UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 27, 2022
BIOSTAGE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-35853 | 45-5210462 |
|
(State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
| 84 October Hill Road, Suite 11, Holliston, MA | 01746 |
| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (774) 233-7300
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| N/A | N/A | N/A |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
| 1 |
| Item 1.01 | Entry Into a Material Definitive Agreement. |
The disclosure contained below in in Item 8.01 related to the Preferred Issuance Agreement, and the Exhibit 10.1 to this Current Report on Form 8-K, are hereby incorporated by reference into this Item 1.01.
| Item 8.01 | Other Events. |
As previously disclosed by Biostage, Inc. (the “Company”, “we,” “our,” and “us”) in its periodic filings with the Securities and Exchange Commission, on April 14, 2017, representatives for the estate of an individual plaintiff filed a wrongful death complaint with the Suffolk Superior Court, in the County of Suffolk, Massachusetts, against the Company and other defendants, including Harvard Bioscience, Inc. (or HBIO), the former parent of the Company that spun off the Company in 2013, as well as another third party. The complaint seeks payment for an unspecified amount of damages and alleges that the plaintiff sustained terminal injuries allegedly caused by products provided by certain of the named defendants and utilized in connection with surgeries performed by third parties in Europe in 2012 and 2013.
On April 27, 2022, the Company and HBIO executed a settlement with the plaintiffs (the “Settlement”), which resolves all claims relating to the litigation.
The Settlement will result in the dismissal with prejudice of the wrongful death claim, and neither the Company nor HBIO admit any fault or liability in connection with the claim. The Settlement also resolves any and all claims by and between the parties and the Company’s products liability insurance carriers, which will result in the dismissal with prejudice of all claims asserted by or against those carriers, the Company and HBIO.
In relation to the litigation, Settlement and related legal expenses, the Company estimates that it has or will incur approximately $6.0 million of costs, of which, approximately $5.7 million remain unpaid. The Company is required to either pay such costs directly or indemnify HBIO as to such amounts it incurs. Of such amounts, Company anticipates that HBIO will pay an aggregate amount of $4.0 million by the end of the second quarter of 2022. With respect to these indemnification obligations of the Company to HBIO pertaining to the costs described above, the Company and HBIO have entered into a Preferred Issuance Agreement dated as of April 27, 2022 (or the PIA). In connection with the PIA, the Company and HBIO have agreed that once HBIO has paid at least $4.0 million in such costs, to satisfy the Company’s indemnification obligations with respect thereto, in lieu of paying cash, the Company will issue senior convertible preferred stock to HBIO that will contain terms as described in the PIA, including the term sheet attached thereto. In addition, as described above, the Company will continue to pay, or otherwise indemnify HBIO as to its payment thereof, the remaining legal expenses incurred in connection with the litigation, Settlement and related matters. Assuming the issuance of such preferred stock, the Company currently estimates that the remaining aggregate amount of such costs it will be obligated to pay will be approximately $1.7 million.
The issuance of such preferred stock, and the terms thereof, are subject to the negotiation and execution of definitive documents relating thereto, but in accordance with the PIA, such preferred stock will automatically convert into shares of common stock of the Company upon the earlier to occur of the Company’s offering that includes common stock (whether private placement or public offering) that coincides with its uplisting onto NASDAQ, its public offering that includes common stock following the issuance of the preferred stock, or its initial private placement that includes common stock following the issuance of the preferred stock in the event the gross proceeds of such private placement are $4,000,000 or more. In addition, in accordance with the PIA, such preferred stock will also be subject to optional conversion by HBIO at any time and prior to any such automatic or optional conversion, will have dividends paid quarterly in additional shares of preferred stock at a rate of 8% per annum. The preferred stock will also have customary liquidation preferences, and certain limited consent and piggyback registration rights. The PIA, including the related term sheet, is filed as Exhibit 10.1 to this Current Report on Form 8-K. The foregoing summary of the terms of the PIA is subject to, and qualified in its entirety by, such document, which is incorporated into this Item 8.01 by reference.
