Document:

exhibit101sstdpa

  1  UNITED STATES DISTRICT COURT  DISTRICT OF MASSACHUSETTS        UNITED STATES OF AMERICA      v.    STATE STREET CORPORATION,     Defendant    )  )  )  )  )  )  )  )  )    Criminal No.   Violation:     Count One: Conspiracy to Commit   Wire Fraud  (18 U.S.C. § 1349)        DEFERRED PROSECUTION AGREEMENT  Defendant State Street Corporation (the “Company”), pursuant to the authority granted by  the Company’s Board of Directors, and the United States Attorney’s Office for the District of  Massachusetts (the “Office”), enter into this deferred prosecution agreement (the “Agreement”).  Criminal Information and Acceptance of Responsibility  1. The Company acknowledges and agrees that the Office will file the attached one- count criminal Information (the “Information”) in the United States District Court for the District  of Massachusetts charging the Company with conspiracy to commit wire fraud, in violation of  Title 18, United States Code, Section 1349. In so doing, the Company: (a) knowingly waives its  right to indictment on this charge, as well as all rights to speedy trial pursuant to the Sixth  Amendment to the United States Constitution, Title 18, United States Code, Section 3161, and  Federal Rule of Criminal Procedure 48(b); and (b) knowingly waives any objection with respect  to venue to any charges by the United States arising out of the conduct described in the Statement  of Facts attached hereto as Attachment A (“Statement of Facts”), and consents to the filing of the  Information, as provided under the terms of this Agreement, in the United States District Court for  the District of Massachusetts. The Office agrees to defer prosecution of the Company and any of  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 2 of 52 

 

  2  its subsidiaries and majority-owned, operationally-controlled affiliates pursuant to the terms and  conditions described below.  2. The Company admits, accepts, and acknowledges that it is responsible under United  States law for the acts of its officers, directors, employees, and agents as charged in the  Information, and as set forth in the Statement of Facts, and that the allegations described in the  Information and the facts described in the Statement of Facts are true and accurate. Should the  Office pursue the prosecution that is deferred by this Agreement, the Company stipulates to the  admissibility of the Statement of Facts in any proceeding, including any trial, guilty plea, or  sentencing proceeding, and will not contradict anything in the Statement of Facts at any such  proceeding.  Term of the Agreement  3. This Agreement is effective for a period beginning on the date on which the  Information is filed and ending two years from the later of either: (a) the date on which the  Information is filed, or (b) the date on which the independent compliance monitor (the “Monitor”)  is retained by the Company, as described in Paragraphs 13 to 15 below. The Company agrees,  however, that in the event the Office determines, in its sole discretion, that the Company has  knowingly violated any provision of this Agreement, an extension or extensions of the Term may  be imposed by the Office, in its sole discretion, for up to a total additional time period of one year  without prejudice to the Office’s right to proceed as provided in Paragraphs 18 to 23 below. Any  extension of the Agreement extends all terms of this Agreement, including the terms of the  monitorship in Attachment C, for an equivalent period. Conversely, in the event the Office finds,  in its sole discretion, that there exists a change in circumstances sufficient to eliminate the need  for the monitorship in Attachment C, and that the other provisions of this Agreement have been  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 3 of 52 

 

  3  satisfied, the Term of the Agreement may be terminated early. If the Court rejects the Agreement,  all the provisions of the Agreement shall be deemed null and void, the Agreement shall be  inadmissible in any proceeding, and the Term shall be deemed to have not begun.  Relevant Considerations  4. The Office enters into this Agreement based on the individual facts and  circumstances presented by this case, including:  a. The Company received credit for cooperating with the Office’s  investigation, including by: voluntarily disclosing the misconduct to the  Office; collecting, analyzing, and organizing voluminous evidence and  information for the Office; and providing all non-privileged facts relating  to individual involvement in the misconduct described in the Statement of  Facts;     b. The Company announced that it would reimburse the victims of the  misconduct for the amounts that it determined were overbilled, with  interest, and promptly engaged a consulting firm with financial and forensic  accounting experience to assist the Company in assessing and identifying  the categories of expenses that were overbilled, to identify the clients  affected, and to assess the Company’s method of calculating the amount of  reimbursements;    c. The Company paid disgorgement, prejudgment interest, and a civil  monetary penalty in connection with a settlement with the United States  Securities and Exchange Commission in the amount of approximately $88  million, and paid civil penalties to state regulators in the amount of $8.575  million;    d. The Company engaged in remedial measures, including terminating  employees responsible for the misconduct, enhancing governance and  oversight related to the accuracy of customer invoicing, enhancing controls  to monitor and test costs for expenses to be billed to customers, developing  new standard fee schedules to clarify the Company’s invoicing  methodologies, and taking additional steps to enhance its compliance  program by ensuring consequences to both individuals and business units  for misconduct;    e. The Company has committed to continue to enhance its compliance  program and internal controls and has agreed to retain a Monitor as  discussed below and in Attachment C;    Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 4 of 52 

 

  4  f. The nature and seriousness of the offense;    g. The Company’s criminal history, which consists of a prior deferred  prosecution agreement with the Office and the United States Department of  Justice, Criminal Division, Fraud Section (the, “Fraud Section”), dated  January 17, 2017 (the “2017 Agreement”), as well as the Company’s history  of civil government settlements; and    h. The Company has agreed to continue to cooperate with the Office in any  ongoing investigation of the conduct of the Company and its officers,  directors, employees, agents, business partners, and consultants relating to  possible violations of federal criminal law.    Future Cooperation and Disclosure Requirements  5. The Company shall cooperate fully with the Office in any and all matters relating  to the conduct described in this Agreement and the Statement of Facts, and any other possibly  fraudulent conduct under investigation by the Office or any other component of the Department of  Justice at any time during the Term of this Agreement, subject to applicable law and regulations,  until the later of the date upon which all investigations and prosecutions arising out of such conduct  are concluded, or the end of the Term as specified in Paragraph 3. At the request of the Office, the  Company shall also cooperate fully with other domestic or foreign law enforcement and regulatory  authorities and agencies in any investigation of the Company, or its subsidiaries and majority- owned, operationally-controlled affiliates, or any of its present or former officers, directors,  employees, agents, and consultants, or any other party, in any and all matters relating to the conduct  described in this Agreement and the Statement of Facts. The Company agrees that its cooperation  pursuant to this paragraph shall include, but not be limited to, the following:  a. The Company shall truthfully disclose all factual information not protected  by a valid claim of attorney-client privilege or work product doctrine with  respect to its activities, those of its subsidiaries and majority-owned,  operationally-controlled affiliates, and those of its present and former  directors, officers, employees, agents, and consultants, including any  evidence or allegations and internal or external investigations of possible  fraud-related conduct about which the Company has any knowledge or  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 5 of 52 

 

  5  about which the Office may inquire. This obligation of truthful disclosure  includes, but is not limited to, the obligation of the Company to provide the  Office, upon request, any document, record, or other tangible evidence not  protected by a valid claim of attorney-client privilege or work product  doctrine about which the Office may inquire of the Company;    b. Upon request of the Office, the Company shall designate knowledgeable  employees, agents, or attorneys to provide information and materials  described in Paragraph 5(a) of this Agreement on behalf of the Company. It  is further understood that the Company must at all times provide complete,  truthful, and accurate information;    c. The Company shall use its best efforts to make available for interviews or  testimony, as requested by the Office, present or former officers, directors,  employees, agents, and consultants of the Company. This obligation  includes, but is not limited to, sworn testimony before a federal grand jury  or in federal trials, as well as interviews with domestic or foreign law  enforcement and regulatory authorities. Cooperation under this paragraph  shall include identification of witnesses who, to the knowledge of the  Company, may have material information regarding the matters under  investigation; and,     d. With respect to any information, testimony, documents, records, or other  materials provided to the Office pursuant to this Agreement, the Company  consents to any and all disclosures, subject to applicable law and  regulations, to other governmental authorities, including domestic or  foreign governments, as deemed appropriate in the sole discretion of the  Office.    6. In addition to the obligations in Paragraph 5, during the Term of the Agreement,  should the Company learn of credible evidence or allegations of a violation of law, the Company  shall promptly report such evidence or allegations to the Office.  Payment of Monetary Penalty  7. The Company and the Office agree that the application of the United States  Sentencing Guidelines (the, “USSG” or “Sentencing Guidelines”) to determine the applicable fine  range yields the following analysis:  a. The 2018 Sentencing Guidelines are applicable to this matter.  b. Offense Level. Based on USSG § 2B1.1, the total offense level is 35,  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 6 of 52 

 

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  7  circumstances, it will recommend to the Court that any amount paid under this Agreement should  be offset against any fine the Court imposes as part of a future judgment. The Company further  acknowledges that no tax deduction may be sought in connection with the payment of any part of  this $115,000,000 penalty. The Company shall not seek or accept directly or indirectly  reimbursement or indemnification from any source outside the Company, its subsidiaries and  majority-owned, operationally-controlled affiliates with regard to the penalty amounts that the  Company pays pursuant to this Agreement or any other agreement entered into with an  enforcement authority or regulator concerning the conduct described in the Statement of Facts.  Conditional Release from Liability  9. Subject to Paragraphs 18 to 23 below, the Office agrees, except as provided in this  Agreement, that it will not bring any criminal or civil case against the Company or subsidiaries  and majority-owned, operationally-controlled affiliates relating to any of the conduct described in  the Statement of Facts or the Information. The Office, however, may use any information related  to the conduct described in the Statement of Facts or the Information against the Company: (a) in  a prosecution for perjury or obstruction of justice; (b) in a prosecution for making a false statement;  (c) in a prosecution or other proceeding relating to any crime of violence; or (d) in a prosecution  or other proceeding relating to a violation of any provision of Title 26 of the United States Code.  10. This Agreement does not provide any protection against prosecution for any future  conduct by the Company or any of its subsidiaries and majority-owned, operationally-controlled  affiliates or for any prior conduct not specifically set forth in the attached Statement of Facts or  the Information.  11. In addition, this Agreement does not provide any protection against the prosecution  of any individuals, regardless of their affiliation with the Company.  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 8 of 52 

 

  8  Corporate Compliance Program  12. The Company represents that it has implemented or will implement a compliance  and ethics program throughout its operations, including those of its majority-owned operationally- controlled affiliates, agents, and joint ventures, and those of its contractors and sub-contractors  whose responsibilities include interaction with customers, investors, and business partners,  determining pricing or compensation to the Company for services provided to customers, and  making representations to customers, investors, or business partners, either directly or indirectly,  regarding among other things, the prevention and detection of fraud-related violations of law. The  Company’s efforts pursuant to this Agreement shall focus on the prevention and detection of fraud- related conduct by its employees, representatives, and agents, including but not limited to  misrepresentations to and concealment of information from the Company’s customers, investors,  and business partners. Implementation of this compliance and ethics program shall not be  construed in any future proceeding as providing immunity or amnesty for any crimes not disclosed  to the Office as of the date of this Agreement for which the Company would otherwise be  responsible.  Independent Compliance Monitor  13. Promptly after the Office’s selection pursuant to Paragraph 14 below, the Company  agrees to retain a Monitor for the term specified in Paragraph 15 below. The Monitor’s duties and  authority, and the obligations of the Company with respect to the Monitor and the Office, are set  forth in Attachment C, which is incorporated by reference into this Agreement. Upon the execution  of this Agreement, and after consultation with the Office, the Company will propose to the Office  a pool of three qualified candidates to serve as the Monitor. If the Office determines, in its sole  discretion, that any of the candidates are not, in fact, qualified to serve as the Monitor, or if the  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 9 of 52 

 

  9  Office, in its sole discretion, is not satisfied with the candidates proposed, the Office reserves the  right to seek additional nominations from the Company. The parties will endeavor to complete the  Monitor selection process within thirty business days of the execution of this Agreement. The  Monitor candidates or their team members shall have, at a minimum, the following qualifications:    a. Demonstrated expertise with respect to United States criminal fraud laws  and regulations;    b. Demonstrated expertise with respect to corporate compliance and ethics  within the financial services industry, including counseling financial  services companies with custody businesses on these issues;    c. Experience designing and/or reviewing corporate compliance policies,  procedures, and internal controls;    d. The ability to access and deploy resources as necessary to discharge the  Monitor’s duties as described in the Agreement; and,    e. Sufficient independence from the Company to ensure effective and  impartial performance of the Monitor’s duties as described in the  Agreement.    The Office agrees that, as an alternative to the selection process set forth above, the Company may  elect to retain the independent compliance monitor retained under the 2017 Agreement, to serve  as the Monitor under this Agreement, and upon any resignation of the Monitor the Company may  elect to retain his or her predecessor under the 2017 Agreement.    14. In the event the Company does not elect to retain the independent compliance  monitor it retained under the 2017 Agreement to serve as the Monitor under this Agreement, the  Office retains the right, in its sole discretion, to choose the Monitor from among the candidates  proposed by the Company, though the Company may express its preference(s) among three  candidates. In the event the Office rejects all proposed Monitors, the Company shall propose an  additional three candidates within twenty business days after receiving notice of the rejection. This  process shall continue until a Monitor acceptable to both parties is chosen. The Company and the  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 10 of 52 

 

  10  Office will use their best efforts to complete the selection process within sixty calendar days of the  execution of this Agreement. If the Monitor resigns or is otherwise unable to fulfill his or her  obligations as set in this Agreement and/or in Attachment C, the Company shall within twenty  business days recommend a pool of three qualified Monitor candidates from which the Office will  choose a replacement, as described in Paragraph 13.  15. The Monitor’s term shall be two years from the date on which the Monitor is  retained by the Company, subject to extension or early termination as described in Paragraph 3.   The Monitor’s powers, duties, and responsibilities, as well as additional circumstances that may  support an extension of the Monitor’s term, are set forth in Attachment C. The Company agrees  that it will not employ or be affiliated with the Monitor or the Monitor’s firm for a period of at  least two years from the date on which the Monitor’s term expires.  Nor will the Company discuss  with the Monitor or the Monitor’s firm the possibility of further employment or affiliation during  the Monitor’s term or within the two years from the date on which the Monitor’s term expires.  Deferred Prosecution  16. In consideration of the undertakings agreed to by the Company herein, the Office  agrees that any prosecution of the Company or any of its subsidiaries and majority-owned,  operationally-controlled affiliates for the conduct set forth in the attached Statements of Facts or  Information be and hereby is deferred for the Term. To the extent there is conduct disclosed by the  Company that is not set forth in the Statement of Facts or Information, such conduct will not be  exempt from further prosecution and is not within the scope of or relevant to this Agreement.  17. The Office further agrees that if the Company fully complies with all of its  obligations under this Agreement, the Office will not continue the criminal prosecution against the  Company described in Paragraph 1, and, at the conclusion of the Term, this Agreement shall  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 11 of 52 

 

  11  expire. Within six months of the Agreement’s expiration, the Office shall seek dismissal with  prejudice of the criminal Information filed against the Company described in Paragraph 1, and  agree not to file charges in the future against the Company or any of its subsidiaries and majority- owned, operationally-controlled affiliates based on the conduct described in this Agreement and  the Statement of Facts.  Breach of the Agreement  18. The Company shall be subject to prosecution if, during the Term, it:  a. Commits any felony under United States federal law;    b. Provides in connection with this Agreement deliberately false, incomplete,  or misleading information, including in connection with its disclosure of  information about individual culpability;    c. Fails to cooperate as set forth in Paragraphs 5 and 6 of this Agreement;    d. Fails to implement the programs as set forth in Paragraphs 12 and 13 of this  Agreement and Attachment C; and,    e. Otherwise fails specifically to perform or fulfill completely each of the  Company’s obligations under the Agreement, regardless of whether the  Office becomes aware of such breach after the Term is complete.    The parties agree that the Office may pursue the prosecution for any federal criminal violation,  including, but not limited to, the charges in the Information, in the United States District Court for  the District of Massachusetts or any other appropriate venue.    19. Determination of whether the Company has breached the Agreement and whether  to pursue prosecution of the Company shall be in the sole discretion of the Office. Any such  prosecution may be premised on information provided by the Company or its personnel. Any such  prosecution relating to the conduct described in the Statement of Facts or relating to conduct  known to the Office prior to the date on which this Agreement was signed that is not time-barred  by the applicable statute of limitations on the date of the signing of this Agreement may be  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 12 of 52 

 

  12  commenced against the Company, notwithstanding the expiration of the statute of limitations,  between the signing of this Agreement and the expiration of the Term plus one year. Thus, by  signing this Agreement, the Company agrees that the statute of limitations with respect to any such  prosecution that is not time-barred on the date of the signing of this Agreement shall be tolled for  the Term plus one year. In addition, the Company agrees that the statute of limitations as to any  criminal fraud-related violation of federal law that occurs during the Term will be tolled from the  date upon which the violation occurs until the earlier of the date upon which the Office is made  aware of the violation or the duration of the Term plus five years, and that this period shall be  excluded from any calculation of time for purposes of the application of the statute of limitations.  20. In the event the Office determines that the Company has breached this Agreement,  the Office agrees to provide the Company with written notice prior to instituting any prosecution  resulting from such breach. Within thirty business days of receipt of such notice, the Company  shall have the opportunity to respond to the Office in writing to explain the nature and  circumstances of the breach, as well as the actions the Company has taken to address and remediate  the situation, which the Office shall consider in determining whether to pursue prosecution of the  Company.  21. In the event that the Office determines that the Company has breached this  Agreement:  a. All statements made by or on behalf of the Company to the Office or to the  Court, including the Statement of Facts, and any testimony given by the  Company before a grand jury, a court, or any tribunal, or at any legislative  hearings, whether prior or subsequent to this Agreement, and any leads  derived from such statements or testimony, shall be admissible in evidence  in any and all criminal or civil proceedings brought by the Office against  the Company; and,     b. The Company shall not assert any claim under the United States  Constitution, Rule 11(f) of the Federal Rules of Criminal Procedure, Rule  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 13 of 52 

