Item 1.01. Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
On February 21, 2022, Panbela Therapeutics, Inc. (“Panbela”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Canary Merger Holdings, Inc., a Delaware corporation and direct wholly owned subsidiary of Panbela (“HoldCo”), Canary Merger Subsidiary I, Inc., a Delaware corporation and direct wholly owned subsidiary of HoldCo (“Merger Sub I”), Canary Merger Subsidiary II, Inc., a Delaware corporation and direct wholly owned subsidiary of HoldCo (“Merger Sub II”), and Cancer Prevention Pharmaceuticals, Inc., a Delaware corporation (“CPP,” and together with Panbela, HoldCo, Merger Sub I and Merger Sub II, the “Parties”), pursuant to which, among other things, Merger Sub I will merge with and into Panbela (the “First Merger”), with Panbela surviving the First Merger as a wholly owned subsidiary of HoldCo and, immediately following the effective time of the First Merger (“First Effective Time”), Merger Sub II will merge with and into CPP (the “Second Merger”), with CPP surviving the Second Merger as a wholly owned subsidiary of HoldCo. The Merger Agreement was unanimously approved and adopted by the board of directors of each of Panbela and CPP and approved by a written consent of holders of a majority of the outstanding voting securities of CPP.
CPP is a private, clinical stage company developing therapeutics to reduce the risk and recurrence of cancer and rare diseases; initial areas of focus include familial adenomatous polyposis (FAP) and colorectal cancer prevention. The lead asset for CPP is Flynpovi which is a combination of CPP-1X (eflornithine) and sulindac, and it has a dual mechanism both inhibiting polyamine synthesis and increased polyamine export and catabolism. As the result of an existing North American license agreement, the FAP registration trial is fully funded and is scheduled to begin by year end. In addition, a phase 3 trial in colon cancer survivors is currently underway and is sponsored by the Southwest Oncology Group (SWOG). Additionally, clinical trials in neuroblastoma, gastric cancer, and early-onset type-1 diabetes are underway in collaboration with various nonprofit groups.
Under the terms of the Merger Agreement, in connection with the First Merger, each share of common stock of Panbela (“Panbela Common Stock”) issued and outstanding immediately prior to the First Effective Time automatically will be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of HoldCo (“HoldCo Common Stock”). Each share of HoldCo Common Stock held by Panbela issued and outstanding immediately prior to the First Effective Time automatically will be cancelled and cease to exist as of the First Effective Time, and each share of common stock of Merger Sub I, issued and outstanding as of immediately prior to the First Effective Time automatically will be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of the surviving entity. All outstanding equity-based awards, including options to purchase shares of Panbela common stock, and all outstanding warrants will be assumed by HoldCo and remain exercisable and eligible for continued vesting, as applicable, on their current terms.
At the effective time of the Second Merger (“Second Effective Time”), each share of preferred stock of CPP then issued and outstanding (“CPP Preferred Stock”) automatically will be converted into the right to receive (i) a number of shares of HoldCo Common Stock equal to the Exchange Ratio multiplied by the number of shares of common stock of CPP (“CPP Common Stock”) into which such share was convertible, plus (ii) a pro-rata share of the Preferred Preference Satisfaction and any Remaining Post-Closing Contingent Payments (each, as defined in the Merger Agreement). Additionally, each share of common stock of CPP then issued and outstanding (other than certain excluded shares, “CPP Common Stock”) automatically will be converted into the right to receive (i) a number of shares of HoldCo Common Stock equal to the Exchange Ratio, plus (ii) a pro-rata share of Remaining Post-Closing Contingent Payments. The Preferred Preference Satisfaction will represent the aggregate liquidation preference of the CPP Preferred Stock as of closing and will receive priority of payment in the event any Post-Closing Contingent Payments (as defined in the Merger Agreement) are due.
The Exchange Ratio will be based on a target proportion of HoldCo Common Stock to be held by legacy holders of CPP equity securities (determined on a fully diluted basis). The target proportion will result in holders of CPP securities beneficially owning approximately 41% of the number of shares of HoldCo Common Stock outstanding after the Second Merger, unless certain existing CPP indebtedness is fully satisfied sufficiently in advance of closing, in which case it will equal 45%. The number of shares of HoldCo Common Stock equal to the target proportion will then be divided by the number of shares of CPP Common Stock issued or issuable as of the Second Merger to produce the Exchange Ratio. The Parties have agreed to hold back 10% of the shares of HoldCo Common Stock otherwise issuable to legacy holders of CPP equity securities for a period of up to one year after closing to satisfy certain obligations, including indemnification, by CPP pursuant to the Merger Agreement.
