ARCA biopharma Inc

ITEM 1. FINANCIAL STATEMENTS

BALANCE SHEETS

(Unaudited)

STATEMENTS OF OPERATIONS

STATEMENTS OF STOCKHOLDERS’ EQUITY

STATEMENTS OF CASH FLOWS

NOTES TO FINANCIAL STATEMENTS

(1) The Company and Summary of Significant Accounting Policies

Description of Business

ARCA biopharma, Inc. (the Company or ARCA), a Delaware corporation, is headquartered in Westminster, Colorado. The Company is dedicated to applying a precision medicine approach to the development and commercialization of genetically targeted therapies for cardiovascular diseases. The Company’s lead product candidate is Gencaro™ (bucindolol hydrochloride) for the treatment of atrial fibrillation (AF) in patients with chronic heart failure (HF).

In April 2022, ARCA established a Special Committee of the board of directors (the “Board”) of ARCA to conduct a comprehensive review of strategic alternatives. As part of the strategic review process, the Company explored potential strategic alternatives that included, without limitation, an acquisition, merger, business combination or other transactions. The Company has and is continuing to explore strategic alternatives related to its product candidates and related assets, including, without limitation, licensing transactions and asset sales.

On April 3, 2024, following a comprehensive review of strategic alternatives, the Company, Atlas Merger Sub Corp., a Delaware corporation and a wholly-owned subsidiary of ARCA (“Merger Sub I”), Atlas Merger Sub II LLC, a Delaware limited liability company and a wholly-owned subsidiary of ARCA (“Merger Sub II”) and Oruka Therapeutics, Inc., a Delaware corporation (“Oruka”), entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub I will merge with and into Oruka, with Oruka continuing as a wholly owned subsidiary of ARCA and the surviving corporation of such merger (the “First Merger”) and as part of the same overall transaction, the surviving corporation in the First Merger will merge with and into Merger Sub II with Merger Sub II continuing as a wholly owned subsidiary of ARCA and the surviving entity of such merger (the “Second Merger” and together with the First Merger, the “Merger”). The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.

In connection with the Merger, the Company will dispose of (or is in the process of disposing of) its legacy technology and intellectual property, including those related to Gencaro and rNAPc2. Any such disposal of legacy technology and intellectual property will be contingent upon obtaining stockholder approval for the Merger and is expected to occur immediately prior to or concurrently with the closing of the Merger. In the event that the Company shall enter into an agreement for any such sale or other disposition of its legacy assets at or prior to the closing of the Merger, the net proceeds received at or prior to the closing of the Merger will be included in the calculation of the net cash of ARCA as of the closing.

The Company’s future operations are highly dependent on the success of the Merger and there can be no assurances that the Merger will be successfully consummated. In the event that the Company does not complete the Merger, the Company may explore strategic alternatives, including, without limitation, another strategic transaction and/or pursue a dissolution and liquidation of the Company. See Note 10.

Liquidity and Going Concern

The Company devotes substantially all of its efforts towards obtaining regulatory approval and raising capital necessary to fund its operations and it is subject to a number of risks associated with clinical research and development, including dependence on key individuals, the development of and regulatory approval of commercially viable products, the need to raise adequate additional financing necessary to fund the development and commercialization of its products, and competition from larger companies. The Company hasnot generated revenue to date and has incurred substantial losses and negative cash flows from operations since its inception. The Company has historically funded its operations through issuances of common and preferred stock.

