On November 25, 2023 (the "Effective Date"), Personalis, Inc. (the "Company") and Tempus Labs, Inc. ("Tempus") reported to have entered into a Commercialization and Reference Laboratory Agreement (the "Tempus Agreement") pursuant to which Tempus will market the Company’s NeXT Personal Dx assay (the "Assay") in the United States and the Company will conduct development activities to validate the Assay in breast cancer, lung cancer and immuno-oncology monitoring indications (the "Indications") (Filing, 8-K, Personalis, NOV 25, 2023, View Source [SID1234638011]). The term of the Tempus Agreement is five years from the Effective Date, which may be extended for successive one-year renewal terms upon the parties’ mutual agreement (the "Term").

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Tempus will use commercially reasonable efforts to market and promote the Assay in the same or substantially same manner that it markets and promotes its own tests. The Company will use commercially reasonable efforts to validate the Assay in the Indications and to generate evidence to seek reimbursement from payors in each such Indication. The Company will perform tests using the Assay ordered by customers through Tempus and will bill such customers or payors for the performance of such tests. The Company granted to Tempus a license to certain intellectual property of the Company necessary for Tempus to perform the Assay, which license is exercisable by Tempus upon certain failures by the Company to perform tests using the Assay ordered under the Tempus Agreement, subject to certain limitations.

In consideration of the Company performing such development activities, Tempus will pay to the Company fees of up to $12,000,000 in the aggregate (the "Market Development Fee"), consisting of an activation fee of $3,000,000 (the "Activation Fee"), a first milestone fee of $3,000,000 (upon achievement of a specified clinical validation milestone), and a second milestone fee payable in six quarterly installments totaling $6,000,000 (subject to the Company achieving certain specified additional clinical validation milestones (collectively, the "Second Milestone")). If the Company does not achieve the Second Milestone by a specified date, Tempus may withhold such installment payments until the Company achieves such Second Milestone, and Tempus will have the right to terminate the Tempus Agreement or convert it to a non-exclusive arrangement; upon any such termination or conversion, the Company will refund to Tempus any Market Development Fee other than the Activation Fee paid to Tempus as of the date of such termination or conversion, subject to certain reductions. If the Company is unable to offer the Assay for use in any Indication in accordance with a schedule set forth in the Tempus Agreement, the Company will refund to Tempus any Market Development Fee other than the Activation Fee paid to Tempus as of the date of such failure to meet such schedule and subject to certain reductions.

From the Effective Date through a specified period for each Indication, the Company will not allow any third party (other than an acquiror of the Company or any affiliates of such acquiror) to market the Assay in such Indication and Tempus will not market another tumor-informed molecular residual disease assay indicated for use in such Indication (whether its own or that of a third party), in each case subject to certain exceptions. Such exclusivity obligations terminate on December 31, 2027 to the extent they do not expire earlier. In addition, each party has the right to convert the Tempus Agreement to a non-exclusive arrangement upon the occurrence of certain specified events.

The Company will compensate Tempus for the fair market value of order requisition and results delivery services rendered with respect to tests using the Assay ordered under the Tempus Agreement on a per-test basis. In addition, the parties will perform certain co-promotion activities with respect to Personalis’ reference laboratory services and Personalis will compensate Tempus for the fair market value of promotional and commercialization services provided by Tempus in connection therewith in an amount up to $9,600,000.

The Tempus Agreement also grants Tempus access to certain initial and longitudinal genomic data derived from performance of the Assay and Tempus will have the right to use such data in accordance with applicable laws. If Tempus or its affiliate licenses such data to a third party and Tempus recognizes revenue from such license, Tempus will pay to the Company a percentage of its gross revenue received that is attributable to such license in the range of 10 to 20 percent. Such revenue share shall be payable during the Term and for 10 years thereafter.

Additionally, in consideration of Tempus’ obligations to the Company under the Tempus Agreement, on November 28, 2023, the Company issued to Tempus (1) a warrant to purchase up to 4,609,400 shares of the Company’s common stock (the "Common Stock") at an exercise price per share of $1.50, with an expiration date of December 31, 2024 (the "First Warrant"), and (2) a warrant to purchase up to 4,609,400 shares of Common Stock at an exercise price per share of $2.50, with an expiration date of December 31, 2025 (the "Second Warrant" and, together with the First Warrant, the "Warrants"). The Warrants are exercisable for cash at any time prior to the applicable expiration date, may be net exercised in certain circumstances, and will be automatically net exercised in connection with a change of control of the Company if the value ascribed to the consideration to be paid for one share of Common Stock in such change of control is greater than the applicable exercise price. The number of shares issuable upon exercise of the Warrants and the exercise prices of the Warrants are subject to adjustment by reason of stock dividends, splits, recapitalizations, reclassifications and the like. If Tempus acquires any shares of Common Stock directly from the Company other than by exercising the Warrants (any such shares, "Non-Warrant Shares"), then the total number of shares issuable upon exercise of the Warrants will be reduced by the Non-Warrant Shares on a share-for-share basis, proportionally between the First Warrant and the Second Warrant based on how many shares are then underlying the Warrants. The Company agreed to register the resale of the shares underlying the Warrants by filing a registration statement with the U.S. Securities and Exchange Commission (the "SEC") within 30 calendar days of the issuance date of the Warrants.

Under the Tempus Agreement, Tempus agreed to certain customary standstill restrictions that apply (a) whenever Tempus (together with its affiliates) owns at least 9,218,800 shares of Common Stock until the parties’ exclusivity obligations expire or terminate under the Tempus Agreement and (b) from the Effective Date through the first anniversary of the Effective Date, to the extent the parties’ exclusivity obligations expire or terminate under the Tempus Agreement and Tempus (together with its affiliates) owns at least 5% of the outstanding shares of Common Stock. These standstill restrictions are subject to suspension in certain cases set forth in the Tempus Agreement. In addition, the Company has agreed to notify Tempus in certain circumstances if the Company is pursuing a change of control transaction for the Company.

With respect to any shares it acquires from exercising the Warrants, Tempus also agreed to certain voting commitments under the Tempus Agreement. These voting commitments require Tempus to vote any shares it acquires from exercising the Warrants in accordance with the recommendations of the majority of the Company’s board of directors, and generally apply to director nominations for any meeting of the Company’s stockholders occurring on or before December 31, 2025, various compensation-related matters, and ratification of auditors. These voting commitments terminate on the later of (i) when the parties’ exclusivity obligations expire or terminate under the Tempus Agreement and (ii) the first anniversary of the Effective Date.

Either party may terminate the Tempus Agreement upon the other party’s material breach or insolvency, if the other party assigns the agreement to a competitor of the terminating party, if there are certain materially adverse changes to certain of the other party’s licenses, permits or certifications or if the other party or its personnel have any materially adverse personal or professional conflicts of interest, subject to certain notice periods. After the first anniversary of the Effective Date, either party may terminate the Tempus Agreement for convenience upon 18 months’ prior written notice. Tempus may terminate the agreement if the Company does not achieve the Second Milestone by a specified date.

The foregoing summary of the Tempus Agreement is qualified in its entirety by reference to the full text of the Tempus Agreement, a copy of which is attached to this report as Exhibit 10.1, which is incorporated herein by reference.

The foregoing summary of the Warrants is qualified in its entirety by reference to the full text of (i) the First Warrant, a copy of which is attached to this report as Exhibit 4.1, which is incorporated herein by reference, and (ii) the Second Warrant, a copy of which is attached to this report as Exhibit 4.2, which is incorporated herein by reference.