2
Forward-Looking Statements
This Current Report on Form 8-k includes statements that are "forward-looking" and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These "forward-looking" statements include, but are not limited to, statements relating to the litigation matters described above and the impact of such matters, including on our financial condition and operations. These statements involve risks and uncertainties that may cause results to differ materially from the statements set forth in this Form 8-k, including, among other things, factors described under the heading "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 or described in the Company's other public filings. The forward-looking statements in this Form 8-k speak only as of the date of this Form 8-k. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to such statements to reflect any change in its expectations with regard thereto or any changes in the events, conditions or circumstances on which any such statement is based.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
|
Exhibit Number |
Title | |
| 10.1 | Preferred Issuance Agreement | |
| 104 | Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL) |
3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| BIOSTAGE, INC. | |||
| (Registrant) | |||
| April 28, 2022 | /s/ David Green | ||
| (Date) | David Green | ||
| Interim Chief Executive Officer |
4
EXHIBIT 10.1
PREFERRED ISSUANCE AGREEMENT
This PREFERRED ISSUANCE AGREEMENT (this “Agreement”) is entered into as of April 27, 2022, by and between Biostage, Inc. (f/k/a Harvard Apparatus Regenerative Technology, Inc.), a Delaware corporation (the “Company”), and Harvard Bioscience, Inc., a Delaware corporation (“HBIO”). The Company and HBIO may be collectively referred to herein as the “Parties” and each may be referred to individually as a “Party.”
A. Simultaneously with the execution and delivery of this Agreement, the Parties are entering into a Confidential Settlement, Release, and Indemnification Agreement (the “Settlement Agreement”) relating to the settlement of certain claims among the various parties thereto, as more particularly described in the Settlement Agreement (the “Settlement”).
B. Pursuant to the terms of the Separation and Distribution Agreement by and between the Parties dated as of October 31, 2013 (the “Separation Agreement”), the Company is required to indemnify HBIO for all costs, claims and losses relating to liabilities the Company assumed from HBIO, which includes without limitation the liabilities incurred by HBIO in connection with the legal proceedings described in the Settlement Agreement (the “Proceedings”).
C. In satisfaction of certain of the Company’s indemnification obligations in connection with the Proceedings as more particularly described below, the Parties have agreed that the Company will issue to HBIO shares of a new series of convertible preferred stock, par value $0.01 per share (the “Preferred Stock”) pursuant to the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual benefits to be derived from this Agreement and of the representations, warranties, conditions, agreements and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
1. Indemnification. For clarity, any payments HBIO makes pursuant to the terms of the Settlement Agreement and any payments by HBIO of any legal expenses arising out of, resulting from or in connection with the Proceedings or the Settlement are fully indemnifiable, and shall be indemnified, by the Company.
2. Issuance of Preferred Stock. No later than May 1, 2022, the Parties shall use reasonable best efforts to enter into definitive documentation concerning the issuance to HBIO of the Preferred Stock having the terms set forth on Exhibit A (the “Preferred Issuance”). Upon the Preferred Issuance, the Company’s indemnification obligations under the Separation Agreement with respect to the Proceedings and the Settlement shall be deemed satisfied solely to the extent of the aggregate dollar issue amount of the Preferred Issuance. For clarity, any legal expenses arising out of, resulting from or in connection with the Proceedings or the Settlement that are paid by HBIO, whether paid (x) before the Preferred Issuance and not satisfied by the Preferred Issuance or (y) after the Preferred Issuance, shall continue to be fully indemnifiable by the Company.
3. No Other Claims; Notification of Claims. The Company represents and warrants to HBIO that, to the best of its knowledge, other than the Proceedings, there are no pending or threatened claims, actions, disputes, lawsuits or other legal proceedings of any nature relating to the sale of the Company’s or HBIO’s products or otherwise related to the operation of the Company’s or HBIO’s business (“Claims”). In the event the Company becomes aware of any potential Claim, it shall promptly (and in all event no later than 2 business days) notify HBIO of such potential Claim and, promptly upon HBIO’s request, shall notify the Company’s past or present (as directed by HBIO) liability insurance carriers of such potential Claim in writing, provided that the Company shall first provide a draft of such written notice to HBIO and shall incorporate any comments HBIO reasonably provides to such written notice.