The Company believes that its current cash and cash equivalents as of June 30, 2024 will be sufficient to fund its operations through the end of fiscal year 2025. The future viability of the Company beyond that point is dependent on the results of the strategic review process and its ability to raise additional capital to fund its operations. The Company expects to continue to incur costs and expenditures in connection with the process of evaluating strategic alternatives. There can be no assurance, however, that the Company will be able to successfully consummate any particular strategic transaction, including the Merger Agreement. The process of continuing to evaluate these strategic options may be very costly, time-consuming and complex and the Company has incurred, and may in the future incur, significant costs related to this continued evaluation, such as legal, accounting and advisory fees and expenses and other related charges, see Note 10 regarding the Merger Agreement and special dividend payment. Should the Company pursue additional clinical trials for its product candidates, it will have to raise additional capital for clinical trials of Gencaro. The Company may not be able to raise sufficient capital on acceptable terms, or at all, to continue development of Gencaro or rNAPc2 or to otherwise continue operations and may not be able to execute any strategic transaction. Changing circumstances may cause us to consume capital significantly faster or slower than currently anticipated. The Company has based these estimates on assumptions that may prove to be wrong, and the Company could exhaust its available financial resources sooner than the Company currently anticipates. Depending on the results of the strategic review process, the Company may have to raise additional capital for clinical trials of Gencaro and to fund its operations. The Company may not be able to raise sufficient capital on acceptable terms, or at all, to continue development of Gencaro or rNAPc2 or to otherwise continue operations and may not be able to execute any strategic transaction.

The Company’s liquidity, and its ability to raise additional capital or complete any strategic transaction, depends on a number of factors, including, but not limited to, the following:

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the costs and timing for the potential additional clinical trials in order to gain possible regulatory approval for Gencaro, rNAPc2, or any other product candidate;

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the market price of the Company’s stock and the availability and cost of additional equity capital from existing and potential new investors;

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the Company’s ability to retain the listing of its common stock on the Nasdaq Capital Market;

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general economic and industry conditions affecting the availability and cost of capital, including as a result of deteriorating market conditions due to investor concerns regarding inflation, adverse developments affecting the financial services industry, continued hostilities between Russia and Ukraine and Hamas’ attack against Israel and the ensuing conflict;

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the Company’s ability to control costs associated with its operations;

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the terms and conditions of the Company’s existing collaborative and licensing agreements.

The sale of additional equity or convertible debt securities would likely result in substantial additional dilution to the Company’s stockholders. If the Company raises additional funds through the incurrence of indebtedness, the obligations related to such indebtedness would be senior to rights of holders of the Company’s capital stock and could contain covenants that would restrict the Company’s operations. The Company also cannot predict what consideration might be available, if any, to the Company or its stockholders, in connection with any strategic transaction. Should strategic alternatives or additional capital not be available to the Company, or not be available on acceptable terms, the Company may be unable to realize value from its assets and discharge its liabilities in the normal course of business which may, among other alternatives, cause the Company to further delay, substantially reduce or discontinue operational activities to conserve its cash resources.

Basis of Presentation

The accompanying unaudited financial statements of the Company were prepared in accordance with generally accepted accounting principles for interim financial information and instructions to Form 10-Q and pursuant to Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. In the opinion of management, these financial statements include all normal and recurring adjustments considered necessary for a fair presentation of these interim financial statements. The results of operations for the six months ended June 30, 2024 are not necessarily indicative of results expected for the full year ending December 31, 2024. The Company has generated no revenue to date and its activities have consisted of seeking regulatory approval, research and development, exploring strategic alternatives for further developing and commercializing Gencaro and rNAPc2, and raising capital. These unaudited financial statements should be read in conjunction with the audited financial statements and footnotes thereto for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. Amounts presented are rounded to the nearest thousand, where indicated, except per share data and par values.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company hasno off-balance-sheet concentrations of credit risk, such as foreign exchange contracts, option contracts, or foreign currency hedging arrangements. The Company maintains cash and cash equivalent balances in the form of bank demand deposits and money market fund accounts with financial institutions that management believes are creditworthy. Such balances may at times exceed the insured amount.

Comprehensive Loss

Comprehensive loss is defined as the change in equity during a period from transactions and other events and/or circumstances from non-owner sources. If the Company had comprehensive gains (losses), they would be reflected in the statement of operations and comprehensive loss and as a separate component in the statement of stockholders’ equity. There were no elements of comprehensive loss during the three and six months ended June 30, 2024 and 2023.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use (ROU) asset – operating and lease obligations are included in accrued expenses and other liabilities and operating lease liability on the Company’s June 30, 2024 and December 31, 2023 balance sheets.

