Document:

Exhibit

EXHIBIT 10.7
THIRD AMENDED AND RESTATED 
ARCH CAPITAL GROUP LTD. INCENTIVE COMPENSATION PLAN
SECTION 1.  Purpose.
Arch Capital Group Ltd., a Bermuda company (the “Company”), hereby establishes this Incentive Compensation Plan (as amended from time to time, the “Plan”) in order to provide the Company’s employees with an opportunity to earn annual bonus compensation as an incentive and reward for their efforts to achieve the financial and strategic objectives of the Company.
SECTION 2.  Definitions.
2.1        “After-Tax Profit (Loss)” has the meaning specified on Schedule I hereto.
2.2        “Aggregate Target Amount” has the meaning specified in Section 4.3(a) hereof.
2.3        “Award” means the amount of bonus compensation to which an Eligible Employee is entitled for each Plan Year as determined by the Committee pursuant to Section 4 and 5 of the Plan.
2.4        “Board” means the Board of Directors of the Company.
2.5        “Cash Flow” has the meaning specified on Schedule I hereto.
2.6        “CAT Business” means business classified by the Company as property catastrophe reinsurance.
2.7        “Cause” means, with respect to an Eligible Employee, (a) theft or embezzlement by the Eligible Employee with respect to the Company or its Subsidiaries; (b) malfeasance or negligence in the performance of the Eligible Employee’s duties; (c) the commission by the Eligible Employee of any felony or any crime involving moral turpitude; (d) willful or prolonged absence from work by the Eligible Employee (other than by reason of disability due to physical or mental illness); (e) failure, neglect or refusal by the Eligible Employee to adequately perform his or her duties and responsibilities as determined by the Company; (f) continued and habitual use of alcohol by the Eligible Employee to an extent which materially impairs the Eligible Employee’s performance of his or her duties without the same being corrected within ten (10) days after being given written notice thereof; or (g) the Eligible Employee’s use of illegal drugs without the same being corrected within ten (10) days after being given written notice thereof. 
2.8        “Code” means the Internal Revenue Code of 1986, as amended, including applicable regulations thereunder.
2.9    “Committee” means the Compensation Committee of the Board, or such other Board committee or subcommittee (or the entire Board) as may be designated by the Board to administer the Plan.
2.10    “Company” has the meaning specified in Section 1 hereof or any successor.

2.11    “Deficits” has the meaning specified in Section 4.3(d) hereof.
2.12    “Development Period” has the meaning specified in Section 4.3(e) hereof.
2.13    “Earned” has the meaning specified in Section 4.3(c) hereof.
2.14    “Eligible Employee” means an employee of the Company or its Subsidiaries, including any director who is an employee, who is selected to participate in the Plan by the Committee.
2.15        “Employer” means the Company, Arch Reinsurance Ltd., Arch Reinsurance Company, Arch Capital Group (U.S.) Inc., Arch Insurance Group Inc. and its Subsidiaries, Arch Capital Services Inc., and any other Subsidiary of the Company that becomes an Employer in accordance with Section 8.1 hereof. 
2.16        “Equity” has the meaning specified on Schedule I hereto.        
2.17        “Formula Approach” has the meaning specified in Section 4.1 hereof.
2.18        “Formula Approach Pool” has the meaning specified in Section 4.3(a) hereof.
2.19        “Hurdle ROE” has the meaning specified in Section 4.3(b) hereof.
2.20        “Insurance Segment” means the insurance business segment of the Company and its Subsidiaries.  
2.21    “Investment Income” has the meaning specified on Schedule I hereto. 
2.22    “Maximum Carryforward Amount” has the meaning specified in Section 4.3(c) hereof.
2.23    “Maximum Formula Approach Pool” has the meaning specified in Section 4.3(c) hereof.
2.24    “Mortgage Segment” means the mortgage business segment of the Company and its Subsidiaries.
2.25        “Operating Expenses” has the meaning specified on Schedule I hereto.
2.26        “Permanent Disability” means, with respect to an Eligible Employee, those circumstances where the Eligible Employee is unable to continue to perform the usual customary duties of his or her assigned job for a period of six (6) months in any twelve (12) month period because of physical, mental or emotional incapacity resulting from injury, sickness or disease.  Any questions as to the existence of a Permanent Disability shall be determined by a qualified, independent physician selected by the Company and approved by the Eligible Employee (which approval shall not be unreasonably withheld).  The determination of any such physician shall be final and conclusive for all purposes of this Plan.
2.27        “Plan” has the meaning specified in Section 1 hereof.
2.28    Plan Year” means (i) with respect to the Target Bonus Approach, a calendar year and (ii) with respect to the Formula Approach, an underwriting (or policy) year commencing on January 1 and ending on December 31 during which an accounting shall be made for all Underwriting Profit (Loss) attributable to Policies having an inception or renewal date during such 12-month period.      

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2.29        “Policies” means policies, binders, contracts or agreements of insurance or reinsurance.        
2.30        “Pre-Tax Profit” has the meaning specified on Schedule I hereto.
2.31        “Reinsurance Segment” means the reinsurance business segment of the Company and its Subsidiaries.  
2.32    “ROE” has the meaning specified on Schedule I hereto. 
2.33            “Senior Executives” has the meaning set forth in Section 4.1 hereof.
2.34            “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns shares possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.
2.35    “Target Bonus Approach” has the meaning specified in Section 4.1 hereof.
2.36    “Target Bonus Approach Pool” has the meaning specified in Section 4.2(a) hereof.
2.37    “Target Bonus Opportunity” means, with respect to each Eligible Employee, a target bonus expressed as a percentage of his or her annual base salary, which is intended as an approximation of the bonus payment that would be paid if aggressive performance goals and other expectations are met by both the Eligible Employee and the business segment or unit he or she is employed by.  The Target Bonus Opportunity for each Eligible Employee shall be periodically established (i) by senior management of the applicable business segment or unit and (ii) by the Committee, in the case of certain Senior Executives designated by the Committee (subject to applicable employment agreements).
2.38    “Underwriting Profit (Loss)” has the meaning specified on Schedule I hereto.
2.39      “Retirement Age” means the later of an Eligible Employee’s 55th birthday or the fifth anniversary of the first day of the Plan Year in which such Eligible Employee’s participation in the Plan commenced.
SECTION 3.  Administration.
The Plan shall be administered by the Committee.  The Committee shall have the authority, in its sole discretion, to administer the Plan and to exercise all of the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to (i) establish performance goals for the awarding of Awards for each Plan Year; (ii) determine the Eligible Employees to whom Awards are to be made for each Plan Year; (iii) determine whether performance goals for each Plan Year have been achieved; (iv) authorize payment of Awards under the Plan; (v) adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan and make all other determinations and judgments relating to the Plan as it shall deem advisable; and (vi) interpret the terms and provisions of the Plan; provided that neither the Committee nor the Board shall have any discretion to reduce any previously determined Award.  All determinations made by the Committee with respect to the Plan and Awards thereunder shall be final and binding on all persons, including the Company and all Eligible Employees.

