the ESPP Proposal requires the affirmative vote of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon, voting together as a single class.

 

  

Adjournment Proposal: The approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon, voting together as a single class.

Redemption Rights

Pursuant to the Existing Organizational Documents, a public stockholder may request that KVSA redeem all or a portion of its public shares for cash if the Business Combination is consummated. As a holder of public shares, you will be entitled to receive cash for any public shares to be redeemed only if you:

 

  

hold public shares;

 

  

submit a written request, in which you identify yourself as a beneficial holder and provide your legal name, phone number and address, to Continental Stock Transfer & Trust Company (“Continental”), KVSA’s transfer agent, that KVSA redeem all or a portion of your public shares for cash; and

 

  

deliver your public shares to Continental, KVSA’s transfer agent, physically or electronically through DTC.

Holders must complete the procedures for electing to redeem their public shares in the manner described above prior to 5:00 p.m., Eastern Time, on November 12, 2021 (two business days before the special meeting) in order for their shares to be redeemed.

Public stockholders may elect to redeem all or a portion of the public shares held by them regardless of if or how they vote in respect of the BCA Proposal. If the Business Combination is not consummated, the public shares will be returned to the respective holder, broker or bank. If the Business Combination is consummated, and if a public stockholder properly exercises its right to redeem all or a portion of the public shares that it holds and timely delivers its shares to Continental, KVSA’s transfer agent, KVSA will redeem such public shares for a per-share price, payable in cash, equal to the pro rata portion of the trust account, calculated as of two business days prior to the consummation of the Business Combination. For illustrative purposes, as of June 30, 2021, this would have amounted to approximately $10.00 per issued and outstanding public share. If a public stockholder exercises its redemption rights in full, then it will be electing to exchange its public shares for cash and will no longer own public shares. See “Special Meeting of KVSA — Redemption Rights” in this proxy statement/prospectus for a detailed description of the procedures to be followed if you wish to redeem your public shares for cash.

Notwithstanding the foregoing, a public stockholder, together with any affiliate of such public stockholder or any other person with whom such public stockholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from redeeming its public shares with respect to more than an aggregate of 15% of the public shares. Accordingly, if a public stockholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the public shares, then any such shares in excess of that 15% limit would not be redeemed for cash.

The Sponsor has agreed to vote in favor of the Business Combination, regardless of how our public stockholders vote. Unlike some other blank check companies in which the initial stockholders agree to vote their shares in accordance with the majority of the votes cast by the public stockholders in connection with an initial business combination, the Sponsor, and each member, officer and director of KVSA and the Sponsor, as applicable, have agreed to, among other things, vote in favor of the Merger Agreement and the transactions

 

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contemplated thereby, in each case, subject to the terms and conditions contemplated by the Sponsor Support Agreement. As of the date of this proxy statement/prospectus, the Sponsor (including KVSA’s independent directors) owns shares of KVSA common stock representing approximately 17% of the outstanding voting power.

Appraisal Rights

KVSA stockholders do not have appraisal rights in connection with the Business Combination under the DGCL.

Proxy Solicitation

Proxies may be solicited by mail, telephone or in person. KVSA has engaged D.F. King & Co., Inc. (“D.F. King”) to assist in the solicitation of proxies.

If a stockholder grants a proxy, it may still vote its shares in person if it revokes its proxy before the special meeting. A stockholder also may change its vote by submitting a later-dated proxy as described in the section entitled “Special Meeting of KVSA — Revoking Your Proxy.”

Interests of KVSA’s Directors and Executive Officers in the Business Combination

When you consider the recommendation of KVSA’s board of directors in favor of approval of the BCA Proposal, you should keep in mind that the Sponsor and KVSA’s directors and executive officers have interests in such proposal that are different from, or in addition to, those of KVSA stockholders generally. These interests include, among other things, the interests listed below:

 

  

Prior to KVSA’s initial public offering, the Sponsor purchased 10,000,000 founder shares, for approximately $0.002 per share. Subsequent to the share capitalization, the Sponsor transferred 40,000 founder shares to each of Jagdeep Singh, Rajiv Shah, Derek Anthony West, Mario Schlosser, Dmitri Schlosser and Molly Coye, KVSA’s independent directors. If KVSA does not consummate a business combination by the Liquidation Date, it would cease all operations except for the purpose of winding up, redeeming all of the outstanding public shares for cash and, subject to the approval of its remaining shareholders and its board of directors, dissolving and liquidating, subject in each case to its obligations under the DGCL to provide for claims of creditors and the requirements of other applicable law. In such event, the 10,000,000 founder shares owned by the Sponsor and KVSA’s independent directors would be worthless because following the redemption of the public shares, KVSA would likely have few, if any, net assets and because the Sponsor and KVSA’s directors and officers have agreed to waive their respective rights to liquidating distributions from the trust account in respect of the 10,000,000 founder shares held by it if KVSA fails to complete a business combination within the required period. Additionally, in such event, the 990,000 private placement shares purchased by the Sponsor simultaneously with the consummation of the initial public offering for an aggregate purchase price of $9.9 million, will also expire worthless. Mr. Kaul, KVSA’s Chairman and Chief Executive Officer, also has an economic interest in such private placement shares and in the 9,760,000 founder shares owned by the Sponsor. The 14,493,478 shares of New Valo common stock into which the 9,760,000 founder shares held by the Sponsor will automatically convert in connection with the Merger, if unrestricted, fully vested and freely tradable, would have had an aggregate market value of approximately $143.6 million based upon the closing price of $9.91 per share on Nasdaq on October 18, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus. However, given that such shares of New Valo common stock will be subject to certain restrictions, including those described above, KVSA believes such shares have less value. The 292,230 shares of New Valo common stock into which the 240,000 founder shares held by KVSA’s independent

 

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directors will automatically convert in connection with the Merger, if unrestricted and freely tradable, would have had an aggregate market value of approximately $2.9 million based upon the closing price of $9.91 per share on the Nasdaq on October 18, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus. The 990,000 shares of New Valo common stock representing the 990,000 private placement shares held by the Sponsor, if unrestricted and freely tradable, would have had an aggregate market value of approximately $9.8 million based upon the closing price of $9.91 per share on the Nasdaq on October 18, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus. The Sponsor Related PIPE Investors have subscribed for $10,000,000 of the PIPE Investment, for which they will receive 1,000,000 shares of New Valo common stock, which, if unrestricted and freely tradable, would have had an aggregate market value of approximately $9.9 million based upon the closing price of $9.91 per share on Nasdaq on October 18, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus.

 

  

Due to the low purchase price of the founder shares, our Sponsor and its affiliates may earn a positive return on their investment, even if other stockholders experience a negative return on their investment in New Valo (i.e. our Sponsor and its affiliates may still have a positive return even if, following consummation of the Business Combination, the New Valo Class A common stock trades below $10.00 per share, which is the approximate value that public stockholders would receive if they exercised redemption rights as described herein).

 

  

Mr. Kaul, a current director of KVSA, is expected to be a director of New Valo after the consummation of the Business Combination. As such, in the future, Mr. Kaul may receive fees for his service as a director, which may consist of cash or stock-based awards, and any other remuneration that the New Valo board of directors determines to pay to its non-employee directors.

 

  

The Sponsor (including its representatives and affiliates) and KVSA’s directors and officers, are, or may in the future become, affiliated with entities that are engaged in a similar business to KVSA. For example, certain officers and directors of KVSA, who may be considered an affiliate of the Sponsor, have also recently incorporated Khosla Ventures Acquisition Co. II (“KVSB”), Khosla Ventures Acquisition Co. III (“KVSC”) and Khosla Ventures Acquisition Co. IV (“KVSD”), each of which is a blank check company incorporated as a Delaware corporation for the purpose of effecting their respective initial business combinations. Mr. Kaul is Chairman and Chief Executive Officer and Mr. Buckland is Chief Operating Officer, Chief Financial Officer, Treasurer and Secretary of each of KVSB, KVSC and KVSD. Additionally, Mr. Shklovsky is a director of KVSB and Mr. Shah and Mr. Singh are each a director of KVSD. The Sponsor and KVSA’s directors and officers are not prohibited from sponsoring, or otherwise becoming involved with, any other blank check companies prior to KVSA completing its initial business combination. Moreover, certain of KVSA’s directors and officers have time and attention requirements for investment funds of which affiliates of the Sponsor are the investment managers. KVSA’s directors and officers also may become aware of business opportunities which may be appropriate for presentation to KVSA, and the other entities to which they owe certain fiduciary or contractual duties, including KVSB, KVSC and KVSD. Accordingly, they may have had conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in KVSA’s favor and such potential business opportunities may be presented to other entities prior to their presentation to KVSA, subject to applicable fiduciary duties under the DGCL. KVSA’s Existing Organizational Documents provide that KVSA renounces its interest in any corporate opportunity offered to any director or officer of KVSA.

 

  

KVSA’s existing directors and officers will be eligible for continued indemnification and continued coverage under KVSA’s directors’ and officers’ liability insurance after the Merger and pursuant to the Merger Agreement.

 

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In the event that KVSA fails to consummate a business combination within the prescribed time frame (pursuant to the Existing Organizational Documents), or upon the exercise of a redemption right in connection with the Business Combination, KVSA will be required to provide for payment of claims of creditors that were not waived that may be brought against KVSA within the ten years following such redemption. In order to protect the amounts held in KVSA’s trust account, the Sponsor has agreed that it will be liable to KVSA if and to the extent any claims by a third party (other than KVSA’s independent auditors) for services rendered or products sold to KVSA, or a prospective target business with which KVSA has discussed entering into a transaction agreement, reduce the amount of funds in the trust account to below (i) $10.00 per public share or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account, due to reductions in value of the trust assets, in each case, net of the amount of interest which may be withdrawn to fund KVSA’s working capital requirements, subject to an annual limit of $500,000, and/or to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under the indemnity of the underwriters of KVSA’s initial public offering against certain liabilities, including liabilities under the Securities Act.

 

  

KVSA’s officers and directors and their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them in connection with certain activities on KVSA’s behalf, such as identifying and investigating possible business targets and business combinations. KVSA expects to incur approximately $11.7 million of transaction expenses (excluding the deferred underwriting commissions being held in the trust account), and to the extent that KVSA’s officers and directors or their affiliates are advancing any of these expenses on behalf of KVSA, they are entitled to reimbursement of such payments. However, if KVSA fails to consummate a business combination by the Liquidation Date, they will not have any claim against the trust account for reimbursement. Accordingly, KVSA may not be able to reimburse the expenses advanced by KVSA’s officers and directors or their affiliates if the Business Combination, or another business combination, is not completed by the Liquidation Date.

 

  

Pursuant to the Registration Rights Agreement, the Sponsor and the Sponsor Related PIPE Investor will have customary registration rights, including demand and piggy-back rights, subject to cooperation and cut-back provisions with respect to the shares of New Valo common stock held by such parties following the consummation of the Business Combination.

The Sponsor has agreed to vote in favor of the Business Combination, regardless of how our public stockholders vote. Unlike some other blank check companies in which the initial stockholders agree to vote their shares in accordance with the majority of the votes cast by the public stockholders in connection with an initial business combination, the Sponsor, and each member, officer and director of KVSA and the Sponsor, as applicable, have agreed to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby, in each case, subject to the terms and conditions contemplated by the Sponsor Support Agreement. As of the date of this proxy statement/prospectus, the Sponsor (including KVSA’s independent directors) owns shares of KVSA common stock representing approximately 17% of the outstanding voting power.

At any time at or prior to the Business Combination, during a period when they are not then aware of any material nonpublic information regarding us or KVSA’s securities, the Sponsor, Valo or their directors, officers, advisors or respective affiliates may purchase public shares from institutional and other investors who vote, or indicate an intention to vote, against any of the Condition Precedent Proposals, or execute agreements to purchase such shares from such investors in the future, or they may enter into transactions with such investors and others to provide them with incentives to acquire public shares or vote their public shares in favor of the Condition Precedent Proposals. Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of KVSA’s shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that the Sponsor, Valo or their directors, officers, advisors or respective affiliates purchase shares in privately negotiated transactions from public

 

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stockholders who have already elected to exercise their redemption rights, such selling stockholder would be required to revoke their prior elections to redeem their shares. The purpose of such share purchases and other transactions would be to increase the likelihood of (1) satisfaction of the requirement that holders of a majority of the KVSA common stock, represented in person or by proxy and entitled to vote at the special meeting, vote in favor of the BCA Proposal, the Charter Proposal, the Stock Issuance Proposal, the Incentive Award Plan Proposal, the ESPP Proposal and the Adjournment Proposal, (2) satisfaction of the Minimum Cash Condition, (3) otherwise limiting the number of public shares electing to redeem and (4) KVSA’s net tangible assets (as determined in accordance with Rule 3a51(g)(1) of the Exchange Act) being at least $5,000,001.

Entering into any such arrangements may have a depressive effect on KVSA common stock (e.g., by giving an investor or holder the ability to effectively purchase shares at a price lower than market, such investor or holder may therefore become more likely to sell the shares he or she owns, either at or prior to the Business Combination). If such transactions are effected, the consequence could be to cause the Business Combination to be consummated in circumstances where such consummation could not otherwise occur. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the proposals to be presented at the special meeting and would likely increase the chances that such proposals would be approved. KVSA will file or submit a Current Report on Form 8-K to disclose any material arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote on the proposals to be put to the special meeting or the redemption threshold. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.

The existence of financial and personal interests of one or more of KVSA’s directors may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of KVSA and its stockholders and what he, she or they may believe is best for himself, herself or themselves in determining to recommend that stockholders vote for the proposals. In addition, KVSA’s officers have interests in the Business Combination that may conflict with your interests as a stockholder. See the section entitled “BCA Proposal — Interests of KVSA’s Directors and Executive Officers in the Business Combination” for a further discussion of these considerations.

Interests of Valo’s Directors and Executive Officers in the Business Combination

When you consider the recommendation of KVSA’s board of directors in favor of approval of the BCA Proposal, you should keep in mind that Valo’s directors and executive officers may have interests in such proposal that are different from, or in addition to, those of KVSA stockholders generally. These interests include, among other things, the interests listed below:

Treatment of Valo Awards in the Business Combination.

Under the Merger Agreement, all outstanding stock options granted by Valo prior to the Closing will be converted to options to purchase shares of New Valo common stock that will be subject to substantially the same terms and conditions as were in effect prior to the Closing. See the section entitled “BCA Proposal  The Merger Agreement   Treatment of Valo Options and Restricted Stock Awards” for more information.

 

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The amounts listed in the table below represent the number of stock options as of September 30, 2021 to be held by each executive officer and director of Valo immediately following consummation of the Business Combination. Stock options are stated as total outstanding stock options with the estimated intrinsic value of each executive officer’s and director’s stock options calculated as to the total outstanding stock options for each individual award multiplied by the difference between (i) $10.00 and (ii) the stock option exercise price.

 

Name

  Options   Intrinsic Value 

David Berry

   5,385,987   $28,438,011 

Graeme Bell

   610,510   $3,223,493 

Nish Lathia

   30,281   $159,884 

Judy Lewent

   305,255   $1,611,746 

Ron Hovsepian

   531,330   $1,062,660 

David Epstein

   354,220   $708,440 

Director Compensation. Following the Business Combination, the New Valo board of directors intends to adopt a non-employee director compensation policy (“Director Compensation Policy”). We intend that the Director Compensation Policy will provide for compensation in the form of cash, equity or a combination of both. At the time of the filing of this proxy statement/prospectus, no amounts of compensation in any form have been determined for directors in connection with the Director Compensation Policy. For more information on the Director Compensation Policy we intend to adopt, see the section entitled “— Director Compensation” below.

Recommendation to Stockholders of KVSA

KVSA’s board of directors believes that the BCA Proposal and the other proposals to be presented at the special meeting are in the best interest of KVSA’s stockholders and unanimously recommends that its stockholders vote “FOR” the BCA Proposal, “FOR” the Stock Issuance Proposal, “FOR” each of the separate Charter Proposal, “FOR” the Incentive Award Plan Proposal, “FOR” the ESPP Proposal and “FOR” the Adjournment Proposal, in each case, if presented to the special meeting.

The existence of financial and personal interests of one or more of KVSA’s directors may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of KVSA and its stockholders and what he, she or they may believe is best for himself, herself or themselves in determining to recommend that stockholders vote for the proposals. In addition, KVSA’s officers have interests in the Business Combination that may conflict with your interests as a stockholder. See the section entitled “BCA Proposal — Interests of KVSA’s Directors and Executive Officers in the Business Combination” for a further discussion of these considerations.

Sources and Uses of Funds for the Business Combination

The following table summarizes the sources and uses for funding the Business Combination. These figures assume (i) that no public stockholders exercise their redemption rights in connection with the Business Combination or our extension proposal and (ii) that New Valo issues or, as applicable, reserves for issuance in respect of Valo Awards outstanding as of immediately prior to the Closing that will be converted into awards based on New Valo common stock, shares of New Valo common stock as the Aggregate Merger Consideration pursuant to the Merger Agreement having an aggregate value of $2,250,000,000 (consisting of (i) 220,691,502 shares of New Valo common stock (at a deemed value of $10.00 per share) and (ii) 10,205,856 New Valo Options (at a deemed weighted average value of $4.22 per share assuming that all New Valo Options are net settled)). If the actual facts are different from these assumptions, the below figures will be different.

 

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Sources

  

Uses

 
($ in millions)          

Cash and investments held in trust account (1)

   $345  

Cash to balance sheet

   $513.9 

PIPE Investment (2)

   200.9  

Transaction expenses (3)

   32 

Valo Rollover Equity

   2,250  

Equity Consideration to Existing Investors

   2,250 
  

 

 

    

 

 

 

Total sources

   $2,795.9  

Total uses

   $2,795.9 
  

 

 

    

 

 

 

 

(1)

Calculated as of June 30, 2021

(2)

Shares issued in the PIPE Investment are at a deemed value of $10.00 per share.

(3)

Includes deferred underwriting commission of $12,075,000 and unpaid estimated transaction expenses of $19,869,000. Transaction costs of $1,702,000 have been paid.

U.S. Federal Income Tax Considerations

For a discussion summarizing the U.S. federal income tax considerations of the exercise of redemption rights, please see “U.S. Federal Income Tax Considerations.”

Expected Accounting Treatment

We expect the Business Combination to be accounted for as a reverse recapitalization in accordance with GAAP. Under the guidance in ASC 805, KVSA is expected to be treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination is expected to be reflected as the equivalent of Valo issuing stock for the net assets of KVSA, accompanied by a recapitalization whereby no goodwill or other intangible assets are recorded. Operations prior to the Business Combination will be those of Valo.

Regulatory Matters

Under the HSR Act and the rules that have been promulgated thereunder by the Federal Trade Commission (“FTC”), certain transactions may not be consummated unless information has been furnished to the Antitrust Division of the Department of Justice (“Antitrust Division”) and the FTC and certain waiting period requirements have been satisfied. The Business Combination is subject to these requirements and may not be completed until the expiration of a 30-day waiting period following the two filings of the required Notification and Report Forms with the Antitrust Division and the FTC or until early termination is granted. On June 23, 2021, KVSA and Valo filed the required forms under the HSR Act with respect to the Business Combination with the Antitrust Division and the FTC and requested early termination. The initial 30-day waiting period with respect to the Business Combination expired at 11:59 p.m. Eastern Time on July 23, 2021.

At any time before or after consummation of the Business Combination, notwithstanding termination of the respective waiting periods under the HSR Act, the Department of Justice or the FTC, or any state or foreign governmental authority could take such action under applicable antitrust laws as such authority deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Business Combination, conditionally approving the Business Combination upon divestiture of assets, subjecting the completion of the Business Combination to regulatory conditions or seeking other remedies. Private parties may also seek to take legal action under the antitrust laws under certain circumstances. KVSA cannot assure you that the Antitrust Division, the FTC, any state attorney general or any other government authority will not attempt to challenge the Business Combination on antitrust grounds, and, if such a challenge is made, KVSA cannot assure you as to its result.

None of KVSA nor Valo are aware of any material regulatory approvals or actions that are required for completion of the Business Combination other than the expiration or early termination of the waiting period

 

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under the HSR Act. It is presently contemplated that if any such additional regulatory approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

Emerging Growth Company

KVSA is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes- Oxley Act, reduced disclosure obligations regarding executive compensation in KVSA’s periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class or series of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. KVSA has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, KVSA, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of KVSA’s financial statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used.

We will remain an emerging growth company until the earlier of: (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of KVSA’s initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which we have issued more than $1.00 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” shall have the meaning associated with it in the JOBS Act.

Risk Factors Summary

Unless the context otherwise requires, all references in this subsection to “Valo” “the Company,” “we,” “us” or “our” refer to the business of Valo Health, LLC and its subsidiaries prior to the consummation of the Business Combination, which will be the business of New Valo and its subsidiaries following the consummation of the Business Combination.

In evaluating the proposals to be presented at the KVSA extraordinary general meeting, stockholders should carefully read this proxy statement/prospectus and especially consider the factors discussed in the section titled “Risk Factors,” which include, but are not limited to, the following:

 

  

We are a technology company with clinical- and preclinical-stage assets and a limited operating history.

 

  

We have incurred significant operating losses since our inception and anticipate that we will incur continued losses for the foreseeable future.

 

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We will need to raise additional capital to fund our existing operations, improve our platform and expand our operations.

 

  

We have no products approved for commercial sale and have not generated any revenue from product sales.

 

  

We have in the past, and may in the future, acquire other companies or technologies or enter into strategic license and collaboration agreements or partnerships, which could divert our management’s attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and adversely affect our operating results.

 

  

We have not conducted any clinical trials to date. Our product candidates will require preclinical and/or clinical development, which are lengthy and expensive processes with uncertain outcomes and the potential for substantial delays.

 

  

The markets in which we participate are highly competitive, and if we do not compete effectively, including for talent necessary to meet our business goals, our business and operating results could be adversely affected.

 

  

If we cannot maintain existing agreements with third parties, including data licensing, and/or enter into new licensing or collaboration agreements or similar business arrangements, our business could be adversely affected.

 

  

Security breaches, loss of data and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.

 

  

We have invested, and expect to continue to invest, in research and development efforts that further enhance our Opal platform and advance product candidates. Such investments in technology and therapeutic development are inherently risky and may affect our operating results. If the return on these investments is lower or develops more slowly than we expect, our operating results may suffer.

 

  

We contract with third parties for the manufacture of our product candidates for preclinical development and clinical testing, and expect to continue to do so for commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

 

  

If we are unable to adequately protect and enforce our intellectual property and proprietary technology, obtain and maintain patent protection for our technology and products where appropriate or if the scope of the patent protection obtained is not sufficiently broad, or if we are unable to protect the confidentiality of our trade secrets and know-how, our competitors could develop and commercialize technology and products similar or identical to ours, our ability to successfully commercialize our technology and products may be impaired, and our business and competitive position may be otherwise harmed.

 

  

A pandemic, epidemic, or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business and our financial results and could cause a disruption to the development of our product candidates.

 

  

We have identified material weaknesses in our internal control over financial reporting for the fiscal years ended December 31, 2019 and 2020. If we fail to remediate these material weaknesses or experience material weaknesses in the future or otherwise fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us and, as a result, the value of our common stock.

 

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KVSA has identified material weaknesses in its internal control over financial reporting as of June 30, 2021. If we fail to remediate these material weaknesses or experience material weaknesses in the future or otherwise fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us and, as a result, the value of our common stock.

 

  

KVSA and, following the Business Combination, New Valo, may face litigation and other risks as a result of the material weakness in KVSA’s internal control over financial reporting.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF KVSA

KVSA is providing the following selected historical financial information to assist you in your analysis of the financial aspects of the Business Combination.

The selected historical financial information of KVSA for the period from January 15, 2021 (Inception) through June 30, 2021 was derived from the audited financial statements of KVSA included elsewhere in this proxy statement/consent solicitation statement/prospectus.

This information is only a summary and should be read in conjunction with KVSA’s financial statements and related notes and the section entitled “KVSA’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this proxy statement/consent solicitation statement/prospectus. The historical results included below and elsewhere in this proxy statement/consent solicitation statement/prospectus are not indicative of the future performance of KVSA. All amounts are in U.S. dollars.

 

   As of June 30, 
   2021 

Balance Sheet Data:

  

Cash and cash equivalents

  $787,378 

Marketable securities held in trust account

  $345,005,244 

Total assets

  $346,979,098 

Total liabilities

  $16,378,557 

Total stockholders’ deficit

  $(14,399,459

 

   Inception to date
June 30,
 
   2021 

Statement of Operations Data:

  

Loss from operations

  $(2,369,443

Financing expenses on derivative classified instrument

  $(12,137,500

Gain on marketable securities (net), dividends and interest, held in trust account

  $5,244 

Change in fair value of derivative liabilities

  $9,850,000 

Net loss

  $(4,651,699

Weighted average shares outstanding of Class A common stock subject to possible redemption, basic and diluted

   23,900,602 
  

 

 

 

Basic and diluted net loss per share, Class A common stock subject to possible redemption

  $(0.13
  

 

 

 

Weighted average shares outstanding of Class A non-redeemable common stock, basic and diluted

   685,843 
  

 

 

 

Basic and diluted net loss per share, Class A non-redeemable common stock

  $(0.26
  

 

 

 

Weighted average shares outstanding Class B non-redeemable common stock, basic and diluted

   5,000,000 
  

 

 

 

Basic and diluted net loss per common stock, Class B

  $(0.27
  

 

 

 

Statement of Cash Flows Data:

  

Net cash used in operating activities

  $(1,552,962

Net cash used in investing activities

  $(345,000,000

Net cash provided by financing activities

  $347,340,340 

 

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SELECTED HISTORICAL FINANCIAL AND OPERATING DATA OF VALO HOLDCO

The selected historical consolidated statement of operations data of Valo Holdco presented below for the years ended December 31, 2020 and 2019, and the selected historical consolidated balance sheet data as of December 31, 2020 and 2019 have been derived from Valo Holdco’s audited consolidated financial statements included elsewhere in this proxy statement/prospectus.

The selected historical condensed consolidated statement of operations data for the six months ended June 30, 2021 and 2020 and the selected historical condensed consolidated balance sheet data as of June 30, 2021 have been derived from Valo Holdco’s unaudited interim condensed consolidated financial statements included elsewhere in this proxy statement/prospectus. In the opinion of Valo Holdco’s management, the unaudited interim condensed consolidated financial statements include all adjustments necessary to state fairly Valo Holdco’s financial position as of June 30, 2021 and the results of operations for the six months ended June 30, 2021 and 2020.

The historical results presented below are not necessarily indicative of the results to be expected for any future period, and historical results for any interim period are not necessarily indicative of results that should be expected for any full year. You should read carefully the following selected information in conjunction with “Valo’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Valo Holdco’s historical consolidated financial statements and accompanying footnotes, included elsewhere in this proxy statement/prospectus.

 

   Six Months Ended June 30,  Year Ended December 31, 
   2021  2020  2020  2019 
   (in thousands, except unit and per unit amounts) 

Consolidated Statement of Operations Data:

     

Operating expenses:

     

Research and development

  $60,638  $19,592  $43,296  $11,378 

General and administrative

   19,549   13,906   30,556   22,409 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating expenses

   80,187   33,498   73,852   33,787 
  

 

 

  

 

 

  

 

 

  

 

 

 

Loss from operations

   (80,187  (33,498  (73,852  (33,787
  

 

 

  

 

 

  

 

 

  

 

 

 

Other income (expense):

     

Interest expense

   (1,799  (624  (2,636  (180

Other income (expense), net

   19   1   282   —   
  

 

 

  

 

 

  

 

 

  

 

 

 

Total other expense, net

   (1,780  (623  (2,354  (180
  

 

 

  

 

 

  

 

 

  

 

 

 

Loss before income taxes

   (81,967  (34,121  (76,206  (33,967

Income tax expense

   (14  (40  (78  (5
  

 

 

  

 

 

  

 

 

  

 

 

 

Net loss

  $(81,981 $(34,161 $(76,284 $(33,972
  

 

 

  

 

 

  

 

 

  

 

 

 

Net loss per unit attributable to common unit holders, basic and diluted (1)

  $(1.02 $(0.43 $(0.96 $(0.46
  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average common units outstanding, basic and diluted (1)

   80,418,143   79,482,906   79,673,199   73,778,388 
  

 

 

  

 

 

  

 

 

  

 

 

 

 

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   June 30,
2021
  December 31, 
  2020  2019 
   (in thousands) 

Consolidated Balance Sheet Data:

    

Cash and cash equivalents

  $237,498  $188,095  $60,916 

Working capital (2)

   220,411   186,864   57,449 

Total assets

   279,677   233,261   74,274 

Long-term debt, net of discount, including current portion

   22,561   22,178   —   

Preferred units

   403,150   293,050   94,455 

Total members’ deficit

   (171,217  (94,320  (24,524

 

(1)

See Note 2 to Valo Holdco’s audited consolidated financial statements and to Valo Holdco’s unaudited condensed consolidated financial statements appearing elsewhere in this proxy statement/prospectus for details on the calculation of basic and diluted net loss per unit attributable to common unit holders.

(2)

We define working capital as total current assets minus total current liabilities.

 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following summary unaudited pro forma condensed combined financial information (the “Summary Pro Forma Information”) gives effect to the Business Combination and related transactions including the Pre-Closing Restructuring. The Business Combination is expected to be accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, KVSA will be treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination will be reflected as the equivalent of Valo issuing stock for the net assets of KVSA, accompanied by a recapitalization whereby no goodwill or other intangible assets are recorded. Operations prior to the Business Combination will be those of Valo. The summary unaudited pro forma condensed combined balance sheet data as of June 30, 2021 gives effect to the Business Combination and related transactions as if they had occurred on June 30, 2021. The summary unaudited pro forma condensed combined statements of operations data for the six months ended June 30, 2021 and for the year ended December 31, 2020 give effect to the Business Combination and related transactions as if they had occurred on January 1, 2020. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 also gives effect to the abbreviated statement of revenue and expenses of the acquired assets and assumed liabilities of Forma Therapeutics Holdings, Inc.’s early discovery capabilities for the period from January 1, 2020 through March 16, 2020, the acquisition date, as if the acquisition had been consummated on January 1, 2020.

The following Summary Pro Forma Information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses”. The Summary Pro Forma Information has been derived from, and should be read in conjunction with, the more detailed unaudited pro forma condensed combined financial information of the post-combination company appearing elsewhere in this proxy statement/prospectus and the accompanying notes to the unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined financial information is based upon, and should be read in conjunction with, the historical financial statements and related notes of KVSA and Valo Health, LLC for the applicable periods included in this proxy statement/prospectus. The Summary Pro Forma Information has been presented for informational purposes only and is not necessarily indicative of what the Combined Company’s financial position or results of operations actually would have been had the Business Combination and related transactions been completed as of the dates indicated. In addition, the Summary Pro Forma Information does not purport to project the future financial position or operating results of the Combined Company.

The unaudited pro forma condensed combined financial information has been prepared using the assumptions below with respect to the potential redemption by KVSA’s public stockholders of shares of KVSA Class A common stock for cash equal to their pro rata share of the aggregate amount on deposit (as of two business days prior to the Closing) in the trust account:

 

  

Assuming Minimum Redemptions:    This presentation assumes that no public stockholders of KVSA exercise redemption rights with respect to their public shares for a pro rata share of the funds in the trust account.

 

  

Assuming Maximum Redemptions:    This presentation assumes 12,086,774 of the public shares are redeemed for their pro rata share of the funds in KVSA’s trust account. This scenario gives effect to KVSA’s public share redemptions of 12,086,774 shares (approximately $10.00 per share) for aggregate redemption payments of $120.9 million. The Merger Agreement includes as a condition to closing the Business Combination that, at the Closing, KVSA will have a minimum of $450.0 million in cash comprising (i) the cash held in the trust account after giving effect to KVSA share redemptions (but prior to the payment of any (a) deferred underwriting commissions being held in the trust account and (b) transaction expenses of Valo or KVSA) (ii) the PIPE Investment Amount actually received by

 

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KVSA (prior to underwriting commissions or payment of transaction costs) at or prior to the Closing Date and (iii) proceeds of $25.0 million from the Sponsor forward purchase agreement.

 

   Pro Forma Condensed Combined 
   Assuming
No Redemptions
  Assuming
Maximum
Redemptions
 

Selected Unaudited Pro Forma Condensed Combined Statement of Operations

   

Six months ended June 30, 2021 (in thousands, except share and per share data)

   

Net loss and comprehensive loss

  $(86,638 $(86,638

Pro forma net loss per share, basic and diluted

  $(0.32 $(0.33

Pro forma weighted average shares outstanding, basic and diluted

   269,376,915   259,790,141 

Selected Unaudited Pro Forma Condensed Combined Statement of Operations

   

Year ended December 31, 2020 (in thousands, except share and per share data)

   

Net loss and comprehensive loss

  $(79,642 $(79,642

Pro forma net loss per share, basic and diluted

  $(0.30 $(0.31

Pro forma weighted average shares outstanding, basic and diluted

   269,376,915   259,790,141 

Selected Unaudited Pro Forma Condensed Combined Balance Sheet

   

As of June 30, 2021 (in thousands)

   

Total assets

  $790,668  $694,800 

Total liabilities

  $101,688  $101,688 

Total stockholders’ equity

  $688,980  $593,112 

 

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COMPARATIVE PER SHARE DATA

Comparative Per Share Data of KVSA

The following table sets forth the closing market price per share of the KVSA Class A common stock on the Nasdaq on June 8, 2021, the last trading day before the Business Combination was publicly announced, and on October 18, 2021, the last practicable trading day before this proxy statement/prospectus.

 

Trading Date

  KVSA Class A common
stock (KVSA)
 

June 8, 2021

  $10.22 

October 18, 2021

  $9.91 

The market price of the KVSA Class A common stock could change significantly. Because the consideration payable in the Business Combination pursuant to the Merger Agreement will not be adjusted for changes in the market prices of the KVSA Class A common stock, the value of the consideration that Valo Stockholders will receive in the Business Combination may vary significantly from the value implied by the market prices of shares of KVSA Class A common stock on the date of the Merger Agreement, the date of this proxy statement/prospectus, and the date on which KVSA stockholders vote on the approval of the Merger Agreement. KVSA stockholders are urged to obtain current market quotations for KVSA Class A common stock before making their decision with respect to the approval of the Merger Agreement.

Comparative Per Share Data of Valo

Historical market price information regarding Valo is not provided because there is no public market for Valo public stock.

 

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MARKET PRICE AND DIVIDEND INFORMATION

The public shares are currently listed on Nasdaq under the symbol “KVSA”. The most recent closing price of the public shares as of June 8, 2021, the last trading day before announcement of the execution of the Merger Agreement, was $10.22. As of October 13, 2021, the record date for the special meeting, the most recent closing price for each public share was $9.91.

Holders of the public shares should obtain current market quotations for their securities. The market price of KVSA’s securities could vary at any time before the Business Combination.

Holders

As of the date of this proxy statement/prospectus there were two holders of record of public shares. See “Beneficial Ownership of Securities”.

Dividend Policy

KVSA has not paid any cash dividends on its public shares to date and does not intend to pay cash dividends prior to the completion of the Business Combination. The payment of cash dividends in the future will be dependent upon the revenues and earnings, if any, capital requirements and general financial condition of New Valo subsequent to completion of the Business Combination. The payment of any cash dividends subsequent to the Business Combination will be within the discretion of New Valo’s board of directors. KVSA’s board of directors is not currently contemplating and does not anticipate declaring stock dividends nor is it currently expected that the board of directors of New Valo will declare any dividends in the foreseeable future. Further, the ability of New Valo to declare dividends may be limited by the terms of financing or other agreements entered into by New Valo or its subsidiaries from time to time.

Price Range of Valo’s Securities

Historical market price information regarding Valo is not provided because there is no public market for Valo’s securities. For information regarding Valo’s liquidity and capital resources, see “Valo’s Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”.

 

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RISK FACTORS

KVSA stockholders should carefully consider the following risk factors, together with all of the other information included in this proxy statement/prospectus, before they decide whether to vote or instruct their vote to be cast to approve the relevant proposals described in this proxy statement/prospectus.

Unless the context otherwise requires, all references in this subsection to “Valo” “the Company,” “we,” “us” or “our” refer to the business of Valo Health, LLC and its subsidiaries prior to the consummation of the Business Combination, which will be the business of New Valo and its subsidiaries following the consummation of the Business Combination.

Risks Related to Valo’s Financial Position and Need for Additional Capital

We are a technology company with clinical- and preclinical-stage assets and a limited operating history.

We are a technology company with clinical- and preclinical-stage assets, with a limited operating history. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. Since our inception in January 2019, we have focused substantially all of our efforts and financial resources on developing our computational platform, building our drug discovery and development capabilities, and sourcing, researching, licensing in key assets and developing our discovery-stage programs. We have not yet initiated a clinical trial for any of our in-licensed or preclinical product candidates and we have no products approved for commercial sale and therefore have never generated any revenue from product sales, and we do not expect to generate any revenue from product sales in the foreseeable future. We have not obtained regulatory approvals to market any of our product candidates and there is no assurance that we will obtain regulatory approvals to market and sell products in the future.

We have incurred significant operating losses since our inception and anticipate that we will incur continued losses for the foreseeable future.

We have incurred net losses in each year since our inception. Our net losses were $76.3 million and $82.0 million for the year ended December 31, 2020 and the six months ended June 30, 2021, respectively, and we had an accumulated deficit of $192.5 million as of June 30, 2021. Substantially all of our operating losses have resulted from costs incurred in connection with costs incurred in developing our Opal platform technology, drug discovery and development efforts, building our clinical operations group, facilities costs, depreciation and amortization and general and administrative expenses. We expect our operating expenses to significantly increase as we continue to invest in our platform and research and development efforts and as we commence clinical trials of our existing and future product candidates. In addition, if we obtain marketing approval for any product candidates, we could incur significant sales, marketing, and outsourced manufacturing expenses if we commercialize our product candidates ourselves. Once we are a public company, we will incur additional costs associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our members/stockholders’ deficit and working capital. Because of the numerous risks and uncertainties associated with developing pharmaceutical products and new technologies, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

 

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We will need to raise additional capital to fund our existing operations, improve our platform and expand our operations. If we are unable to raise additional capital on terms acceptable to us or at all or generate cash flows necessary to maintain or expand our operations, we may not be able to compete successfully, which would harm our business, operations, and financial condition. In addition, if we are unable to raise capital when needed, we could be forced to delay, reduce, or eliminate at least some of our product development programs, business development plans, strategic investments, or potential commercialization efforts.

Our mission is broad, expensive to achieve and will require additional capital in the future. We may incur significant costs relating to financing existing or future acquisitions or licensing transactions. We may also be subject to significant obligations under our existing and future license agreements, including payment obligations upon achievement of specified milestones and payments based on product sales, as well as other material obligations. In addition, the development of pharmaceutical products is capital-intensive. We have two clinical stage programs and fifteen additional programs in various stages of preclinical development. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, initiate clinical trials of, and potentially seek marketing approval for our product candidates, and add to our pipeline and discovery-stage programs. In addition, depending on the status of potential regulatory approval, or if we obtain marketing approval for any current or future product candidates, we could expect to incur significant expenses related to product sales, marketing, manufacturing and distribution. We may also need to raise additional funds sooner if we choose to pursue additional indications and/or geographies for our product candidates or otherwise expand more rapidly than we presently anticipate.

Furthermore, following the Business Combination, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce, or eliminate certain of our research and development programs, platform development initiatives, or potential future commercialization efforts.

