Item 1.01 Entry Into a Material Definitive Agreement.
Agreement and Plan of Merger
On June 12, 2023, Gelesis Holdings, Inc., a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with PureTech Health LLC,a Delaware limited liability company (“Parent”) and Caviar Merger Sub LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which, subject to the terms and conditions set forth therein, the Company will merge with and into Merger Sub (the “Merger”) with Merger Sub surviving the Merger as a wholly-owned subsidiary of Parent (the “Surviving Company”). Parent and Merger Sub are subsidiaries of PureTech Health PLC, which beneficially owns 16,727,582 shares of Company Common Stock (as defined below), options to purchase 155,520 shares of Company Common Stock and PureTech Warrants (as defined below) to purchase 259,345,750 shares of Company Common Stock in the aggregate.
Effect on Capital Stock
The Merger is to become effective, upon the terms and subject to the conditions of the Merger Agreement, at the date and time when a certificate of merger (the “Certificate of Merger”) has been duly filed with the Secretary of State of the State of Delaware, or at such later date and time as is agreed upon in writing by the parties and specified in the Certificate of Merger (the “Effective Time”). At the Effective Time, each outstanding share of the common stock, par value $0.0001 per share, of the Company (the “Company Common Stock”) (other than (i) shares held in the treasury of the Company, (ii) owned by Parent or any of its direct or indirect subsidiaries (including Merger Sub) immediately before the Effective Time, (iii) restricted shares issued pursuant to the Business Combination Agreement, dated as of July 19, 2021, by and among Gelesis, Inc., Capstar Special Purpose Acquisition Corp. and CPSR Gelesis Merger Sub, Inc. (as amended, restated, supplemented or otherwise modified, the “BCA”) and subject to all of the terms and conditions of the BCA in respect of the “Earn Out Shares”, and (iv) shares held by stockholders who perfect their statutory rights of appraisal under Section 262 of the Delaware General Corporation Law, but including shares issued in connection with the deemed exercise of certain warrants to purchase Company Common Stock) will be converted automatically into and will thereafter represent only the right to receive $0.05664 in cash (the “Merger Consideration”), without interest and subject to applicable withholding taxes. The Merger Agreement was approved unanimously by the board of directors of the Company (the “Board”), acting upon the unanimous recommendation of a special committee of the Board, and the Board resolved to recommend approval of the Merger Agreement to the Company’s stockholders (the “Company Board Recommendation”).
Representations and Warranties and Covenants
The Merger Agreement contains customary representations, warranties and covenants of the Company, Parent and Merger Sub, including, among others, covenants by the Company to conduct its business in the ordinary course of business during the period between execution of the Merger Agreement and consummation of the Merger (the “Closing”) and prohibiting the Company from engaging in certain kinds of activities during such period without the consent of Parent.
Closing Conditions
The Merger is conditioned upon, among other things, (i) the approval of the Merger Agreement by the affirmative vote of (x) the holders of a majority of the shares of Company Common Stock not owned directly or indirectly by Parent or any of its subsidiaries or affiliates at the special meeting of Company Stockholders to be held for the purpose of obtaining the Company Stockholder Approval (as defined below) (the “Company Meeting”) and (y) the holders of a majority of the shares of Company Common Stock, in each case, that are outstanding and entitled to vote thereon at the Company Meeting (together, the “Company Stockholder Approval”), (ii) the receipt of certain other consents and approvals from the noteholders of the Company, (iii) the absence of a bankruptcy or insolvency proceeding or formal corporate action by the Company or its subsidiaries to commence any such proceeding, (iv) the receipt of clearances or expirations of waiting periods under certain antitrust laws and foreign investment screening laws, (v) the absence of certain adverse events related to a submission by the Company to the United States Food and Drug Administration, (vi) the receipt of certain amendments to agreements with the Company’s lenders and (vii) other customary closing conditions for a transaction of this type, including the absence of a material adverse effect on the Company, the accuracy of representations and warranties, the performance of covenants and the delivery of certain customary closing certificates. The Closing is not subject to a financing condition.