 

  13  410 of the Federal Rules of Evidence, or any other federal rule that any such  statements or testimony made by or on behalf of the Company prior or  subsequent to this Agreement, or any leads derived therefrom, should be  suppressed or otherwise inadmissible.  The decision shall be in the sole discretion of the Office as to whether conduct or statements of  any current director, officer, employee, or any person acting on behalf or at the direction of the  Company, will be imputed to the Company for purpose of determining whether the Company has  violated any provision of this Agreement.  22. The Company acknowledges that the Office has made no representations,  assurances, or promises concerning what sentence may be imposed by the Court if the Company  breaches this Agreement and this matter proceeds to judgment. The Company further  acknowledges that any such sentence is solely within the discretion of the Court and that nothing  in this Agreement binds or restricts the Court in the exercise of such discretion.  23. Thirty business days after the expiration of the period of deferred prosecution  specified in this Agreement, the Company, by the Chief Executive Officer of the Company and  the Chief Financial Officer of the Company, on the basis of diligent inquiry, will certify to the  Office that the Company has met its disclosure obligations pursuant to Paragraphs 5 and 6 of this  Agreement. Each certification will be deemed a material statement and representation by the  Company to the executive branch of the United States for purposes of Title 18, United States Code,  Section 1001, and it will be deemed to have been made in the District of Massachusetts.    Sale, Merger, or Other Change in Corporate Form of the Company  24. Except as may otherwise be agreed by the parties in connection with a particular  transaction, the Company agrees that in the event that, during the Term, it undertakes any change  in corporate form, including if it sells, merges, or transfers business operations that are material to  the Company’s consolidated operations, or to the operations of any subsidiaries or affiliates  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 14 of 52 

 

  14  involved in the conduct described in the Statement of Facts, as they exist as of the date of this  Agreement, whether such sale is structured as sale, asset sale, merger, transfer, or other change in  corporate form, it shall include in any contract for sale, merger, transfer, or other change in  corporate form a provision binding the purchaser, or any successor in interest thereto, to  obligations described in this Agreement. The Company shall obtain approval from the Office at  least thirty business days prior to undertaking any such sale, merger, transfer, or other change in  corporate form, including dissolution, in order to give the Office an opportunity to determine if  such change in corporate form would impact the terms or obligation of the Agreement. This  paragraph shall not apply to:    a. Any sale, merger, or transfer which is being executed pursuant to recovery  and resolution actions of the Company or in furtherance of pursuit of a  credible resolution plan as contemplated by the Dodd-Frank Wall Street  Reform and Consumer Protection Act; and    b. Sales, merger, or transfers between subsidiaries or majority-owned,  operationally-controlled affiliates, including internal reorganizations.  Public Statements by the Company  25. Within ten business days of the filing of the Information in the United States  District Court, the Company will (a) make this Agreement and the Statement of Facts  conspicuously available to the public on its website for the duration of this Agreement; and (b)  communicate to all Company employees that the Company has entered into this Agreement and  make available this Agreement and Statement of Facts to all such employees.  26. The Company expressly agrees that it shall not, through any person authorized to  speak on behalf of the Company, including any present or future attorneys, officers, directors,  employees, or agents, make any public statement, in litigation or otherwise, contradicting the  acceptance of responsibility by the Company set forth above or the facts described in the Statement  of Facts. Any such contradictory statement shall, subject to cure rights of the Company described  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 15 of 52 

 

  15  below, constitute a breach of this Agreement, and the Company thereafter shall be subject to  prosecution as set forth in Paragraphs 20 through 22 of this Agreement. The decision whether any  public statement by any such person contradicting a fact contained in the attached Statements of  Facts will be imputed to the Company for the purpose of determining whether it has breached this  Agreement shall be at the sole discretion of the Office. If the Office determines that a public  statement by any such person contradicts in whole or in part a statement contained in the Statement  of Facts, the Office shall so notify the Company in writing, and the Company may avoid a breach  of this Agreement by publicly repudiating such statement within five business days after  notification. The Company shall be permitted to raise defenses and to assert affirmative claims in  other proceedings relating to the matters set forth in the Statement of Facts provided that such  defenses and claims do not contradict, in whole or in part, a statement contained in the Statement  of Facts. This paragraph does not apply to any statement made by any present or former officer,  director, employee, or agent of the Company in the course of any criminal proceeding, unless such  individual is speaking on behalf of the Company.  27. The Company agrees that if it or any of its direct or indirect subsidiaries or affiliates  issues a press releases or holds any press conference in connection with this Agreement, the  Company shall first consult with the Office to determine: (a) whether the text of the release or  proposed statements at the press conference are true and accurate with respect to matters between  the Company and the Office; and (b) whether the Office has any objection to the release.  28. The Office agrees, if requested to do so, to bring to the attention of law enforcement  and regulatory authorities the facts and circumstances relating to the nature of the conduct  underlying this Agreement, including the nature and quality of the Company’s cooperation and  remediation. By agreeing to provide this information to such authorities, the Office is not agreeing  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 16 of 52 

 

  16  to advocate on behalf of the Company, but rather is agreeing to provide facts to be evaluated  independently by such authorities.   Limitations on Binding Effect of Agreement  29. This Agreement is binding on the Company and the Office but specifically does not  bind any other component of the Department of Justice, other federal agencies, or any state, local,  or foreign law enforcement or regulatory agencies, or any other authorities, although the Office  will bring the cooperation of the Company and its compliance with its other obligations under this  Agreement to the attention of such agencies and authorities if requested to do so by the Company.  Notice  30. Any notice required under this Agreement shall be given by personal delivery,  overnight delivery by a recognized delivery service, or registered or certified mail, to the following  address for:  a. The Office: Chief – Securities, Financial & Cyber Fraud Unit; United States  Attorney’s Office for the District of Massachusetts; John Joseph Moakley  United States Courthouse; 1 Courthouse Way, Suite 9200; Boston,  Massachusetts 02210; or,    b. The Company: General Counsel, State Street Corporation, State Street  Financial Center, One Lincoln Street, Boston, Massachusetts 02111.     31. Notice shall be effective upon actual receipt by the Office or the Company.    Complete Agreement  32. This Agreement, including its attachments, sets forth all the terms of the settlement  between the Company and the Office. No amendments, modifications or additions to this  Agreement shall be valid unless they are in writing and signed by the Office, the attorneys for the  Company and a duly authorized representative of the Company.  AGREED:  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 17 of 52 

 

17  FOR STATE STREET CORPORATION:                                     FOR THE UNITED STATES ATTORNEY’S OFFICE:  NATHANIEL R. MENDELL  ACTING UNITED STATES ATTORNEY  Date: ____________ By:  ________________________ Justin D. O’Connell  Assistant United States Attorney May 13, 2021 Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 18 of 52 

 

COMPANY OFFICER’S CERTIFICATE  I have read this Agreement and carefully reviewed every part of it with outside counsel for  State Street Corporation (the “Company”). I understand the terms of this Agreement and  voluntarily agree, on behalf of the Company, to each of its terms. Before signing this Agreement,  I consulted outside counsel for the Company, who have fully advised me of the rights of the  Company, of possible defenses, of the Sentencing Guidelines, and of the consequence of entering  into this Agreement.    I have also carefully reviewed the terms of this Agreement with the Board of Directors of  the Company. Before signing this Agreement, I have advised and caused outside counsel for the  Company to advise the Board of Directors fully of the rights of the Company, of possible defenses,  of the Sentencing Guidelines, and of the consequences of entering into this Agreement.  No promises or inducements have been made other than those contained in this Agreement.  Furthermore, no one has threated or forced me, or to my knowledge any person authorizing this  Agreement on behalf of the Company, in any way to entered into this Agreement. I am also  satisfied with outside counsel’s representation in the matter. I certify that I am the General Counsel  for the Company and that I have been duly authorized by the Company to execute this Agreement  on behalf of the Company.                       Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 19 of 52 

 

 19 CERTIFICATE OF COUNSEL  We are counsel for State Street Corporation (the “Company”) in the matter covered by this  Agreement. In connection with such representation, we have examined relevant Company  documents and have discussed the terms of this Agreement with the Company Board of Directors.  Based our review of the foregoing materials and discussions, we are of the opinion that the General  Counsel of the Company has been duly and validly authorized, executed, and delivered on behalf  of the Company and is a valid and binding obligation of the Company. Further, we have carefully  reviewed the terms of this Agreement with the Board of Directors and the General Counsel of the  Company. We have fully advised them of the rights of the Company, of possible defenses, of the  Sentencing Guidelines’ provisions and of the consequences of entering into this Agreement.  To  our knowledge, the decision of the Company to enter into this Agreement, based on the  authorization of the Board of Directors, is an informed and voluntary one.                            Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 20 of 52 

 

    A-1   ATTACHMENT A  STATEMENT OF FACTS  The following Statement of Facts is incorporated by reference as part of the Deferred  Prosecution Agreement (the “Agreement”) between the United States Attorney’s Office for the  District of Massachusetts (the “Office”) and State Street Corporation (“State Street” or the  “bank”). State Street hereby agrees and stipulates that the following information is true and  accurate. State Street admits, accepts, and acknowledges that it is responsible for the acts of its  subsidiaries and majority-owned, operationally-controlled affiliates, officers, directors,  employees, and agents as set forth below. Should the Offices pursue the prosecution that is deferred  by this Agreement, State Street (including its subsidiaries and majority-owned, operationally- controlled affiliates) agrees that it will neither contest the admissibility of, nor contradict, this  Statement of Facts in any such proceeding. The following facts establish beyond a reasonable  doubt the charges set forth in the criminal Information attached to this Agreement:  Background  1. Together with its subsidiaries and affiliates, State Street was a financial services  company headquartered and with its principal place of business in Boston, Massachusetts. State  Street owned one of the world’s largest custody banks, State Street Bank and Trust Company. Its  clients included corporate and public retirement plans, insurance companies, foundations,  endowments and other investment pools, and registered investment companies. State Street’s  custody business in the United States fell within the Global Services America (“GSA”) division  of the Investor Services division of State Street Bank and Trust Company.    2. As a custody bank, State Street held and safeguarded its clients’ financial assets,  including stocks, bonds, and currencies. In addition, State Street offered its custody clients  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 21 of 52 

 

    A-2   clearing, payment, settlement and record-keeping services. The financial terms of State Street’s  relationships with its custody clients were typically documented in fee schedules. During the  relevant period, those schedules provided that State Street would be compensated for its services  in various ways, including (a) “asset-based” fees that reflected a percentage of its clients’ assets;  (b) transaction charges at specified dollar amounts (such as specified charges to transfer money by  wire); and (c) “out-of-pocket” (“OOP”) expenses. State Street’s Investment Manager Guide  described OOP expenses as “generally understood in the securities industry to mean costs for items  paid by the custodian on behalf of the investor,” which were “reimbursable to the custodian.”    3. At all times relevant, State Street’s fee schedules typically provided that customers  would make payment for OOP expenses, and identified the following as yielding OOP expenses:  (a) interbank messages sent via the Society of Worldwide Interbank Financial Telecommunication  (“SWIFT”); (b) asset pricing and valuation services provided by third-party vendors; (c) certain  specialized data feeds to funds’ audit firms for purposes of required auditing assessments;  (d) reports provided by auditors engaged by State Street to review its internal controls relating to  the processing of client transactions, the preparation of client financial statements, and other  services; (e) the preparation of SEC Rule 17f-5 reports for mutual fund clients to address certain  requirements for the custody of foreign assets by foreign sub-custodians; (f) archiving of client  records; (g) delivery and courier services; (h) printing and copying; (i) telephone services; (j) forms  and supplies; (k) issuing checks; (l) computer equipment; and (m) wire transfers.   4. For many categories of OOP expenses, State Street established a billing rate per  unit volume that reflected the actual costs State Street incurred for those activities, which it passed  on to its clients. Over time, however, as the bank’s costs for services declined, State Street  continued to charge its clients the old rates, and to represent them as OOP expenses, even though  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 22 of 52 

 

    A-3   the bank was actually earning a profit from those charges. Many of State Street’s clients, in turn,  were unaware that they were paying markups on OOP expenses because the bank’s invoices  typically listed only the total amount owing for OOP expenses, but did not break out amounts  charged per unit or transaction.      5. SWIFT messages were secure wire communications in interstate and foreign  commerce used to effectuate securities trades and related financial transactions. Internally, State  Street calculated SWIFT message charges based on two components: a “unit cost” and a “message  fee.” The “unit cost” generally reflected what State Street paid per message to the SWIFT  organization to send a SWIFT message. During the relevant time, this cost varied over time and  by message type, but typically ranged between $0.02 and $0.15 per message unit. The “message  fee” was intended to cover the overhead expenses State Street incurred to send SWIFT messages,  such as the cost of maintaining SWIFT-dedicated computers and telephone lines. Prior to the  relevant period, State Street typically charged clients a “message fee” of $5.00 per message. State  Street continued to charge many clients that same amount during the relevant period, even though,  as bank executives were aware, an increase in SWIFT message volume caused State Street’s actual  SWIFT-related overhead expenses per message to decline substantially. During the relevant  period, State Street’s invoices did not break out unit costs or message fees, but instead simply  provided custody clients a total amount due for SWIFT-related OOP expenses.    6. Co-Conspirator-1 (“CC-1”) was an individual whose identity is known to the Office  and State Street. At all relevant times, CC-1 was employed by State Street in Massachusetts as a  senior vice president of U.S. Investor Services (“USIS”), a division of GSA, and a senior  department head in the investor services group. CC-1 reported to the executive vice president in  charge of USIS.    Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 23 of 52 

 

    A-4   7. Co-Conspirator-2 (“CC-2”) was an individual whose identity is known to the Office  and State Street. At all relevant times, CC-2 was employed by State Street in various locations  including in Massachusetts as a senior vice president of USIS and a department head in the investor  services group. CC-2 reported to CC-1.   8. Co-Conspirator-3 (“CC-3”) was an individual whose identity is known to the Office  and State Street. At all relevant times, CC-3 was employed by State Street in Massachusetts as a  Managing Director of USIS and a department head in the investor services group. CC-3 reported  to CC-1.   9. Co-Conspirator-4 (“CC-4”) was an individual whose identity is known to the Office  and State Street. At all relevant times, CC-4 was employed by State Street in Massachusetts as a  senior vice president of USIS and a department head in the mutual fund services group. CC-4  indirectly reported to the executive vice president in charge of USIS.    10. Co-Conspirator-5 (“CC-5”) was an individual whose identity is known to the Office  and State Street. At all relevant times, CC-5 was employed by State Street in Massachusetts as a  vice president of USIS and controller of State Street’s mutual fund servicing business. CC-5  indirectly reported to the executive vice president in charge of USIS.    11. Co-Conspirator-6 (“CC-6”) was an individual whose identity is known to the Office  and State Street. At all relevant times, CC-6 was employed by State Street in Massachusetts as a  vice president of USIS and head of a unit in the investor services group. CC-6 reported, variously,  to CC-2 and CC-3.  12. Co-Conspirator-7 (“CC-7”) was an individual whose identity is known to the Office  and State Street. At all relevant times, CC-7 was employed by State Street in Massachusetts as a  vice president of USIS and head of a unit in the mutual fund services group. CC-7 reported to CC- Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 24 of 52 

 

    A-5   4.    13. Co-Conspirator-8 (“CC-8”) was an individual whose identity is known to the Office  and State Street. At all relevant times, CC-8 was employed by State Street in Massachusetts as a  vice president of USIS and manager of client relations within the investor services group. CC-8  reported to CC-6.   14. Throughout the relevant period, State Street executives were repeatedly made  aware that the fees they were charging clients for SWIFT messages and other purported OOP  expenses far exceeded the actual costs of those services to the bank.   15. For example, on or about October 26, 2004, CC-7, who was in the process of  negotiating with a client, e-mailed CC-4 about SWIFT fees. CC-7 wrote of having been told that  the $5 per message SWIFT fee “is NOT the true cost. This $5 has been around for a long while  and at one time was accurate. It includes overhead, systems maintenance, etc.” CC-4 responded:  “Are we charging anyone the $5 today. I’m a little concerned that in today’s environment the  definition of ‘out-of-pocket’ expense should be exactly what we are paying out of pocket.” CC-7  replied: “The current cost is $1 to $2 per message outbound (inbound is nothing). I am trying to  get clients who are paying $5 per messages. Two people in Finance have told me that there is mark  up involved.”  16. Similarly, on or about December 13, 2005, in response to a question from a State  Street executive concerning whether to charge a client the “standard (gross-up) charge” of $5.00  per message or “the true ‘cost’” of $1.00 per message, CC-4 e-mailed CC-7, “How do we get our  arms around what is a realistic number. If it’s costing us $1 and we are charging $5 my concern is  that it is no longer an out-of-pocket.”   17. State Street executives also discussed the fact that clients were unaware of the  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 25 of 52 