We expect that the net proceeds from the Business Combination, together with our existing cash and cash equivalents as of the date of this proxy statement/ prospectus, will be sufficient to fund our operating expenses, capital expenditure requirements and debt servicing payments for at least the next 12 months. Our future capital requirements will depend on and could increase significantly as a result of many factors, including:

 

  

the scope, progress, results and costs of our current and future clinical trials and computational analyses, and additional preclinical research or computational efforts for our programs and platform;

 

  

the number of future product candidates that we pursue and their computational and development requirements;

 

  

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

 

  

our ability to establish and maintain collaborations on favorable terms, if at all;

 

  

the success of any collaborations that we may enter into with third parties;

 

  

the extent to which we acquire or invest in businesses, products, and technologies, including entering into licensing or collaboration arrangements for product candidates;

 

  

the impact of any business interruptions to our operations, including the timing and enrollment of participants in our planned clinical trials, or to operations of our manufacturers, suppliers, or other vendors resulting from the continuing COVID-19 pandemic or a similar public health crisis or other force majeure event;

 

  

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

 

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our headcount growth and associated costs as we expand our business operations and our research and development activities; and

 

  

the costs of operating as a public company.

Identifying potential product candidates and conducting preclinical development testing, computational analyses and clinical trials is a time-consuming, expensive, and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. We anticipate that our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives.

We have no products approved for commercial sale and have not generated any revenue from product sales.

Our ability to become profitable largely depends upon our ability to generate substantial revenue in an amount necessary to offset our expenses. To date, we have not generated any revenue from our product candidates or technologies, and we do not expect to generate any revenue from the sale of products in the near future. We do not expect to generate significant revenue unless and until we progress our product candidates through clinical trials and obtain marketing approval of, and begin to sell one or more of our product candidates, or otherwise receive substantial licensing or other payments, or we commercialize a successful software offering to the ecosystem. Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability to:

 

  

successfully complete preclinical studies;

 

  

have Investigational New Drug (“IND”), applications cleared by the U.S. Food Drug Administration (“FDA”) or similar applications authorized by foreign regulatory authorities, allowing us to commence clinical trials;

 

  

successfully complete computational analyses to optimize clinical trials;

 

  

successfully enroll subjects in, and complete, clinical trials;

 

  

initiate and successfully complete all preclinical studies and clinical trials required to obtain U.S. and foreign marketing approval for our product candidates;

 

  

receive regulatory approvals from applicable regulatory authorities;

 

  

establish commercial manufacturing capabilities, make arrangements with third-party manufacturers for clinical supply and commercial manufacturing, or out-license product candidate rights to a third party for commercialization;

 

  

obtain and maintain patent and trade secret protection and/or regulatory exclusivity for our product candidates;

 

  

launch commercial sales of our drug candidates and/or software solutions, if and when approved (as necessary), whether alone or in collaboration with others;

 

  

obtain and maintain acceptance of the drug candidates and/or software solutions, if and when approved (as necessary), by patients, the medical community, and third-party payors;

 

  

effectively compete with other therapies and software offerings;

 

  

obtain and maintain healthcare coverage and adequate reimbursement;

 

  

protect and enforce our intellectual property rights and defend against intellectual property claims;

 

  

take temporary precautionary measures to help minimize the impact of the COVID-19 pandemic or other force majeure event on our business; and

 

  

maintain a continued acceptable safety profile of the product candidates following approval.

 

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If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our products, which would materially harm our business. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.

We or our future collaborators may never successfully develop and commercialize drug products or other products or services, which would negatively affect our results of operation and our ability to continue our business operations.

We may not succeed in producing product candidates or other products or services that can be commercialized. To achieve success with our product candidates, we or our future collaborators must develop, and eventually commercialize, a drug product or drug products that generate significant revenue.

Achieving success in drug development will require us or our future collaborators to be effective in a range of challenging activities, including completing preclinical testing and clinical trials of product candidates, obtaining regulatory approval for these product candidates, and manufacturing, marketing, and selling any products for which we or they may obtain regulatory approval. We are only in the preliminary stages of most of these activities. We and/or any future collaborators may never succeed in these activities and, even if we do, we may never generate revenues that are significant enough to achieve profitability, or even if our collaborators do, we may not receive option fees, milestone payments, or royalties from them that are significant enough for us to achieve profitability. Because of the intense competition in the market for our technological solutions and the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately predict when, or if, we will be able to achieve or sustain profitability.

Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would eventually depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, develop a pipeline of product candidates, maintain and further develop our Opal platform, enter into collaborations, or even continue our operations. A decline in the value of our company could also cause investors to lose all or part of their investment.

Our quarterly and annual results may fluctuate significantly, which could adversely impact the value of New Valo common stock.

The amount of our future losses is uncertain and our quarterly and annual operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline. Our quarterly and annual operating results may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control and may be difficult to predict, including the following:

 

  

the cost to continue to maintain, develop, and integrate technological advancements;

 

  

the timing, quality, regulatory compliance, and success or failure of clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners;

 

  

our ability to successfully recruit and retain subjects, sites, and staff for clinical trials, and any delays caused by difficulties in such efforts;

 

  

our ability to obtain marketing approval for our product candidates, and the timing and scope of any such approvals we may receive;

 

  

the timing and cost of, and level of investment in, research and development activities and computational activities relating to our product candidates, which may change from time to time;

 

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the timing, complexity, and cost of manufacturing our product candidates, which may vary depending on the quantity of production and the terms of our agreements with manufacturers;

 

  

our ability to attract, hire, and retain qualified personnel, including highly specialized scientists, clinicians, data scientists, and engineers;

 

  

expenditures that we will or may incur to acquire and /or develop additional product candidates;

 

  

the level of demand for our product candidates should they receive approval, which may vary significantly;

 

  

the risk/benefit profile, cost, and reimbursement policies with respect to our product candidates, if approved, and existing and potential future therapeutics that compete with our product candidates;

 

  

the changing and volatile U.S. and global economic environments, including as a result of the evolving COVID-19 pandemic and terrorism; and

 

  

future accounting pronouncements or changes in our accounting policies.

The cumulative effects of these and other factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of New Valo common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated guidance we may provide.

We have in the past, and may in the future, acquire other companies or technologies or enter into strategic license or collaboration agreements or partnerships, which could divert our management’s attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and adversely affect our operating results.

We have in the past, and may in the future, engage in various acquisitions and strategic partnerships, including by licensing or acquiring data, complementary products, intellectual property rights, technologies, or businesses. Any acquisition or strategic partnership may entail numerous risks, including:

 

  

increased operating expenses and cash requirements;

 

  

the assumption of indebtedness or contingent liabilities;

 

  

the issuance of our equity securities which would result in dilution to our stockholders’ equity;

 

  

assimilation of operations, intellectual property, products, and product candidates of an acquired company, including difficulties associated with integrating new personnel;

 

  

the diversion of our management’s attention from our existing product programs and initiatives in pursuing or integrating such an acquisition or strategic partnership, which may impact company priorities and could lead to delays or interruptions in our existing product programs;

 

  

retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships;

 

  

risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and regulatory approvals;

 

  

our inability to generate revenue from acquired intellectual property, technology, and/or products sufficient to meet our objectives or even to offset the associated transaction and maintenance costs; and

 

  

the risk that we may have insufficient funds available to meet milestone or other payment obligations under existing and future agreements, which could harm our development efforts and may result in our counterparties pursuing various remedies under those agreements that could harm our operations.

 

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In addition, if we undertake such a transaction, we may issue dilutive securities, assume, or incur debt obligations, incur large one-time expenses, and acquire intangible assets that could result in significant future amortization expense.

Risks Related to Our Discovery and Development of Product Candidates

Although we believe that our computational platform has the potential to identify more promising molecules than traditional methods, our focus on using our platform technology to discover, design, and develop molecules with therapeutic potential may not result in the discovery and development of commercially viable products for us or our collaborators.

While we believe the results of certain of our drug discovery efforts suggest that our platform is capable of identifying high quality product candidates, these results do not assure future success for our drug discovery efforts or for any future drug discovery collaborations. Our product candidates will be subject to the same regulatory standards as other similar drugs, including a demonstration that the drug is safe for its intended use and the provision of substantial evidence of effectiveness.

Even if we or future drug discovery collaborators are able to develop product candidates that demonstrate potential in preclinical studies, we or they may not succeed in demonstrating safety and efficacy of product candidates in human clinical trials. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their product candidates.

We have not conducted any clinical trials to date. Our product candidates will require preclinical and/or clinical development, which are lengthy and expensive processes with uncertain outcomes and the potential for substantial delays. We have never successfully initiated or completed any clinical trials, and we cannot give any assurance that any of our product candidates will be successful in clinical trials or receive regulatory approval, of which approval is necessary before they can be commercialized.

We have not yet demonstrated our ability to successfully initiate or complete any clinical trials, including large-scale, pivotal clinical trials, obtain regulatory approvals, manufacture a commercial scale product, or arrange for a third party, including CROs, to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization or arrange for a third party to do so on our behalf. We only have two product candidates in clinical development. These include a G-protein biased sphingosine-1-phosphate receptor, or S1P1R, agonist (OPL-0301) and a Rho-associated protein kinase, or ROCK, inhibitor (OPL-0401), both of which we plan to evaluate in Phase 2 studies. We may in the future rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct or otherwise support clinical trials for our product candidates and any other product candidates that emerge from our Opal platform. We may also rely on academic and private non-academic institutions to conduct and sponsor clinical trials relating to our product candidates. We will not control the design or conduct of the investigator-sponsored trials, and it is possible that the FDA or non-U.S. regulatory authorities will not view these investigator-sponsored trials as providing adequate support for future clinical trials, whether controlled by us or third parties, for any one or more reasons, including elements of the design or execution of the trials or safety concerns or other trial results. We may in the future rely heavily on these parties for execution of clinical trials for our product candidates and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on CROs will not relieve us of our regulatory responsibilities. For any violations of laws and regulations during the conduct of our clinical trials, we could be subject to warning letters or enforcement action that may include civil penalties up to and including criminal prosecution.

We may not be able to submit INDs or similar foreign applications, initiate clinical trials, or complete clinical development for any product candidates on the timelines we expect, if at all. For example, we may experience manufacturing issues that cause delays with preclinical and clinical studies. Moreover, we cannot be sure that submission of an IND or foreign applications will result in the FDA or foreign regulatory authorities allowing

 

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clinical trials to begin, or that, once begun, issues will not arise that require us to suspend or terminate clinical trials. Commencing our planned clinical trials is subject to finalizing the trial design, which we plan to discuss with the FDA and other regulatory authorities. Any guidance we receive from the FDA or other regulatory authorities is subject to change. These regulatory authorities could change their position, including on the acceptability of our trial designs or the clinical endpoints selected, which may require us to complete additional clinical trials or impose conditions on approval, if any, beyond those that we might expect. Successful completion of our clinical trials is a prerequisite to submitting a New Drug Application (NDA) or a Biologics License Application (BLA), to the FDA and a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) and similar applications to similar foreign authorities for each product candidate and, consequently, the ultimate approval and commercial marketing of each product candidate. We do not know whether any of our future clinical trials will begin on time or ever be completed on schedule, if at all.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

 

  

be delayed in obtaining marketing approval for our product candidates;

 

  

not obtain marketing approval at all;

 

  

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

 

  

be subject to post-marketing requirements or commitments; or

 

  

have the product removed from the market after obtaining marketing approval.

If the principal investigators or CROs do not perform clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development, regulatory approval and commercialization of our product candidates may be delayed, we may not be able to obtain regulatory approval and commercialize our product candidates or our development program may be materially and irreversibly harmed. If we are unable to rely on clinical data collected by our principal investigators or CROs, we could be required to repeat, extend the duration of, or increase the size of any clinical trials we conduct and this could significantly delay commercialization and require significantly greater expenditures.

Preclinical and clinical product development involves a lengthy and expensive process, with an uncertain outcome, and results of earlier studies and trials may not be predictive of future results. If clinical trials of our product candidates are prolonged or delayed, we or our collaborators may be unable to obtain required regulatory approvals, and therefore be unable to commercialize our product candidates on a timely basis or at all.

Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical studies and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical development testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their product candidates. Our preclinical studies and future clinical trials may not be successful.

To date, we have not initiated or completed any clinical trials required for the approval of any of our product candidates. Although we are planning to initiate clinical trials for our product candidates, we may experience delays and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. Clinical trials can be delayed, suspended, or terminated for a variety of reasons, including:

 

  

regulators or institutional review boards, or IRBs, or ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

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we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites and prospective contract research organizations (“CROs”), the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

  

clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical studies or clinical trials or we may decide to abandon product development programs;

 

  

the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate;

 

  

our third party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators;

 

  

we may elect to, or regulators or IRBs may require us or our investigators to, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

 

  

the cost of clinical trials of our product candidates may be greater than we anticipate;

 

  

the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and

 

  

our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or IRBs or ethics committees to suspend or terminate the trials, or reports may arise from preclinical or clinical testing of other cancer therapies that raise safety or efficacy concerns about our product candidates.

We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions at which such trials are being conducted, by the Data Safety Monitoring Board (“DSMB”), for such trial or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination or clinical hold due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. Further, the FDA or foreign regulatory authorities may disagree with our clinical trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials.

Our product development costs will also increase if we experience delays in testing or regulatory approvals. We do not know whether any of our future clinical trials will begin as planned, or whether any of our current or future clinical trials will need to be restructured or will be completed on schedule, if at all. Significant preclinical study or clinical trial delays, including those caused by the COVID-19 pandemic, also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our or a future collaborator’s ability to successfully commercialize our product candidates and may harm our business and results of operations. Any delays in our preclinical or future clinical development programs may harm our business, financial condition and prospects significantly.

If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for current or future product candidates if we are unable to locate and enroll a sufficient number of eligible participants in these trials as required by the FDA or similar regulatory authorities outside the United States. Our ability to enroll eligible participants may be limited or may result in slower enrollment than we anticipate. In addition, competitors may initiate or have ongoing clinical trials for product candidates that treat the same indications as our current or future product candidates, and

 

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participants who would otherwise be eligible for our clinical trials may instead enroll in our competitors’ clinical trials. Furthermore, our ability to enroll participants may be delayed by the evolving COVID-19 pandemic and we do not know the extent and scope of such potential delays at this point.

In addition to the competitive trial environment, the eligibility criteria of our planned clinical trials will further limit the pool of available study participants as we will require that participants have specific characteristics, such as the presence of certain biomarkers or diagnoses connected to our product candidates, which also may make enrollment challenging. Additionally, the process of finding potential participants may prove costly. We also may not be able to identify, recruit, and enroll a sufficient number of participants to complete our clinical studies because of the perceived risks and benefits of the product candidates under study, the availability and efficacy of competing therapies and clinical trials, the proximity and availability of clinical trial sites for prospective participants, and the referral practices of physicians. If people are unwilling to participate in our studies for any reason, the timeline for recruiting participants, conducting studies, and obtaining regulatory approval of potential products may be delayed.

We may also engage third parties to develop companion diagnostics for use in our clinical trials, but such third parties may not be successful in developing such companion diagnostics, furthering the difficulty in identifying target patients for our clinical trials. Patient enrollment may be affected by other factors including:

 

  

the severity of the disease under investigation;

 

  

the eligibility criteria for the clinical trial in question;

 

  

the availability of an appropriate genomic or other screening test;

 

  

the perceived risks and benefits of the product candidate under study;

 

  

the efforts to facilitate timely enrollment in clinical trials;

 

  

the patient referral practices of physicians;

 

  

the ability to monitor patients adequately during and after treatment;

 

  

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

 

  

factors we may not be able to control, such as current or potential pandemics that may limit patients, principal investigators or staff or clinical site availability (e.g., the spread of COVID-19).

Delays in the completion of any clinical trial of our product candidates will increase our costs, slow down our product candidate development and approval process and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition, some of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

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

From time to time, we may publicly disclose preliminary or top-line data from our preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, top-line data should be viewed with caution until the final data are available.

 

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From time to time, we may also disclose interim data from our preclinical studies and clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available or as patients from our clinical trials continue other treatments for their disease. Adverse differences between preliminary or interim data and final data could materially adversely affect our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of New Valo common stock after this offering.

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

Computational predictions and positive results from early preclinical studies of our product candidates are not necessarily predictive of the results of later preclinical studies and any future clinical trials of our product candidates. If we cannot replicate the positive results from our computational assays and earlier preclinical studies of our product candidates in our later preclinical studies and future clinical trials, we may be unable to successfully develop, obtain regulatory approval for and commercialize our product candidates.

Any computational predictions and positive results from our preclinical studies of our product candidates may not necessarily be predictive of the results from required later preclinical studies and clinical trials. Similarly, even if we are able to complete our planned preclinical studies or any future clinical trials of our product candidates according to our current development timeline, the positive results from such preclinical studies and clinical trials of our product candidates may not be replicated in subsequent preclinical studies or clinical trial results.

Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical and other nonclinical findings made while clinical trials were underway, or safety or efficacy observations made in preclinical studies and clinical trials, including previously unreported adverse events. Moreover, preclinical, nonclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or similar foreign approval.

Our planned clinical trials or those of our potential future collaborators may reveal significant adverse events and side effects and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates, even if approved.

Undesirable side effects that may be caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. While we have not yet initiated any of our own clinical trials, as is the case with many products in the therapeutic area for which our product candidates are under development, it is possible that there may be side effects associated with their use. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. We may also develop future product candidates in combination with one or

 

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more therapies. The uncertainty resulting from the use of our product candidates in combination with other therapies may make it difficult to accurately predict side effects in future clinical trials.

If significant adverse events or other side effects are observed in any of our clinical trials, we may have difficulty recruiting patients to our clinical trials, patients may drop out of our trials, or we may be required to abandon the trials or our development efforts of one or more product candidates altogether. Some potential therapeutics developed in the biotechnology industry that initially showed therapeutic promise in early-stage trials have later been found to cause side effects that prevented their further development. Even if the side effects do not preclude the product from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance of the approved product due to its tolerability versus other therapies. Any of these developments could materially harm our business, financial condition and prospects.

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

 

  

regulatory authorities may withdraw approvals of such products and require us to take our approved product off the market;

 

  

regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;

 

  

regulatory authorities may require a medication guide outlining the risks of such side effects for distribution to patients, or that we implement a risk evaluation and mitigation strategy, or REMS, plan to ensure that the benefits of the product outweigh its risks;

 

  

we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;

 

  

we may be subject to limitations on how we may promote the product;

 

  

sales of the product may decrease significantly;

 

  

we may be subject to litigation or product liability claims; and

 

  

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenue from the sale of our products.

We may in the future conduct clinical trials for our product candidates outside the United States, and the FDA and similar foreign regulatory authorities may not accept data from such trials.

We may in the future choose to conduct additional clinical trials outside the United States, including in Europe, Asia, the Middle East, or other foreign jurisdictions. FDA acceptance of trial data from clinical trials conducted outside the United States may be subject to certain conditions. In cases where data from clinical trials conducted outside the United States are intended to serve as the sole basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the United States population and United States medical practice; (ii) the trials were performed by clinical investigators of recognized competence and (iii) the data may be considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. Additionally, the FDA’s clinical trial requirements, including large enough size of trial populations and statistical powering, must be met. Many foreign regulatory bodies have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA or any similar foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or any similar foreign regulatory authority does not

 

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accept such data, it would result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan, and which may result in our product candidates not receiving approval or clearance for commercialization in the applicable jurisdiction.

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

Following the United Kingdom’s departure from the EU on January 31, 2020, and the end of the “transition period” on December 31, 2020, the EU and the United Kingdom have entered into a trade and cooperation agreement (“TCA”) which governs certain aspects of their future relationship, including ensuring tariff-free trade for certain goods and services. Since the regulatory framework for pharmaceutical products in the United Kingdom relating to quality, safety and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived from EU directives and regulations, Brexit will materially impact the future regulatory regime which applies to products and the approval of product candidates in the United Kingdom. Longer term, the United Kingdom is likely to develop its own legislation that diverges from that in the EU.

The TCA provides details on how some aspects of the United Kingdom’s and EU’s relationship will operate going forwards, however there are still many uncertainties. The uncertainty concerning the United Kingdom’s legal, political and economic relationship with the EU since Brexit may be a source of instability in the international markets, create significant currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border co-operation arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise). These developments have had, and may continue to have, a significant adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets.

The incidence and prevalence for target patient populations of our product candidates have not been determined. If the market opportunities for our product candidates are smaller than we estimate or if any approval that we obtain is based on a more narrow definition of the patient population, our revenue and ability to achieve profitability will be adversely affected, possibly materially.

Even if approved for commercial sale, the total addressable market for our product candidates will ultimately depend upon, among other things, the criteria included in the final label, if our product candidates are approved for these indications, acceptance by the medical community and patient access, product pricing and reimbursement. The number of patients targeted by our product candidates may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our products, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business. Due to our limited resources and access to capital, we must prioritize development of certain product candidates, which may prove to be the wrong choice and may adversely affect our business.

Although we intend to explore other therapeutic opportunities, in addition to the product candidates that we are currently developing, we may fail to identify viable new product candidates for clinical development for a number of reasons. If we fail to identify additional potential product candidates, our business could be materially harmed.

Research programs to pursue the development of our existing and planned product candidates for additional indications and to identify new product candidates and disease targets require substantial technical, financial, and human resources whether or not they are ultimately successful. There can be no assurance that we will find potential targets using our approach, that any such targets will be tractable, or that such clinical validations will be successful. Our research programs may initially show promise in identifying potential indications and/or product candidates, yet fail to yield results for clinical development for a number of reasons, including:

 

  

the research methodology used may not be successful in identifying potential indications, patient subpopulations, and/or product candidates;

 

  

potential product candidates may, after further study, be shown to have harmful adverse effects or other characteristics that indicate they are unlikely to be effective products; or

 

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it may take greater computational, human and financial resources than we will possess to identify additional therapeutic opportunities for our product candidates or to develop suitable potential product candidates through internal research programs, thereby limiting our ability to develop, diversify and expand our product portfolio.

Because we have limited financial and human resources, we will have to prioritize and focus on certain research programs, product candidates and target indications while forgoing others. As a result, we may forgo or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential or a greater likelihood of success. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.

Accordingly, there can be no assurance that we will ever be able to identify additional therapeutic opportunities for our product candidates or to develop suitable potential product candidates through internal research programs, which could materially adversely affect our future growth and prospects. We may focus our efforts and resources on potential product candidates or other potential programs that ultimately prove to be unsuccessful.

If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals for our product candidates, we or future partners of ours will not be able to commercialize, or will be delayed in commercializing, our product candidates, and our ability to generate revenue will be materially impaired.

Our product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, distribution, import and export are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Currently, all of our product candidates are in development, and our product candidates have not received marketing authorization from regulatory authorities in any jurisdiction. It is possible that our product candidates, including any product candidates we may seek to develop in the future, will never obtain regulatory approval. As a company, we have limited experience in preparing, submitting, and supporting applications to regulatory authorities and expect to rely on third-party CROs and/or regulatory consultants to assist us in this process. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Our product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. In addition, regulatory authorities may find fault with our manufacturing process or facilities or that of third-party contract manufacturers. We may also face greater than expected difficulty in manufacturing our product candidates.

The process of obtaining regulatory approvals, both in the United States and abroad, is expensive and often takes many years. If the FDA or a comparable foreign regulatory authority requires that we perform additional preclinical or clinical trials, approval, if obtained at all, may be delayed. The length of such a delay varies substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted NDA, BLA or similar marketing application, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. Our product candidates could be delayed in receiving, or fail to receive, regulatory approval for many reasons, including the following:

 

  

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

 

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we may not be able to enroll a sufficient number of patients in our clinical studies;

 

  

we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication or a related companion diagnostic is suitable to identify appropriate patient populations;

 

  

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

 

  

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

 

  

the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

 

  

the data collected from clinical trials of product candidates that we may identify and pursue may not be sufficient to support the submission of an NDA, or BLA, or other submission to obtain regulatory approval in the United States or elsewhere;

 

  

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

 

  

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change such that our clinical data are insufficient for approval.

Even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, thereby narrowing the commercial potential of the product candidate. In addition, regulatory authorities may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired.

Because we have multiple programs and product candidates in development and we are pursuing a variety of target indications and treatment modalities, we may expend our limited resources to pursue a particular product candidate and fail to capitalize on development opportunities or product candidates that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and personnel resources, we may forego or delay pursuit of opportunities with potential target indications or product candidates or other business opportunities that later prove to have greater commercial potential than our current and planned development programs and product candidates. Our resource allocation decisions, including decisions to pursue multiple programs, may cause us to fail to provide adequate focus or capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and other future product candidates for specific indications may not yield any commercially viable future product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such future product candidates.

Additionally, we are currently pursuing, and may in the future pursue, additional in-licenses or acquisitions of development-stage assets or programs, which entails additional risk to us. Identifying, selecting and acquiring

 

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promising product candidates requires substantial technical, financial and human resources expertise. Efforts to do so may not result in the actual acquisition or license of a successful product candidate, potentially resulting in a diversion of our management’s time and the expenditure of our resources with no resulting benefit. For example, if we are unable to identify programs that ultimately result in approved products, we may spend material amounts of our capital and other resources evaluating, acquiring and developing products that ultimately do not provide a return on our investment.

The markets in which we participate are highly competitive, and if we do not compete effectively, including for talent necessary to meet our business goals, our business and operating results could be adversely affected.

The development and commercialization of new products in the biopharmaceutical and related industries, and the overall market for computational tools to accelerate drug discovery and development, are highly competitive, and if we do not compete effectively, including for talent necessary to meet our business goals, our business and operating results could be adversely affected. There are other companies focusing on technology-enabled drug discovery to identify and develop products and therapies. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. These companies include divisions of large pharmaceutical companies and biotechnology companies of various sizes. We face competition with respect to our current product candidates and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization.

Any product candidates that we successfully develop and commercialize will compete with currently approved therapies and new therapies that may become available in the future from segments of the pharmaceutical, biotechnology and other related industries that pursue new therapeutics. Key product features that would affect our ability to effectively compete with other therapeutics include the efficacy, safety, and convenience of our products. We believe principal competitive factors to our business include, among other things, the accuracy of our computations and predictions, ability to integrate experimental, computational, and clinical capabilities, ability to successfully transition research programs into clinical development, ability to raise capital, and the scalability of our platform, pipeline, and business.

Many of the companies that we compete against or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific, engineering and management personnel and establishing clinical trial sites and patient recruitment for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. In addition, we cannot predict whether our current competitive advantages will remain in place and evolve appropriately as barriers to entry in the future. If not, other companies may be able to more directly or effectively compete with us.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we or our collaborators may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we or our collaborators are able to enter the market. The key competitive factors affecting the success of all of our product candidates, if approved, are likely

 

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to be their efficacy, safety, convenience, price, the level of generic competition and the availability of reimbursement from government and other third-party payors.

We and our potential future collaborators may not achieve projected discovery and development milestones and other anticipated key events in the time frames that we or they announce, which could have an adverse impact on our business and could cause our stock price to decline.

From time to time, we expect that we will make public statements regarding the expected timing of certain milestones and key events, such as the commencement and completion of preclinical and clinical studies in our internal product discovery programs as well developments and milestones under our collaborations. The actual timing of these events can vary dramatically due to a number of factors such as delays or failures in our or our potential future collaborators’ drug discovery and development programs, the amount of time, effort, and resources committed by us and our potential future collaborators, and the numerous uncertainties inherent in the development of drugs. As a result, there can be no assurance that our or our potential future collaborators’ programs will advance or be completed in the time frames we or they announce or expect. If we or any collaborators fail to achieve one or more of these milestones or other key events as planned, our business could be materially adversely affected, and the price of New Valo common stock could decline.

Risks Related to Our Platform and Data

If we cannot maintain existing agreements with third parties, including data licensing, and/or enter into new partnerships or similar business arrangements, our business could be adversely affected.

We believe that one of our competitive advantages and a foundation of our Opal platform is our access to differentiated, high-quality data. We have several sources of high-quality data that we use to develop models and generate insights to better understand underlying disease biology, stratify patients, and inform drug discovery and development. We use these multiple datasets together, leveraging the strengths of each, to provide a more robust knowledge base than any one set. We rely on certain licensing agreements to access substantial portions of these data. As a result, our success depends on our ability to maintain these arrangements and expand our available datasets through additional licensing arrangements, asset purchases, partnerships and/or our own data generation. Many factors may impact the success of these relationships, including our ability to perform our obligations, licensors’ internal priorities, licensors’ resource allocation decisions and competitive opportunities, disagreements with third parties, the costs required of either party to the agreements and related financing needs, our data protection capabilities and reputation, and operating, legal and other risks in any relevant jurisdiction.

Security breaches, loss of data and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.

In the ordinary course of our business, we access, generate, process, and store sensitive data, including research data, clinical trial data, real-world data, intellectual property and proprietary business information owned or controlled by ourselves or our employees, partners and other parties. We manage and maintain our applications and data utilizing a combination of on-site systems and cloud-based data centers. We utilize external security and infrastructure vendors to manage parts of our data centers. These applications and data encompass a wide variety of business-critical information, including research and development information, commercial information, and business and financial information. We face a number of risks relative to protecting this critical information, including loss of access risk, inappropriate use or disclosure, accidental exposure, unauthorized access, inappropriate modification, and the risk of our being unable to adequately monitor, audit and modify our controls over our critical information. This risk extends to the third party vendors and subcontractors we use to manage this sensitive data or otherwise process it on our behalf. Further, to the extent our employees are working at home during the COVID-19 pandemic, additional risks may arise. The secure processing, storage, maintenance and transmission of this critical information are vital to our operations and business strategy, and we devote

 

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significant resources to protecting such information. Although we take reasonable measures to protect sensitive data from unauthorized access, use or disclosure, no security measures can be perfect and our information technology and infrastructure may be vulnerable to attacks by hackers or infections by viruses or other malware or breached due to employee erroneous actions or inactions by our employees or contractors, malfeasance or other malicious or inadvertent disruptions. Any such breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. Any such access, breach, or other loss of information could result in legal claims or proceedings. Unauthorized access, loss or dissemination could also disrupt our operations, result in a material disruption of our development programs and damage our reputation, any of which could adversely affect our business. For example, the loss, corruption, unavailability of, or damage to our computational models would interfere with and undermine the insights we draw from our Opal platform, which could result in the waste of resources on insights based on flawed premises. In addition, the loss or corruption of, or other damage to, clinical trial data from ongoing or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.

Additionally, although we maintain cybersecurity insurance coverage, we cannot be certain that such coverage will be adequate for data security liabilities actually incurred, will cover any indemnification claims against us relating to any incident, will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our reputation, business, financial condition and results of operations.

We have invested, and expect to continue to invest, in research and development efforts that further enhance our Opal platform and advance product candidates. Such investments in technology and therapeutic development are inherently risky and may affect our operating results. If the return on these investments is lower or develops more slowly than we expect, our operating results may suffer.

We have invested and expect to continue to invest in research and development efforts that further enhance our Opal platform and advance product candidates. These investments may involve significant time, risks, and uncertainties, including the risk that the expenses associated with these investments may affect our margins and operating results and that such investments may not generate sufficient revenues to offset liabilities assumed and expenses associated with these new investments. The industry in which we operate changes rapidly as a result of technological and drug developments, which may render our solutions less desirable or effective. We believe that we must continue to invest a significant amount of time and resources in our Opal platform and technology to maintain and improve our competitive position. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our operating results may be adversely affected.

Defects or disruptions in our Opal platform could result in diminishing our value and prospects, and could affect the quality and success of research and development programs relying on our Opal platform’s capabilities.

Our Opal platform depends upon the continuous, effective, and reliable operation of our software, equipment, databases, and related tools and functions and the integrity of our data. Our proprietary software tools, equipment, and datasets are inherently complex and may contain defects or errors. Errors may result from the interface of our proprietary software and equipment tools with our data or third-party systems and data, which we did not develop. The risk of errors is particularly significant when new software or equipment is first introduced or when new versions or enhancements of existing software or equipment are implemented. We have from time to time found defects in our software and equipment, and new errors in our existing software and equipment may be detected in the future. Any errors, defects, disruptions, or other performance problems with our software, equipment, or datasets could hurt our ability to gather valuable insights that drive our drug discoveries and development, and could affect the quality and success of research and development programs relying on our Opal platform’s capabilities.

 

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We rely upon third-party providers of cloud-based infrastructure to host our platform. Any disruption in the operations of these third-party providers, limitations on capacity, or interference with our use could adversely affect our business, financial condition, and results of operations.

We outsource substantially all of the technological infrastructure relating to our hosted platform to third-party hosting services, such as Amazon Web Services (“AWS”). We have no control over any of these third parties, and we cannot guarantee that such third-party providers will not experience system interruptions, outages or delays, or deterioration in their performance. We need to be able to access our computational platform at any time, without interruption or degradation of performance. Our hosted platform depends on protecting the virtual cloud infrastructure hosted by third-party hosting services by maintaining its configuration, architecture, features, and interconnection specifications, as well as protecting the information stored in these virtual data centers, which is transmitted by third-party Internet service providers. We have experienced, and expect that in the future we may again experience interruptions, delays and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, hosting disruptions and capacity constraints. Any limitation on the capacity of our third-party hosting services could adversely affect our business, financial condition, and results of operations. In addition, any incident affecting our third-party hosting services’ infrastructure, which may be caused by cyber-attacks, natural disasters, fire, flood, severe storm, earthquake, power loss, telecommunications failures, terrorist or other attacks, and other disruptive events beyond our control, could negatively affect our cloud-based solutions. A prolonged service disruption affecting our cloud-based solutions could damage our reputation or otherwise harm our business. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the third-party hosting services we use.

In the event that our service agreements with our third-party hosting services are terminated, or there is a lapse of service, elimination of services or features that we utilize, interruption of Internet service provider connectivity, or damage to such facilities, we could experience interruptions in access to the our platform as well as significant delays and additional expense in arranging or creating new facilities and services and/or re-architecting our hosted software solutions for deployment on a different cloud infrastructure service provider, which could adversely affect our business, financial condition, and results of operations.

Some of our solutions utilize third-party open source data and software, and any failure to comply with the terms of one or more of these open source software licenses could adversely affect our business, subject us to litigation, or create potential liability.

Our solutions include software and data licensed from third parties under any one or more open source licenses, and we expect to continue to incorporate open source software in our solutions in the future. Moreover, we cannot ensure that we have effectively monitored our use of open source software, or validated the quality or source of such software, or that we are in compliance with the terms of the applicable open source licenses or our current policies and procedures. There have been claims against companies that use open source software in their products and services asserting that the use of such open source software infringes the claimants’ intellectual property rights. As a result, we could be subject to suits by third parties claiming that what we believe to be licensed open source software infringes such third parties’ intellectual property rights. Additionally, if an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages and required to comply with onerous conditions or restrictions on these solutions, which could disrupt the distribution and sale of these solutions. Litigation could be costly for us to defend, have a negative effect on our business, financial condition, and results of operations, or require us to devote additional research and development resources to change our solutions. Furthermore, these third-party open source providers could experience service outages, data loss, privacy breaches, cyber-attacks, and other events relating to the applications and services they provide that could diminish the utility of these services and which could harm our business as a result.

 

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Use of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code, including with respect to security vulnerabilities where open source software may be more susceptible. In addition, certain open source licenses require that source code for software programs that interact with such open source software be made available to the public at no cost and that any modifications or derivative works to such open source software continue to be licensed under the same terms as the open source software license. The terms of various open source licenses to which we are subject have not been interpreted by courts in the relevant jurisdictions, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market or provide our software and data. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software, and to make our proprietary software available under open source licenses, if we combine our proprietary software with open source software in a certain manner. In the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our solutions, or otherwise be limited in the licensing of our solutions, each of which could reduce or eliminate the value of our solutions. Disclosing our proprietary source code could allow our competitors to create similar products with lower development effort and time and ultimately could result in a loss of sales. Furthermore, any such re-engineering or other remedial efforts could require significant additional research and development resources, and we may not be able to successfully complete any such re-engineering or other remedial efforts. Any of these events could create liability for us and damage our reputation, which could have a material adverse effect on our business, results of operations, and financial condition and the market price of our shares.

Risks Related to our Operations/Commercialization

Even if any product candidates we develop receive marketing approval in the future, they may fail to achieve the degree of market acceptance by physicians, patients, healthcare payors, and others in the medical community necessary for commercial success.

The commercial success of our product candidates will depend upon their degree of market acceptance by physicians, patients, third-party payors, and others in the medical community. Even if any product candidates we may develop receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors, and others in the medical community. The degree of market acceptance of any product candidates we may develop, if approved for commercial sale, will depend on a number of factors, including:

 

  

the efficacy and safety of such product candidates as demonstrated in pivotal clinical trials and published in peer-reviewed journals;

 

  

the potential and perceived advantages compared to alternative treatments, including any similar generic treatments;

 

  

the ability to offer these products for sale at competitive prices;

 

  

the ability to offer appropriate patient access programs, such as co-pay assistance;

 

  

convenience and ease of dosing and administration compared to alternative treatments;

 

  

the clinical indications for which the product candidate is approved by FDA or comparable regulatory agencies;

 

  

product labeling or product insert requirements of the FDA or other comparable foreign regulatory authorities, including any limitations, contraindications or warnings contained in a product’s approved labeling;

 

  

restrictions on how the product is distributed;

 

  

the timing of market introduction of competitive products;

 

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publicity concerning these products or competing products and treatments;

 

  

the strength of marketing and distribution support;

 

  

favorable third-party coverage and sufficient reimbursement; and

 

  

the prevalence and severity of any side effects or adverse events.

Sales of medical products also depend on the willingness of physicians to prescribe the treatment, which is likely to be based on a determination by these physicians that the products are safe, therapeutically effective and cost effective. In addition, the inclusion or exclusion of products from treatment guidelines established by various physician groups and the viewpoints of influential physicians can affect the willingness of other physicians to prescribe the treatment. We cannot predict whether physicians, physicians’ organizations, hospitals, other healthcare providers, government agencies or private insurers will determine that any product we may develop is safe, therapeutically effective and cost effective as compared with competing treatments. If any product candidates we develop do not achieve an adequate level of acceptance, we may not generate significant product revenue, and we may not become profitable.

Additionally, we do not have a sales or marketing infrastructure and have little experience in the sale, marketing, or distribution of pharmaceutical products. To achieve commercial success for any approved product for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization and sales and marketing software solutions or outsource these functions to third parties. In the future, we may choose to build a focused sales, marketing, and commercial support infrastructure to market and sell our product candidates, if and when they are approved. We may also elect to enter into collaborations or strategic partnerships with third parties to engage in commercialization activities with respect to selected product candidates, indications or geographic territories, including territories outside the United States, although there is no guarantee we will be able to enter into these arrangements even if the intent is to do so.

The insurance coverage and reimbursement status of newly-approved products are uncertain. Failure to obtain or maintain adequate coverage and reimbursement for any of our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.

The regulations that govern marketing approvals, pricing and reimbursement for new drugs vary widely from country to country. In the United States, recently enacted legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our or their commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenue we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if any product candidates we may develop obtain marketing approval.

Our ability to successfully commercialize our product candidates or any other products that we or they may develop also will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers, and other organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. The availability and extent of coverage and reimbursement by governmental and private payors is essential for most patients to be able to afford treatments. Sales of our product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations,

 

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or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment. If reimbursement is not available, or is available only at limited levels, we may not be able to successfully commercialize our product candidates, if approved.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, no uniform policy for coverage and reimbursement exists in the United States, and coverage and reimbursement can differ significantly from payor to payor. Third-party payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, but also have their own methods and approval process apart from Medicare determinations. It is difficult to predict what government and other third-party payors will decide with respect to coverage and reimbursement for fundamentally novel products such as ours, as there is no body of established practices and precedents for these new products. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

 

  

a covered benefit under its health plan;

 

  

safe, effective and medically necessary;

 

  

appropriate for the specific patient;

 

  

cost-effective; and

 

  

neither experimental nor investigational.