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SECTION 4.  Determination of Awards.
4.1        Performance Measures.  The Plan combines two sets of performance measures:  (i) a qualitative judgment about progress and performance each Plan Year based on a number of factors, including the management plan for such Plan Year and non-prescribed measures (the “Target Bonus Approach”), as set forth in Section 4.2 hereof; and (ii) a quantitative, formula-based measure (the “Formula Approach”), as set forth in Section 4.3 hereof.  The Target Bonus Approach shall apply to certain senior executives (the “Senior Executives”) of the Company and its Subsidiaries designated by the Committee from time to time.  The Formula Approach shall apply to those Eligible Employees designated by the Senior Executives.  All Eligible Employees of Arch Capital Services Inc. and any non-designated Eligible Employees shall be subject to the Target Bonus Approach.  Awards under the Target Bonus Approach and the Formula Approach shall be determined as set forth in Section 4.2 and Section 4.3, respectively, and shall be payable as set forth in Section 5 hereof.   
4.2        Target Bonus Approach.  
(a)    Target Bonus Approach Pool.  Under the Target Bonus Approach, a separate bonus pool shall be established for the Company and certain of its Subsidiaries, the Insurance Segment, the Mortgage Segment, the Reinsurance Segment and Arch Capital Services Inc. for each Plan Year (each, a “Target Bonus Approach Pool”).  The Target Bonus Approach Pool for each segment for any given Plan Year shall initially equal the sum of the individual Target Bonus Opportunities for each Eligible Employee included in such segment, which amount shall be adjusted upward or downward to reflect the segment’s actual performance as recommended by senior management of the applicable business segment or unit but determined by the Committee.  Performance shall be judged against the achievement of the strategic and financial objectives contained in the applicable management plan submitted to the Board for the Plan Year, peer group performance and other measures deemed applicable by the Committee.
(b)    Individual Participation.  At the individual level, actual performance bonuses for each Eligible Employee shall reflect both individual and segment performance.  An Eligible Employee’s participation in the applicable Target Bonus Approach Pool shall be initially based on his or her Target Bonus Opportunity, which participation shall be adjusted based on his or her performance.  Any such adjustments (other than those for Senior Executives, as determined by the Committee) shall be made in a zero sum manner and not affect the overall size of the Target Bonus Approach Pool.  All performance assessments shall include both objective and subjective elements, and the general performance weighting guidelines between segment and individual performance to be applied to an Eligible Employee’s Target Bonus Opportunity shall be determined by senior management of the applicable business segment or unit. 
4.3        Formula Approach.
(a)    Formula Approach Pool.  Under the Formula Approach, a separate bonus pool shall be established for the Insurance Segment, the Mortgage Segment and the Reinsurance Segment for each Plan Year and other separate bonus pools may be established by the Committee (each, a “Formula Approach Pool”).  The Formula Approach Pool for each of the Insurance Segment, the Mortgage Segment, the Reinsurance Segment and any other segment pools for any given Plan Year shall initially equal the sum of the individual Target Bonus Opportunities for each Eligible Employee included in such segment (each, an “Aggregate Target Amount”).  The actual Formula Approach Pool will be a percentage of the Aggregate Target Amount based upon 

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the ROE achieved for such Plan Year.  Schedule II sets forth the size of the Formula Approach Pool based on various levels of ROE, which schedule shall be reviewed and may be adjusted by the Committee for each Plan Year. 
 
        (b)    Hurdle ROE.  With respect to the Insurance Segment, the Mortgage Segment, the Reinsurance Segment and any other segments, no Awards shall be payable for a given Plan Year unless a minimum ROE equal to the applicable hurdle rate set forth on Schedule II for the Plan Year, without taking into account any amounts carried forward pursuant to Section 5.3(c) hereof (the “Hurdle ROE”), is achieved by such segment for such Plan Year. 
(c)    Maximum Formula Approach Pool; Carryforwards.  For any given Plan Year, the maximum Formula Approach Pool for each of the Insurance Segment, the Mortgage Segment, the Reinsurance Segment and any other segments shall equal 200% of the applicable Aggregate Target Amount (each, a “Maximum Formula Approach Pool”).  For any given Plan Year, on and after the third anniversary of the end of such Plan Year, Earned amounts in excess of each Maximum Formula Approach Pool up to an additional 200% of such applicable Aggregate Target Amount (the “Maximum Carryforward Amount”) shall be carried forward and made available, only to Eligible Employees who participated in such Plan Year, in Plan Years subsequent to such Plan Year where the applicable Maximum Formula Approach Pool is not expected to be Earned by the end of the applicable Development Period, provided that the Earned amount which may be carried forward to any subsequent Plan Year shall not exceed 25% of the Earned Maximum Carryforward Amount.  Notwithstanding anything set forth in the Plan, for a given Plan Year, amounts payable with respect to each of the Insurance Segment, the Mortgage Segment, the Reinsurance Segment and any other segment shall not exceed 15% of the Pre-Tax Profit for such segment, respectively, for such Plan Year.  For purposes hereof, with respect to a given amount, “Earned” means the inception-to-date actual amount calculated for the applicable item through the end of the period being calculated.    
(d)    Deficits.  After-Tax Losses (and not After-Tax Profit that is below the Hurdle ROE) for a given Plan Year (“Deficits”) shall offset available After-Tax Profit in subsequent Plan Years until all Deficits are eliminated.
(e)    Development Period.  For each Plan Year, the Formula Approach Pool for each of the Insurance Segment, the Mortgage Segment, the Reinsurance Segment and any other segment shall be calculated annually for 10 years (a “Development Period”).  The first calculation shall be made within two and one half months following the end of the initial 12-month calendar year period included in each Plan Year, and the final calculation shall be made within two and one half months following the end of the tenth year following the commencement of such Plan Year, with losses and loss adjustment expenses (if any) projected to ultimate and discounted to present value basis at such time.     
(f)    CAT Business.  The results of CAT Business shall be calculated over five-year periods based on actual catastrophe experience (terrorism included).  Accordingly, at the end of (i) the fifth Plan Year and (ii) each five-year period thereafter, Underwriting Profit (Loss) and Cash Flow shall be initially determined for CAT Business for such five-year period, and then such Underwriting Profit (Loss) and Cash Flow shall be allocated to each Plan Year included in the five-year period based on net premiums written attributable to CAT Business Policies having an inception or renewal date within such Plan Year.  Following such initial calculation, the results of 

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CAT Business shall be part of the annual recalculations of Underwriting Profit (Loss) and Cash Flow for the remainder of the respective Development Period relating to each Plan Year.
(g)    Individual Participation.  Individual participation in the applicable Formula Approach Pool shall be initially determined based on the relative Target Bonus Opportunity of each of the designated Eligible Employees and shall be subject to adjustment each Plan Year by senior management of the applicable business segment or unit based on criteria it deems appropriate, provided that any such adjustments shall be made in a zero sum manner and not affect the overall size of the applicable Formula Approach Pool.
(h)    Board Review of Formula Approach.  If the Board or the Committee determines that the Formula Approach results in compensation levels that do not appropriately reflect the Company’s underlying performance, then the Board or the Committee may terminate the Formula Approach or make adjustments to it that it deems appropriate.  
SECTION 5.  Payment of Awards.
5.1    Form of Award.  Except as otherwise provided in Section 8.9 below, any Awards payable under this Plan shall be paid in cash.  
5.2    Payout Period.  For each Plan Year, and subject to Section 5.3 hereof, Awards under the Target Bonus Approach shall be paid after the end of the Plan Year and no later than March 15 of the of the year immediately following the Plan Year.  For each Plan Year, and subject to Section 5.3 hereof, Awards under the Formula Approach shall be paid over a four-year period as follows:  40% shall be paid after the end of the Plan Year and no later than March 15 of the of the year immediately following the Plan Year (based on Company performance determined consistent with Section 4.3 above through the end of the Plan Year), and 20% shall be paid no earlier than January 1 and no later than March 15 of each of the years immediately following the end of each of the next three calendar years, in each case based on Company performance determined consistent with Section 4.3 above through the end of the calendar year immediately preceding the year of payment.  Notwithstanding the foregoing, in the case of the property facultative reinsurance division of the Reinsurance Segment, for each Plan Year, and subject to Section 5.3 hereof, Awards under the Formula Approach shall be paid over a three-year period as follows:  60% shall be paid after the end of the Plan Year and no later than March 15 of the of the year immediately following the Plan Year (based on Company performance determined consistent with Section 4.3 above through the end of the Plan Year), and 20% shall be paid no earlier than January 1 and no later than March 15 of each of the years immediately following the end of each of the next two calendar years, in each case based on Company performance determined consistent with Section 4.3 above through the end of the calendar year immediately preceding the year of payment.  If, following such initial four-year or three year, as applicable, period relating to a given Plan Year, any additional amounts are owed to Eligible Employees under the Formula Approach as a result of recalculation of the applicable Formula Approach Pool based on Company performance through the end of a calendar year, then such amounts shall be paid to such Eligible Employees no earlier than January 1 and no later than March 15 of the immediately following calendar year.  Notwithstanding the foregoing, the payment schedule for Eligible Employees subject to the Formula Approach who are junior employees may be modified by senior management, but no such modification may result in any amount being paid later than March 15 of the calendar year immediately following the calendar year for which Company performance is used to determine the amount of the payment.

