Item 1.01. Entry into a Material Definitive Agreement
Agreement and Plan of Merger
On October 16, 2020, Cleveland BioLabs, Inc. (the “Company”), High Street Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”), and Cytocom, Inc., a Delaware corporation (“Cytocom”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Cytocom, with Cytocom continuing as 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.
Merger Consideration
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each outstanding share of Cytocom common stock, each outstanding share of Cytocom preferred stock that was not, by its terms, converted into shares of Cytocom common stock immediately prior to the effective time of the merger, and each vested restricted stock unit of Cytocom (collectively, the “Cytocom Capital Stock”) will be converted into the right to receive a number of shares of the Company’s common stock (“Company Common Stock”) determined by the application of an exchange formula set forth in the Merger Agreement. The exchange formula provides that the total number of shares of Company Common Stock to be issued as merger consideration for the Cytocom Capital Stock will, upon issuance, be equal to approximately 61% of the outstanding shares of Company Common Stock. Certain adjustments to this ratio will be made in respect of the net cash, as determined in accordance with the Merger Agreement, of each of the Company and Cytocom immediately prior to the effective time of the Merger. Each unvested Cytocom RSU award will be converted into a restricted stock unit award of the Company.
Accordingly, under the exchange ratio formula in the Merger Agreement, as of immediately after the Merger, the former Cytocom stockholders are expected to own approximately 61% of the outstanding shares of Company Common Stock on a fully diluted basis and stockholders of the Company as of immediately prior to the Merger are expected to own approximately 39% of the outstanding shares of Company Common Stock on a fully diluted basis, subject to certain adjustments.
Conditions to the Merger
The closing of the Merger is subject to the satisfaction or waiver of certain conditions including, among other things, (i) the required approvals by the Company’s stockholders, (ii) the accuracy of the respective representations and warranties of each party, subject to certain materiality qualifications, (iii) compliance by the parties with their respective covenants, (iv) the absence of any law or order preventing the Merger and related transactions, (v) the shares of Company Common Stock to be issued in the Merger being approved for listing (subject to official notice of issuance) on Nasdaq as of the closing and (vi) the Registration Statement (as defined below) having become effective in accordance with the provisions of the Securities Act of 1933, as amended, and not being subject to any stop order or proceeding (or threatened proceeding by the Securities and Exchange Commission (the “SEC”)) seeking a stop order with respect to the Registration Statement that has not been withdrawn. The written consent of the holders of a majority of the outstanding voting stock of Cytocom was obtained shortly following the execution of the merger agreement.
Governance
Immediately following the Effective Time, the Board of Directors of the Company will consist of seven members, three of whom will be designated by the Company and four of whom will be designated by Cytocom. In addition, upon the closing of the Merger, Cytocom’s Chief Executive Officer, Michael Handley, will serve as Chief Executive Officer of the combined company.
Certain Other Terms of the Merger Agreement
The Merger Agreement contains customary representations, warranties and covenants made by the Company and Cytocom, including covenants relating to obtaining the requisite approvals of the stockholders of the Company and Cytocom, indemnification of directors and officers, and the Company’s and Cytocom’s conduct of their respective businesses between the date of signing the Merger Agreement and the closing of the Merger.
In connection with the Merger, the Company and Cytocom will jointly prepare and file a registration statement on Form S-4 (the “Registration Statement”), in which a proxy statement will be included (the “Proxy Statement”) to seek the approval of the Company’s stockholders with respect to certain actions, including the issuance of Company Common Stock that represents more than 20% of the shares of Company Common Stock outstanding immediately prior to the Closing to the Cytocom stockholders in connection with the Merger and related transactions, pursuant to the Nasdaq rules.
