Under the Company’s shareholder and subscription agreements, which were effective until the date of IPO, the Company was authorized to grant equity awards to individuals including a director of and/or a person who is employed by or who directly or indirectly provides consultancy services to the Company, in the form of D, E, F, G, H, I, J, K, L, M and N ordinary shares, collectively referred to as Employee Shares and share options. All Employee Shares converted into ordinary shares in accordance with the reverse share split implemented on IPO (see Note 1, “Nature of business,” to our financial statements appearing at the end of this Annual Report). The share options were granted pursuant to the terms of the 2020 Share Omnibus Plan, or the 2020 Plan.

Upon and following closing of the IPO, no further equity awards were granted under the 2020 Plan. To the extent outstanding options granted under the 2020 Plan are cancelled, forfeited or otherwise terminated without being exercised and would otherwise have been returned to the share reserve under the 2020 Plan, the number of shares underlying such awards will be available for future grant under the Company’s 2021 Omnibus Plan (see below). In

anticipation of IPO, the holders of Employee Shares and the Company entered into individual vesting agreements, or Vesting Agreements, which apply the same terms to vesting of Employee Shares as applied prior to IPO under the Company’s pre-IPO Articles of Association, except that following the IPO Employee Shares that would pre-IPO have converted to deferred shares, will be transferred back to the Company and cancelled within twelve months of an employee leaving the Company.

In March 2021, the Company’s board of directors adopted, and the Company’s shareholders approved, the 2021 Share Omnibus Plan, or the 2021 Plan, which became effective upon the effectiveness of the Company’s Registration Statement on Form F-1 in connection with the IPO. The 2021 Plan allows the remuneration committee to make equity-based and cash-based incentive awards to our officers, employees, directors and other key persons (including consultants).

The Company committee initially reserved 2,572,558 of its ordinary shares for the issuance of awards under the 2021 Plan. The 2021 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2022, by 4% of the outstanding number of ordinary shares on the immediately preceding December 31, or such lesser number of shares as determined by our remuneration committee. This number is subject to adjustment in the event of a sub-division, consolidation, share dividend or other change in our capitalization. The total number of ordinary shares that may be issued under the 2021 Plan was 4,196,697 shares as of December 31, 2022, of which 1,567,338 shares remained available for future grant after taking into account options granted and adding back forfeitures in the period.

The Company’s 2021 Employee Share Purchase Plan, or ESPP, was adopted by the Board in March 2021 and approved by shareholders in March 2021 and became effective upon the effectiveness of the Company’s Registration Statement on Form F-1 in connection with the IPO. The ESPP initially reserved and authorized the issuance of up to a total of 467,738 ordinary shares to participating employees. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2022 and each January 1 thereafter through January 1, 2022, by the least of: (i) 1% of the outstanding number of ordinary shares on the immediately preceding December 31; (ii) 467,738 ordinary shares or (iii) such number of shares as determined by the remuneration committee. The number of shares reserved under the ESPP is subject to change in the event of a share split, share dividend or other change in our capitalization. The purpose of the ESPP is to: (i) provide U.S. employees the opportunity to purchase ordinary shares or ADSs at 85% of the fair market value of the ADSs on the offering date or the exercise date, whichever is lower, and (ii) provide UK-based employees with ordinary shares or ADSs under the SIP Plan as further discussed below.

The total number of ordinary shares that may be issued under the ESPP was 467,738 shares as of December 31, 2022. The initial purchase period under the ESPP commenced in February 2022. The Company estimated the fair value of the option component of the ESPP at the date of grant using a Black-Scholes valuation model. During the year ended December 31, 2022, the compensation expense from ESPP shares was less than $0.1 million.

The Achilles Therapeutics plc Share Incentive Plan, or SIP Plan is a sub plan of the ESPP.  This SIP Plan is an HMRC approved Plan for UK tax-paying employees. Under the SIP Plan, eligible employees can receive "Free Shares" within HMRC guidelines, purchase ordinary shares from the market, or Partnership Shares, as well as receive "Matching Shares" which are issued without any consideration payment in connection with an acquisition of Partnership Shares (collectively referred to as "SIP Shares"). For any award of Matching Shares, the renumeration committee must specify the ratio of Matching Shares to Partnership Shares. Under HMRC rules, the ratio determined by the renumeration committee must not exceed two Matching Shares for every Partnership Share. 