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5.3    Continued Service.  Each Eligible Employee must be employed by the Company at the time of each payment of an Award; provided, however, that, (x) in the event an Eligible Employee ceases to be an employee of the Company after the Award for a Plan Year is determined and communicated to the Eligible Employee but prior to the date all payments under an Award are made (i) due to termination (A) by the Company not for Cause or (B) with respect to an Eligible Employee designated by the Committee, by the Eligible Employee for Good Reason (as defined within such Eligible Employee's employment agreement, unless otherwise determined by the Committee), or (ii) as a result of death of the Eligible Employee, the Award shall no longer be subject to the condition that the Eligible Employee remain employed through the time of payment and payments under the Award shall be made when such Award payments are regularly made hereunder following such termination of employment (the amount of such payments, if any, shall be as calculated herein and, in the case of Formula Approach Awards, shall be based on the continued performance of the Company as set forth in Section 4.3 hereof); and (y) in the event an Eligible Employee ceases to be an employee of the Company prior to the date all payments under an Award are made (i) due to termination as a result of Permanent Disability or (ii) due to termination of employment (other than by the Company for Cause) after the attainment of Retirement Age, payments under such Award shall continue to be made when the Award payments are normally made hereunder (the amount of such payments, if any, shall be as calculated herein and, in the case of Formula Approach Awards, be based on the continued performance of the Company as set forth in Section 4.3 hereof), so long as, prior to the applicable payment date, such Eligible Employee does not, without the written consent of the Company, engage in any activity in competition with any activity of the Company or any of its Subsidiaries other than (i) serving on the board of directors (or similar governing body) of another company or (ii) serving as a consultant for no more than 26 weeks per calendar year providing services that do not, in whole or in part, relate to the business or operations of an insurance or reinsurance company; provided that if the Eligible Employee does engage in such activity after termination for such reasons, any unpaid portion of the Award shall be forfeited by the Eligible Employee and become the property of the Company.  For purposes hereof, service with any of the Company’s Subsidiaries shall be considered to be service with the Company.
If the Eligible Employee ceases to be an employee of the Company for any other reason prior to the date that all amounts under an Award are paid, the Award, including applicable carryforwards, shall be forfeited by the Eligible Employee and become the property of the Company.  For purposes hereof, service with any of the Subsidiaries shall be considered to be service with the Company.  In the case of Awards made under the Formula Approach, the Awards shall include applicable carryforwards and Deficits, and terminated employees’ forfeited Awards, including applicable carryforwards, shall be removed from the applicable bonus pool.
SECTION 6.  Non-Transferability.
No Award or rights under this Plan may be transferred or assigned other than by will or by the laws of descent and distribution.
SECTION 7.  Amendments and Termination.
The Board may terminate the Plan at any time and may amend it from time to time, provided, however, that no termination or amendment of the Plan shall adversely affect the rights of an Eligible Employee or a beneficiary to a previously determined Award without the written consent of such Eligible Employee or beneficiary.  

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SECTION 8.  General Provisions.
8.1    Subsidiaries.  Any Subsidiary of the Company may, upon approval by the Committee, become an Employer under the terms of the Plan.  Notwithstanding any provision of the Plan to the contrary, benefits payable under the Plan to an Eligible Employee or his or her beneficiary shall be the obligation of the Employer who actually employs (or, in the case an Eligible Employee who is no longer employed by an Employer, last employed) the Eligible Employee; provided, however, that in the event the Eligible Employee’s employer fails to make a payment of benefits to the Eligible Employee or his or her beneficiary when due under the terms of the Plan, the Company (the parent company of the Employers) shall be obligated to make such benefit payments in accordance with the terms of the Plan.
8.2        Unfunded Plan.  The Plan shall be an unfunded incentive compensation arrangement.  Nothing contained in the Plan, and no action taken pursuant to the Plan, shall create or be construed to create a trust of any kind.  An Eligible Employee’s right to receive a bonus shall be no greater than the right of an unsecured general creditor of the Company.  All bonuses shall be paid from the general funds of the Employers, and no segregation of assets shall be made to ensure payment of bonuses.  
8.3        Withholding.  The Company may provide for the withholding from any benefits payable under this Plan all Federal, state, city or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 
8.4    Excess Parachute Payments. 
(a)    Notwithstanding any other provision of the Plan, in the event that the amount of payments or other benefits payable to any Eligible Employee under the Plan (including, without limitation, the acceleration of any payment or the accelerated vesting of any payment or other benefit), together with any payments, awards or benefits payable under any other plan, program, arrangement or agreement maintained by the Company or one of its affiliates, would constitute an “excess parachute payment” (within the meaning of Section 280G of the Code), the payments under this Plan shall be reduced (by the minimum possible amounts) until no amount payable to the Eligible Employee under the Plan constitutes an “excess parachute payment” (within the meaning of Section 280G of the Code); provided, however, that no such reduction shall be made if the net after-tax payment (after taking into account Federal, state, local or other income, employment and excise taxes) to which the Eligible Employee would otherwise be entitled without such reduction would be greater than the net after-tax payment (after taking into account Federal, state, local or other income, employment and excise taxes) to the Eligible Employee resulting from the receipt of such payments with such reduction.
(b)    All determinations required to be made under this Section 8.4, including whether a payment would result in an “excess parachute payment” and the assumptions to be utilized in arriving at such determinations, shall be made by an accounting firm designated by the Company (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Eligible Employee as requested by the Company or the Eligible Employee.  All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company.  Absent manifest error, all determinations made by the Accounting Firm under this Section 8.4 shall be final and binding upon the Company and the Eligible Employee.
(c)    In the event the Eligible Employee has an employment agreement in effect with the Company or an affiliate providing for a similar excess parachute payment cutback, the cutback calculations and determinations under this Section 8.4 will be coordinated with the 

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cutback calculations and determinations under the employment agreement, resulting in one calculation and one cutback determination.  Any required cutback shall be made first to payments as provided under the employment agreement and then to payments under this Plan.
8.5        Hold Harmless.  No member of the Board of the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination or interpretation taken or made with respect to the Plan, and all members of the Board or the Committee and all officers or employees or the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation.
8.6        Other Benefits; No Right of Employment.  Nothing set forth in this Plan shall prevent the Board or the Committee from adopting other or additional compensation arrangements.  Neither the adoption of the Plan or any Award hereunder shall confer upon an Eligible Employee any right to continued employment.
8.7        Captions.  The captions preceding the sections and articles hereof have been inserted solely as a matter of convenience and in no way define or limit the scope or intent of any provisions of the Plan.
8.8      Governing Law.  The Plan shall be interpreted, construed and administered in accordance with the laws of the State of New York, without giving effect to principles of conflict of laws.
8.9    Section 162(m).  Payments under this Plan may be deferred by the Committee to the extent that the Committee reasonably anticipates that, if the payment were made as scheduled, the United States federal income tax deduction of any Subsidiary that is subject to United States federal income tax would not be permitted for the payment due to the application of Section 162(m) of the Code.  Any payment deferred under this Section 8.9 shall be made, subject to the possible application of the delay provided for in Section 8.10 below, as soon as reasonably practicable following the first date on which the Company anticipates or reasonably should anticipate that, if the payment were made on such date, the Subsidiary’s deduction with respect to such payment would no longer be restricted due to the application of Section 162(m) of the Code.  With respect to any amount deferred under this Section 8.9, the Committee, in its discretion, may credit notional earnings on the amount or substitute for the deferred payment, restricted share units in respect of common shares of the Company having a fair market value equal to the amount of the deferred payment, and common shares subject to the restricted share units shall be distributed at the time payments are to be made in accordance with this Section 8.9.  Any restricted share units shall be granted under the Company’s 2015 Long Term Incentive and Share Award Plan (or any successor plan).  If any scheduled payment to an Eligible Employee in a calendar year is delayed in accordance with this Section 8.9, all scheduled payments to that Eligible Employee that could be delayed in accordance with Treas. Reg. § 1.409A-2(b)(7)(i) shall also be delayed.  For purposes of any deferral under this Section 8.9, the Company shall treat all payments to similarly situated employees on a reasonably consistent basis.  
8.10    Sections 409A and 457A.  It is intended that the Plan will comply with Sections 409A and 457A of the Code (and any regulations and guidelines issued thereunder) to the extent it is subject thereto, and the Plan shall be interpreted on a basis consistent with such intent.  The Plan may be amended in any respect deemed by the Board or the Committee to be necessary in order to preserve compliance with Sections 409A and 457A of the Code.  Notwithstanding any provision to the contrary in this Plan, if an Eligible Employee is deemed on the date of his or her “separation from service” (within 