 

    A-6   significant markups they were being charged on OOP expenses. As one example, on or about May  11, 2007, CC-4 e-mailed an assistant vice president in State Street’s accounting operations group,  “The issue [is] we are charging $5 for a SWIFT message but the cost is much less. . . . We can’t  be in a position on [a client] that they discover that we are taking them to the cleaners on SWIFT  charges.” The assistant vice president replied: “Sometime back at the beginning of time there was  some form of analysis that arrived at the $5 per message (my guess / understanding is that there  was overhead included in this figure at the time that now should be spread over a much larger  universe). Today that figure is grossly inaccurate in terms of actual costs or even any legitimately  defendable ‘fully loaded cost.’ I would absolutely not charge this rate to any new clients.’”   18. Notwithstanding the fact that they had been told that clients were not aware that  they were being charged markups, State Street executives deflected client inquiries about OOP  fees, and actively misled clients about what they were being charged, while resisting efforts to  reduce the charges to the actual out-of-pocket costs the bank had incurred. During the relevant  period, SWIFT messages were the largest category of purported OOP expenses State Street  improperly charged to its custody clients.  Asset Management Firm-1  19. For example, in or about September 2000, State Street entered into a fee schedule  to provide custody services to a global asset management firm (“Asset Management Firm-1”). The  fee schedule provided that State Street would bill Asset Management Firm-1 monthly “for the  recovery of applicable out-of-pocket expenses.” The fee schedule listed representative examples  of OOP expenses, but noted that OOP expenses were “not limited to” the examples on the list.   20. Although the fee schedule did not specifically include SWIFT message charges in  the list of representative OOP expenses, State Street subsequently identified SWIFT message  charges as OOP expenses in monthly invoices it sent to Asset Management Firm-1.  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 26 of 52 

 

    A-7   21. In or about 2003, after Asset Management Firm-1 began questioning the accuracy  of the SWIFT message charges on State Street’s invoices, bank executives discussed how to avoid  disclosing the fact that State Street was earning a significant profit on SWIFT fees, contrary to the  client’s understanding. For example, on or about November 17, 2003, CC-6 e-mailed a supervisor,  CC-2: “[T]he only way I can prove that the current bills are accurate is to show them the volume,  the unit cost and tie that detail to the bills. The problem with this is that once they see the unit cost,  they are extremely likely to object to that charge. My feeling is that we risk all of the revenue  should we do this.” CC-6 proposed reducing SWIFT message charges to Asset Management Firm- 1, adding: “Obviously by doing so, we automatically loose [sic] 30% of the revenue but we do not  risk the other 70%.”  22. CC-2 responded: “[P]lease validate how much we are talking about.” CC-6 replied:  “We are billing about $1 million for swift.”  23. On or about December 4, 2003, CC-8 e-mailed CC-6 and CC-2 noting that the  bank’s internal management information system did not “allocate SWIFT revenue to the OOP  revenue section b/c, as we already know; it is not a legitimate OOP item as we make a nice margin  on it.”   24. On or about December 10, 2003, CC-6 e-mailed CC-2 and CC-8 as follows: “My  concern is that [Asset Management Firm-1] only knows the total charge for SWIFT. It was never  explained to them that the fee was $5 per message.” CC-6 proposed offering Asset Management  Firm-1 a fee reduction of $100,000 “in hopes that they will not pursue it any further,” but added,  “I think we need to be prepared to go to $300,000.”  25. CC-2 forwarded the e-mail to CC-5, adding: “Given that [Asset Management Firm- 1] is all over us on SWIFT charges, from everything that I can see, it looks like we are better off  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 27 of 52 

 

    A-8   giving them $300,000 back as a reduction. More than likely, the $700,000 we would still be  charging them is far greater than the expense we are incurring.”   26. CC-5 responded: “I agree we’re probably better with reducing the rate to back into  a $300k reduction to protect the rest.” CC-2 replied: “We will begin taking the reduction. We may  have to deal with some retroactive hits, but we should try to limit these by telling them the billing  was behind by a few months.” CC-2 forwarded the e-mail chain to CC-1.  27. In an internal “fee concession” memorandum, State Street executives  acknowledged that Asset Management Firm-1 had “questioned the validity of the OOP bills,” and  that the bank could not validate the bills without disclosing “volumes and unit fees.” The  memorandum noted that Asset Management Firm-1 “currently does not know the unit fee,” and  that the fee concession was intended “to avoid the validation process and thus protect the majority  of swift revenue.”  28. On or about December 16, 2003, CC-2 approved the reduction in SWIFT message  charges.  29. On or about December 31, 2003, CC-6 e-mailed a representative of Asset  Management Firm-1 that “the SWIFT billing has been resolved,” and that “[g]oing forward, you  can expect a reduction of approximately 30% in the amount billed SWIFT message charges.” The  e-mail did not disclose that the SWIFT message charges, even as reduced, would continue to  include an undisclosed mark-up.  30. On or about March 22, 2004, CC-6 e-mailed CC-3 an internal memorandum that  said Asset Management Firm-1 had requested that State Street “begin providing the detail for  OOP’s.” CC-6 added: “[t]his will likely be a problem for SWIFT[,]” and predicted State Street’s  “revenue will be at risk once we start providing this detail.”  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 28 of 52 

 

    A-9   31. On or about September 23, 2005, a representative of Asset Management Firm-1 e- mailed CC-8 a news article about the fact that SWIFT fees were declining. CC-8 forwarded the e- mail to CC-6, who forwarded it to CC-3. CC-3, in turn, forwarded the e-mail to CC-1, adding:  “You just gotta laugh . . . I think [CC-8] has provided her with some reporting that will keep her  at bay for now[.]”  32. During a telephone call in or about November 2005, CC-8 told representatives of  Asset Management Firm-1, in substance, that SWIFT fees were comprised of message fees and  unit fees. CC-8 said that message fees were comprised of programming expenses, maintenance  expenses and staffing expenses required to support the SWIFT system, while unit costs represented  “the full charge from SWIFT divided by the universe volume.” CC-6 subsequently advised CC-3  and CC-8 that the client representatives “seemed to accept this,” but nonetheless requested “the  actual calculations.” CC-6 noted: “We need to talk about this. I can not [sic] see how we can give  this to them. Yet I do not see how we can’t either.”  33. Beginning in or about December 2005, State Street executives shared select  information on SWIFT with Asset Management Firm-1. For example, on or about December 1,  2005, CC-8 e-mailed representatives of Asset Management Firm-1 data that showed State Street  had been charging between $5.00 and $3.50 per message (depending on the type of SWIFT  message) and $0.11 per unit. This data did not disclose State Street’s costs per message.  34. At or about the same time, State Street executives with financial responsibilities  conducted internal analyses that estimated the bank’s SWIFT costs were, all-in (including the  message and unit fees) between $.25 and $.41 per message. For example, on or about December  15, 2005, CC-5 e-mailed State Street billing executives an analysis that concluded that the bank’s  internal and external SWIFT costs were $.41 per message. This analysis noted: (a) “Swift resides  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 29 of 52 

 

    A-10   in OOP language of most client fee schemes” and “there has always been a gross up over the costs;”  (b) “The Swift cost was last analyzed approx. 2-3 years ago. . . . At that time the unit cost for Swift  was approx. $1.00 although we were billing the majority of clients $5.00. The decision was made  . . . to continue to bill clients as long as possible;” (c) State Street had overbilled clients by more  than $6.6 million in SWIFT fees in 2005; (d) “The issue is we make money on this product, not  charged at true costs, and only 4 clients [including Asset Management Firm-1] make up nearly 50%  of our total SWIFT billing;” and (e) “The current per message unit cost is really $.40 vs. a $5.00  billing charge.” In the cover e-mail, CC-5 wrote that he needed help to “justify why we were  charging [Asset Management Firm-1] such a high unit cost,” adding: “[CC-1] hopes to be able to  argue this down to a fee waiver for 2006 only of swift charges,” and “the more ammo that I can  give [CC-1] the better.”  35. On or about December 16, 2005, a State Street executive with financial  responsibilities e-mailed CC-3 an analysis with detailed data supporting the $.41 per message cost.  CC-3 forwarded this analysis to CC-1, who, less than an hour later, replied attaching a new  spreadsheet reflecting costs of $.76 or $.98 per message depending on the type of message. In fact,  these higher cost figures had no support. CC-3 then forwarded CC-1’s spreadsheet with the higher  costs to a representative of Asset Management Firm-1.  36. On or about January 23, 2006, CC-3 e-mailed a representative of Asset  Management Firm-1 an analysis to show the aggregate fees State Street had charged the firm for  SWIFT messages over the prior five years, along with the purported aggregate costs to the bank.  The analysis indicated that the total overcharge for SWIFT messages during the prior five years  was just over $2 million.  37. On or about February 27, 2006, a representative of Asset Management Firm-1 e- Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 30 of 52 

 

    A-11   mailed CC-1 an analysis the firm had conducted in which it estimated that it had been overcharged  by more than $2.8 million. The analysis indicated that, because the firm had “never received a  breakdown of past SWIFT fees,” it was “assuming State Street’s breakdown is correct.” It also  indicated that Asset Management Firm-1 was basing its calculation on the assumption that the cost  data shared by State Street executives – including the $.76 or $.98 per message cost plus the $.11  cents per unit cost – was correct. In fact, as CC-1, CC-3, and other State Street executives were  aware, the bank’s internal analyses showed that its cost was, at most, $.41 per message. Asset  Management Firm-1’s calculation would have shown an overcharge of more than $3.5 million had  it used the $.41 per message cost reflected in State Street’s internal analysis.  38. In an email exchange two days later, CC-6 proposed to CC-1 and CC-3 that State  Street “hold the line” on its figure of just over $2 million, and that it offer Asset Management Firm- 1 a concession of $87,000 per month over two years to achieve that number.  39. Ultimately, however, State Street executives agreed to accept Asset Management  Firm-1’s estimate of $2.8 million in overcharges. CC-6 e-mailed a representative of Asset  Management Firm-1 a proposal to allow it to “recoup” that sum by eliminating SWIFT fees  altogether, and cutting trading fees in half, for a two-year period. State Street further proposed that,  following the two-year period, it would waive future message fees and only charge unit fees of  between 9 cents and 15 cents per message, depending on the type of SWIFT message.  40. State Street executives subsequently discussed how to avoid making similar  concessions to other clients. For example, in or about May 2010 – after a pension fund, which was  itself a client of Asset Management Firm-1, requested information about SWIFT message charges  – CC-6 e-mailed CC-2 and other State Street executives: “This is going to be a problem. This was  a huge issue several years ago and we essentially were forced to eliminate the $5 SWIFT charge  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 31 of 52 

 

    A-12   [for Asset Management Firm-1]. They are going to insist we eliminate this charge for [the pension  fund]. . . . [P]lease try to determine how much of the existing revenue is derived from the $5  SWIFT charge. If it is significant, we have a bigger problem[.]” Another State Street executive  replied that if the bank waived the $5 per message charge, “we will end up slightly below  breakeven.”  Asset Management Firm-2  41. As another example, in or about 2008, State Street executives received inquiries  from another asset management firm (“Asset Management Firm-2”) concerning escalating OOP  expenses. At the time, the bank’s fee schedule with the firm noted that “billing for the recovery of  the following out-of-pocket expenses will be made as of the end of each month.” The schedule  listed SWIFT charges among the OOP expenses that would be invoiced monthly.  42. On or about April 22, 2008, after being told that a representative of Asset  Management Firm-2 had inquired about why SWIFT message charges were “so high,” CC-7 asked  a fellow State Street executive: “Can we shut this off going forward without them inquiring about  previous bills?”  43. In or about early 2009, a representative of Asset Management Firm-2 requested that  CC-4 investigate the high OOP expenses. CC-4 assigned the task to CC-7.  44. On or about March 31, 2009, CC-7 e-mailed a senior State Street billing specialist  (the “Billing Specialist”): “I think there is an issue for OOP on [Asset Management Firm 2]. I just  learned we are charging them $5 per report/transaction. . . . Very Hot!!!” The Billing Specialist  confirmed that State Street was charging the firm $5.00 per message and $0.05 to $0.12 per unit.    45. CC-7 replied the following day, “I am likely going to 25 cents . . . (down from $5).”  but asked, “What I ultimately need to know is how much this will cost us.” The Billing Specialist  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 32 of 52 

 

    A-13   responded that a member of State Street’s accounting operations team was “shocked” by the  proposed reduction, because “most people reduce it to $2 if they reduce it.”    46. That same day, CC-4 forwarded CC-7 an e-mail from another State Street executive  concerning the “absurd fee per message (about $5)” that State Street was charging another custody  client. CC-4 added: “Let’s discuss. I don’t think we want to do anything but we need to think about  our exposure . . . and our response if they question it. We can bill SWIFT charges as an ‘OOP’  (I’m of the opinion that OOP means without markup).”    47. After another State Street executive confirmed that the bank “tack[s] on a margin”  to certain OOPs, CC-7 responded: “I knew it. Why we are marking up SWIFT charges is beyond  me. I understand OOP’s as pass through charges.” CC-7 forwarded the e-mail chain to CC-4,  adding: “I’m telling you. I learn something every day. Simply not amazed at anything that goes on  here any more.”   48. On or about April 2, 2009, CC-7 and another State Street executive received a  report indicating that State Street had charged Asset Management Firm-2 nearly $600,000 in  marked-up OOP expenses the prior year. The executive e-mailed CC-7: “‘Out of pocket’ with  ‘mark up’ = Big Problem. . . . [T]here is some serious monkey business going on here.” CC-7  replied: “I agree. Bunch of crap. . . .  This is not good. I think the true charge is a quarter per  transaction. No other custodian charges for this at least not as a line item.”  49. Later the same day, CC-7 e-mailed a representative of Asset Management Firm-2  to inquire whether the firm required the use of SWIFT services at all. CC-7 advised that  discontinuing the use of SWIFT messaging “would eliminate close to 90% of the OOP charges  you see.”   50. On or about April 9, 2009, CC-7 instructed a State Street colleague to find out  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 33 of 52 

 

    A-14   whether Asset Management Firm-2 had agreed to discontinue the use of SWIFT messages because  the Billing Specialist “needs to know how much to charge.” CC-7 cautioned that the firm “isn’t to  know the per quote transaction.”  51. Later that day, CC-7 instructed the Billing Specialist to “go to $1.00 for Swift.”  The Billing Specialist forwarded the instruction to CC-4, who approved it.  Other State Street Custody Clients  52. Even after agreeing to lower SWIFT message charges for certain clients who  questioned them – including Asset Management Firm-1 and Asset Management Firm-2 – State  Street executives continued to charge other clients significant undisclosed markups on SWIFT fees  and other OOP expenses. The executives also resisted disclosing information about the charges  when clients inquired about them, and even explored charging additional clients undisclosed  markups on OOP expenses when negotiating new fee agreements.    53. For example, on or about April 12, 2009 – just three days after CC-4 approved  reducing the per message SWIFT fees for Asset Management Firm-2 from $5 to $1, CC-4 e-mailed  a State Street vice president to request “a quick synopsis of what the standard charge for Swift  charge ie we are charging $5 for what, etc.” The vice president, copying CC-7, replied that State  Street paid SWIFT 9 or 12 cents per message as a unit fee. The vice president added: “The $5 fee  represents coverage of the indirect charges for SWIFT messages. This includes the cost of SWIFT  terminals, maintenance of files to SWIFT and all other overhead costs incurred in State Street to  ensure proper transmission of the SWIFT messages.” The vice president noted, however, that “the  true cost of these indirect charges” was only about 25 cents per message, such that the bank’s $5  fee included a “$4.50 markup per message.” The vice president estimated that the “annual revenue  [to State Street] from this markup must be in the tens $ of millions.”  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 34 of 52 

 

    A-15   54. The next day, CC-4 e-mailed a State Street executive vice president in USIS (the  “EVP”) a memorandum discussing, among other issues, “Revenue Protection.” CC-4 wrote:  Clients are looking at expenses very closely. One thing that has recently [been]  brought to my attention is SWIFT fees which we pass on to clients as OOP  expenses. The number is well into the millions for [my own department]. I would  think that our clients would think that OOP expenses are pass thru’s with maybe a  bit of [a] mark-up to cover our expenses. SWIFT currently charges us either 12  cents or 5 cents [as a unit fee] depending on the message type. We charge our clients  $5.00 per message – an exorbitant mark up that will certainly piss off clients when  they figure this out. . . . Regarding OOP expenses I recommend the following: We  develop justification for SWIFT message charges[.] All departments review OOP  expenses for propriety i.e. are we charging what we are entitled to.    The EVP replied: “[T]his is very helpful. Can I ask you to review on the 21st with the group? I  would delete the section on OOP expenses. I would do more work on your own and maybe raise  as a strategy question with a small group verbally only.” CC-4 responded: “I agree with your  viewpoint on OOP’s. We’ll do some more homework and you and I can discuss how you want to  handle. I raised it mainly because across [USIS] the number is significant.” Neither the EVP nor  CC-4 followed up on this issue.   55. As another example, on or about July 20, 2010, a State Street vice president e- mailed CC-4 concerning a client who “knows the $5 fee is outrageously high so they are kicking  up a fuss.” The vice president added: “I think we stick with our plan to no longer charge and not  say anything”, but “if they ask we can tell them we decided to no longer charge SWIFT fees[.]”  The vice president continued: “Sorry to re-hash this but we need to be careful with this as this is  not a true OOP as we have portrayed[.]” CC-4 replied: “We are on the same page my brother.”  56. Similarly, on or about December 3, 2010, a client representative e-mailed State  Street executives to request “more detail” concerning SWIFT charges, noting that the “custody  agreement simply notes SWIFT Charges would be passed through . . . but these are getting quite  large . . . which has taken us by surprise.” After repeated follow-up requests over a period of years,  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 35 of 52 

