Item 1.01. Entry Into a Material Definitive Agreement.
Merger Agreement
On March 26, 2018, Skinvisible, Inc. (“
Parent
”)
entered into an Agreement and Plan of Merger (the “
Merger Agreement
”) with Quoin Pharmaceuticals, Inc.,
a Delaware corporation (the “
Company
”), and Quoin Merger Sub, Inc., a Delaware corporation and wholly-owned
subsidiary of Parent (“
Merger Sub
”).
The Merger Agreement provides that,
subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “
Merger
”),
with the Company surviving the Merger as a wholly-owned subsidiary of Parent. At the effective time of the Merger, the issued and
outstanding common shares of the Company (“
Company Common Shares
”) will automatically be converted into
the right to receive approximately 72.5% of the outstanding equity of Parent (the “
Merger Consideration
”).
Existing Parent shareholders will have a right to the remaining 27.5% of the outstanding equity of Parent, which is subject to
diminution if certain indebtedness of Parent is not converted into Parent Common Stock.
Each of the Company, Parent, and Merger
Sub has made various representations and warranties and agreed to certain covenants in the Merger Agreement. Parent also has agreed
to other covenants in the Merger Agreement, including, without limitation, to cause a special meeting of Parent’s shareholders
to be held as promptly as practicable to consider and approve the Merger Agreement and the Merger, along with the issuance of the
shares of Parent Common Stock in connection with the Merger and a Charter Amendment, including a name change and reverse stock
split, and to file a proxy statement with the Securities and Exchange Commission (“
SEC
”) relating to
such special meeting.
The Merger Agreement contains customary
no-solicitation covenants restricting Parent and the Company from soliciting, encouraging, or discussing alternative acquisition
proposals from third parties.
Consummation of the Merger is subject
to the satisfaction or, if permitted by applicable law, waiver, by Parent, the Company, or both of various conditions, including,
without limitation, (i) approval of the Merger Agreement and the Merger by both the Company’s and Parent’s respective
shareholders; (ii) a definitive agreement shall have been executed that provides that Parent shall receive an aggregate of
at least $10,000,000 of gross proceeds within five (5) days of the closing of the Merger; (iii) the accuracy of the parties’
respective representations and warranties and the performance of their respective obligations under the Merger Agreement; (iv) the
absence of the occurrence of a material adverse effect with respect to the Company between the date of the Merger Agreement and
closing; (v) the Parent’s shareholders shall have approved the Charter Amendment ; (vi) the absence of any law,
order, or legal injunction which prohibits the consummation of the Merger or any of the transactions contemplated by the Merger
Agreement; and (vii) certain other customary conditions.
The Merger Agreement contains certain
termination rights in favor of the parties, as set forth therein, including, among other things, the right of either party, subject
to specified limitations, to terminate the Merger Agreement if the Merger is not consummated by June 30, 2018. Upon the termination
of the Merger Agreement under specified circumstances, including the termination of the Merger Agreement by Parent to enter into
an acquisition proposal in accordance with the terms of the Merger Agreement made by a third party, Parent may be required to pay
the Company a termination fee of up to $300,000.
The Merger Agreement, the Merger, and
the transactions contemplated thereby were unanimously approved by the board of directors of the Parent, and unanimously approved
by the board of directors of the Company. Both the board of directors of the Company and Parent have recommended that their respective
shareholders approve the Merger Agreement and the Merger.
The Merger is expected to close as soon
as practicable after the satisfaction or waiver of all the conditions to the closing in the Merger Agreement, which is currently
expected to be in the second quarter of calendar year 2018.