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the meaning of Treas. Reg. Section 1.409A-1(h)) with the Company and its affiliates to be a “specified employee” (within the meaning of Treas. Reg. Section 1.409A-1(i)), then with regard to any payment that is considered deferred compensation under Section 409A payable on account of a “separation from service” that is required to be delayed pursuant to Section 409A(a)(2)(B) of the Code (after taking into account any applicable exceptions to such requirement), such payment shall be made on the date that is the earlier of (i) the expiration of the six (6)-month period measured from the date of the Eligible Employee’s “separation from service,” or (ii) the date of the Eligible Employee’s death (the “Delay Period”).  Upon the expiration of the Delay Period, all payments delayed pursuant to this Section shall be paid to the Eligible Employee in a lump sum. The Company shall not have any obligation to indemnify or otherwise protect the Eligible Employee from any obligation to pay any taxes, interest or penalties pursuant to Sections 409A or 457A of the Code.  Whenever payments under this Plan are to be made in installments, each such installment shall be deemed to be a separate payment for purposes of Section 409A.
SECTION 9.  Effective Date of Plan.
The Plan became effective as of January 1, 2003, and shall remain in effect until such time as it may be terminated pursuant to Section 7 hereof.  This Third Amendment and Restatement of the Plan became effective as of January 1, 2016.

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Schedule I
Unless otherwise indicated, all capitalized terms used below have the meanings specified in the Plan.
“ROE” means, with respect to each of the Insurance Segment, the Mortgage Segment and the Reinsurance Segment for a given Plan Year, After-Tax Profit (Loss) divided by Equity.  For each Plan Year, ROE shall be recalculated annually during the Development Period relating to such Plan Year.  
“After-Tax Profit (Loss)” means, with respect to each of the Insurance Segment, the Mortgage Segment and the Reinsurance Segment for a given Plan Year, the sum of (i) Underwriting Profit (Loss) and (ii) Investment Income, taxed based upon the effective tax rate of the Insurance Segment, Mortgage Segment or Reinsurance Segment, as applicable. 
“Cash Flow” means, with respect to the Insurance Segment, the Mortgage Segment and the Reinsurance Segment for a given Plan Year, net operating cash flow for such segment reflecting premiums and fees collected, net of reinsurance, loss and loss adjustment expenses paid, underwriting expenses paid and all other operating expenses, including unallocated loss adjustment expenses, allocation of expenses from the Company and Arch Capital Services Inc., federal excise taxes, applicable income taxes and costs of letters of credit, but excluding bonuses payable to Eligible Employees (“Operating Expenses”).  For such purposes, CAT Business shall be reflected in the Formula Approach in the manner described in Section 4.3(f) of the Plan.     
“Equity” means, with respect to each of the Insurance Segment, the Mortgage Segment and the Reinsurance Segment for a given Plan Year, the amount of capital allocated to each such segment as recommended by senior management and determined by the Committee. 
“Investment Income” means, with respect to the Insurance Segment, the Mortgage Segment and the Reinsurance Segment for a given Plan Year, the sum of investment income, compounded as per the applicable U.S. treasury security, on: 
		
	(i)
	Equity, calculated at a rate equal to the average rate earned on the investment portfolios of the Company and its Subsidiaries during the initial 12-month calendar year period included in the Plan Year, net of investment expenses relating to such portfolios; and

		
	(ii) 
	Cash Flow, calculated at the following rates:  (A) with respect to all business other than property business, the average risk free rate equal to the yield on a U.S. Treasury security with a duration equal to estimated weighted average duration of the underwriting (or policy) year liabilities, net of estimated investment expenses relating to a portfolio of U.S. Treasury securities, and, (B) with respect to property business, the average 

risk free rate equal to the yield on a U.S. Treasury security with a one year duration, net of estimated investment expenses relating to a portfolio of U.S. Treasury securities.  
“Pre-Tax Profit” means, with respect to each of the Insurance Segment, the Mortgage Segment and the Reinsurance Segment for a given Plan Year, the sum of (i) Underwriting Profit (Loss) and (ii) Investment Income. 
 “Underwriting Profit (Loss)” reflects, with respect to each of the Insurance Segment, the Mortgage Segment and the Reinsurance Segment for a given Plan Year, (i) net premiums earned, fee income, losses and loss adjustment expenses incurred and acquisition expenses attributable to Policies having an inception or renewal date within the Plan Year and (ii) all other Operating Expenses incurred during the initial 12-month calendar year period included in the Plan Year.  For such purposes, CAT Business shall be reflected in the Formula Approach in the manner described in Section 4.3(f) of the Plan.cytx-ex101_111.htm

Exhibit 10.1

											
	
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2. AMENDMENT/MODIFICATION NO.

0004
	
3. EFFECTIVE DATE

See Block 16C
	
4. REQUISITION/PURCHASE REQ. NO. 
	
5. PROJECT NO. (If applicable)

	
6. ISSUED BY 
	
CODE
	
ASPR-BARDA
	
7. ADMINISTERED BY (if other than Item 6) 
	
CODE
	
ASPR–BARDA01

	
ASPR-BARDA

200 Independence Ave., S.W. 

Room 640-G 

Washington DC 20201
	
 
	
ASPR-BARDA

330 Independence Ave, SW, Rm G644 

Washington DC 20201
	
 

	
8. NAME AND ADDRESS OF CONTRACTOR (No., street, county. State and ZIP Code)

CYTORI THERAPEUTICS, INC 1386447 

CYTORI THERAPEUTICS, INC. 3020 

3020 CALLAN RD

SAN DIEGO CA 921211109
	
(x)
	
9A. AMENDMENT OF SOLICITATION NO.

	
 

	
9B. DATED (SEE ITEM 11)

	
X
	
10A. MODIFICATION OF CONTRACT/ORDER NO.

HHS0100201200008C

	
10B. DATED (SEE ITEM 13)

09/28/2012

	
CODE 1386447
	
FACILITY CODE

	
11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS

	
o The above  numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers         o is extended.       o is not extended, Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing Items 8 and 15, and returning   ________   copies of the amendment; (b) By acknowledging receipt of this amendment on each copy of the offer submitted; or (c) By separate letter or telegram which Includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGEMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to the solicitation and this amendment, and is received prior to the opening hour and date specified.

	
12. ACCOUNTING AND APPROPRIATION DATA (If required)

See Schedule

	
13. THIS ITEM ONLY APPLIES TO MODIFICATION OF CONTRACTS/ORDERS. IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.

	
CHECK ONE
	
A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A.

	
 

	
 
	
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b).

	
X
	
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF:

FAR 52.243-2 Alternate 1 (APR 1987) Changes - cost-reimbursement and Mutual agreement of the parties

	
 
	
D. OTHER (Specify type of modification and authority)

	
E. IMPORTANT: Contractor     oIs not.     x    Is required to sign this document and return                  1         copies to the issuing office.

 

14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section headings, including solicitation/contract subject matter where feasible.)

Tax ID Number: 33-0827593

DUNS Number: 111029179

Proof of Concept for Use of the Celution System as a Medical Countermeasure for Thermal Burn

A.  The purpose of this modification is to revise the SOW for Proof of Concept for Use of the Celution System as a Medical Countermeasure for Thermal Burn.

B.  This is a bilateral, supplemental agreement no-cost modification. The total contract amount and all other terms and conditions remain the same.

Continued ...

Except as provided herein, all terms and conditions of the document referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in full force and effect.

					
	
15A. NAME AND TITLE OF SIGNER (Type or print)

TIAGO M.GIKAO CFO
	
16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) WENDELL CONYERS

	
15B. CONTRACTOR/OFFEROR

/s/ TIAGO M.GIKAO CFO
	
15C. DATE SIGNED

3/30/16
	
16B. UNITED STATES OF AMERICA

/s/ WENDELL CONYERS
	
16C. DATE SIGNED

4-1-2016

	
(Signature of person authorized to sign)
	
(Signature of Contracting Officer)

	
NSN 7540-01-152-8070

Previous edition unusable 
	
 
	
STANDARD FORM 30 (REV. 10-83)

Prescribed by GSA

FAR (48 CFR) 53.243

 

									
	
CONTINUATION SHEET
	
REFERENCE NO. OF DOCUMENT BEING CONTINUED 

HHS0100201200008C/0004
	
PAGE
	
OF 

	
2
	
2

	
NAME OF OFFEROR OR CONTRACTOR

CYTORI THERAPEUTICS, INC 1386447

	
ITEM NO.