 

    A-16   the client representative e-mailed State Street executives again on or about June 3, 2015: “We  never received a satisfactory response to any of these inquiries until we had the opportunity to  discuss such fees with outside firms . . . and discovered they were indeed excessive. . . . I’m sure  you can understand our frustration, especially given that we have been inquiring about the accuracy  of these charged since 2010 (5 1⁄2 years).”  57. On or about January 27, 2012, CC-7 e-mailed a fellow State Street executive about  the possibility of increasing revenues by charging additional clients for OOP expenses. CC-7 said:  “Another area to look at is Swift fees. . . . Typical charge is between 50 cents and $1.50 per  transaction and definitely adds up.” The fellow executive replied: “The true cost of SWIFT is less  [sic] 25 cents or less right? I don’t want to be part of charging $1.50 or more on a cost labeled as  OOP unless I am forced.”  58. On or about July 31, 2014, CC-7 advised CC-4 that lowering the $5 per message  SWIFT fee for one client would result in a “360K impact.” CC-7 recommended leaving the fee at  $5, because the client “never questioned” it. CC-4 replied: “I agree . . . they are paying it, always  have, never questioned it[.]”  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 36 of 52 

 

    B-1   ATTACHMENT B  CERTIFICATE OF CORPORATE RESOLUTIONS  WHEREAS, State Street Corporation (the “Company”) has been engaged in discussions  with the United States Attorney’s Office for the District of Massachusetts (the “Office”) regarding  issues arising in relation to fraudulent overcharging of, and misrepresentations to, certain  customers of the Company’s custody business; and   WHEREAS, in order to resolve such discussions, it is proposed that the Company enter  into a certain agreement with the Office; and  WHEREAS, the Company’s General Counsel, David C. Phelan, together with outside  counsel for the Company, have advised the Board of Directors of the Company of its rights,  possible defenses, the Sentencing Guidelines’ provisions, and the consequences of entering into  such agreements with the Offices;  Therefore, the Board of Directors has RESOLVED that:  1. The Company (a) acknowledges the filing of the one-count Information charging  the Company with conspiracy to commit wire fraud in violation of Title 18, United States Code,  Section 1349; (b) waives indictment on such charges and enters into a deferred prosecution  agreement with the Office; and (c) agrees to accept a monetary penalty against the Company  totaling $115,000,000.00, and to pay such penalty to the United States Treasury with respect to  the conduct described in the Information;  2. The Company accepts the terms and conditions of this Agreement, including, but  not limited to, (a) a knowing waiver of its rights to a speedy trial pursuant to the Sixth Amendment  to the United States Constitution, Title 18, United States Code, Section 3161, and Federal Rule of  Criminal Procedure 48(b); (b) a knowing waiver for purposes of this Agreement and any charges  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 37 of 52 

 

 B-2 by the Office arising out of the conduct described in the attached Statement of Facts of any  objection with respect to venue and consents to the filing of the Information, as provided under  the terms of this Agreement, in the United States District Court for the District of Massachusetts;  and (c) a knowing waiver of any defenses based on the statute of limitations for any prosecution  relating to the conduct described in the attached Statement of Facts or relating to conduct known  to the Office prior to the date on which this Agreement was signed that is not time-barred by the  applicable statute of limitations on the date of the signing of this Agreement;  3. The General Counsel, David C. Phelan, is hereby authorized, empowered and directed, on behalf of the Company, to execute the Deferred Prosecution Agreement substantially  in such form as discussed with the Board of Directors with such changes as the General Counsel,  David C. Phelan, may approve;   4. The General Counsel, David C. Phelan, is hereby authorized, empowered and directed to take any and all actions as may be necessary or appropriate and to approve the forms,  terms or provisions of any agreement or other documents as may be necessary or appropriate, to  carry out and effectuate the purpose and intent of the foregoing resolutions; and   5. All of the actions of the General Counsel, David C. Phelan, which actions would have been authorized by the foregoing resolutions except that such actions were taken prior to the  adoption of such resolutions, are hereby severally ratified, confirmed, approved, and adopted as  actions on behalf of the Company.                             Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 38 of 52 

 

    C-1   ATTACHMENT C  INDEPENDENT COMPLIANCE AND BUSINESS ETHICS MONITOR  The duties and authority of the Independent Compliance and Business Ethics Monitor  (“Monitor”) pursuant to the Deferred Prosecution Agreement (“Agreement”) to which this  Attachment C is appended, and the obligations of State Street Corporation (“Company”), on behalf  of itself and its subsidiaries and majority-owned, operationally-controlled affiliates (collectively,  “Monitored Entities”), with respect to the Monitor and the United States Attorney’s Office for the  District of Massachusetts (“Office”) are as described below, to the extent permissible under locally  applicable laws and regulations, and the instructions of local regulatory agencies:  Term of the Monitorship  1. The Company will, pursuant to the Agreement, retain the Monitor for a period of  up to two years (“Term”). Upon recommendation of the Monitor, the Office may, in its sole  discretion, terminate the Monitorship prior to the expiration of the Term and/or accelerate the  reporting deadlines set forth in this Attachment C, provided that (i) the Monitor provides the  certification in Paragraph 22 below, (ii) such early termination shall not occur earlier than one year  from the commencement of the Term, and (iii) such early termination shall not otherwise affect  the provisions of the Agreement.  2. The Company and the Office acknowledge that the work of the Monitor appointed  pursuant to the Company’s deferred prosecution agreement with the Office and the United States  Department of Justice, Criminal Division, Fraud Section, dated January 17, 2017 (“2017 DPA”),  is continuing and shall be governed by the terms of the 2017 DPA. Neither the Company nor the  Office intend for the Agreement or the Monitor’s mandate as set forth herein to diminish the scope  of the Monitor’s mandate as set forth in the 2017 DPA.    Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 39 of 52 

 

    C-2   Monitor’s Mandate  3. The Monitor’s primary responsibility is to assess, oversee, and monitor the  Monitored Entities’ compliance with their obligations under the terms of the Agreement, so as to  specifically address and reduce the risk of any recurrence of the misconduct as described in the  Statement of Facts attached to the Agreement as Attachment A. During the Term, while not  duplicating efforts taken pursuant to the 2017 DPA, the Monitor shall assess, and, if necessary,  make recommendations reasonably designed to detect fraudulent conduct by the Monitored  Entities (“Misconduct”) and/or to reduce the risk of Misconduct by any director, officer, employee,  or agent of any of the Monitored Entities, as set forth below in this Paragraph 3. In so doing, the  Monitor shall:  a. Review and monitor the Monitored Entities’ current and ongoing  compliance with the Agreement.  b. Review, evaluate, and monitor the Monitored Entities’ billing system and  organization to ensure they are sufficient to maintain a reasonably effective  framework to detect Misconduct related to billing (“Billing Misconduct”)  and reduce Billing Misconduct by any director, officer, employee, or agent  of any of the Monitored Entities. This may include: (i) assessing reports  submitted by the Monitored Entities, as detailed below in Paragraph 6(a);  (ii) analyzing tests of the billing system and organization conducted by the  Monitored Entities or by third-parties retained by the Monitored Entities;  (iii) directing that the Monitored Entities conduct additional testing of the  billing system and organization and, if necessary, conducting independent  testing to the extent the Office determines that such testing is appropriate  pursuant to Paragraph 10 below; (iv) interviewing current and former  directors, officers, employees, business partners, agents, and other persons,  and/or conducting walk-throughs to evaluate the Monitored Entities’ billing  system and ability to detect and reduce Billing Misconduct; and (v) making  recommendations designed to ensure that the Monitored Entities’ billing  system is designed reasonably to detect and mitigate Billing Misconduct.  c. Review, assess, and monitor the Monitored Entities’ and senior  management’s commitment to, and effective implementation of, training  directors, officers, employees, or agents of the Monitored Entities related to  promoting a culture that detects and reduces Misconduct (“Culture  Training”). This may include:  (i) reviewing and evaluating the action plan  submitted by the Monitored Entities, as detailed in Paragraph 6(b) below;  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 40 of 52 

 

    C-3   (ii) reviewing, evaluating, and monitoring Culture Training programs to  determine if they are effective; (iii) submitting questions to be included in  surveys of employees related to Culture Training that shall be conducted by  the Company; (iv) assessing the results of the surveys of employees related  to Culture Training, and, if necessary, interviewing survey recipients as the  Monitor deems appropriate; and (v) making recommendations designed to  promote a culture that detects and reduces Misconduct.  d. Review, evaluate, and monitor resources - including, but not limited to,  staffing and financial - given to compliance and business ethics procedures  and practices at the Monitored Entities to ensure they are sufficient to  maintain a reasonably effective framework to detect and reduce Billing  Misconduct by any director, officer, employee, or agent of any of the  Monitored Entities (“Compliance Resources”). This may include:  (i) reviewing and assessing reports submitted by the Monitored Entities, as  detailed in Paragraph 6(c) below; (ii) reviewing and assessing Compliance  Resources of the Monitored Entities; and (iii) making recommendations  designed to ensure that the Company devotes adequate Compliance  Resources to detect and reduce Billing Misconduct.  The Company’s Obligations  4. The Company, its subsidiaries and majority-owned, operationally-controlled  affiliates shall cooperate fully with the Monitor, including with respect to the Monitor’s Mandate,  and the Monitor shall have the authority to take such reasonable steps as, in his or her view, may  be necessary to be fully informed about the Monitored Entities’ compliance and ethics programs  in accordance with the principles set forth herein and applicable law, including any applicable  bank secrecy, confidential supervisory information, data protection and labor laws and regulations.  To that end, the Company shall: facilitate the Monitor’s access to the Monitored Entities’  documents and resources; not limit such access, except as provided in Paragraphs 8 and 9 below;  and provide guidance on applicable local law, such as relevant bank secrecy, confidential  supervisory information, data protection and labor laws. The Company shall provide the Monitor  with access to all information, documents, records, systems, facilities, and employees, as  reasonably requested by the Monitor, that fall within the scope of the Monitor’s Mandate under  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 41 of 52 

 

    C-4   the Agreement. The Company shall use its best efforts to provide the Monitor with access to the  Monitored Entities’ former employees and its third-party vendors, agents, and consultants.  5. Any disclosure by the Company to the Monitor concerning fraudulent or criminal  conduct shall not relieve the Company of any otherwise applicable obligation to truthfully disclose  such matters to the Office pursuant to the Agreement.  6. The Company shall provide the Monitor the following in the format requested by  the Monitor:  a. Within 45 calendar days of the commencement of the Term, a report setting  forth the status, expected milestones, and resourcing devoted to the  Company’s efforts to detect and reduce Billing Misconduct, and a plan  addressing the scope and approach for testing of those efforts (“Billing  Report”). Thereafter, the Company shall provide updated Billing Reports  every 90 calendar days, or at such intervals as directed by the Monitor, and  such reports shall include the results of the Company’s internal testing.  The  Billing Reports shall include a certification from the Company’s Chief  Financial Officer: (i) reporting any efforts undertaken to detect and/or  reduce Billing Misconduct since the previous Billing Report, and (ii) stating  whether, in his or her belief, the Company has established and maintains  controls reasonably effective to detect and reduce Billing Misconduct. The  Monitor may direct that the Billing Reports address specific issues, and  request data or information related to issues identified in the Billing  Reports. The Company shall provide any requested information and/or data  to the Monitor. The Monitor should, when possible, request information  and/or data in a format consistent with the way the requested information  and/or data is maintained in the Company’s systems.  b. Within 45 calendar days of the commencement of the Term, a plan for  Culture Training, including training new hires about Misconduct, and an  assessment of the effectiveness of current Culture Training programs,  including the results of a survey of employees related to Culture Training  (“Culture Plan”). Thereafter, the Company shall provide updated Culture  Plans every 180 calendar days, or at such intervals as directed by the  Monitor, and such plans shall include materials sufficient to evaluate  Culture Training programs conducted by the Company since the submission  of the previous Culture Plan. The Culture Plans shall include a certification  from the Head of Human Resources stating whether the Company’s  employees have completed required Culture Training. The Monitor may  direct that the Culture Plans address specific issues, and may also require  the Company to submit additional periodic survey questions on Culture  Training to a subset of directors, officers, or employees. The Company shall  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 42 of 52 

 

    C-5   conduct the surveys as requested by the Monitor and provide the  consolidated results and the raw data to the Monitor.  c. Within 45 calendar days of the commencement of the Term, a report that  describes the structure of the Company’s compliance and business ethics  procedures, practices and programs intended to detect and reduce Billing  Misconduct (“Compliance Report”). The Compliance Report shall describe  the Compliance Resources (including, but not limited to, financial and  staffing), including the identity of each employee whose principal function  is to design, evaluate, or test internal controls intended to detect and reduce  Billing Misconduct. Thereafter, the Company shall provide updated  Compliance Reports every 180 calendar days, or at such intervals as  directed by the Monitor. The Compliance Reports shall include a  certification from the Company’s Head of Human Resources that all  employees whose principal function is to design, evaluation, or test internal  controls to detect and reduce Billing Misconduct have been identified in the  Compliance Report. The Compliance Reports shall further include a  certification from the Company’s Chief Compliance Officer that, in his or  her belief, the Compliance Resources are sufficient to maintain a reasonably  effective system to detect and reduce Billing Misconduct. The Monitor may  direct that the Compliance Reports address specific issues. The Company  shall also provide, in the format and at the intervals requested by the  Monitor, information concerning any material organizational change in the  compliance function at the Company. The Monitor should, when possible,  request information and/or data in a format consistent with the way that the  requested information and/or data is maintained in the systems of the  Monitored Entities.  7. The Company shall permit the Monitor to meet with the Examining and Audit  Committee of the Company’s Board of Directors (“Audit Committee”) at intervals set by the  Monitor, to discuss any issues covered by the Agreement. The Monitor shall, when possible,  schedule such meetings at regularly scheduled meetings of the Audit Committee.  Withholding Access  8. The parties agree that no attorney-client relationship shall be formed between the  Company and the Monitor. In the event that the Company seeks to withhold from the Monitor  access to information, documents, records, facilities, or current or former employees of the  Company that may be subject to a claim of attorney-client privilege or to the attorney work product  doctrine, or where the Company reasonably believes production would otherwise be inconsistent  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 43 of 52 

 

    C-6   with the applicable law, the Company shall work cooperatively with the Monitor to resolve the  matter to the satisfaction of the Monitor.  9. If the matter cannot be resolved, at the request of the Monitor, the Company shall  promptly provide written notice to the Monitor and the Office.  Such notice shall include a general  description of the nature of the information, documents, records, facilities or current or former  employees that are being withheld, as well as the legal basis for withholding access. The Office  may then consider whether to make a further request for access to such information, documents,  records, facilities, or employees.  Monitor’s Coordination with the Company and Review Methodology  10. In carrying out the Mandate, to the extent appropriate under the circumstances, the  Monitor shall coordinate with Company personnel, including in-house counsel, compliance  personnel, and internal auditors, on an ongoing basis. In carrying out the Mandate, the Monitor  may:  a. Rely on the product of the Company’s processes, such as the results of  studies, surveys, plans, reviews, audits, reports, and analyses conducted by  or on behalf of the Company, the Company’s internal resources (e.g., legal,  compliance, and internal audit), or any other source of information provided  by the Company to assist the Monitor in carrying out the Mandate through  increased efficiency and Company-specific expertise (“Company  product”), provided that the Monitor has confidence in the quality of the  Company product.  b. Rely on sampling and testing conducted by or on behalf of the Company  (“Testing”) provided that Testing can be appropriately performed by the  Monitored Entities and/or their consultants under the supervision of the  Audit Committee.  In the event the Monitor determines that Testing cannot  be adequately performed by the Company, the Monitor, after consultation  with the Company, may commission Testing to be performed by an  independent entity at the Company’s expense.  c. Conduct meetings with, and interviews of, relevant current and, where  appropriate, former directors, officers, employees, business partners,  agents, and other persons at mutually convenient times and places  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 44 of 52 

 