A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and certain other major markets where we plan to commercialize may put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems, and pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost effectiveness of our product candidates to other available therapies. In general, the prices of medicines under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for medicines, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.

Moreover, efforts by governmental and other third-party payors, in the United States and abroad, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.

 

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The sizes of the markets and forecasts of market growth for the demand of our products are based on a number of complex assumptions and estimates, and may be inaccurate.

We estimate annual total addressable markets and forecasts of market growth for our platform and products. These estimates and forecasts are based on a number of complex assumptions, internal and third party estimates and other business data, including assumptions and estimates relating to our ability to generate revenue from the development of new workflows. While we believe our assumptions and the data underlying our estimates are reasonable, there are inherent challenges in measuring or forecasting such information. As a result, these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors and indicators. As a result, our estimates of the annual total addressable market and our forecasts of market growth and future revenue from milestone payments, royalties, or other sources may prove to be incorrect, and our key business metrics may not reflect our actual performance. For example, if the total addressable market or the potential market growth for our platform or products is smaller than we have estimated, or if the key business metrics we utilize to forecast revenue are inaccurate, it may impair our sales growth and have an adverse impact on our business, financial condition, results of operations and prospects.

Our insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.

We do not carry insurance for all categories of risk that our business may encounter, and insurance coverage is becoming increasingly expensive. For example, we can only obtain insurance for the loss of our data that would partially compensate us for its loss. We do not know if we will be able to maintain existing insurance with adequate levels of coverage in the future, and any liability insurance coverage we acquire in the future may not be sufficient to reimburse us for any expenses or losses we may suffer. If we obtain marketing approval for any product candidates that we or our collaborators may develop, we intend to acquire insurance coverage to include the sale of commercial products, but we may be unable to obtain such insurance on commercially reasonable terms or in adequate amounts. The coverage or coverage limits currently maintained under our insurance policies may not be adequate. If our losses exceed our insurance coverage, our financial condition would be adversely affected. Clinical trials or regulatory approvals for any of our product candidates could be suspended, which could adversely affect our results of operations and business, including by preventing or limiting the development and commercialization of any product candidates that we or our collaborators may identify. Additionally, operating as a public company will make it more expensive for us to obtain directors and officers liability insurance. If we do not have adequate levels of directors and officers liability insurance, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors.

Our operations may be interrupted by the occurrence of a natural disaster or other catastrophic event at our primary facilities.

Our operations are primarily conducted at our facilities in Branford, CT, Lexington, MA, Boston, MA, Princeton, NJ, and San Francisco, CA. The occurrence of natural disasters or other catastrophic events could disrupt our operations. Any natural disaster or catastrophic event in our facilities or the areas in which they are located could have a significant negative impact on our operations.

We carry insurance for damage to our property and the disruption of our business, but this insurance may not cover all of the risks associated with damage or disruption to our business, may not provide coverage in amounts sufficient to cover our potential losses and may not continue to be available to us on acceptable terms, if at all.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

Under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change by value

 

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in the ownership of its equity over a three-year period, such corporation’s ability to use its pre-change net operating loss carryforwards and certain other pre-change tax attributes to offset its post-change income could be subject to an annual limitation. We may have experienced such ownership changes in the past, and we may experience ownership changes in the future as a result of the Business Combination or subsequent shifts in our stock ownership, some of which are outside of our control; however, we have not determined whether an ownership change has occurred. As of December 31, 2020, we had federal net operating loss carryforwards of approximately $80.5 million, which do not expire, but are limited in their usage to an annual deduction equal to 80% of annual taxable income and state net operating loss carryforwards of approximately $48.8 million, which begin to expire in 2038, but our ability to utilize those net operating loss carryforwards could be limited by enacted legislation or an “ownership change” as described above, which could result in increased tax liability to us.

If we fail to comply with environmental, health and safety, or other laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety, and other laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological or hazardous materials.

A pandemic, epidemic, or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business and our financial results and could cause a disruption to the development of our product candidates.

Public health crises such as pandemics or similar outbreaks could adversely impact our business. In early 2020, a novel strain of a virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), or coronavirus, spread to most countries across the world and all 50 states within the U.S. including Massachusetts, where our primary office and laboratory space is located. The resulting COVID-19/coronavirus pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The extent to which the coronavirus impacts our operations or those of our third-party partners, including our preclinical studies or clinical trial operations, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that will emerge concerning the severity of coronavirus infection and the actions to contain the coronavirus or treat its impact, among others. The continued spread of COVID-19 globally, or the evolution of new variants of COVID-19 that are more contagious, have more severe effects or are resistant to treatments or vaccinations, could adversely impact our preclinical or clinical trial operations in the U.S., including our ability to recruit and retain trial participants as well as principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if a resurgence occurs in their geography. For example, similar to other biopharmaceutical companies, we may experience delays in initiating preclinical and clinical studies, protocol deviations, enrolling our clinical trials, or dosing of patients in our clinical trials as well

 

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as in activating new trial sites. COVID-19 or any variants may also affect employees of third-party CROs located in affected geographies that we rely upon to carry out our clinical trials. In addition, as a result of medical complications associated with the diseases of the patients we seek to enroll and treat in our trials, the patient populations that our product candidates target may be particularly susceptible to COVID-19 or any variants, which may make it more difficult for us to identify individuals able to enroll in our current and future clinical trials and may impact the ability of those enrolled to complete any such trials. Any negative impact COVID-19 or any variants has on enrollment or the execution of our drug trials could cause costly delays, which could adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses, and have a material adverse effect on our financial results.

Additionally, timely enrollment in planned clinical trials is dependent upon clinical trial sites which could be adversely affected by global health issues, such as pandemics. We plan to conduct clinical trials for our product candidates in geographies which are currently being affected by COVID-19. Some factors from the COVID-19 outbreak that could delay or otherwise adversely affect enrollment in the clinical trials of our product candidates, as well as our research and development activities and our business generally, include:

 

  

the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, including the attention of physicians serving as our clinical trial investigators, hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our prospective clinical trials;

 

  

limitations on travel that could interrupt key trial and business activities, such as clinical trial site initiations and monitoring, domestic and international travel by employees, contractors or patients to clinical trial sites, including any government-imposed travel restrictions or quarantines that will impact the ability or willingness of patients, employees or contractors to travel to our clinical trial sites or secure visas or entry permissions, a loss of face-to-face meetings and other interactions with potential partners, any of which could delay or adversely impact the conduct or progress of our prospective clinical trials;

 

  

the potential negative effect on the operations of our third-party manufacturers;

 

  

global supply chain disruptions affecting the transport of clinical trial materials, such as tissue samples, investigational drug product and comparator drugs and other supplies used in our studies;

 

  

business disruptions caused by potential workplace, laboratory and office closures and an increased reliance on employees working from home, disruptions to or delays in ongoing laboratory experiments and operations, staffing shortages, travel limitations or mass transit; and

 

  

disruptions, any of which could adversely impact our business operations or delay necessary interactions with local regulators, ethics committees and other important agencies and contractors.

We have taken temporary precautionary measures intended to help minimize the risk of the coronavirus to our employees, including temporarily permitting most employees to work remotely, which could negatively affect our business. We cannot presently predict the scope and severity of the planned and potential shutdowns or disruptions of businesses and regulatory or government agencies, such as the SEC, or FDA.

These and other factors arising from the evolving COVID-19 pandemic could worsen in countries that are already afflicted with COVID-19 or could continue to spread to additional countries. Any of these factors, and other factors related to any such disruptions that are unforeseen, could have a material adverse effect on our business and our results of operation and financial condition. Further, uncertainty around these and related issues could lead to adverse effects on the economy of the United States and other economies, which could impact our ability to raise the necessary capital needed to develop and, in the future, commercialize our product candidates.

 

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Risks Related to Our Reliance on Third Parties

We expect to rely on third parties to conduct our clinical trials and some aspects of our research and preclinical testing, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research, or testing.

We currently rely and expect to continue to rely on third parties, such as consultants, clinical and nonclinical contract research organizations, clinical data management organizations, medical institutions, and clinical investigators, to conduct some aspects of research and preclinical testing and clinical trials. Any of these third parties may terminate their engagements with us or be unable to fulfill their contractual obligations. If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative third parties on commercially reasonable terms, or at all. If we need to enter into alternative arrangements, it would delay product development activities.

Our reliance on these third parties for research and development activities reduces control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our respective clinical trials is conducted in accordance with the general investigational plan and protocols for the trial and applicable legal, regulatory, and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. In addition, the FDA and comparable foreign regulatory authorities require compliance with good clinical practice (“GCP”) requirements for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible, reproducible and accurate and that the rights, integrity, and confidentiality of trial participants are protected. Regulatory authorities enforce GCP compliance through periodic inspections of trial sponsors, principal investigators, and trial sites. If we or any of these third parties fail to comply with applicable GCP regulations, some or all of the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional nonclinical or clinical trials or to enroll additional patients before approving our marketing applications. We cannot be certain that, upon inspection, such regulatory authorities will determine that any of our clinical trials complies with the GCP regulations. For any violations of laws and regulations during the conduct of clinical trials, we could be subject to untitled and warning letters or enforcement action that may include civil penalties up to and including criminal prosecution. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored or similar database within certain timeframes. Failure to do so can result in fines, adverse publicity, and civil and criminal sanctions.

If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or conduct clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for any product candidates we may develop and will not be able to, or may be delayed in our efforts to, successfully commercialize our medicines. Our failure or the failure of these third parties to comply with applicable regulatory requirements or our stated protocols could also subject us to enforcement action.

We contract with third parties for the manufacture of our product candidates for preclinical development and clinical testing and expect to continue to do so for commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We do not currently own or operate any manufacturing facilities or personnel. We rely, and could expect to continue to rely, on third parties for the manufacture of many of our product candidates for preclinical development and clinical testing, as well as for the commercial manufacture of our products if any of our product candidates receive marketing approval. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.

The facilities used by our contract manufacturers to manufacture our product candidates must be inspected by the FDA pursuant to pre-approval inspections that will be conducted after we submit our marketing applications to

 

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the FDA. Similar foreign requirements may apply outside the United States. We do not control the manufacturing process of, and will be completely dependent on, our contract manufacturers for compliance with current good manufacturing practice (“cGMP”) or similar foreign requirements, in connection with the manufacture of our product candidates in the near to intermediate term or possibly long term. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able to pass regulatory inspections and/or maintain regulatory compliance for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority finds deficiencies with or does not approve these facilities for the manufacture of our product candidates or if it finds deficiencies or withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Further, our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, if approved, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business and supplies of our product candidates. Our third-party manufacturers may be subject to third-party litigation which could disrupt our supply chain, result in liability and harm our business, including the need to increase prices in connection with the commercialization of future product candidates.

We may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

 

  

reliance on the third party for regulatory compliance and quality assurance;

 

  

the possible breach of the manufacturing agreement by the third party;

 

  

the possible misappropriation of our proprietary information, including our trade secrets and know-how; and

 

  

the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.

Our product candidates and any products that we may develop may compete with other product candidates and approved products for access to manufacturing facilities or capacity. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.

Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval. If our current contract manufacturers cannot perform as agreed, we may be required to replace such manufacturers. We may incur added costs and delays in identifying and qualifying any such replacement.

Our current and anticipated future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis. We also expect to rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of any product candidates we may develop or commercialization of our medicines, producing additional losses and depriving us of potential product revenue.

Additionally, if any third party with whom we contract for manufacturing fails to perform its obligations, we may be forced to manufacture the materials ourselves, for which we may not have the capabilities or resources, or enter into an agreement with a different third-party contract manufacturer, which we may not be able to do on reasonable terms, if at all. In either scenario, our clinical trials supply could be delayed significantly as we

 

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establish alternative supply sources. In some cases, the technical skills required to manufacture our products or product candidates may be unique or proprietary to the original contract manufacturer and we may have difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may be unable to transfer such skills at all. In addition, if we are required to change contract manufacturers for any reason, we will be required to verify that the new third-party contract manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations. We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce our product candidate according to the specifications previously submitted to the FDA or another regulatory authority. The delays associated with the verification of a new contract manufacturer could negatively affect our ability to develop product candidates or commercialize our products in a timely manner or within budget. Furthermore, a third-party contract manufacturer may possess technology related to the manufacture of our product candidate that such contract manufacturer owns independently. This would increase our reliance on such third-party contract manufacturer or require us to obtain a license from such contract manufacturer in order to have another third-party manufacture our product candidates. In addition, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct bridging studies between our prior clinical supply used in our clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical supplies which could require the conduct of additional clinical trials.

The third parties upon whom we rely for certain equipment and the supply of the active pharmaceutical ingredients used in our product candidates may be our only source of supply, and the loss of any of these suppliers could significantly harm our business.

Certain of our specialized equipment and the active pharmaceutical ingredients, (or “APIs”), used in our product candidates could be supplied to us from single-source suppliers. Our ability to successfully develop our product candidates, and to ultimately supply our commercial products in quantities sufficient to meet the market demand, depends in part on our ability to obtain equipment and the APIs for these products in accordance with regulatory requirements and in sufficient quantities for clinical testing and commercialization. We may not currently have arrangements in place for a redundant or second-source supply of any such equipment or APIs in the event any of our current suppliers of such equipment or APIs ceases their operations for any reason. We are also unable to predict how changing global economic conditions or potential global health concerns such as the COVID-19 pandemic will affect our third-party suppliers and manufacturers. Any negative impact of such matters on our third-party suppliers and manufacturers may also have an adverse impact on our results of operations or financial condition.

We are not certain, however, that any single-source suppliers we may have will be able to meet our demand for their products, either because of the nature of our agreements with those suppliers, our limited experience with those suppliers or our relative importance as a customer to those suppliers. It may be difficult for us to assess their ability to timely meet our demand in the future based on past performance.

Establishing additional or replacement suppliers for certain equipment and the APIs used in our product candidates, if required, may not be accomplished quickly. If we are able to find a replacement supplier, such replacement supplier would need to be qualified and may require additional regulatory inspection or approval, which could result in further delay. While we seek to maintain adequate inventory of the APIs used in our product candidates, any interruption or delay in the supply of components or materials, or our inability to obtain such APIs from alternate sources at acceptable prices in a timely manner could impede, delay, limit or prevent our development efforts, which could harm our business, results of operations, financial condition and prospects.

 

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We may seek to establish additional collaborations for clinical development or commercialization of our product candidates, and, if we are not able to establish them on commercially reasonable terms, or at all, we may have to alter our development and commercialization plans.

Our product development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate with additional pharmaceutical and biotechnology companies for the development and/or commercialization of those product candidates. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. The terms of any additional collaborations or other arrangements that we may establish may not be favorable to us.

Collaborative relationships with third parties could cause us to expend significant resources and incur substantial business risk with no assurance of financial return. Management of our relationships with collaborators will require:

 

  

significant time and effort from our management team;

 

  

coordination of our marketing and research and development programs with the marketing and research and development priorities of our collaborators; and

 

  

effective allocation of our resources to multiple projects.

If we are unable to establish or maintain such strategic collaborations on terms favorable to us in the future, our research and development efforts and potential to generate revenue may be limited.

We may also be restricted under collaboration agreements from entering into future agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, the significant number of recent business combinations among large pharmaceutical companies has resulted in a reduced number of potential future collaborators.

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

Even if we successfully establish new collaborations, these relationships may never result in the successful development or commercialization of product candidates or the generation of sales revenue. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these

 

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collaborations. To the extent that we enter into collaborative arrangements, the related product revenues we receive are likely to be lower than if we directly marketed and sold products. Such collaborators may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for any future product candidate. Disagreements between parties to a collaboration arrangement regarding clinical development or commercialization matters can lead to delays in the development process or commercialization of the applicable product candidate and, in some cases, the termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority. Collaborations with pharmaceutical or biotechnology companies or other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could harm our business reputation. If we were to become involved in arbitration or litigation with any of our collaborators it would consume time and divert management resources away from operations, damage our reputation and impact our ability to enter into future collaboration agreements, and may result in substantial payments from us to our collaborators to settle any disputes.

Risks Related to Our Intellectual Property

If we are unable to adequately protect and enforce our intellectual property and proprietary technology or obtain and maintain patent protection for our technology and products or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.

Our commercial success will depend in part on our ability to obtain, maintain, protect and enforce our proprietary and intellectual property rights in the United States and other countries for our product candidates, and our core technologies, including our Opal platform, preclinical and clinical assets, composition of matter, methods of use and formulation patents and related know-how. We seek to protect our proprietary and intellectual property position by, among other methods, filing patent applications in the United States and abroad related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. However, the patent process is expensive, time consuming and complex, and we may not be able to apply for patents on certain aspects of our technology and products in a timely fashion, at a reasonable cost, in all jurisdictions or at all, and any potential patent coverage we obtain may not be sufficient to prevent substantial competition. Further, we can provide no assurance that any of our current or future patent applications will result in issued patents or that any issued patents will provide us with any competitive advantage. In addition, we also rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary and intellectual property position. We do not yet own or have not yet in-licensed any pending patent applications or issued patents with respect to certain of our preclinical programs.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation.

The degree of patent protection we require to successfully commercialize our product candidates may be unavailable or severely limited in some cases and may not adequately protect our rights or permit us to gain or keep any competitive advantage. We cannot provide any assurances that any of our pending patent applications will issue, or that any of our pending patent applications that mature into issued patents will include claims with a scope sufficient to protect our product candidates from competition. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States, and many companies have encountered significant challenges in establishing and enforcing their proprietary rights outside of the United States. Furthermore, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally twenty years after its first effective non-provisional filing date. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might

 

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expire before or shortly after such candidates are commercialized. As a result, our owned patent portfolio and any patent portfolio we may license in the future may not provide us with adequate and continuing patent protection sufficient to exclude others from commercializing products similar or identical to our product candidates, including generic versions of such products.

Other parties have developed technologies that may be related or competitive to our own, and such parties may have filed or may file patent applications, or may have received or may receive patents, claiming inventions that may overlap or conflict with those claimed in our own patents. Publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights cannot be predicted with any certainty.

The scope of patent protection that the U.S. Patent and Trademark Office (or “USPTO”) will grant with respect to certain technologies, including biologics, is uncertain. For example, it is possible that the USPTO will not allow broad antibody claims that cover antibodies alleged to be a biosimilar of our current or future product candidates or even closely related antibodies as well as the specific closely related to our antibody product candidates. Furthermore, any granted patents may be successfully challenged at the USPTO or other patent offices or in court proceedings to limit the scope of our patent claims so as not to cover a biosimilar of our product candidates. Upon receipt of FDA approval, if we have no patent protection, competitors would be free to market products, subject to FDA approval, that are biosimilar or almost identical to ours, thereby decreasing our market share. The law provides a mechanism for innovators to enforce the patents that protect biologics and for biosimilar applicants to challenge the patents. Such patent litigation may begin as early as four years after the innovative biological product is first approved by the FDA.

In addition, the patent prosecution process is expensive, time-consuming and complex, and we may not be able to file, prosecute, maintain, enforce or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. Further, with respect to some of the pending patent applications covering our preclinical candidates, prosecution has yet to commence. Patent prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the USPTO, may be significantly narrowed by the time they issue, if at all. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. We may also require the cooperation of our licensors and collaborators to enforce any licensed patent rights, and such cooperation may not be provided. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.

Even if we acquire patent protection that we expect should enable us to maintain such competitive advantage, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. For example, we may be subject to a third-party submission of prior art to the USPTO challenging the priority of an invention claimed within one of our patents, which submissions may also be made prior to a patent’s issuance, precluding the granting of any of our pending patent applications. Further, inadvertent or intentional public disclosures of our inventions prior to the filing of a patent application have precluded, and in the future may preclude us from obtaining patent protection in certain jurisdictions. We may become involved in opposition, derivation, reexamination, inter parties review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others from whom we have obtained licenses to such rights. Such proceedings could result in revocation of or amendment to our patents in such a way that they no longer cover our technology or product candidates.

 

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Competitors may claim that they invented the inventions claimed in our issued patents or patent applications prior to us, or may file patent applications before we do. Competitors may also claim that we are infringing on their patents and that we therefore cannot practice our technology as claimed under our patents, if issued. Competitors may also contest our patents, if issued, by showing the patent examiner that the invention was not original, was not novel or was obvious. In litigation, a competitor could claim that our patents, if issued, are not valid for a number of reasons. If a court agrees, we would lose our rights to those challenged patents.

In addition, we may in the future be subject to claims by our former employees or consultants asserting an ownership right in our patents or patent applications, as a result of the work they performed on our behalf. Although we generally require all of our employees, consultants and advisors and any other third parties who have access to our proprietary know-how, information or technology to assign or grant similar rights to their inventions to us, we cannot be certain that we have executed such agreements with all parties who may have contributed to our intellectual property, nor can we be certain that our agreements with such parties will be upheld in the face of a potential challenge, or that they will not be breached, for which we may not have an adequate remedy. A loss of exclusivity, in whole or in part, could allow others to compete with us and harm our business.

An adverse determination in any such submission or proceeding may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, without payment to us, or could limit the duration of the patent protection covering our technology and product candidates. Such challenges may also result in our inability to manufacture or commercialize our product candidates without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

Even if they are unchallenged, our owned patent portfolio and any patent portfolio we may license in the future may not provide us with any meaningful protection or prevent competitors from designing around our patent claims to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. For example, a third party may develop a competitive product that provides benefits similar to one or more of our product candidates but that has a different composition that falls outside the scope of our patent protection. If the patent protection provided by the patents and patent applications we hold or pursue with respect to our product candidates is not sufficiently broad to impede such competition, our ability to successfully commercialize our product candidates could be negatively affected, which would harm our business.

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

The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application and prosecution process. In addition, periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or patent applications often must be paid to the USPTO and foreign patent agencies over the lifetime of the patent and/or patent application. While an unintentional lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our products or procedures, we may not be able to stop a competitor from marketing products that are the same as or similar to our product candidates, which would have a material adverse effect on our business.

 

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If we are unable to protect the confidentiality of our trade secrets and know-how, our business and competitive position may be harmed.

In addition to the protection afforded by patents, we rely upon unpatented trade secret protection, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. With respect to our Valo Opal Computational Platform, curating our data and our library of small molecules generally, we consider trade secrets and know-how to be our primary form of intellectual property protection. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our collaborators, scientific advisors, employees and consultants, and invention assignment agreements with our consultants and employees. We may not be able to protect our trade secrets adequately. We may not be able to prevent the unauthorized disclosure or use of information which we consider to be confidential, our technical know-how or other trade secrets by the parties to these agreements, however, despite the existence generally of confidentiality agreements and other contractual restrictions. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. If any of the collaborators, scientific advisors, employees and consultants who are parties to these agreements breaches or violates the terms of any of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result. For example, if one of our employees publicly discloses information that we believe to be confidential or a trade secret we may be unable to protect it in the future. It is also possible that our trade secrets, know-how or other proprietary information could be obtained by third parties as a result of breaches of our physical or electronic security systems. Even where remedies are available, enforcing a claim that a party illegally disclosed or misappropriated our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets.

Our trade secrets could otherwise become known or be independently discovered by our competitors. Competitors could purchase our product candidates and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us.

Third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual property or proprietary rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing, misappropriating or otherwise violating the intellectual property or proprietary rights of third parties. The biotechnology and pharmaceutical industries are characterized by extensive and frequent litigation regarding patents and other intellectual property rights. We may in the future become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our product candidates and technology, including interference, reexamination, inter partes review, and post-grant review proceedings before the USPTO or opposition proceeding before the European Patent Office. Our competitors or other third parties may assert infringement claims against us, alleging that our products or technologies are covered by their patents. Given the vast and continually-increasing number of patents in our field of technology, we cannot be certain that we do not infringe existing patents or that we will not infringe patents that may be granted in the future. Many companies have filed, and continue to file, patent applications related to artificial intelligence and deep learning, technology-aided drug discovery, high-throughput screening, and combinations of any or all of these fields. Some of these patent applications have already been allowed or issued, and others may issue in the future. Since these areas are competitive and of strong interest to pharmaceutical and biotechnology companies, there will likely be additional patent applications filed and additional patents granted in the future, as well as additional research and

 

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development programs expected in the future. If a patent holder believes our technology, product or product candidate infringes on its patent, the patent holder may sue us even if we have received patent protection for our technology. Moreover, we may face patent infringement claims from non-practicing entities that have no relevant product revenue and against whom our owned patent portfolio and any patent portfolio we may license in the future may thus have no deterrent effect. If any such claim or proceeding is brought now or in the future against us, our collaborators or our third-party service providers, our development, manufacturing, marketing, sales and other commercialization activities could be similarly adversely affected. Even if we believe third-party intellectual property claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity, enforceability, or priority. A court of competent jurisdiction could hold that third-party patents asserted against us are valid, enforceable, and infringed, which could materially and adversely affect our ability to develop, manufacture, market, sell and commercialize any of our product candidates or technology. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent.

If we are found to infringe a third party’s patent or other intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our product candidates and technology. We may choose to obtain a license, even in the absence of an action or finding of infringement. In either case, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain such a license, it could be granted on non-exclusive terms, thereby providing our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing, royalty and other payments. Without such a license, we could be forced, including by court order, to cease developing and commercializing the infringing technology or product candidates. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed such third-party patent or other intellectual property rights. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. If we lose a foreign patent lawsuit, alleging our infringement of a competitor’s patents, we could be prevented from marketing our products in one or more foreign countries, which would have a materially adverse effect on our business.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors or claims asserting ownership of what we regard as our own intellectual property.

Many of our employees, consultants and contractors were previously employed at universities or pharmaceutical or biotechnology companies, including our competitors or potential competitors. We could in the future be subject to claims that we or our employees have inadvertently or otherwise used or disclosed alleged trade secrets or other proprietary information of former employers or competitors. Although we try to ensure that our employees and consultants do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may in the future be subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement, or that we or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a former employer or competitor. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management. If our defenses to these claims fail, in addition to requiring us to pay monetary damages, a court could prohibit us from using technologies or features that are essential to our product candidates, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. An inability to incorporate such technologies or features could have a material adverse effect on our business, and may prevent us from successfully commercializing our product candidates. In addition, we may lose valuable intellectual property rights or personnel as a result of such claims.

 

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Moreover, any such litigation or the threat thereof may adversely affect our ability to hire employees or contract with independent sales representatives. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our product candidates, which would have an adverse effect on our business, results of operations and financial condition.

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights in certain jurisdictions or countries may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have an adverse effect on our business, results of operations and financial condition.

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

Competitors and other third parties may infringe, misappropriate or otherwise violate our patents and other intellectual property rights. To counter infringement or unauthorized use, we may be required to file infringement claims. A court may disagree with our allegations, however, and may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover it. Further, such third parties could counterclaim that we infringe their intellectual property or that a patent we have asserted against them is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims, post-grant review, and inter partes reviews challenging the validity, enforceability or scope of asserted patents are commonplace. In addition, third parties may initiate legal proceedings against us to assert such challenges to our intellectual property rights. The outcome of any such proceeding is generally unpredictable. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Patents may be unenforceable if someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. It is possible that prior art of which we and the patent examiner were unaware during prosecution exists, which could render any patents that may issue invalid. Moreover, it is also possible that prior art may exist that we are aware of but do not believe is relevant to our future patents, should they issue, but that could nevertheless be determined to render our patents invalid.

An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. If a defendant were to prevail on a legal assertion of invalidity or unenforceability of our patents covering one of our product candidates, we would lose at least part, and perhaps all, of the patent protection covering such product candidate or technology. Competing products may also be sold in other countries in which our patent coverage might not exist or be as strong.

Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of New Valo common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities.

 

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We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating or from successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

We may not be able to effectively prosecute and enforce our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly in developing countries. Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries. Additionally, the patent laws of some foreign countries, including some jurisdictions of significant commercial interest, do not afford intellectual property protection to the same extent as the laws of the United States, particularly with regard to software technologies and methods of treatment involving existing drugs. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property rights. This could make it difficult for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties and/or which limit the enforceability of patents against third parties, including government agencies or government contractors. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States and, in those foreign countries, patents may provide limited or no benefit. In addition, we and our licensors may have limited remedies in those foreign countries if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents and could limit our potential revenue opportunities.

Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, if our ability to enforce our patents to stop infringing activities is inadequate. These products may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and resources from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in the major markets for our product candidates, we cannot ensure that we will be able to initiate or maintain similar efforts, or obtain similar patent scope, in all jurisdictions in which we may wish to market our product candidates. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.

Certain of our product candidates may face competition from biosimilars approved through an abbreviated regulatory pathway.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively the “ACA”), includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 (the “BPCIA”), which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-approved reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the

 

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reference product was first approved by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first approved. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of the other company’s product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. The law also provides a mechanism for innovators to enforce the patents that protect innovative biological products and for biosimilar applicants to challenge the patents.

We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

If we do not obtain patent term extension and data exclusivity for any product candidates we may develop, our business may be materially harmed.

Depending upon the timing, duration and specifics of any FDA marketing approval of any product candidates we may develop, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Action of 1984, or Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval; only one patent may be extended and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension in the United States, Japan, Brazil, or other foreign jurisdictions or term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our business, financial condition, results of operations and prospects could be materially harmed.

We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.

A third party may hold intellectual property, including patent rights, that are important or necessary to the development of our products. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our products, in which case we would be required to obtain a license from these third parties on commercially reasonable terms, or our business could be harmed, possibly materially. If we were not able to obtain a license, or were not able to obtain a license on commercially reasonable terms or with sufficient breadth to cover the intended use of third-party intellectual property, our business could be materially harmed or we may become involved in disputes.

 

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If we fail to comply with our obligations in the agreements under which we collaborate with or license intellectual property rights from third parties, or otherwise experience disruptions to our business relationships with our collaborators or licensors, we could lose rights that are important to our business.

We license certain intellectual property that is important to our business, and in the future we may enter into additional agreements that provide us with licenses to valuable intellectual property or technology. We expect our future license agreements will impose various development, diligence, commercialization or sublicensing, and other obligations on us in order to maintain the licenses. In spite of our efforts, a future licensor might conclude that we have materially breached our obligations under such license agreements and seek to terminate the license agreements, thereby removing or limiting our ability to develop and commercialize products and technology covered by these license agreements. If these in-licenses are terminated, or if the underlying patent rights licensed thereunder fail to provide the intended exclusivity, competitors or other third parties would have the freedom to seek regulatory approval of, and to market, products identical to ours and we may be required to cease our development and commercialization of certain of our product candidates. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including:

 

  

the scope of rights granted under the license agreement and other interpretation-related issues;

 

  

the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

  

the sublicensing of patent and other rights under our collaborative development relationships;

 

  

our diligence obligations under the license agreement and what activities satisfy those diligence obligations;

 

  

the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and

 

  

the priority of invention of patented technology.

The agreements under which we may license intellectual property or technology from third parties may be complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our business, financial conditions, results of operations, and prospects.

Changes to the patent law in the United States and other jurisdictions could diminish the value of patents in general and may impact the validity, scope or enforceability of our patent rights, thereby impairing our ability to protect our product candidates.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents and trade secrets. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity and are therefore costly, time consuming, and inherently uncertain. Our patent rights, their associated costs, and the enforcement or defense of such patent rights may be affected by developments or uncertainty in the patent statute, patent case law or USPTO rules and regulations. Changes in either the patent laws or interpretation of the patent laws could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of our issued patents.

 

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For example, in March 2013, under the Leahy-Smith America Invents Act (the “America Invents Act”), the United States transitioned from a “first to invent” to a “first-to-file” patent system. Under a “first-to-file” system, assuming that other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on an invention regardless of whether another inventor had made the invention earlier. A third party that files a patent application in the USPTO after March 2013, but before us, could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we or our licensors were the first to either file any patent application related to our technology or product candidates or invent any of the inventions claimed in our or our licensor’s patents or patent applications. The America Invents Act also includes a number of other significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted, allowing third party submission of prior art and establishing a new post-grant review system including post-grant review, inter partes review, and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. The effects of these changes are currently unclear as the USPTO continues to promulgate new regulations and procedures in connection with the America Invents Act and many of the substantive changes to patent law, including the “first-to-file” provisions, only became effective in March 2013. In addition, the courts have yet to address many of these provisions and the applicability of the act and new regulations on the specific patents discussed in this filing have not been determined and would need to be reviewed. However, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Additionally, there have been recent proposals for additional changes to the patent laws of the United States and other countries that, if adopted, could impact our ability to obtain patent protection for our proprietary technology or our ability to enforce rights in our proprietary technology. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce any patents that we may obtain in the future.

In addition, it is uncertain whether the World Trade Organization (WTO) will waive certain intellectual property protections now or in the future on certain technologies. It is unknown if such a waiver would be limited to patents, or would include other forms of intellectual property including trade secrets and confidential know-how. We cannot be certain that any of our current or future product candidates or technologies would not be subject to an intellectual property waiver by the WTO. We also cannot be certain that any of our current or future intellectual property rights, whether patents, trade secrets, or confidential know-how would be eliminated, narrowed, or weakened by such a waiver. Given the uncertain future actions by the WTO and other countries and jurisdictions around the world, including the United States, it is unpredictable how our current or future intellectual property rights or how our current or future business would be impacted.

 

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Intellectual property rights do not necessarily address all potential threats.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:

 

  

others may be able to make products that are similar to our product candidates or utilize similar technology but that are not covered by the claims of the patents that we license or may own;

 

  

others may be able to duplicate or utilize similar technology in a manner that infringes our patents but is undetectable, or done in a jurisdiction where we cannot secure or enforce patent rights;

 

  

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

 

  

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

 

  

it is possible that our present or future pending patent applications (whether owned or licensed) will not lead to issued patents;

 

  

issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties;

 

  

our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 

  

we may develop additional proprietary technologies that are not considered patentable subject matter;

 

  

the patents of others may harm our business; and

 

  

we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.

Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations and prospects.

If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential collaborators or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. We may license our trademarks and trade names to third parties, such as distributors. Though these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and trade names by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names. Our efforts to enforce or protect our proprietary rights related to trademarks, trade names, trade secrets, know-how, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our business, financial condition, results of operations and prospects.

 

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We license patent rights from third-party owners. If such owners do not properly or successfully obtain, maintain, or enforce the patents underlying such licenses, our competitive position and business prospects may be harmed.

We are a party to license agreements that give us rights to third-party intellectual property that is necessary or useful for our business. For example we have obtained a license from a third party to patent rights covering certain of our clinical product candidates and licenses (implied or explicit) from certain other parties for technology used in our drug discovery efforts. We may enter into additional license agreements to third-party intellectual property in the future.

Our success will depend in part on the ability of our current and future licensors to obtain, maintain, and enforce patent protection for our licensed products. Our current and future licensors may not successfully prosecute the patent applications we license. Even if patents issue in respect of these patent applications, our current and future licensors may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents, or may pursue such litigation less aggressively than we would. Without protection for the intellectual property we license, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive business position and harm our business prospects.

Some of our intellectual property has been discovered through government-funded programs and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies, and compliance with such regulations may limit our exclusive rights and our ability to contract with non-U.S. manufacturers.

Our intellectual property rights may be subject to a reservation of rights by one or more third parties. For example, certain intellectual property rights that we have licensed have been generated through the use of U.S. government funding and are therefore subject to certain federal regulations. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or future processes and related products and services pursuant to the Bayh-Dole Act of 1980, or the Bayh-Dole Act. These U.S. government rights include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right, under certain limited circumstances, to require the licensor to grant exclusive, partially exclusive or non-exclusive licenses to any of these inventions to a third party if it determines that (1) adequate steps have not been taken to commercialize the invention and achieve practical application of the government-funded technology, (2) government action is necessary to meet public health or safety needs, (3) government action is necessary to meet requirements for public use under federal regulations or (4) we fail to meet requirements of federal regulations (also referred to as “march-in rights”). OPL-0101, for example, may be subject to such march-in rights if certain statutory requirements are not met. The U.S. government also has the right to take title to these inventions if we or our licensors fail to disclose the invention to the government or fail to file an application to register the intellectual property within specified time limits. These rights may permit the government to disclose our confidential information to third parties. In addition, our rights in such inventions may be subject to certain requirements to manufacture products embodying such inventions in the United States. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources. To the extent any of our future owned or licensed intellectual property is also generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply. Any exercise by the government of such rights could have a material adverse effect on our competitive position, business, results of operations and financial condition.

 

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Risks Related to Government Regulation

Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to post-market study requirements, marketing and labeling restrictions, and even recall or market withdrawal if unanticipated safety issues are discovered following approval. In addition, we may be subject to penalties or other enforcement action if we fail to comply with regulatory requirements.

The FDA or comparable foreign regulatory authorities may not approve any of our product candidates derived from our platform. However, if the FDA or a comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, establishment registration and listing, as well as continued compliance with cGMPs or similar foreign requirements and GCPs for any clinical trials that we conduct post-approval. Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing studies, and surveillance to monitor the safety and efficacy of the product. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

 

  

restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

  

clinical trial holds;

 

  

fines, warning letters or other regulatory enforcement action;

 

  

refusal by the FDA or comparable foreign regulatory authorities to approve pending applications or supplements to approved applications filed by us;

 

  

product seizure or detention, or refusal to permit the import or export of products; and

 

  

injunctions or the imposition of civil or criminal penalties.

The FDA’s and comparable foreign regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

For instance, the EU adopted the Clinical Trials Regulation (“CTR”) in April 2014, which is expected to become applicable by early 2022. The CTR will be directly applicable in all EU member states, repealing the current Clinical Trials Directive. Conduct of all clinical trials performed in the EU will continue to be bound by currently applicable provisions until the new CTR becomes applicable. The extent to which ongoing clinical trials will be governed by the CTR will depend on when the CTR becomes applicable and on the duration of the individual clinical trial. If a clinical trial continues for more than three years from the day on which the CTR becomes applicable the CTR will at that time begin to apply to the clinical trial. The CTR harmonizes the assessment and supervision processes for clinical trials throughout the EU via a Clinical Trials Information System, which will notably contain a centralized EU portal and database.

Around the world, data collection and use are governed by laws and regulations governing the use, processing and cross-border transfer of personal information.

In the event we decide to conduct clinical trials or engage in other human data collection, we may be subject to additional privacy restrictions. Many foreign jurisdictions, including, without limitation, member states of the

 

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EU, and the United Kingdom, Canada, Israel, Australia, New Zealand, Japan and many other countries have adopted legislation that increase or change the requirements governing the collection, distribution, use, storage, disclosure, or other processing, and/or security of personal information and other data in these jurisdictions. If our privacy or data security measures fail to comply with current or future laws and regulations, we may be subject to litigation, regulatory investigations or other liabilities, or our customers may terminate their relationships with us

In the EU, we are subject to particularly stringent regulation. The collection, use, storage, disclosure, transfer, or other processing of personal data regarding individuals in the EU, including personal health data, is subject to the EU General Data Protection Regulation (“GDPR”). The GDPR also applies in the European Economic Area (“EEA”) (which consists of the 27 EU Member States plus Norway, Liechtenstein and Iceland). The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR also imposes substantial fines for breaches and violations (up to the greater of €20 million or 4% of our consolidated annual worldwide gross revenue). Compliance with the GDPR is a rigorous and time-intensive process that may increase our cost of doing business or require us to adopt certain business practices, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection with our European activities.

Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.

We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.

Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional nonclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In short, the foreign regulatory approval process involves all of the risks associated with FDA approval. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we may intend to charge for our products will also be subject to approval.

