Item 1.01.
Entry into a Material Definitive Agreement
.
On December 21, 2017, the Company entered into a Securities Purchase and Loan Satisfaction Agreement (the “Purchase Agreement”) and a Forbearance and Loan Modification Agreement (the “Forbearance Agreement” and, together with the Purchase Agreement, the “Agreements”), each with the Lenders. The Agreements provide for
a series of transactions (the “Transactions”) pursuant to which,
at the closing of the Transactions (the “Transaction Closing”), the Company will: (i) in exchange for the satisfaction and extinguishment of the entire balance of the Term Loans, (a) issue to the Lenders an aggregate of 59,786,848 shares of Common Stock (the “New Lender Shares”), and (b) transfer and assign to an affiliate of Nomis Bay (the “JV Entity”), all of the assets of the Company related to benznidazole (the “Benz Assets”), the Company’s former drug candidate; and (ii) issue to Cheval an aggregate of 32,028,669 shares of Common Stock (the “New Black Horse Shares” and, collectively with the New Lender Shares, the “New Common Shares”) for total consideration of $3,000,000, providing new capital to enable the Company to pursue its new business strategy focused on developing its proprietary monoclonal antibodies for immunotherapy and oncology treatments.
Issuance of the New Lender Shares
Under the Purchase Agreement, at the Transaction Closing, the Company will issue to the Lenders the New Lender Shares, of which 29,893,424 shares of Common Stock will be issued to the Black Horse Entities and 29,893,424 shares of Common Stock will be issued to
Nomis Bay. The issuance of the New Lender Shares to the Lenders and the assignment of the Benz Assets to the JV Entity will result in the satisfaction and extinguishment of the Company’s outstanding obligations under the Credit Agreement and the cancellation of the Term Loans, other than the Bridge Loan described below. At the Transaction Closing, the Company will no longer be liable for repayment of its outstanding obligations under the Credit Agreement, and all security interests of the Lenders in the Company’s assets will be released.
Transfer of the Benz
Assets; Claims Advances
Under the Purchase Agreement, at the Transaction Closing, the Company will transfer and assign the Benz Assets to the JV Entity. The Company also will agree to retain, but provide the JV Entity the benefits of, any Benz Assets which are not permitted to be assigned absent receipt of third-party consents. The JV Entity (at the election of Nomis Bay, which will control the JV Entity) will have 90 days from the date of the Rule 2004 Discovery Order granting the Rule 2004 Discovery Motion (each as defined below)
, or 180 days from the Transaction Closing if a Rule 2004 Discovery Order is either entered denying the Rule 2004 Discovery Motion or has not been entered on or before the Transaction Closing,
to decide, in its sole discretion, whether to elect to keep the Benz Assets (a “Positive Election”). The Benz Assets will revert back to the Company in the event that the JV Entity (at the election of Nomis Bay) elects not to make a Positive Election.
In connection with the transfer of the Benz Assets to the JV Entity, Nomis Bay will pay certain amounts incurred by the Company and the JV Entity after December 21, 2017 in investigating certain causes of action and claims related to or in connection with the Benz Assets (the “Claims”), including the right to pursue causes of action and claims related to potential misappropriation of the Company’s trade secrets by a competitor in connection with such competitor’s submissions to the U.S. Food and Drug Administration. In addition, if the JV Entity (at the election of Nomis Bay) makes a Positive Election: (i) Nomis Bay will assume certain legal fees and expenses owed by the Company to its litigation counsel, and (ii) the Company will be entitled to receive 30% of any amounts realized from the successful prosecution of the Claims or otherwise from the Benz Assets, after Nomis Bay is reimbursed for certain expenses in connection with funding the Claims and after giving effect to any payments that the JV Entity may be required to make to any third parties.
Nomis Bay will have full control, in its sole discretion, over the management of the JV Entity, any development of or realization on the Benz Assets and the prosecution of the Claims. In addition, the Company has agreed that, as soon as practicable after entering into the Agreements, the Company will make appropriate motion to the Bankruptcy Court currently responsible for the Company’s pending Chapter 11 proceeding
dating from December 2015
(the “Bankruptcy Court”) to permit discovery in relation to the Claims pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure (the “Rule 2004 Discovery Motion”), and commence such discovery promptly after entry of an order of the Bankruptcy Court authorizing such discovery (the “Rule 2004 Discovery Order”). Nomis Bay has agreed to fund these litigation efforts from the date of the Agreements to the Transaction Closing or termination of the Transactions as secured loans under the Credit Agreement (“Claims Advances”). Pursuant to the Forbearance Agreement, the Claims Advances will have priority over the Bridge Loan (as defined below) and all other Term Loans in the Benz Assets. At the Transaction Closing, the entire amount of the Claims Advances will be deemed satisfied and extinguished along with the other Term Loans, and all security interests of Nomis Bay in the Benz Assets will be released.
Issuance of the New Black Horse Shares; Bridge Loan
Under the Purchase Agreement, at the Transaction Closing, the Company will also issue to Cheval the New Black Horse Shares for total consideration of $3,000,000 (including extinguishment of the Bridge Loan described below). The Company plans to use the proceeds from the issuance of the New Black Horse Shares for working capital and other costs incurred in the ordinary course of business
, including additional fundraising
.
On December 21, 2017, concurrently with entering into the Agreements, Cheval agreed to make a bridge loan to the Company of $1,500,000 (the “Bridge Loan”). Pursuant to the Forbearance Agreement, until the Transaction Closing, the Bridge Loan will be treated as a secured loan under the Credit Agreement. The Bridge Loan will have priority over the Claims Advances and the Term Loans in certain of the Company’s non-benznidazole related assets, including lenzilumab and ifabotuzumab. At the Transaction Closing, the entire amount of the Bridge Loan will be credited to Cheval’s $3,000,000 payment obligation and will be converted into New Black Horse Shares and all security interests of Cheval in the non-benznidazole assets will be released.
Additional Information
The Transaction Closing is subject to various conditions, including, among other things: (i) there be no motion pending for, nor shall there have occurred (a) the appointment of a Chapter 11 Trustee for the Company, (b) the conversion of the Company’s pending bankruptcy case to a Chapter 7 case, (c) the filing of any additional or subsequent bankruptcy proceeding, or (d) the pursuit of an action under state law for the appointment of a receiver, assignee for the benefit of creditors, or a dissolution or reorganization; (ii) there not having occurred certain other events of default under the Credit Agreement; (iii) the Company’s delivery of certain transaction documents, including a bill of sale and assignment and assumption agreement and an operating agreement in connection with the JV Entity; (iv) t
he Charter Amendment becoming effective upon filing with the Delaware Secretary of State
; (v) a hearing having occurred with the Bankruptcy Court in respect of the Rule 2004 Discovery Motion
on or before March 15, 2018
; (vi) Cheval having paid the purchase price for the New Black Horse Shares, and the Company’s delivery of the New Common Shares; and (vii) the parties’ execution and delivery of that certain termination and release agreement providing for, among other things, the termination of the Credit Agreement. The Transaction Closing will occur on the first business day following the satisfaction or waiver of the closing conditions discussed above and contained in the Agreements. If, on March 31, 2018, any of the closing conditions have not been satisfied or waived, then the Purchase Agreement will automatically terminate pursuant to its terms, unless extended by the Company and the Lenders.
If the parties complete the Transactions, the issuance of the New Common Shares to the Black Horse Entities at the Transaction Closing will result in a change of control of the Company, as the Black Horse Entities and their affiliates will own more than a majority of the Company’s outstanding Common Stock.
As of December 21, 2017, Nomis Bay held 3,680,106 shares of the Company’s Common Stock, or approximately 24.6% of the Company’s outstanding Common Stock. In addition, as of December 21, 2017, the aggregate amount of the Company’s obligations under the Credit Agreement owed to Nomis Bay, including accrued interest and fees, approximated $8.15 million.
As of December 21, 2017, the Black Horse Entities collectively held 4,948,758 shares of the Company’s Common Stock, or approximately 33.1% of the Company’s outstanding Common Stock. In addition, as of December 21, 2017, the aggregate amount of the Company’s obligations under the Credit Agreement owed to the Black Horse Entities, including accrued interest and fees, approximated $8.15 million. Dale Chappell, a former director of the Company who resigned on November 9, 2017, is an affiliate of each of the Black Horse Entities.