    C-7   concerning Billing Misconduct, Cultural Training, and/or Compliance  Resources.  The Monitor shall use, when feasible, Company product, Company Testing, and Company surveys  in lieu of interviews, unless the Monitor concludes that their use is insufficient. Any disputes  between the Company and the Monitor with respect to Company product, Testing and/or the  Monitor’s request for meetings or interviews shall be decided by the Office in its sole discretion.  11. The Monitor’s reviews should use a risk-based approach in carrying out the  Mandate, and thus, the Monitor is not expected to conduct a comprehensive review of all business  lines, all business activities, or all markets. In carrying out the Mandate, while taking care not to  duplicate reviews conducted pursuant to the 2017 DPA, the Monitor should consider, for instance,  risks presented by the Company’s:  a. Billing system, including the detection and reduction of Billing Misconduct;  b. Organizational culture, including Cultural Training programs or lack  thereof; and  c. Compliance process, including the Compliance Resources.  12. In undertaking the reviews to carry out the Mandate, the Monitor may formulate  conclusions based on among other things:  a. Inspection of relevant documents, including reports, plans, surveys  submitted by the Monitored Entities to the Monitor;  b. Analyses, studies, and/or Testing of the Monitored Entities’ billing system,  organizational culture, and compliance process and resources;  c. On-site observation of selected management information or systems and  procedures of the Monitored Entities at sample sites, including internal  accounting controls, record-keeping, and internal audit procedures; and  d. Meetings with, and interviews of, relevant current and, where appropriate,  former directors, officers, employees, business partners, agents, and other  persons at mutually convenient times and places concerning Billing  Misconduct, Cultural Training, and/or Compliance Resources. The Monitor  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 45 of 52 

 

    C-8   may use surveys in lieu of conducting interviews or meetings when the  Monitor deems doing so to be appropriate.  Monitor’s Written Work Plans  13. To carry out the Mandate, during the Term, the Monitor shall conduct an initial  review and prepare an initial report, as described in Paragraphs 15 to 18 below. The Monitor shall  also conduct one follow-up review and prepare an additional report, as described in Paragraphs 19  to 22 below, unless the Monitorship is terminated or accelerated pursuant to Paragraph 1 above.  In so doing, the Monitor shall:  a. With respect to the initial report, after consultation with the Company, the  Monitor shall prepare the first written work plan within 45 calendar days  after receipt from the Company of its first Billing Report, Culture Plan, and  Compliance Report (collectively, “Company Reports”), provided, however,  that the Monitor may extend the time period for issuance of the first written  work plan after consultation with the Company and with the prior approval  of the Office. The first written work plan should set forth the manner in  which the Monitor will review, evaluate, and monitor Misconduct, Culture  Training, and Compliance Resources. The Company and the Office shall  provide comments within 30 calendar days after receipt of the first written  work plan.  b. With respect to each follow-up report, after consultation with the Company,  and review of the latest version of the Company Reports, the Monitor shall  prepare a written work plan at least 30 calendar days prior to commencing  any follow-up review, unless otherwise agreed by the Company, the  Monitor, and the Office. The Company and the Office shall provide  comments within 20 calendar days after receipt of any written work plan for  a follow-up review.  Any disputes between the Company and the Monitor with respect to any written work plan shall  be decided by the Office in its sole discretion.  14. All written work plans shall identify with reasonable specificity the activities the  Monitor plans to undertake in execution of the Mandate, including any written request for  documents or information from the Company. The Monitor’s work plan for the initial review shall  include such steps as are reasonably necessary to conduct an effective initial review in accordance  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 46 of 52 

 

    C-9   with the Mandate, including by developing an understanding, to the extent the Monitor deems  appropriate, of the facts and circumstances surrounding any violation that may have occurred  before the date of the Agreement. In developing such an understanding the Monitor is to rely to  the extent possible on available information and documents provided by the Company. It is not  intended that the Monitor will conduct his or her own inquiry into the historical events that gave  rise to the Agreement.  Initial Review  15. The initial review shall commence no later than 150 calendar days from the start of  the Term unless otherwise agreed by the Company, the Monitor, and the Office. The Monitor shall  issue a written report within 120 calendar days of commencing the initial review, setting forth the  Monitor’s assessment of and, if necessary, recommendations related to the matters identified in  Paragraph 3 above. The Monitor should consult the Company concerning his or her findings and  recommendations on an ongoing basis and should consider the Company’s comments and input to  the extent the Monitor deems appropriate. The Monitor may also choose to share a draft of reports  with the Company prior to finalizing them. The Monitor’s reports need not recite or describe  comprehensively the Company’s history or compliance policies, procedures, and practices, but  rather may focus on those areas with respect to which the Monitor wishes to make  recommendations, if any, for improvement or which the Monitor otherwise concludes merit  particular attention. The Monitor shall provide the report to the Board of Directors of the Company  and contemporaneously transmit a copy to the Chief of the Securities, Financial & Cyber Fraud  Unit; United States Attorney’s Office for the District of Massachusetts; John Joseph Moakley  United States Courthouse; 1 Courthouse Way, Suite 9200; Boston, Massachusetts 02210. After  consultation with the Company, the Monitor may extend the time period for issuance of the initial  report for a brief period of time with the prior approval of the Office.  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 47 of 52 

 

    C-10   16. Within 150 calendar days after receiving the Monitor’s initial report, the Company  shall adopt and implement all recommendations in the report, unless, within 60 calendar days of  receiving the report, the Company notifies in writing the Monitor and the Office of any  recommendation that the Company considers unduly burdensome, inconsistent with applicable  law or regulations, impractical, excessively expensive, or otherwise inadvisable. With respect to  any such recommendation, the Company need not adopt that recommendation within the 150  calendar days of receiving the report but shall propose in writing to the Monitor and Office an  alternative policy, procedure or system (and the necessary timeframe for implementation) designed  to achieve the same objective or purpose as the recommendation made by the Monitor. As to any  recommendation on which the Company and the Monitor do not agree, the Company and Monitor  shall attempt in good faith to reach an agreement within 45 calendar days after the Company serves  the written notice.  17. In the event that the Company and the Monitor are unable to agree on an acceptable  alternative proposal, the Company shall promptly consult with the Office. The Office may consider  the Monitor’s recommendations and the Company’s reasons for not adopting the recommendation  in determining whether the Company has fully complied with its obligations under the Agreement.  Pending such determination, the Company shall not be required to implement any contested  recommendation.  18. With respect to any recommendation that the Monitor determines cannot  reasonably be implemented by the Company within 150 calendar days after receiving the initial  report, the Monitor may extend the time period for implementation with prior written approval of  the Office.  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 48 of 52 

 

    C-11   Follow-Up Reviews  19. A follow-up review shall commence no later than 180 calendar days after the  issuance of the initial report unless otherwise agreed by the Company, the Monitor, and the Office.  The Monitor shall issue a written follow-up report within 120 calendar days of commencing the  follow-up review, setting forth the Monitor’s assessment and, if necessary, making  recommendations in the same fashion as set forth in Paragraph 15 with respect to the initial review.  After consultation with the Company, the Monitor may extend the time period for completion of  the follow-up review and issuance of the follow-up report for a brief period of time with prior  written approval of the Office.  20. Within 120 calendar days after reviewing any follow-up report, the Company shall  adopt and implement all recommendations in the report, unless, within 30 calendar days after  receiving the report, the Company notifies in writing the Monitor and the Office concerning any  recommendations that the Company considers unduly burdensome, inconsistent with applicable  law or regulation, impractical, excessively expensive, or otherwise inadvisable. With respect to  any such recommendation, the Company need not adopt that recommendation within the 90  calendar days of receiving the report but shall propose in writing to the Monitor and the Office an  alternative policy, procedure, or system designed to achieve the same objective or purpose. As to  any recommendation on which the Company and the Monitor do not agree, such parties shall  attempt in good faith to reach an agreement within 30 calendar days after the Company serves the  written notice.  21. In the event the Company and the Monitor are unable to agree on an acceptable  alternative proposal, the Company shall promptly consult with the Office. The Office may consider  the Monitor’s recommendation and the Company’s reasons for not adopting the recommendation  in determining whether the Company has fully complied with its obligations under the Agreement.   Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 49 of 52 

 

    C-12   Pending such determination, the Company shall not be required to implement any contested  recommendation(s). With respect to any recommendation that the Monitor determines cannot  reasonably be implemented by the Company within 120 calendar days after receiving any follow- up report, the Monitor may extend the time period of implementation with prior written approval  of the Office.  The Monitor may undertake a second follow-up review no later than 150 calendar days  after the issuance of the first follow-up report. The Monitor, if a second follow-up review occurs,  shall issue a second follow-up report within 120 days of commencing the second review, and  recommendations shall follow the same procedures described in Paragraphs 19 to 21.  22. In his or her final report, the Monitor shall certify whether the Company’s  compliance program, including its policies and procedures, is reasonably designed and  implemented to prevent and detect violations of anti-fraud laws. The final follow-up review and  report shall be completed and delivered to the Offices no later than 30 days before the end of the  Term.  Monitor’s Discovery of Potential or Actual Misconduct  23. Except as set forth below, should the Monitor discover during the course of his or  her engagement that:  (i) questionable, improper, or illegal practices relating to anti-fraud laws,  including but not limited to, misrepresentations made to customers; or   (ii) violations of fraud-related aspects of the Company’s compliance or ethics  programs, or anti-fraud laws   either (a) may have occurred after the date on which the Agreement was signed, or (b) have not  been adequately dealt with by the Company (collectively, “Potential Misconduct”), the Monitor  shall immediately report the Potential Misconduct to the Company’s General Counsel, Chief  Compliance Officer, and/or the Audit Committee for further action unless the Potential  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 50 of 52 

 

    C-13   Misconduct was already so disclosed. The Monitor also may report Potential Misconduct to the  Office at any time, and shall report Potential Misconduct to the Office upon request.  24. In some instances, the Monitor should immediately report Potential Misconduct  directly to the Office and not to the Company. The presence of any of the following factors  militates in favor of reporting Potential Misconduct directly to the Office and not to the Company,  namely, where the Potential Misconduct:  poses a risk to public health, safety, or the environment;  involves senior management of the Company; involves obstruction of justice; and/or otherwise  poses a substantial risk of harm.  25. If the Monitor believes that Potential Misconduct actually occurred or may  constitute a criminal or regulatory violation (“Actual Misconduct”), the Monitor shall immediately  report the Actual Misconduct to the Office. If the Monitor discovers Actual Misconduct, the  Monitor shall disclose the Actual Misconduct solely to the Office. The Monitor should disclose  important activities in his or her discretion directly to the Office, and not to the Company, and, in  such cases, disclosure of the Actual Misconduct to the General Counsel and Chief Compliance  Officer, and/or the Audit Committee of the Company should occur as the Office and Monitor deem  appropriate under the circumstances.  26. The Monitor shall address in his or her reports the appropriateness of the  Company’s response to all disclosed Potential Misconduct or Actual Misconduct, whether  previously disclosed to the Office or not. Further, if the Company, or any entity or person working  directly or indirectly for or on behalf of the Company, withholds information necessary for the  performance of the Monitor’s responsibilities, and the Monitor believes that such withholding is  without just cause, the Monitor shall also immediately disclose that fact to the Office and address  the Company’s failure to disclose the necessary information in his or her reports.  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 51 of 52 

 

    C-14   27. Neither the Company, nor anyone acting on its behalf, shall take any action to  retaliate against the Monitor for any such disclosures or for any other reason.  Meetings During Pendency of Monitorship  28. The Monitor shall meet with the Office within 30 calendar days after providing  each report to the Office to discuss the report, to be followed by a meeting between the Office, the  Monitor, and the Company.  29. At least annually, and more frequently if appropriate, representatives from the  Company and the Office will meet together to discuss the Monitorship and any suggestions,  comments, or improvements the Company may wish to discuss with or propose to the Office,  including with respect to the scope or costs of the Monitorship.  Contemplated Confidentiality of Monitor’s Reports  30. The Monitor’s reports will likely include proprietary, financial, confidential, and  competitive business information. Moreover, public disclosure of the reports could discourage  cooperation, or impede pending or potential government investigations and thus undermine the  objects of the Monitorship. For these reasons, among others, the reports and the contents thereof  are intended to remain and shall remain non-public, except as otherwise agreed to by the Office  and the Company in writing, or except to the extent the Office determines in its sole discretion that  disclosure would be in furtherance of the Office’s discharge of its duties and responsibilities or is  otherwise required by law.  Case 1:21-cr-10153   Document 1-2   Filed 05/13/21   Page 52 of 52Document

Exhibit 10.1
Amended and Restated Neoleukin Therapeutics, INC.
2014 EQUITY INCENTIVE PLAN
As Amended and Restated: May 13, 2021
1.  GENERAL.
(a)  Successor to and Continuation of Prior Plan.
(i)  The Plan is intended as the successor to and continuation of the Neoleukin Therapeutics, Inc. and Aquinox Pharmaceuticals (Canada), Inc. Joint Canadian Stock Option Plan, as amended March 19, 2013 (the “Prior Plan”). From and after 12:01 a.m. Pacific time on the Effective Date, no additional stock awards will be granted under the Prior Plan. All Awards granted on or after 12:01 a.m. Pacific Time on the Effective Date will be granted under this Plan. All stock awards granted under the Prior Plan will remain subject to the terms of the Prior Plan.
(ii)  Any shares that would otherwise remain available for future grants under the Prior Plan as of 12:01 a.m. Pacific Time on the Effective Date (the “Prior Plan’s Available Reserve”) will cease to be available under the Prior Plan at such time. Instead, that number of shares of Common Stock equal to the Prior Plan’s Available Reserve will be added to the Share Reserve (as further described in Section 3(a) below) and will be immediately available for grants and issuance pursuant to Stock Awards under this Plan, up to the maximum number set forth in Section 3(a) below. 
(iii)  From and after 12:01 a.m. Pacific time on the Effective Date, that number of shares of Common Stock subject to outstanding stock awards granted under the Prior Plan that (A) expire or terminate for any reason prior to exercise or settlement, (B) are forfeited because of the failure to meet a contingency or condition required to vest such shares or repurchased at the original issuance price, or (C) are otherwise reacquired or are withheld (or not issued) to satisfy a tax withholding obligation in connection with an award (the “Returning Shares”) will immediately be added to the Share Reserve (as further described in Section 3(a) below) as and when such shares become Returning Shares (up to the maximum number set forth in Section 3(a)), and become available for issuance pursuant to Stock Awards granted hereunder. 
(b)  Eligible Award Recipients. Employees, Directors and Consultants are eligible to receive Awards.
(c)  Available Awards. The Plan provides for the grant of the following Awards: (i) Incentive Stock Options; (ii) Nonstatutory Stock Options; (iii) Stock Appreciation Rights; (iv) Restricted Stock Awards; (v) Restricted Stock Unit Awards; (vi) Performance Stock Awards; (vii) Performance Cash Awards; and (viii) Other Stock Awards.
(d)  Purpose. This Plan, through the granting of Awards, is intended to help the Company and any Affiliate secure and retain the services of eligible award recipients, provide incentives for such persons to exert maximum efforts for the success of the Company and any Affiliate, and provide a means by which the eligible recipients may benefit from increases in value of the Common Stock.
2.  ADMINISTRATION.
(a)  Administration by Board. The Board will administer the Plan. The Board may delegate administration of the Plan to a Committee or Committees, as provided in Section 2(c).
(b)  Powers of Board. The Board will have the power, subject to, and within the limitations of, the express provisions of the Plan:
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(i)  To determine: (A) who will be granted Awards; (B) when and how each Award will be granted; (C) what type of Award will be granted; (D) the provisions of each Award (which need not be identical), including when a person will be permitted to exercise or otherwise receive cash or Common Stock under the Award; (E) the number of shares of Common Stock subject to, or the cash value of, an Award; and (F) the Fair Market Value applicable to a Stock Award.
 
(ii)  To construe and interpret the Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for administration of the Plan and Awards. The Board, in the exercise of these powers, may correct any defect, omission or inconsistency in the Plan or in any Award Agreement or in the written terms of a Performance Cash Award, in a manner and to the extent it will deem necessary or expedient to make the Plan or Award fully effective.
(iii)  To settle all controversies regarding the Plan and Awards granted under it.
(iv)  To accelerate, in whole or in part, the time at which an Award may be exercised or vest (or the time at which cash or shares of Common Stock may be issued in settlement thereof).
(v)  To suspend or terminate the Plan at any time. Except as otherwise provided in the Plan or an Award Agreement, suspension or termination of the Plan will not materially impair a Participant’s rights under the Participant’s then-outstanding Award without such Participant’s written consent except as provided in subsection (viii) below.
(vi)  To amend the Plan in any respect the Board deems necessary or advisable, including, without limitation, by adopting amendments relating to Incentive Stock Options and certain nonqualified deferred compensation under Section 409A of the Code and/or bringing the Plan or Awards granted under the Plan into compliance with the requirements for Incentive Stock Options or nonqualified deferred compensation under Section 409A of the Code, subject to the limitations, if any, of applicable law. If required by applicable law or listing requirements, and except as provided in Section 9(a) relating to Capitalization Adjustments, the Company will seek stockholder approval of any amendment of the Plan that (A) materially increases the number of shares of Common Stock available for issuance under the Plan, (B) materially expands the class of individuals eligible to receive Awards under the Plan, (C) materially increases the benefits accruing to Participants under the Plan, (D) materially reduces the price at which shares of Common Stock may be issued or purchased under the Plan, (E) materially extends the term of the Plan, or (F) materially expands the types of Awards available for issuance under the Plan. Except as otherwise provided in the Plan (including subsection (viii) below) or an Award Agreement, no amendment of the Plan will materially impair a Participant’s rights under an outstanding Award without the Participant’s written consent.
(vii)  To submit any amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of (A) Section 422 of the Code regarding “incentive stock options” or (B) Rule 16b-3.
(viii)  To approve forms of Award Agreements for use under the Plan and to amend the terms of any one or more Awards, including, but not limited to, amendments to provide terms more favorable to the Participant than previously provided in the Award Agreement, subject to any specified limits in the Plan that are not subject to Board discretion. A Participant’s rights under any Award will not be impaired by any such amendment unless the Company requests the consent of the affected Participant, and the Participant consents in writing. However, a Participant’s rights will not be deemed to have been impaired by any such amendment if the Board, in its sole discretion, determines that the amendment, taken as a whole, does not materially impair the Participant’s rights. In addition, subject to the limitations of applicable law, if any, the Board may amend the terms of any one or more Awards without the affected Participant’s consent (A) to maintain the qualified status of the Award as an Incentive Stock Option under Section 422 of the Code, (B) to change the terms of an Incentive Stock Option, if such change results in impairment of the Award solely because it impairs the qualified status of the Award as an Incentive Stock Option under Section 422 of the Code, (C) to clarify the manner of exemption from, or to bring the Award into compliance with, Section 409A of the Code; or (D) to comply with other applicable laws or listing requirements.
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(ix)  Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan and/or Award Agreements.
 