The potential Post-Closing Contingent Payments are eligible to be paid in connection with the future satisfaction of three milestones after netting out applicable expenses and setoff amounts: (1) 50% of milestone payments and royalties received pursuant to the existing North American license agreement, up to a maximum payout of $25.0 million; (2) 50% of royalty payments received for U.S. sales of Flynpovi in excess of $400.0 million, up to a maximum payout of $15.0 million; and (3) either 35% of any cash amounts originating from the European Union and received pursuant to partnerships involving Flynpovi or 10% of any cash amounts received from efforts to self-market Flynpovi in the European Union; up to an aggregate maximum payout of $20.0 million.
The Merger Agreement further provides that options to purchase CPP Common Stock automatically will be assumed by HoldCo or terminated at closing, depending upon certain established criteria. Assumed options will be exercisable for shares of HoldCo Common Stock, in a manner designed to maintain the aggregate fair market value of the award. All other options to purchase CPP Common Stock will be terminated effective as of the Second Merger if not exercised in advance. All warrants to purchase CPP Common Stock will be similarly assumed by HoldCo and adjusted.
The obligations of each of Panbela and CPP to consummate the transactions contemplated by the Merger Agreement are subject to specified conditions including, among other matters: (i) the approval by Panbela stockholders of the issuance of shares in the Second Merger pursuant to the rules of The Nasdaq Stock Market LLC (“Nasdaq”) (ii) the shares of HoldCo Common Stock to be issued in connection with the First Merger and Second Merger being approved for listing by Nasdaq, subject to only notice of issuance; and (iii) conversion of a threshold principal amount of outstanding CPP promissory notes. Additionally, Panbela has agreed to take all necessary action to elect its directors to serve as directors of HoldCo and, effective as of the Second Merger, elect each of Daniel J. Donovan, a current director of CPP, and Jeffrey E. Jacob, the chief executive officer and a current director of CPP, to serve as directors of HoldCo, subject to a maximum board size of seven after all of the transactions have been completed.
The Merger Agreement contains customary representations and warranties from Panbela and CPP. It also contains customary covenants, including providing (i) for each of the Parties to use reasonable best efforts to consummate the transactions contemplated in the Merger Agreement, and (ii) for Panbela and CPP to carry on their respective businesses in the ordinary course of business consistent with past practice during the period between the execution of the Merger Agreement and the closing. CPP has agreed not to solicit, initiate or propose the making, submission or announcement of, or knowingly encourage, facilitate or assist, any proposal or offer that constitutes, or would reasonably be expected to lead to, any Acquisition Proposal (as defined in the Merger Agreement).
The Merger Agreement contains termination rights for each of Panbela and CPP including, without limitation, in the event that (i) the transactions contemplated in the Merger Agreement are not consummated by June 30, 2022; (ii) any governmental entity issues a non-appealable final order permanently enjoining the transactions contemplated in the Merger Agreement; (iii) the Panbela stockholders do not approve the issuance of shares in the Second Merger; or (iii) the other Party breaches its representations, warranties or covenants under the Merger Agreement, subject to customary opportunities to cure such breach, if curable. CPP will be obligated to pay to Panbela a termination fee of $500,000 if the Merger Agreement is terminated under certain circumstances.
The foregoing description of the Merger Agreement does not purport to be complete and is subject to, and qualified by, the full text of the Merger Agreement, a copy of which is attached hereto as Exhibit 2.1 and is incorporated herein by reference.
The Merger Agreement contains representations, warranties, covenants and other terms, provisions and conditions that the Parties made to each other as of specific dates. The assertions embodied therein were made solely for purposes of the Merger Agreement and may be subject to important qualifications and limitations agreed to by the Parties in connection with negotiating their respective terms. Moreover, they may be subject to a contractual standard of materiality that may be different from what may be viewed as material to stockholders or may have been used for the purpose of allocating risk between the Parties rather than establishing matters as facts. For the foregoing reasons, no person should rely on such representations, warranties, covenants or other terms, provisions or conditions as statements of factual information at the time they were made or otherwise. Unless required by applicable law, Panbela undertakes no obligation to update such information.