(A)
	
SUPPLIES/SERVICES

(B)
	
QUANTITY

(C)
	
UNIT

(D)
	
UNIT PRICE

(E)
	
AMOUNT

(F)

	
 
	
Period of Performance: 09/28/2012 to 09/27/2016
	
 
	
 
	
 
	
 

	
NSN 7540-01-152-8067
	
 
	
 
	
 
	
 
	
OPTIONAL FORM 336 (4-86) 

Sponsored by GSA 

FAR (48 CFR) 53.110

 

 

 

 

	
Contract No.
	
Continuation Sheet
	
Page 3 of 15

	
HHS0100201200008C
	
Block 14
	
 

	
Modification #04
	
 
	
 

 

SUMMARY OF CHANGES

Revised Statement of Work for Option 1 

Preface

Independently and not as an agent of the Government, the Contractor shall be required to furnish all the necessary services, qualified personnel, material, equipment, and facilities, not otherwise provided by the Government, as needed to perform the Statement of Work submitted in response to Broad Agency Announcement (BAA) BARDA CBRN BAA 11-100-SOL-00009.

Introduction

The goal of this project is to develop a countermeasure for thermal burn injury that requires minimal to no stockpiling and that is effective in the treatment of both thermal burn injury and thermal burn injury that is complicated by concomitant radiation exposure. The issue of stockpiling will be addressed by development of a countermeasure that is effectively pre–deployed through regular commercially viable use. Ideally, this commercial use is in both thermal burn–thereby ensuring availability within the burn center of persons trained in operation and use of the countermeasure in burn–and outside of burn, thereby bolstering wider commercial viability.

Page 1

Timeline

A flowchart of the tasks within this CLIN is shown below.

 

 

Page 2

Tasks

Updated Project Overview

 

 

	
·
	
Option 1, as amended from the original Statement of Work, includes research and development, regulatory, clinical, and other tasks required for preparation for a Pilot Clinical Trial of the Celution System in thermal burn injury. Activities include those needed to obtain FDA approval to execute the trial. The Option also includes development of a system and process suitable for delivering ADRCs to thermal burn wounds within the clinical trial as well as preclinical activities dedicated to increasing understanding of the countermeasure in thermal burn.

	
·
	
Option 2, is to be funded in FY16 or FY17 upon FDA approval to initiate the Pilot Clinical Trial. Option 2 (New) includes tasks needed to execute and complete the Pilot Clinical Trial, those needed to prepare trial data for submission to FDA within a Pre-Submission Meeting Package in support of a proposed Pivotal Trial, and, potentially, support for ongoing development of CT-X2. 

	
 
	
·
	
Option 2 is to be triggered by FDA approval to execute the study

	
·
	
Option 3 includes a Pivotal Clinical Trial leading to FDA licensure for use of the Celution System in thermal burn injury. Given the likely timing of the start of activities under Option 2 it is probable that this activity will be executed under a new contract rather than as an Option of the current contract.

	
 
	
·
	
Option 3 will be triggered by the FDA's response to the proposed Pivotal Study Design and Clinical and Preclinical Support Data submitted in a Pre-Submission Meeting Package. Specifically, the Option will be triggered if the FDA indicates adequacy of the study design and preclinical and clinical data set with regard to moving forward to the proposed clinical trial. Given the likely timing of the start of activities under Option 3 it is probable that this activity will be executed under a new contract rather than as an Option of the current contract.

	
·
	
Option 4 includes studies to optimize the treatment for thermal burn injury with concomitant radiation exposure. Ideally these activities would lead to development of FDA Emergency Use Instructions

	
 
	
·
	
The triggers for Option 4 remain unchanged from the original submission. Specifically, it will be triggered if the following three parameters are met: (1) autologous ADRCs mediate improved healing of thermal burn injury in an irradiated animal; (2) the cell output of the CT-X2 is equivalent or superior to that of the Celution 800; and (3) ADRCs can be obtained from patients with thermal burn injury. Studies executed within WBS 2.3.1.1.5 may further inform this decision. Given the likely timing of the start of activities under Option 4 it is probable that this activity will be executed under a new contract rather than as an Option of the current contract.

	
·
	
The current CLIN includes activities in WBS 2.3.1.2 (Burn Wound/Scar Progression). Demonstration of efficacy and practicability of ADRC treatment to reduce scar progression following burn wounds to a meaningful degree would trigger consideration of a further new component of support which would fund a Pilot Clinical Trial in Burn Wound Progression.

	
 
	
·
	
Specifically, such an Option would be triggered if the application of ADRCs led to a reduction of more than approximately 33% in the incidence or severity of scarring.

Page 3

Base Period

The Base Period obtained proof of concept data for use of the Celution System as a medical countermeasure for combined injury involving radiation exposure and thermal burn injury. Specifically, in the absence of radiation exposure, autologous ADRCs improved healing parameters including increased burn wound re- epithelialization. The same improved healing was also observed in animals subjected to total body irradiation sufficient to induce profound, transient myelosuppresion. Viable, functional ADRCs were reliably and reproducibly obtained from patients with severe full thickness thermal burn injury. Finally, a prototype of Cytori’s next generation Celution System (CT-X2) showed cell processing capabilities that were equivalent or superior to those of the current generation system, Celution 800.

Option 1: Pilot Clinical Trial Preparation 

Specific Objectives and Scope

As proposed herein, the Contractor intends to design, execute, and complete robust preclinical and to design a clinical study that meet two objectives: (1) obtain FDA approval to execute a pilot clinical trial of the countermeasure in thermal burn injury wherein said trial will inform and support development of a pivotal clinical trial to be funded by a future CLIN/contract option; and (2) execute preclinical studies that will expand understanding of the countermeasure with respect to cell dose, route of administration, and efficacy in arresting or slowing progression of indeterminate thickness thermal burn injury or in addressing scarring following thermal burn.

Start Date: Q4, FY14

WBS 2.1 Technical and Project Management: Original and Supplement

Project-wide Activities 

Purpose

Execution of activities throughout this project will require that meetings, site visits, In-Process Reviews, and related activities are properly coordinated and that the outcome of said activities be communicated to BARDA and other stakeholders in an efficient, timely manner. The purpose of these project-wide activities is to facilitate this coordination and communication.

Description

Examples of activities performed to facilitate meetings, site visits, In- Process Reviews and similar activities include: scheduling meetings, timely distribution of an agenda in advance of the meeting, and timely distribution of meeting minutes, action items, and other deliverables after the meeting.

	
Deliverable: 
	
a. Ensure proper coordination of all meetings, site visits, In-Process Reviews 

b. Disposition of meeting minutes and action items and all deliverables under this Statement of Work to BARDA

Success Criterion: CO and PO deem meeting communications are managed satisfactorily

Timing: Full duration of project (including all options)

	
2.1.1.1
	
Kick-off Meeting: Unchanged from Original

Following a kickoff meeting with BARDA, Cytori will update the project schedule and provide an updated Task and Deliverables list to the Contract Officer.