(x)  To adopt such procedures and sub-plans as are necessary or appropriate (A) to permit or facilitate participation in the Plan by Employees, Directors or Consultants who are foreign nationals or employed outside the United States or (B) allow Awards to qualify for special tax treatment in a foreign jurisdiction; provided that Board approval will not be necessary for immaterial modifications to the Plan or any Award Agreement that are required for compliance with the laws of the relevant foreign jurisdiction.
(xi)  To effect, with the consent of any adversely affected Participant, (A) the reduction of the exercise, purchase or strike price of any outstanding Stock Award; (B) the cancellation of any outstanding Stock Award and the grant in substitution therefor of a new (1) Option or SAR, (2) Restricted Stock Award, (3) Restricted Stock Unit Award, (4) Other Stock Award, (5) cash award and/or (6) award of other valuable consideration determined by the Board, in its sole discretion, with any such substituted award (x) covering the same or a different number of shares of Common Stock as the cancelled Stock Award and (y) granted under the Plan or another equity or compensatory plan of the Company; or (C) any other action that is treated as a repricing under generally accepted accounting principles.
(c)  Delegation to Committee.
(i)  General. The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration of the Plan is delegated to a Committee, the Committee will have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee of the Committee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board will thereafter be to the Committee or subcommittee, as applicable). Any delegation of administrative powers will be reflected in resolutions, not inconsistent with the provisions of the Plan, adopted from time to time by the Board or Committee (as applicable). The Board may retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.
(ii)  Rule 16b-3 Compliance. The Committee shall consist solely of two or more Non-Employee Directors, in accordance with Rule 16b-3, unless otherwise determined by the Board.
(d)  Delegation to an Officer. The Board may delegate to one (1) or more Officers the authority to do one or both of the following (i) designate Employees who are not Officers to be recipients of Options and SARs (and, to the extent permitted by applicable law, other Stock Awards) and, to the extent permitted by applicable law, the terms of such Awards, and (ii) determine the number of shares of Common Stock to be subject to such Stock Awards granted to such Employees; provided, however, that the Board resolutions regarding such delegation will specify the total number of shares of Common Stock that may be subject to the Stock Awards granted by such Officer and that such Officer may not grant a Stock Award to himself or herself. Any such Stock Awards will be granted on the form of Stock Award Agreement most recently approved for use by the Committee or the Board, unless otherwise provided in the resolutions approving the delegation authority. The Board may not delegate authority to an Officer who is acting solely in the capacity of an Officer (and not also as a Director) to determine the Fair Market Value pursuant to Section 13(y)(iii) below.
(e)  Effect of Board’s Decision. All determinations, interpretations and constructions made by the Board in good faith will not be subject to review by any person and will be final, binding and conclusive on all persons.
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3.  SHARES SUBJECT TO THE PLAN.
(a)  Share Reserve.
(i)  Subject to Section 9(a) relating to Capitalization Adjustments and the “evergreen” provision in Section 3(a)(ii), the aggregate number of shares of Common Stock that may be issued pursuant to Stock Awards will not exceed 12,539,914 shares (the “Share Reserve”) plus the Returning Shares, if any, as such shares become available for grant under this Plan from time to time.
(ii)  The Share Reserve will automatically increase on January 1st of each year through and including January 1, 2030, commencing on January 1, 2022, in an amount equal to 4% of the sum of (A) the total number of shares of Capital Stock and (B) the total number of shares of Common Stock subject to Pre-Funded Warrants, in each case outstanding on December 31st of the preceding calendar year. The Board may act prior to January 1st of a given year to provide that there will be no January 1st increase in the Share Reserve for such year or that the increase in the Share Reserve for such year will be a smaller number of shares of Common Stock than would otherwise occur pursuant to the preceding sentence.
(iii)  For clarity, the Share Reserve is a limitation on the number of shares of Common Stock that may be issued under the Plan. As a single share may be subject to grant more than once (e.g., if a share subject to a Stock Award is forfeited, it may be made subject to grant again as provided in Section 3(b) below), the Share Reserve is not a limit on the number of Stock Awards that can be granted.
(iv)  Shares may be issued in connection with a merger or acquisition as permitted by NASDAQ Listing Rule 5635(c) or, if applicable, NYSE Listed Company Manual Section 303A.08, AMEX Company Guide Section 711 or other applicable rule, and such issuance will not reduce the number of shares available for issuance under the Plan.
(b)  Reversion of Shares to the Share Reserve. If a Stock Award or any portion of a Stock Award (i) expires or otherwise terminates without all of the shares covered by such Stock Award having been issued or (ii) is settled in cash (i.e., the Participant receives cash rather than stock), such expiration, termination or settlement will not reduce (or otherwise offset) the number of shares of Common Stock that are available for issuance under the Plan. If any shares of Common Stock issued under a Stock Award are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required to vest such shares in the Participant, then the shares that are forfeited or repurchased will revert to and again become available for issuance under the Plan. Any shares reacquired by the Company in satisfaction of tax withholding obligations on a Stock Award or as consideration for the exercise or purchase price of a Stock Award will again become available for issuance under the Plan.
(c)  Incentive Stock Option Limit. Subject to Section 9(a) relating to Capitalization Adjustments, the aggregate maximum number of shares of Common Stock that may be issued on the exercise of Incentive Stock Options will be 25,079,828.
(d)  Annual Limitations. Subject to the provisions of Section 9(a) relating to Capitalization Adjustments, the following limitations will apply.
(i)  A maximum of 5,445,000 shares of Common Stock subject to Options, SARs and Other Stock Awards whose value is determined by reference to an increase over an exercise or strike price of at least one hundred percent (100%) of the Fair Market Value on the date the Stock Award is granted may be granted to any single Participant during any single calendar year.
(ii)  A maximum of 5,445,000 shares of Common Stock subject to Performance Stock Awards may be granted to any one Participant during any one calendar year (whether the grant, vesting or exercise is contingent upon the attainment during the Performance Period of the Performance Goals).
(iii)  A maximum of $2,500,000 may be granted as a Performance Cash Award to any one Participant during any one calendar year.
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If a Performance Stock Award is in the form of an Option, it will count only against the Performance Stock Award limit. If a Performance Stock Award could (but is not required to) be paid out in cash, it will count only against the Performance Stock Award limit.
 
(e)  Limitation on Awards Granted to Non-Employee Directors. No Non-Employee Directors may receive awards under the Plan that, when combined with cash compensation received for service as a Non-Employee Director, exceeds $750,000.00 in value (as described below) in any calendar year, increased to $1,000,000.00 in value (as described below) in the calendar year of his or her initial services as a Non-Employee Director. Grant date fair value for purposes of Awards to Non-Employee Directors under the Plan will be determined as follows: (i) for Options and SARs, grant date fair value will be calculated using the Black-Scholes valuation methodology on the date of grant of such Option or SAR and (ii) for all other Awards other than Options and SARs, grant date fair value will be determined by either (1) calculating the product of the Fair Market Value per share on the date of grant and the aggregate number of shares subject to the Award or (2) calculating the product using an average of the Fair Market Value over a number of trading days as determined by the Board or Committee and the aggregate number of shares subject to the Award. Awards granted to an individual while he or she was serving in the capacity as an Employee or while he or she was a Consultant but not a Non-Employee Director will not count for purposes of the limitations set forth in this Section 3(e).
(f)  Source of Shares. The stock issuable under the Plan will be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Company on the open market or otherwise.
4.  ELIGIBILITY.
(a)  Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to employees of the Company or a “parent corporation” or “subsidiary corporation” thereof (as such terms are defined in Sections 424(e) and 424(f) of the Code). Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants; provided, however, that Stock Awards may not be granted to Employees, Directors and Consultants who are providing Continuous Service only to any “parent” of the Company, as such term is defined in Rule 405 of the Securities Act (US), unless (i) the stock underlying such Stock Awards is treated as “service recipient stock” under Section 409A of the Code (for example, because the Stock Awards are granted pursuant to a corporate transaction such as a spin off transaction), (ii) the Company, in consultation with its legal counsel, has determined that such Stock Awards are otherwise exempt from Section 409A of the Code, or (iii) the Company, in consultation with its legal counsel, has determined that such Stock Awards comply with the distribution requirements of Section 409A of the Code.
(b)  Ten Percent Stockholders. A Ten Percent Stockholder will not be granted an Incentive Stock Option unless the exercise price of such Option is at least 110% of the Fair Market Value on the date of grant and the Option is not exercisable after the expiration of five years from the date of grant.
5.  PROVISIONS RELATING TO OPTIONS AND STOCK APPRECIATION RIGHTS.
Each Option or SAR will be in such form and will contain such terms and conditions as the Board deems appropriate. All Options will be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. If an Option is not specifically designated as an Incentive Stock Option, or if an Option is designated as an Incentive Stock Option but some portion or all of the Option fails to qualify as an Incentive Stock Option under the applicable rules, then the Option (or portion thereof) will be a Nonstatutory Stock Option. The provisions of separate Options or SARs need not be identical; provided, however, that each Award Agreement will conform to (through incorporation of provisions hereof by reference in the applicable Award Agreement or otherwise) the substance of each of the following provisions:
(a)  Term. Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, no Option or SAR will be exercisable after the expiration of ten years from the date of its grant or such shorter period specified in the Award Agreement.
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(b)  Exercise Price. Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, the exercise or strike price of each Option or SAR will be not less than 100% of the Fair Market Value of the Common Stock subject to the Option or SAR on the date the Award is granted. Notwithstanding the foregoing, an Option or SAR may be granted with an exercise or strike price lower than 100% of the Fair Market Value of the Common Stock subject to the Award if such Award is granted pursuant to an assumption of or substitution for another option or stock appreciation right pursuant to a Corporate Transaction and in a manner consistent with the provisions of Section 409A of the Code and, if applicable, Section 424(a) of the Code. Each SAR will be denominated in shares of Common Stock equivalents.
(c)  Purchase Price for Options. The purchase price of Common Stock acquired pursuant to the exercise of an Option may be paid, to the extent permitted by applicable law and as determined by the Board in its sole discretion, by any combination of the methods of payment set forth below. The Board will have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the ability to use certain methods) and to grant Options that require the consent of the Company to use a particular method of payment. The permitted methods of payment are as follows:
(i)  by cash, check, bank draft or money order payable to the Company;
(ii)  pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of the stock subject to the Option, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds;
(iii)  by delivery to the Company (either by actual delivery or attestation) of shares of Common Stock;
(iv)  if an Option is a Nonstatutory Stock Option, by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Common Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; provided, however, that the Company will accept a cash or other payment from the Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued. Shares of Common Stock will no longer be subject to an Option and will not be exercisable thereafter to the extent that (A) shares issuable upon exercise are used to pay the exercise price pursuant to the “net exercise,” (B) shares are delivered to the Participant as a result of such exercise, and (C) shares are withheld to satisfy tax withholding obligations; or
(v)  in any other form of legal consideration that may be acceptable to the Board, permissible under applicable law, the rules of any applicable stock exchange and specified in the applicable Award Agreement.
(d)  Exercise and Payment of a SAR. To exercise any outstanding SAR, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Stock Appreciation Right Agreement evidencing such SAR. The appreciation distribution payable on the exercise of a SAR will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the SAR) of a number of shares of Common Stock equal to the number of Common Stock equivalents in which the Participant is vested under such SAR (with respect to which the Participant is exercising the SAR on such date), over (B) the aggregate strike price of the number of Common Stock equivalents with respect to which the Participant is exercising the SAR on such date. The appreciation distribution may be paid in Common Stock, in cash, in any combination of the two or in any other form of consideration, as determined by the Board and contained in the Award Agreement evidencing such SAR.
(e)  Transferability of Options and SARs. The Board may, in its sole discretion, impose such limitations on the transferability of Options and SARs as the Board will determine. In the absence of such a determination by the Board to the contrary, the following restrictions on the transferability of Options and SARs will apply:
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(i)  Restrictions on Transfer. An Option or SAR will not be transferable except by will or by the laws of descent and distribution (or pursuant to subsections (ii) and (iii) below), and will be exercisable during the lifetime of the Participant only by the Participant. The Board may permit transfer of the Option or SAR in a manner that is not prohibited by applicable tax and securities laws. Except as explicitly provided herein, neither an Option nor a SAR may be transferred for consideration.
(ii)  Domestic Relations Orders. Subject to the approval of the Board or a duly authorized Officer, an Option or SAR may be transferred pursuant to the terms of a domestic relations order, official marital settlement agreement or other divorce or separation instrument as permitted by U.S. Treasury Regulation 1.421-1(b)(2). If an Option is an Incentive Stock Option, such Option may be deemed to be a Nonstatutory Stock Option as a result of such transfer.
(iii)  Beneficiary Designation. Subject to the approval of the Board or a duly authorized Officer, a Participant may, by delivering written notice to the Company, in a form approved by the Company (or the designated broker), designate a third party who, on the death of the Participant, will thereafter be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. In the absence of such a designation, upon the death of the Participant, the executor or administrator of the Participant’s estate will be entitled to exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. However, the Company may prohibit designation of a beneficiary at any time, including due to any conclusion by the Company that such designation would be inconsistent with the provisions of applicable laws.
(f)  Vesting Generally. The total number of shares of Common Stock subject to an Option or SAR may vest and become exercisable in periodic installments that may or may not be equal. The Option or SAR may be subject to such other terms and conditions on the time or times when it may or may not be exercised (which may be based on the satisfaction of Performance Goals or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options or SARs may vary. The provisions of this Section 5(f) are subject to any Option or SAR provisions governing the minimum number of shares of Common Stock as to which an Option or SAR may be exercised.
(g)  Termination of Continuous Service. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if a Participant’s Continuous Service terminates (other than for Cause and other than upon the Participant’s death or Disability), the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Award as of the date of termination of Continuous Service) within the period of time ending on the earlier of (i) the date three months following the termination of the Participant’s Continuous Service (or such longer or shorter period specified in the applicable Award Agreement), and (ii) the expiration of the term of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR (as applicable) within the applicable time frame, the Option or SAR will terminate.
(h)  Extension of Termination Date. If the exercise of an Option or SAR following the termination of the Participant’s Continuous Service (other than for Cause and other than upon the Participant’s death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act (US), then the Option or SAR will terminate on the earlier of (i) the expiration of a total period of time (that need not be consecutive) equal to the applicable post termination exercise period after the termination of the Participant’s Continuous Service during which the exercise of the Option or SAR would not be in violation of such registration requirements, and (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Agreement. In addition, unless otherwise provided in a Participant’s Award Agreement, if the sale of any Common Stock received on exercise of an Option or SAR following the termination of the Participant’s Continuous Service (other than for Cause) would violate the Company’s insider trading policy, then the Option or SAR will terminate on the earlier of (i) the expiration of a period of months (that need not be consecutive) equal to the applicable post-termination exercise period after the termination of the Participant’s Continuous Service during which the sale of the Common Stock received upon exercise of the Option or SAR would not be in violation of the Company’s insider trading policy, or (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Agreement.
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(i)  Disability of Participant. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if a Participant’s Continuous Service terminates as a result of the Participant’s Disability, the Participant may exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Option or SAR as of the date of termination of Continuous Service), but only within such period of time ending on the earlier of (i) the date 12 months following such termination of Continuous Service (or such longer or shorter period specified in the Award Agreement) and (ii) the expiration of the term of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR within the applicable time frame, the Option or SAR (as applicable) will terminate.
(j)  Death of Participant. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the Company, if (i) a Participant’s Continuous Service terminates as a result of the Participant’s death, or (ii) the Participant dies within the period (if any) specified in the Award Agreement for exercisability after the termination of the Participant’s Continuous Service for a reason other than death, then the Option or SAR may be exercised (to the extent the Participant was entitled to exercise such Option or SAR as of the date of death) by the Participant’s estate, by a person who acquired the right to exercise the Option or SAR by bequest or inheritance or by a person designated to exercise the Option or SAR upon the Participant’s death, but only within the period ending on the earlier of (i) the date 12 months following the date of death (or such longer or shorter period specified in the Award Agreement) and (ii) the expiration of the term of such Option or SAR as set forth in the Award Agreement. If, after the Participant’s death, the Option or SAR is not exercised within the applicable time frame, the Option or SAR (as applicable) will terminate.
(k)  Termination for Cause. Except as explicitly provided otherwise in a Participant’s Award Agreement or other individual written agreement between the Company or any Affiliate and the Participant, if a Participant’s Continuous Service is terminated for Cause, the Option or SAR will terminate immediately upon such Participant’s termination of Continuous Service, and the Participant will be prohibited from exercising his or her Option or SAR from and after the date of such termination of Continuous Service.
(l)  Non-Exempt Employees. If an Option or SAR is granted to an Employee who is a non-exempt employee for purposes of the U.S. Fair Labor Standards Act of 1938, as amended, the Option or SAR will not be first exercisable for any shares of Common Stock until at least six (6) months following the date of grant of the Option or SAR (although the Award may vest prior to such date). Consistent with the provisions of the U.S. Worker Economic Opportunity Act, (i) if such non-exempt Employee dies or suffers a Disability, (ii) upon a Corporate Transaction in which such Option or SAR is not assumed, continued, or substituted, (iii) upon a Change in Control, or (iv) upon the Participant’s retirement (as such term may be defined in the Participant’s Award Agreement in another agreement between the Participant and the Company, or, if no such definition, in accordance with the Company’s then current employment policies and guidelines), the vested portion of any Options and SARs may be exercised earlier than six months following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option or SAR will be exempt from his or her regular rate of pay. To the extent permitted and/or required for compliance with the U.S. Worker Economic Opportunity Act to ensure that any income derived by a non-exempt employee in connection with the exercise, vesting or issuance of any shares under any other Stock Award will be exempt from the employee’s regular rate of pay, the provisions of this Section 5(l) will apply to all Stock Awards and are hereby incorporated by reference into such Stock Award Agreements.
6.  PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS AND SARS.
(a)  Restricted Stock Awards. Each Restricted Stock Award Agreement will be in such form and will contain such terms and conditions as the Board deems appropriate. To the extent consistent with the Company’s bylaws, at the Board’s election, shares of Common Stock may be (x) held in book entry form subject to the Company’s instructions until any restrictions relating to the Restricted Stock Award lapse, or (y) evidenced by a certificate, which certificate will be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Award Agreements may change from time to time, and the terms and conditions of separate 
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Restricted Stock Award Agreements need not be identical. Each Restricted Stock Award Agreement will conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i)  Consideration. A Restricted Stock Award may be awarded in consideration for (A) cash, check, bank draft or money order payable to the Company, (B) past services to the Company or an Affiliate, or (C) any other form of legal consideration (including future services) that may be acceptable to the Board, in its sole discretion, and permissible under applicable law.
(ii)  Vesting. Shares of Common Stock awarded under the Restricted Stock Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the Board.
(iii)  Termination of Participant’s Continuous Service. If a Participant’s Continuous Service terminates, the Company may receive through a forfeiture condition or a repurchase right any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination of Continuous Service under the terms of the Restricted Stock Award Agreement.
(iv)  Transferability. Rights to acquire shares of Common Stock under the Restricted Stock Award Agreement will be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Award Agreement, as the Board will determine in its sole discretion, so long as Common Stock awarded under the Restricted Stock Award Agreement remains subject to the terms of the Restricted Stock Award Agreement.
(v)  Dividends. A Restricted Stock Award Agreement may provide that any dividends paid on Restricted Stock will be subject to the same vesting and forfeiture restrictions as apply to the shares subject to the Restricted Stock Award to which they relate.
(b)  Restricted Stock Unit Awards. Each Restricted Stock Unit Award Agreement will be in such form and will contain such terms and conditions as the Board deems appropriate. The terms and conditions of Restricted Stock Unit Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Unit Award Agreements need not be identical. Each Restricted Stock Unit Award Agreement will conform to (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the following provisions:
(i)  Consideration. At the time of grant of a Restricted Stock Unit Award, the Board will determine the consideration, if any, to be paid by the Participant upon delivery of each share of Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by the Participant for each share of Common Stock subject to a Restricted Stock Unit Award may be paid in any form of legal consideration that may be acceptable to the Board, in its sole discretion, and permissible under applicable law and the rules of any applicable stock exchange.
(ii)  Vesting. At the time of the grant of a Restricted Stock Unit Award, the Board may impose such restrictions on or conditions to the vesting of the Restricted Stock Unit Award as it, in its sole discretion, deems appropriate.
(iii) Payment. A Restricted Stock Unit Award may be settled by the delivery of shares of Common Stock, their cash equivalent, any combination thereof or in any other form of consideration, as determined by the Board and contained in the Restricted Stock Unit Award Agreement.
(iv)  Additional Restrictions. At the time of the grant of a Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery of the shares of Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award to a time after the vesting of such Restricted Stock Unit Award.
 