Laws and regulations governing any international operations we may have may preclude us from developing, manufacturing and selling certain products outside of the United States and require us to develop and implement costly compliance programs.

We currently engage in certain activities supporting our product and platform development activities that occur outside the U.S., and for these activities we must dedicate additional resources to comply with numerous laws

 

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and regulations in each such jurisdiction. Additionally, the Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.

Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our activities outside of the United States, it will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit our growth potential and increase our development costs.

The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.

We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations. We can face serious consequences for violations.

Among other matters, U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations, which are collectively referred to as Trade Laws, prohibit companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors, and other partners from authorizing, promising, offering, providing, soliciting, or receiving directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We also expect our non-U.S. activities to increase in time. We plan to engage third parties for clinical trials and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals and we can be held liable for the corrupt or other illegal activities of our personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities.

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

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user

 

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fees, and statutory, regulatory and policy changes and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the agency FDA have fluctuated in recent years as a result. In addition, government funding of the Securities and Exchange Commission, or SEC, and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies, for instance the EMA, following its relocation to Amsterdam and related reorganization, may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, in recent years, including for 35 days beginning on December 22, 2018, the U.S. government shut down several times and certain regulatory agencies, such as the FDA and the SEC, had to furlough critical employees and stop critical activities.

Since March 2020 when foreign and domestic inspections of facilities were largely placed on hold, the FDA has been working to resume routine surveillance, bioresearch monitoring and pre-approval inspections on a prioritized basis. The FDA has developed a rating system to assist in determining when and where it is safest to conduct prioritized domestic inspections. As of May 2021, certain inspections, such as foreign preapproval, surveillance, and for-cause inspections that are not deemed mission-critical, remain temporarily postponed. In April 2021, the FDA issued guidance for industry formally announcing plans to employ remote interactive evaluations, using risk management methods, to meet user fee commitments and goal dates and in May 2021 announced plans to continue progress toward resuming standard operational levels. Should the FDA determine that an inspection is necessary for approval and an inspection cannot be completed during the review cycle due to restrictions on travel, and the FDA does not determine a remote interactive evaluation to be adequate, the agency has stated that it generally intends to issue a complete response letter or defer action on the application until an inspection can be completed. In 2020 and 2021, a number of companies announced receipt of complete response letters due to the FDA’s inability to complete required inspections for their applications. Regulatory authorities outside the U.S. may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory activities. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, upon completion of this offering and in our operations as a public company, future government shutdowns or delays could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

We may seek one or more designations or expedited programs for one or more of our product candidates, but we might not receive such designations or be allowed to proceed on expedited program pathways, and even if we do and proceed on such expedited program pathways in the future, such designations or expedited programs may not lead to a faster development or regulatory review or approval process, and each designation does not increase the likelihood that any of our product candidates will receive marketing approval in the United States.

We may seek fast track designation for some of our product candidates. If a drug is intended for the treatment of a serious or life-threatening condition and nonclinical or clinical data for the drug demonstrates the potential to address an unmet medical need for such a condition, the drug sponsor may apply for fast track designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive fast track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. Fast track designation alone does not guarantee qualification for the FDA’s priority review procedures.

We may seek a breakthrough therapy designation for some of our product candidates. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-

 

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threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA may also be eligible for priority review and accelerated approval. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to therapies considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that such product candidates no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

In the future, we may also seek approval of product candidates under the FDA’s accelerated approval pathway. A product may be eligible for accelerated approval if it is designed to treat a serious or life-threatening disease or condition and generally provides a meaningful advantage over available therapies upon a determination that the product candidate has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease, such as irreversible morbidity or mortality. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. If the sponsor fails to conduct such studies in a timely manner, or if such post-approval studies fail to verify the drug’s predicted clinical benefit, the FDA may withdraw its approval of the drug on an expedited basis. There can be no assurance that the FDA would allow any of the product candidates we may develop to proceed on an accelerated approval pathway, and even if the FDA did allow such pathway, there can be no assurance that such submission or application will be accepted or that any expedited development, review or approval will be granted on a timely basis, or at all.

If the FDA determines that a product candidate offers a treatment for a serious condition and, if approved, the product would provide a significant improvement in safety or effectiveness, the FDA may designate the product candidate for priority review. A priority review designation means that the goal for the FDA to review an application is six months, rather than the standard review period of ten months. We may request priority review for our product candidates. The FDA has broad discretion with respect to whether or not to grant priority review status to a product candidate, so even if we believe a particular product candidate is eligible for such designation or status, the FDA may decide not to grant it. Moreover, a priority review designation does not necessarily result in an expedited regulatory review or approval process or necessarily confer any advantage with respect to approval compared to conventional FDA procedures. Receiving priority review from the FDA does not guarantee approval within the six-month review cycle or at all.

The FDA and other regulatory authorities may implement additional regulations or restrictions on the development and commercialization of our product candidates, and such changes can be difficult to predict.

Agencies at both the federal and state level in the United States, as well as the U.S. Congressional committees and other governments or governing agencies, have expressed interest in further regulating the biotechnology

 

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industry, including the use of artificial intelligence. Such action may delay or prevent commercialization of some or all of our product candidates and software products. Adverse developments in clinical trials of products conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of any of our product candidates. These regulatory review agencies and committees and the new requirements or guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies or trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory agencies and comply with applicable requirements and guidelines. If we fail to do so, we may be required to delay or discontinue development of such product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Delays as a result of an increased or lengthier regulatory approval process or further restrictions on the development of our product candidates can be costly and could negatively impact our ability to complete clinical trials and commercialize our current and future product candidates in a timely manner, if at all.

Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.

The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of our current or future product candidates or any future product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell a product for which we obtain marketing approval. Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements, (ii) additions or modifications to product labeling, (iii) the recall or discontinuation of our products, or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Affordable Care Act, or the ACA, was passed, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the United States pharmaceutical industry. The ACA, among other things, subjected biological products to potential competition by lower-cost biosimilars, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and created a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (increased to 70% pursuant to the Bipartisan Budget Act of 2018, effective as of 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden had issued an executive order to initiate a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how the healthcare reform measures of the Biden administration or other efforts to challenge, repeal or replace the ACA, if any, will impact the ACA.

 

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Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, included aggregate reductions of Medicare payments to providers of 2% per fiscal year, and, due to subsequent legislative amendments, will remain in effect through 2030, with the temporary suspension from May 1, 2020 through December 31, 2021, unless additional Congressional action is taken. In addition, the American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

There has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Although a number of these and other proposed measures may require authorization through additional legislation to become effective, and the current administration may reverse or otherwise change these measures, Congress has indicated that it will continue to seek new legislative measures to control drug costs.

At the state level, individual states are increasingly active in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing.

Further, on May 30, 2018, the Right to Try Act was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new product candidates that have completed a Phase 1 clinical trial and are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its product candidates available to eligible patients as a result of the Right to Try Act.

We expect that additional state, federal and foreign healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal, state and foreign governments will pay for healthcare products and services, which could result in reduced demand for our current or future product candidates or additional pricing pressures.

Our revenue prospects could be affected by changes in healthcare spending and policy in the United States and abroad.

We operate in a highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to healthcare availability, the method of delivery or payment for healthcare products and services could negatively impact our business, operations and financial condition.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future, including repeal, replacement or significant revisions to the ACA. The continuing efforts of the government, insurance companies, managed care

 

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organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:

 

  

the demand for our current or future product candidates, if we obtain regulatory approval;

 

  

our ability to set a price that we believe is fair for our products;

 

  

our ability to obtain coverage and reimbursement approval for a product;

 

  

our ability to generate revenue and achieve or maintain profitability;

 

  

the level of taxes that we are required to pay; and

 

  

the availability of capital.

Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.

Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm and diminished profits and future earnings.

Although we do not currently have any products on the market, if and when we begin commercializing our product candidates, we will be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments in which we conduct our business. Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our product candidates for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include the following:

 

  

the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Pursuant to an order entered by the U.S. District Court for the District of Columbia, the portion of the rule eliminating safe harbor protection for certain rebates related to the sale or purchase of a pharmaceutical product from a manufacturer to a plan sponsor under Medicare Part D has been delayed to January 1, 2023. Implementation of this change and new safe harbors for point-of-sale reductions in price for prescription pharmaceutical products and pharmacy benefit manager service fees are currently under review by the Biden administration and may be amended or repealed. We continue to evaluate what effect, if any, these rules will have on our business;

 

  

the federal civil and criminal false claims laws, including the federal False Claims Act, or FCA, and civil monetary penalties laws, among other things, impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery.

 

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In addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false of fraudulent claim for purposes of the FCA;

 

  

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

  

the federal physician payment transparency requirements, sometimes referred to as the “Sunshine Act” under the ACA, require manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report to the Department of Health and Human Services information related to transfers of value made to physicians (currently defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests of such physicians and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made to certain non-physician providers such as physician assistants and nurse practitioners;

 

  

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, (“HITECH Act”), and their implementing regulations, also impose obligations, including mandatory contractual terms, on covered entities subject to the rule, such as health plans, healthcare clearinghouses and certain healthcare providers, as well as their business associates that perform certain services for them or on their behalf involving the use or disclosure of individually identifiable health information with respect to safeguarding the privacy, security and transmission of individually identifiable health information. We believe we are not a covered entity or typically a business associate for purposes of HIPAA; and

 

  

analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures.

Efforts to ensure that our future business arrangements with third parties comply with applicable healthcare laws and regulations could involve substantial costs and may require us to undertake or implement additional policies or measures. We may face claims and proceedings by private parties, and claims, investigations and other proceedings by governmental authorities, relating to allegations that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse, privacy or data protection, or other healthcare laws and regulations, and it is possible that courts or governmental authorities may conclude that we have not complied with them, or that we may find it necessary or appropriate to settle any such claims or other proceedings. In connection with any such claims, proceedings, or settlements, we may be subject to significant civil, criminal and administrative penalties, damages, fines, other damages, individual imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

 

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Compliance with global privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and process data globally, and the failure to comply with such requirements could subject us to significant fines and penalties, which may have a material adverse effect on our business, financial condition, or results of operations.

The regulatory framework for the collection, use, safeguarding, sharing, transfer, and other processing of information worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Globally, virtually every jurisdiction in which we operate has established its own data security and privacy frameworks with which we must comply. For example, the collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the EEA, including personal health data and employee data, is subject to the GDPR, which took effect in May 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party processors. The GDPR informs our obligations with respect to any clinical trials conducted in the EEA by expanding the definition of personal data to include coded data and requiring changes to informed consent practices and more detailed notices for clinical trial subjects and investigators. In addition, the GDPR imposes strict rules on the transfer of personal data to countries outside the EEA, including the United States and, as a result, increases the scrutiny that such rules should apply to transfers of personal data from any clinical trial sites located in the EEA to the United States. The GDPR also permits data protection authorities to require destruction of improperly gathered or used personal information and/or impose substantial fines for violations of the GDPR, which can be up to four percent of global revenues or 20 million Euros, whichever is greater, and confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. In addition, the GDPR provides that EU member states may make their own further laws and regulations limiting the processing of personal data, including genetic, biometric, or health data.

Given the breadth and depth of its obligations, complying with the GDPR’s requirements is rigorous and time intensive and requires significant resources and assessment of our technologies, systems and practices, as well as those of any third-party collaborators, service providers, contractors, or consultants that process or transfer personal data collected in the EU.

Further, the United Kingdom exited the EU effective January 31, 2020, subject to a transition period that ended December 31, 2020. Following the expiry of those transitional arrangements, the data protection obligations of the GDPR continue to apply to United Kingdom-related processing of personal data in substantially unvaried form and fashion under the so-called “UK GDPR” (i.e., the GDPR as it continues to form part of United Kingdom law by virtue of section 3 of the EU (Withdrawal) Act 2018, as amended (including by the various Data Protection, Privacy and Electronic Communications (Amendments etc.) (EU Exit) Regulations)). Brexit and ongoing developments in the United Kingdom have created uncertainty with regard to the regulation of data protection in the United Kingdom and could result in the application of new data privacy and protection laws and standards to our operations in the United Kingdom and our handling of personal data of individuals located in the United Kingdom. The United Kingdom has implemented legislation that substantially implements the GDPR, and the European Commission and the United Kingdom government announced a EU-UK Trade and Cooperation Agreement on December 24, 2020, but it remains to be seen how the United Kingdom’s withdrawal from the EU will impact the manner in which United Kingdom data protection laws or regulations will develop. The European Commission has adopted an adequacy decision in favor of the United Kingdom, enabling data transfers from EU member states to the United Kingdom without additional safeguards. However, the United Kingdom adequacy decision will automatically expire in June 2025 unless the European Commission renews or extends that decision.

Around the world, many other countries are enacting comprehensive privacy laws that closely model the GDPR. In Israel, for example, the Israeli Privacy Protection Regulations (Data Security), 5777-2017 entered into force in

 

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May 2018. The regulations significantly expanded the privacy protection obligations that apply to most of the companies operating in Israel. The regulations impose strict information security requirements upon any organization that is in possession of a database containing personal data, including by adopting a written policy for protecting the organization’s personal data. The regulations also require organizations to immediately report data breaches to the Privacy Protection Authority, among other requirements.

In the United States, a broad variety of laws and regulations relating to privacy and data security may be applicable to our activities. New laws also are being considered at both the state and federal levels, and state legislatures such as California have already passed and enacted privacy legislation. For example, the California Consumer Privacy Act, or CCPA, which became effective on January 1, 2020, creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal data. The CCPA, among other things, requires covered companies to provide new disclosures to California consumers, and afford such consumers new abilities to opt out of certain sales of personal information, access and require deletion of their personal information, and receive detailed information about how their personal information is used. Failure to comply with the CCPA may result in attorney general enforcement action and damage to our reputation. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. Moreover, a ballot initiative from privacy rights advocates intended to augment and expand the CCPA called the California Privacy Rights Act, or CPRA, was approved by California voters in the November 2020 election. The CPRA imposes additional obligations relating to consumer data on companies doing business in California beginning January 1, 2022, with implementing regulations expected on or before July 1, 2022, and enforcement beginning July 1, 2023. The CPRA significantly modifies the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply, as we may need to modify or augment our existing practices. New state laws that regulate aspects of privacy and data security continue to be proposed, and in some cases, enacted, and there is discussion in Congress of a new federal data protection and privacy law to which we would become subject if it is enacted. In addition, all 50 states have laws including obligations to provide notification of security breaches of computer databases that contain personal information to affected individuals, state officers and others.

The myriad international and U.S. privacy and data breach laws are not consistent, and compliance, particularly in the event of a widespread data breach, is difficult and may be costly. Moreover, states have been frequently amending existing laws, requiring attention to changing regulatory requirements. In addition to government regulation, privacy advocates and industry groups have and may in the future propose self-regulatory standards from time to time. These and other industry standards may legally or contractually apply to us, or we may elect to comply with such standards. We expect that there will continue to be new proposed laws and regulations concerning data privacy and security, and we cannot yet determine the impact such future laws, regulations and standards may have on our business. With the GDPR, CCPA, CPRA, and other laws, regulations and other obligations relating to privacy and data protection imposing new and relatively burdensome obligations, and with substantial uncertainty over the interpretation and application of these and other obligations, we may face challenges in addressing their requirements, putting in place additional compliance mechanisms and making necessary changes to our policies and practices, and may incur significant costs and expenses in an effort to do so.

We make public statements about our use and disclosure of personal information through our privacy policy, information provided on our website and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. We may be subject to potential government or legal action if such policies or statements are found to be deceptive, unfair or misrepresentative of our actual practices. In addition, from time to time, concerns may be expressed about whether our technology compromises the privacy of our customers and others. While we believe that we comply with industry standards and applicable laws and industry codes of conduct relating to privacy and data protection in all material respects, there is no assurance that we will not be subject to claims that we have violated

 

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applicable laws or codes of conduct, that we will be able to successfully defend against such claims or that we will not be subject to significant fines and penalties in the event of non-compliance. Additionally, to the extent multiple state-level laws are introduced with inconsistent or conflicting standards and there is no federal law to preempt such laws, compliance with such laws could be difficult to achieve and we could be subject to fines and penalties in the event of non-compliance. Furthermore, enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations continue to increase.

In addition, if third parties we work with, such as vendors or service providers, violate applicable laws or regulations or our policies, such violations may also put our data at risk and could in turn have an adverse effect on our business. Any failure or perceived failure by us or our service providers to comply with our applicable policies or notices relating to privacy or data protection, our contractual or other obligations to third parties, or any of our other legal obligations relating to privacy or data protection, may result in governmental investigations or enforcement actions, litigation, claims and other proceedings, and could result in significant fines, penalties, and other liability. Additionally, defending against any claims, litigation, regulatory proceedings, or other proceedings can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions or proceedings that may be brought against us, our business may be impaired, and we may suffer reputational and other harm.

Our employees, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, and insider trading.

We are exposed to the risk that our employees, principal investigators, CROs and consultants may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violate the regulations of the FDA and other regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities; healthcare fraud and abuse laws and regulations in the United States and abroad; or laws that require the reporting of financial information or data accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials or creating fraudulent data in our preclinical studies or clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Risks Related to Employee Matters, Managing Growth and Ongoing Operations

The loss of any member of our senior management team or our inability to attract and retain highly skilled scientists, engineers and other employees and consultants could adversely affect our business.

Our success depends on the skills, experience and performance of key members of our senior management team, as well as other principal members of our management, technology, and therapeutics teams. Although we have entered into employment letter agreements with our executive officers, each of them may terminate their

 

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employment with us at any time or not be able to perform the services we need in the future. We do not maintain “key person” insurance for any of our executives or other employees. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

Recruiting and retaining qualified scientific, engineering, clinical, manufacturing, and other business personnel will also be critical to our success. The loss of the services of our executive officers or other key employees, including temporary loss due to illness, could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of, and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific, engineering and clinical personnel from universities and research institutions. Failure to succeed in clinical trials may make it more challenging to recruit and retain qualified scientific personnel.

In addition, many of the other companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. These institutions also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we have to offer. If we are unable to continue to attract and retain high-quality personnel, the rate and success with which we can discover and develop product candidates and our business will be limited.

We expect to expand our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

As of August 15, 2021, we had 173 full-time employees. We expect to experience significant growth in the number of our employees and the scope of our operations, particularly as we function as a public company and in the areas of product development, regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure investors that, following any such acquisition, we will achieve the expected synergies to justify the transaction.

 

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We have identified material weaknesses in our internal control over financial reporting for the fiscal years ended December 31, 2019 and 2020. If we fail to remediate these material weaknesses or experience material weaknesses in the future or otherwise fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us and, as a result, the value of our common stock.

In preparing our financial statements as of and for the years ended December 31, 2019 and 2020, we identified three material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses were identified:

 

 (i)

We did not design and maintain an effective control environment commensurate with our financial reporting requirements due to an insufficient complement of personnel in the accounting and finance function. This material weakness further contributed to the following material weaknesses:

 

 (ii)

We did not design and maintain sufficient formal policies, procedures and controls to achieve complete and accurate financial reporting and disclosures, including controls over the preparation and review of journal entries and account reconciliations and segregation of duties. This material weakness impacts substantially all financial statement accounts.

 

 (iii)

We did not design and maintain effective controls over certain information technology (“IT”) general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain:

 

 (a)

program change management controls for financial systems to ensure that information technology program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately,

 

 (b)

user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel, and

 

 (c)

computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored.

These IT deficiencies did not result in a material misstatement to the financial statements; however, the deficiencies, when aggregated, impact maintaining effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Accordingly, management has determined these deficiencies in the aggregate constitute a material weakness.

Each of these material weaknesses did not result in a material misstatement to the consolidated financial statements included herein. However, these material weaknesses could result in a misstatement of substantially all of the financial statement accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

To remedy our identified material weaknesses, we are in the process of adopting several measures that will improve our internal control over financial reporting, including implementing additional procedures and controls consistent with the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to address the risk of material misstatement, and enhancing IT governance processes. These remediation measures are ongoing and include hiring additional personnel and implementing additional procedures and controls. The actions that we are taking are subject to ongoing senior management review, as well as Audit Committee oversight.

 

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We expect to complete the measures above as soon as practicable and we will continue to implement measures to remedy our internal control deficiencies under Section 404 of the Sarbanes-Oxley Act. However, we cannot assure you that we will be successful in fully remediating these material weaknesses, or that additional material weaknesses in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that could result in a restatement of our financial statements, and could cause us to fail to meet our reporting obligations. The process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. We have not performed a formal evaluation of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, nor have we engaged an independent registered public accounting firm to perform an audit of our internal control over financial reporting as of any balance sheet date or for any period reported in our financial statements. Presently, we are not an accelerated filer, as such term is defined by Rule 12b-2 of the Exchange Act, and therefore, our management is not presently required to perform an annual assessment of the effectiveness of our internal control over financial reporting. Our independent registered public accounting firm will first be required to attest to the effectiveness of our internal control over financial reporting for our Annual Report on Form 10-K for the first year we are no longer an “emerging growth company” or a “smaller reporting company.” We will be required to disclose changes made in our internal controls and procedures on a quarterly basis. Failure to comply with the Sarbanes-Oxley Act could potentially subject us to sanctions or investigations by the SEC, the applicable stock exchange or other regulatory authorities, which would require additional financial and management resources. We have begun the process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 in the future, but we may not be able to complete our evaluation, testing and any required remediation in a timely fashion. An independent assessment of the effectiveness of our internal control over financial reporting could detect deficiencies in our internal control over financial reporting that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation.

Risks Relating to Our Indebtedness

Our existing indebtedness could adversely affect our business and growth prospects.

As of June 30, 2021, we had $23 million in principal amount outstanding under our Term Loan Facility. Our indebtedness, or any additional indebtedness we may incur, could require us to divert funds identified for other purposes for debt service and impair our liquidity position. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take any of these actions on a timely basis, on terms satisfactory to us or at all.

Our indebtedness and the cash flow needed to satisfy our debt have important consequences, including:

 

  

limiting funds otherwise available for financing our capital expenditures by requiring us to dedicate a portion of our cash flows from operations to the repayment of debt and the interest on this debt;

 

  

making us more vulnerable to rising interest rates; and

 

  

making us more vulnerable in the event of a downturn in our business.

Our level of indebtedness may place us at a competitive disadvantage to our competitors that are not as highly leveraged. Fluctuations in interest rates can increase borrowing costs. Increases in interest rates may directly impact the amount of interest we are required to pay and reduce earnings accordingly. In addition, developments in tax policy, such as the disallowance of tax deductions for interest paid on outstanding indebtedness, could have an adverse effect on our liquidity and our business, financial conditions and results of operations.

 

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We expect to use cash flow from financing and investing activities and operations to meet current and future financial obligations, including funding our operations, debt service requirements and capital expenditures. The ability to make these payments depends on our financial and operating performance, which is subject to prevailing economic, industry and competitive conditions and to certain financial, business, economic and other factors beyond our control.

We may not be able to generate sufficient cash flow to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful.

We may not be able to maintain a sufficient level of cash flow from financing, investing and operating activities to permit us to pay the principal, premium, if any, fees, and interest on our indebtedness. Any failure to make payments of interest, principal and fees on our outstanding indebtedness on a timely basis would likely result in penalties or defaults, which would also harm our ability to incur additional indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or seek to restructure or refinance our indebtedness. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such cash flows and resources, we could face substantial liquidity problems and might be required to sell material assets or operations to attempt to meet our debt service obligations. If we cannot meet our debt service obligations, the holders of our indebtedness may accelerate such indebtedness and, to the extent such indebtedness is secured, foreclose on our assets. In such an event, we may not have sufficient assets to repay all of our indebtedness.

We may be unable to refinance our indebtedness.

We may need to refinance all or a portion of our indebtedness before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially reasonable terms, or at all.

The terms of our Credit Agreement restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

The Credit Agreement contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to:

 

  

incur additional indebtedness or other contingent obligations;

 

  

create liens;

 

  

make investments, acquisitions, loans and advances;

 

  

consolidate, merge, liquidate or dissolve;

 

  

sell, transfer or otherwise dispose of our assets;

 

  

pay dividends on our equity interests or make other payments in respect of capital stock; and

 

  

materially alter the business we conduct.

The restrictive covenants in the Credit Agreement require us to satisfy certain financial condition tests. Our ability to satisfy those tests can be affected by events beyond our control.

A breach of the covenants or restrictions under the Credit Agreement could result in an event of default under such document. Such a default may allow the creditors to accelerate the related debt, which may result in the

 

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acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In the event the holders of our indebtedness accelerate the repayment, we may not have sufficient assets to repay that indebtedness or be able to borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms acceptable to us. As a result of these restrictions, we may be:

 

  

limited in how we conduct our business;

 

  

unable to raise additional debt or equity financing to operate during general economic or business downturns; or

 

  

unable to compete effectively or to take advantage of new business opportunities.

These restrictions, along with restrictions that may be contained in agreements evidencing or governing other future indebtedness, may affect our ability to grow in accordance with our growth strategy.

Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future could reduce our ability to compete successfully and harm our results of operations.

We may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms or at all. If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests. If we engage in additional debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios, or restrict our ability to pay dividends or make acquisitions. In addition, the covenants in our Credit Agreement may limit our ability to obtain additional debt, and any failure to adhere to these covenants could result in penalties or defaults that could further restrict our liquidity or limit our ability to obtain financing. If we need additional capital and cannot raise it on acceptable terms, or at all, we may not be able to, among other things:

 

  

develop and enhance our platform and technologies;

 

  

continue to expand our organization;

 

  

hire, train and retain employees;

 

  

respond to competitive pressures or unanticipated working capital requirements; or

 

  

pursue acquisition and in-licensing opportunities.

In addition, if we issue additional equity to raise capital, investors interest in us will be diluted.

Risks Related to the Business Combination and KVSA, and SPACs Generally

Unless the context otherwise requires, all references in this subsection to the “Company,” “we,” “us” or “our” refer to KVSA prior to the consummation of the Business Combination and New Valo following the consummation of the Business Combination.

The Sponsor and our directors and officers have agreed to vote in favor of the Business Combination, regardless of how KVSA’s public stockholders vote.

Unlike some other blank check companies in which the initial stockholders agree to vote their shares in accordance with the majority of the votes cast by the public stockholders in connection with an initial business combination, the Sponsor and our directors and officers have agreed, pursuant to the terms of the Sponsor Support Agreement, to vote their founder shares, private placement shares and any public shares held by them in favor of the Business Combination. As a result, in addition to the founder shares and private placement shares,

 

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we would need 14,255,001, or 41.3% (assuming all issued and outstanding shares are voted), or 3,860,444, or 11.2% (assuming only the minimum number of shares representing a quorum are voted), of the 34,500,000 public shares sold in our initial public offering to be voted in favor of the Business Combination (including the Merger) in order to have such Business Combination approved. We expect that the Sponsor and our directors and officers will own at least 20% of our issued and outstanding shares of KVSA common stock at the time of any such stockholder vote. Accordingly, if we seek stockholder approval of our initial Business Combination, it is more likely that the necessary stockholder approval will be received than would be the case if such persons agreed to vote their founder shares in accordance with the majority of the votes cast by our public stockholders.

Neither the KVSA board of directors nor any committee thereof obtained a third party valuation in determining whether or not to pursue the Business Combination.

Neither the KVSA board of directors nor any committee thereof is required to obtain an opinion that the price that we are paying for Valo is fair to us from a financial point of view. Neither the KVSA board of directors nor any committee thereof obtained a third party valuation in connection with the Business Combination. In analyzing the Business Combination, among other things, the KVSA board of directors and management, together with its legal, accounting and other advisors, conducted due diligence on Valo. The KVSA board of directors reviewed comparisons of selected financial data of Valo with its peers in the industry and the financial terms set forth in the Merger Agreement, and concluded that the Business Combination was in the best interest of KVSA’s stockholders. Accordingly, investors will be relying solely on the judgment of the KVSA board of directors and management in valuing Valo, and the KVSA board of directors and management may not have properly valued such businesses. The lack of a third party valuation may also lead an increased number of stockholders to vote against the Business Combination or demand redemption of their shares, which could potentially impact our ability to consummate the Business Combination.

Our ability to seek an alternative business combination is limited even if we determined the Business Combination is no longer in our stockholders’ best interest.

If we do not obtain stockholder approval at the special meeting, Valo can continually obligate us to hold additional special meetings to vote on the Condition Precedent Proposals until the earlier of such stockholder approval being obtained and the Agreement End Date. This could limit our ability to seek an alternative business combination that our stockholders may prefer after such initial vote.

Since the Sponsor and KVSA’s directors and executive officers have interests that are different, or in addition to (and which may conflict with), the interests of our stockholders, a conflict of interest may have existed in determining whether the Business Combination with Valo is appropriate as our initial business combination. Such interests include that Sponsor will lose its entire investment in us if our business combination is not completed.

When you consider the recommendation of KVSA’s board of directors in favor of approval of the proposals in this proxy statement/prospectus, you should keep in mind that the Sponsor and KVSA’s directors and executive officers have interests in the Business Combination that may be different from, or in addition to, those of KVSA stockholders generally. These interests include, among other things, the interests listed below:

 

  

Prior to KVSA’s initial public offering, the Sponsor purchased 10,000,000 founder shares, for approximately $0.002 per share. Subsequent to the share capitalization, the Sponsor transferred 40,000 founder shares to each of Jagdeep Singh, Rajiv Shah, Derek Anthony West, Mario Schlosser, Dmitri Schlosser and Molly Coye, KVSA’s independent directors. If KVSA does not consummate a business combination by the Liquidation Date, it would cease all operations except for the purpose of winding up, redeeming all of the outstanding public shares for cash and, subject to the approval of its remaining shareholders and its board of directors, dissolving and liquidating, subject in each case to its obligations under the DGCL to provide for claims of creditors and the requirements of other applicable law. In such

 

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event, the 10,000,000 founder shares owned by the Sponsor and KVSA’s independent directors would be worthless because following the redemption of the public shares, KVSA would likely have few, if any, net assets and because the Sponsor and KVSA’s directors and officers have agreed to waive their respective rights to liquidating distributions from the trust account in respect of the 10,000,000 founder shares held by them if KVSA fails to complete a business combination within the required period. Additionally, in such event, the 990,000 private placement shares purchased by the Sponsor simultaneously with the consummation of the initial public offering for an aggregate purchase price of $9.9 million, will also expire worthless. Mr. Kaul, KVSA’s Chairman and Chief Executive Officer, also has an economic interest in such private placement shares and in the 9,760,000 founder shares owned by the Sponsor. The 14,493,478 shares of New Valo common stock into which the 9,760,000 founder shares held by the Sponsor will automatically convert in connection with the Merger, if unrestricted, fully vested and freely tradable, would have had an aggregate market value of approximately $143.6 million based upon the closing price of $9.91 per share on Nasdaq on October 18, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus. However, given that such shares of New Valo common stock will be subject to certain restrictions, including those described above, KVSA believes such shares have less value. The 292,230 shares of New Valo common stock into which the 240,000 founder shares held by KVSA’s independent directors will automatically convert in connection with the Merger, if unrestricted and freely tradable, would have had an aggregate market value of approximately $2.9 million based upon the closing price of $9.91 per share on the Nasdaq on October 18, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus. The 990,000 shares of New Valo common stock representing the 990,000 private placement shares held by the Sponsor, if unrestricted and freely tradable, would have had an aggregate market value of approximately $9.8 million based upon the closing price of $9.91 per share on the Nasdaq on October 18, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus. The Sponsor Related PIPE Investors have subscribed for $10,000,000 of the PIPE Investment, for which they will receive 1,000,000 shares of New Valo common stock, which, if unrestricted and freely tradable, would have had an aggregate market value of approximately $9.9 million based upon the closing price of $9.91 per share on Nasdaq on October 18, 2021, the most recent practicable date prior to the date of this proxy statement/prospectus.

 

  

Due to the low purchase price of the founder shares, our Sponsor and its affiliates may earn a positive return on their investment, even if other stockholders experience a negative return on their investment in New Valo (i.e. our Sponsor and its affiliates may still have a positive return even if, following consummation of the Business Combination, the New Valo Class A common stock trades below $10.00 per share, which is the approximate value that public stockholders would receive if they exercised redemption rights as described herein).

 

  

Mr. Kaul, a current director of KVSA, is expected to be a director of New Valo after the consummation of the Business Combination. As such, in the future, Mr. Kaul may receive fees for his service as a director, which may consist of cash or stock-based awards, and any other remuneration that the New Valo board of directors determines to pay to its non-employee directors.

 

  

The Sponsor (including its representatives and affiliates) and KVSA’s directors and officers, are, or may in the future become, affiliated with entities that are engaged in a similar business to KVSA. For example, certain officers and directors of KVSA, who may be considered an affiliate of the Sponsor, have also recently incorporated Khosla Ventures Acquisition Co. II (“KVSB”), Khosla Ventures Acquisition Co. III (“KVSC”) and Khosla Ventures Acquisition Co. IV (“KVSD”), each of which is a blank check company incorporated as a Delaware corporation for the purpose of effecting their respective initial business combinations. Mr. Kaul is Chairman and Chief Executive Officer and Mr. Buckland is Chief Operating Officer, Chief Financial Officer, Treasurer and Secretary of each of KVSB, KVSC and KVSD. Additionally, Mr. Shklovsky is a director of KVSB and Mr. Shah and Mr. Singh are each a director of KVSD. The Sponsor and KVSA’s directors and officers are not prohibited from sponsoring, or otherwise becoming involved with, any other blank check companies

 

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prior to KVSA completing its initial business combination. Moreover, certain of KVSA’s directors and officers have time and attention requirements for investment funds of which affiliates of the Sponsor are the investment managers. KVSA’s directors and officers also may become aware of business opportunities which may be appropriate for presentation to KVSA, and the other entities to which they owe certain fiduciary or contractual duties, including KVSB, KVSC and KVSD. Accordingly, they may have had conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in KVSA’s favor and such potential business opportunities may be presented to other entities prior to their presentation to KVSA, subject to applicable fiduciary duties under the DGCL. KVSA’s Existing Organizational Documents provide that KVSA renounces its interest in any corporate opportunity offered to any director or officer of KVSA.

 

  

KVSA’s existing directors and officers will be eligible for continued indemnification and continued coverage under KVSA’s directors’ and officers’ liability insurance after the Merger and pursuant to the Merger Agreement.

 

  

In the event that KVSA fails to consummate a business combination within the prescribed time frame (pursuant to the Existing Organizational Documents), or upon the exercise of a redemption right in connection with the Business Combination, KVSA will be required to provide for payment of claims of creditors that were not waived that may be brought against KVSA within the ten years following such redemption. In order to protect the amounts held in KVSA’s trust account, the Sponsor has agreed that it will be liable to KVSA if and to the extent any claims by a third party (other than KVSA’s independent auditors) for services rendered or products sold to KVSA, or a prospective target business with which KVSA has discussed entering into a transaction agreement, reduce the amount of funds in the trust account to below (i) $10.00 per public share or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account, due to reductions in value of the trust assets, in each case, net of the amount of interest which may be withdrawn to fund KVSA’s working capital requirements, subject to an annual limit of $500,000, and/or to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under the indemnity of the underwriters of KVSA’s initial public offering against certain liabilities, including liabilities under the Securities Act.

 

  

KVSA’s officers and directors and their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them in connection with certain activities on KVSA’s behalf, such as identifying and investigating possible business targets and business combinations. KVSA expects to incur approximately $11.7 million of transaction expenses (excluding the deferred underwriting commissions being held in the trust account), and to the extent that KVSA’s officers and directors or their affiliates are advancing any of these expenses on behalf of KVSA, they are entitled to reimbursement of such payments. However, if KVSA fails to consummate a business combination by the Liquidation Date, they will not have any claim against the trust account for reimbursement. Accordingly, KVSA may not be able to reimburse the expenses advanced by KVSA’s officers and directors or their affiliates if the Business Combination, or another business combination, is not completed by the Liquidation Date.

 

  

Pursuant to the Registration Rights Agreement, the Sponsor and the Sponsor Related PIPE Investor will have customary registration rights, including demand and piggy-back rights, subject to cooperation and cut-back provisions with respect to the shares of New Valo common stock held by such parties following the consummation of the Business Combination.

The existence of financial and personal interests of one or more of KVSA’s directors may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of KVSA and its stockholders and what he, she or they may believe is best for himself, herself or themselves in determining to recommend that stockholders vote for the proposals. In addition, KVSA’s officers have interests in the Business Combination that may conflict with your interests as a stockholder. See the section entitled “BCA Proposal Interests of KVSA’s Directors and Officers in the Business Combination” for a further discussion of these considerations.

 

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The personal and financial interests of the Sponsor and KVSA’s directors and officers may have influenced their motivation in identifying and selecting Valo as a business combination target, completing an initial business combination with Valo and influencing the operation of the business following the initial business combination. In considering the recommendations of KVSA’s board of directors to vote for the proposals, its stockholders should consider these interests.

The exercise of KVSA’s directors’ and executive officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict of interest when determining whether such changes to the terms of the Business Combination or waivers of conditions are appropriate and in KVSA’s stockholders’ best interest.

In the period leading up to the Closing, events may occur that, pursuant to the Merger Agreement, would require KVSA to agree to amend the Merger Agreement, to consent to certain actions taken by Valo or to waive rights that KVSA is entitled to under the Merger Agreement. Such events could arise because of changes in the course of Valo’s business or a request by Valo to undertake actions that would otherwise be prohibited by the terms of the Merger Agreement. In any of such circumstances, it would be at KVSA’s discretion to grant its consent or waive those rights. The existence of financial and personal interests of one or more of the directors or officers described in the preceding risk factors (and described elsewhere in this proxy statement/prospectus) may result in a conflict of interest on the part of such director(s) or officers(s) between what he, she or they may believe is best for KVSA and its stockholders and what he, she or they may believe is best for himself, herself or themselves in determining whether or not to take the requested action.

KVSA and Valo will incur significant transaction and transition costs in connection with the Business Combination.

KVSA and Valo have both incurred and expect to incur significant, non-recurring costs in connection with consummating the Business Combination and operating as a public company following the consummation of the Business Combination. KVSA and Valo may also incur additional costs to retain key employees. Certain transaction expenses incurred in connection with the Merger Agreement (including the Business Combination), including all legal, accounting, consulting, investment banking and other fees, expenses and costs, will be paid by New Valo following the closing of the Business Combination.

The announcement of the proposed Business Combination could disrupt New Valo’s relationships with its customers, suppliers, business partners and others, as well as its operating results and business generally.

Whether or not the Business Combination and related transactions are ultimately consummated, as a result of uncertainty related to the proposed transactions, risks relating to the impact of the announcement of the Business Combination on New Valo’s business include the following:

 

  

its employees may experience uncertainty about their future roles, which might adversely affect New Valo’s ability to retain and hire key personnel and other employees;

 

  

customers, suppliers, business partners and other parties with which New Valo maintains business relationships may experience uncertainty about its future and seek alternative relationships with third parties, seek to alter their business relationships with New Valo or fail to extend an existing relationship with New Valo; and

 

  

New Valo has expended and will continue to expend significant costs, fees and expenses for professional services and transaction costs in connection with the proposed Business Combination.

If any of the aforementioned risks were to materialize, they could lead to significant costs which may impact New Valo’s results of operations and cash available to fund its business.

 

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Subsequent to consummation of the Business Combination, we may be exposed to unknown or contingent liabilities and may be required to subsequently take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our share price, which could cause you to lose some or all of your investment.