ROU lease assets represent the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease. Operating ROU lease assets are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate a lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Accrued Outsourcing Expenses

As part of the process of preparing its financial statements, the Company is required to estimate accrued outsourcing expenses. This process involves identifying services that third parties have performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for these services as of the balance sheet date. Examples of estimated accrued outsourcing expenses include contract service fees, such as fees payable to contract manufacturers in connection with the production of materials related to the Company’s drug product, and service fees and pass through costs from clinical research organizations. The Company develops estimates of liabilities using its judgment based upon the facts and circumstances known at the time.

Recent Accounting Pronouncements

The Company reviewed recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the financial statements.

(2) Net Loss Per Share

The Company calculates basic loss per share by dividing net loss by the weighted average common shares outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period increased to include, if dilutive, the number of additional common shares that would have been outstanding if the potential common shares had been issued. The Company’s potentially dilutive shares include stock options and restricted stock units.

Because the Company reported a net loss for thethree and six months ended June 30, 2024 and 2023, all potentially dilutive shares of common stock have been excluded from the computation of the dilutive net loss per share for all periods presented. Such potentially dilutive shares of common stock consist of the following:

(3) Fair Value Disclosures

There wereno marketable securities as of June 30, 2024 or December 31, 2023.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Inputs used to measure fair value are classified into the following hierarchy:

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Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets consist of money market investments. The Company does not have any Level 1 liabilities.

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Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities; unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability. The Company does not have any Level 2 assets or liabilities.

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Level 3—Unobservable inputs for the asset or liability. The Company does not have any Level 3 assets or liabilities.

As of June 30, 2024 and December 31, 2023, the Company had $33.2 million and $37.4 million, respectively, of cash equivalents consisting of money market funds with original maturities of 90 days or less. The Company has the ability to liquidate these investments without restriction. The Company determines fair value for these money market funds with Level 1 inputs through quoted market prices. There wereno transfers of assets between fair value hierarchy levels during thesix months ended June 30, 2024.

Fair Value of Other Financial Instruments

The carrying amount of other financial instruments, including accounts payable, approximated fair value due to their short maturities.

(4) Property and Equipment

Property and equipment consist of the following (in thousands):

For the six months ended June 30, 2024 and 2023, depreciation and amortization expense was $6,000 and $8,000 respectively.

(5) Related Party Arrangements

Separation of Michael Bristow, M.D., President, Chief Executive Officer and Director

Effective April 3, 2024, ARCA and Dr. Michael Bristow, President, Chief Executive Officer and a member of the Board mutually agreed to conclude Dr. Bristow’s employment and service as a director.

In connection with Dr. Bristow’s separation, ARCA and Dr. Bristow entered into a separation agreement (the “Separation Agreement”) on April 3, 2024. Pursuant to the terms of the Separation Agreement, ARCA provided to Dr. Bristow a lump sum payment equal to (i) twelve (12) months of Dr. Bristow’s base salary as of the last date of his employment and (ii) a cash payment of $25,000, less applicable withholdings. The severance benefits were conditioned on the non-revocation by Dr. Bristow of a legal release of claims and was paid in the second quarter of 2024.

ARCA and Dr. Bristow entered into a consulting agreement, effective April 3, 2024 (the “Consulting Agreement”), pursuant to which Dr. Bristow is providing certain consulting services provided for in the Consulting Agreement to ARCA until the earlier of (i) the completion of services under the Consulting Agreement, (ii) a termination in accordance with the terms of the Consulting Agreement, and (iii) upon a Change of Control (as defined in ARCA’s 2020 Equity Incentive Plan (the “Plan”)). Pursuant to the Consulting Agreement, Dr. Bristow provision of services under the Consulting Agreement are deemed to be a Continuous Service (as defined in the Plan) and, as a result, his equity awards under the Plan continue to vest during the term of the Consulting Agreement.