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(v)  Dividend Equivalents. Dividend equivalents may be credited in respect of shares of Common Stock covered by a Restricted Stock Unit Award, as determined by the Board and contained in the Restricted Stock Unit Award Agreement. At the sole discretion of the Board, such dividend equivalents may be converted into additional shares of Common Stock covered by the Restricted Stock Unit Award in such manner as determined by the Board. Any additional shares covered by the Restricted Stock Unit Award credited by reason of such dividend equivalents will be subject to all of the same terms and conditions of the underlying Restricted Stock Unit Award Agreement to which they relate.
(vi)  Termination of Participant’s Continuous Service. Except as otherwise provided in the applicable Restricted Stock Unit Award Agreement, such portion of the Restricted Stock Unit Award that has not vested will be forfeited upon the Participant’s termination of Continuous Service.
(c)  Performance Awards.
(i)  Performance Stock Awards. A Performance Stock Award is a Stock Award (covering a number of shares not in excess of that set forth in Section 3(d) above) that is payable (including that may be granted, may vest or may be exercised) contingent upon the attainment during a Performance Period of certain Performance Goals. A Performance Stock Award may, but need not, require the Participant’s completion of a specified period of Continuous Service. The length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained will be conclusively determined by the Committee or the Board, in its sole discretion. In addition, to the extent permitted by applicable law and the applicable Award Agreement, the Board may determine that cash may be used in payment of Performance Stock Awards.
(ii)  Performance Cash Awards. A Performance Cash Award is a cash award (for a dollar value not in excess of that set forth in Section 3(d)(iii) above) that is payable contingent upon the attainment during a Performance Period of certain Performance Goals. A Performance Cash Award may also require the completion of a specified period of Continuous Service. At the time of grant of a Performance Cash Award, the length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained will be conclusively determined by the Committee or the Board, in its sole discretion. The Board may specify the form of payment of Performance Cash Awards, which may be cash or other property, or may provide for a Participant to have the option for his or her Performance Cash Award, or such portion thereof as the Board may specify, to be paid in whole or in part in cash or other property.
(iii)  Board Discretion. The Board retains the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of Performance Goals and to define the manner of calculating the Performance Criteria it selects to use for a Performance Period. Partial achievement of the specified criteria may result in the payment or vesting corresponding to the degree of achievement as specified in the Stock Award Agreement or the written terms of a Performance Cash Award.
(iv)  Determination of Performance Goals. Unless otherwise determined by the Board, the Committee will establish the Performance Goals applicable to, and the formula for calculating the amount payable under, the Award no later than the earlier of (A) the date 90 days after the commencement of the applicable Performance Period, and (B) the date on which 25% of the Performance Period has elapsed, and in any event at a time when the achievement of the applicable Performance Goals remains substantially uncertain. Prior to the payment of any compensation under an Award subject to Performance Goals, the Committee will certify in writing the extent to which any Performance Goals and any other material terms under such Award have been satisfied (other than in cases where such Performance Goals relate solely to the increase in the value of the Common Stock). Notwithstanding satisfaction of, or completion of any Performance Goals, the number of shares of Common Stock, Options, cash or other benefits granted, issued, retainable and/or vested under an Award on account of satisfaction of such Performance Goals may be reduced by the Committee on the basis of such further considerations as the Committee, in its sole discretion, will determine.
 
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(d)  Other Stock Awards. Other forms of Stock Awards valued in whole or in part by reference to, or otherwise based on, Common Stock, including the appreciation in value thereof (e.g., options or stock rights with an exercise price or strike price less than 100% of the Fair Market Value of the Common Stock at the time of grant) may be granted either alone or in addition to Stock Awards provided for under Section 5 and the preceding provisions of this Section 6. Subject to the provisions of the Plan, the Board will have sole and complete authority to determine the persons to whom and the time or times at which such Other Stock Awards will be granted, the number of shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other Stock Awards and all other terms and conditions of such Other Stock Awards.
7.  COVENANTS OF THE COMPANY.
(a)  Availability of Shares. The Company will keep available at all times the number of shares of Common Stock reasonably required to satisfy then-outstanding Stock Awards.
(b)  Securities Law Compliance. The Company will seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking will not require the Company to register under the Securities Act (US) the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts and at a reasonable cost, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company will be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. A Participant will not be eligible for the grant of an Award or the subsequent issuance of cash or Common Stock pursuant to the Award if such grant or issuance would be in violation of any applicable securities law.
(c)  No Obligation to Notify or Minimize Taxes. The Company will have no duty or obligation to any Participant to advise such holder as to the time or manner of exercising such Stock Award. Furthermore, the Company will have no duty or obligation to warn or otherwise advise such holder of a pending termination or expiration of an Award or a possible period in which the Award may not be exercised. The Company has no duty or obligation to minimize the tax consequences of an Award to the holder of such Award.
8.  MISCELLANEOUS.
(a)  Use of Proceeds from Sales of Common Stock. Proceeds from the sale of shares of Common Stock pursuant to Stock Awards will constitute general funds of the Company.
(b)  Corporate Action Constituting Grant of Awards. Corporate action constituting a grant by the Company of an Award to any Participant will be deemed completed as of the date of such corporate action, unless otherwise determined by the Board, regardless of when the instrument, certificate, or letter evidencing the Award is communicated to, or actually received or accepted by, the Participant. In the event that the corporate records (e.g., Board consents, resolutions or minutes) documenting the corporate action constituting the grant contain terms (e.g., exercise price, vesting schedule or number of shares) that are inconsistent with those in the Award Agreement or related grant documents as a result of a clerical error in the papering of the Award Agreement or related grant documents, the corporate records will control and the Participant will have no legally binding right to the incorrect term in the Award Agreement or related grant documents.
(c)  Stockholder Rights. No Participant will be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to a Stock Award unless and until (i) such Participant has satisfied all requirements for exercise of, or the issuance of shares of Common Stock under, the Stock Award pursuant to its terms, and (ii) the issuance of the Common Stock subject to such Stock Award has been entered into the books and records of the Company.
 
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(d)  No Employment or Other Service Rights. Nothing in the Plan, any Award Agreement or any other instrument executed thereunder or in connection with any Award granted pursuant thereto will confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Award was granted or will affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate, or (iii) the service of a Director pursuant to the bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.
(e)  Change in Time Commitment. In the event a Participant’s regular level of time commitment in the performance of his or her services for the Company and any Affiliates is reduced (for example, and without limitation, if the Participant is an Employee of the Company and the Employee has a change in status from a full-time Employee to a part-time Employee or takes an extended leave of absence) after the date of grant of any Award to the Participant, the Board has the right in its sole discretion to (x) make a corresponding reduction in the number of shares or cash amount subject to any portion of such Award that is scheduled to vest or become payable after the date of such change in time commitment, and (y) in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable to such Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Award that is so reduced or extended.
(f)  Incentive Stock Option Limitations. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and any Affiliates) exceeds $100,000 (or such other limit established in the Code) or otherwise does not comply with the rules governing Incentive Stock Options, the Options or portions thereof that exceed such limit (according to the order in which they were granted) or otherwise do not comply with such rules will be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of the applicable Option Agreement(s).
(g)  Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that such Participant is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award, and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, will be inoperative if (A) the issuance of the shares upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act (US), or (B) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.
(h)  Withholding Obligations. Unless prohibited by the terms of an Award Agreement, the Company may, in its sole discretion, satisfy any U.S. federal, state, local, foreign or other tax withholding obligation relating to an Award by any of the following means or by a combination of such means: (i) causing the Participant to tender a cash payment; (ii) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to the Participant in connection with the Award; provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law (or such other amount as may be necessary to avoid classification of the Stock Award as a liability for financial accounting purposes); (iii) withholding cash from an Award settled in cash; (iv) withholding payment from any amounts otherwise payable to the Participant, including proceeds from the sale of shares of Common Stock issued pursuant to a Stock Award; or (v) by such other method as may be set forth in the Award Agreement.
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(i)  Electronic Delivery. Any reference herein to a “written” agreement or document will include any agreement or document delivered electronically, filed publicly at www.sec.gov (or any successor website thereto), or posted on the Company’s intranet (or other shared electronic medium controlled by the Company to which the Participant has access).
(j)  Deferrals. To the extent permitted by applicable law and the rules of any applicable stock exchange, the Board, in its sole discretion, may determine that the delivery of Common Stock or the payment of cash, upon the exercise, vesting or settlement of all or a portion of any Award may be deferred and may establish programs and procedures for deferral elections to be made by Participants. Deferrals by Participants will be made in accordance with Section 409A of the Code. Consistent with Section 409A of the Code, the Board may provide for distributions while a Participant is still an employee or otherwise providing services to the Company. The Board is authorized to make deferrals of Awards and determine when, and in what annual percentages, Participants may receive payments, including lump sum payments, following the Participant’s termination of Continuous Service, and implement such other terms and conditions consistent with the provisions of the Plan and in accordance with applicable law.
(k)  Compliance with Section 409A of the Code. Unless otherwise expressly provided for in an Award Agreement, the Plan and Award Agreements will be interpreted to the greatest extent possible in a manner that makes the Plan and the Awards granted hereunder exempt from Section 409A of the Code, and, to the extent not so exempt, in compliance with Section 409A of the Code. If the Board determines that any Award granted hereunder is not exempt from and is therefore subject to Section 409A of the Code, the Award Agreement evidencing such Award will incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code, and to the extent an Award Agreement is silent on terms necessary for compliance, such terms are hereby incorporated by reference into the Award Agreement. Notwithstanding anything to the contrary in this Plan (and unless the Award Agreement specifically provides otherwise), if the shares of Common Stock are publicly traded, and if a Participant holding an Award that constitutes “deferred compensation” under Section 409A of the Code is a “specified employee” for purposes of Section 409A of the Code, no distribution or payment of any amount that is due because of a “separation from service” (as defined in Section 409A of the Code without regard to alternative definitions thereunder) will be issued or paid before the date that is six (6) months following the date of such Participant’s “separation from service” (as defined in Section 409A of the Code without regard to alternative definitions thereunder) or, if earlier, the date of the Participant’s death, unless such distribution or payment can be made in a manner that complies with Section 409A of the Code, and any amounts so deferred will be paid in a lump sum on the day after such six (6) month period elapses, with the balance paid thereafter on the original schedule.
(l)  Clawback/Recovery. All Awards granted under the Plan will be subject to recoupment in accordance with any clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. In addition, the Board may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Board determines necessary or appropriate, including but not limited to a reacquisition right in respect of previously acquired shares of Common Stock or other cash or property upon the occurrence of an event constituting Cause. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for “good reason” or “constructive termination” (or similar term) under any agreement with the Company.
9.  ADJUSTMENTS UPON CHANGES IN COMMON STOCK; OTHER CORPORATE EVENTS.
(a)  Capitalization Adjustments. In the event of a Capitalization Adjustment, the Board will appropriately and proportionately adjust: (i) the class(es) and maximum number of securities subject to the Plan pursuant to Section 3(a), (ii) the class(es) and maximum number of securities that may be issued pursuant to the exercise of Incentive Stock Options pursuant to Section 3(c), (iii) the class(es) and maximum number of securities that may be awarded to any person pursuant to Sections 3(d), and (iv) the class(es) and number of securities and price per share of stock subject to outstanding Stock Awards. The Board will make such adjustments, and its determination will be final, binding and conclusive.
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(b)  Dissolution or Liquidation. Except as otherwise provided in the Stock Award Agreement, in the event of a dissolution or liquidation of the Company, all outstanding Stock Awards (other than Stock Awards consisting of vested and outstanding shares of Common Stock not subject to a forfeiture condition or the Company’s right of repurchase) will terminate immediately prior to the completion of such dissolution or liquidation, and the shares of Common Stock subject to the Company’s repurchase rights or subject to a forfeiture condition may be repurchased or reacquired by the Company notwithstanding the fact that the holder of such Stock Award is providing Continuous Service; provided, however, that the Board may, in its sole discretion, cause some or all Stock Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Stock Awards have not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion.
(c)  Corporate Transaction. The following provisions will apply to Stock Awards in the event of a Corporate Transaction unless otherwise provided in the instrument evidencing the Stock Award or any other written agreement between the Company or any Affiliate and the Participant or unless otherwise expressly provided by the Board at the time of grant of a Stock Award. In the event of a Corporate Transaction, then, notwithstanding any other provision of the Plan, the Board will take one or more of the following actions with respect to Stock Awards, contingent upon the closing or completion of the Corporate Transaction:
(i)  arrange for the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company) to assume or continue the Stock Award or to substitute a similar stock award for the Stock Award (including, but not limited to, an award to acquire the same consideration paid to the stockholders of the Company pursuant to the Corporate Transaction);
(ii)  arrange for the assignment of any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to the Stock Award to the surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company);
(iii)  accelerate the vesting, in whole or in part, of the Stock Award (and, if applicable, the time at which the Stock Award may be exercised) to a date prior to the effective time of such Corporate Transaction as the Board determines (or, if the Board does not determine such a date, to the date that is five (5) days prior to the effective date of the Corporate Transaction), with such Stock Award terminating if not exercised (if applicable) at or prior to the effective time of the Corporate Transaction;
(iv)  arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by the Company with respect to the Stock Award;
(v)  cancel or arrange for the cancellation of the Stock Award, to the extent not vested or not exercised prior to the effective time of the Corporate Transaction, in exchange for such cash consideration, if any, as the Board, in its sole discretion, may consider appropriate; and
(vi)  make a payment, in such form as may be determined by the Board equal to the excess, if any, of (A) the value of the property the Participant would have received upon the exercise of the Stock Award immediately prior to the effective time of the Corporate Transaction, over (B) any exercise price payable by such holder in connection with such exercise.
The Board need not take the same action or actions with respect to all Stock Awards or portions thereof or with respect to all Participants.
 