4. Miscellaneous. This Agreement may be amended, modified and supplemented only by the written agreement of the Parties hereto. This Agreement shall be governed and construed in accordance with the law of the State of Delaware without giving effect to the principles of conflicts of law thereof or of any other jurisdiction that would result in the application of the law of any other jurisdiction. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the undersigned has executed this Agreement or caused its duly authorized officer to execute this Agreement as of the date first written above.
| BIOSTAGE, INC. | ||
| By: | /s/ David Green | |
| Name: | David Green | |
| Title: | Interim CEO | |
| HARVARD BIOSCIENCE, INC. | ||
| By: | /s/ Michael A. Rossi | |
| Name: | Michael A. Rossi | |
| Title: | Chief Financial Officer | |
[Signature Page]
EXHIBIT A
CONVERTIBLE PREFERRED STOCK TERM SHEET
[See attached]
CONFIDENTIAL TERM SHEET
BIOSTAGE, INC.
CONVERTIBLE PREFERRED STOCK
April 27, 2022
The following summary of terms (“Term Sheet”) sets forth a non-binding summary of the proposed principal terms of a new class of convertible preferred stock (“Preferred Stock”) of Biostage, Inc. (the “Company”) and the proposed issuance thereof to Harvard Bioscience, Inc. (“HBIO”). This Term Sheet does not contain all matters upon which agreement must be reached in order for the parties to enter into or adopt binding definitive documents concerning the Preferred Stock. Except to the limited extent explicitly set forth in the provision below with the heading Binding Effect, this Term Sheet does not constitute a binding agreement.
This Term Sheet, its existence and its contents are intended for the exclusive use of the parties and, without the prior written consent of HBIO and the Company, shall not, except as required by law, be disclosed by either party hereto or any of its subsidiaries to any person other than such party’s legal and financial advisors for the purposes of evaluating the possible transaction.
| Issuer: |
Biostage, Inc. (OTC: BSTG)
|
| Issue Amount: | $4,000,000 |
| Issue Price: | $1,000 per share (the “Issue Price”) |
| Dividends: | Payable quarterly in additional shares of Preferred Stock at a rate of 8% per annum, accrued daily and compounded quarterly. |
| Liquidation Preference: | In the event of a liquidation, dissolution or winding up of the Company, the Preferred Stock will have a per share liquidation preference equal to the Issue Price plus all accrued and unpaid dividends. |
| Mandatory Conversion: |
At the initial closing of the earlier to occur of (such transaction, a “Qualified Offering”) (i) Company’s offering that includes common stock (whether private placement or public offering) that coincides with its uplisting onto NASDAQ, (ii) its initial public offering that includes common stock following the issuance of the Preferred Stock, or (iii) its initial private placement that includes common stock following the issuance of the Preferred Stock in the event the gross proceeds of such private placement are $4,000,000 or more, each share of Preferred Stock shall automatically convert, without the requirement of any further action, into that number of shares of the Company’s common stock (“Common Stock”) determined by dividing (i) the Issue Price plus all accrued and unpaid dividends by (ii) the Offering Conversion Price.
The “Offering Conversion Price” for each share of Preferred Stock will equal the price per share of the common stock issued in the applicable transaction; it being understood however that if there is more than one type of security issued in the transaction and either the price per share of common stock was not agreed upon in the transaction (such as if securities were sold as a unit) or the price per share of common stock was agreed upon but such price did not for conversion purposes reflect a reliable price for the purchase of common stock separately due to such common stock not being the primary security in the transaction, the price per share of the common stock issued in the applicable transaction shall be the implied price per share of the common stock which shall be reasonably calculated (including through backing out the value of the non-common securities, such as through Black Scholes valuation of the warrants for example) and subject to mutual agreement between the Company and the holder of Preferred Stock, such agreement not to be unreasonably withheld, delayed or conditioned. |
| Optional Conversion: |
Each share of Preferred Stock is also convertible at any time, at the holder’s option, into that number of shares of the Company’s common stock (“Common Stock”) determined by dividing (i) the Issue Price plus all accrued and unpaid dividends by (ii) the Conversion Price.