Transactions with the Company’s Former President and Chief Executive Officer

The Company has entered into unrestricted research grants with its former President and Chief Executive Officer’s academic research laboratory at the University of Colorado. Funding of any unrestricted research grants is contingent upon the Company’s financial condition, and can be deferred or terminated at the Company’s discretion. There wasno expense under these arrangements for thesix months ended June 30, 2024. Total expense under these arrangements for the six months ended June 30, 2023 was $216,000. In December 2023, the Company made a payment of $125,000 for the grant period July 2022 through December 2023 under these arrangements. In April 2024, Dr. Bristow resigned, see above.

(6) Commitments and Contingencies

The Company has or is subject to the following commitments and contingencies.

As of the date of this filing, one complaint has been filed by a purported ARCA stockholder against ARCA and its board of directors in connection with the proposed Merger. On May 20, 2024, a purported stockholder filed a complaint, captioned Wynter v. ARCA biopharma, Inc., et al., No.: 1:24-cv-1418-STV (D. Colo.) (the “Complaint”), against ARCA and its board of directors. The Complaint alleges that the defendants filed or caused to be filed a materially incomplete and misleading preliminary registration statement with the U.S. Securities and Exchange Commission (the “SEC”) and asserts claims under Sections 14(a) and 20(a) of the Exchange Act. The Complaint seeks an order enjoining the proposed Merger, or in the event that the proposed Merger is consummated, an order rescinding the Merger or awarding rescissory damages, as well as costs, including attorneys’ and experts’ fees. ARCA cannot predict the outcome of the Complaint. ARCA believes that the allegations and claims asserted in the Complaint are without merit and intends to defend against them vigorously. Additional lawsuits arising out of the Merger may be filed.

Employment Agreements and Reduction of Workforce

The Company maintains employment agreements with several key executive employees. The agreements may be terminated at any time by the Company with or without cause upon written notice to the employee, and entitle the employee to wages in lieu of notice for periods not exceeding one calendar year from the date of termination without cause or by the employee for good reason. Certain of these agreements also provide for payments to be made under certain conditions related to a change in control of the Company.

In December 2022, the Company’s Board of Directors approved retention bonuses for certain employees, subject to continued employment with the Company through the earlier of a change in control of the Company or certain clinical development decisions totaling $265,000. In November 2023, the retention bonuses were amended to increase the aggregate amount of the retention bonus by 50% and in order to assist with tax obligations associated with the vesting of certain Company restricted stock unit awards in December 2023, a total of $86,000 was paid in December 2023. In April 2024, the retention bonuses were again amended to increase the aggregate amount of the retention bonus, as discussed in Note 10. As of June 30, 2024, the unpaid retention bonuses totaled $444,000, none of which was accrued as of June 30, 2024, since there had not been a change in control or clinical development decision.

The Company and Christopher D. Ozeroff, the former Secretary, Senior Vice President and General Counsel of ARCA mutually agreed to conclude Mr. Ozeroff’s employment effective March 31, 2023. Pursuant to Mr. Ozeroff’s existing employment agreement, as previously amended, ARCA provided Mr. Ozeroff severance benefits pursuant to the terms of his existing employment agreement with the Company, as previously amended. The severance benefits included severance payments and reimbursement to cover out-of-pocket costs to continue group health insurance benefits under COBRA, whether he elects or is eligible to receive COBRA. During the year ended December 31, 2023, the Company recorded an expense of $159,000 for these severance benefits, none of which remains unpaid.

The Company and Dr. Michael Bristow, former President, Chief Executive Officer and a member of the board of directors of ARCA mutually agreed to conclude Dr. Bristow’s employment and service as a director, effective April 3, 2024. See Note 5.

