Item 1.01 Entry into a Material Definitive Agreement.
Overview of the Merger Agreement
On May 9, 2022, Cortexyme, Inc. ("Cortexyme", "Parent" or the "Company") entered
into an Agreement and Plan of Merger and Reorganization (the "Merger Agreement")
with Novosteo Inc., a Delaware corporation ("Novosteo"), Quince Merger Sub I,
Inc., a Delaware corporation and wholly owned subsidiary of Parent ("Merger Sub
I"), Quince Merger Sub II, LLC, a Delaware limited liability company and wholly
owned subsidiary of Parent ("Merger Sub II") and Fortis Advisors LLC, a Delaware
limited liability company, solely in its capacity as the representative of the
Participating Securityholders (as defined in the Merger Agreement). The Merger
Agreement provides that, upon the terms and subject to the conditions set forth
therein, Merger Sub I will merge with and into Novosteo (the "First Merger"),
with Novosteo as the surviving entity in the First Merger (the "First Step
Surviving Corporation"). Immediately following the First Merger, the First Step
Surviving Corporation will merge with and into Merger Sub II, with Merger Sub II
surviving the merger (the "Second Merger", and together with the First Merger,
the "Mergers"). The Merger Agreement also provides, among other things, that
upon consummation of the First Merger, Parent will appoint Dirk Thye, M.D., the
current Chief Executive Officer of Novosteo, as Chief Executive Officer of
Parent, Karen Smith, M.D., Ph.D., the current Chief Medical Officer of Novosteo,
as Chief Medical Officer of Parent and Brendan Hannah, the current Chief
Operating Officer of Novosteo, as Chief Business Officer of Parent. In addition,
Parent has agreed to expand Parent's Board of Directors (the "Board") to appoint
Dr. Thye and Philip Low, Ph.D., each a current director of Novosteo, as a
Class II and Class I director of the Board, respectively.
Prior to the closing of the Mergers, all shares of Novosteo preferred stock will
be converted into shares of Novosteo common stock. At the effective time of the
First Merger: (i) each outstanding share of Novosteo common stock (other than
certain specified shares, including shares held by any stockholder who has
properly exercised and perfected such holder's demand for appraisal rights under
Delaware law) will be converted into the right to receive a certain number of
shares of Parent common stock to be determined at the closing of the First
Merger (such ratio, the "Exchange Ratio"); and (ii) each outstanding Novosteo
stock option or unvested restricted stock award granted under Novosteo's equity
compensation plans will be converted into a corresponding award with respect to
Parent's common stock, with the number of shares underlying such award (and, in
the case of stock options, the applicable exercise price) adjusted based on the
Exchange Ratio. Each such converted equity award will continue to be subject to
substantially the same terms and conditions as applied to the corresponding
Novosteo equity award prior to the Mergers. In connection with the foregoing,
Parent will issue approximately 6 million shares (including shares subject to
the assumed equity awards); provided, that any Novosteo stockholder that is not
an "Accredited Investor" (as defined in the Merger Agreement) will receive cash
in lieu of shares of Parent common stock.
The Merger Agreement contains customary representations and warranties from both
Cortexyme and Novosteo with respect to each party and its businesses. The Merger
Agreement also contains customary covenants, including covenants by each of
Cotrexyme and Novosteo, subject to certain exceptions, during the interim period
between the execution of the Merger Agreement and the consummation of the First
Merger, to use commercially reasonable efforts to carry on its business in the
ordinary course, preserve substantially intact its current business
organizations and to preserve its material relationships with its employees,
suppliers, distributors, licensors, licensees, and others to whom it has
contractual obligations. In addition, under the Merger Agreement, each of
Cortexyme and Novosteo has agreed to use its respective reasonable best efforts
to cause the transactions contemplated by the Merger Agreement to be consummated
as promptly as reasonably practicable.