Go-Shop and No-Shop Period
Beginning on the date of the Merger Agreement and continuing until 11:59 p.m. Eastern time on July 1, 2023 (the “Go Shop Period”), the Company and its representatives may, subject to certain conditions under the Merger Agreement: (i) solicit alternative acquisition proposals from third parties, including furnishing non-public information to such third parties in connection with such acquisition proposals pursuant to an acceptable confidentiality agreement and (ii) continue, enter into and otherwise participate in discussions or negotiations with third parties with respect to such acquisition proposals.
Following the expiration of the Go-Shop Period, the Company is subject to a customary “no-shop” provision whereby, subject to certain exceptions, it may not (i) solicit, initiate or knowingly encourage an offer that constitutes, or would reasonably be expected to lead to, an alternative acquisition proposal from third parties, (ii) participate in any discussions or negotiations regarding an acquisition proposal or furnish any non-public information to such third parties for the purpose of facilitating an acquisition proposal, (iii) approve, endorse or recommend any proposal that constitutes or would reasonably be expected to lead to an acquisition proposal, or (iv) enter into any letter of intent, agreement in principle, memorandum of understanding, or other acquisition agreement, merger agreement or similar agreement with respect to an acquisition proposal. The “no shop” provision allows the Company, under certain circumstances and in compliance with certain obligations set forth in the Merger Agreement, to provide non-public information and engage in discussions and negotiations with respect to an unsolicited acquisition proposal that constitutes or is reasonably expected to lead to an acquisition proposal that the Board determines in its good faith judgment (after consultation with its financial advisor and outside legal counsel) to be more favorable to the Company’s stockholders from a financial point of view than the Merger and is reasonably likely to be consummated in accordance with its terms on a timely basis (a “Superior Proposal”).
Termination and Fees
The Merger Agreement also provides that, in connection with the termination of the Merger Agreement in specified circumstances, including termination by the Company to accept and enter into an agreement with respect to a Superior Proposal, the Company will be required to pay Parent a termination fee in the amount of $350,000 and reimburse Parent for expenses incurred in connection with the Merger Agreement up to $1 million in the aggregate.
Treatment of Outstanding Company Equity Awards, Warrants, and Promissory Notes
Each outstanding unexercised option to purchase shares of Company Common Stock, whether vested or unvested, will be canceled at the Effective Time without payment of any consideration.
Each outstanding award of restricted stock unit to acquire shares of Company Common Stock granted under any of the Company’s 2021 Stock Option and Incentive Plan, 2016 Stock Option and Grant Plan and 2006 Stock Incentive Plan (each, a “Company RSU Award”) will automatically (i) accelerate in full as of immediately prior to the Effective Time, and (ii) to the extent not yet settled as of the Effective Time, be canceled and converted as of the Effective Time into the right to receive (without interest) an amount in cash equal to the Merger Consideration that would be payable in respect of the shares of Company Common Stock issuable upon settlement of the Company RSU Award, such payment to be net of any applicable tax withholding obligations required by applicable laws.
At the Effective Time, each outstanding warrant to purchase shares of Company Common Stock pursuant to that certain Warrant to Purchase Common Stock, dated as of August 4, 2022, by and between the Company and CMS Bridging DMCC, an affiliate of CMS Medical Venture Investment (HK) Limited (“CMS Warrant Agreement”, and such warrant, the “CMS Warrant”) will, in accordance with the terms of the CMS Warrant Agreement, automatically and without any required action on the part of the holder thereof, cease to represent a warrant exercisable for 400,000 shares of Company Common Stock and be exchanged for an amount of consideration equal to the difference of (i) the Gross Consideration (as defined in the CMS Warrant Agreement) minus (ii) the aggregate Change of Control Exercise Price (as defined in the CMS Warrant Agreement).