The Merger Agreement has been included
to provide investors with information regarding its terms. The representations, warranties, and covenants contained in the Merger
Agreement were made only for the purposes of the Merger Agreement, were made as of specific dates, were made solely for the benefit
of the parties to the Merger Agreement, and may not have been intended to be statements of fact, but rather as a method of allocating
risk and governing the contractual rights and relationships among the parties to the Merger Agreement. In addition, such representations,
warranties, and covenants may have been qualified by certain disclosures not reflected in the text of the Merger Agreement and
may apply standards of materiality and other qualifications and limitations in a way that is different from what may be viewed
as material by the Parent’s shareholders. None of the Parent’s shareholders or any other third party should rely on
the representations, warranties, and covenants, or any descriptions thereof, as characterizations of the actual state of facts
or conditions of the Company, Parent, Merger Sub, or any of their respective subsidiaries or affiliates. Moreover, information
concerning the subject matter of representations and warranties may change after the date of the Merger Agreement, which subsequent
information may or may not be fully reflected in the Parent’s public disclosures. The Merger Agreement should not be read
alone, but should instead be read in conjunction with the other information regarding Parent that is or will be contained in,
or incorporated by reference into, the Forms 10-K, Forms 10-Q, Forms 8-K, and other documents that Parent files or has filed with
the SEC.
The foregoing descriptions of
the Merger Agreement and the Merger are summaries, do not purport to be complete, and are qualified in their entirety by reference
to the full text of the Merger Agreement, and the exhibits attached thereto, a copy of which is attached as Exhibit 2.1 to this
Current Report on Form 8-K and incorporated by reference herein.
Support Agreements
Concurrently with the entry into the
Merger Agreement on March 26, 2018, Terry Howlett (Chief Executive Officer of Parent) and Doreen McMorran (Vice President,
Business Development & Marketing of Parent) along with Michael Meyers (Chief Executive Officer of the Company) and Denise Carter
(Chief Operating Officer of the Company) have executed lock-up agreements (the “
Lock-Up Agreements
”)
relating to sales and certain other dispositions of shares of Parent Common Stock or certain other securities for a period of 180
days after the Closing of the Merger.
In addition, Parent’s wholly owned
subsidiary, Skinvisible Pharmaceuticals, Inc. executed agreements with Mr. Howlett, Ms. McMorran and Dr. James A. Roszell (the
“
Share Transfer Agreements”
). The Share Transfer Agreements provide that in exchange for the immediate
cancellation of $500,000 of the Parent Related Indebtedness, simultaneously with entry into the Merger Agreement, Skinvisible Pharmaceuticals,
Inc. will transfer 100% of the shares in Ovation Science Inc. (“Ovation”) to these related parties. Parent will execute
an agreement with Mr. Howlett, Ms. McMorran and Dr. Roszell (the “
Parent Related Party Agreement
”) which
will provide that within 180 days after the Closing Date the remaining Parent Related Party Indebtedness shall be converted, at
the sole election of Parent, into cash or shares of Parent Common Stock which are not subject to any contractual restrictions or
vesting requirements.
Finally, Mr. Howlett and Ms. McMorran
have entered into a Voting and Support Agreement (the “
Voting Agreement
”), pursuant to which such shareholders
have agreed, among other things, to vote all of their Parent Common Shares in favor of the approval of the Merger Agreement at
the special meeting of the Parent’s shareholders called to approve the Merger Agreement. The Voting Agreement will automatically
terminate upon the termination of the Merger Agreement in accordance with its terms, including upon a termination of the Merger
Agreement by the Company pursuant to the Company’s termination rights in the Merger Agreement, or upon any material modification
or amendment to the Merger Agreement that materially reduces the Merger Consideration payable to the Company’s shareholders
(other than in connection with a Company material adverse effect).
The foregoing descriptions of the Lock-Up
Agreements, the Share Transfer Agreements and the Voting Agreement are summaries, do not purport to be complete, and are qualified
in their entireties by reference to the full text of the Lock-Up Agreements, the Share Transfer Agreements and the Voting
Agreement, copies of which are attached as Exhibits 10.1 to 10.11, respectively, to this Current Report on Form 8-K and
incorporated by reference herein.
