WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. EXISTING STOCKHOLDERS WILL RETAIN THEIR EXISTING COMMON STOCK.
This Information Statement is being furnished to the stockholders of Humanigen, Inc., a Delaware corporation (the "Company", "Humanigen", "we", "our" or "us"), as of December 21, 2017 (the "Record Date").
As further discussed in the accompanying Information Statement, the Charter Amendment Action to increase the number of authorized shares of Common Stock is necessary for the Company to be able to issue new shares of Common Stock to the Consenting Stockholders as part of a series of transactions (the “Transactions”) with the Consenting Stockholders providing for, among other things, the satisfaction and extinguishment of approximately $16.3 million of the Company’s outstanding obligations under the Credit and Security Agreement dated December 21, 2016, as amended (the “Credit Agreement”), between the Company and the Consenting Stockholders, as lenders, and the infusion into the Company of $3 million of new capital. The issuances of the shares in the Transactions allow the Company to pursue its new business strategy focused on developing its proprietary monoclonal antibodies for immunotherapy and oncology treatments.
Pursuant to Section 228 of the DGCL, we are required to provide prompt notice of the taking of the corporate actions described above without a meeting of stockholders to all stockholders who did not consent in writing to such action. This Information Statement serves as the notice required by Section 228 of the DGCL.
THIS INFORMATION STATEMENT IS FIRST BEING SENT OR GIVEN ON OR ABOUT , 2018 TO THE HOLDERS OF OUR COMMON STOCK ON DECEMBER 21, 2017 AND IS BEING DELIVERED TO INFORM YOU OF THE CORPORATE ACTIONS DESCRIBED HEREIN BEFORE SUCH ACTIONS TAKE EFFECT IN ACCORDANCE WITH RULE 14C-2 OF THE SECURITIES EXCHANGE ACT OF 1934 (THE “EXCHANGE ACT”).
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. EXISTING STOCKHOLDERS WILL RETAIN THEIR EXISTING COMMON STOCK.
The entire cost of furnishing this Information Statement will be borne by the Company. We will request brokerage houses, nominees, custodians, fiduciaries and other like parties to forward this Information Statement to the beneficial owners of our voting securities held of record by them, and we will reimburse such persons for out-of-pocket expenses incurred in forwarding such material.
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ACTION NO. 1
APPROVAL OF CHARTER AMENDMENT
The Charter Amendment was
unanimously
approved by the Company’s Board on December 21, 2017 and by the Consenting Stockholders holding approximately 58% of our outstanding shares of Common Stock on the Record Date.
Reasons for Stockholder Approval
The issuance of the New Common Shares in the Transactions described below is conditioned upon us obtaining stockholder approval to amend our Charter to increase the number of shares of Common Stock that we are authorized to issue to a number sufficient to permit us to issue the New Common Shares at closing of the Transactions.
The Board also believes that the Charter Amendment will provide us with increased flexibility in the future to issue Preferred Stock and additional shares of Common Stock in connection with future public or private offerings, financing and acquisition transactions, and other proper corporate purposes.
Action by Written Consent; No Further Vote Required
Pursuant to Section 228 of the DGCL and in accordance with our Charter and Second Amended and Restated Bylaws (the “Bylaws”), any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote of stockholders, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Pursuant to the DGCL, the Charter Amendment must be approved by a majority of the outstanding shares of Common Stock, and therefore the Company elected to obtain stockholder approval of the Charter Amendment by written consent of the Consenting Stockholders. Because the requisite stockholder approval for the Charter Amendment Action has been received, all corporate approvals by or on behalf of the Company required for the Charter Amendment Action have been obtained and no further votes will be needed.
Purpose and Effects of the Charter Amendment
Increased Number of Authorized Shares of Common Stock
Under our Charter in effect as of the date of this Information Statement, we currently have authorized 85,000,000 shares of Common Stock. The Charter Amendment will increase the number of authorized shares of Common Stock from 85,000,000 shares to 225,000,000 shares of Common Stock. As of December 21, 2017, we had 14,946,712 shares of Common Stock issued and outstanding. In addition, the Charter Amendment will permit the Board to issue up to 210,053,288 additional shares of our Common Stock, approximately 91,815,517 shares of which will be issued in the Transactions, as further discussed in this Information Statement, leaving 118,237,771 shares of Common Stock available for future issuance.