The “Conversion Price” for each share of Preferred Stock will equal the trailing 60-day volume-weighted average closing price per share of the Common Stock immediately prior to the conversion.
| |
| Consent Rights: |
Until converted, a holder of Preferred Stock will have a consent right over the following actions of the Company: (i) issuances of equity securities unless they rank junior to the Preferred Stock; (ii) entry into new material related party transactions (as determined in accordance with Item 404 of Regulation S-K) aside from capital raising transactions, appointment of directors in connection with stockholder nominations and exercise of rights to appoint directors held by existing stockholders of the Company in effect at the time of issuance of the preferred as described in the Company’s proxy statements; and (iii) in the event any New Indemnification Claim from HBIO that may arise following the issuance of the preferred is unsatisfied in whole or in part, the incurrence of any indebtedness for borrowed money or any guaranty therefor in excess of $500,000 individually or in the aggregate. “New Indemnification Claim” refers to any claim for indemnification properly made in accordance with the Separation and Distribution Agreement.
| |
| (i) | issuances of equity securities unless they rank junior to the Preferred Stock; | |
| (ii) | entry into new material related party transactions (as determined in accordance with Item 404 of Regulation S-K) aside from capital raising transactions, appointment of directors in connection with stockholder nominations and exercise of rights to appoint directors held by existing stockholders of the Company in effect at the time of issuance of the preferred as described in the Company’s proxy statements; and | |
| (iii) | in the event any New Indemnification Claim from HBIO that may arise following the issuance of the preferred is unsatisfied in whole or in part, the incurrence of any indebtedness for borrowed money or any guaranty therefor in excess of $500,000 individually or in the aggregate. “New Indemnification Claim” refers to any claim for indemnification properly made in accordance with the Separation and Distribution Agreement. | |
| Rule 144: | Following conversion of the Preferred Stock, the Company shall provide customary support as to sales of the common stock so received pursuant to Rule 144. In addition, following the transaction that results in the mandatory conversion, or the optional conversion, of the Preferred Stock, to the extent that HBIO is an Affiliate of the Company, if Rule 144 is not available to allow transferability of such common stock without volume limitations, then subject to the approval of any applicable investment bank or underwriter engaged by the Company pertaining to the underlying offering transaction, if any, the holder shall have piggyback registration rights with respect to any registration statement filed by the Company during such time period of 144 limitation (excluding for the avoidance of any doubt any Registration Statements on Form S-8 or S-4). In the event that the applicable registration rules limit the number of shares that can be included in the applicable registration statement, the Company shall include in such registration statement, first the shares the Company intends to sell, second the shares of other investors the Company is required or has agreed to include therein, and third, the portion of the common stock issued upon conversion of the Preferred Stock that when added to such initial shares does not exceed such applicable registration limitation. | |
| Lock-Up: | In connection with any Qualified Offering, HBIO will execute any customary lock-agreement that the investment banker, underwriter or prospective investors require other key shareholders of the Company to execute; it being understood that such lock-agreement shall be no more restrictive upon HBIO than upon any other shareholder and shall in no event exceed a period of 180 days. | |
| Assignments: |
The Preferred Stock shall not be held by more than one holder without the written consent of the Company.
| |
| Confidentiality: |
This Term Sheet is delivered with the understanding and on the condition that neither it nor its substance nor the fact that discussions are or have been taking place will be disclosed publicly or privately, except with the written consent of HBIO and the Company.
| |
| Binding Effect: |
This Term Sheet is not binding except as to this provision and the provisions concerning “Confidentiality” and “Governing Law”.
| |
| Governing Law: | New York. | |
| Harvard Bioscience, Inc. | ||
| By: | /s/ Michael A. Rossi | |
| Name: Michael A. Rossi | ||
| Title: CFO | ||
| Biostage, Inc. | ||
| By: | /s/ David Green | |
| Name: David Green | ||
| Title: Interim CEO | ||