The Merger Agreement contains certain customary termination rights, including, among others:
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(i)
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upon the mutual consent of the Company and Cytocom;
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(ii)
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by the Company, if (A) any of Cytocom’s covenants, representations and warranties is untrue such that a closing condition could not be satisfied and such breach is not capable of being cured or has not been cured within 30 days following notice of such breach, (B) in order to enter into a superior proposal with a third party or (C) Cytocom materially breaches its covenant prohibiting it from soliciting alternative transactions to the Merger;
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(iii)
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by Cytocom, if (A) any of the Company’s covenants, representations and warranties is untrue such that a closing condition could not be satisfied and such breach is not capable of being cured or has not been cured within 30 days following notice of such breach, (B) if the Company materially breaches its covenant prohibiting it from soliciting alternative transactions to the Merger or (C) if the Company’s board of directors withdraws or changes its recommendation in favor of the transactions;
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(iv)
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by either the Company or Cytocom, if (A) the Merger has not occurred by March 31, 2021, subject to certain conditions, (B) a court of competent jurisdiction or other governmental body issues a final and non-appealable order, decree or ruling, or has taken any other action, having the effect of prohibiting the Merger and related transactions, (C) the Company’s stockholders do not approve of the Merger or the issuance of Company Common Stock in the Merger; or (D) the written consent of Cytocom’s stockholders approving the Merger is rescinded, withdrawn or otherwise not in effect or if a subsequent written consent of Cytocom’s stockholders inconsistent with the approval of the Merger is adopted.
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The Merger Agreement further provides that, upon termination of the Merger Agreement under specified circumstances, (x) the Company may be required to pay Cytocom a termination fee of $300,000 or (y) in some circumstances, one party may be required to reimburse the other party’s expenses up to a maximum of $200,000.
The foregoing summary does not purport to be a complete description and is qualified in its entirety by reference to the full text of the Merger Agreement, which is attached hereto as Exhibit 2.1 and is incorporated herein by reference.
The Merger Agreement has been attached as an exhibit to this Current Report on Form 8-K in order to provide investors with information regarding its terms. It is not intended to provide any other factual information about the Company, Cytocom or their respective affiliates or to modify or supplement any factual disclosures about the Company, Cytocom or their respective affiliates in public reports filed with the SEC. The Merger Agreement includes representations, warranties and covenants of the Company and Cytocom that were made solely for the purposes of the Merger Agreement and as of specific dates, were solely for the benefit of the parties thereto, and which may be subject to important qualifications and limitations agreed to by the Company and Cytocom in connection with the negotiated terms of the Merger Agreement. Moreover, such representations and warranties may not be accurate or complete as of any specified date, have been modified or qualified by certain disclosures between the parties made in connection with the negotiation of the Merger Agreement, which disclosures are not reflected in the Merger Agreement itself, and may apply contractual standards of materiality in a way that is different from that which may be viewed as material by the Company’s stockholders, Cytocom’s stockholders or other security holders. In addition, the representations and warranties were made for purposes of allocating risk among the parties to the Merger Agreement and were not intended, and should not be relied upon, as statements of fact. Information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.
Support Agreements
Concurrently with the execution and delivery of the Merger Agreement, certain executive officers, directors and stockholders of the Company (solely in their respective capacities as Company stockholders), including the Company’s largest stockholder, have entered into voting and support agreements with the Company to vote all of their shares of Company Common Stock in favor of adoption of the Merger Agreement (the “Support Agreements”), pursuant to which such individuals have agreed, among other things, to vote their respective shares of Company Common Stock in favor of the adoption of the Merger Agreement, the approval of the Merger and the issuance of Company Common Stock as merger consideration, and against any competing acquisition proposal and against any action or agreement that would reasonably be expected to materially impede, interfere with, delay, postpone, discourage or adversely affect the Merger or any of the transactions contemplated by the Merger Agreement. The signatories to the Support Agreements beneficially own, in the aggregate, approximately 50.7% of the Company's outstanding shares of common stock.
The foregoing description of the Support Agreements does not purport to be complete and is qualified in its entirety by reference to the full text of the form of the Support Agreement, which is filed herewith as Exhibit 10.2 and is incorporated by reference herein.