Deliverable: Updated Task and Deliverables Document

Success Criterion: Includes updates of tasks and deliverables as discussed with CO and PO during kickoff meeting

Timing: Q2, FY15

	
2.1.1.2
	
Complete new hiring needed for execution of contract activities Unchanged from Previous 

Execute hiring of new staff needed for execution of CLIN activities

Deliverable: Report showing that key positions have been filled and added to contract provided within bi-weekly meetings

Success Criteria: Positions identified during negotiations have been filled by qualified persons

Timing: Q3, FY15

Page 4

	
2.1.2
	
Maintain Subcontractor Management Plan: Unchanged from Previous

Maintain Subcontractor Management Plan

Deliverable: Updated Subcontractor Management Plan

Success Criteria: Identifies key interactions between prime contractor and subcontractor with regard to progress updates and risk management

Timing: Semi-annually starting six months after award of CLIN

	
2.1.3
	
Maintain Risk Management Plan: Unchanged from Previous

Maintain Risk Management Plan

Deliverable: Updated Risk Management Plan

Success Criteria: Identifies key risks, assesses mitigations, contingencies, and impact as well as update process

Timing: Semi-annually starting six months after award of CLIN

	
2.1.4
	
EVMS Systems Report: Unchanged from Previous

EVMS Systems Report

Deliverable: EVMS Systems Report

Success Criteria: Acceptance by BARDA Contract Officer that the accounting and related systems are EVMS-compliant

Timing: Q2, FY15

	
2.2
	
Non-Clinical Toxicology

Not applicable

	
2.3
	
Preclinical

	
2.3.1
	
Porcine Studies: 

	
2.3.1.1
	
ADRC Dose Package

Objective: To determine the minimally effective dose of ADRCs in thermal burn injury

Rationale: In the Base Period Cytori has evaluated a narrow range of ADRC doses range limited at the upper end by the amount of adipose tissue easily obtainable from an individual mini-pig. The effectiveness of lower doses has not been assessed. The total dose of cells available for treatment is largely dependent on the volume of adipose tissue processed. Larger volumes require more collection and processing time and can increase risk. In order to appropriately balance risk and benefit it is important to determine the optimal cell dose so that the amount of tissue collected is adequate, but not excessive, for the size of the injury. This will be assessed by local delivery into the wound.

	
2.3.1.1.1
	
ADRC Dose: Additional Evaluation of Previously Collected Biopsies: Unchanged from Original, Studies Completed

Objective: To evaluate value of additional evaluations

Rationale: Studies in WBS 1.3.1 executed within the Base Period collected biopsies that were subjected to a number of histologic and immunohistologic stains (for example; Masson's trichrome and immunostaining for Ki67 and CD31). Data from these stains was informative. As is often the case in research, the information obtained raised new questions that can be addressed by application of additional histologic approaches. However, there was insufficient time and insufficient funds to apply these approaches during the Base Period. These approaches have the capacity to be informative in the studies to be executed under Option 1. The activities to be executed under this WBS element will develop and validate selected additional markers on biopsies collected during the Base Period in anticipation of applying said stains in ADRC dose studies to be conduced under WBS 2.3.1.1 (Dose Package) and other activities in WBS 2.3.1.

Page 5

Approach: Biopsies and sections have already been prepared and several core analyses have been performed. Additional digital imaging and analysis including immunohistochemical and molecular assessment of parameters associated with both normal healing and with scarring, particularly hypertrophic scarring, will be performed.

Description:

For each group multiple wound healing parameters will be assessed. Candidate stains include: Movat’s stain (a pentachrome stain that is recommended by UTMB Galveston for analysis of hypertrophic scarring), alpha smooth muscle actin (for contraction-inducing myofibroblasts), decorin (reduced in hypertrophic scarring), and type III collagen. Similarly, commercially available molecular arrays targeted for wound healing may be used to interrogate existing biopsy samples. All stained slides will be digitally scanned prior analysis. Using software such as the ImageScope software, each slide can be annotated to identify superficial and mid/deep regions within the wound tissue. The percent of positive staining can be quantified using the Deconvolution analysis algorithm (Aperio). This software algorithm makes use of a deconvolution method to separate the red and blue stain of the Masson's Trichrome. Epithelial thickness can be determined by histomorphometric analysis on digital slides using the Image Scope software. 3-6 measurements throughout the wound site (at edges and the center) can be performed to determine the thickness of the stratified and cornified layer of the neo-epidermis.

Deliverable: Interim and Final Study Reports

Success Criteria: Acceptance of reports by BARDA Program

Timing: Q2, FY15

	
2.3.1.1.2
	
ADRC Dose: Topical Delivery: Unchanged from Original, Study Completed

Objective: To determine the efficacy of topical delivery of ADRCs in thermal burn injury

Rationale: In the Base Period Cytori has demonstrated that delivery of ADRCs by direct injection into the base of the wound leads to increased epithelialization. Cytori's Burn Science Advisory Board has recommended that we evaluate mechanisms that might be easier and potentially faster to perform, in particular, topical delivery such as a spray, drip, or paint approach. A brief series of in vitro and in vivo studies similar to those executed in the base Period for other delivery routes is indicated in order to evaluate this approach.

Approach: These studies will use an approach selected during in vitro testing to apply viable ADRCs to burn wound following escharectomy.

Description:

Animals will receive thermal burn injury induced according to parameters optimized during the Base Period. Autologous ADRCs will be delivered on the same day as escharectomy. Different groups of animals will receive topical delivery of ADRCs with contralateral wounds used as matched control (treated with vehicle only). Healing will be evaluated by planimetry and histology at appropriate time points selected on the basis of results obtained in the Base Period. Each group will comprise a sufficient number of animals (for example, 4 or 6) .

Deliverable: Interim and Final Study Reports

Success Criteria: Achieves success parameter defined in study protocol agreed to by BARDA and the Contractor prior to initiation of studies

Timing: Q2, FY15

	
2.3.1.1.3
	
ADRC Dose: Dose Finding: Unchanged from Original, Study In Progress

Objective: To determine the minimally effective dose of ADRCs in thermal burn injury

Rationale: In the Base Period Cytori has evaluated a narrow range of ADRC doses range limited at the upper end by the amount of adipose tissue easily obtainable from an individual mini-pig. In order to maximize the likelihood of seeing a difference between treated and control wounds the first arm will apply dosing in wounds that are not treated with a split thickness skin graft (STSG) where data obtained in the Base Period demonstrate a robust signal to noise ratio for ADRC-induced increased epithelial migration. Once a dose has been determined in this model it will be applied in follow-up studies that include STSG (WBS 2.3.1.1.4 below).

Approach: These studies will use the approach applied in the Base Period to assess effectiveness of ADRCs when delivered at different doses by either local (that is, injection or topical as assessed by WBS 2.3.1.1.2) or intravenous delivery. For the local injection arm of the study, each animal may act as its own control using a paired wound model in which wounds on one side of the animal will receive vehicle alone (control) while the matching wounds on the other side receive ADRC treatment. Given the clinical relevance of hypertrophic scarring and the relative resistance of Gottingen minipigs and Yorkshire farm swine to this phenomenon these studies may be extended to include the Red Duroc strain of pigs (in place of or in addition to other strains) which is known to have a native susceptibility to hypertrophic scarring that is more similar to that of humans.

Page 6

Description:

Animals will receive thermal burn injury induced according to parameters optimized during the Base Period. Autologous ADRCs will be delivered on the same day as escharectomy. Different groups of animals will receive local injection of ADRCs. A suitable number (for example, four) of different ADRC doses will be evaluated. Doses selected will cover a wide range (for example, 250,000 ADRCs/cm2; 125,000 ADRCs /cm2; 50,000 ADRCs /cm2; and Control = no ADRCs). Healing will be evaluated by planimetry, histologic, and molecular analysis at appropriate time points selected on the basis of results obtained in the Base Period. Each group will comprise a sufficient number of animals (for example, 4 or 6).

Deliverable: Interim and Final Study Reports 

Success Criteria: Achieves success parameter defined in study protocol agreed to by BARDA and the Contractor prior to initiation of studies

Timing: Ql, FY16

	
2.3.1.1.4
	
ADRC Dose: Confirmation with STSG: Deleted

	
2.3.1.1.5
	
ADRC Dose: Confirmation with Higher Radiation Dose: Deleted

	
2.3.1.2
	
Burn/Scar Progression

Objective: To obtain preclinical data that will allow assessment of feasibility of use of the Celution System as a treatment for burn wound progression or scarring.

Rationale: Burn wound progression is the pathophysiologic process by which a partial thickness thermal burn evolves over the first few days after injury to become a full thickness injury requiring a skin graft. This process occurs through vascular damage leading to ischemia: reperfusion injury and to the inflammatory response1. The same mechanisms that are proposed to be behind the efficacy of ADRCs observed in the Base Period (angiogenesis, modulation of inflammation, etc.) have the potential to mitigate burn progression. Similarly, the healing process following thermal burn injury can lead to scarring that is both disfiguring and that limits function, for example, limits range of motion of a joint. Interventions that impact progression of scar development and maturation have the potential to significantly improve burn care.

Approach:

The overall approach selected is taken from that applied in the Base Period for full thickness injury in which a porcine model of vertical burn wound progression or scarring taken from the published literature2'3 is adapted, optimized, and validated and then used to assess efficacy of autologous ADRC treatment.

