If the issuance of the Post-Closing Stock Consideration or any Contingent Stock Consideration would result in the aggregate number of shares of the Company’s Common Stock issued under the Merger Agreement equaling or exceeding 19.9% of the total number of shares of the Company’s Common Stock issued and outstanding immediately prior to the Closing (the “Share Cap”), then the Company will be required to pay the portion of the Post-Closing Stock Consideration or any Contingent Stock Consideration in excess of the Share Cap in cash. If the aggregate amount of Contingent Cash Consideration payable in any calendar year (after giving effect to the Share Cap) exceeds $2,500,000 (the “Excess Cash Cap”), such excess portion (“Carry Forward Contingent Cash Consideration”) will be carried forward and, subject to application of the Excess Cash Cap in the following calendar year, become payable on the first business day of the following calendar year. Any Carry Forward Contingent Cash Consideration outstanding on June 1, 2026 is payable in full on June 1, 2026.
Former Combangio Equityholders who are non-accredited investors will receive cash in lieu of any of the Company’s Common Stock that otherwise would be issuable to them pursuant to the Merger Agreement.
The Merger Agreement contains customary representations, warranties and covenants of Combangio and the Company. The representations and warranties of Combangio generally will survive until the date that is fifteen months following the Closing, with certain specified representations and warranties surviving until the earlier of seven years following the Closing or the date that is 60 days after the expiration of the longest applicable statute of limitations applicable and other specified representations and warranties surviving to the date that is 60 days after the expiration of the longest applicable statute of limitations.
The Merger Agreement also contains customary indemnification provisions whereby the Combangio Equityholders will indemnify the Company and certain affiliated parties for any losses arising out of breaches of the representations, warranties and covenants of Combangio under the Merger Agreement; pre-Closing tax matters; appraisal claims of former Combangio stockholders; any pre-closing indebtedness or expenses not previously adjusted for at the Closing; fraud by Combangio with respect to the transactions contemplated by the Merger Agreement; any knowing misrepresentation by Combangio of the representations and warranties of Combangio; any willful breach by Combangio of the provisions of the Merger Agreement; any inaccuracy in or claim related to the Closing allocation schedule and certain other matters.
In connection with the Closing, the Company is placing $625,000 of the cash purchase price in an escrow account (the “Escrow Account”) to be disbursed in accordance with an escrow agreement with Computershare Corporate Trust Company, N.A. (the “Escrow Agreement”), as escrow agent, and subject to the terms of the Merger Agreement, the Company will place 12.5% of any Contingent Cash Consideration that becomes payable prior to the
date that is fifteen months after the Closing (the “Escrow Release Date”) into such Escrow Account to be disbursed in accordance with the Escrow Agreement. Subject to the terms of the Merger Agreement, 12.5% of any Contingent Stock Consideration that becomes payable in Common Stock prior to the Escrow Release Date will be held back by the Company (the “Contingent Holdback Shares”) and, together with the Initial Holdback Shares (collectively, the “Holdback Shares”), will serve as partial security for the satisfaction of indemnification obligations and other payment obligations of the Combangio Equityholders and, subject to reduction in respect of these obligations, the Holdback Shares will be issued to the Combangio Equityholders on the Escrow Release Date.
Pursuant to the Merger Agreement, the Company has agreed to certain post-closing covenants. The Company has agreed to use commercially reasonable efforts to achieve the Dosing Milestone. In addition, within 30 days of the occurrence of the Registration Event (as defined below) and subject to certain exceptions set forth in the Merger Agreement, the Company has agreed to file with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-3 (and if the Company is not eligible to use a Form S-3, a registration statement on Form S-1) with respect to the public resale by the Combangio Equityholders of the Company’s Common Stock issued in connection with such Registration Event (such shares, the “Registration Event Shares”, and such rights, the “Registration Rights”). “Registration Event” means the satisfaction of all of the following three conditions: (i) the BLA Approval Milestone or the Commercialization Milestone is achieved, (ii) the Company issues its Common Stock as a portion of the milestone payment therefor between May 1 and December 31 of any calendar year prior to 2026 and (iii) any portion of the cash portion of such milestone payment is subject to the Excess Cash Cap. The Company has agreed to keep such registration statement effective until the date that is six months following the issuance of the applicable Registration Event Shares, or such earlier time as all such Registration Event Shares have been sold or may be transferred under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), without manner of sale or volume restrictions. The Company