Item 1.01 Entry into a Material Definitive Agreement.
On January 6, 2017, Mast Therapeutics, Inc. (“
Mast
” or the “
Company
”), Victoria Merger Corp., a Delaware corporation and a wholly-owned subsidiary of Mast (“
Merger Sub
”), and Savara Inc., a privately-held Delaware corporation focused on the treatment of rare respiratory diseases (“
Savara
”), entered into an Agreement and Plan of Merger and Reorganization (the “
Merger Agreement
”), pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Savara, with Savara becoming a wholly-owned subsidiary of the Company and the surviving corporation of the merger (the “
Merger
”). The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “
Effective Time
”), (a) each outstanding share of Savara common stock, on an as-converted basis taking into consideration all outstanding common stock, preferred stock, restricted stock and all other securities convertible or exercisable for Savara Common Stock, will be converted into the right to receive the number of shares of the Company’s common stock (the “
Company Common Stock
”) equal to the exchange ratio described below; (b) each outstanding Savara stock option that has not previously been exercised prior to the Effective Time will be assumed by the Company; and (c) each outstanding warrant to acquire Savara capital stock that has not previously been exercised prior to the Effective Time will be assumed by the Company.
Under the exchange ratio formula in the Merger Agreement, as of immediately after the Merger, but excluding the effect of certain financings (as further described in the Merger Agreement), the former Savara securityholders are expected to own approximately 76% of the aggregate number of shares of the Company Common Stock issued and outstanding following the consummation of the Merger (the “
Post-Closing Shares
”), and the stockholders of the Company as of immediately prior to the Merger are expected to own approximately 24% of the aggregate number of Post-Closing Shares. This exchange ratio will be fixed prior to closing to reflect the Company’s and Savara capitalization as of immediately prior to such time. In addition, to the extent the Company’s net cash at closing, as specifically defined in the Merger Agreement, is less than zero dollars, the exchange ratio may be further adjusted in a manner that would reduce the percentage of the aggregate number of Post-Closing Shares held by stockholders of the Company as of immediately prior to the Merger.
Immediately
following the Merger, the
name of the Company will b
e
changed from “Mast Therapeutics, Inc.” to “Savara Inc.” At the Effective Time, the Merger Agreement contemplates that the
Board of Directors of the Company
will
consist of seven members, five of which will be
the current directors of Savara and two of wh
ich will be
independent directors
designated by the Company, which such members are expected to be two of the current directors of the Company.
The executive officers of the Company immediately after the Effective Time will be designated by Savara with Sav
ara’s Chief Executive Officer, Robert Neville,
being
the Company’s Chief Executive Officer and Savara’s Chief Financial Officer, David
Lowrance, being the Company’s Chief Financial Officer.
The Merger Agreement contains customary representations, warranties and covenants made by the Company and Savara, including covenants relating to obtaining the requisite approvals of the stockholders of the Company and Savara, indemnification of directors and officers, and the Company’s and Savara’s conduct of their respective businesses between the date of signing the Merger Agreement and the closing of the Merger.
Consummation of the Merger is subject to certain closing conditions, including, among other things, approval by the stockholders of the Company and Savara. The Merger Agreement contains certain termination rights for both the Company and Savara, and further provides that, upon termination of the Merger Agreement under specified circumstances, the Company may be required to pay Savara a termination fee of $1.8 million or Savara may be required to pay the Company a termination fee of $2.5 million.
The Merger Agreement contemplates that the Company will also seek approval from its stockholders to effect a reverse stock split intended to increase its trading price above the minimum requirements of the NYSE MKT, LLC. Subject to stockholder approval, the Company expects to implement the reverse stock split at a ratio to be mutually agreed to by the Company and Savara within the range approved by the Company’s stockholders immediately prior to the Effective Time.
In accordance with the terms of the Merger Agreement, (i) the officers and directors of the Company have each entered into a voting agreement with the Company (the “
Mast Voting Agreements
”), and (ii) the officers, directors and certain affiliated stockholders of Savara have each entered into a voting agreement with Savara (the “
Savara Voting Agreements,
” together with the Mast Voting Agreements, the “
Voting Agreements
”). The Voting Agreements place certain restrictions on the transfer of the shares of the Company and Savara held by the respective signatories thereto and include covenants as to the voting of such shares in favor of approving the transactions contemplated by the Merger Agreement and against any actions that could adversely affect the consummation of the Merger.
Concurrently with the execution of the Merger Agreement, the officers and directors of the Company, and the officers, directors and certain stockholders of Savara, each entered into lock-up agreements (the “
Lock-Up Agreements
”) pursuant to which they have
2
agreed
, among other things, not to sell or dispose of any
shares
of Company Common Stock which are or will be
beneficially owned by them
at the closing of the Merger
with
one third (1/
3) of
such shares being released from such restrictions
on each of (i) the six (6) month anniversary, (ii) the eight (8) month anniversary and (ii) the ten (10) month anniversary of the
Effective Time.
The Merger Agreement, form of Mast Voting Agreement, form of Savara Voting Agreement and form of Lock-Up Agreement have each been included as an exhibit to this Current Report to provide the Company’s stockholders with information regarding their terms. The assertions embodied in the representations and warranties contained in the Merger Agreement are qualified by information in confidential disclosure schedules delivered by the parties in connection with the signing of the Merger Agreement. Moreover, certain representations and warranties contained in these agreements were made as of a specified date; may have been made for the purposes of allocating contractual risk between the parties to such agreements; and may be subject to contractual standards of materiality different from what might be viewed as material to the Company’s stockholders. Accordingly, the representations and warranties in these agreements should not be relied on by any persons as characterizations of the actual state of facts and circumstances of the Company or any other parties thereto at the time they were made and should consider the information in these agreements in conjunction with the entirety of the factual disclosure about the Company in the Company’s public reports filed with the Securities and Exchange Commission, or the SEC. Information concerning the subject matter of the representations and warranties may change after the date of these agreements, which subsequent information may or may not be fully reflected in the Company’s public disclosures. These agreements should not be read alone, but should instead be read in conjunction with each other and other information regarding the Company.
The preceding summary does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, the form of Mast Voting Agreement, the form of Savara Voting Agreement and the form of Lock-up Agreements, which are filed as Exhibits 2.1, 2.2, 2.3 and 10.1, respectively, and which are incorporated herein by reference.