(d)  Change in Control. A Stock Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the Stock Award Agreement for such Stock Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration will occur.
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10.  PLAN TERM; EARLIER TERMINATION OR SUSPENSION OF THE PLAN.
The Board may suspend or terminate the Plan at any time. The Plan will expire on the ninth anniversary of the earlier of (i) the Amendment Date or (ii) the date the amended and restated Plan is approved by the Board. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
11.  EXISTENCE OF THE PLAN; TIMING OF FIRST GRANT OR EXERCISE.
The Plan came into existence on the Adoption Date and was amended and restated as of the Amendment Date.  
12.  CHOICE OF LAW.
The law of the State of Delaware will govern all questions concerning the construction, validity and interpretation of this Plan, without regard to that state’s conflict of laws rules.
13.  DEFINITIONS. As used in the Plan, the following definitions will apply to the capitalized terms indicated below:
 
									
	 	(a)	“Adoption Date” means January 12, 2014.

 
									
	 	(b)	“Affiliate” means, at the time of determination, any “parent” or “subsidiary” of the Company as such terms are defined in Rule 405 of the Securities Act (US). The Board will have the authority to determine the time or times at which “parent” or “subsidiary” status is determined within the foregoing definition.

 									
	 	(c)	“Amendment Date” shall mean the date the amendment and restatement of this Plan is approved by the stockholders of the Company, which shall be within twelve (12) months of the approval of the amended and restated Plan by the Board. 

									
	 	(d)
	“Award” means a Stock Award or a Performance Cash Award.

									
	 	(e)	“Award Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an Award.

 
									
	 	(f)	“Board” means the Board of Directors of the Company.

 
									
	 	(g)	“Canadian Securities Laws” means collectively, all securities laws of the provinces and territories of Canada and the respective rules and regulations under such laws together with applicable published policy statements, instruments, notices and blanket orders or rulings and all discretionary orders or rulings, if any, applicable to the Company.

 
									
	 	(h)	“Capital Stock” means each and every class of common stock of the Company, regardless of the number of votes per share.

 
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	 	(i)	“Capitalization Adjustment” means any change that is made in, or other events that occur with respect to, the Common Stock subject to the Plan or subject to any Stock Award after the Adoption Date without the receipt of consideration by the Company through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, stock split, reverse stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or any similar equity restructuring transaction, as that term is used in Statement of Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto). Notwithstanding the foregoing, the conversion of any convertible securities of the Company will not be treated as a Capitalization Adjustment.

 
									
	 	(j)	“Cause” will have the meaning ascribed to such term in any written agreement between the Participant and the Company defining such term and, in the absence of such agreement, such term means, with respect to a Participant: the occurrence of any of the following events: (i) such Participant’s commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of Canada, the United States or any state or province thereof; (ii) such Participant’s attempted commission of, or participation (whether by affirmative act or omission) in, a fraud or act of dishonesty against the Company and/or its Affiliates; (iii) such Participant’s intentional, material violation of any contract or agreement between the Participant and the Company or of any statutory duty owed to the Company and/or its Affiliates and which has a material adverse effect on the Company and/or its Affiliates; (iv) such Participant’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; (v) such Participant’s gross misconduct; or (vi) any other conduct by the Participant that constitutes just cause under the common law or the laws of the jurisdiction in which the Participant is employed.

The determination that a termination of the Participant’s Continuous Service is either for Cause or without Cause will be made by the Company, in its sole and exclusive judgment and discretion. Any determination by the Company that the Continuous Service of a Participant was terminated with or without Cause for the purposes of outstanding Awards held by such Participant will have no effect upon any determination of the rights or obligations of the Company or such Participant for any other purpose.
 
									
	 	(k)	“Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

(i)  any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control will not be deemed to occur (A) on account of the acquisition of securities of the Company directly from the Company, (B) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person that acquires the Company’s securities in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (C) solely because the level of Ownership held by any Exchange Act Person (the “Subject Person”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control will be deemed to occur;
(ii)  there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or 
16

indirectly, either (A) outstanding voting securities representing more than 50% of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than 50% of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction;
(iii)  there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by stockholders of the Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or
(iv)  individuals who, on the Adoption Date, are members of the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member will, for purposes of this Plan, be considered as a member of the Incumbent Board.
Notwithstanding the foregoing definition or any other provision of this Plan, (A) the term Change in Control will not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company, and (B) the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant will supersede the foregoing definition with respect to Awards subject to such agreement; provided, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition will apply.
 
									
	 	(l)	“Code” means the U.S. Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance thereunder.

 
									
	 	(m)	“Committee” means a committee of one (1) or more Directors to whom authority has been delegated by the Board in accordance with Section 2(c).

 
									
	 	(n)	“Common Stock” means, as of the Effective Date, the common stock of the Company.

 
									
	 	(o)	“Company” means Neoleukin Therapeutics, Inc., a Delaware corporation.

 
									
	 	(p)	“Consultant” means any person, including an advisor, who is (i) engaged by the Company or an Affiliate to render consulting or advisory services and is compensated for such services, or (ii) serving as a member of the board of directors of an Affiliate and is compensated for such services. However, service solely as a Director, or payment of a fee for such service, will not cause a Director to be considered a “Consultant” for purposes of the Plan. Notwithstanding the foregoing, a person is treated as a Consultant under this Plan only if a Form S-8 Registration Statement under the Securities Act (US) is available to register either the offer or the sale of the Company’s securities to such person.

 
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	 	(q)	“Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service with the Company or an Affiliate, will not terminate a Participant’s Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or to a Director will not constitute an interruption of Continuous Service. If the Entity for which a Participant is rendering services ceases to qualify as an Affiliate, as determined by the Board, in its sole discretion, such Participant’s Continuous Service will be considered to have terminated on the date such Entity ceases to qualify as an Affiliate. To the extent permitted by law, the Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Service will be considered interrupted in the case of (i) any leave of absence approved by the Board or chief executive officer, including sick leave, military leave or any other personal leave, or (ii) transfers between the Company, an Affiliate, or their successors. A leave of absence will be treated as Continuous Service for purposes of vesting in a Stock Award only to such extent as may be provided in the Company’s leave of absence policy, in the written terms of any leave of absence agreement or policy applicable to the Participant, or as otherwise required by law.

 
									
	 	(r)	“Corporate Transaction” means the consummation, in a single transaction or in a series of related transactions, of any one or more of the following events:

(i)  a sale or other disposition of all or substantially all, as determined by the Board, in its sole discretion, of the consolidated assets of the Company and its Subsidiaries;
 
(ii)  a sale or other disposition of at least 90% of the outstanding securities of the Company;
(iii)  a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or
(iv)  a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.
 
									
	 	(s)	“Director” means a member of the Board.

 
									
	 	(t)	“Disability” means, with respect to a Participant, the inability of such Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months, as provided in Sections 22(e)(3) and 409A(a)(2)(C)(i) of the Code, and will be determined by the Board on the basis of such medical evidence as the Board deems warranted under the circumstances.

 
									
	 	(u)	“Effective Date” means the IPO Date.

 
									
	 	(v)	“Employee” means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services, will not cause a Director to be considered an “Employee” for purposes of the Plan.

 
									
	 	(w)	“Entity” means a corporation, partnership, limited liability company or other entity.

 
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	 	(x)	“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 
									
	 	(y)	“Exchange Act Person” means any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” will not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to a registered public offering of such securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company ; or (v) any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective Date, is the Owner, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities.

 
									
	 	(z)	“Fair Market Value” means, as of any date, the value of the Common Stock determined as follows:

(i)  If the Common Stock is listed on any established stock exchange or traded on any established market, the Fair Market Value of a share of Common Stock will be the closing sales price for such stock as quoted on such exchange or market (or the exchange or market where the greatest volume of trading and value in the Common Stock occurs) on the date of determination, as reported in a source the Board deems reliable.
(ii)  Unless otherwise provided by the Board, if there is no closing sales price for the Common Stock on the date of determination, then the Fair Market Value will be the closing selling price on the last preceding date for which such quotation exists.
(iii)  In the absence of such markets for the Common Stock, the Fair Market Value will be determined by the Board in good faith and in a manner that complies with Sections 409A and 422 of the Code.
 
									
	 	(aa)	“Incentive Stock Option” means an option granted pursuant to Section 5 of the Plan that is intended to be, and qualifies as, an “incentive stock option” within the meaning of Section 422 of the Code.

									
	 	(bb)	“IPO Date” means the date of the underwriting agreement between the Company and the underwriters(s) managing the initial public offering of the Common Stock, pursuant to which the Common Stock is priced for the initial public offering (the “IPO”).

 
									
	 	(cc)	“Non-Employee Director” means a Director who either (i) is not a current employee or officer of the Company or an Affiliate, does not receive compensation, either directly or indirectly, from the Company or an Affiliate for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (US) (“Regulation S-K”)), does not possess an interest in any other transaction for which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b- 3.

 
									
	 	(dd)	“Nonstatutory Stock Option” means any option granted pursuant to Section 5 of the Plan that does not qualify as an Incentive Stock Option.

 
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	 	(ee)	“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.

 
									
	 	(ff)	“Option” means an Incentive Stock Option or a Nonstatutory Stock Option to purchase shares of Common Stock granted pursuant to the Plan.

 
									
	 	(gg)	“Option Agreement” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an Option grant. Each Option Agreement will be subject to the terms and conditions of the Plan.

 
									
	 	(hh)	“Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.

 
									
	 	(ii)	“Other Stock Award” means an award based in whole or in part by reference to the Common Stock which is granted pursuant to the terms and conditions of Section 6(d).

 
									
	 	(jj)	“Other Stock Award Agreement” means a written agreement between the Company and a holder of an Other Stock Award evidencing the terms and conditions of an Other Stock Award grant. Each Other Stock Award Agreement will be subject to the terms and conditions of the Plan.

 
									
	 	(kk)	“Own,” “Owned,” “Owner,” “Ownership” means a person or Entity will be deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.

 
									
	 	(ll)	“Participant” means a person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.

 
									
	 	(mm)	“Performance Cash Award” means an award of cash granted pursuant to the terms and conditions of Section 6(c)(ii).

 
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	 	(nn)	“Performance Criteria” means the one or more criteria that the Board will select for purposes of establishing the Performance Goals for a Performance Period. The Performance Criteria that will be used to establish such Performance Goals may be based on any one of, or combination of, the following as determined by the Board: (1) profit before tax; (2) billings; (3) revenue; (4) net revenue; (5) earnings (which may include earnings before interest and taxes, earnings before taxes, and net earnings); (6) operating income; (7) operating margin; (8) operating profit; (9) controllable operating profit, or net operating profit; (10) net profit; (11) gross margin; (12) operating expenses or operating expenses as a percentage of revenue; (13) net income; (14) earnings per share; (15) total stockholder return; (16) market share; (17) return on assets or net assets; (18) the Company’s stock price; (19) growth in stockholder value relative to a pre-determined index; (20) return on equity; (21) return on invested capital; (22) cash flow (including free cash flow or operating cash flows); (23) cash conversion cycle; (24) economic value added; (25) contract awards or backlog; (26) overhead or other expense reduction; (27) credit rating; (28) strategic plan development and implementation; (29) succession plan development and implementation; (30) debt reduction; (31) improvement in workforce diversity; (32) customer indicators; (33) new product invention or innovation; (34) attainment of research and development milestones; (35) submission to, or approval by, a regulatory body (including, but not limited to the U.S. Food and Drug Administration) of an applicable filing or a product candidate; (36) strategic partnerships or transactions (including in-licensing and out-licensing of intellectual property; establishing relationships with commercial entities with respect to the marketing, distribution and sale of the Company’s products (including with group purchasing organizations, distributors and other vendors); (37) supply chain achievements (including establishing relationships with manufacturers or suppliers of active pharmaceutical ingredients and other component materials and manufacturers of the Company’s products); (38) co-development, co-marketing, profit sharing, joint venture or other similar arrangements; (39) improvements in productivity; and (40) other measures of performance selected by the Board.

	 

 
21

									
	 	(oo)	“Performance Goals” means, for a Performance Period, the one or more goals established by the Board for the Performance Period based upon the Performance Criteria. Performance Goals may be based on a Company-wide basis, with respect to one or more business units, divisions, Affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unless specified otherwise by the Board (i) in the Award Agreement at the time the Award is granted or (ii) in such other document setting forth the Performance Goals at the time the Performance Goals are established, the Board will appropriately make adjustments in the method of calculating the attainment of Performance Goals for a Performance Period as follows: (1) to exclude restructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects; (3) to exclude the effects of changes to generally accepted accounting principles; (4) to exclude the effects of any statutory adjustments to corporate tax rates; (5) to exclude the effects of any “extraordinary items” as determined under generally accepted accounting principles; (6) to exclude the dilutive effects of acquisitions or joint ventures; (7) to assume that any business divested by the Company achieved performance objectives at targeted levels during the balance of a Performance Period following such divestiture; (8) to exclude the effect of any change in the outstanding shares of common stock of the Company by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends; (9) to exclude the effects of stock based compensation and the award of bonuses under the Company’s bonus plans; (10) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to expensed under generally accepted accounting principles; (11) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under generally accepted accounting principles and (12) to exclude the effect of any other unusual, non-recurring gain or loss or other extraordinary item. In addition, the Board retains the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of Performance Goals and to define the manner of calculating the Performance Criteria it selects to use for such Performance Period. Partial achievement of the specified criteria may result in the payment or vesting corresponding to the degree of achievement as specified in the Stock Award Agreement or the written terms of a Performance Cash Award.

 
									
	 	(pp)	“Performance Period” means the period of time selected by the Board over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to and the payment of a Stock Award or a Performance Cash Award. Performance Periods may be of varying and overlapping duration, at the sole discretion of the Board.

									
	 	(qq)	“Performance Stock Award” means a Stock Award granted under the terms and conditions of Section 6(c)(i).

 
									
	 	(rr)	“Plan” means this Neoleukin Therapeutics, Inc. 2014 Equity Incentive Plan, as amended from time to time.

 
									
	 	(ss)

(tt)
	“Pre-Funded Warrant” mean any warrant to acquire shares of Common Stock for a nominal exercise price. 

“Restricted Stock Award” means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(a).

 
									
	 	(uu)	“Restricted Stock Award Agreement” means a written agreement between the Company and a holder of a Restricted Stock Award evidencing the terms and conditions of a Restricted Stock Award grant. Each Restricted Stock Award Agreement will be subject to the terms and conditions of the Plan.

22

 
									
	 	(vv)	“Restricted Stock Unit Award” means a right to receive shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(b).

 
									
	 	(ww)	“Restricted Stock Unit Award Agreement” means a written agreement between the Company and a holder of a Restricted Stock Unit Award evidencing the terms and conditions of a Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Agreement will be subject to the terms and conditions of the Plan.

 
									
	 	(xx)	“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

 
									
	 	(yy)	“Securities Act (Canada)” means the Securities Act, R.S.B.C. 1996 c.418, as amended.

 
									
	 	(zz)	“Securities Act (US)” means the U.S. Securities Act of 1933, as amended.

 
									
	 	(aaa)	“Stock Appreciation Right” or “SAR” means a right to receive the appreciation on Common Stock that is granted pursuant to the terms and conditions of Section 5.

 
									
	 	(bbb)	“Stock Appreciation Right Agreement” means a written agreement between the Company and a holder of a Stock Appreciation Right evidencing the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Agreement will be subject to the terms and conditions of the Plan.

 
									
	 	(ccc)	“Stock Award” means any right to receive Common Stock granted under the Plan, including an Incentive Stock Option, a Nonstatutory Stock Option, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock Appreciation Right, a Performance Stock Award or any Other Stock Award.

 
									
	 	(ddd)	“Stock Award Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of a Stock Award grant. Each Stock Award Agreement will be subject to the terms and conditions of the Plan.

 
									
	 	(eee)	“Subsidiary” means, with respect to the Company, (i) any corporation of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation will have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership, limited liability company or other entity in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than 50%.

 
									
	 	(fff)	“Ten Percent Stockholder” means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Affiliate.

 
									
	 	(ggg)	“$” means United States dollars unless otherwise specified.

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