The closing of the transactions contemplated by the Merger Agreement is
anticipated to occur within 30 days of signing the Merger Agreement and is
subject to customary closing conditions, including, among other things, the
adoption of the Merger Agreement by the Novosteo stockholders, the accuracy of
the representations and warranties subject to certain materiality
qualifications, the material compliance by the parties with their respective
covenants and the absence of any law or order prohibiting the consummation of
the Mergers. The Merger Agreement also provides customary termination rights and
indemnification rights to each of the parties, including a termination right if
the First Merger is not consummated by June 8, 2022 subject to certain
limitations.
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Information about Novosteo
Novosteo is a privately held biotechnology company focused on discovering and
developing targeted therapeutics to treat rare skeletal diseases, bone cancer
and injury. Novosteo has a precise drug-targeting platform that allows it to
deliver systemically administered small molecules, peptides or large molecules
directly to the site of disease or injury, thereby potentially increasing the
therapeutic effect while minimizing off-target effects. Novosteo has not yet
generated revenues and Novosteo's lead candidate, NOV004, is expected to enter
Phase 1 clinical trials in 2023 with planned areas of investigation including
osteogenesis imperfecta, general fractures and spinal fusion.
. . .
Item 2.02 Results of Operations and Financial Condition.
On May 10, 2022, the Company announced that upon completion of the Mergers, it
expects that it will have capital resources of approximately $120 million in
cash, cash equivalents and investments, on a proforma basis, as of March 31,
2022. The cash, cash equivalents and investments presented as of March 31, 2022,
on a proforma basis are preliminary and unaudited and the Company's independent
registered public accounting firm has not audited, reviewed, compiled, or
performed any procedures with respect to such data.
The information in Item 2.02 of this Current Report on From 8-K shall not be
deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or otherwise subject to the
liabilities of that section, nor shall it be incorporated by reference in any
filing under the Securities Act of 1933, as amended (the "Securities Act"), or
the Exchange Act, except as shall be expressly set forth by specific reference
in any such filing, regardless of any general incorporation language in such
filing.
Item 3.02 Unregistered Sales of Equity Securities.
The disclosure set forth above in Item 1.01 of this Current Report on Form 8-K
is incorporated by reference herein. The shares of the Company's common stock
that may be issued to Novosteo pursuant to the Merger Agreement are exempt from
registration in reliance on exemption provided for under Section 4(a)(2) of the
Securities Act.
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Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Adoption of Inducement Plan.
On May 7, 2022, the independent members of the Board approved the Company's 2022
Inducement Plan (the "Plan") to reserve 4,000,000 shares of the Company's common
stock to be used exclusively for grants of awards to individuals that were not
previously employees or directors of the Company, as an inducement material to
the individual's entry into employment with the Company within the meaning of
Rule 5635(c)(4) of the Nasdaq Listing Rules. The Plan was approved by the Board
without stockholder approval pursuant to Rule 5635(c)(4) and the terms and
conditions of the Plan are substantially similar to the Company's
stockholder-approved 2019 Equity Incentive Plan.
Appointment of Principal Executive Officer and Appointment of Directors
On May 7, 2022, the Board approved, contingent and effective upon closing of the
First Merger, the appointment of Dirk Thye, M.D. as the Chief Executive Officer
of the Company and as principal executive officer and a Class II director of the
Company, to fill the vacant directorship, until his successor is elected and
qualified, or sooner in the event of his death, resignation or removal. Dr. Thye
joins the class of directors whose term expires at the Company's 2024 annual
stockholders' meeting.
Dr. Thye, age 53, served as the Chief Executive Officer of Novosteo from
September 2021 to May 2022. Previously, from January 2016 to July 2020, Dr. Thye
was the Executive Chairman of Geom Therapeutics, Inc., a biopharmaceutical
company, and from September 2016 to January 2018, the Chief Executive Officer of
Agenovir Corporation, a biopharmaceutical company. Dr. Thye holds a M.D. from
the University of California, Los Angeles and a B.A. in Molecular Biology from
the University of California, Berkeley.