At the Effective Time, each outstanding warrant to purchase shares of Company Common Stock pursuant to that certain Amended and Restated Warrant to Purchase Common Stock of Gelesis Holdings, Inc. by and between the Company and holder thereof (“One S.r.l. Warrant Agreement”, such warrant, a “One S.r.l. Warrant”) will, in accordance with the terms of the One S.r.l. Warrant Agreement, automatically and without any required action on the part of the holder thereof, cease to represent a warrant exercisable for shares of Company Common Stock and be exchanged for, with respect to each share of Company Common Stock underlying such One S.r.l. Warrant, an amount of consideration equal to the difference of (i) $1.46 minus (ii) the Change of Control Warrant Price (as defined in each One S.r.l. Warrant Agreement). The parties to the Merger Agreement agreed that $1.46 represents the Gross Consideration (as defined in the One S.r.l. Warrant) in respect of such Warrant.
At the Effective Time, each PureTech Warrant will be canceled automatically and will cease to exist, and no consideration will be paid in exchange therefor.
At the Effective Time, each outstanding warrant to purchase shares of Company Common Stock pursuant to that certain Warrant Agreement, dated July 1, 2020, by and among Capstar Special Purpose Acquisition Corp., a Delaware corporation, Continental Stock Transfer & Trust Company, a New York limited purpose trust company, as warrant agent (“Gelesis Warrant Agreement”, and such warrant, a “Gelesis Warrant”) will automatically and without any required action on the part of the holder thereof, cease to represent a Gelesis Warrant exercisable for one (1) share of Company Common Stock and become a warrant exercisable for the Merger Consideration. If a registered holder thereof properly exercises the Gelesis Warrant within thirty (30) days following the public disclosure of the consummation of the Merger, the Warrant Price (as defined in the Gelesis Warrant Agreement) will be reduced by an amount (in dollars) (but in no event less than zero) equal to the difference of (i) the Warrant Price (as defined in the Gelesis Warrant Agreement) in effect prior to such reduction minus (ii) (A) the Merger Consideration minus (B) the Black-Scholes Warrant Value (as defined in the Gelesis Warrant Agreement). The result of such reduction in the Warrant Price is that the holder thereof shall have the opportunity to receive the Black-Scholes Warrant Value with respect to such Gelesis Warrant, which would have been equal to less than $0.01 per Public Warrant as of the close of trading on June 2, 2023. In order to receive such Black-Scholes Warrant Value, the holder of such Gelesis Warrant shall be required to validly exercise such Gelesis Warrant, including, in the payment of Warrant Price in cash or, to the extent permitted or the Company elects to so require under the Warrant Agreement, the exerciseof such Gelesis Warrant on a cashless basis in accordance with the terms of the Gelesis Warrant Agreement.
All outstanding convertible promissory notes issued by the Company will be assumed by the Surviving Company.
The foregoing description of the terms of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by the terms and conditions of the Merger Agreement, a copy of which is filed as Exhibit 2.1 and is incorporated herein by reference.
Voting and Support Agreement
In connection with the execution of the Merger Agreement, the Company entered into a voting and support agreement (the “Voting Agreement”) with Parent in its capacity as a stockholder of the Company (the “Stockholder”) under which the Stockholder agreed, among other things, to vote, or cause to be voted, all of the shares of Company Common Stock beneficially owned by the Stockholder in favor of the approval of the Merger and certain other related matters. In addition, pursuant to the Voting Agreement, the Stockholder agreed to (A) not transfer its shares prior to Closing and (B) a customary non-solicitation, whereby the Stockholder agreed, among other things, to not solicit, initiate, or encourage an alternative transaction. The Voting Agreement will terminate automatically at the earlier to occur of (x) the Effective Time and (y) the date and time that the Merger Agreement is validly terminated in accordance with the terms and provisions thereof.
The foregoing description of the terms of the Voting Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by the terms and conditions of the Voting Agreement, the form of which is filed as Exhibit 10.1 and is incorporated herein by reference.
Amendment No. 2 to Note and Warrant Purchase Agreement and Bridge Financing
As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on February 23, 2023, on February 21, 2023, the Company entered into that certain Note and Warrant Purchase Agreement, dated February 21, 2023 (as amended by that certain Amendment No. 1 to Note and Warrant Purchase Agreement, dated May 1, 2023, and as further amended by Amendment No. 2 (as defined below) the “NPA”), by and among the Company and Gelesis Inc. (together, the “Note Issuers”), Gelesis 2012, Inc., Gelesis, LLC, and other subsidiaries of the Note Issuers party thereto from time to time (collectively with the Note Issuers, the “Note Parties”), Parent and certain other investors party thereto from time to time, pursuant to which the Note Issuers may issue convertible senior secured promissory notes (each, a “Note” and collectively, the “Notes) and warrants to purchase shares of Common Stock (the “Warrants”). As previously disclosed, on February 21, 2023, for a cash purchase price of $5.0 million, the Note Issuers issued to Parent a Note in the aggregate principal amount of $5.0 million, together with PureTech Warrant No. 1 to purchase up to 23,688,047 shares of Common Stock at an exercise price of $0.2744 per share (“PureTech Warrant No.1”). As previously disclosed, prior to Amendment No. 2 (as defined below), the NPA provided that upon the satisfaction of the conditions set forth therein, the Note Issuers would issue and sell to Parent, and Parent would purchase from the Note Issuers additional Notes in an aggregate principal amount of up to $5.0 million (the “Additional Notes”). As previously disclosed in the Company’s Current Reports on Form 8-K filed with the SEC on May 3, 2023 and May 31, 2023: (i) on May 1, 2023, for a cash purchase price of $2.0 million, the Note Issuers issued to Parent an Additional Note in the aggregate principal amount of $2.0 million, together with PureTech Warrant No. 2 to purchase up to 192,307,692 shares of Common Stock at an exercise price of $0.0182 per share (“PureTech Warrant No.2”); and (ii) on May 26, 2023, for a cash purchase price of $350,000, the Note Issuers issued to Parent an Additional Note in the aggregate principal amount of $350,000, together with PureTech Warrant No. 3 to purchase up to 43,133,803 shares of Common Stock at an exercise price of
$0.0142 per share (“PureTech Warrant No.3”, and together with PureTech Warrant No.1 and PureTech Warrant No.2, the “PureTech Warrants”).
In connection with the execution of the Merger Agreement, on June 12, 2023, Parent and the Note Parties entered into Amendment No. 2 to Note and Warrant Purchase Agreement (“Amendment No. 2”), which provides, among other things, that: (i) the aggregate principal amount of Additional Notes issuable to Parent under the NPA be increased from $5.0 million to $5.35 million, (ii) no Warrant will be issuable in connection with the Company’s sale of the Bridge Note (as defined below) to Parent, and (iii) if any Note Party enters into a binding definitive agreement with respect to a Takeover Proposal (as defined in the Merger Agreement) with any party other than Parent and/or its affiliates, the Company will immediately pay to Parent an amount equal to 200% of the aggregate principal amount of outstanding Additional Notes, and the Additional Notes will be cancelled. Except as set forth in Amendment No. 2, all other terms of the Notes and Warrants remain in full force and effect.
In connection with the execution of the Merger Agreement, on June 12, 2023, Parent provided $3.0 million of bridge financing to the Company pursuant to Parent’s purchase, for a $3.0 million cash purchase price, of an Additional Note in the principal amount of $3.0 million (the “Bridge Note”). No Warrant was issued to Parent in connection with Parent’s purchase of the Bridge Note.
The Notes have not been and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), and are sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and on similar exemptions under applicable state laws. The NPA provides for registration rights with respect to all shares of Common Stock issuable upon conversion of the Notes and upon exercise of the warrants pursuant to which the Company is required to file a shelf registration statement under the Securities Act to register such shares for resale.
The foregoing descriptions of Amendment No. 2 and the Bridge Note do not purport to be complete and are qualified in their entirety by the full text of such agreements, which are attached as exhibits 10.2 and 10.3 to this Current Report on Form 8-K and incorporated herein by reference.