2.3.1.2.1Model Development: Unchanged from Original, Study Completed

Objective: To develop an animal model that will allow assessment of the effects of treatment with autologous ADRCs to treat burn wound progression.

Rationale: While a suitable animal model has been described in the literature2, it has not previously been executed by this team. Pilot activities are needed to establish the basic model.

Approach: Porcine models widely used for evaluation of thermal burn injury and have also been used for evaluation of burn and scar progression. The approach to be applied is essentially identical to that used in the Base Period for creation of a full thickness burn wound with the exception that the progression model must create a wound that is only partial thickness at the time of application but which progresses to deep/full thickness over a period of 3-4 days after injury whereas a model of hypertrophic scarring will require longer follow-up after injury.

 

1 Shupp, J.W., et al., A review of the local pathophysiologic bases of burn wound progression. J Burn Care Res, 2010. 31(6): p. 849-73

2 Singer, A.J., et al., Validation of a vertical progression porcine burn model. J Burn Care Res, 2011. 32(6): p. 638-46

3 Harunari, N., et al., Histology of the thick scar on the female, red Duroc pig: Final similarities to human hypertrophic scar. Burns, 2006. 32(6): p669-677 

Page 7

Description:

Each experimental animal will be subjected to thermal burn injury using the device developed for this purpose during the Base Period. These activities demonstrated that application of the device at a temperature of 200°C and contact pressure of 0.4kg/cm2, for 60 seconds created a reproducible full thickness injury. A published study2 has shown that application of a similar device at a temperature of 80°C and contact pressure of 0.32kg/cm2 for 20-30 seconds creates a partial thickness burn that progresses to full thickness. In these studies parameters of time, temperature, and contact pressure will be managed to determine the precise combination that generates a wound that reproducibly progresses from partial to full thickness over ~3-4 days after injury. The same approach may be used to generate a burn that develops to hypertrophic scarring in an appropriate pig strain.

Thermal burn wounds will be created in a suitable number of animals as described above and assessed by histology of biopsies performed at the time of injury and at suitable intervals (for example, 6 hours, 24 hours, 48 hours, 72 hours and 96 hours) after injury to assess burn depth and progression over the ~96 hour timeframe with the different burn induction parameters. For evaluation of scarring a similar approach will be applied using the Red Duroc strain that develops hypertrophic scarring that is similar to that of humans.

Deliverable: Interim and Final Study Reports

Success Criteria: Achieves success parameter defined in study protocol agreed to by BARDA and the Contractor prior to initiation of studies

Timing: Q1, FY15

2.3.1.2.2Model Optimization: Study in Progress

Objective: To optimize an animal model that will allow assessment of the effects of treatment with autologous ADRCs to treat burn wound/scar progression.

Rationale: Assesses reproducibility of the model established in WBS 2.3.1.2.1 above.

Approach: The parameters defined to provide the intended model in WBS 2.3.1.2.1 will be assessed for reproducibility.

Description:

A series of wounds will be induced in a cohort of animals (for example, six animals per arm) using the approach determined in Model Development above (WBS 2.3.1.2.1). Animals will also undergo lipectomy for ADRC isolation for treatment of wounds assigned for treatment. Wounds will receive treatment with ADRCs or with vehicle control. The study will assess ability of ADRCs to modify the development of scarring and to treat a scar that has already developed or has started to develop (for example, six months after injury). Progression of scarring will be assessed by histologic and molecular analysis of biopsies taken at suitable intervals (for example, 6 hours, 24 hours, 48 hours, 72 hours and 96 hours) after injury or later times (for example, two weeks, two months, six months) to assess scarring.

Deliverable: Interim and Final Study Reports

Page 8

Success Criteria: Achieves success parameter defined in study protocol agreed to by BARDA and the Contractor prior to initiation of studies

Timing: Q3, FY16

	
2.3.1.2.3
	
 Model Evaluation: Deleted

	
2.3.1.3
	
Primary Proof of Concept: Modified

Objective: To demonstrate proof of concept for use of ADRCs in enhancing healing of thermal burn injury

Rationale:

These activities will obtain safety, efficacy, and mechanism of action data that can be included in the investigational Device Exemption application to be submitted to FDA under WBS 2.5.1

Approach: Conditions defined in the studies described above will be applied to evaluate healing when ADRCs are delivered following thermal burn injury.

Description

Animals will receive thermal burn injury induced according to parameters optimized in the studies described above. Wounds will be treated with either control or ADRCs. ADRCs applied at the time of the initial treatment will be applied locally (for example directly into or onto the wound) and/or by systemic administration (for example, by intravenous injection). Each group will comprise a sufficient number of animals (for example, 4 or 5). Healing will be evaluated at time points selected on the basis of results obtained in the studies described above (for example, at the time of application of the STSG and two weeks after application of STSG). Assessment of fibrosis and hypertrophic scarring at the treatment site may be performed a suitable time after injury (for example, six months). These in vivo activities may be supplemented by in vitro studies that examine mechanisms underlying in vivo observations, for example, prior studies have shown an effect of ADRCs on inflammatory cell infiltration and blood vessel density. These phenomena can be assessed by in vitro activities assessing endothelial cells and leukocytes.

Deliverable: Interim and Final Study Reports

Success Criteria: Achieves success parameter defined in study protocol agreed to by BARDA and the Contractor prior to initiation of studies

Timing: Q4, FY16

	
2.3.2
	
Human Thermal Burn ADRC Characterization: Eschar: Complete: No further activity needed

Objective: To characterize the ADRC population obtained from patients with thermal burn injury

Rationale: As currently proposed, the pilot clinical trial includes use of adipose tissue obtained by excision of adipose tissue exposed during tangential or fascial excision of eschar. Studies performed in the Base Period have provided evidence that the yield, viability, function, and composition of ADRCs obtained from material obtained from fascial excision escharectomy are all within the range seen when processing adipose tissue obtained by liposuction from healthy donors. The current studies are needed to expand on this preliminary data by collecting and evaluating additional specimens and by extending the study to include tissue obtained by tangential excision. In addition, optimal enzymatic digestion of the adipose tissue requires that the excised tissue be morselized into fragments creating a surface area-to-volume ratio that allows efficient extraction of ADRCs.

Approach: Adipose tissue from patients with thermal burn injury will be obtained following informed consent and processed to prepare ADRCs. The number and function of these cells will be assessed using approaches such as cell viability and cell characterization methods that are used routinely by Cytori for evaluation of cells from conventional sources (liposuction) as applied in the Base Period. This will include development of a rapid, efficient, and validated method by which the excised tissue is morselized.

Page 9

Description

Human adipose tissue will be obtained following informed consent from a sufficient number of patients (for example, 20) undergoing treatment for thermal burn injury. Research subjects will be drawn from burn programs located in geographic proximity to the Contractor's research facility (for example, at the University of California at San Diego Burns Center located approximately five miles from the Cytori laboratories) and the University of California at Irvine Burn Center (located approximately 80 miles from Cytori laboratories). The tissue will be processed to prepare morselized adipose tissue that will then be digested to prepare ADRCs. Cell yield and viability will be determined using a NuclecounterTM device in accordance with standard practices at Cytori. Other examples of tools for characterization include multicolor flow cytometry to evaluate cell ADRC cellular composition, and molecular probes to evaluate the population as a whole.

Deliverable: Monthly Updates (during bi-weekly calls); Report for IDE Submission, and written Interim and Final Study Reports

Success Criteria: Achieves success parameter defined in study protocol agreed to by BARDA and the Contractor prior to initiation of studies

Timing: Monthly updates for enrollment reporting; Ql, FY15 for IDE Submission; Monthly reports to Q4 FY16; Q4, FY16 for interim and final reports.

	
2.4
	
Clinical Tasks: Unchanged from Original

	
2.4.1.1
	
Pilot Clinical Trial Preparation: Unchanged from Original

Objective: To perform the groundwork necessary for FDA approval of a Pilot clinical trial of the use of the Celution System in thermal burn injury and for expedited start of enrollment in the trial following FDA approval.