In connection with his appointment as the Company's Chief Executive Officer, the
Company and Dr. Thye entered into an employment offer letter (the "Thye Offer
Letter"). Pursuant to the Thye Offer Letter, for his service as Chief Executive
Officer of the Company, Dr. Thye will receive an annual base salary of $550,000,
subject to increases in the discretion of the Board from time to time, and is
eligible to receive an annual discretionary performance bonus of up to 50% of
his then-current base salary, to be prorated as of his date of hire.
In connection with the Mergers and the commencement of his employment with the
Company, Dr. Thye will receive an option to purchase a number of shares of
common stock of the Company, such that when added to his then-existing equity
ownership of the Company as a result of the First Merger, he would own 5% of the
fully diluted capitalization of the Company immediately following the closing of
the Mergers (the "Option"). The Option will be granted pursuant to the Plan, at
an exercise price per share equal to the closing price of the Company's common
stock on the grant date. Twenty-five percent of the shares subject to the Option
will vest one year after the grant date and the remaining shares will vest in
equal monthly installments over the following 36 months, subject to Dr. Thye's
continuous service with the Company through each applicable vesting date. In
addition, the Thye Offer Letter provides that Dr. Thye's existing options to
purchase shares of common stock of Novosteo held as of immediately prior to the
closing of the Mergers, which are being assumed by the Company in connection
with the Mergers, will be amended to provide for vesting over four years in 48
equal monthly installments, retroactive to their original dates of grant and
subject to Dr. Thye's continuous service with the Company through each
applicable vesting date.
The Thye Offer Letter contemplates that at closing of the First Merger, the
Company and Dr. Thye will enter into an executive change in control and
severance agreement (the "Thye Severance Agreement"). The Thye Severance
Agreement provides for severance benefits upon a qualifying termination of
employment, including modified severance benefits on a qualifying termination of
employment in connection with a change in control.
If the Company terminates Dr. Thye's employment without "cause" or if he resigns
for "good reason" (as such terms are defined in the Thye Severance Agreement),
he is entitled to the following severance payments and benefits, subject to a
release of claims in favor of the Company: (1) 12 months of base salary
continuation payments, generally payable in accordance with the Company usual
payroll practices; (2) 100% of his target annual bonus for the year in which the
termination occurs, prorated for his period of service with the Company during
such year; (3) accelerated vesting of 50% of any outstanding time-vesting equity
awards; (4) accelerated vesting of outstanding performance-vesting equity
awards, with all applicable performance goals and other vesting criteria
generally being deemed achieved at 50% of target, and (5) a lump-sum payment
equal to the cost of 12 months of premiums for continued health benefits.
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In the event that Dr. Thye's employment is terminated by the Company without
cause or by Dr. Thye for good reason within three months prior and 18 months
after a "change in control" of the Company (as defined in the Thye Severance
Agreement), Dr. Thye would instead be entitled to the following severance
payments and benefits, subject to a release of claims in favor of the Company:
(1) a cash severance payment equal to 18 months of his then-current base salary;
(2) 150% of his target annual bonus for the year in which the termination
occurs, prorated for his period of service with the Company during such year;
(3) accelerated vesting of 100% of any outstanding time-vesting equity awards;
(4) accelerated vesting of outstanding performance-vesting equity awards, with
all applicable performance goals and other vesting criteria generally being
deemed achieved at 100% of target as of the later of his termination or such
change in control; and (5) a lump-sum payment equal to the cost of 18 months of
premiums for continued health benefits.
The foregoing descriptions of the Thye Offer Letter and the Thye Severance
Agreement do not purport to be complete and are qualified in their entirety by
reference to the complete text of such agreements, copies of which will be filed
as exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2022.
In connection with Dr. Thye's appointment as the Company's Chief Executive
Officer and contingent and effective upon closing of the First Merger,
Christopher Lowe, the Company's current interim Chief Executive Officer, Chief
Financial Officer and Chief Operating Officer will step down from his role as
the interim Chief Executive Officer and his role as a principal executive
officer. He will remain the Company's Chief Financial Officer and Chief
Operating Officer, and principal financial officer.
On May 7, 2022, the Board appointed Phil Low, Ph.D. to serve as a Class I
director of the Company, contingent and effective upon closing of the Mergers,
to fill the vacant directorship, until his successor is elected and qualified,
or sooner in the event of his death, resignation or removal. Dr. Low joins the
class of directors whose term expires at the Company's 2023 annual stockholders'
meeting.
Dr. Low is entitled to receive compensation in accordance with the Company's
Outside Director Compensation Policy as currently in effect (the "Policy"),
which is generally described under the heading "Non-Employee Director
Compensation Arrangements" in the Company's Proxy Statement on Schedule 14A
filed with the SEC on April 27, 2022.
In accordance with the Policy, Dr. Low is entitled to receive a $35,000 annual
retainer for service as a Board member.
Conditioned upon Dr. Low becoming a member of the Board and effective upon
closing of the First Merger, Dr. Low will be granted an initial equity award
with a stock option award under the Company's 2019 Equity Incentive Plan
covering 22,058 shares of the Company's common stock pursuant to the Policy,
delivered in the form of a nonstatutory stock option. The exercise price of the
options will equal the closing sales price of the Company's common stock on the
date of grant, and the options will vest in equal annual installments over the
three-year period following the date of grant, subject to the director's
continued service as a director through each such vesting date.
As an employee of the Company, Dr. Thye will not be eligible to receive
additional compensation for his service as a director under the Policy.
The Company will enter into its standard form of indemnification agreement with
each of Dr. Thye and Dr. Low. The indemnification agreement provides, among
other things, that the Company will indemnify each of Dr. Thye and Dr. Low for
certain expenses which he may be required to pay in connection with certain
claims to which he may be made a party by reason of his position as a director
or an officer of the Company, and otherwise to the fullest extent permitted by
law. The form of indemnification agreement was previously filed by the Company
as Exhibit 10.2 to its Registration Statement on Form S-1 (No. 333-230853), as
amended, as originally filed on April 12, 2019, and is incorporated herein by
reference.
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Except as disclosed in this current report on Form 8-K, there are no
arrangements or understandings between Dr. Thye or Dr. Low and any other person
pursuant to which Dr. Thye was selected as an officer or a director or Dr. Low
was selected as a director. There are no family relationships between Dr. Thye
or Dr. Low and any director, executive officer, or any person nominated or
chosen by the Company to become a director or executive officer. Dr. Thye or
Dr. Low is not a party to any current or proposed transaction with the Company
for which disclosure is required under Item 404(a) of Regulation S-K.
Forward-Looking Statements
Certain statements in this Current Report on Form 8-K contain "forward-looking
statements" that are subject to substantial risks and uncertainties.
Forward-looking statements contained herein may be identified by the use of
words such as "anticipate," "expect," "believe," "plan," "intend," "will,"
"may," "should," "estimate," "project," "outlook," "runway," "forecast,"
"potential" or other similar words. Examples of forward-looking statements
include, among others, statements relating to the ability of the parties to the
Merger Agreement to consummate the Mergers, satisfaction of closing conditions
precedent to the consummation of the Mergers, potential delays in consummating
. . .
Item 9.01 Financial Statements and Exhibits.
Exhibit
No. Description
2.1* Agreement and Plan of Merger and Reorganization, dated as of May 9,
2022, by and among Cortexyme, Inc., Novosteo Inc., Quince Merger Sub
I, Inc., Quince Merger Sub II, LLC and Fortis Advisors LLC.
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document)
* Certain exhibits and schedules have been omitted pursuant to Item 601(b)(2) of
Regulation S-K. The registrant agrees to furnish supplementally to the SEC a
copy of any omitted exhibits or schedules upon request.
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