For a description of the Common Stock, please see the Company’s
Current Report on Form 8-K filed with the SEC on August 7, 2017.
Holders of the Company’s Common Stock have no preemptive rights.
Authorization of Preferred Stock
Under our Charter in effect as of the date of this Information Statement, we are not currently authorized to issue Preferred Stock. The Charter Amendment will permit the Board to issue up to 25,000,000 shares of Preferred Stock, with such powers, rights, terms and conditions as may be designated by the Board upon the issuance of shares of Preferred Stock at one or more times in the future. Accordingly, the Charter Amendment will permit the Board to approve the issuance of all or any shares of the Preferred Stock in one or more series, to determine the number of shares constituting any series and to determine any voting powers, conversion rights, dividend rights, and other designations, preferences, limitations, restrictions and rights relating to such shares without any further authorization by the Company’s stockholders. The designations, preferences, limitations, restrictions and rights of any series of Preferred Stock designated by the Board in the future will be set forth in a Certificate of Designations filed with the Delaware Secretary of State. The Board’s power to issue Preferred Stock could have the effect of delaying, deterring or preventing a transaction or a change in control of the Company that might otherwise be in the best interest of the Company’s stockholders.
The foregoing summary of the Charter Amendment does not purport to be complete, and is subject to and qualified in its entirety by reference to the complete text of the Charter Amendment, which is included hereto as Appendix A.
None of the DGCL, our Charter or our Bylaws provides holders of our Common Stock with dissenters’ or appraisal rights in connection with the Charter Amendment Action or the Transactions described in this Information Statement.
Effective Date of the Charter Amendment
The Charter Amendment will become effective upon filing of the Charter Amendment with the Delaware Secretary of State, which will be no earlier than 20 calendar days after we send this Information Statement to our stockholders of record as of the Record Date.
BACKGROUND OF THE TRANSACTIONS
The Company emerged from its Chapter 11 bankruptcy proceedings in June 2016. In connection with such emergence, the
Company consummated its previously agreed transaction with
BHCMF, BHC, Cheval and Nomis Bay (collectively, the “Lenders”) providing for the sale to the Lenders of an aggregate of
7,147,035 shares of Common Stock
in consideration for exit financing in the amount of $11,000,000. At that time, the Company also
entered into the MDC Agreement (as defined below), pursuant to which the Company acquired certain worldwide rights relating to benznidazole, a potential treatment for Chagas disease that had been approved for use in Latin America but which had not yet obtained approval of the U.S. Food and Drug Administration (“FDA”) for use in the United States.
In the fall of 2016, the Company engaged financial advisors to assist it in raising additional equity capital necessary to fund the Company’s development of benznidazole and its other drug development programs on accelerated timelines. The Company’s attempts to raise additional capital were unsuccessful, hampered by, among other things, uncertainties related to the Company’s benznidazole development program.
Given the difficulties experienced in raising equity capital and the Company’s need for additional funding to continue to pursue its accelerated development program for benznidazole, the Company entered into the Credit Agreement to obtain a credit facility with the Lenders in the original principal amount of $3,315,000 (the “December 2016 Term Loan”). The Company intended for the December 2016 Term Loan to serve as bridge financing to fund its short-term capital requirements pending completion of a broader financing transaction, which the Company hoped to complete in 2017.
The Company’s efforts to raise additional equity capital continued throughout 2017. At this same time, the Company was also evaluating a full range of strategic alternatives to address and respond to the Company’s liquidity position, including actively seeking prospective candidates for a sale, merger, consolidation or business combination. The Company’s efforts to obtain additional equity financing were again unsuccessful, as were its efforts to pursue strategic transactions for a variety of reasons including its lack of liquidity. Accordingly, the Company on two occasions during 2017 borrowed more funds from the Lenders to obtain the additional capital necessary to fund its drug development programs and continue as a going concern:
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On March 21, 2017, the Company entered into an amendment to the Credit Agreement to obtain an additional term loan (the “March 2017 Term Loan”) in the original principal amount of $5,978,000 less an upfront fee equal to $478,000, and required the payment by the Company to the Lenders of a commitment fee equal to $275,000.