Rationale: The Celution System is regulated as a device within the Center for Biologics Evaluation and Research (CBER). CBER has approved the use of the Celution System in three prior IDE clinical trials. In the course of discussions with the FDA regarding these studies the Agency communicated to Cytori that they strongly preferred the study design to include evaluation of cell dose. The proposed study will obtain the safety and feasibility of a pilot study with additional information of cell dose and assessment of secondary outcomes associated with efficacy. These data may allow determination of sample size in any Pivotal Trial to follow (as described in Option 2). Prior to filing the IDE package for this Pilot Trial, the clinical team must develop a detailed clinical protocol and Investigator's Brochure (IB). These and related activities associated with assessment and selection of potential clinical trial sites and CROs will be executed under WBS 2.4.1.4.

Additional tasks must be performed in order to minimize the delay between FDA approval and start of the trial itself. These include selection of a qualified Clinical research Organization and of clinical sites that have the capability to enroll patients and execute the study with the level of quality required to achieve study goals.

Approach: With the assistance of a Scientific Advisory Board, the team will develop the protocol and IB as for past Cytori IDE filings. The team will also execute clinical site evaluation, CRO evaluation, and an preliminary assessment of contractual matters to ensure that the budget for proposed Option 2 is accurate.

Purpose

To provide the Regulatory team with the documentation needed to obtain FDA approval to initiate the specified clinical trial.

Description

Activities to be conducted include: development of the clinical trial protocol; assessment and selection of Clinical Contract Research Organization (CRO); and assessment, selection, and qualification of clinical trial sites. These activities will be executed with input from Cytori's Thermal Burn Scientific Advisory Board.

Deliverables: Monthly Updates (during bi-weekly calls) Clinical Trial Protocol and Investigator's Brochure for IDE Submission Q1 FY16 Site Initiation Readiness Report Q4 FY16 

Success Criteria: FDA approval of trial

Timing: Clinical Trial Protocol and Investigator's Brochure for IDE Submission Q4 FY16 Site Initiation Readiness Report Q6 FY16

Page 10

	
2.5
	
Regulatory Tasks

	
2.5.1
	
Pilot Clinical Trial IDE Approval 

Purpose

The FDA must grant approval before clinical use of an Investigational Device can be initiated. In the case of the Celution System in Thermal Burn Injury this will require approval under the Investigational Device Exemption mechanism.

Description

Cytori's regulatory team will prepare and submit a package of documents. Contents will be based upon the clinical trial protocol, data obtained in studies described above, and feedback received from the Agency in a Pre-IDE Meeting.

The content of the IDE package will largely mirror that used in prior submissions of this kind to the Agency. Contents will include relevant study reports from activities executed during the Base Period and Option 1. In the event that the FDA has additional questions to be answered following review of the initial package, the Regulatory team will develop, collate, and submit responses to said questions.

	
2.5.1
	
Pre-Submission Meeting

Deliverable: Presubmission Package and Meeting Minutes

Success Criteria: Clarity on path to successful IDE submission

Timing: Q3, FY16

	
2.5.2
	
IDE Approval

Deliverable: IDE Package and Responses (as required) to FDA Questions

Success Criteria: IDE Approval Granted by FDA

Timing: Q4, FY16

	
2.6
	
CMC

	
2.6.1
	
ADRC Delivery System

Objective: To develop a system capable of preparing adipose tissue obtained by excision rather than by liposuction for processing within the CT-X2 System and subsequent rapid, reproducible delivery to a thermal burn injury.

	
2.6.1.1
	
Tissue Pre-Processing: Unchanged

Objective: To develop a system capable of preparing adipose tissue obtained by excision rather than by liposuction for processing.

Rationale: Cytori methods have been optimized for preparing ADRCs from tissue collected by liposuction. During this process the suction force combined with the geometry of the liposuction cannula cuts the adipose tissue into small fragments. The conditions for enzymatic digestion of this material are based upon the standard surface area to volume ratio of tissue prepared by liposuction. Tissue prepared by excision will have a different surface area to volume ratio and, hence, will not be processed optimally without pre- processing. Activities within WBS 2.6.1.1 are designed to develop a standard, reproducible, and clinically acceptable pre-processing method that will prepare excisional samples for optimal processing. Cytori has developed approaches for pre-processing the tissue that are acceptable for the laboratory, but not for the clinic. The activities to be performed in WBS 2.6.1.1 are intended to address this deficiency.

Approach: Human adipose tissue will be pre-processed by two methods; (1) Cytori's standard laboratory approach and (2) using tools and supplies commonly available in the operating room. Tissue will then be processed. The yield, viability, and composition of the ADRCs derived will be evaluated using methods described above (WBS 2.3.2).

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Description: Human adipose tissue (see WBS 2.3.2) will be obtained following escharectomy. Adipose tissue will be excised from the sample and then sliced into fragments that approximate the size of fragments obtained by liposuction. Tissue slicing will be performed by two methods; (1) Cytori's standard laboratory approach and (2) using tools and supplies commonly available in the operating room. Tissue will then be processed. The yield, viability, and composition of the ADRCs derived will be evaluated using methods described above (WBS 2.3.2). Once the optimal approach using Operating Room materials has been developed, the approach will then be validated.

Deliverable: Validated Standard Operating Procedure with Validation Data

Success Criteria: Protocol accepted by FDA in IDE Submission

Timing: Q4, FY16

	
2.6.1.2
	
Cell Delivery Mechanism: Unchanged

Objective: To develop a system capable of reproducibly and conveniently delivery ADRCs to a thermal wound following escharectomy.

Rationale: The current clinical protocol, based on preclinical data, specifies delivery ADRCs into the wound bed a single injection indicated for each 10cm2 of treatment area. There is currently no off-the-shelf approach available that achieves this delivery without unnecessarily prolonging surgical time.

Approach: Injection of ADRCs into the wound could, for example, take the form of a powered dosing syringe delivering a specified volume of material (ADRCs) into the wound bed at each touch of the button. This markedly reduces strain in the Surgeon's hand for large wounds requiring many injections. Examples of this approach were presented to the FDA at the Pre-Submission meeting where they met with general approval with the natural proviso that full review in the IDE Submission would be required. For example, FDA indicated that they would require data showing that the output of the injection system was consistent over time. Another possible approach is a topical spray similar to that already used in burn care for application of fibrin glue used to help secure skin grafts. The activities performed herein will continue development of a suitable approach in order to complete the information needed for the IDE submission. Additional technical support will be required in the early phase of the clinical trial for matters such as set-up and training.

Description: Cytori engineers have already identified candidate powered syringe and spray systems that may be suitable for this purpose. These devices will be brought in-house. The convenience, time, and reproducibility of injection may be assessed by, for example, injecting ADRCs into surrogate materials, for example, porcine skin, human skin obtained from patients undergoing elective cosmetic procedures (eg: “tummy tuck”) and/or into sample collection vials.

Deliverable: Interim and Final Reports

Success Criteria: Protocol accepted by FDA in IDE Submission

Timing: Q4, FY16

	
2.6.1.3
	
ADRC Delivery System and Process: Unchanged but renamed “WBS 2.6.2 Verification and Validation”

Objective: To obtain data and reports that will allow FDA to assess the safety and suitability of the ADRC Delivery System and Process for use in the proposed clinical trial.

Rationale: Robust testing, verification, and validation of the system and process used for ADRC preparation and delivery is a necessary component of the package to be submitted for FDA review as part of obtaining approval to execute the proposed clinical trial.

Approach: FDA requirements and guidance documents specify a range of testing that must be performed on systems such as that proposed herein before said systems can be used in a clinical trial. Small companies like Cytori invariably find it more efficient to outsource much of this specialized testing to vendors with specific expertise. For this reason, certain aspects of the work proposed for WBS 2.6.1.3 will be executed by subcontractors.

Description

CMC testing on hardware, consumable, and software elements of the Cell Delivery System and Process. 

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Deliverables:

	
 
	
1.
	
Consumable component mold verification report

	
 
	
2.
	
CMC Test Report of Cell Delivery System and Process circuit board element

	
 
	
3.
	
Electromagnetic compatibility testing report

	
 
	
4.
	
Consumables for use in testing to be executed by Cytori in WBS 2.3.1, WBS 2.3.2, WBS 2.4.1, WBS 2.5.1, and WBS 2.6.1

	
 
	
5.
	
Software Verification and Validation report

Success Criterion: Reports accepted by FDA in IDE Submission

Timing: Q4 2016

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