There is no minimum service condition on the Partnership Shares, and the participants can sell/transfer the shares after their acquisition from the market. There is a minimum service condition for the Free and Matching Shares that requires the participants to provide continuing service for at least 36 months from the date of grant. If the participants are no longer with the Company or its subsidiaries before the completion of 36 months' service (with the relevant date determined as the last day of employment), the Free and Matching Shares generally will be 100% forfeited and available for future issuance.

During the year ended December 31, 2022, 319,990 shares were issued under the ESPP, including SIP shares. This reduced the number of shares reserved and available to grant under the ESPP to 147,748 shares available to grant as of December 31, 2022.

Prior to the IPO, the Company typically granted shares which vested over a four-year service period with 25% of the award vesting on the first anniversary of the vesting commencement date, and the balance vesting periodically over the remaining three years.

Post IPO, the Company typically grants SIP Shares under the SIP Plan. SIP Shares effectively vest in full on the third anniversary of the service commencement date.

Unvested Employee Shares are forfeited upon the termination of employment or service relationship in accordance with the process set out in the Articles of the Company prior to IPO, and in accordance with the process set out in the Vesting Agreements post-IPO and 2020 Plan, or in the case of the SIP Plan, SIP shares in accordance with the rules of the SIP Plan. Before IPO, the forfeited shares were converted into deferred shares, with a repurchase right for a nominal amount in favor of the Company. As of December 31, 2020, the Company repurchased 1,509,384 deferred shares for consideration of £0.01 to each holder for all of the deferred shares held by that holder. As part of the Company’s reorganization, 109,058 outstanding deferred shares in existence immediately before the IPO were cancelled upon the IPO, and a single deferred share with a nominal value of £92,451.851 in the capital of the Company was created. As of December 31, 2022, the Company had one deferred share which could be repurchased by the Company at any time for nil consideration. SIP shares forfeited under the rules of the SIP Plan are made available under the ESPP for future issuances. In accordance with the relevant Vesting Agreements, in 2022 we cancelled 6,036 shares that were held by employees who left employment with the Company since the IPO.

The Company measures all share-based awards using the fair value on the date of grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. The Company has granted Employee Shares to employees and non-employees with service-based conditions and SIP Shares to employees with service-based conditions, and in both cases records expense for these awards using the straight-line method. A summary of the changes in the Company’s unvested ordinary shares from December 31, 2020 through December 31, 2022 are as follows:


	Number of			Weighted
	unvested			average
	ordinary			grant date
	shares			fair value
Unvested ordinary shares as of December 31, 2020		2,837,492		$	6.38
Granted		—			—
Vested		(916,172	)		5.61
Forfeited		(18,262	)		6.80
Unvested ordinary shares as of December 31, 2021		1,903,058		$	6.43
Granted		356,566			2.86
Vested		(915,817	)		5.29
Forfeited		(49,004	)		3.53
Unvested ordinary shares as of December 31, 2022		1,294,803		$	4.89

As of December 31, 2022 and 2021, there was $6.1 million and $11.3 million of unrecognized compensation costs related to unvested Employee Shares outstanding, which is expected to be recognized over a weighted-average period of 1.8 years and 2.6 years, respectively.

The following table summarizes the Company’s share options activity for the year ended December 31, 2022:


	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2021		1,357,847		$	8.95		8.58	$	10
Granted		1,859,614		$	2.80
Exercised		—		$	—
Forfeited		(223,820	)	$	7.59
Outstanding as of December 31, 2022		2,993,641		$	6.18		8.51	$	150
Exercisable as of December 31, 2022		581,514		$	10.88		7.09	$	—
Unvested as of December 31, 2022		2,412,127		$	5.04		8.85	$	150

The weighted average grant-date fair value of share options granted during the year ended December 31, 2022 and 2021 was $2.02 and $5.42 per share, respectively.

As of December 31, 2022, there was $5.5 million of unrecognized compensation cost related to share options outstanding, which is expected to be recognized over a weighted-average period of 2.7 years.

The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the share options granted to employees during the year ended December 31, 2022 and 2021 were as follows:


	Year Ended December 31,			Year Ended December 31,
	2022			2021
Expected term (in years)	6.04			6.02
Expected volatility		69.74	%		72.15	%
Expected dividend yield		0.00	%		0.00	%
Risk free interest rate		2.00	%		1.07	%
Fair value of underlying ordinary shares	$	3.06		$	9.53

Share-based compensation expense recorded as research and development and general and administrative expenses is as follows (in thousands):


	Years Ended December 31,
	2022		2021		2020
Research and development	$	3,750	$	3,362	$	1,331
General and administrative		3,272		2,955		1,661
	$	7,022	$	6,317	$	2,992