Forward-Looking Statements
Certain statements in this report,
including those regarding the proposed transaction between the Company, Parent, and Merger Sub, the expected timetable for completing
the proposed transaction, and the potential benefits created by the proposed transaction, are intended to be covered by the safe
harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. These forward-looking
statements generally can be identified by use of statements that include, but are not limited to, phrases such as “believe,”
“expect,” “future,” “anticipate,” “intend,” “plan,” “foresee,”
“may,” “should,” “will,” “estimates,” “potential,” “continue,”
or other similar words or phrases. Similarly, statements that describe objectives, plans, or goals also are forward-looking statements.
Such forward-looking statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally
beyond the control of the Company, Parent, or Merger Sub. The Company cautions readers that a number of important factors could
cause actual results to differ materially from those expressed in, implied, or projected by such forward-looking statements. Risks
and uncertainties include, but are not limited to: the failure of the proposed transaction to close in a timely manner or at all;
the effects of the announcement or pendency of the proposed transaction on the Company and its business; the nature, cost, and
outcome of any litigation related to the proposed transaction; general economic conditions; the availability and timely receipt
of products; the ability to timely fulfill and ship products to customers; product demand and market acceptance risks; the effect
of competitive products and pricing; loss of key employees; cybersecurity risks, including breach of customer data; the potential
impact of legal or regulatory changes, including the impact of the U.S. Tax Cuts and Jobs Act of 2017; interest rate levels; the
impact of inflation; a major failure of technology and information systems; and the other risks detailed in the Company’s
SEC filings. Readers are urged to consider these factors carefully in evaluating the forward-looking statements. Investors and
shareholders are also urged to read the risk factors set forth in the proxy statement carefully when they are available.
If any of these risks or uncertainties
materializes or if any of the assumptions underlying such forward-looking statements proves to be incorrect, the developments
and future events concerning the Company, Parent, and Merger Sub set forth in this report may differ materially from those expressed
or implied by these forward-looking statements. You are cautioned not to place undue reliance on these statements, which speak
only as of the date of this document. We anticipate that subsequent events and developments will cause our expectations and beliefs
to change. The Company assumes no obligation to update such forward-looking statements to reflect events or circumstances after
the date of this document or to reflect the occurrence of unanticipated events, unless obligated to do so under the federal securities
laws.
Additional Information for Shareholders
This report relates to the proposed
Merger transaction between the Company, Parent, and Merger Sub. The proposed Merger will be submitted to the Company’s and
Parent’s shareholders for their consideration and approval. In connection with the proposed Merger, the Parent will file
relevant materials with the SEC, including a proxy statement of the Parent. When completed, a definitive proxy statement and
a form of proxy will be mailed to the shareholders of the Parent. This report is not a substitute for the proxy statement, circular,
or other document(s) that the Company and/or Parent may file with the SEC in connection with the proposed transaction.
The Parent’s
shareholders are urged to read the proxy statement and other documents filed with the SEC regarding the proposed Merger transaction
when they become available because they will contain important information about the Company, Parent, and the proposed Merger transaction
itself.
The Parent’s shareholders will be able to obtain, without charge, a copy of the proxy statement (when available)
and other relevant documents filed with the SEC from the SEC’s website at www.sec.gov. The information available through
the Parent’s website is not and shall not be deemed part of this document or incorporated by reference into other filings
the Company makes with the SEC. This communication does not constitute an offer to sell or the solicitation of an offer to buy
any securities.
The Parent, and its management may be
deemed to be participants in the solicitation of proxies from the Parent’s shareholders with respect to the special meeting
of shareholders that will be held to consider the matters to be approved by the Parent’s shareholders in connection with
the Merger transaction. Information about the Parent’s directors and executive officers and their ownership of the Parent
Common Shares will be set forth in the proxy statement for special shareholder meeting, which will be filed with the SEC on Schedule
14A in the near future. Shareholders may obtain additional information regarding the interests of the Parent and its directors
and executive officers in the proposed Merger, which may be different than those of the Parent’s shareholders generally,
by reading the proxy statement and other relevant documents regarding the proposed merger, when filed with the SEC.