We cannot assure you that the due diligence conducted in relation to Valo has identified all material issues or risks associated with Valo, its business or the industry in which it competes. Furthermore, we cannot assure you that factors outside of Valo’s and our control will not later arise. As a result of these factors, we may be exposed to liabilities and incur additional costs and expenses and we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even if our due diligence has identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. If any of these risks materialize, this could have a material adverse effect on our financial condition and results of operations and could contribute to negative market perceptions about our securities or New Valo. Additionally, we have no indemnification rights against the Valo Stockholders under the Merger Agreement and all of the purchase price consideration will be delivered at the Closing.

Accordingly, any stockholders of KVSA who choose to remain New Valo stockholders following the Business Combination could suffer a reduction in the value of their shares. Such stockholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our directors or officers of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the registration statement or proxy statement/prospectus relating to the Business Combination contained an actionable material misstatement or material omission.

The unaudited pro forma financial information included elsewhere in this proxy statement/prospectus may not be indicative of what New Valo’s actual financial position or results of operations would have been.

The unaudited pro forma financial information in this proxy statement/prospectus is presented for illustrative purposes only and has been prepared based on a number of assumptions including, but not limited to, KVSA being treated as the “acquired” company for financial reporting purposes in the Business Combination, the total debt obligations and the cash and cash equivalents of Valo on the Closing Date and the number of shares of KVSA Class A common stock that are redeemed in connection with the Business Combination. Accordingly, such pro forma financial information may not be indicative of New Valo’s future operating or financial performance and New Valo’s actual financial condition and results of operations may vary materially from New Valo’s pro forma results of operations and balance sheet contained elsewhere in this proxy statement/prospectus, including as a result of such assumptions not being accurate. See “Unaudited Pro Forma Condensed Combined Financial Information.”

We have a specified maximum redemption threshold. This redemption threshold may make it more difficult for us to complete the Business Combination as contemplated.

The Merger Agreement provides that Valo’s obligation to consummate the Business Combination is conditioned on, among other things, that as of the Closing, the amount of cash available in the trust account, after deducting the amount required to satisfy KVSA’s obligations to its stockholders (if any) that exercise their rights to redeem their public shares pursuant to the Existing Organizational Documents (but prior to the payment of any (i) deferred underwriting commissions being held in the trust account and (ii) transaction expenses of Valo or KVSA) plus the PIPE Investment Amount plus the Forward Purchase Amount (if any), is at least equal to $450 million.

The Minimum Cash Condition is for the sole benefit of Valo. If such condition is not met, and such condition is not waived under the terms of the Merger Agreement, then the Merger Agreement could terminate and the proposed Business Combination may not be consummated. There can be no assurance that Valo would waive the Minimum Cash Condition. In addition, pursuant to the Existing Organizational Documents, in no event will KVSA redeem public shares in an amount that would cause New Valo’s net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) to be less than $5,000,001.

 

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If such conditions are waived and the Business Combination is consummated with less than the $450.0 million minimum cash requirement, the cash held by New Valo and its subsidiaries (including Valo) in the aggregate, after the Closing may not be sufficient to allow us to operate and meet our financial obligations as they become due. The additional exercise of redemption rights with respect to a large number of our public stockholders may make us unable to take such actions as may be desirable in order to optimize the capital structure of New Valo after consummation of the Business Combination and we may not be able to raise additional financing necessary to fund our expenses and liabilities after the Closing. Any such event in the future may negatively impact the analysis regarding our ability to continue as a going concern at such time.

The Sponsor may elect to purchase shares from public stockholders prior to the consummation of the Business Combination, which may influence the vote on the Business Combination and reduce the public “float” of our securities.

At any time at or prior to the Business Combination, subject to applicable securities laws (including with respect to material nonpublic information), the Sponsor, the existing stockholders of Valo or our or their respective directors, officers, advisors or respective affiliates may (i) purchase public shares from institutional and other investors who vote, or indicate an intention to vote, against any of the Condition Precedent Proposals, or elect to redeem, or indicate an intention to redeem, public shares, (ii) execute agreements to purchase such shares from such investors in the future, or (ii) enter into transactions with such investors and others to provide them with incentives to acquire public shares, vote their public shares in favor of the Condition Precedent Proposals or not redeem their public shares. Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of KVSA’s shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that the Sponsor, the existing stockholders of Valo or our or their respective directors, officers, advisors, or respective affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. The purpose of such share purchases and other transactions would be to increase the likelihood of (1) satisfaction of the requirement that holders of a majority of the KVSA common stock, represented in person or by proxy and entitled to vote at the special meeting, vote in favor of the BCA Proposal, the Charter Proposal, the Stock Issuance Proposal, Incentive Award Plan Proposal, the ESPP Proposal and the Adjournment Proposal (if presented), (2) satisfaction of the Minimum Cash Condition, (3) otherwise limiting the number of public shares electing to redeem and (4) KVSA’s net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) being at least $5,000,001.

Entering into any such arrangements may have a depressive effect on the shares of KVSA common stock (e.g., by giving an investor or holder the ability to effectively purchase shares at a price lower than market, such investor or holder may therefore become more likely to sell the shares he or she owns, either at or prior to the Business Combination). If such transactions are effected, the consequence could be to cause the Business Combination to be consummated in circumstances where such consummation could not otherwise occur. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the proposals to be presented at the special meeting and would likely increase the chances that such proposals would be approved. In addition, if such purchases are made, the public “float” of our securities and the number of beneficial holders of our securities may be reduced, possibly making it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange.

If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per share redemption amount received by stockholders may be less than $10.00 per share (which was the offering price per public share in our initial public offering).

Our placing of funds in the trust account may not protect those funds from third-party claims against us. Although we will seek to have all vendors, service providers (other than our independent auditors), prospective target businesses and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account, there is no guarantee that they

 

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will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the trust account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving such claims to the monies held in the trust account, our management will perform an analysis of the alternatives available to it and will enter into an agreement with a third party that has not executed a waiver only if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative.

Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Upon redemption of our public shares, if we have not completed our business combination within the required time period, or upon the exercise of a redemption right in connection with our business combination, we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within the 10 years following redemption.

Accordingly, the per share redemption amount received by public stockholders could be less than the $10.00 per public share initially held in the trust account, due to claims of such creditors.

The Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party (other than our independent auditors) for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amount of funds in the trust account to below (1) $10.00 per public share or (2) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to fund KVSA’s working capital requirements, subject to an annual limit of $500,000, and/or to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third party claims. We have not independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and believe that the Sponsor’s only assets are securities of our company. The Sponsor may not have sufficient funds available to satisfy those obligations. We have not asked the Sponsor to reserve for such obligations, and therefore, no funds are currently set aside to cover any such obligations. As a result, if any such claims were successfully made against the trust account, the funds available for our business combination and redemptions could be reduced to less than $10.00 per public share. In such event, we may not be able to complete our business combination, and you would receive such lesser amount per share in connection with any redemption of your public shares. None of our directors or officers will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses.

If, after we distribute the proceeds in the trust account to our public stockholders, we file a winding-up or bankruptcy petition or an involuntary winding-up or bankruptcy petition is filed against us that is not dismissed, a bankruptcy court may seek to recover such proceeds, and we and our board of directors may be exposed to claims of punitive damages.

If, after we distribute the proceeds in the trust account to our public stockholders, we file a winding-up or bankruptcy petition or an involuntary winding-up or bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or insolvency laws as a voidable preference. As a result, a liquidator could seek to recover all amounts received by our

 

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stockholders. In addition, our board of directors may be viewed as having breached its fiduciary duty to our creditors or having acted in bad faith, thereby exposing it and us to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.

If, before distributing the proceeds in the trust account to our public stockholders, we file a winding-up or bankruptcy petition or an involuntary winding-up or bankruptcy petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our stockholders and the per share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.

If, before distributing the proceeds in the trust account to our public stockholders, we file a winding-up or bankruptcy petition or an involuntary winding-up or bankruptcy petition is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable insolvency law, and may be included in our liquidation estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any liquidation claims deplete the trust account, the per share amount that would otherwise be received by our stockholders in connection with our liquidation would be reduced.

Our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares.

If we are forced to enter into an insolvent liquidation, any distributions received by stockholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution was made, we were unable to pay our debts as they fall due in the ordinary course of business. As a result, a liquidator could seek to recover all amounts received by our stockholders. Furthermore, our directors may be viewed as having breached their fiduciary duties to us or our creditors or may have acted in bad faith, and thereby exposing themselves and our company to claims, by paying public stockholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.

Past performance by any member or members of our management team or any of their respective affiliates may not be indicative of future performance of an investment in Valo or New Valo.

Past performance by any member or members of our management team or any of their respective affiliates, is not a guarantee of success with respect to the Business Combination. You should not rely on the historical record of any member or members of our management team, any of their respective affiliates or any of the foregoing’s related investment’s performance, as indicative of the future performance of an investment in Valo or New Valo or the returns Valo or New Valo will, or is likely to, generate going forward.

The public stockholders will experience immediate dilution as a consequence of the issuance of New Valo common stock as consideration in the Business Combination and the PIPE Investment and due to future issuances pursuant to the 2021 Plan. Having a minority share position may reduce the influence that our current stockholders have on the management of New Valo.

It is anticipated that, immediately following the Business Combination and related transactions, (1) existing public stockholders of KVSA will own approximately 11.5% of outstanding New Valo common stock, (2) existing stockholders of Valo (including the Valo PIPE Investors) will own approximately 79.5% of outstanding New Valo common stock (3) the Sponsor and related parties (including the Sponsor Related PIPE Investor) will collectively own 5.6% of outstanding New Valo common stock (assuming the 8,697,479 shares of New Valo common stock converted from KVSA Class K common stock held by the Sponsor were fully vested), and (4) the Third Party PIPE Investors will own approximately 3.5% of outstanding New Valo common stock. These percentages assume (i) that no public stockholders exercise their redemption rights in connection with the Business Combination, (ii) (a) the vesting of all shares of New Valo common stock received in respect of the

 

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New Valo Restricted Shares, (b) the vesting and exercise of all New Valo Options for shares of New Valo common stock that are issued and outstanding as of the Closing, and (c) that New Valo issues shares of New Valo common stock as the Aggregate Merger Consideration pursuant to the Merger Agreement, which in the aggregate equals 230,897,358 shares of New Valo common stock (including 10,205,856 shares of New Valo common stock issuable upon exercise of New Valo Options), (iii) New Valo issues 20,086,250 shares of New Valo common stock to the PIPE Investors pursuant to the PIPE Investment, (iv) New Valo issues zero shares of New Valo common stock to Sponsor (together with any permitted transferees under the Forward Purchase Agreement) pursuant to the Forward Purchase Agreement, (v) the conversion of all outstanding KVSA Class B common stock shares into an aggregate of 6,088,229 shares of New Valo common stock, (vi) the conversion of all outstanding KVSA Class K common stock shares into an aggregate of 8,697,479 shares of New Valo common stock and (vii) the vesting of all shares of New Valo common stock issuable upon the conversion of the KVSA Class K common stock. The Third Party PIPE Investors have agreed to purchase 10,436,250 shares of New Valo common stock, at $10.00 per share, for $104.36 million of gross proceeds. The Sponsor Related PIPE Investor has agreed to purchase 1,000,000 shares of New Valo common stock, at $10.00 per share, for $10.0 million of gross proceeds. The Valo PIPE Investors have agreed to purchase 8,650,000 shares of New Valo common stock, at $10.00 per share, for $86.5 million of gross proceeds.

If the actual facts are different from these assumptions, the percentage ownership retained by KVSA’s existing stockholders in the combined company will be different.

In addition, Valo employees and consultants hold, and after Business Combination, are expected to be granted, equity awards under the 2021 Plan and purchase rights under the ESPP. You will experience additional dilution when those equity awards and purchase rights become vested and settled or exercisable, as applicable, for shares of New Valo common stock.

The issuance of additional New Valo common stock will significantly dilute the equity interests of existing holders of KVSA securities and may adversely affect prevailing market prices for our public shares.

Nasdaq or the New York Stock Exchange may not list New Valo’s securities on its exchange, which could limit investors’ ability to make transactions in New Valo’s securities and subject New Valo to additional trading restrictions.

In connection with the Business Combination, we will apply to have New Valo’s securities listed on the New York Stock Exchange upon consummation of the Business Combination and we will be required to demonstrate compliance with the New York Stock Exchange’s initial listing requirements.

We cannot assure you that we will be able to meet all initial listing requirements. Even if New Valo’s securities are listed on Nasdaq, New Valo may be unable to maintain the listing of its securities in the future.

If New Valo fails to meet the initial listing requirements and Nasdaq or the New York Stock Exchange does not list its securities on its exchange, Valo would not be required to consummate the Business Combination. In the event that Valo elected to waive this condition, and the Business Combination was consummated without New Valo’s securities being listed on Nasdaq, the New York Stock Exchange or on another national securities exchange, New Valo could face significant material adverse consequences, including:

 

  

a limited availability of market quotations for New Valo’s securities;

 

  

reduced liquidity for New Valo’s securities;

 

  

a determination that New Valo common stock is a “penny stock” which will require brokers trading in New Valo common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for New Valo’s securities;

 

  

a limited amount of news and analyst coverage; and

 

  

a decreased ability to issue additional securities or obtain additional financing in the future.

 

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The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” If New Valo’s securities were not listed on Nasdaq or the New York Stock Exchange, such securities would not qualify as covered securities and we would be subject to regulation in each state in which we offer our securities because states are not preempted from regulating the sale of securities that are not covered securities.

KVSA’s and Valo’s ability to consummate the Business Combination, and the operations of New Valo following the Business Combination, may be materially adversely affected by the recent coronavirus (COVID-19) pandemic.

The COVID-19 outbreak has adversely affected, and other events (such as terrorist attacks, natural disasters or a significant outbreak of other infectious diseases or public health crises) could adversely affect, economies and financial markets worldwide, business operations and the conduct of commerce generally, and the business of Valo or New Valo following the Business Combination could be adversely affected. The extent of such impact will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

The outbreak of COVID-19 may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those related to the market for our securities.

KVSA has identified material weaknesses in its internal control over financial reporting as of June 30, 2021. If KVSA is unable to maintain an effective system of internal control over financial reporting, it may not be able to accurately report its financial results in a timely manner, which may adversely affect investor confidence in KVSA and materially and adversely affect its business and operating results.

KVSA’s management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. KVSA’s management is likewise required, on a quarterly basis, to evaluate the effectiveness of its internal controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of KVSA’s annual or interim financial statements will not be prevented, or detected and corrected on a timely basis. On August 31, 2021, KVSA’s management, together with its audit committee, determined that KVSA’s previously issued financial statements and other financial data as of and for the period from January 15, 2021 (inception) through March 31, 2021 should be restated (the “Restatement”). Due solely to the events that led to the Restatement of KVSA’s financial statements, KVSA’s management has identified material weaknesses in internal controls over financial reporting related to that inaccurate accounting.

Effective internal controls are necessary to provide reliable financial reports and prevent fraud. KVSA continues to evaluate steps to remediate the material weakness. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects.

If KVSA identifies any new material weaknesses in the future, any such newly identified material weakness could limit its ability to prevent or detect a misstatement of its accounts or disclosures that could result in a material misstatement of its annual or interim financial statements. In such case, KVSA may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in its financial reporting and its stock price may decline as a result. KVSA cannot assure you that the measures it has taken to date, or any measures it may take in the future, will be sufficient to avoid potential future material weaknesses. If the

 

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Business Combination is consummated, KVSA can provide no assurance that New Valo’s internal controls and procedures over financial reporting of the post-Business Combination company will be effective. See “ —Risks Related to Employee Matters, Managing Growth and Ongoing Operations—We have identified material weaknesses in our internal control over financial reporting for the fiscal years ended December 31, 2019 and 2020. If we fail to remediate these material weaknesses or experience material weaknesses in the future or otherwise fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition or results of operations which may adversely affect investor confidence in us and, as a result, the value of our common stock.”

KVSA and, following the Business Combination, New Valo, may face litigation and other risks as a result of the material weakness in KVSA’s internal control over financial reporting.

KVSA’s management and its audit committee concluded that it was appropriate to restate its previously issued financial statements as of and for the period from January 15, 2021 (inception) through March 31, 2021. See “ —KVSA has identified material weaknesses in its internal control over financial reporting as of June 30, 2021. If KVSA is unable to maintain an effective system of internal control over financial reporting, it may not be able to accurately report its financial results in a timely manner, which may adversely affect investor confidence in KVSA and materially and adversely affect its business and operating results.” As part of the Restatement, KVSA identified a material weakness in its internal control over financial reporting.

As a result of such material weakness, the Restatement, and the change in accounting for the Class A common stock and the Class K founder shares, KVSA and, following the Business Combination, New Valo, face potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the Restatement and material weakness in KVSA’s internal control over financial reporting and the preparation of its financial statements. As of the date of this proxy statement/prospectus, KVSA has no knowledge of any such litigation or dispute. However, KVSA can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on KVSA’s business, results of operations and financial condition or KVSA’s ability to complete the Business Combination and related transactions.

Additional Risks Related to Ownership of New Valo Common Stock Following the Business Combination and New Valo Operating as a Public Company

Unless the context otherwise requires, all references in this subsection to the “Company,” “we,” “us” or “our” refer to KVSA prior to the consummation of the Business Combination and New Valo following the consummation of the Business Combination.

The price of New Valo common stock may be volatile.

Upon consummation of the Business Combination, the price of New Valo common stock, may fluctuate due to a variety of factors, including:

 

  

changes in the industries in which New Valo and its customers operate;

 

  

developments involving New Valo’s competitors;

 

  

changes in laws and regulations affecting its business;

 

  

variations in its operating performance and the performance of its competitors in general;

 

  

actual or anticipated fluctuations in New Valo’s quarterly or annual operating results;

 

  

publication of research reports by securities analysts about New Valo or its competitors or its industry;

 

  

the public’s reaction to New Valo’s press releases, its other public announcements and its filings with the SEC;

 

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actions by stockholders, including the sale by the Third Party PIPE Investors of any of their shares of New Valo common stock;

 

  

additions and departures of key personnel;

 

  

commencement of, or involvement in, litigation involving the combined company;

 

  

changes in its capital structure, such as future issuances of securities or the incurrence of additional debt;

 

  

the volume of shares of New Valo common stock available for public sale; and

 

  

general economic and political conditions, such as the effects of the COVID-19 outbreak, recessions, interest rates, local and national elections, fuel prices, international currency fluctuations, corruption, political instability and acts of war or terrorism.

These market and industry factors may materially reduce the market price of New Valo common stock regardless of the operating performance of New Valo.

New Valo does not intend to pay cash dividends for the foreseeable future.

Following the Business Combination, New Valo currently intends to retain its future earnings, if any, to finance the further development and expansion of its business and does not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of New Valo’s board of directors and will depend on its financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as its board of directors deems relevant.

There are risks to our public stockholders who are not affiliates of the Sponsor of becoming stockholders of New Valo through the Business Combination rather than through an underwritten public offering, including that no underwriter has conducted due diligence of Valo’s business, operations or financial condition or reviewed the disclosure in this proxy statement/prospectus.

Section 11 of the Securities Act (“Section 11”) imposes liability on parties, including underwriters, involved in a securities offering if the registration statement contains a materially false statement or material omission. To effectively establish a due diligence defense against a cause of action brought pursuant to Section 11, a defendant, including an underwriter, carries the burden of proof to demonstrate that he or she, after reasonable investigation, believed that the statements in the registration statement were true and free of material omissions. In order to meet this burden of proof, underwriters in a registered offering typically conduct extensive due diligence of the registrant and vet the registrant’s disclosure. Such due diligence may include calls with the issuer’s management, review of material agreements, and background checks on key personnel, among other investigations.

Because Valo intends to become publicly traded through a business combination with a special purpose acquisition company rather through an underwritten offering of its ordinary shares, no underwriter is involved in the transaction. As a result, no underwriter has conducted diligence on Valo in order to establish a due diligence defense with respect to the disclosure presented in this proxy statement/prospectus. If such investigation had occurred, certain information in this prospectus may have been presented in a different manner or additional information may have been presented at the request of such underwriter.

Our stockholders must rely on the information in this proxy statement/prospectus and will not have the benefit of an independent review and investigation of the type typically performed by underwriters in a public securities offering. While sponsors, private investors and management in a business combination undertake financial, legal and other due diligence, it is not necessarily the same review or analysis that would be undertaken by underwriters in an underwritten public offering and, therefore, there could be a heightened risk of an incorrect valuation of the business or material misstatements or omissions in this proxy statement/prospectus.

 

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In addition, the Sponsor, certain members of the KVSA board of directors and its officers, as well as their respective affiliates and permitted transferees, have interests in the proposed business combination that are different from or are in addition to those of holders of New Valo’s securities following completion of the proposed business combination, and that would not be present in an underwritten public offering of New Valo’s securities. Such interests may have influenced the board of directors of KVSA in making their recommendation that KVSA’s stockholders vote in favor of the approval of the BCA Proposal and the other proposals described in this proxy statement/prospectus.

Such differences from an underwritten public offering may present material risks to unaffiliated investors that would not exist if New Valo became a publicly listed company through an underwritten initial public offering instead of upon completion of the Business Combination.

If analysts do not publish research about New Valo’s business or if they publish inaccurate or unfavorable research, New Valo’s stock price and trading volume could decline.

The trading market for New Valo common stock will depend in part on the research and reports that analysts publish about its business. New Valo does not have any control over these analysts. If one or more of the analysts who cover New Valo downgrade its common stock or publish inaccurate or unfavorable research about its business, the price of New Valo common stock would likely decline. If few analysts cover New Valo, demand for its common stock could decrease and its common stock price and trading volume may decline. Similar results may occur if one or more of these analysts stop covering New Valo in the future or fail to publish reports on it regularly.

New Valo may be subject to securities litigation, which is expensive and could divert management attention.

The market price of New Valo common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. New Valo may be the target of this type of litigation in the future. Securities litigation against New Valo could result in substantial costs and divert management’s attention from other business concerns, which could seriously harm its business.

Future resales of New Valo common stock after the consummation of the Business Combination may cause the market price of New Valo’s securities to drop significantly, even if New Valo’s business is doing well.

Pursuant to the lock-up restrictions agreed to into in connection with the Merger Agreement, after the consummation of the Business Combination and subject to certain exceptions, the Sponsor and certain related parties and certain Valo stockholders (who will collectively own approximately 84.6% of the outstanding New Valo common stock upon the Closing) will be contractually restricted from selling or transferring any of its or their shares of New Valo common stock (the “Lock-up Shares”). With respect to Lock-up Shares owned by Sponsor, such restrictions will begin at closing and end 12 months after Closing. With respect to all other Lock-up Shares, such restrictions begin at Closing and end 180 days after Closing. The lock-up restrictions described above supersede the lock-up provisions set forth in Section 8 of that certain letter agreement, dated as of March 8, 2021, by and among KVSA, the Sponsor and each of the other parties thereto (the “Insider Letter”) which provisions in Section 8 of the Insider Letter shall be of no further force or effect as of the date of the Registration Rights Agreement and the Lock-Up Agreement(s).

However, following the expiration of the respective lockups described above, the Sponsor and the Valo stockholders will not be restricted from selling shares of New Valo common stock held by them, other than by applicable securities laws. In addition, upon certain events as described herein, up to 8,697,479 Sponsor Earnout Shares will vest and become salable by Sponsor or its transferees. Additionally, the PIPE Investors will not be restricted from selling any of the shares of New Valo common stock acquired in the PIPE Investment following the closing of the Business Combination, other than by applicable securities laws. As such, sales of a substantial number of shares of New Valo common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market

 

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price of New Valo common stock. Upon completion of the Business Combination, the Sponsor and the Valo stockholders will collectively own approximately 84.6% of the outstanding shares of New Valo common stock, assuming that no public shareholders redeem their public shares in connection with the Business Combination.

The shares held by Sponsor and the Valo stockholders may be sold after the expiration of the applicable lock-up periods agreed to in connection with the Merger Agreement. As restrictions on resale end, and registration statements (filed after the Closing to provide for the resale of such shares from time to time) are available for use, the sale or possibility of sale of these shares could have the effect of increasing the volatility in New Valo’s share price, or the market price of New Valo common stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.

Compliance obligations under the Sarbanes-Oxley Act may make it more difficult for us to effectuate the Business Combination, require substantial financial and management resources and increase the time and costs of completing a business combination.

The fact that we are a blank check company makes compliance with the requirements of the Sarbanes- Oxley Act particularly burdensome on us as compared to other public companies because Valo is not currently subject to Section 404 of the Sarbanes-Oxley Act. The standards required for a public company under Section 404 of the Sarbanes-Oxley Act are significantly more stringent than those required of Valo as privately held companies. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that will be applicable to New Valo after the Business Combination. If we are not able to implement the requirements of Section 404, including any additional requirements once we are no longer an emerging growth company, in a timely manner or with adequate compliance, we may not be able to assess whether its internal controls over financial reporting are effective, which may subject us to adverse regulatory consequences and could harm investor confidence and the market price of New Valo common stock. Additionally, once we are no longer an emerging growth company, we will be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting.

The obligations associated with being a public company will involve significant expenses and will require significant resources and management attention, which may divert from New Valo’s business operations.

As a public company, New Valo will become subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Exchange Act requires the filing of annual, quarterly and current reports with respect to a public company’s business and financial condition. The Sarbanes-Oxley Act requires, among other things, that a public company establish and maintain effective internal control over financial reporting. As a result, New Valo will incur significant legal, accounting and other expenses that Valo did not previously incur. New Valo’s entire management team and many of its other employees will need to devote substantial time to compliance, and may not effectively or efficiently manage its transition into a public company.

These rules and regulations will result in New Valo incurring substantial legal and financial compliance costs and will make some activities more time-consuming and costly. For example, these rules and regulations will likely make it more difficult and more expensive for New Valo to obtain director and officer liability insurance, and it may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be difficult for New Valo to attract and retain qualified people to serve on its board of directors, its board committees or as executive officers.

We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.

We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to

 

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other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of shares of New Valo common stock held by non-affiliates exceeds $700 million as of the end of any second quarter of a fiscal year, in which case we would no longer be an emerging growth company as of the end of such fiscal year. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class or series of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.

Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of shares of New Valo common stock held by non-affiliates equals or exceeds $250 million as of the end of that year’s second fiscal quarter, and (2) our annual revenues equaled or exceeded $100 million during such completed fiscal year or the market value of shares of New Valo common stock held by non-affiliates equals or exceeds $700 million as of the end of that year’s second fiscal quarter. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.

Our Proposed Bylaws to be effective after the Business Combination designate specific courts as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Pursuant to our bylaws that will become effective after the Business Combination, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for state law claims for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or our amended and restated certificate of incorporation or our amended and restated bylaws (including the interpretation, validity or enforceability thereof) or (iv) any action asserting a claim that is governed by the internal affairs doctrine (the Delaware Forum Provision). The Delaware Forum Provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. Our amended and restated bylaws will further provide that unless we consent in writing to the selection of an alternative forum, the federal

 

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district courts of the United States shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act (the Federal Forum Provision). In addition, our amended and restated bylaws that will become effective upon the completion of this offering will provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the Delaware Forum Provision and the Federal Forum Provision; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder.

The Delaware Forum Provision and the Federal Forum Provision in our bylaws may impose additional litigation costs on stockholders in pursuing any such claims. Additionally, these forum selection clauses in our Proposed Bylaws may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage the filing of such lawsuits against us and our directors, officers and employees even though an action, if successful, might benefit our stockholders. In addition, while the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our Federal Forum Provision. If the Federal Forum Provision is found to be unenforceable, we may incur additional costs associated with resolving such matters. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of Delaware and the federal district courts of the United States may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.

Risks if the Adjournment Proposal is Not Approved

Unless the context otherwise requires, all references in this subsection to the “Company,” “we,” “us” or “our” refer to KVSA prior to the consummation of the Business Combination and New Valo following the consummation of the Business Combination.

If the Adjournment Proposal is not approved, and an insufficient number of votes have been obtained to authorize the consummation of the Business Combination, our board of directors will not have the ability to adjourn the special meeting to a later date in order to solicit further votes, and, therefore, the Business Combination will not be approved, and, therefore, the Business Combination may not be consummated.

Our board of directors is seeking approval to adjourn the special meeting to a later date or dates if, at the special meeting, based upon the tabulated votes, there are insufficient votes to approve each of the Condition Precedent Proposals. If the Adjournment Proposal is not approved, our board of directors will not have the ability to adjourn the special meeting to a later date and, therefore, will not have more time to solicit votes to approve the Condition Precedent Proposals. In such events, the Business Combination would not be completed.

Risks if the Business Combination are not Consummated

Unless the context otherwise requires, all references in this subsection to the “Company,” “we,” “us” or “our” refer to KVSA prior to the consummation of the Business Combination and New Valo following the consummation of the Business Combination.

If we are not able to complete the Business Combination with Valo by the Liquidation Date nor able to complete another business combination by such date, we would cease all operations except for the purpose of winding up and we would redeem our shares of KVSA Class A common stock and liquidate the trust account, in which case our public stockholders may only receive approximately $10.00 per share.

Our ability to complete our initial business combination may be negatively impacted by general market conditions, volatility in the capital and debt markets and the other risks described herein. For example, the

 

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COVID-19 pandemic continues in the U.S. and, while the extent of the impact of the outbreak on KVSA will depend on future developments, it could limit our ability to complete our initial business combination, including as a result of increased market volatility, decreased market liquidity and third-party financing being unavailable on terms acceptable to us or at all. Additionally, the outbreak of the COVID-19 may negatively impact New Valo’s business following the Business Combination.

If KVSA is not able to complete the Business Combination with Valo by the Liquidation Date, nor able to complete another business combination by such date, KVSA will: (1) cease all operations except for the purpose of winding up; (2) as promptly as reasonably possible but not more than 10 business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (less up to $100,000 of interest to pay dissolution expenses and which interest shall be net of taxes payable), divided by the number of then issued and outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law; and (3) as promptly as reasonably possible following such redemption, subject to the approval of KVSA’s remaining stockholders and its board, dissolve and liquidate, subject in each case to its obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. In such case, our public stockholders may only receive approximately $10.00 per share.

You will not have any rights or interests in funds from the trust account, except under certain limited circumstances. To liquidate your investment, therefore, you may be forced to sell your public shares, potentially at a loss.

Our public stockholders will be entitled to receive funds from the trust account only upon the earliest to occur of (1) our completion of an initial business combination (including the Closing), and then only in connection with those public shares that such public stockholder properly elected to redeem, subject to certain limitations; (2) the redemption of any public shares properly submitted in connection with a stockholder vote to amend the Existing Organizational Documents to (A) modify the substance and timing of our obligation to allow redemption in connection with our initial business combination or to redeem 100% of the public shares if we do not complete a business combination by the Liquidation Date or (B) with respect to any other provision relating to stockholders’ rights or pre-initial business combination activity; and (3) the redemption of the public shares if we have not completed an initial business combination by the Liquidation Date, subject to applicable law. In no other circumstances will a stockholder have any right or interest of any kind to or in the trust account. Accordingly, to liquidate your investment, you may be forced to sell your public shares, potentially at a loss.

If we have not completed our initial business combination, our public stockholders may be forced to wait until after the Liquidation Date before redemption from the trust account.

If we have not completed our initial business combination by the Liquidation Date, we will distribute the aggregate amount then on deposit in the trust account (less up to $100,000 of the net interest to pay dissolution expenses and which interest shall be net of taxes payable), pro rata to our public stockholders by way of redemption and cease all operations except for the purposes of winding up of our affairs, as further described in this proxy statement/prospectus. Any redemption of public stockholders from the trust account shall be affected automatically by function of the Existing Organizational Documents prior to any voluntary winding up. If we are required to wind-up, liquidate the trust account and distribute such amount therein, pro rata, to our public stockholders, as part of any liquidation process, such winding up, liquidation and distribution must comply with the applicable provisions of the DGCL. In that case, investors may be forced to wait beyond the Liquidation Date, before the redemption proceeds of the trust account become available to them, and they receive the return of their pro rata portion of the proceeds from the trust account. We have no obligation to return funds to investors prior to the date of our redemption or liquidation unless, prior thereto, we consummate our initial business combination or amend certain provisions of our Existing Organizational Documents and only then in cases where investors have properly sought to redeem their public shares. Only upon our redemption or any liquidation will public stockholders be entitled to distributions if we have not completed our initial business combination within the required time period and do not amend certain provisions of our Existing Organizational Documents prior thereto.

 

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If the net proceeds of our initial public offering not being held in the trust account are insufficient to allow us to operate through to the Liquidation Date and we are unable to obtain additional capital, we may be unable to complete our initial business combination, in which case our public stockholders may only receive $10.00 per share.

As of June 30, 2021, KVSA had cash of $787,378 held outside the trust account, which is available for use by us to cover the costs associated with identifying a target business and negotiating a business combination and other general corporate uses. In addition, as of June 30, 2021, KVSA had total current liabilities of $2,003,557.

The funds available to us outside of the trust account may not be sufficient to allow us to operate until the Liquidation Date, assuming that our initial business combination is not completed during that time.

If we are required to seek additional capital, we would need to borrow funds from Sponsor, members of our management team or other third parties to operate or may be forced to liquidate. Neither the members of our management team nor any of their affiliates is under any further obligation to advance funds to KVSA in such circumstances. Any such advances would be repaid only from funds held outside the trust account or from funds released to us upon completion of our initial business combination. If we are unable to obtain additional financing, we may be unable to complete our initial business combination. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. Consequently, our public stockholders may only receive approximately $10.00 per share on our redemption of the public shares.

 

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SPECIAL MEETING OF KVSA

General

KVSA is furnishing this proxy statement/prospectus to our stockholders as part of the solicitation of proxies by our board of directors for use at the special meeting of KVSA, each to be held on November 16, 2021, and at any adjournments thereof. This proxy statement/prospectus is first being furnished to our stockholders on or about October 22, 2021 in connection with the vote on the proposals described in this proxy statement/prospectus. This proxy statement/prospectus provides our stockholders with information they need to know to be able to vote or instruct their vote to be cast at the special meeting.

Date, Time and Place of Special meeting

The special meeting will be held will be held virtually via live webcast at www.virtualshareholdermeeting.com/KVSA2021SM at 10:00 a.m., Eastern Time, on November 16, 2021, or such other date, time and place to which such meeting may be adjourned, to consider and vote upon the proposals.

Purpose of the KVSA Special meeting

At the special meeting, KVSA is asking holders of public shares to consider a vote upon:

 

  

a proposal to approve the business combination described in this proxy statement/prospectus, including (a) adopting the Merger Agreement, a copy of which is attached to the accompanying proxy statement/prospectus as Annex A, which, among other things, provides for the merger of Merger Sub with and into Valo, with Valo surviving the merger as a wholly owned subsidiary of KVSA and (b) approving the transactions contemplated by the Merger Agreement and related agreements described in this proxy statement/prospectus (the “BCA Proposal”);

 

  

a proposal to approve and adopt the Proposed Charter (the “Charter Proposal”);

 

  

on a non-binding advisory basis, separate proposals with respect to certain governance provisions in the Proposed Charter presented separately in accordance with SEC requirements (the “Advisory Charter Amendment Proposals”);

 

  

a proposal to approve, for purposes of complying with the applicable provisions of Nasdaq Listing Rule 5635, the issuance of New Valo common stock to (a) the PIPE Investors, including the Sponsor Related PIPE Investor and the Valo PIPE Investors, pursuant to the PIPE Investment, (b) the New Valo stockholders pursuant to the Merger Agreement and (c) the Khosla entities pursuant to the Forward Purchase Agreement (the “Stock Issuance Proposal”);

 

  

a proposal to approve and adopt the Valo Health Holdings, Inc. 2021 Stock Option and Incentive Plan (the “Incentive Award Plan Proposal”);

 

  

a proposal to approve and adopt the Valo Health Holdings, Inc. 2021 Employee Stock Purchase Plan (the “ESPP Proposal” and, collectively with the BCA Proposal, the Charter Proposal, the Stock Issuance Proposal and the Incentive Award Plan Proposal, the “Condition Precedent Proposals”); and

 

  

a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for the approval of one or more proposals at the special meeting (the “Adjournment Proposal”).

Each of the Condition Precedent Proposals is cross-conditioned on the approval of each other. The Adjournment Proposal is not conditioned upon the approval of any other proposal set forth in this proxy statement/prospectus.

 

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Recommendation of KVSA Board of Directors

KVSA’s board of directors believes that the BCA Proposal and the other proposals to be presented at the special meeting are in the best interest of KVSA’s stockholders and unanimously recommends that its stockholders vote “FOR” the BCA Proposal, “FOR” the Charter Proposal, “FOR” each of the Advisory Charter Amendment Proposals, “FOR” the Stock Issuance Proposal, “FOR” the Incentive Award Plan Proposal, “FOR” the ESPP Proposal and “FOR” the Adjournment Proposal, in each case, if presented at the special meeting.

The existence of financial and personal interests of one or more of KVSA’s directors may result in a conflict of interest on the part of such director(s) between what he, she or they may believe is in the best interests of KVSA and its stockholders and what he, she or they may believe is best for himself, herself or themselves in determining to recommend that stockholders vote for the proposals. In addition, KVSA’s officers have interests in the Business Combination that may conflict with your interests as a stockholder. See the section entitled “BCA Proposal — Interests of KVSA’s Directors and Executive Officers in the Business Combination” for a further discussion of these considerations.

Record Date; Who is Entitled to Vote

KVSA stockholders will be entitled to vote or direct votes to be cast at the special meeting if they owned KVSA Class A common stock or KVSA Class B common stock at the close of business on October 13, 2021, which is the “record date” for the special meeting. Stockholders will have one vote for each share of KVSA Class A common stock and KVSA Class B common stock owned at the close of business on the record date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that the shares you beneficially own are properly present at the meeting and voted. As of the close of business on the record date for the special meeting, there were 35,490,000 shares of KVSA Class A common stock issued and outstanding (of which 34,500,000 were issued and outstanding public shares), 5,000,000 shares of KVSA Class B common stock issued and outstanding and 5,000,000 shares of KVSA Class K common stock issued and outstanding.

The Sponsor and each member, director and officer of KVSA and Sponsor (as applicable) have agreed to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby, in each case, subject to the terms and conditions contemplated by the Sponsor Support Agreement, and waive their redemption rights in connection with the consummation of the Business Combination with respect to any shares of KVSA common stock held by them. The shares of KVSA common stock held by the Sponsor will be excluded from the pro rata calculation used to determine the per-share redemption price. As of the date of this proxy statement/prospectus, the Sponsor and KVSA’s independent directors collectively own shares of KVSA common stock representing approximately 17% of the outstanding voting power.

Quorum

A quorum of KVSA stockholders is necessary to hold valid meetings. A quorum will be present at the special meeting if the holders of outstanding KVSA common stock representing a majority of the voting power of all outstanding shares entitled to vote at the special meeting are represented in person or by proxy at the special meeting. A quorum for purposes of the Charter Proposal also requires that holders of shares of KVSA Class B common stock representing a majority of the voting power of the outstanding shares of KVSA Class B common stock be represented in person or by proxy at the special meeting. As of the record date for the special meeting, an aggregate of 20,789,115 shares of KVSA Class A common stock and KVSA Class B common stock (on an as-converted basis) and, solely with respect to the Charter Proposal, 2,500,001 shares of KVSA Class B common stock would be required to achieve a quorum.

Abstentions and Broker Non-Votes

Proxies that are marked “abstain” and proxies relating to “street name” shares that are returned to KVSA but marked by brokers as “not voted” will be treated as shares present for purposes of determining the presence of a quorum on all matters, but they will not be treated as shares voted on the matter. Under the rules of various national and regional securities exchanges, your broker, bank, or nominee cannot vote your shares with respect to

 

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non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank, or nominee. We believe all the proposals presented to the stockholders will be considered non-discretionary and therefore your broker, bank, or nominee cannot vote your shares without your instruction.