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On July 8, 2017, the Company entered into a second amendment (the “Second Amendment”) to the Credit Agreement to obtain an additional term loan (the “July 2017 Term Loan” and, together with the December 2016 Term Loan and the March 2017 Term Loan, the “Term Loans”). The Second Amendment provided for additional loans that may be drawn by the Company on a bi-monthly basis from time to time in an aggregate principal amount of up to $5,434,783, less an upfront fee equal to $435,000 and required the payment at maturity by the Company to the Lenders a commitment fee of $263,000.
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The Company’s obligations under the Credit Agreement are secured by a first priority interest in all of its real and personal property, subject only to certain carve outs and permitted liens, as set forth in the Credit Agreement. Upon the occurrence of any event of default set forth in the Credit Agreement, BHCMF has the option of terminating the Credit Agreement and declaring all of the Company’s obligations immediately payable.
Under the original terms of the Credit Agreement, the outstanding principal balance of the Term Loans, plus accrued interest and fees, was set to mature on October 31, 2017. In light of the previously reported developments relating to the Company’s benznidazole development program that occurred in August 2017, the Company anticipated that it would not have access to sufficient funds to repay the outstanding obligations under the Credit Agreement at maturity. Accordingly, throughout the fall of 2017, the Company had been discussing with the Lenders alternative transactions that might result in the satisfaction of the Company’s obligations.
As part of these discussions, on each of October 31, 2017 and November 16, 2017, the Company obtained a short-term extension of the maturity of its obligations under the Term Loans. On December 1, 2017, the Company’s obligations matured under the Credit Agreement and no further extension was granted, although the Company and the Lenders continued in active discussions about alternative transactions on that date.
As further described below, on December 21, 2017, the Company reached an agreement with the Lenders on a series of transactions providing for, among other things, the conversion of the Term Loans into Common Stock of the Company in satisfaction and extinguishment of the outstanding obligations under the Credit Agreement and the cancellation of the Term Loans. As of December 21, 2017, the aggregate amount of the Company’s obligations under the Credit Agreement, including accrued interest and fees, approximated $16.3 million.
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 BHCMF, BHC, Cheval and Nomis Bay. Pursuant to the terms and subject to the conditions set forth in the Agreements, at the closing of the Transactions (the “Transaction Closing”), the Company will, in exchange for the satisfaction and extinguishment of the entire balance of the Term Loans other than the Bridge Loan and the Claim Advances (each as defined below) (the “Loan Satisfaction Transactions”):
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Issue to the Lenders an aggregate of 59,786,848 shares of Common Stock (the “New Lender Shares”), and
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Transfer and assign to an affiliate of Nomis Bay (the “JV Entity”), which will be formed and capitalized by Nomis Bay, all of the assets of the Company related to benznidazole, the Company’s former drug candidate, including without limitation, all of the Company’s rights (but not the Company’s liabilities or obligations) pursuant to that certain Agreement for Manufacture, Development and Commercialization of Benznidazole for Human Use (the “MDC Agreement”), between the Company and Savant Neglected Diseases, LLC (“Savant”), and all causes of action and claims related to or in connection with benznidazole, including the right to pursue causes of action and claims related to Savant and 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 FDA (collectively, the “Claims”; the Claims and such other assets, the “Benz Assets”).
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In addition, at the Transaction Closing, the Company agreed to 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 (with the Loan Satisfaction Transactions, the “Transactions”), 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.
Please see below for additional information regarding the Transactions.
