Item 1.01 Entry into a Material Definitive Agreement.
On September 16, 2020,
VBI Vaccines Inc. (the “Company”), as guarantor, and Variation Biotechnologies Inc., a Canadian federal corporation
and a wholly-owned subsidiary of the Company (the “Variation”), as the recipient, entered into a Contribution Agreement
(the “Agreement”) with Her Majesty The Queen in Right of Canada, as represented by the Minister of Industry (the “Minister”),
pursuant to which Variation is obligated to develop a novel, broadly reactive coronavirus vaccine against SARS-COV2 (“COVID-19”),
Middle East Respiratory Syndrome and Severe Acute Respiratory Syndrome, and/or a monovalent vaccine targeting only COVID-19 through
Phase 2 studies (such undertaking, the “Project”). The Company agreed to complete the Project in or before
the first quarter of 2022 (the “Project Completion Date”), which will be conducted exclusively in Canada, except as
permitted otherwise under certain circumstances.
Pursuant to the Agreement,
the Minister will contribute an amount not exceeding the lesser of (i) 75% of the Company’s costs incurred in respect of
the Project, subject to certain eligibility limitations as set forth in the Agreement and (ii) CAD$55,986,000. In consideration
of such contribution, the Company agreed to guarantee the complete performance and fulfillment of Variation’s obligations
under the Agreement. In the event Variation fails to perform or otherwise satisfy any of its obligations related to the Agreement,
the Company will become a primary obligor under the Agreement.
For the term of the
Agreement, Variation must have exclusive ownership of all intellectual properties developed in connection with the Project (the
“Project Intellectual Properties”). Pursuant to the Agreement, Variation is required to obtain a consent
of the Minister, not to be unreasonably withheld, prior to granting any right or license to any of the Project Intellectual
Properties and certain other intellectual properties that is required for the carrying out of the Project (the “Background
Intellectual Properties,” and together with Project Intellectual Properties, the “Intellectual Properties”);
however, it may grant a right or license to such intellectual properties without the prior written consent of the Minister under
certain conditions as set forth in the Agreement, which includes jurisdictional or types of license granted or the nature of the
licensed entity. Furthermore, if Variation is unable to provide a sufficient Canada-sourced supply of the COVID-19 vaccine, the
Minister may require Variation to grant a license on commercially reasonable terms to use the Intellectual Properties to the extent
necessary to ensure such supply.
Under
the terms of the Agreement, Variation agreed to obtain the Minister’s written consent prior to (i) making significant changes
in the scope, objectives, outcomes or benefits of the Project within its control, (ii) dispose of any assets, which were, in whole
or in part, funded by the Minister under the Agreement, and (iii) effecting a Change in Control. In addition, Variation will provide
a written notice to the Minister of any acquisition of a business, the sale of a business or a merger or amalgamation. A “Change
in Control” means, among other things, (i) the acquisition by an individual or company (or two or more of them acting in
concert) that results in its or their direct or indirect beneficial ownership of 50% or more of the voting stock in Variation
or (ii) if Variation enters into a binding obligation to sell, sells or otherwise disposes of all or substantially all of its
assets.
In
an event of default, subject to a rectification period available in certain circumstances, among other things, the Minister may
(i) suspend or terminate its contribution to the Project, (ii) require repayment of all or part of the contribution paid by the
Minster, together with interest from the day of demand at the interest rate set forth in the Agreement, (iii) terminate the Agreement
and (iv) post a notice on a Government of Canada website disclosing such event of default.
The
Agreement will terminate no earlier than five years following the Project Completion Date unless terminated earlier in accordance
with the terms of the Agreement. The Agreement also contains confidentiality and indemnification obligations of the parties.
In
connection with execution of the Agreement, the Company and Variation obtained a consent of K2 HealthVentures LLC (“K2HV”),
as administrative agent for the lenders and a lender, pursuant to that certain Loan and Guaranty Agreement (the “Loan Agreement”),
dated May 22, 2020. Pursuant to such consent, certain events of default that result in contributions made under the Agreement
in excess of $500,000 becoming due and payable could result in an event of default under the Loan Agreement.