Operating Leases

On August 29, 2020 the Company entered into a lease agreement for approximately 5,200 square feet of office facilities in Westminster, Colorado which serves as the Company’s primary business office effective October 1, 2020 (October 2020 Lease). The lease term was 42 months beginning October 1, 2020. In March 2024, the Company entered into an amendment to extend thelease term six (6) months through September 2024. If the Company elects to stay in the property after September 2024, it will pay rent month to month equal to 125% of the base rent paid in September 2024. In June 2021, the Company entered into a sublease agreement for approximately 3,000 square feet of additional office facilities in the Company’s primary business office (2021 Lease). The sublease term was 29 months and terminated in October 2023. The leases include real estate taxes and insurance, which is not a lease component and is not included in the lease obligation. In addition, common area maintenance charges are based on actual costs incurred and are a non-lease component that is not included in the lease obligation.

Future minimum commitments due under the October 2020 Lease agreement, as amended, as of June 30, 2024 are as follows (in thousands):

Rent expense, which is included in general and administrative expense, for the six months ended June 30, 2024 and 2023 was $31,000 and $63,000, respectively.

As of June 30, 2024, the lease liability was $24,000, it is all current and is included inaccrued expenses and other liabilities in the accompanying balance sheet. Cash paid for amounts included in the measurement of lease liabilities and the operating cash flows from operating leases for thesix months ended June 30, 2024 and 2023 were $47,000 and $67,000, respectively. The weighted-average remaining lease term for the operating lease as of June 30, 2024 is 0.3 years. The discount rate for the operating lease is 7%.

Patent Agreement

In July 2021, the Company entered into a patent assignment agreement (the Agreement) with the University Medical Center of Johannes Gutenberg University Mainz, Germany.

Under the terms of the Agreement, the Company received exclusive world-wide patent rights relating to the use of rNAPc2 as a potential treatment for COVID-19, and other indications, based on the research and discoveries from Univ.-Prof. Dr. Wolfram Ruf, the Scientific Director and Alexander von Humboldt Professor at the Center for Thrombosis and Hemostasis (CTH) of the University Medical Center Mainz, and his collaborators. The Company has upfront and potential milestone obligations to the University Medical Center Mainz that could total approximately €1.6 millionand royalty obligations in the low single digit range, if rNAPc2 receives regulatory approval and is commercialized. The term of the Agreement extends to the date of expiration of the last to expire of any of the assigned patents.

(7)Equity Financings

At the Market Equity Financing

In 2020, the Company entered into a Capital on Demand TM Sales Agreement (the Sales Agreement) with JonesTrading Institutional Services LLC, as agent (JonesTrading), pursuant to which the Company may offer and sell, from time to time through JonesTrading, shares of the Company’s common stock, par value $0.001 per share (the Common Stock).

In 2021, the Company amended the 2020 Sales Agreement and the amount available for the offering under its prospectus to the Company’s registration statement on Form S-3 (No. 333-254585), which expired in March 2024. In April 2024, the Company terminated the Sales Agreement in accordance with its terms.

No sales were made under the Sales Agreement in 2024 or 2023.

See “Financing Transaction” discussion in Note 10 below.

(8) Share-based Compensation

For thethree and six months ended June 30, 2024 and 2023, the Company recognized the following non-cash, share-based compensation expense in the statements of operations (in thousands):

Stock option transactions for thesix months ended June 30, 2024 under the Company’s stock incentive plans were as follows:

(9) Income Taxes

In accordance with GAAP, a valuation allowance should be provided if it is more likely than not that some or all of the Company’s deferred tax assets will not be realized. The Company’s ability to realize the benefit of its deferred tax assets will depend on the generation of future taxable income. Due to the uncertainty of future profitable operations and taxable income, the Company has recorded a full valuation allowance against its net deferred tax assets. The Company believes its tax filing positions and deductions related to tax periods subject to examination will be sustained upon audit and, therefore, hasno reserve for uncertain tax positions.

(10) Merger Agreement

On April 3, 2024, ARCA, Merger Sub I, Merger Sub II and Oruka entered into the Merger Agreement, pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub I will merge with and into Oruka, with Oruka continuing as a wholly owned subsidiary of ARCA’s and the surviving corporation of the First Merger and as part of the same overall transaction, the surviving corporation in the First Merger will merge with and into Merger Sub II with Merger Sub II continuing as a wholly owned subsidiary of ARCA’s and the surviving entity of the Second Merger. The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.

Subject to the terms and conditions of the Merger Agreement, at the closing of the First Merger (the “First Effective Time”), (a) each then-outstanding share of Oruka common stock (including shares of Oruka common stock issued in the financing transaction described below) will be converted solely into the right to receive a number of shares of our common stock calculated in accordance with the Merger Agreement (the “Exchange Ratio”), (b) each then-outstanding share of Oruka preferred stock will be converted into the right to receive a number of shares of Series B Preferred Stock (as defined below) calculated in accordance with the Merger Agreement, (c) each then-outstanding option to purchase Oruka common stock will be assumed by ARCA, subject to adjustment as set forth in the Merger Agreement and (d) each then-outstanding warrant to purchase shares of Oruka common stock will be converted into a warrant to purchase shares of our common stock, subject to adjustment as set forth in the Merger Agreement and form of warrant. Under the terms of the Merger Agreement, prior to the closing of the transaction, ARCA’s board of directors will accelerate the vesting of all equity awards of ARCA’s then outstanding but not then vested or exercisable, and cancel each option (the “Out of the Money Options”) to acquire shares of our common stock with an exercise price per share greater than the volume weighted average closing trading price of a share of our common stock on The Nasdaq Stock Market LLC (“Nasdaq”) for the five (5) consecutive trading days ending three (3) days immediately prior to the closing date of the First Merger (the “Parent Closing Price”), in each case, in accordance with the terms of the Merger Agreement. At the First Effective Time, each option to acquire shares of our common stock with an exercise price less than or equal to the Parent Closing Price will be cancelled and converted into the right to receive an amount in cash, without interest, equal to the Parent Closing Price less the exercise price of such option.

Under the Exchange Ratio formula in the Merger Agreement, upon the First Effective Time, on a pro forma basis and based upon the number of shares of our common stock expected to be issued in the First Merger, pre-First Merger Oruka stockholders (including Oruka stockholders issued shares of Oruka common stock and pre-funded warrants in the Oruka pre-closing financing transaction described below) will own approximately 97.61% of the combined company and pre-First Merger ARCA stockholders will own approximately 2.39% of the combined company. For purposes of calculating the Exchange Ratio, (i) shares of our common stock underlying warrants and other rights to receive shares (other than Options to acquire shares of our common stock, to the extent cancelled at or prior to the First Effective Time in accordance with the Merger Agreement) outstanding as of immediately prior to the First Effective Time will be deemed to be outstanding, and (ii) all shares of Oruka common stock underlying outstanding Oruka stock options and warrants will be deemed to be outstanding. The Exchange Ratio will be adjusted to the extent that ARCA’s net cash at closing is less than $5.0 million and will be based on the amount of proceeds actually received by Oruka in the financing transaction described below, as further described in the Merger Agreement.

In addition, prior to the First Effective Time, ARCA expects to declare a cash dividend to the pre-First Merger ARCA stockholders equal in the aggregate to ARCA’s reasonable, good faith approximation of the amount by which ARCA’s net cash (as determined pursuant to the Merger Agreement) will exceed $5.0 million. ARCA management currently anticipates that ARCA’s net cash as of closing to be approximately $5.0 million, after giving effect to the special cash dividend, which is expected to be approximately $20.0 million.

In connection with the Merger, ARCA is required to seek the approval of its stockholders to, among other things, (a) issue shares of our common stock issuable in connection with the First Merger (including the shares of our common stock issuable under the Series B Preferred Stock) under the rules of Nasdaq, and (b) amend its amended and restated certificate of incorporation, to (i) effect a reverse stock split of our common stock (if deemed necessary by ARCA and Oruka), (ii) increase the number of shares of our common stock that it is authorized to issue, and (iii) such other changes as are mutually agreeable to ARCA and Oruka (the “ARCA Voting Proposals”).

Each of ARCA and Oruka has agreed to customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants relating to (1) using commercially reasonable efforts to obtain the requisite approval of its stockholders, (2) non-solicitation of alternative acquisition proposals, (3) the conduct of their respective businesses during the period between the date of signing the Merger Agreement and the closing of the Merger, (4) ARCA using commercially reasonable efforts to maintain the existing listing of our common stock on Nasdaq and cause the shares of our common stock to be issued in connection with the First Merger to be approved for listing on Nasdaq prior to the First Effective Time, and (5) ARCA filing with the SEC and causing to become effective a registration statement to register shares of our common stock to be issued in connection with the First Merger, except as set forth in the Merger Agreement (the “Registration Statement”).

Consummation of the Merger is subject to certain closing conditions, including, among other things, (1) approval by ARCA’s stockholders of the ARCA Voting Proposals, (2) approval by the requisite Oruka stockholders of the adoption and approval of the Merger Agreement and the transactions contemplated thereby, (3) Nasdaq’s approval of the initial listing application to be submitted in connection with the First Merger, (4) the effectiveness of the Registration Statement, (5) the expiration of any applicable waiting periods (or extensions thereof) under the Hart Scott-Rodino Antitrust Improvements Act of 1976, as amended, (6) the Subscription Agreement (defined below) being in full force and effect providing for the receipt of proceeds of not less than $175,000,000 (including in the proceeds any notes contributed as consideration in the Oruka pre-closing financing transaction described below) and (7) to the extent ARCA has declared the cash dividend described above, ARCA delivering the aggregate amount distributable to the pre-First Merger ARCA stockholders to its’ transfer agent for further distribution to the pre-First Merger ARCA stockholders. Each party’s obligation to consummate the Merger is also subject to other specified customary conditions, including regarding the accuracy of the representations and warranties of the other party, subject to the applicable materiality standard, and the performance in all material respects by the other party of its obligations under the Merger Agreement required to be performed on or prior to the date of the closing of the Merger.

The Merger Agreement contains certain termination rights of each of ARCA and Oruka. Upon termination of the Merger Agreement under specified circumstances, ARCA and Oruka may each be required to pay the other party a termination fee of $440,000.

Pursuant to a Certificate of Designation of Preferences, Rights and Limitations of the Series B Non-Voting Convertible Preferred Stock to be filed by ARCA with the Secretary of State of the State of Delaware (the “Certificate of Designation”) in connection with the Merger Agreement and the transactions thereunder, ARCA will establish the terms of a new series of preferred stock of ARCA designated as Series B Non-Voting Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”). Holders of the Series B Preferred Stock will be entitled to receive dividends on shares of Series B Preferred Stock equal to, on an as-if-converted-to-ARCA common stock basis, and in the same form as dividends actually paid on shares of our common stock. Except as otherwise required by the Certificate of Designation or law, the Series B Preferred Stock will not have voting rights. However, as long as any shares of Series B Preferred Stock are outstanding, ARCA will not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the ARCA Series B Preferred Stock, (b) alter or amend the Certificate of Designation, (c) amend ARCA’s certificate of incorporation, bylaws or other charter documents in any manner that adversely affects any rights of the holders of the Series B Preferred Stock, (d) file any articles of amendment, certificate of designations, preferences, limitations and relative rights of any series of Preferred Stock (as defined in the Certificate of Designation), if such action would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the ARCA Series B Preferred Stock, (e) issue further shares of the Series B Preferred Stock or increase or decrease (other than by conversion) the number of authorized shares of the Series B Preferred Stock, (f) at any time while at least 30% of the originally issued ARCA Series B Preferred Stock remains issued and outstanding, consummate either (A) a Fundamental Transaction (as defined in the Certificate of Designation) or (B) any merger or consolidation of ARCA or other business combination in which ARCA’s stockholders immediately before such transaction do not hold at least a majority of the capital stock of ARCA immediately after such transaction, or (f) enter into any agreement with respect to any of the foregoing. The Series B Preferred Stock does not have a preference upon any liquidation, dissolution or winding-up of ARCA.

Following the First Effective Time, each share of Series B Preferred Stock then outstanding shall be convertible, at any time and from time to time, at the option of the holder of the Series B Preferred Stock, into a number of shares equal to 1,000 shares of our common stock, subject to certain limitations, including that a holder of Series B Preferred Stock is prohibited from converting shares of Series B Preferred Stock into shares of our common stock if, as a result of such conversion, such holder, together with its affiliates, would beneficially own more than a specified percentage (initially set at 9.99%) of the total number of shares of our common stock issued and outstanding immediately after giving effect to such conversion.

At the First Effective Time, the combined company’s board of directors is expected to consist ofsix (6) members, all of whom will be designated by Oruka. Upon the closing of the transaction, the combined company will be led by Oruka’s chief executive officer.

Financing Transaction

Concurrently with the execution and delivery of the Merger Agreement, certain parties entered into a subscription agreement with Oruka (as amended and restated, the “Subscription Agreement”), pursuant to which they have agreed, subject to the terms and conditions of such agreement, to purchase immediately prior to the consummation of the First Merger, shares of Oruka common stock and pre-funded warrants to purchase shares of Oruka common stock (together, the “PIPE Securities”) for an aggregate purchase price of approximately $275.0 million. On July 3, 2024, the Subscription was amended and restated to provide for, among other things, for warrants to be issued to certain of Oruka’s employees, directors and service providers. The consummation of the transactions contemplated by such agreement is conditioned on the satisfaction or waiver of the conditions set forth in the Merger Agreement and in the Subscription Agreement. Shares of Oruka common stock and pre-funded warrants to purchase shares of Oruka common stock issued pursuant to this financing transaction will be converted into shares ofour common stock and pre-funded warrants to acquire sharesour common stock, in accordance with the Exchange Ratio and the Merger Agreement.

Appointment of Thomas Keuer as President

Effective as of April 3, 2024, the Board appointed Thomas A. Keuer, the Company’s Chief Operating Officer, to serve as ARCA’s President and principal executive officer. Mr. Keuer has been with ARCA since 2006, and as its Chief Operating Officer for the last nine years, a position he will continue to serve in. Mr. Keuer will not receive any additional compensation in connection with his appointment as President and principal executive officer. Mr. Keuer’s position will end upon closing of the merger transaction with Oruka Therapeutics, Inc. as previously disclosed on a Current Report on Form 8-K filed with the SEC on April 3, 2024.

Second Amendment to Retention Bonus Letter of Thomas A. Keuer and C. Jeffrey Dekker

On April 20, 2024, the board of directors of ARCA approved the second amendment of certain retention bonus letters between ARCA and each of Thomas A. Keuer and C. Jeffrey Dekker to increase the aggregate amount of the retention bonus with respect to each such executive to $200,000. The remaining portion of the retention bonus with respect to Thomas A. Keuer and C. Jeffrey Dekker, consisting of $165,000, will become payable consistent with the original terms of the applicable retention bonus letter and first amendment to retention bonus letter. Any payment related to the retention bonuses of Thomas A. Keuer and C. Jeffrey Dekker will be paid by ARCA via payroll within 30 business days of the date of occurrence of the applicable “Payment Event Date” (as such term is otherwise defined in the applicable second amendment to the retention bonus letter). Each such retention bonus letter and first amendment to retention bonus letter will otherwise remain subject to their original terms and conditions.