An abstention will be counted towards the quorum requirement but will not count as a vote cast at the special meeting. A broker non-vote will not be counted towards the quorum requirement, as we believe all proposals presented to the stockholders will be considered non-discretionary, or count as a vote cast at the special meeting.

Vote Required for Approval

The approval of the BCA Proposal requires the affirmative vote of holders of a majority of the shares of KVSA Class A common stock and KVSA Class B common stock that are voted at the special meeting. The BCA Proposal is conditioned on the approval of each of the Condition Precedent Proposals. Therefore, if any of the Condition Precedent Proposals is not approved, the BCA Proposal will have no effect, even if approved by holders of KVSA Class A common stock and KVSA Class B common stock.

The approval of the Charter Proposal requires (1) the affirmative vote of holders of a majority of the voting power of the outstanding shares of KVSA Class A common stock and KVSA Class B common stock, voting together as a single class, (2) the affirmative vote or written consent of the holders of a majority of the voting power of the outstanding shares of KVSA Class K common stock, voting separately as a series (which consent has already been obtained prior to the special meeting) and (3) the affirmative vote or written consent of the holders of a majority of the voting power of the outstanding shares of KVSA Class B common stock, voting separately as a series. The parties have also agreed to condition the Charter Proposal on the affirmative vote of the holders of a majority of the shares of KVSA Class A common stock then outstanding and entitled to vote thereon, voting separately as a single series. The Charter Proposal is conditioned on the approval of each of the Condition Precedent Proposals. Therefore, if any of the Condition Precedent Proposals is not approved, the Charter Proposal will have no effect, even if approved by holders of KVSA Class A common stock and KVSA Class B common stock.

The approval of the Advisory Charter Amendment Proposals requires the affirmative vote of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon, voting together as a single class. The Advisory Charter Amendment Proposal is not conditioned upon any other proposal.

The approval of the Stock Issuance Proposal requires the affirmative vote of the holders of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon at the special meeting, voting together as a single class. The Stock Issuance Proposal is conditioned on the approval of each of the Condition Precedent Proposals. Therefore, if any of the Condition Precedent Proposals is not approved, the Stock Issuance Proposal will have no effect, even if approved by holders of KVSA Class A common stock and KVSA Class B common stock.

The approval of the Incentive Award Plan Proposal requires the affirmative vote of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon, voting together as a single class. The Incentive Award Plan Proposal is conditioned on the approval of each of the Condition Precedent Proposals. Therefore, if any of the Condition Precedent Proposals is not approved, the Incentive Award Plan Proposal will have no effect, even if approved by holders of KVSA Class A common stock and KVSA Class B common stock.

The approval of the ESPP Proposal requires the affirmative vote of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon, voting together as a single class. The ESPP Proposal is conditioned on the approval of each of the Condition Precedent Proposals. Therefore, if any of the Condition Precedent Proposals is not approved, the ESPP Proposal will have no effect, even if approved by holders of KVSA Class A common stock and KVSA Class B common stock.

 

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The approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by holders of shares of KVSA Class A common stock and KVSA Class B common stock represented in person or by proxy and entitled to vote thereon, voting together as a single class. The Adjournment Proposal is not conditioned upon any other proposal.

Voting Your Shares

Each public share that you own in your name entitles you to one vote at the special meeting. Each proxy card shows the number of shares of KVSA common stock, as applicable, that you own. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted. In most cases you may vote by telephone or over the Internet as instructed.

There are two ways to vote your shares of KVSA common stock at the special meeting:

 

  

You can vote by signing and returning the enclosed proxy card(s). If you vote by proxy card(s), your “proxy,” whose name is listed on the proxy card(s), will vote your shares as you instruct on the proxy card(s). If you sign and return the proxy card(s) but do not give instructions on how to vote your shares, your shares will be voted as recommended by KVSA’s board “FOR” the BCA Proposal, “FOR” the Charter Proposal, “FOR” each of the Advisory Charter Amendment Proposals, “FOR” the Stock Issuance Proposal, “FOR” the Incentive Award Plan Proposal, “FOR” the ESPP Proposal, and “FOR” the Adjournment Proposal, in each case, if presented to the special meeting, as applicable. Votes received after a matter has been voted upon at the special meeting, as applicable, will not be counted.

 

  

You can attend the special meeting and vote in person. You will receive a ballot when you arrive. However, if your shares, as applicable, are held in the name of your broker, bank or another nominee, you must get a valid legal proxy from the broker, bank or other nominee. That is the only way KVSA can be sure that the broker, bank or nominee has not already voted your shares.

Revoking Your Proxy

If you are a KVSA stockholder 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 proxy card with a later date;

 

  

you may notify KVSA’s Secretary in writing before the special meeting that you have revoked your proxy; or

 

  

you may attend the special meeting, as applicable, revoke your proxy, and vote online, as indicated above.

Who Can Answer Your Questions About Voting Your Shares

If you are a stockholder and have any questions about how to vote or direct a vote in respect of your KVSA common stock you may call D.F. King, KVSA’s proxy solicitor, by calling (800) 487-4870 or banks and brokers can call collect at (212) 269-5550, or by emailing KVSA@dfking.com.

Redemption Rights

Pursuant to our Existing Organizational Documents, public stockholders may seek to redeem their shares for cash if the business combination is consummated, regardless of whether they vote and, if they do vote, irrespective of whether they vote “for” or “against” the BCA proposal. Any stockholder holding public shares as of the record date may demand that KVSA redeem such shares for a full pro rata portion of the trust account (which, for illustrative purposes, was approximately $10.00 per share as of October 13, 2021, the record date for the special meeting), calculated as of two business days prior to the anticipated consummation of the business combination. If a holder properly seeks redemption as described in this section and the business combination is consummated, KVSA will redeem these shares for a pro rata portion of funds deposited in the trust account and the holder will no longer own these shares following the business combination.

 

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Notwithstanding the foregoing, a public stockholder, together with any affiliate such holder or any other person with whom such holder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from seeking redemption rights with respect to more than 15% of the public shares. Accordingly, all public shares in excess of 15% held by a public stockholder, together with any affiliate of such holder or any other person with whom such holder is acting in concert or as a “group,” will not be redeemed for cash.

The Sponsor and the KVSA independent directors will not have redemption rights with respect to any shares of KVSA common stock owned by them in connection with the Business Combination.

KVSA public stockholders may demand that KVSA redeem their public shares for cash if the business combination is consummated. Public stockholders will be entitled to receive cash for these shares without voting and, if they do vote, irrespective of whether they vote for or against the business combination. Public stockholders may demand redemption by delivering their stock, either physically or electronically using Depository Trust Company’s DWAC System, to KVSA’s transfer agent prior to the vote at the special meeting. In addition, a public stockholder wishing to exercise its redemption rights must identify itself, in writing, as a beneficial holder and provide its legal name, phone number and address to KVSB’s transfer ageny, in order to validly redeem its shares. If you hold the shares in street name, you will have to coordinate with your broker to have your shares certificated or delivered electronically. Certificates that have not been tendered (either physically or electronically) in accordance with these procedures will not be redeemed for cash. There is a nominal cost associated with this tendering process and the act of certificating the shares or delivering them through the DWAC system. The transfer agent will typically charge the tendering broker $100 and it would be up to the broker whether or not to pass this cost on to the redeeming stockholder. In the event the proposed business combination is not consummated this may result in an additional cost to stockholders for the return of their shares.

Any request to redeem such shares, once made, may be withdrawn at any time up to the vote on the BCA proposal. Furthermore, if a public stockholder delivered its certificate in connection with an election of its redemption and subsequently decides prior to the applicable date not to elect to exercise such rights, it may simply request that the transfer agent return the certificate (physically or electronically).

If the business combination is not approved or completed for any reason, then KVSA’s public stockholders who elected to exercise their redemption rights will not be entitled to redeem their shares for a full pro rata portion of the trust account, as applicable. In such case, KVSA will promptly return any shares delivered by public stockholders. Additionally, if KVSA would be left with less than $5,000,001 of net tangible assets as a result of the public stockholders properly demanding redemption of their shares for cash, KVSA will not be able to consummate the business combination.

The closing price of KVSA Class A common stock on October 13, 2021, the record date for the special meeting, was $9.91 per share. The cash held in the trust account on such date was approximately $345,010,544.46 ($10.00 per public share). Prior to exercising redemption rights, stockholders should verify the market price of KVSA Class A common stock as they may receive higher proceeds from the sale of their KVSA Class A common stock in the public market than from exercising their redemption rights if the market price per share is higher than the redemption price. KVSA cannot assure its stockholders that they will be able to sell their shares of KVSA Class A common stock in the open market, even if the market price per share is higher than the redemption price stated above, as there may not be sufficient liquidity in its securities when its stockholders wish to sell their shares.

If a public stockholder exercises its redemption rights, then it will be exchanging its shares of KVSA Class A common stock for cash and will no longer own those shares. You will be entitled to receive cash for these shares only if you properly demand redemption no later than the second business day preceding the vote on the BCA proposal by delivering your stock certificate (either physically or electronically) to KVSA’s transfer agent prior to the vote at the special meeting, and the business combination is consummated.

Appraisal Rights

KVSA’s stockholders do not have appraisal rights in connection with the Business Combination under the DGCL.

 

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Proxy Solicitation Costs

KVSA 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. KVSA and its directors, officers and employees may also solicit proxies in person, by telephone or by other electronic means. KVSA will bear the cost of the solicitation.

KVSA has hired D.F. King & Co., Inc to assist in the proxy solicitation process. KVSA will pay that firm a fee of $25,000 plus disbursements. Such fee will be paid with non-trust account funds.

KVSA 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. KVSA will reimburse them for their reasonable expenses.

KVSA Initial Stockholders

As of the date of this proxy statement/prospectus, there are 45,490,000 shares of KVSA common stock issued and outstanding, which includes the 10,000,000 founder shares held by the Sponsor and KVSA’s independent directors, 34,500,000 public shares and 990,000 private placement shares.

The Sponsor and KVSA’s independent directors have agreed to vote all of their shares of KVSA common stock in favor of the proposals being presented at the special meeting.

At any time at or prior to the Business Combination, subject to applicable securities laws (including with respect to material nonpublic information), the Sponsor, the existing stockholders of Valo or our or their respective directors, officers, advisors or respective affiliates may (i) purchase public shares from institutional and other investors who vote, or indicate an intention to vote, against any of the Condition Precedent Proposals, or elect to redeem, or indicate an intention to redeem, public shares, (ii) execute agreements to purchase such shares from such investors in the future, or (iii) enter into transactions with such investors and others to provide them with incentives to acquire public shares, vote their public shares in favor of the Condition Precedent Proposals or not redeem their public shares. Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of KVSA’s shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that the Sponsor, the existing stockholders of Valo or our or their respective directors, officers, advisors, or respective affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. The purpose of such stock purchases and other transactions would be to increase the likelihood of (1) satisfaction of the requirement that holders of a majority of the KVSA common stock, represented in person or by proxy and entitled to vote at the special meeting, vote in favor of the BCA Proposal, the Charter Proposal the Stock Issuance Proposal, Incentive Award Plan Proposal, the ESPP Proposal and the Adjournment Proposal (if presented), (2) satisfaction of the Minimum Cash Condition, (3) otherwise limiting the number of public shares electing to redeem and (4) KVSA’s net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) being at least $5,000,001. Entering into any such arrangements may have a depressive effect on KVSA common stock (e.g., by giving an investor or holder the ability to effectively purchase shares at a price lower than market, such investor or holder may therefore become more likely to sell the shares he or she owns, either at or prior to the Business Combination).

If such transactions are effected, the consequence could be to cause the Business Combination to be consummated in circumstances where such consummation could not otherwise occur. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the proposals to be presented at the special meeting and would likely increase the chances that such proposals would be approved. We will file or submit a Current Report on Form 8-K to disclose any material arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote on the proposals to be put to the special meeting or the redemption threshold. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.

 

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BCA PROPOSAL

KVSA is asking its stockholders to approve the Business Combination described in this proxy statement/prospectus, including (a) adopting the Merger Agreement and (b) approving the Transactions and related agreements described in this proxy statement/prospectus. KVSA stockholders should read carefully this proxy statement/prospectus in its entirety for more detailed information concerning the Merger Agreement, a copy of which is attached as Annex A to this proxy statement/prospectus. Please see the subsection entitled “The Merger Agreement” below for additional information and a summary of certain terms of the Merger Agreement. You are urged to read carefully the Merger Agreement in its entirety before voting on this proposal.

We may consummate the Business Combination only if it is approved by the affirmative vote of the holders of a majority of the shares of KVSA Class A common stock and Class B common stock that are voted at the special meeting.

The Merger Agreement

This subsection of the proxy statement/prospectus describes the material provisions of the Merger Agreement, but does not purport to describe all of the terms of the Merger Agreement. The following summary is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Annex A to this proxy statement/prospectus. You are urged to read the Merger Agreement in its entirety because it is the primary legal document that governs the Merger.

The Merger Agreement contains representations, warranties and covenants that the respective parties made to each other as of the date of the Merger Agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the Merger Agreement. The representations, warranties and covenants in the Merger Agreement are also modified in part by the underlying disclosure letter of the Valo Parties, which is not filed publicly and which is subject to a contractual standard of materiality different from that generally applicable to stockholders and were used for the purpose of allocating risk among the parties rather than establishing matters as facts. We do not believe that the disclosure letter contains information that is material to an investment decision. Additionally, the representations and warranties of the parties to the Merger Agreement may or may not have been accurate as of any specific date and do not purport to be accurate as of the date of this proxy statement/prospectus. Accordingly, no person should rely on the representations and warranties in the Merger Agreement or the summaries thereof in this proxy statement/prospectus as characterizations of the actual state of facts about KVSA, the Valo Parties or any other matter.

Structure of the Merger

On June 9, 2021, KVSA entered into an Agreement and Plan of Merger, as amended by that certain Amendment No. 1 to Agreement and Plan of Merger dated September 22, 2021, by and among KVSA, Merger Sub and the Valo Parties, pursuant to which, among other things, following the Pre-Closing Restructuring, (i) Merger Sub will merge with and into Valo, the separate corporate existence of Merger Sub will cease and Valo will be the surviving corporation and a wholly owned subsidiary of KVSA and (ii) KVSA will change its name to “Valo Health Holdings, Inc.”.

No later than one (1) business day prior to the Closing Date, Valo Holdco and Valo will consummate the Pre-Closing Restructuring, pursuant to which, among other things, Valo Holdco will merge with and into Valo, with Valo being the surviving corporation and, after giving effect to such merger, the former holders of all of the outstanding Valo Holdco equity interests will collectively own all of the outstanding equity interests of Valo.

 

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Organizational Structure

The diagram below depicts a simplified version of the New Valo organizational structure immediately following the completion of the Business Combination.

 

 

LOGO

Consideration

Aggregate Merger Consideration

As a result of and upon the Closing (after giving effect to the consummation of the Pre-Closing Restructuring), among other things, (i) all outstanding shares of capital stock of Valo, including restricted shares of Valo common stock, will be cancelled in exchange for the right to receive an aggregate of 220,691,502 shares of New Valo common stock (at a deemed value of $10.00 per share) and (ii) all outstanding options to purchase shares of Valo common stock will be exchanged for options to purchase an aggregate of 10,205,856 shares of New Valo common stock (“New Valo Options”) (at a deemed weighted average value of $4.22 per share assuming that all New Valo Options are net settled), representing a pre-transaction equity value of Valo of $2.25 billion (the “Aggregate Merger Consideration”). Specifically, each share of Valo common stock will be canceled and converted into the right to receive a number of shares of New Valo common stock equal to the Exchange Ratio, which is the quotient obtained by dividing (x) the number of shares of New Valo common stock constituting the Aggregate Merger Consideration by (y) the aggregate number of fully diluted shares of Valo common stock (with respect to options to purchase Valo common stock, calculated on a treasury stock method basis (at a deemed value of $10.00 per share of New Valo common stock)). The Exchange Ratio is expected to be 1.0.

An additional 20,086,250 shares of New Valo common stock will be purchased (at a price of $10.00 per share) at the Closing by certain third-party investors, Valo Party equityholders and affiliates of KVSA, for a total aggregate purchase price of $200,862,500. The proceeds of the PIPE Investment, together with the amounts remaining in KVSA’s trust account as of immediately following the effective time of the Merger, will be retained at Valo following the Closing.

Treatment of Valo Options and Restricted Stock Awards

As a result of and upon the Closing (as defined below), among other things, all (i) options to purchase shares of Valo common stock (“Valo Options”) and (ii) awards of restricted shares of Valo common stock (“Valo

 

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Restricted Stock Awards”, and together with Valo Options, the “Valo Awards”) outstanding as of immediately prior to the Merger will be converted into (a) options to purchase shares of New Valo common stock (“New Valo Options”) and (b) awards of restricted shares of New Valo common stock (“New Valo Restricted Stock Awards”), respectively, subject to substantially similar terms and conditions (including applicable vesting, expiration and forfeiture provisions) that applied to the corresponding New Valo Option or New Valo Restricted Stock Award immediately prior to the Closing.

Subject to the terms of the Merger Agreement, each New Valo Option that is outstanding and unexercised will provide the right to purchase a number of whole shares of New Valo common stock (rounded down to the nearest whole share) equal to (i) the number of shares of Valo common stock subject to the applicable Valo Option multiplied by (ii) the Exchange Ratio. The exercise price for each New Valo Option will equal (i) the exercise price of the applicable Valo Option divided by (ii) the Exchange Ratio (rounded up to the nearest whole cent). Subject to the terms of the Merger Agreement, each New Valo Restricted Stock Award will be comprised of that number of whole shares of New Valo common stock (rounded down to the nearest whole share) equal to (i) the number of shares of Valo common stock subject to the applicable Valo Restricted Stock Award, multiplied by (ii) the Exchange Ratio (rounded down to the nearest whole share). The Exchange Ratio is expected to be 1.0.

The board of directors of Valo shall terminate the Valo Holdco 2021 Unit Option and Grant Plan (the “Valo Plan”) effective as of immediately prior to the Closing, and effective as of the Closing, no further awards may be granted under the Valo Plan; however, awards granted under the Valo Plan prior to the Closing will remain subject to the terms and conditions of the Valo Plan. The board of directors of Valo will take all other necessary actions, effective as of immediately prior to the Closing, in order to cancel the remaining unallocated share reserve under the Valo Plan and provide that shares in respect of Valo Awards that for any reason become re-eligible for future issuance shall be cancelled.

Closing

In accordance with the terms and subject to the conditions of the Merger Agreement, the closing of the Merger will take place as promptly as practicable, but in no event later than the date which is three (3) business days after the satisfaction or waiver of the closing conditions set forth in the Merger Agreement (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions), unless another time or date is mutually agreed to in writing by the parties.

Representations and Warranties

The Merger Agreement contains representations and warranties of KVSA, Merger Sub and the Valo Parties, certain of which are qualified by materiality and material adverse effect. See “— Material Adverse Effect” below. The representations and warranties of the Valo Parties may be further modified and limited by the disclosure letter. The representations and warranties of KVSA are also qualified by information included in KVSA’s public filings, filed or submitted to the SEC on or prior to the date of the Merger Agreement (subject to certain exceptions contemplated by the Merger Agreement).

Representations and Warranties of the Valo Parties

The Valo Parties have made representations and warranties relating to, among other things, company organization, subsidiaries, due authorization, no conflict, governmental authorities and consents, capitalization of the Valo Parties and their subsidiaries, financial statements, undisclosed liabilities, litigation and proceedings, legal compliance, contracts and defaults thereunder, Valo Party benefit plans, employment and labor relations, taxes, brokers’ fees, insurance, licenses, tangible personal property, real property, intellectual property, regulatory compliance, privacy and cybersecurity, environmental matters, absence of changes, anti-corruption compliance, sanctions and international trade compliance, information supplied, vendors, government contracts and no outside reliance.

 

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The representations and warranties of the Valo Parties identified as fundamental under the terms of the Merger Agreement are those made pursuant to: (i) Section 4.1 of the Merger Agreement (Company Organization), the first and second sentences of Section 4.2 of the Merger Agreement (Subsidiaries), Section 4.3 of the Merger Agreement (Due Authorization), clauses (a), (b) and (d) of Section 4.6 of the Merger Agreement (Capitalization of the Valo Parties) and Section 4.16 of the Merger Agreement (Brokers’ Fees) (collectively, the “Valo Fundamental Representations”).

Representations and Warranties of KVSA and Merger Sub

KVSA and Merger Sub have made representations and warranties relating to, among other things, company organization, due authorization, no conflict, litigation and proceedings, SEC filings, internal controls, listing and financial statements, governmental authorities and consents, trust account, Investment Company Act and JOBS Act, absence of changes, undisclosed liabilities, capitalization, brokers’ fees, indebtedness, taxes, business activities, stock market quotation, registration statement, proxy statement and proxy statement/registration statement and no outside reliance.

Survival of Representations and Warranties

Except in the case of claims against a person in respect of such person’s actual fraud, the representations and warranties of the respective parties to the Merger Agreement generally will not survive the Closing.

Material Adverse Effect

Under the Merger Agreement, certain representations and warranties of the Valo Parties are qualified in whole or in part by a material adverse effect standard for purposes of determining whether a breach of such representations and warranties has occurred. Under the Merger Agreement, certain representations and warranties of KVSA are qualified in whole or in part by a material adverse effect on the business of KVSA or the ability of KVSA to enter into and perform its obligations under the Merger Agreement for purposes of determining whether a breach of such representations and warranties has occurred.

Pursuant to the Merger Agreement, a material adverse effect with respect to either KVSA or the Valo Parties (“Material Adverse Effect”) means any event, development, circumstance, occurrence or effect (collectively, “Events”) that (i) has had, or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business, results of operations or financial condition of the applicable party and its subsidiaries, taken as a whole or (ii) does or would reasonably be expected to, individually or in the aggregate, prevent the ability of the applicable party to consummate the Merger.

However, in no event would any of the following, alone or in combination, be deemed to constitute, or be taken into account in determining whether there has been or will be, a “Material Adverse Effect” of either KVSA or the Valo Parties:

 

 (i)

any change in applicable laws, GAAP or any COVID-19 measures or any interpretation thereof following the date of the Merger Agreement;

 

 (ii)

any change in interest rates or economic, political, business or financial market conditions generally;

 

 (iii)

the taking or not taking of any action required by the Merger Agreement;

 

 (iv)

any natural disaster (including hurricanes, storms, tornados, flooding, earthquakes, volcanic eruptions or similar occurrences), pandemic, outbreak of disease or illness or public health event (including COVD-19) or change in climate;

 

 (v)

any acts of terrorism or war, the outbreak or escalation of hostilities, geopolitical conditions, local, national or international political conditions;

 

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 (vi)

any failure of KVSA or the Valo Parties, as applicable, to meet any budgets, projections or forecasts (provided that this clause will not prevent a determination that any Event not otherwise excluded from this definition of Material Adverse Effect underlying such failure to meet projections or forecasts has resulted in a Material Adverse Effect);

 

 (vii)

any Events generally applicable to the industries or markets in which KVSA or Valo Holdco, Valo or its subsidiaries, as applicable, operate (including increases in the cost of products, supplies, materials or other goods purchased from third party suppliers);

 

 (viii)

the announcement of the Merger Agreement or pendency or consummation of the transactions contemplated thereby, including any termination of, reduction in or similar adverse impact (but in each case only to the extent attributable to such announcement or consummation) on relationships, contractual or otherwise, with any landlords, customers, suppliers, distributors, partners or employees of KVSA or the Valo Parties and their subsidiaries, as applicable (it being understood that this clause will be disregarded for purposes of the representation and warranties in Section 4.4 and Section 5.3 of the Merger Agreement, as applicable, and the conditions to Closing with respect thereto); or

 

 (ix)

any action taken by, or at the written request of, the other party.

Any Event referred to in clauses (i), (ii), (iv), (v) or (vii) above may be taken into account in determining if a Material Adverse Effect has occurred to the extent it has a disproportionate and adverse effect on the business, results of operations or financial condition of KVSA or the Valo Parties and their subsidiaries, taken as a whole, as applicable, relative to similarly situated companies in the industry in which the KVSA or Valo Parties and their subsidiaries, as applicable, conduct their respective operations, but only to the extent of the incremental disproportionate effect on KVSA or the Valo Parties and their subsidiaries, taken as a whole, as applicable, relative to similarly situated companies in the industry in which KVSA or the Valo Parties and their subsidiaries, as applicable, conduct their respective operations.

Covenants and Agreements

The Valo Parties have made covenants relating to, among other things, conduct of business, inspection, preparation and delivery of certain audited and unaudited financial statements, affiliate agreements, Pre-Closing Restructuring and acquisition proposals.

KVSA has made covenants relating to, among other things, employee matters, trust account proceeds and related available equity, listing, no solicitation by KVSA, KVSA’s conduct of business, post-closing directors and officers, inspection, indemnification and insurance, KVSA public filings, PIPE Investment subscriptions and the Forward Purchase Agreement.

Pre-Closing Restructuring

Pursuant to the Merger Agreement, the Valo Parties and their subsidiaries will take all actions reasonably necessary so that no later than one (1) business day prior to the Closing Date, among other things, Valo Holdco will merge with and into Valo, with Valo surviving such merger (the “Pre-Closing Restructuring”). In connection with the Pre-Closing Restructuring, (a) each outstanding membership interest will be cancelled and exchanged for shares of Valo common stock (or restricted shares, in the case of unvested incentive units of Valo Holdco), (b) each option to purchase membership interests in Valo Holdco will be cancelled and exchanged for an equivalent Valo Option, all as described in further detail in the section titled “Pre-Closing Restructuring”). The Valo Parties may undertake additional steps involving the merger, dissolution, liquidation or other consolidation of their subsidiaries.

 

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Conduct of Business by the Valo Parties

The Valo Parties have agreed that from the date of the Merger Agreement through the earlier of the Closing or the termination of the Merger Agreement (the “Interim Period”), they will, and will cause their subsidiaries to, except (i) as otherwise explicitly contemplated by the Merger Agreement or the Ancillary Agreements (as defined below), (ii) as required by applicable law (including COVID-19 measures), or (iii) as consented to by KVSA in writing (which consent will not be unreasonably conditioned, withheld, delayed or denied), operate the business of the Valo Parties in the ordinary course consistent with past practice and use commercially reasonable efforts to (x) preserve intact in all material respects the current business organization and ongoing businesses of the Valo Parties and their subsidiaries, taken as a whole, (y) maintain the existing material business relations of the Valo Parties and their subsidiaries, and (z) not terminate (other than for cause) the employment of present officers and management employees. Notwithstanding the foregoing, the Valo Parties or any of their subsidiaries, with prior notice to KVSA if practicable, may take any commercially reasonable action in good faith to mitigate the risk to the Valo Parties and their subsidiaries of COVID-19 to the extent reasonable and prudent in light of the business of the Valo Parties and their subsidiaries and the circumstances giving rise to adverse changes in respect of COVID-19 or COVID-19 measures.

During the Interim Period, the Valo Parties have also agreed not to, and to cause their subsidiaries not to, except as (i) required by the Merger Agreement (including the Pre-Closing Restructuring) or the Ancillary Agreements, including the Valo Disclosure Letter, (ii) as consented to by KVSA in writing (which consent will not be unreasonably conditioned, withheld, delayed or denied), (iii) as required by applicable law (including COVID-19 measures) or (iv) in connection with a transaction executed and performed in accordance with the terms of the Securities Purchase Agreement, dated as of May 27, 2021, between Valo, Courier Therapeutics, Inc. and certain other parties:

 

  

change, waive or amend the governing documents of the Valo Parties or any of their subsidiaries or form or cause to be formed any new subsidiary of the Valo Parties;

 

  

make, declare, set aside, establish a record date for or pay any dividend or distribution to the equityholders of the Valo Parties or make any other distributions in respect of any of the equity interests of the Valo Parties;

 

  

split, combine, reclassify, recapitalize or otherwise amend any terms of any shares or series of the Valo Parties’ or any of their subsidiaries’ capital stock or equity interests, except for any such transaction by a wholly owned subsidiary of Valo that remains a wholly owned subsidiary of Valo after consummation of such transaction;

 

  

purchase, repurchase, redeem or otherwise acquire any issued and outstanding share capital, outstanding shares of capital stock, membership interests or other equity interests of any Valo Party or any of their subsidiaries, except for (i) the acquisition by any Valo Party or any of their subsidiaries of any shares of capital stock, membership interests or other equity interests of the Valo Parties or their subsidiaries in connection with the forfeiture or cancellation of such interests, (ii) transactions between Valo Holdco and any wholly-owned subsidiary of Valo Holdco or between wholly owned subsidiaries of Valo Holdco;

 

  

except in the ordinary course of business of the Valo Parties, enter into, amend, modify or terminate (other than expiration in accordance with its terms) any material contracts or lease;

 

  

except in the ordinary course of business of the Valo Parties, sell, assign, transfer, convey, lease or otherwise dispose of, or subject to a lien (except for certain permitted liens as set forth in the Merger Agreement), any material tangible assets or properties of the Valo Parties or their subsidiaries, except for (i) dispositions of obsolete or worthless equipment (ii) transactions among Valo Holdco and its wholly owned subsidiaries or among its wholly owned subsidiaries;

 

  

acquire any ownership interest in any real property;

 

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other than as required by law, contracts in effect as of the date of the Merger Agreement or existing benefit plans, (i) grant or pay any severance (other than severance in the ordinary course of business), retention, special bonus, change in control or termination or similar pay, (ii) terminate, furlough or hire any officer, employee, individual independent contractor or other service provider (other than terminations for cause), except in the ordinary course of business, (iii) terminate, adopt, enter into or materially amend any benefit plan, (iv) increase the compensation or benefits of any employee, officer, manager, director, independent contractor or other individual service provider, except annual merit or promotion-related increases for non-executive employees in the ordinary course of business consistent with past practice, (v) establish any trust or take any other action to secure the payment of any compensation payable by the Valo Parties or any of their subsidiaries, except in the ordinary course of business, or (vi) take any action to amend or waive any performance or vesting criteria or to accelerate the time of payment or vesting of any compensation or benefit payable by the Valo Parties or any of their subsidiaries, except in the ordinary course of business;

 

  

acquire by merger or consolidation with, or merge or consolidate with, or purchase substantially all or a material portion of the assets of, any corporation, partnership, association, joint venture or other business organization or division thereof;

 

  

(i) issue or sell any debt securities or warrants or other rights to acquire any debt securities of any Valo Party or any subsidiary of the Valo Parties or otherwise incur or assume any indebtedness in excess of $5,000,000, or (ii) guarantee any indebtedness of another person, except in the ordinary course of business consistent;

 

  

except in the ordinary course of business, (i) make or change any material election in respect of material taxes, (ii) materially amend or modify any filed material tax return, (iii) adopt or request permission of any taxing authority to change any accounting method in respect of material taxes, (iv) enter into any closing agreement in respect of material taxes executed on or prior to the Closing Date or enter into any tax sharing or similar agreement, (v) settle any claim or assessment in respect of material taxes, or (vi) surrender or allow to expire any right to claim a refund of material taxes;

 

  

except in the ordinary course of business, take any action, where such action could reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code;

 

  

except in the ordinary course of business, issue any equity securities of an Valo Party or securities exercisable for or convertible into equity securities of any Valo Party, other than the issuance of shares of Valo common stock or Valo Holdco common units upon the exercise or settlement of Valo Options or Valo Holdco options under the Valo Plan and applicable award agreements, or grant any additional Valo Holdco awards, Valo Awards or other equity or equity-based compensation;

 

  

except in the ordinary course of business, adopt a plan of, or otherwise enter into or effect a, complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of the Valo Parties or their subsidiaries (other than the Merger);

 

  

waive, release, settle, compromise or otherwise resolve any inquiry, investigation, claim, action, litigation or other legal proceedings, except in the ordinary course of business or where such waivers, releases, settlements or compromises involve only the payment of monetary damages by the Valo Parties in an amount less than $500,000 in the aggregate;

 

  

except in the ordinary course of business, grant to, or agree to grant to, any person rights to any intellectual property that is material to the Valo Parties and their subsidiaries, or dispose of, abandon or permit to lapse any rights to any intellectual property that is material to the Valo Parties and their subsidiaries except for the expiration of Valo registered intellectual property in accordance with the applicable statutory term or registration period or in the reasonable exercise of Valo’s or any of its subsidiary’s business judgment as to the costs and benefits of maintaining the item;

 

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except in the ordinary course of business, disclose any trade secret of any Valo Party or any of their subsidiaries, other than pursuant to commercially reasonable obligations to maintain the confidentiality thereof;

 

  

except in the ordinary course of business, make or commit to make capital expenditures in excess of the amount disclosed in the Valo Disclosure Letter, in the aggregate;

 

  

enter into any contract with any broker, finder, investment banker or other person under which such person is or will be entitled to any brokerage fee, finders’ fee or other commission in connection with the transactions contemplated by the Merger Agreement;

 

  

enter into or extend any collective bargaining agreement or similar labor agreement or recognize or certify any labor union, labor organization, or group of employees of any of the Valo Parties or their subsidiaries as the bargaining representative for any employees of any of the Valo Parties or their subsidiaries;

 

  

terminate without replacement any license that is material to the conduct of the business of the Valo Parties and their subsidiaries, taken as a whole, except in the ordinary course of business;

 

  

waive the restrictive covenant obligations of any current or former director, manager, officer, employee or other service provider of any Valo Party or any of their subsidiaries, except in the ordinary course of business;

 

  

except in the ordinary course of business, (i) limit the right of any Valo Party or any of their subsidiaries to engage in any line of business or in any geographic area, to develop, market or sell products or services, or to compete with any person or (ii) grant any exclusive or similar rights to any person, in each case, except where such limitation or grant does not, and would not be reasonably likely to, individually or in the aggregate, materially and adversely affect the ordinary course operation of the businesses of the Valo Parties and their subsidiaries, taken as a whole;

 

  

except in the ordinary course of business, terminate without replacement or amend in a manner materially detrimental to the Valo Parties and their subsidiaries, taken as a whole, any insurance policy insuring the business of any Valo Party or any of their subsidiaries; or

 

  

enter into any agreement to do any of the above actions.

Conduct of Business of KVSA

KVSA has agreed that during the Interim Period, it will, and will cause Merger Sub to, except as (i) contemplated by the Merger Agreement (including as contemplated by the PIPE Investment) or the Ancillary Agreements, (ii) as required by applicable law (including COVID-19 measures), or (iii) as consented to by Valo Holdco or Valo in writing (which consent will not be unreasonably conditioned, withheld, delayed or denied), use its reasonable best efforts to operate its business in the ordinary course and consistent with past practice. KVSA has agreed that during the Interim Period it will, and will cause its subsidiaries to, comply with, and continue performing under, as applicable, KVSA’s governing documents and the Trust Agreement.

During the Interim Period, KVSA has also agreed not to, and to cause Merger Sub not to, except as (i) contemplated by the Merger Agreement (including as contemplated by the PIPE Investment), the Ancillary Agreements or the Forward Purchase Agreement, (ii) as consented to by any Valo Party in writing (which consent will not be unreasonably conditioned, withheld, delayed or denied), or (iii) as required by applicable law (including COVID-19 measures):

 

  

seek any approval from KVSA’s shareholders to change, modify or amend the Trust Agreement or the governing documents of KVSA or Merger Sub, except as otherwise contemplated by the Condition Precedent Proposals;

 

  

(A) make or declare any dividend or distribution to the stockholders of KVSA or make any other distributions in respect of any of KVSA’s or Merger Sub’s capital stock, share capital or equity

 

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interests, (B) split, combine, reclassify or otherwise amend any terms of any shares or series of KVSA’s or Merger Sub’s capital stock or equity interests or (C) purchase, repurchase, redeem or otherwise acquire any issued and outstanding share capital, outstanding shares of capital stock, share capital or membership interests, warrants or other equity interests of KVSA or Merger Sub, other than a redemption of shares of KVSA Class A common stock effected in connection with the Merger;

 

  

(A) make or change any material election in respect of material taxes, (B) amend, modify or otherwise change any filed material tax return, (C) adopt or request permission of any taxing authority to change any accounting method in respect of material taxes, (D) enter into any closing agreement in respect of material taxes or enter into any tax sharing or similar agreement, (E) settle any claim or assessment in respect of material taxes, or (F) surrender or allow to expire any right to claim a refund of material taxes;

 

  

take any action where such action could reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code;

 

  

other than as expressly required by the Sponsor Support Agreement or the Forward Purchase Agreement, enter into, renew or amend in any material respect, any transaction or contract with an affiliate of KVSA or Merger Sub (including, for the avoidance of doubt, (x) the Sponsor and (y) any person in which the Sponsor has a direct or indirect legal, contractual or beneficial ownership interest of 5% or greater);

 

  

incur or assume any indebtedness or guarantee any indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of KVSA or any of its subsidiaries or guaranty any debt securities of another person, other than indebtedness or borrowed money or guarantees (A) incurred in the ordinary course of business consistent with past practice and in an aggregate amount not to exceed $100,000, (B) pursuant to any Working Capital Loans, (C) incurred between KVSA and Merger Sub, or (D) in respect of any expenses incurred in support of the transactions contemplated by the Merger Agreement and the Ancillary Agreements;

 

  

make any loans or advances to, or capital contributions in, any other person;

 

  

waive, release, compromise, settle or satisfy any (A) pending or threatened material claim or (B) any other legal proceeding;

 

  

authorize, recommend, propose or announce an intention to adopt a plan of complete or partial liquidation or dissolution;

 

  

enter into any contract with any broker, finder, investment banker or other person under which such person is or will be entitled to any brokerage fee, finders’ fee or other commission in connection with the transactions contemplated by the Merger Agreement;

 

  

change its methods of accounting in any material respect, other than changes that are made in accordance with GAAP standards or SEC guidance;

 

  

(A) issue any securities of KVSA or securities exercisable for or convertible into securities of KVSA, other than the issuance of the Aggregate Merger Consideration and issuances pursuant to the PIPE Investment and Forward Purchase Agreement, (B) grant any options, warrants or other equity-based awards with respect to securities of KVSA not outstanding on the date of the Merger Agreement; or

 

  

enter into any agreement to do any of the above actions.