Issuance of the New Lender Shares
At the Transaction Closing, the Company will issue to the Lenders an aggregate of 59,786,848 shares of Common Stock (again, 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. Immediately after the issuance of the New Lender Shares, and without giving effect to the issuance of the New Black Horse Shares:
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The New Lender Shares will represent 80% of all outstanding shares of the Company’s Common Stock;
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The Black Horse Entities will own 46.6% of the Company’s Common Stock; and
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Nomis Bay will own 44.9% of the Company’s Common Stock.
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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.
The issuances of the New Common Shares will be made in reliance on the exemptions from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) as transactions not involving a public offering and/or Regulation D under the Securities Act as sales to accredited investors.
Transfer of the Benz Assets; Claims Advances
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 the Claims. In addition, if the JV Entity (at the election of Nomis Bay) makes a Positive Election:
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Nomis Bay will assume certain legal fees and expenses owed by the Company to its litigation counsel, and
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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.
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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.
As of the Record Date, 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, Nomis Bay is a Lender under the Credit Agreement. 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. Upon completion of the Transactions, Nomis Bay will own approximately 31.4% of the Company’s outstanding Common Stock.
Issuance of the New Black Horse Shares; Bridge Loan
At the Transaction Closing, the Company will also issue to Cheval an aggregate of 32,028,669 shares of Common Stock (again, 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
.
The number of New Black Horse Shares to be issued to Cheval was determined using a $7,000,000 pre-money valuation of the Company jointly determined by Black Horse and Nomis Bay, taking into account all of the shares of the Company’s Common Stock, including the shares outstanding as of December 21, 2017 and all of the New Lender Shares. Upon completion of the Transactions, the Black Horse Entities will own 62.6% of the Company’s outstanding Common Stock. Please see “
Interest of Certain Persons in the Matters to be Acted Upon
” herein for more information regarding the Black Horse Entities.
The Bridge Loan
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.
Under the Forbearance Agreement, the Lenders have agreed to refrain from exercising their rights and remedies in connection with the Company’s current ongoing default under the Credit Agreement until the earlier of (i) the Transaction Closing, (ii) the termination of the Transactions in accordance with the terms of the Purchase Agreement, or (iii) March 31, 2018.
Effect on Existing Stockholders
After the completion of the Transactions, each existing stockholder of the Company, with the exception of the Black Horse Entities and Nomis Bay, will have the same number of shares of Common Stock that such stockholder held immediately prior to the Transactions. However, the Transactions contemplate conversion of the Term Loans into Common Stock of the Company and issuance of the New Black Horse Shares, in each case at a significant discount from the current market price. Therefore, the amount of shares of our Common Stock issuable in connection with the Transactions will increase the total number of shares of outstanding Common Stock significantly and the ownership interests and proportionate voting power of existing stockholders will be significantly diluted.
The Transaction Closing is subject to various conditions, including, among other things:
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There be no motion pending for, nor shall there have occurred (i) the appointment of a Chapter 11 Trustee for the Company, (ii) the conversion of the Company’s pending bankruptcy case to a Chapter 7 case, (iii) the filing of any additional or subsequent bankruptcy proceeding, or (iv) 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;
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There not having occurred certain other events of default under the Credit Agreement;
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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;
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The Charter Amendment becoming effective upon filing with the Delaware Secretary of State
;
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A hearing having occurred with the Bankruptcy Court in respect of the Rule 2004 Motion
on or before March 15, 2018
;
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Cheval having paid the purchase price for the New Black Horse Shares, and the Company’s delivery of the New Common Shares;
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The parties’ execution and delivery of that certain termination and release agreement providing for, among other things, the termination of the Credit Agreement; and
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The accuracy in all material respects on the Transaction Closing of certain representations and warranties of the Company and the Purchasers contained in the Agreements.
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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.
The Company expects to close the Transactions in the first quarter of 2018, subject to the satisfaction of the closing conditions contained in the Agreements and discussed above. It is possible, therefore, that factors outside of our control could require us to complete the Transactions at a later time or not at all.
Change of Control of the Company
If we 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. The Black Horse Entities and their affiliates, acting together, will be able to exert control over matters of the Company and
will be able to determine all matters of the Company requiring stockholder approval. For example, these stockholders will be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction.