NKGen Biotech (NKGN) Risk Analysis

Our Charter provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, as amended, our Charter or NKGen Bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. These choice of forum provisions may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits. This provision would not apply to claims brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Our Charter provides further that, to the fullest extent permitted by law, the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. However, Section 22 of the Securities Act provides that federal and state courts have concurrent jurisdiction over lawsuits brought under the Securities Act or the rules and regulations thereunder. To the extent the exclusive forum provision restricts the courts in which claims arising under the Securities Act may be brought, there is uncertainty as to whether a court would enforce such a provision. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies' certificates of incorporation has been challenged in legal proceedings and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions. If a court were to find the exclusive-forum provision contained in our Charter to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm its business.

Our Charter and Bylaws contains provisions that could depress the trading price of the NKGen Common Stock by acting to discourage, delay, or prevent a change of control of us or changes in our management that our stockholders may deem advantageous. These provisions include, without limitation, the following: - a classified board of directors so that not all members of the NKGen Board are elected at one time;- the right of the board of directors to establish the number of directors and fill any vacancies and newly created directorships;- director removal by stockholders solely for cause and with the affirmative vote of at least two-thirds (2/3) of the voting power of our then-outstanding shares of capital stock entitled to vote generally in the election of directors;- "blank check" preferred stock that the NKGen Board could use to implement a stockholder rights plan;- the right of the NKGen Board to issue our authorized but unissued common stock and preferred stock without stockholder approval;- no ability of our stockholders to call special meetings of stockholders;- no right of our stockholders to act by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;- limitations on the liability of and the provision of indemnification to, our director and officers;- the right of the board of directors to make, alter, or repeal the NKGen Bylaws; and - advance notice requirements for nominations for election to the NKGen Board or for proposing matters that can be acted upon by stockholders at annual stockholder meetings. Any provision of our Charter or NKGen Bylaws that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of NKGen Common Stock and could also affect the price that some investors are willing to pay for NKGen Common Stock.

The trading market for our Common Stock is influenced in part by the research and reports that securities or industry analysts may publish about us, our business, market, or competitors. If one or more of the analysts initiate research with an unfavorable rating or downgrade the common stock, provide a more favorable recommendation about our competitors, or publish inaccurate or unfavorable research about its business, the trading price of the common stock would likely decline. In addition, we currently expect that securities research analysts will establish and publish their own periodic projections for its business. These projections may vary widely and may not accurately predict the results we actually achieve. Its stock price may decline if its actual results do not match the projections of these securities research analysts. While we expects research analyst coverage, if no analysts commence coverage of it, the trading price and volume for the common stock could be adversely affected. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the trading price or trading volume of its common stock to decline.

As of December 31, 2023, we had NKGen Options outstanding to purchase up to an aggregate of 2,101,760 shares of NKGen Common Stock and Warrants outstanding to purchase up to 5,246,033 shares of NKGen Common Stock (excluding the shares issuable upon the exercise of the PIPE Warrants or the conversion of the Senior Convertible Notes). NKGen will also have the ability to initially issue such number of shares of NKGen Common Stock equal to up to 12.0% of the fully diluted outstanding shares of NKGen Common Stock as of the Closing under the 2023 equity incentive plan adopted upon consummation of the Business Combination and such number of shares of NKGen Common Stock equal to up to 3.0% of the fully diluted shares of common stock outstanding under the ESPP as of the Closing Date. We may issue additional shares of common stock or other equity securities of equal or senior rank in the future in connection with, among other things, future acquisitions or repayment of outstanding indebtedness, without stockholder approval, in a number of circumstances. Our issuance of additional shares of NKGen Common Stock or other equity securities of equal or senior rank could, without limitation, have the following effects: - our existing stockholders' proportionate ownership interest in us will decrease;- the amount of cash available per share, including for payment of dividends (if any) in the future, may decrease;- the relative voting strength of each previously outstanding share of NKGen Common Stock may be diminished; and - the market price of shares of our Common Stock may decline.

In connection with the Closing of the Business Combination, Graf entered into Forward Purchase Agreements with certain investors ("FPA Investors") on September 22, 2023, September 26, 2023 and September 29, 2023, pursuant to which the FPA Investors agreed to collectively purchase approximately 3.2 million shares of NKGen Common Stock for approximately $32.9 million, which were not paid to us, but deposited into escrow accounts (the "Escrow Accounts"), in accordance with the terms and conditions of the Forward Purchase Agreements. All funds in the escrow accounts will be released to the Company and/or the FPA Investors at or before the one (1) year anniversary of Closing. In addition, all interest earned on the funds in each of the escrow accounts will be released to the respective FPA Investors. The Forward Purchase Agreements provide that the Reset Price (as defined below), which was initially set at $10.44 per share, could be reduced to a lower sales price if the Company sells, issues or grants any common stock or securities convertible or exchangeable into NKGen Common Stock (excluding any secondary transfers) at a price below the then applicable Reset Price. The Reset Price is used as the settlement share price in the calculations for settlement at maturity and in the case of an Optional Early Termination (as defined below), which are discussed in turn below, and works as a "floor" share price for sales to effect Prepayment Shortfall (as defined below). If the Reset Price is effectively reduced to a lower price, then it could in turn result in less money to be released to us as set out in the Forward Purchase Agreements. See "Management's Discussions and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Sources of Liquidity - Forward Purchase Agreements, FPA Subscription Agreements, and Side Letter" for more information on how the Forward Purchase Agreements and related agreements operate and how the payments from the escrow accounts are calculated. In addition, the Reset Price may influence the FPA Investors' decision to sell, early terminate or hold part or all their shares, and sales of such shares could result in fluctuations in the trading volume and/or trading price of our common stock. Such volatility in the trading volume and/or trading price of common stock could adversely affect our ability to raise additional funds. The amounts to be potentially released to the Company from the Escrow Accounts will be based on the trading price over the Valuation Period (as defined below) and the applicable Reset Price. However, the Company may not receive all the funds in the escrow accounts and may be required to pay the Settlement Amount Adjustment (as defined below) in stock or in cash as discussed above. If our stock price exceeds the applicable Reset Price (as defined below) by more than $2.00, then the FPA Investors may be economically incented to sell their Subscribed Shares (as defined below) and exercise the Optional Early Termination (as defined below) rights as they would potentially more consideration collectively from the Escrow Account and from proceeds from such sales in the open market, less amounts payable to the Company than if they were to hold the Subscribed Shares until the Valuation Date (as defined below). Any such sales could increase the volatility of the trading price and/or result in a decline in the trading price. In addition, if the FPA Investors hold some or all of their Subscribed Shares until the Valuation Date, and the applicable volume weighted average price per share for 20 trading days of our common stock is less than $2.00 per share, then we would be required to pay an amount that equals to $2.00 per the Subscribed Shares held as of the Valuation Date (as defined below) (or the Settlement Amount Adjustment) to the FPA Investors in stock (unless we elect to pay it in cash), which could cause substantial dilution and further depress our stock price. If we are unable to pay such amount in stock, we may be required under certain of the agreements with the FPA Investors to settle any shortfall in the payment of the Settlement Adjustment Amount in cash. In any case, we would not receive any cash proceeds and could face adverse effects on our liquidity or financial position, which could negatively impact our business and results of operations. Such activities could also adversely affect the trading price of our common stock, which may also negatively affect the trading positions of our other security holders.

If our existing stockholders sell or indicate an intention to sell substantial amounts of NKGen Common Stock in the public market, the trading price of the NKGen Common Stock could decline. All the shares of NKGen Common Stock subject to stock options outstanding and reserved for issuance under its equity incentive plans are expected to be registered on Form S-8 under the Securities Act and such shares are eligible for sale in the public markets, subject to Rule 144 under the Securities Act ("Rule 144") limitations applicable to affiliates. If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of NKGen Common Stock could decline. In addition, NKMAX donated an aggregate of 2,500,000 shares of NKGen Common Stock to eight charitable organizations or entities, including Alzheimer's Drug Discovery Foundation, Alzheimer's Research and Prevention Foundation, American Brian Foundation, Korea AI Blockchain Convergence, Korean Brain Research Institute, Korean Institute of Economic and Social Studies, The Earthshine Charity Ltd, and The University of Chicago, for no consideration on December 13, 2023. The charity recipients will continue to be subject to any sale or transfer restrictions on such donated shares until the relevant restrictions end. Although the Sponsor and certain stockholders may be subject to restrictions regarding the transfer of shares of NKGen Common Stock held by them, these shares may be sold after the expiration of their respective lock-ups. As restrictions on resale end and the registration statements for the resale of our securities are available for use, the market price of NKGen Common Stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.

Our common stock is listed on The Nasdaq Global Market under the symbol "NKGN" and trades on that market. We cannot assure you that an active trading market for its common stock will be sustained. Accordingly, we cannot assure you of the liquidity of any trading market, your ability to sell your shares of common stock when desired or the prices that you may obtain for your shares.

Our Common Stock and Public Warrants are currently listed on Nasdaq. However, we cannot guarantee that our securities will continue to be listed on Nasdaq. If we fail to meet the requirements of the applicable listing rules, such failure may result in a suspension of the trading of our shares or delisting in the future. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our securities to become listed again, stabilize the market price or improve the liquidity of our securities, prevent our securities from dropping below the minimum share price requirement or prevent future non-compliance with the listing requirements. This may further result in legal or regulatory proceedings, fines and other penalties, legal liability for us, the inability for our stockholders to trade their shares and negatively impact our share price, reputation, operations and financial position, as well as our ability to conduct future fundraising activities. If Nasdaq delists our securities and we are not able to list our securities on another national securities exchange, we expect that our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including but not limited to: - a limited availability of market quotations for our securities;- reduced liquidity for our securities;- a limited amount of news and analyst coverage for the company; and - a decreased ability to issue additional securities or obtain additional financing in the future.

The market price of our Common Stock may fluctuate significantly in response to numerous factors and may continue to fluctuate for these and other reasons, many of which are beyond our control, including, but not limited to: - actual or anticipated fluctuations in our revenue and results of operations;- any financial projections we may provide to the public in the future, any changes in these projections or its failure to meet these projections;- failure of securities analysts to initiate and maintain our coverage, changes in financial estimates or ratings by any securities analysts who follow us or its failure to meet these estimates or the expectations of investors;- announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, results of operations or capital commitments;- changes in operating performance and stock market valuations of other life sciences companies generally, or those in the biotechnology industry in particular;- price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;- trading volume of our common stock;- the inclusion, exclusion or removal of our common stock from any indices;- changes in the NKGen Board or management;- transactions in NKGen Common Stock by directors, officers, affiliates and other major investors;- lawsuits threatened or filed against us;- changes in laws or regulations applicable to our business;- changes in our capital structure, such as future issuances of debt or equity securities;- short sales, hedging and other derivative transactions involving our capital stock;- general economic conditions in the United States and other markets in which we operate;- pandemics or other public health crises, including, but not limited to, the COVID-19 pandemic (including additional variants);- other events or factors, including those resulting from war, incidents of terrorism or responses to these events; and - the other factors described in this "Risk Factors" section. The stock market has recently experienced extreme price and volume fluctuations. The market prices of securities of companies have experienced fluctuations that often have been unrelated or disproportionate to their operating results. In the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities. Any similar litigation against us could result in substantial costs, divert management's attention and resources and harm its business, financial condition and results of operations.

We are an "emerging growth company" as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. As such, we are eligible for and intends to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as it continues to be an emerging growth company, including, but not limited to, (a) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (b) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (c) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of shares of common stock that are held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which it has total annual gross revenue of $1.235 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which it has issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) December 31, 2026, which is the last day of the fiscal year following the fifth anniversary of the date of the first sale of common stock in Graf's IPO. We cannot predict whether investors will find our securities less attractive because it will rely on these exemptions. If some investors find our securities less attractive as a result of its reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. As an emerging growth company, we may also take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to obtain an assessment of the effectiveness of our internal controls over financial reporting from our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our shares of common stock less attractive because we will rely on these exemptions. If some investors find our shares of common stock less attractive as a result, there may be a less active market for our shares of common stock and our share price may be more volatile. Additionally, we qualify as a "smaller reporting company" as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We expect that we will remain a smaller reporting company until the last day of any fiscal year for so long as either (a) the market value of the NKGen Common Stock held by non-affiliates does not equal or exceed $250 million as of the end of that year's second quarter, or (b) our annual revenues did not equal or exceed $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates did not equal or exceed $700 million as of the end of that year's second quarter. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.

We did not receive proceeds from the Public Warrants at Closing but may receive proceeds upon their exercise.

Concurrently with Graf's IPO, Graf issued 4,721,533 warrants to Graf Acquisition Partners IV LLC. We did not receive any additional proceeds from the Private Warrants at Closing but may receive proceeds upon their exercise. . Cash Flows For the Nine Months EndedSeptember 30,20242023Net cash used in operating activities$(13,928)$(15,009)Net cash provided by (used in) investing activities$3 $(30)Net cash provided by financing activities$13,886 $23,958

Stock-based compensation expense is comprised of stock options awarded to employees and consultants. Our stock option awards granted to date contain service based vesting conditions only and do not require the achievement of a market or performance condition in order to vest. These share-based awards are accounted for under the fair-value-based method prescribed by ASC 718-10,

. The fair value of stock options is estimated using the Black-Scholes option pricing model on the date of grant. This option pricing model involves a number of estimates, including the per share value of the underlying common stock, exercise price, estimate of future volatility, expected term of the stock option award, risk-free interest rate and expected annual dividend yield. We recognize the expense for options with graded-vesting schedules on a straight-line basis over the requisite service period, which is generally the vesting period. Forfeitures are recognized as they occur.

Given the absence of a public trading market for our common shares prior to October 2, 2023, which was the first day of trading of our common stock following the Closing, and in accordance with the American Institute of Certified Public Accountants Accounting and Valuation Guide,

, the board of directors of Legacy NKGen exercised its reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of fair value of our common shares prior to Closing, including, but not limited to: independent third-party valuations of our common shares;capital resources and financial condition;the likelihood and timing of achieving a liquidity event;historical operating and financial performance as well as our estimates of future financial performance;valuations of comparable companies;the status of our development;the relative lack of marketability of our common shares prior to the October 2, 2023;industry information such as market growth and volume and macro-economic events;additional objective and subjective factors relating to our business; and implied fair values upon a merger transaction. Prior to October 2, 2023, our board of directors determined the fair value of our common shares using both the income and market approach valuation methods. The income approach estimates value based on the expectation of future cash flows that a company will generate. The market approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business as well as implied fair values upon a merger transaction such as the Business Combination. Under the market approach, based on a comparison of the subject company to comparable public companies in a similar line of business, a discount for lack of marketability (" DLOM ") was applied to arrive at a fair value of common shares. A DLOM was meant to account for the lack of marketability of shares that were not publicly traded. The valuation of common shares underlying common stock options granted during the year ended December 31, 2023 were estimated under the market approach, based upon the implied fair value of common stock agreed upon in the Business Combination, where the fair values of our common shares as of the respective grant dates were determined using a linear interpolation between the previous valuation and the anticipated closing date of the Business Combination based on circumstances existing as of the respective grant dates. It was determined that the straight-line calculation provides the most reasonable basis for the valuation of our common stock because there was no single event that occurred during the period between the valuation dates that would have caused a material change in fair value. Applying these valuation approaches involves the use of estimates, judgments and assumptions that are highly complex and subjective, including our expected future revenue and expenses, the determination of discount rates, interpolations, valuation multiples, the selection of comparable public companies and the probability of future events. Changes in any or all of these estimates and assumptions impact our valuation as of each valuation date. Such changes may have a material impact on the valuation of our common shares and our share-based awards. Beginning October 2, 2023, the fair value of our common shares was based upon our publicly listed share price

We describe the recently issued accounting pronouncements that apply in Note 2,

On November 20, 2024, the Company received a notice from the Listing Qualifications Staff (the " Staff ") of the Nasdaq Stock Market LLC (" Nasdaq ") stating that the Company is not in compliance with Nasdaq Listing Rule 5250(c)(1) (the " Periodic Filing Rule ") because it had not timely filed its Form 10-Q with the SEC on or before November 19, 2024, the extended period provided for the filing under Rule 12b-25(b) of the Exchange Act. As discussed below, on November 20, 2024, we received a letter from the Staff granting a temporary exception to the Periodic Filing Rule until January 7, 2025, and have requested that Nasdaq stay the suspension of the Company's securities until September 30, 2025. For more information on our suspension request, see the Risk Factor entitled "