Covenants of KVSA

Pursuant to the Merger Agreement, KVSA has agreed, among other things, to:

 

  

prior to the Closing Date, approve and adopt the Incentive Equity Plan and the ESPP;

 

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following the effective time of the Merger, file an effective registration statement on Form S-8 (or other applicable form, including Form S-3) with respect to the New Valo common stock issuable under the Incentive Award Plan and/or the ESPP, and use commercially reasonable efforts to maintain the effectiveness of such registration statement(s) for so long as awards granted thereunder remain outstanding;

 

  

take certain actions so that the Trust Amount will released from the trust account and so that the trust account will terminate thereafter, in each case, pursuant to the terms and subject to the terms and conditions of the Trust Agreement;

 

  

during the Interim Period, use reasonable best efforts to ensure KVSA remains listed as a public company on the Stock Exchange and, prior to the effective time of the Merger, prepare and submit a listing application, if required under the rules of Nasdaq or the New York Stock Exchange, covering the shares of KVSA Class A common stock issuable in the Merger, and obtain approval for the listing of such shares (with reasonable cooperation from the Valo Parties);

 

  

during the Interim Period, not, and cause its subsidiaries not to, and instruct its and their representatives acting on its and their behalf not to, initiate any negotiations or enter into any agreements for certain alternative transactions and to terminate any such negotiations ongoing as of the date of the Merger Agreement; provided that any officer, director or affiliate of KVSA or the Sponsor will not be prohibited from taking any such actions with respect to any transaction unrelated to KVSA;

 

  

subject to the terms of KVSA’s governing documents, take all such action within its power as may be necessary or appropriate such that immediately following the effective time of the Merger:

 

  

the Board of Directors of New Valo shall consist of (A) Samir Kaul (as designated by KVSA), and (B) individuals to be designated by the Valo Parties, subject to requirements of the Stock Exchange, pursuant to written notice to KVSA as soon as reasonably practicable following the date of the Merger Agreement;

 

  

the Board of Directors of Valo Health Holdings, Inc. shall have a majority of “independent” directors for the purposes of the Stock Exchange, each of whom shall serve in such capacity in accordance with the terms of the governing documents of New Valo following the effective time of the Merger; and

 

  

the initial officers of New Valo will be as set forth in the Valo Disclosure Letter, who will serve in such capacity in accordance with the terms of the governing documents of New Valo following the effective time of the Merger;

 

  

subject to confidentiality obligations that may be applicable to information furnished to KVSA by third parties and except for any information that is subject to attorney-client privilege, work-product doctrine or similar privilege, and to the extent permitted by applicable law, afford the Valo Parties and their accountants, counsel and other representatives reasonable access during the Interim Period to their properties, books, contracts, commitments, tax returns, records and appropriate officers and employees and furnish such representatives with all financial and operating data and other information concerning the affairs of KVSA and its subsidiaries as such representatives may reasonably request; provided that KVSA will not be required to furnish any such information of, or access to, the Sponsor or any of its affiliates;

 

  

after the effective time of the Merger, indemnify and hold harmless each present and former director, manager and officer of the Valo Parties and KVSA and each of their respective subsidiaries (in the case of the Valo Parties and their subsidiaries, solely to the extent acting in their capacity as such and to the extent such activities are related to the business of the Valo Parties) against any costs, expenses, judgments, fines, losses, claims, damages or liabilities incurred in connection with any legal proceeding, to the fullest extent that would have been permitted under applicable law and the applicable governing documents to indemnify such person;

 

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maintain, and cause its subsidiaries to maintain for a period of not less than six years from the effective time of the Merger (i) provisions in their respective governing documents concerning the indemnification and exoneration of the Valo Parties’, KVSA’s and their respective subsidiaries’ former and current officers, directors, employees and agents, no less favorable than as contemplated by the applicable governing documents of the Valo Parties, KVSA or their respective subsidiaries, as applicable, as of the date of the Merger Agreement, (ii) a “tail” policy providing directors’ and officers’ liability insurance coverage for the benefit of those persons who are currently covered by KVSA’s directors’ and officers’ liability insurance policies on terms (with respect to coverage and amount) that are substantially the same as, and no less favorable in the aggregate than, the terms of such current insurance coverage, except that in no event will KVSA be required to pay an annual premium for such insurance in excess of 350% of the most recent premium paid by KVSA for such insurance policy and (iii) (x) a “tail” policy purchased by Valo at or prior to the Closing providing directors’ and officers’ liability insurance coverage for the benefit of those persons who are currently covered by Valo’s directors’ and officers’ liability insurance policies on terms (with respect to coverage and amount) that are substantially the same as, and no less favorable in the aggregate than, the terms of such current insurance coverage, except that in no event will Valo be required to pay an annual premium for such insurance in excess of 350% of the most recent premium paid by Valo for such insurance policy, or (y) directors’ and officers’ liability insurance for the benefit of those persons who are currently covered by comparable insurance policies of Valo;

 

  

during the Interim Period, use reasonable best efforts to keep current and timely file all reports required to be filed or furnished with the SEC and otherwise comply in all material respects with its reporting obligations under applicable law;

 

  

except as otherwise approved in writing by any Valo Party (which approval shall not be unreasonably withheld, conditioned or delayed), not permit any amendment or modification (other than any changes to a Subscription Agreement that are solely ministerial and non-economic de minimis changes) to be made to, any waiver (in whole or in part) of, or provide consent to modify (including consent to terminate), any provision or remedy under, or any replacements of, the Forward Purchase Agreement or any of the Subscription Agreements, in each case, other than any assignment or transfer contemplated therein or expressly permitted thereby (without any further amendment, modification or waiver to such assignment or transfer provision) and so long as the initial party to the Forward Purchase Agreement or such Subscription Agreement remains bound by its obligations with respect thereto in the event that the transferee or assignee, as applicable, does not comply with its obligations to consummate the purchase of shares of New Valo common stock contemplated thereby;

 

  

use its reasonable best efforts to take, or to cause to be taken, all actions required, necessary or that it deems to be proper or advisable to consummate the transactions contemplated by the Subscription Agreements and the Forward Purchase Agreement on the terms described therein, including using its reasonable best efforts to enforce its rights under (a) the Subscription Agreements to cause the PIPE Investors to pay to (or as directed by) KVSA the applicable purchase price under each PIPE Investor’s applicable Subscription Agreement in accordance with its terms and (b) the Forward Purchase Agreement to cause the Sponsor to pay to (or as directed by) KVSA the applicable purchase price under the Forward Purchase Agreement in accordance with its terms; and

 

  

promptly notify Valo of any (a) requested amendments to the Subscription Agreements or the Forward Purchase Agreement by any counterparty, (b) breach or default to the knowledge of KVSA by any counterparty to a Subscription Agreement or the Forward Purchase Agreement, (c) written communication received by KVSA with respect to any actual or threatened lapse, termination, breach, withdrawal or repudiation of a Subscription Agreement or the Forward Purchase Agreement, or (d) expectation that KVSA will not receive any amount of the applicable purchase price under any Subscription Agreement or the Forward Purchase Agreement in accordance with their terms.

 

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Covenants of Valo

Pursuant to the Merger Agreement, the Valo Parties have agreed, among other things, to:

 

  

subject to confidentiality obligations that may be applicable to information furnished to the Valo Parties or any of their subsidiaries by third parties and except for any information that is subject to attorney-client privilege, work-product doctrine or similar privilege, and to the extent permitted by applicable law, afford KVSA and its accountants, counsel and other representatives reasonable access during the Interim Period to their properties, books, contracts, commitments, tax returns, records and appropriate officers and employees and furnish such representatives with all financial and operating data and other information concerning the affairs of the Valo Parties and their subsidiaries as such representatives may reasonably request;

 

  

act in good faith to deliver to KVSA, as soon as reasonably practicable following the date of the Merger Agreement, (i) audited financial statements (together with the auditor’s reports thereon) of Valo Holdco and its subsidiaries as of and for the year ended December 31, 2020 and any pro forma financial statements that are required to be included in the proxy statement/registration statement, (ii) unaudited financial statements of Valo Holdco and its subsidiaries as of and for the three-month period ended March 31, 2021, (iii) if the Closing has not occurred prior to August 5, 2021, unaudited financial statements of Valo Holdco and its subsidiaries as of and for the three- and six-month period ended June 30, 2021, and (iv) if the Closing has not occurred prior to November 5, 2021, unaudited financial statements of Valo Holdco and its subsidiaries as of and for the three- and nine-month period ended September 30, 2021, in each case, which comply with the applicable accounting requirements and with the applicable rules and regulation of the SEC, the Exchange Act and the Securities Act;

 

  

use reasonable best efforts to (i) assist KVSA in the preparation of any other financial information or statements that are required to be included in the proxy statement/registration statement and any other filings to be made by KVSA with the SEC in connection with the transactions contemplated by the Merger Agreement or any Ancillary Agreement and (ii) obtain the consents of its auditors with respect to thereto as may be required by applicable law or requested by the SEC;

 

  

terminate or settle all Affiliate Agreements set forth in the Valo Disclosure Letter without further liability to KVSA, the Valo Parties or any of their subsidiaries;

 

  

take all actions as are reasonably necessary to consummate the Pre-Closing Restructuring no later than one (1) business day prior to the Closing Date. See “— Pre-Closing Restructuring” above; and

 

  

during the Interim Period, not, and to direct their its representatives to not, directly or indirectly, (i) initiate any negotiations with any person with respect to certain alternative transactions, (ii) enter into any agreement with respect to any such alternative transactions or proposed transactions, (iii) grant any waiver, amendment or release under any confidentiality agreement or the anti-takeover laws of any state, or (iv) otherwise knowingly facilitate any inquiries, proposals, discussions, or negotiations or any effort or attempt by any person to make a proposal with respect to any such alternative transaction, and immediately following the execution of the Merger Agreement to, and to cause their representatives to, terminate any such negotiations ongoing as of the date of the Merger Agreement.

Joint Covenants of KVSA and Valo

In addition, each of KVSA and the Valo Parties has agreed, among other things, to take certain actions set forth below.

 

  

Each of KVSA and the Valo Parties will (and, to the extent required, will cause its affiliates to) comply promptly, but in no event later than ten (10) business days after the date of the Merger Agreement, with the notification and reporting requirements of the HSR Act.

 

  

Each of KVSA and the Valo Parties will substantially comply with any information or document requests with respect to antitrust matters as contemplated by the Merger Agreement.

 

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Each of KVSA and the Valo Parties will (and, to the extent required, will cause its affiliates to) (x) request early termination of any waiting period or periods under the HSR Act and exercise its reasonable best efforts to (i) obtain termination or expiration of the waiting period under the HSR Act and (ii) prevent the entry, in any legal proceeding brought by an antitrust authority or any other person, of any governmental order which would prohibit, make unlawful or delay the consummation of the transactions contemplated by the Merger Agreement.

 

  

KVSA and the Valo Parties will jointly prepare and KVSA will file with the SEC the proxy statement/registration statement in connection with the registration under the Securities Act of the shares of New Valo common stock that constitute the Aggregate Merger Consideration to be received by the equityholders of Valo.

 

  

Each of KVSA and the Valo Parties will use its reasonable best efforts to cause the proxy statement/registration statement to comply with the rules and regulations promulgated by the SEC; to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing and to keep the Registration Statement effective as long as is necessary to consummate the transactions contemplated by the Merger Agreement; to provide such information as may be reasonably necessary, advisable or requested in connection with the proxy statement/registration statement, any current report on Form 8-K or any other statement, filing notice or application in connection with the transactions contemplated by the Merger Agreement and otherwise ensure that the information contained therein contains no untrue statement of material fact or material omission.

 

  

KVSA will, (i) as promptly as practicable after the Registration Statement is declared effective under the Securities Act, (A) disseminate the proxy statement to stockholders of KVSA, (B) solely with respect to the Condition Precedent Proposals, give notice, convene and hold a meeting of its stockholders, in accordance with its governing documents and applicable law (including Nasdaq Listing Rule 5620(b)), for a date no later than 30 business days following the date the Registration Statement is declared effective, and (C) solicit proxies from the holders of shares of KVSA common stock to vote in favor of each of the Condition Precedent Proposals, and (ii) provide its stockholders with the opportunity to elect to effect a redemption.

 

  

KVSA will, through unanimous approval of its Board of Directors, recommend to its stockholders that they vote in favor of the Condition Precedent Proposals and include such recommendation in the proxy statement. The Board of Directors of KVSA will not withdraw, amend, qualify or modify such recommendation; provided that it may (subject to compliance with certain procedures set forth in the Merger Agreement), prior to obtaining the requisite stockholder approval, modify such recommendation (a “Modification in Recommendation”) if it determines in good faith, after consultation with its outside legal counsel, that in response to an unforeseeable intervening event that materially and adversely impacts the Valo Parties (subject to certain exceptions set forth in the Merger Agreement), the failure to modify its recommendation would be inconsistent with its fiduciary duties under applicable law.

 

  

Valo Holdco will (i) obtain and deliver to KVSA the consent of the requisite members of Valo Holdco (the “Member Approvals”) in the form of an irrevocable written consent (the “Written Consent”) executed by each of the Requisite Members promptly following, and in any event within three (3) business days after, the time at which the Registration Statement is declared effective under the Securities Act and delivered or otherwise made available to stockholders in accordance with the terms and conditions of Valo Holdco’s governing documents, and (ii) take all other action necessary or advisable to secure the Member Approvals as soon as practicable after, and in any event within three (3) business days after, the Registration State is declared effective under the Securities Act and, if applicable, any additional consents or approvals related thereto, including enforcing the Member Support Agreement.

 

  

KVSA and the Valo Parties will each, and will each cause their respective subsidiaries to use reasonable best efforts to obtain all material consents and approvals of third parties (including any

 

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governmental authority) that any of KVSA, the Valo Parties, or their respective affiliates are required to obtain in order to consummate the Merger and take such other action as soon as practicable as may be reasonably necessary in order to consummate the transactions contemplated by the Merger Agreement.

 

  

Each of the Valo Parties and KVSA will, and will each cause their respective subsidiaries and its and their representatives to, prior to the Closing, reasonably cooperate in a timely manner in connection with any financing arrangement the parties mutually agree to seek in connection with the transactions contemplated by the Merger Agreement.

 

  

Each of the Valo Parties and KVSA will, prior to the effective time of the Merger, take all reasonable steps as may be required (to the extent permitted under applicable law) to cause any dispositions of shares of Valo common stock or acquisitions of shares of KVSA common stock (including, in each case, securities deliverable upon exercise, vesting or settlement of any derivative securities) resulting from the transactions contemplated by the Merger Agreement by each individual who is or may become subject to the reporting requirements of Section 16(a) of the Exchange Act in connection with the transactions contemplated thereby to be exempt under Rule 16B-3 promulgated under the Exchange Act.

 

  

KVSA will use its reasonable best efforts to, and will instruct its financial advisors to, keep the Valo Parties and their financial advisors reasonably informed with respect to the PIPE Investment and consider in good faith any feedback from the Valo Parties or their financial advisors with respect to such matters during the period commencing on the date of announcement of the Merger Agreement or the transactions contemplated thereby until the Closing Date.

 

  

During the Interim Period, each of KVSA, on the one hand, and the Valo Parties, on the other hand, will promptly notify and keep each other reasonably informed of the status of any litigation brought or, to their knowledge, threatened in writing against KVSA, the Valo Parties, or any of their subsidiaries or controlled affiliates or any of their respective officers, directors, employees or stockholders by any stockholders or equityholders relating to the Merger Agreement or the transactions contemplated thereby, and will provide the other with the opportunity to participate in the defense of such litigation and will not settle any such litigation without the prior written consent of the other (such consent not to be unreasonably withheld, conditioned or delayed).

 

  

Promptly after signing the Merger Agreement and in any event within one (1) business day, KVSA will deliver to the Valo Parties a stockholder written consent signed by KVSA, as sole stockholder of Merger Sub, approving the Merger Agreement and the documents and transactions contemplated thereby. Promptly after signing the Merger Agreement and in any even within 25 days, the Valo Parties will deliver to KVSA a stockholder written consent signed by Valo Holdco, as sole stockholder of Valo, or evidence of approval by Valo Holdco, as sole stockholder of Valo, at a meeting of the stockholders of Valo, in each case, approving the Merger Agreement and the documents and transactions contemplated thereby.

Closing Conditions

The consummation of the Merger is conditioned upon the satisfaction or waiver by the applicable parties to the Merger Agreement of the conditions set forth below. Therefore, unless these conditions are waived by the applicable parties to the Merger Agreement, the Merger may not be consummated. There can be no assurance that the parties to the Merger Agreement would waive any such provisions of the Merger Agreement.

Minimum Cash Condition

The Merger Agreement provides that the obligations of Valo to consummate the Merger are conditioned on, among other things, that as of the Closing, the amount of (i) cash available in the trust account, after deducting

 

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the amount required to satisfy KVSA’s obligations to its stockholders (if any) that exercise their rights to redeem their shares of KVSA common stock pursuant to KVSA’s governing documents (but prior to the payment of any transaction expenses of the Valo Parties or KVSA) plus (ii) the PIPE Investment Amount, plus (iii) the aggregate amount of cash funded to KVSA pursuant to the Forward Purchase Agreement, as applicable, is at least equal to $450 million. The Minimum Cash Condition is for the sole benefit of Valo.

Conditions to the Obligations of Each Party

The obligations of each party to the Merger Agreement to consummate, or cause to be consummated, the Merger are subject to the satisfaction of the following conditions, any one or more of which, if permitted by applicable law, may be waived in writing by all of such parties:

 

  

the approval of the Condition Precedent Proposals (other than with respect to the Incentive Award Plan Proposal and the ESPP Proposal) by KVSA’s stockholders will have been obtained;

 

  

the Charter Proposal will have been approved at the Acquiror Stockholders’ Meeting by the affirmative vote of the holders of a majority of the shares of KVSA Class A common stock then outstanding and entitled to vote thereon at the Acquiror Stockholders’ Meeting, voting separately as a single series (the “Class A Common Stock Approval”);

 

  

the Member Approvals shall have been obtained;

 

  

the proxy statement/registration statement will have become effective under the Securities Act and no stop order suspending the effectiveness of the proxy statement/registration statement will have been issued and no proceedings for that purpose will have been initiated or threatened by the SEC and not withdrawn;

 

  

all required filings under the HSR Act will have been completed, and the waiting period or periods (or any extension thereof) under the HSR Act will have expired or been terminated;

 

  

there will not be in force any order, judgment, injunction, decree, writ, stipulation, determination or award (entered by or with any federal, state, provincial, municipal, local or foreign government, governmental authority, regulatory or administrative agency, governmental commission, department, board, bureau, agency or instrumentality, court or tribunal (a “Governmental Order”), in each case, to the extent such governmental authority has jurisdiction over the parties to the Merger Agreement and the transactions contemplated thereby), statute, rule or regulation enjoining or prohibiting the consummation of the Merger;

 

  

KVSA will have at least $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) after giving effect to the transactions contemplated by the Merger Agreement, including the exercise of any stockholder redemptions in accordance with KVSA’s governing documents, the PIPE Investment and the Forward Purchase Agreement;

 

  

the Pre-Closing Restructuring shall have been completed no later than one (1) business day prior to the Closing Date; and

 

  

the shares of New Valo common stock to be issued in connection with the Merger will have been approved for listing on Nasdaq or the New York Stock Exchange, as applicable, and, immediately following the effective time of the Merger, New Valo will satisfy any applicable initial and continuing listing requirements of Nasdaq or the New York Stock Exchange, as applicable, and KVSA will not have received any notice of non-compliance therewith that has not been cured or would not be cured at or immediately following the effective time of the Merger.

 

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Conditions to the Obligations of KVSA and Merger Sub

The obligations of KVSA and Merger Sub to consummate, or cause to be consummated, the Merger are subject to the satisfaction of the following additional conditions, any one or more of which, if permitted by applicable law, may be waived in writing by KVSA and Merger Sub:

 

  

certain of the representations and warranties of the Valo Parties pertaining to the capitalization of the Valo Parties will be true and correct in all respects, other than for de minimis inaccuracies, as of the Closing Date, except with respect to such representations and warranties that are made as of an earlier date, which representations and warranties will be true and correct in all respects, other than for de minimis inaccuracies, at and as of such date;

 

  

each of the Valo Fundamental Representations (other than those portions of the capitalization representations referenced above) will be true and correct in all material respects, in each case as of the Closing Date, except with respect to such representations and warranties that are made as of an earlier date, which representations and warranties will be true and correct in all material respects at and as of such date, except for changes after the date of the Merger Agreement which are contemplated or expressly permitted by the Merger Agreement or the Ancillary Agreements;

 

  

each of the remaining representations and warranties of the Valo Parties contained in the Merger Agreement (disregarding any qualifications and exceptions contained therein relating to materiality, material adverse effect or any similar qualification or exception) will be true and correct as of the Closing Date, except with respect to such representations and warranties that are made as of an earlier date, which representations and warranties will be true and correct at and as of such date, except for, in each case, inaccuracies or omissions that would not, individually or in the aggregate, reasonably be expected to have a Valo Material Adverse Effect;

 

  

each of the covenants of the Valo Parties to be performed as of or prior to the Closing will have been performed in all material respects; and

 

  

the Valo Parties will have delivered, or caused to be delivered, to KVSA, certain ancillary documents required for Closing set forth in the Merger Agreement, including certain third party consents described in the Valo Disclosure Letter.

Conditions to the Obligations of Valo

The obligation of Valo to consummate, or cause to be consummated, the Merger is subject to the satisfaction of the following conditions any one or more of which, if permitted by applicable law, may be waived in writing by Valo:

 

  

certain of the representations and warranties of KVSA pertaining to its capitalization will be true and correct in all respects, other than for de minimis inaccuracies, as of the Closing Date, except with respect to such representations and warranties that are made as of an earlier date, which representations and warranties will be true and correct in all respects, other than de minimis inaccuracies, at and as of such date, except for changes after the date of the Merger Agreement which are contemplated or expressly permitted by the Merger Agreement;

 

  

certain of the representations and warranties of KVSA pertaining to company organization, due authorization, no conflict with governing documents, capitalization (other than those portions of the capitalization representations referenced above) and brokers’ fees will be true and correct in all material respects, in each case as of the Closing Date, except with respect to such representations and warranties that are made as of an earlier date, which representations and warranties will be true and correct in all material respects at and as of such date;

 

  

each of the other representations and warranties of KVSA contained in the Merger Agreement (disregarding any qualifications and exceptions contained therein relating to materiality, material

 

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adverse effect or any similar qualification or exception) will be true and correct as of the Closing Date, except with respect to such representations and warranties that are made as of an earlier date, which representations and warranties will be true and correct in all material respects at and as of such date, except for, in each case, inaccuracies or omissions that would not, individually or in the aggregate, reasonably be expected to have a KVSA Material Adverse Effect;

 

  

each of the covenants of KVSA to be performed as of or prior to the Closing will have been performed in all material respects;

 

  

at the Closing, there will be no facts, events or circumstances that would prevent the Board of Directors of New Valo from being comprised of the individuals determined pursuant to the terms of the Merger Agreement;

 

  

KVSA will have delivered, or caused to be delivered, to Valo, certain ancillary documents required for Closing set forth in the Merger Agreement;

 

  

the Anti-Dilution Waiver (as defined below) will be in full force and effect;

 

  

the Minimum Cash Condition. For more information, see “— Minimum Cash Condition” above;

 

  

the requisite KVSA stockholders shall have approved the adoption of the Incentive Equity Plan and the ESPP; and

 

  

the KVSA board of directors shall have appointed the New Valo directors designated by the Valo Parties pursuant to the terms of the Merger Agreement effective as of the Effective Time.

Termination; Effectiveness

The Merger Agreement may be terminated and the Merger abandoned at any time prior to the Closing:

 

  

by mutual written consent of the Valo Parties and KVSA;

 

  

by written notice by either the Valo Parties or KVSA if any Governmental Order has become final and nonappealable which has the effect of making consummation of the Merger illegal or otherwise preventing or prohibiting the Merger;

 

  

by written notice by either the Valo Parties or KVSA if the KVSA Stockholder Approval will not have been obtained by reason of the failure to obtain the required vote at a meeting of KVSA’s stockholders duly convened therefor or at any adjournment or postponement thereof;

 

  

by written notice to the Valo Parties from KVSA in the event of certain uncured breaches on the part of the Valo Parties or if the Closing has not occurred on or before December 9, 2021 (the “Agreement End Date”), unless KVSA’s breach of the Merger Agreement is the proximate cause of the failure to close by the Agreement End Date;

 

  

by written notice by KVSA, if the Member Approvals shall not have been obtained and delivered to KVSA within five (5) business days after the Registration Statement has been declared effective by the SEC and delivered or made available to stockholders;

 

  

by written notice to KVSA from the Valo Parties in the event of certain uncured breaches on the part of KVSA or Merger Sub or if the Closing has not occurred on or before the Agreement End Date, unless the Valo Parties breach of the Merger Agreement is the proximate cause of the failure to close by the Agreement End Date; or

 

  

by written notice to KVSA from the Valo Parties if there has been a Modification in Recommendation.

In the event of the termination of the Merger Agreement, the Merger Agreement will become void and have no effect, without any liability on the part of any party thereto or its respective affiliates, officers, directors or stockholders, other than liability of the Valo Parties, KVSA or Merger Sub, as the case may be, for actual fraud

 

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or any willful and material breach of the Merger Agreement occurring prior to such termination, other than with respect to certain exceptions contemplated by the Merger Agreement (including the terms of the Confidentiality Agreement) that will survive any termination of the Merger Agreement.

Waiver; Amendments

Any party to the Merger Agreement may, at any time prior to the Closing, by action taken by its board of directors, board of managers, managing member or other officers or persons thereunto duly authorized, (a) extend the time for the performance of the obligations or acts of the other parties thereto, (b) waive any inaccuracies in the representations and warranties (of another party thereto) that are contained in the Merger Agreement or (c) waive compliance by the other parties thereto with any of the agreements or conditions contained in the Merger Agreement, but such extension or waiver will be valid only if in writing signed by the waiving party; provided that the parties may not waive the requirement to obtain the Class A Common Stock Approval.

The Merger Agreement may be amended or modified in whole or in part, only by a duly authorized agreement in writing that is executed in the same manner as the Merger Agreement and which makes reference to the Merger Agreement, provided that, after the approval of the stockholders of KVSA, Merger Sub and Valo have been obtained, no amendment shall be made which pursuant to applicable law requires further approval by the stockholders of the parties without such further approval.

Fees and Expenses

If the Closing does not occur, (a) the Valo Parties will be responsible for the Valo Parties’ transaction expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby, including all fees of its legal counsel, financial advisors and accountants and 50% of (i) all fees and expenses incurred in connection with the preparation and filling the of the Offer Documents (other than the fees and expenses of advisors, which will be borne by the party incurring such fees) and (ii) the filing fees payable to the antitrust authorities in connection with the filings made under the HSR Act pursuant to the terms of the Merger Agreement ((i) and (ii) together, the “Filing Fees”), and (b) KVSA will be responsible for its transaction expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby, including all fees of its legal counsel, financial advisors and accountants, 50% of the Filing Fees, all fees and expenses incurred in connection with obtaining approval of the Stock Exchange, the repayment of any Working Capital Loans and any deferred underwriting commissions relating to KVSA’s initial public offering that are not paid out of the trust account. If the Closing occurs, Valo Health, Inc. will, upon the consummation of the Merger and release of proceeds from the trust account, pay or cause to be paid all accrued and unpaid transaction expenses of each of the Valo Parties and KVSA. KVSA and the Valo Parties will exchange written statements listing all accrued and unpaid transaction expenses not less than three (3) business days prior to the Closing Date.

Related Agreements

This section describes certain additional agreements entered into or to be entered into pursuant to the Merger Agreement, but does not purport to describe all of the terms thereof. The following summary is qualified in its entirety by reference to the complete text of each of the agreements. The full text of the Related Agreements, or forms thereof, are filed as annexes to this proxy statement/prospectus or as exhibits to the registration statement of which this proxy statement/prospectus forms a part, and the following descriptions are qualified in their entirety by the full text of such annexes and exhibits. Stockholders and other interested parties are urged to read such Related Agreements in their entirety prior to voting on the proposals presented at the special meeting.

Sponsor Support Agreement

In connection with the execution of the Merger Agreement, KVSA, the Sponsor, each officer and director of KVSA and the Valo Parties entered into the Sponsor Support Agreement, dated as of June 9, 2021, a copy of

 

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which is attached to the accompanying proxy statement/prospectus as Annex E. Pursuant to the Sponsor Support Agreement, the Sponsor and each director and officer of KVSA (the “Sponsor Holders”) agreed to, among other things, (i) vote to adopt and approve the Merger Agreement and all other documents and transactions contemplated thereby and (ii) waive any anti-dilution adjustments as to the ratio by which their shares of KVSA Class K common stock and KVSA Class B common stock convert into shares of KVSA Class A common stock (the “Anti-Dilution Waiver”), in each case, subject to the terms and conditions of the Sponsor Support Agreement. Pursuant to Sponsor Support Agreement, the Sponsor and each of its directors and officers also agreed to, (a) deliver a duly executed copy of the Lock-Up Agreement at the Closing, and (b) deliver a duly executed copy of the Registration Rights Agreement at the Closing. The Sponsor Support Agreement covers 10,990,000 shares of KVSA common stock, 5,990,000 of which are entitled to vote on the proposals being presented at the special meeting.

The Sponsor Support Agreement will terminate in its entirety, and be of no further force or effect, upon the earliest to occur of (a) the Expiration Time (as defined in the Sponsor Support Agreement), (b) the liquidation of KVSA and (c) the written agreement of KVSA, the Sponsor and either Valo Holdco or Valo. Upon such termination of the Sponsor Support Agreement, all obligations of the parties under the Sponsor Support Agreement will terminate, without any liability or other obligation on the part of any party thereto to any person in respect thereof or the transactions contemplated thereby, and no party thereto will have any claim against another (and no person will have any rights against such party), whether under contract, tort or otherwise, with respect to the subject matter thereof; provided, however, that the termination of the Sponsor Support Agreement will not relieve any party thereto from liability arising in respect of any willful breach of the Sponsor Support Agreement prior to such termination.

Member Support Agreement

In connection with the execution of the Merger Agreement, KVSA entered into a support agreement with the Valo Parties and the directors, officers and certain major equityholders of Valo Holdco (the “Valo Holdco Members”), a copy of which is attached to the accompanying proxy statement/prospectus as Annex F (the “Member Support Agreement” and, together with the Sponsor Support Agreement, the “Support Agreements”). Pursuant to Member Support Agreement, Valo Holdco Members agreed to, among other things, vote or provide consent to adopt and approve the Merger Agreement and all transactions contemplated thereby (including the Pre-Closing Restructuring), subject to the terms and conditions of Member Support Agreement.

Pursuant to Member Support Agreement, each Valo Holdco Member also agreed to, among other things, (a) vote or provide consent to authorize and approve the Merger as a SPAC Transaction (as defined in the Fourth Amended and Restated Limited Liability Company Agreement of Valo Holdco, dated as of April 16, 2021, as amended from time to time (the “Valo Holdco Operating Agreement”)) and the Pre-Closing Restructuring as a Corporate Transaction (as defined in the Valo Holdco Operating Agreement), in each case, pursuant to the terms of the Valo Holdco Operating Agreement, (b) waive and not to exercise any appraisal or dissent rights such Valo Holdco Member may be entitled to in connection with the transactions contemplated by the Merger Agreement, and (c) deliver a duly executed copy of the Registration Rights Agreement at the Closing.

The Member Support Agreement will terminate and be of no further force or effect upon the earlier of (a) the Expiration Time (as defined in Member Support Agreement) and (b) as to each Valo Holdco Member, the written agreement of KVSA, the Valo Parties and such Valo Holdco Member. Upon such termination of the Member Support Agreement, all obligations of the parties under Member Support Agreement will terminate, without any liability or other obligation on the part of any party thereto to any person in respect thereof or the transactions contemplated thereby, and no party thereto will have any claim against another (and no person will have any rights against such party), whether under contract, tort or otherwise, with respect to the subject matter thereof; provided, however, that the termination of Member Support Agreement will not relieve any party thereto from liability arising in respect of any willful breach of the Member Support Agreement prior to such termination.

 

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Sponsor Vesting Agreement

In connection with the execution of the Merger Agreement, the Sponsor entered into the sponsor vesting agreement with KVSA and the Valo Parties (the “Sponsor Vesting Agreement”), dated as of June 9, 2021, a copy of which is attached to the accompanying proxy statement/prospectus as Annex G.

Under the Sponsor Vesting Agreement, the parties thereto agreed that 8,697,479 shares of New Valo common stock held by the Sponsor as of the effective time of the Merger (converted from the 5,000,000 shares of KVSA Class K common stock) (the “Unvested Shares”) will be subject to a vesting schedule, with vesting to occur in tranches after Closing based on certain triggering events described below.

 

  

Upon Trading Triggers: After the one year anniversary of Closing (i) 2,536,765 Unvested Shares (as may be adjusted) (the “First Price Vesting Shares”) will vest on the day following the date that the closing price of the New Valo common stock equals or exceeds $30.00 per share (as may be adjusted) for any 20 trading days within any 30-trading day period (the “First Price Vesting”), (ii) 2,875,000 Unvested Shares (as may be adjusted) (the “Second Price Vesting Shares”) will vest on the day following the date that the closing price of the New Valo common stock equals or exceeds $40.00 per share (as may be adjusted) for any 20 trading days within any 30-trading day period (the “Second Price Vesting”) and (iii) 3,285,714 Unvested Shares (as may be adjusted) (the “Third Price Vesting Shares”) will vest on the day following the date that the closing price of the New Valo common stock equals or exceeds $50.00 per share (as may be adjusted) for any 20 trading days within any 30-trading day period (the “Third Price Vesting”).

 

  

Upon Qualifying Strategic Transactions: The First Price Vesting Shares will vest on the consummation of a transaction by New Valo after Closing and before the one year anniversary of Closing that results in a change of control (subject to certain exceptions set forth in the Sponsor Vesting Agreement) (a “Strategic Transaction”) and the holders of New Valo common stock having the right to exchange their shares of New Valo common stock for cash, securities or other property at an effective price of at least $15.00 per share (as may be adjusted).

 

  

Upon Other Strategic Transactions: In the event of any Strategic Transaction occurring after the one year anniversary of Closing that results in the holders of New Valo common stock having the right to exchange their shares of New Valo common stock for cash, securities or other property at an effective price of at least $20.00 per share (as may be adjusted), the Unvested Shares will vest proportionately as follows:

 

  

if the First Price Vesting has not occurred prior to or in connection with such Strategic Transaction and such Strategic Transaction results in the holders of New Valo common stock having the right to exchange their shares of New Valo common stock for cash, securities or other property at an effective price greater than $20.00 per share and less than or equal to $30.00 per share (each as may be adjusted), a number of First Price Vesting Shares will vest in an amount equal to (a) the First Price Vesting Shares multiplied by (b) (i) one minus (ii) the quotient of (A) (I) $30.00 minus (II) the effective price per share of New Valo common stock in the Strategic Transaction divided by (B) $10.00 (each as may be adjusted);

 

  

if the Second Price Vesting has occurred prior to or in connection with such Strategic Transaction and such Strategic Transaction results in the holders of New Valo common stock having the right to exchange their shares of New Valo common stock for cash, securities or other property at an effective price greater than $30.00 per share and less than or equal to $40.00 per share (each as may be adjusted), then, (i) the First Price Vesting will automatically be deemed satisfied (to the extent it had not already been satisfied) and (ii) a number of Second Price Vesting Shares will vest in an amount equal to (a) the Second Price Vesting Shares multiplied by (b) (i) one minus (ii) the quotient of (A) (I) $40.00 minus the effective price per share of New Valo common stock in the Strategic Transaction divided by (B) $10.00 (each as may be adjusted);

 

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if the Third Price Vesting has not occurred prior to or in connection with such Strategic Transaction and such Strategic Transaction results in the holders of New Valo common stock having the right to exchange their shares of New Valo common stock for cash, securities or other property at an effective price greater than $40.00 per share and less than or equal to $50.00 per share (each as may be adjusted), then, (i) the First Price Vesting and Second Price Vesting will automatically be deemed satisfied (to the extent either had not already been satisfied) and (ii) a number of Third Price Vesting Shares will vest in an amount equal to (a) the Third Price Vesting Shares multiplied by (b) (i) one minus (ii) the quotient of (A) (I) $50.00 minus (II) the effective price per share of New Valo common stock in the Strategic Transaction divided by (B) $10.00 (each as may be adjusted); and

 

  

if the Third Price Vesting has not occurred prior to or in connection with such Strategic Transaction and such Strategic Transaction results in the holders of New Valo common stock having the right to exchange their shares of New Valo common stock for cash, securities or other property at an effective price greater than $50.00 per share (as may be adjusted), then each of the First Price Vesting, Second Price Vesting and Third Price Vesting shall automatically be deemed satisfied (to the extent any had not already been satisfied).

After 10 years following the Closing, the Sponsor agrees to forfeit any Unvested Shares which have not yet vested. Under the Sponsor Support Agreement, the Sponsor agreed not to transfer any Unvested Shares prior to the date such shares become vested.

Registration Rights Agreement

The Merger Agreement contemplates that, at the Closing, New Valo, Sponsor, certain former stockholders of Valo (the “Valo Stockholders”) and certain stockholders of KVSA, will enter into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which New Valo will agree to register for resale, pursuant to Rule 415 under the Securities Act, up to 195,268,702 shares of New Valo common stock and other equity securities of New Valo that are held by the parties thereto from time to time (including shares of New Valo common stock underlying New Valo Options and assuming New Valo issues zero shares of New Valo common stock to Sponsor (together with any permitted transferees under the Forward Purchase Agreement) pursuant to the Forward Purchase Agreement). Pursuant to the terms of the Registration Rights Agreement, the New Valo is required, upon receipt of a written request from certain parties thereto to prepare and file a registration statement with the SEC facilitating a shelf takedown. The Registration Rights Agreement also provides the parties certain piggy-back registration rights for the registrable securities they hold in the event the Company proposes to file certain registration statements with the SEC. The Registration Rights Agreement further provides that in the event a Holder desires to offer and/or sell registrable securities on a block trade or other coordinated offering wit the Company, the Company will use its reasonable best efforts to facilitate such trade.

The Registration Rights Agreement amends and restates the registration rights agreement that was entered into by KVSA, Sponsor and the other parties thereto in connection with KVSA’s initial public offering. The Registration Rights Agreement will terminate on the earlier of (a) the ten year anniversary of the date of the Registration Rights Agreement or (b) with respect to any Holder, on the date that such Holder no longer holds any Registrable Securities (as defined therein).

PIPE Subscription Agreements

In connection with the execution of the Merger Agreement, KVSA entered into a Subscription Agreement with the PIPE Investors, a copy of the form of which is attached to this proxy statement/prospectus as Annex H, pursuant to which the PIPE Investors agreed to purchase, in the aggregate, 20,086,250 shares of New Valo common stock at $10.00 per share for an aggregate commitment amount of $200,862,500. The obligation of the

 

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parties to consummate the purchase and sale of the shares covered by the Subscription Agreement is conditioned upon (i) there not being in force any injunction or order enjoining or prohibiting the issuance and sale of the shares covered by the Subscription Agreement, (ii) there not being any amendment or modification of the terms of the Merger Agreement in a manner that is adverse to the PIPE Investor (in its capacity as such), (iii) there not being any amendment or modification of any other subscription agreements (including via a side letter or other agreement) that materially benefits the others investors thereunder unless such PIPE Investor has been offered the same benefits, (iv) all representations and warranties of the parties thereto being true and correct as of the Closing Date (as defined in the Subscription Agreements), and each party having performed, satisfied and complied in all material respects with all covenants, conditions and agreements required by the Subscription Agreement to be performed, satisfied or complied with it at or prior to the Closing (as defined in the Subscription Agreements), and (v) the prior or substantially concurrent consummation of the transactions contemplated by the Merger Agreement. The closings under the Subscription Agreements will occur substantially concurrently with the Closing.

The Subscription Agreements provide that KVSA is required to file with the SEC, within 30 days after the Closing Date (as defined in the Subscription Agreements), a shelf registration statement covering the resale of the shares of New Valo common stock to be issued to any such third-party investor and to use its commercially reasonable efforts to have such registration statement declared effective as soon as practicable after the filing thereof but no later than the earlier of (i) the 90th day following the Closing Date (as defined in the Subscription Agreements) if the SEC notifies KVSA that it will “review” such registration statement and (ii) the fifth business day after the date KVSA is notified (orally or in writing, whichever is earlier) by the SEC that such registration statement will not be “reviewed” or will not be subject to further review.

The Subscription Agreements will terminate, and be of no further force and effect, upon the earlier to occur of (i) such date and time as the Merger Agreement is terminated in accordance with its terms, (ii) upon the mutual written agreement of KVSA and the applicable PIPE Investor, (iii) if the conditions set forth therein are not satisfied or are not capable of being satisfied prior to the Closing (as defined in the Subscription Agreements) and, as a result thereof, the transactions contemplated therein will not be or are not consummated at the Closing, and (iv) at the election of the applicable PIPE Investor, on or after the date that is 180 days after the date of the Subscription Agreements if the Closing has not occurred prior to such date.

Lock-up Agreements

The Support Agreements contemplate that, at the Closing, New Valo and the Valo Holdco Members will enter into a lock-up agreement (the “Valo Holders Lock-Up Agreement”), and New Valo and the Sponsor Holders will enter into a separate lock-up agreement (the “Sponsor Lock-Up Agreement”).

The Valo Holders Lock-Up Agreement contains certain restrictions on transfer with respect to shares of New Valo common stock held by the Valo Holdco Members immediately following the Closing (other than shares purchased in the public market or in the PIPE Investment) and the shares of New Valo common stock issuable to such persons upon settlement or exercise of stock options or other equity awards outstanding as of immediately following the Closing in respect of Valo Awards outstanding immediately prior to the Closing, in each case, subject to limited exceptions set forth in the Valo Holders Lock-Up Agreement (the “Valo Lock-up Shares”). Such restrictions begin at the Closing and end on the date that is 180 days after the Closing. If, after Closing, New Valo completes a transaction that results in a change of control, the Valo Lock-up Shares are released from restriction in connection with such change of control.

The Sponsor Lock-Up Agreement contains certain restrictions on transfer with respect to shares of New Valo common stock held by the Sponsor Holders immediately following the Closing (other than shares purchased in the public market, but including shares purchased in the PIPE Investment and pursuant to the Forward Purchase Agreement), subject to limited exceptions set forth in the Sponsor Lock-Up Agreement (the “Sponsor Lock-Up Shares”). Such restrictions begin at the Closing and end on the earlier to occur of (a) the one

 

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year anniversary of Closing and (b) following Closing, (i) the date on which the last reported sale price of New Valo common stock equals or exceeds $12.00 per share (as may be adjusted) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Closing or (ii) the date on which New Valo completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the holders of New Valo common stock having the right to exchange their shares of New Valo common stock for cash, securities or other property.

Forward Purchase Agreement

In connection with the closing of KVSA’s initial public offering, KVSA entered into a forward purchase agreement (the “Forward Purchase Agreement”) pursuant to which the Sponsor agreed to purchase, upon the closing of KVSA’s initial business combination, an aggregate of up to 2,500,000 shares of KVSA Class A common stock (the “forward-purchase shares”) for $10.00 per share, or an aggregate maximum amount of $25,000,000, if necessary to satisfy the Minimum Cash Condition. The Sponsor will purchase a number of forward-purchase shares that will result in gross proceeds to KVSA necessary to enable KVSA to consummate its initial business combination and pay related fees and expenses, after first applying amounts available to KVSA from the trust account (after paying the deferred underwriting discount and giving effect to any redemptions of public shares) and any other financing source obtained by KVSA for such purpose at or prior to the consummation of its initial business combination, plus any additional amounts mutually agreed by KVSA and the Sponsor to be retained by the post-business combination company for working capital or other purposes. The Sponsor’s obligation to purchase forward-purchase shares is, among other things, conditioned on the initial business combination being approved by a unanimous vote of the KVSA Board; the representations and warranties of KVSA set forth in the Forward Purchase Agreement being true and correct as of the closing of the forward purchase, except where the failure of such representations and warranties to be true and correct would not have a material adverse effect on KVSA or its ability to consummate the transactions contemplated by the Forward Purchase Agreement; KVSA complying in all material respects with its covenants set forth in the Forward Purchase Agreement and the absence of any order or determination of any governmental, regulatory or administrative authority or court, tribunal or judicial or arbitral body and any other legal restraint preventing the purchase by the Sponsor of the forward-purchase shares.

The Forward Purchase Agreement may be terminated at any time prior to the Forward Closing (as defined therein) (a) by mutual written consent of KVSA and the Sponsor, (b) automatically if the business combination is not consummated within 24 months from the closing of KVSA’s initial public offering, unless such time period is extended by an amendment to the Existing Charter, or (c) in the event of the Sponsor’s or KVSA’s insolvency or bankruptcy. Upon such termination, the purchase price for the forward-purchase shares (and interest thereon, if any), if previously paid, and all the Sponsor’s funds paid in connection with the Forward Purchase Agreement will be promptly returned to the Sponsor, and thereafter the Forward Purchase Agreement will become null and void and have no effect, without any liability on the part of the Sponsor or KVSA and their respective directors, officers, employees, partners, managers, members, or stockholders and all rights and obligations of each party will cease; provided, however, that the termination of the Forward Purchase Agreement will not relieve either party from liabilities or damages arising out of any fraud or willful breach by such party of any of its representations, warranties, covenants or agreements contained in the Forward Purchase Agreement.

Background to the Business Combination

KVSA is a blank check company incorporated in Delaware on January 15, 2021. KVSA was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination, with one or more businesses or entities. The Business Combination is the result of a search for a potential transaction using the network, investing and operating experience of the Sponsor, KVSA’s management team and the KVSA Board. The terms of the Business Combination are the result of arm’s-length negotiations between representatives of KVSA and representatives of the Valo Parties over the course of approximately three months. The following is a brief description of the background of the Business Combination and related transactions.

 

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On March 8, 2021, KVSA completed its initial public offering of 34,500,000 shares of KVSA Class A common stock, at $10.00 per share, including 4,500,000 shares sold pursuant to the full exercise of the underwriters’ over-allotment option, generating gross proceeds to KVSA of $345 million, and incurring offering costs of approximately $19.7 million, inclusive of approximately $12.1 million in deferred underwriting commissions. Substantially concurrently with the closing of the initial public offering, KVSA completed the private sale of 990,000 shares of KVSA Class A common stock, at a price of $10.00 per share, to the Sponsor, generating aggregate gross proceeds to KVSA of $9.9 million. Following the closing of the initial public offering, a total of $345 million of the net proceeds of the initial public offering and certain of the proceeds of the private placement was deposited into the trust account established for the benefit of KVSA’s public stockholders, and the remaining proceeds became available to be used to provide for business, legal and accounting due diligence on prospective business combinations and continuing general and administrative expenses. Prior to the consummation of the initial public offering, neither KVSA nor anyone on its behalf contacted any prospective target business or had any substantive discussions, formal or otherwise, with respect to a transaction with KVSA.

Following its initial public offering, KVSA commenced a search for prospective businesses and assets to acquire. Representatives of KVSA contacted, and were contacted by, a number of individuals and entities with respect to potential business combination opportunities. KVSA’s management team compiled a list of high priority potential targets and updated and supplemented such list from time to time. KVSA’s goal was to identify private, high-quality growth companies addressing large market opportunities with highly differentiated, proprietary technology. KVSA believes its management team and advisors have substantial expertise and background as investors in companies spanning a number of industries, including artificial intelligence and health, as well as a wide and active network of relationships in those industries. Because of this combination of strengths, KVSA was able to rapidly and efficiently evaluate a wide range of potential business combination targets to determine which ones met its transaction criteria.

In the process that led to identifying Valo Holdco as an attractive investment opportunity, KVSA evaluated more than 35 potential business combination targets and engaged with approximately ten of the potential targets. KVSA performed financial and industry due diligence and held meetings with the management teams of three of the potential targets (including Valo Holdco, as discussed below; such other potential targets, “Company A” and “Company B”). KVSA did not proceed to signing a letter of intent and exclusivity agreement with any of the potential targets other than Valo Holdco for various reasons, including KVSA’s concerns over valuation, strength of team, business model and/or products, capital needs or other reasons based on its diligence and significant historical experience evaluating investment opportunities.

On March 8, 2021, KVSA initiated contact with Company A to discuss the potential mutual benefits of pursuing a business combination. Between March 10, 2021 and March 27, 2021, the parties held a series of calls and in-person meetings and exchanged e-mails as part of KVSA’s diligence process.

On March 18, 2021, KVSA held a meeting of the KVSA Board via video teleconference. KVSA’s management team, representatives of Company A and representatives of Latham & Watkins LLP (“Latham”), legal counsel to KVSA, were also in attendance. Representatives of Company A presented to the KVSA Board about the business of Company A. After the Company A representatives left the meeting, the members of the KVSA Board, KVSA’s management and the representatives of Latham engaged in a discussion about KVSA establishing a special committee of independent directors in connection with KVSA’s evaluation of a potential business combination with Company A. The KVSA Board determined it was advisable to establish a special committee. Following further discussion among the members of the KVSA Board, KVSA’s management and representatives of Latham and an independence analysis conducted by Latham, on March 26, 2021 the KVSA Board formed a special committee of independent directors to review, evaluate and negotiate (i) any potential business combination transactions involving any business that may be affiliated with the Sponsor or KVSA’s officers or directors and (ii) any alternative transactions while any such potential affiliated transactions are being actively considered by KVSA.

 

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The discussions between KVSA and Company A gradually diminished, however, primarily as a result of KVSA’s concerns about Company A’s readiness to execute on a business combination transaction.

On March 10, 2021, KVSA initiated contact with Company B to discuss the potential mutual benefits of pursuing a business combination. Between March 10, 2021 and March 23, 2021, the parties held a series of calls and exchanged e-mails as part of KVSA’s diligence process. The discussions between the two parties discontinued, however, primarily as a result of KVSA’s preference to focus its efforts on pursuing a combination with another company.

Samir Kaul, Chief Executive Officer and Director of KVSA is acquainted with David Berry, MD, Ph.D., Chief Executive Officer of Valo Holdco. On March 8, 2021, Mr. Kaul reached out to Dr. Berry via e-mail to gauge Valo Holdco’s interest in exploring the merits of a potential business combination transaction between Valo Holdco and KVSA.

On March 11, 2021, Mr. Kaul and Dr. Berry had an initial meeting via teleconference to discuss a potential business combination transaction between Valo Holdco and KVSA.

On March 18, 2021, KVSA and Valo Holdco executed a mutual non-disclosure agreement. After the non-disclosure agreement was executed, Mr. Kaul, Alex Morgan, MD, Ph.D., Partner at Khosla Ventures and Justin Kao, Partner at Khosla Ventures held a meeting via video teleconference with Dr. Berry and Graeme Bell, Chief Financial Officer of Valo Holdco, to conduct an initial detailed business diligence review of the Valo Parties and its business operations.

Between March 18, 2021 and March 23, 2021, Mr. Kaul and Dr. Berry had multiple discussions regarding the valuation of the Valo Parties. During such discussions, Dr. Berry shared information prepared by the Valo Parties regarding its pipeline of product candidates, including potential future value inflection points for the business based on Valo management’s goals relating to the development and commercialization milestones for such candidates discussed further under “Information About Valo.”

Throughout March 2021, representatives of KVSA had multiple telephone conversations and e-mail exchanges with representatives of the Valo Parties to conduct business and financial due diligence, including several diligence meetings focused on the Valo Parties’ lead clinical programs, and the Valo Parties continued to provide information to KVSA regarding Valo Holdco and its subsidiaries and their collective business operations.

On March 29, 2021, KVSA held a meeting of the KVSA Board via video teleconference. KVSA’s management team and representatives of Latham were also in attendance. During the meeting, KVSA’s management provided an overview of the business and financial diligence analysis of the Valo Parties undertaken by KVSA management and certain subject-matter experts consulted by management. KVSA management then presented their initial business and financial diligence findings on the Valo Parties, including findings with respect to the Valo Parties lead development programs. The KVSA Board asked questions during management’s presentation, and reviewed and discussed next steps.

On March 30, 2021, KVSA held a meeting of the special committee of independent directors of KVSA via teleconference. During the meeting, the independent directors expressed their support of the potential business combination being discussed with Valo Holdco and determined it was advisable to proceed with the negotiation of a potential transaction with Valo Holdco and, after considering and discussing any potential conflicts of interest, refer the evaluation and consideration of such transaction to the entire KVSA Board.

Later on March 30, 2021, Samir Kaul in his capacity as Chief Executive Officer of KVSA e-mailed to David Berry, MD, Ph.D. in his capacity as Chief Executive Officer of Valo Holdco, an initial draft non-binding letter of intent, which included, subject to further due diligence, an initial pre-transaction equity value for Valo of

 

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$2.0 billion. The initial draft non-binding letter of intent contemplated that the total consideration payable to Valo Holdco’s equity holders (including holders of equity awards and other exchangeable and convertible securities which would be converted into equivalent securities of New Valo) would be $2.0 billion and in the form of shares of common stock or equivalent securities of New Valo valued at $10.00 per share. The initial letter of intent also contemplated the creation of a customary post-closing equity incentive plan by New Valo, a PIPE Investment of $150 million and a one-month exclusivity period. The $2.0 billion equity value was based on KVSA management’s analysis of certain preliminary due diligence, KVSA management’s further analysis of the Valo Parties’ business model and technology, including a detailed analysis of the Opal platform and Valo’s goal of developing its product candidates more efficiently than current industry standards, a detailed analysis of the Valo Parties’ clinical assets and related market sizes informed by the due diligence meetings focused on the Valo Parties’ lead clinical programs described above, other materials provided by Valo Holdco’s management and an analysis of the valuation of comparable companies in certain industries, including companies developing artificial intelligence platforms for drug discovery and development as described further below under “—Summary of KVSA Financial Analysis.” In formulating its own valuation of Valo Holdco and, in particular, assessing the potential downside risk of the proposed transaction, KVSA management considered the product candidate pipeline information provided by management of Valo Holdco described above. KVSA’s management completed an independent analysis to assess the potential value creation of the Valo Parties’ three lead clinical programs, disregarding the potential value in the Valo Parties’ discovery programs and the underlying Opal platform.

Following the submission of the initial draft non-binding letter of intent, numerous meetings via teleconference were held and e-mails were exchanged among representatives of KVSA and Valo Holdco, to discuss, among other things, Valo Holdco’s feedback on the initial draft non-binding letter of intent.

On April 2, 2021, representatives of Valo Holdco e-mailed to representatives of KVSA a counterproposal on certain key terms of the potential transaction. Valo Holdco’s counterproposal included a pre-transaction equity value ascribed to Valo Holdco’s vested equity of $2.2 billion. Valo Holdco’s counterproposal contemplated that the total consideration payable to Valo Holdco’s holders of vested equity would be equal to the pre-transaction equity value, adjusted upwards by the amount of net cash of Valo Holdco as of the date of signing the definitive agreement, and that unvested equity awards and other exercisable or convertible securities of Valo Holdco would convert into corresponding equity of New Valo. Valo Holdco’s counterproposal also contemplated that all of the outstanding shares of Class B common stock and Class K common stock would convert into a fixed number of New Valo common stock on closing and the holders of such shares would waive any anti-dilution adjustment to the conversion ratio of such shares, with the converted Class K common stock remaining subject to vesting conditions in accordance with their existing terms. KVSA’s proposal to target a PIPE Investment of $150 million in the aggregate was generally acceptable to Valo Holdco.

After further discussions between representatives of KVSA and Valo, on April 3, 2021, KVSA e-mailed to Valo a revised draft of the non-binding letter of intent. From April 3, 2021 through April 5, 2021, various discussions were held between the parties around the terms of the proposed transaction and multiple drafts of the non-binding letter of intent were exchanged.

On April 6, 2021, KVSA held a meeting of the KVSA Board via video teleconference. KVSA’s management team, representatives of Valo Holdco and representatives of Latham were also in attendance. Mr. Kaul informed the participants that the purpose of the meeting was for the representatives of Valo Holdco to give a presentation to the KVSA Board in connection with its consideration of executing a non-binding letter of intent with Valo Holdco in respect of a potential business combination, the terms of which were being finalized between the parties. During the meeting, Dr. Berry presented an overview of the Valo business. The KVSA Board asked questions throughout the presentation.

On April 9, 2021, representatives of Goodwin Procter LLP (“Goodwin”), legal counsel to the Valo Parties e-mailed to Latham, a proposed final form of the non-binding letter of intent as a result of the negotiations

 

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between the parties. After reviewing the terms of the proposed final form of the non-binding letter of intent (including comparisons with KVSA’s initial draft non-binding letter of intent and Valo management’s initial counterproposal), effective as of April 9, 2021, Peter Buckland, in his capacity of Chief Financial Officer of KVSA, on behalf of KVSA, and Dr. Berry, on behalf of Valo Holdco, executed the agreed final version of the non-binding letter of intent (the “LOI”) regarding a potential business combination transaction (subject to due diligence and negotiation of definitive agreements) involving KVSA and Valo Holdco. The LOI provided for the following terms, among others:

 

  

KVSA would acquire all of the outstanding equity interests in Valo Holdco (including equity awards and other exercisable and convertible securities) by reverse triangular merger (or similar structure mutually agreed by the parties);

 

  

the parties agreed to a pre-transaction equity value for Valo of $2.25 billion (including vested and unvested equity awards and other exercisable or convertible securities of Valo Holdco), with no adjustment for Valo’s cash, debt, working capital, non-cash assets or non-debt liabilities;

 

  

total merger consideration would consist of 225,000,000 newly-issued shares of New Valo common stock, reduced for the shares underlying outstanding equity awards of KVSA that would be issued in exchange for all outstanding equity awards of Valo Holdco, valued at $10.00 per share;

 

  

KVSA would adopt (i) an equity incentive plan for incentive equity issuances after closing with an unallocated reserve equal to 10% of New Valo’s post-closing outstanding capital stock on an as-converted basis and a 4% “evergreen” provision and (ii) a post-closing employee share purchase plan with an unallocated reserve equal to 2% of New Valo’s post-closing outstanding capital stock on an as-converted basis and a 1% “evergreen” provision;

 

  

KVSA would raise no less than $150 million through the PIPE Investment, which would be committed upon signing of the definitive agreement in respect of the transaction;

 

  

(i) Mr. Kaul would serve as a director on the New Valo board of directors as designated by the Sponsor, (ii) Valo Holdco would designate the remaining directors, including independent directors as are required to comply with stock exchange and other regulatory requirements and (iii) the New Valo management team would consist of the current Valo Holdco management team;

 

  

the definitive transaction agreement would include a customary closing condition (benefiting Valo Holdco only) that KVSA have at least $450 million in cash and cash equivalents at closing after giving effect to all stockholder redemptions and to funds raised from the PIPE Investment and pursuant to the Forward Purchase Agreement (if any);

 

  

on closing, all of the outstanding shares of KVSA Class B common stock and KVSA Class K common stock would convert into a fixed number of shares of New Valo common stock, with the shares received on conversion of the KVSA Class K common stock remaining subject to the vesting conditions of the KVSA Class K common stock provided for under the Existing Charter, and the holders of such shares would waive any anti-dilution adjustment to the conversion ratio of such shares provided for under the Existing Charter; and

 

  

each of KVSA and Valo Holdco would be subject to an exclusivity period from the date of the LOI until the earlier of (i) 5:00 p.m. Pacific Time, on April 30, 2021 (which would be automatically extended to May 15, 2021 if as of April 30, 2021 the parties are continuing in good faith to negotiate the definitive agreements with respect to the proposed transaction) and (ii) the date, if any, on which KVSA and Valo Holdco enter into a definitive agreement with respect to the proposed transaction. During the exclusivity period, each party agreed that it would not, directly or indirectly, through any representative or otherwise, solicit offers from, negotiate with, encourage, discuss, accept, or consider any proposal of any other person relating to a business combination transaction and Valo Holdco would not furnish any material non-public information concerning Valo Holdco or its assets or business, or afford access to such information, to any other person for the purpose of assisting with or facilitating any such alternative transaction.

 

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After careful consideration of the Valo Parties’ clinical pipeline and valuations of comparable companies described in further detail under “—Summary of KVSA Financial Analysis” below, KVSA determined that the $2.25 billion pre-transaction equity value was a reasonable and appropriate equity value.

On April 13, 2021, representatives of Latham, on behalf of KVSA, and representatives of Goodwin, on behalf of Valo Holdco, held a telephone conference call to discuss certain process matters regarding the preparation of definitive transaction documents, legal due diligence, the PIPE Investment and related work streams, including the anticipated timeline discussed by the parties in connection with the execution of the LOI, which contemplated that signing and announcement of the proposed transaction would occur by the end of April 2021.

On April 14, 2021, representatives of Latham, the KVSA board and KVSA management were provided with access to a virtual data room of the Valo Parties. Latham and KVSA management began conducting legal and business due diligence review of certain of the materials contained therein, including information and documents relating to: governance matters (including the organizational documents of the Valo Parties and board minutes), related party arrangements, third party arrangements with suppliers, intellectual property owned or used by the Valo Parties, real property, historical acquisitions, credit facilities, employee compensation and benefits, labor and employment matters, environmental matters, data licensing agreements and regulatory and compliance matters.

On April 14, 2021, representatives of J.P. Morgan’s M&A Advisory Group, as financial advisor to Valo Holdco and J.P. Morgan’s Capital Markets Group, as KVSA’s proposed placement agent for the PIPE Investment, Latham, on behalf of KVSA and Goodwin, on behalf of the Valo Parties, held a “kick-off” telephone conference call to discuss certain process matters regarding the PIPE Investment and related work streams.

On April 15, 2021, certain members of Valo Holdco management and representatives of Goodwin held a legal due diligence meeting via video teleconference with representatives of Latham to provide an overview of the materials in the virtual data room.

On April 19, 2021, representatives of Latham, on behalf of KVSA, held legal due diligence meetings via video teleconference with representatives of Goodwin and members of Valo Holdco’s management team, on behalf of the Valo Parties, covering Latham’s initial due diligence questions relating to intellectual property, privacy, cybersecurity, health and regulatory matters, after an initial review of the materials provided in the data room.

On April 19, 2021, representatives of Latham, on behalf of KVSA, representatives of Goodwin, on behalf of the Valo Parties, members of KVSA’s and Valo Holdco’s management, representatives of J.P. Morgan’s Capital Markets Group, as KVSA’s proposed sole placement agent for the PIPE Investment and representatives of Cooley LLP (“Cooley”), legal counsel to the placement agent, held a series of legal, business and financial due diligence meetings in connection with the PIPE Investment. A due diligence call with the former auditors of KVSA was also held on April 19, 2021.

During the following five weeks, representatives of Latham, on behalf of KVSA, and representatives of Goodwin and Valo Holdco management, as applicable, on behalf of the Valo Parties, had extensive additional conversations and e-mail exchanges regarding follow-up questions and requests arising from matters discussed during the legal due diligence calls, and other matters arising over the course of Latham’s review of the Valo Parties’ written responses to its supplemental due diligence requests and the other due diligence materials provided in the virtual data room or via e-mail. During such period, KVSA management conducted bring-down business and financial diligence to confirm there had been no material changes to the Valo Parties’ business, product pipeline and the assumptions underlying KVSA’s valuation analysis, as described further under “—Summary of KVSA Financial Analysis” below, and provided regular updates to the KVSA board.

 

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On April 23, 2021, representatives of Latham, on behalf of KVSA, e-mailed to representatives of Cooley, on behalf of the placement agent, an initial draft form of Subscription Agreement to be entered into between KVSA and each PIPE Investor, pursuant to which such PIPE Investor would agree to purchase shares of New Valo common stock at $10.00 per share, and each such purchase would be consummated substantially concurrently with the closing of the Merger, subject to the terms and conditions set forth therein. On April 25, 2021, representatives of Cooley, on behalf of the placement agent, provided comments to the initial draft of the Subscription Agreement by e-mail to representatives of Goodwin, on behalf of the Valo Parties, and to representatives of Latham, on behalf of KVSA.

On April 25, 2021, KVSA formally engaged J.P. Morgan’s Capital Markets Group as its placement agent in connection with the PIPE Investment pursuant to an engagement letter, effective as of March 19, 2021.

On April 27, 2021, the virtual data room for the PIPE Investors was opened for access.

Beginning on April 26, 2021, representatives of J.P. Morgan’s Capital Markets Group began contacting a limited number of potential PIPE Investors, each of whom agreed to maintain the confidentiality of the information received pursuant to customary non-disclosure agreements, to discuss the Valo Parties, the proposed business combination and the PIPE Investment and to determine such investors’ potential interest in participating in the PIPE Investment. During the weeks of April 26, 2021, May 3, 2021, May 10, 2021, May 17, 2021 and May 24, 2021, representatives of KVSA and the Valo Parties and J.P. Morgan (in its capacity as KVSA’s placement agent) participated in various virtual meetings with prospective participants in the PIPE Investment.

Following negotiations among Latham, on behalf of KVSA, Goodwin, on behalf of the Valo Parties, and Cooley, on behalf of the placement agent, on May 18, 2021, representatives of Cooley e-mailed to representatives of J.P. Morgan’s Capital Markets Group a form of the Subscription Agreement agreed by KVSA, the Valo Parties and the placement agent, and J.P. Morgan’s Capital Markets Group provided such form of Subscription Agreement to the prospective PIPE Investors. During the following two weeks, various prospective PIPE Investors provided comments to the form of Subscription Agreement. After taking into account comments from the prospective PIPE Investors and discussing such comments with representatives of Goodwin, on behalf of the Valo Parties, and Cooley, on behalf of the placement agent, on June 3, 2021, representatives of Latham, on behalf of KVSA, e-mailed to representatives of J.P. Morgan’s Capital Markets Group an updated form of the Subscription Agreement agreed by KVSA, the Valo Parties and the placement agent, and J.P. Morgan’s Capital Markets Group provided such updated form of Subscription Agreement to the prospective PIPE Investors. A few terms of the forms of Subscription Agreement were further negotiated between the representatives of Latham, Goodwin and Cooley, on behalf of their respective clients, and certain PIPE Investors, including by their respective advisors, before the execution of the Subscription Agreements by such PIPE Investors on June 9, 2021. See “— Related Agreements — Subscription Agreements” for additional information.

On April 26, 2021, representatives of Latham, on behalf of KVSA, e-mailed to representatives of Goodwin, on behalf of the Valo Parties, an initial draft of the Merger Agreement based on the terms of the LOI. The final documentation, including with respect to restrictions on the conduct of the Valo Parties’ business between signing and closing, obligations of the parties with respect to delivery of required approvals and preparation and submission of required filings, the ability of the KVSA Board to modify its recommendation to stockholders to vote in favor of the Business Combination in order to comply with its fiduciary duties, certain conditions to closing and termination rights of the parties, and certain other terms and conditions, the details of which were not fully addressed in the LOI, required additional negotiation by the parties. Over the course of the following six weeks, the parties negotiated the terms of the Merger Agreement, exchanging multiple drafts before an agreed final version of the Merger Agreement was executed by the parties thereto on June 9, 2021. See “— The Merger Agreement” for additional information.

On May 17, 2021, representatives of Latham, on behalf of KVSA, e-mailed to representatives of Goodwin, on behalf of the Valo Parties, initial drafts of the Sponsor Support Agreement and Member Support Agreement,

 

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pursuant to which, among other things, each of the Sponsor and the directors and officers of KVSA and certain major equityholders and the directors and officers of Valo Holdco, would agree to, among other things, vote in favor of the Merger Agreement and the transactions contemplated thereby. During the following three weeks, the parties negotiated the terms of the Sponsor Support Agreement and the Member Support Agreement, exchanging multiple drafts before agreed final versions of such agreements were executed by the parties thereto on June 9, 2021. See “— Related Agreements — Sponsor Support Agreement” and “ Member Support Agreement” for additional information.

On May 24, 2021, representatives of Goodwin, on behalf of the Valo Parties, e-mailed to representatives of Latham, on behalf of KVSA, initial draft forms of the Proposed Charter and Proposed Bylaws. Prior to the execution of the Merger Agreement on June 9, 2021, the parties negotiated the terms of these documents and multiple drafts thereof were exchanged. The agreed final forms of these documents were attached as exhibits to the Merger Agreement. See “Charter Proposal” for additional information.

On May 25, 2021, KVSA and Valo Holdco entered into a letter agreement pursuant to which the parties agreed to extend the exclusivity period under the LOI until June 4, 2021.

On May 27, 2021, representatives of Goodwin, on behalf of the Valo Parties, e-mailed to representatives of Latham, on behalf of KVSA, an initial draft of the form of Amended and Restated Registration Rights Agreement based on the terms of the LOI, as updated by subsequent discussions, pursuant to which, among other things, New Valo would agree to register for resale, pursuant to Rule 415 under the Securities Act, certain equity securities of New Valo that are held by the parties thereto from time to time. Prior to the execution of the Merger Agreement on June 9, 2021, the parties negotiated the terms of the Amended and Restated Registration Rights Agreement and multiple drafts thereof were exchanged. The agreed final form of the Amended and Restated Registration Rights Agreement was attached as an exhibit to the Merger Agreement. See “— Related Agreements — Registration Rights Agreement” for additional information.

On May 29, 2021, representatives of Latham, on behalf of KVSA, e-mailed to representatives of Goodwin, on behalf of the Valo Parties, an initial draft of the Sponsor Vesting Agreement, pursuant to which the parties thereto would agree to, among other things, certain vesting terms with respect to the shares of New Valo common stock issuable on the conversion of the Class K common stock owned by the Sponsor as of the closing, which vesting terms are substantially the same as those set forth in the Existing Charter. Over the next week, the parties negotiated the terms of the Sponsor Vesting Agreement, exchanging multiple drafts before an agreed final version of the Sponsor Vesting Agreement was executed by the parties thereto on June 9, 2021. See “— Related Agreements — Sponsor Vesting Agreement” for additional information.

On June 1, 2021, representatives of Goodwin, on behalf of the Valo Parties, e-mailed to representatives of Latham, on behalf of KVSA, initial draft forms of the 2021 Plan and the ESPP, based on the terms of the LOI, as updated by subsequent discussions. Prior to the execution of the Merger Agreement on June 9, 2021, the parties negotiated the terms of these documents and multiple drafts thereof were exchanged. The agreed final forms of these documents were attached as exhibits to the Merger Agreement. See “Incentive Award Plan Proposal” and “ESPP Proposal” for additional information.

On June 6, 2021, representatives of Goodwin, on behalf of the Valo Parties, e-mailed to representatives of Latham, on behalf of KVSA, an initial draft of the form of Valo Holders Lock-Up Agreement. Over the next 48 hours, the parties negotiated the terms of the Valo Holders Lock-Up Agreement. On June 8, 2021, representatives of Goodwin, on behalf of the Valo Parties, e-mailed to representatives of Latham, on behalf of KVSA, an initial draft of the form of Sponsor Lock-Up Agreement. Over the next 24 hours, the parties negotiated the terms of the Sponsor Lock-Up Agreement. The agreed final forms of these documents were attached as an exhibit to the applicable Support Agreement. See “— Related Agreements — Lock-up Agreements” for additional information.

On June 7, 2021, KVSA held a meeting of the KVSA Board via video teleconference. Representatives from Latham were also in attendance. During the meeting, Mr. Kaul updated the KVSA Board regarding the status of

 

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the proposed transaction with the Valo Parties, including the PIPE Investment, and discussed key considerations related to the proposed transaction (including the rationale for the combined business). Representatives of Latham provided an overview of its legal due diligence findings. Representatives of Latham then gave a presentation to the KVSA Board on the directors’ fiduciary duties under Delaware law and summarized the key terms of the Merger Agreement and ancillary transaction documents (copies of all of which were provided to all of the members of the KVSA Board in advance of the meeting). During the presentation, the KVSA Board asked, and the advisors answered, questions about the matters presented. The KVSA Board, with the assistance of Latham, reviewed and discussed the proposed business combination, including the Valo Parties as the proposed business combination target, the total merger consideration based on the equity valuation of $2.25 billion, the terms and conditions of the Merger Agreement and the key ancillary agreements, the potential benefits of, and risks relating to, the proposed business combination, and the reasons for entering into the Merger Agreement. See “— The KVSA Board’s Reasons for the Business Combination” for additional information related to the factors considered by the KVSA Board in approving the Business Combination. Following this discussion, the full KVSA Board unanimously expressed support of the Business Combination and recommended that the stockholders of KVSA approve the Business Combination.

On June 8, 2021, KVSA held a meeting of the KVSA Board via video teleconference attended by all but one director and where quorum was present. Representatives from Latham were also in attendance. Prior to the meeting, representatives of Latham recirculated copies of the Merger Agreement and ancillary transaction documents to all of the members of the KVSA Board, together with comparisons against the versions circulated to the KVSA Board on June 7, 2021 showing non-substantive revisions. During the meeting, Mr. Kaul and representatives of Latham confirmed that there had been no changes to the matters discussed during the meeting held on June 7, 2021. Following discussion, the KVSA Board members present unanimously approved and adopted the Merger Agreement and declared it advisable, fair to and in the best interests of KVSA and its stockholders, and further approved the Merger and the other transactions contemplated by the Merger Agreement and the entry into the Merger Agreement and the documents contemplated thereby.

On June 9, 2021, prior to the open of the U.S. stock markets, KVSA, the Valo Parties and Merger Sub executed the Merger Agreement. Concurrent with the execution of the Merger Agreement, KVSA also entered into the Sponsor Vesting Agreement, the Sponsor Support Agreement, and the Subscription Agreements, in each case, with the applicable other parties thereto. See “— Related Agreements” for additional information.

On June 9, 2021, KVSA and Valo Holdco issued a joint press release announcing the execution of the Merger Agreement, which was filed as an exhibit to a Current Report on Form 8-K along with an investor presentation and NetRoadshow transcript prepared by members of KVSA’s and the Valo Parties’ management teams regarding the Valo Parties and the Business Combination, the executed Merger Agreement, the executed Sponsor Vesting Agreement, the executed Sponsor Support Agreement, the executed Member Support Agreement and the form of Subscription Agreement.

The KVSA Board’s Reasons for the Business Combination

The KVSA Board, in evaluating the Business Combination, consulted with the Sponsor, KVSA’s management and its legal and other advisors. In reaching its conclusion (i) that the terms and conditions of the Merger Agreement and the transactions contemplated thereby are advisable, fair to and in the best interests of KVSA and its stockholders and (ii) to recommend that the stockholders adopt the Merger Agreement and approve the Business Combination, the KVSA Board considered and evaluated a number of factors, including, but not limited to, the factors discussed below. In light of the number and wide variety of factors considered in connection with its evaluation of the Business Combination, the KVSA Board did not consider it practicable to, and did not attempt to, quantify or otherwise assign relative weights to the specific factors that it considered in reaching its determination and supporting its decision. The KVSA Board viewed its decision as being based on all of the information available and the factors presented to and considered by it. In addition, individual directors may have given different weight to different factors. This explanation of KVSA’s reasons for the Business

 

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Combination and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Note Regarding Forward-Looking Statements.”

In evaluating the Business Combination, the KVSA Board and management considered (i) the general criteria and guidelines that KVSA believed would be important in evaluating prospective target businesses as described in the prospectus for KVSA’s initial public offering and (ii) that they could enter into a business combination with a target business that does not meet those criteria and guidelines. In the prospectus for its initial public offering, KVSA stated that it intended to seek a business combination with a business:

 

  

addressing a large market that creates the opportunity for attractive long-term growth prospects;

 

  

protected by proprietary technology advantages;

 

  

that has achieved sufficient technology and business maturity while maintaining significant topline growth potential;

 

  

with a creative and ambitious management team with a proven track record of success;

 

  

pursuing significant technology innovation that has the potential to have a significant positive impact on the world;

 

  

with rapid innovation cycles;

 

  

that maintains strong and defensible competitive advantages, which KVSA believes over time will lead to durable and profitable growth; and

 

  

where KVSA can materially impact the value of the company in partnership with management.

The KVSA Board determined that the Business Combination was an attractive business opportunity that met the vast majority of the criteria and guidelines above. The KVSA Board considered a number of additional factors pertaining to the Business Combination as generally supporting its decision to enter into the Merger Agreement and the transactions contemplated thereby, including but not limited to, the following material factors:

 

  

Promising pipeline of product candidates. The Valo Parties have two clinical stage candidates. OPL-0301, is a small molecule, G-protein biased S1P1R functional agonist in development for the treatment of heart failure and kidney injury. The Valo Parties expect to file an IND (and filed such IND in September 2021) and initiate a Phase 2 clinical trial in heart failure in 2021 and thereafter initiate a Phase 2 clinical trial in acute kidney injury. OPL-0401, is an oral, small molecule ROCK1/2 inhibitor in development for the treatment of diabetic retinopathy and other complications of diabetes. The Valo Parties expect to initiate a Phase 2 clinical trial in diabetic retinopathy in 2022. With the foregoing in-licensed clinical stage assets addressing widespread medical conditions and 14 preclinical programs across cardiovascular metabolic renal, oncology, and neurodegenerative diseases, the KVSA Board believes that the Valo Parties are advancing a promising product pipeline.

 

  

Scalable, differentiated technology platform. Although the KVSA Board acknowledges that the most advanced internally developed programs from Valo Health’s platform are currently in molecule discovery, the KVSA Board believes that the Valo Parties’ proposed use of artificial intelligence across its programs, from target discovery and therapeutic development, to clinical development, trial design, and patient care if their products are approved, both gives the Valo Parties potentially significant advantages over companies that have largely focused artificial intelligence on trying to improve single points of the therapeutic pipeline. In addition, the KVSA Board believes that the Valo Parties’ core platform technology has the potential to be scalable and repeatable across diseases and therapeutic areas, although this has not yet been demonstrated in clinical development.

 

  

Extensive, high-quality patient data sources provide significant competitive advantages. The Valo Parties have a vision to become the first digitally-native fully-integrated biopharmaceutical company,

 

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utilizing its Opal computational platform, which is designed to use human data and artificial intelligence as the foundation for drug discovery and development. To that end, the Valo Parties have access to over 125 million patient-years of de-identified patient data generated by third parties and exclusive access to one of the largest prospective studies spanning pan-omics, imaging and medical records. In addition, the Valo Parties generate their own data through every experiment that they run. The KVSA Board believes that the scale and quality of the Valo Parties’ sourced data lake, together with its internally-generated proprietary datasets, provides significant advantages over competitors focused on traditional drug development processes.

 

  

Experienced, proven and committed management team. The KVSA Board considered the fact that New Valo will be led by the senior management team of the Valo Parties. Valo’s Chief Executive Officer, David Berry, MD, Ph.D. has co-founded more than 20 companies across the life sciences and sustainability sectors. Dr. Berry has assembled a team of experts in technology development and therapeutic research and development. The KVSA Board also believes that the willingness of the Valo Parties’ management team to roll over all of their equity stake and agree to prohibitions on the transfer of their New Valo equity for up to 180 days following the consummation of the Business Combination reflected management’s belief in and commitment to New Valo’s continued growth following the consummation of the Business Combination.

 

  

Backed by strong investor syndicate. Valo was founded by Flagship Pioneering and its existing investors also include Koch Disruptive Technologies and the Public Sector Pension Investment Board, all of which have committed to invest further in New Valo through the PIPE Investment. Flagship Pioneering has deep domain expertise along with a successful track record of conceiving, creating, resourcing and developing first-in-category bioplatform companies. The KVSA Board believes these investors provide additional validation to the Valo Parties’ business strategies, innovation and high-growth potential.

 

  

Financial analysis conducted by KVSA. The financial analysis conducted by KVSA’s management team and reviewed by the KVSA Board supported the equity valuation of the Valo Parties. See “—Summary of KVSA Financial Analysis.”

 

  

Other alternatives. The KVSA Board believes, after a review of other business combination opportunities reasonably available to KVSA, that the Business Combination represents the best initial business combination for KVSA and the most attractive opportunity for KVSA’s management to accelerate its business plan based upon the process used to evaluate and assess other potential acquisition targets, and the KVSA Board’s belief that such process has not presented a better alternative.

 

  

Negotiated transaction. The financial and other terms of the Merger Agreement and the fact that such terms and conditions are reasonable and were the product of arm’s length negotiations between KVSA and the Valo Parties.

The KVSA Board also considered a variety of uncertainties and risks and other potentially negative factors concerning the Business Combination, including, but not limited to, the following: