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):
June 26, 2017
BIOSTAGE, INC.
(Exact name of registrant as specified in
its charter)
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Delaware
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001-35853
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45-5210462
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(State or other jurisdiction
of incorporation)
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(Commission File Number)
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(IRS Employer Identification No.)
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84 October Hill Road, Suite 11, Holliston, MA
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01746
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(Address of principal executive offices)
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(Zip Code)
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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:
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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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
x
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.
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Item
1.01.
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Entry
Into a Material Definitive Agreement.
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On June 26, 2017, Biostage, Inc. (the “Company”)
entered into a binding Memorandum of Understanding (the “MOU”) with First Pecos, LLC (“Pecos”), pursuant
to which the Company will issue to Pecos in a private placement (the “Private Placement”) 9,700,000 shares of its common
stock at a purchase price of $0.315 per share or, to the extent Pecos, following the transaction, would own more than 19.9% of
the Company’s common stock, shares of a new class of preferred stock of the Company (the “Preferred Stock”) with
a per-share purchase price of $1,000.
Additionally, Pecos will receive warrants
(the “Warrants”) to purchase 9,700,000 shares of the Company’s common stock (or, to the extent Pecos would more
than 19.9% of the Company’s common stock, shares of Preferred Stock). The Warrants will have an exercise price of $0.315
per share and will not be exercisable until six months after the closing of the Private Placement.
The Preferred Stock will bear a
cumulative annual dividend of 15%, compounding annually, and will be senior to all of the Company’s other common stock,
but will generally not have any voting rights. The Preferred Stock will include an ownership limitation that will limit Pecos
and its affiliates to owning no more than 19.9% of the Company’s common stock. Following approval by the
Company’s stockholders, the Preferred Stock will automatically convert into shares of the Company’s common stock.
The Company agreed to include a proposal for such stockholder approval in the definitive proxy statement for its 2018 annual
meeting of stockholders and, if not approved at such meeting, will seek approval from its stockholders every six months
thereafter.
In connection with the Private Placement,
Pecos agreed to serve as a backstopping party with respect to two pro rata rights offerings with aggregate gross proceeds of up
to $14.0 million that the Company may elect to conduct within 24 months following the closing of the Private Placement. Additionally,
the Company has agreed to grant board representation and nomination rights to Pecos that will be proportional to the percentage
of the Company’s common stock owned by Pecos and its affiliates.
The Private Placement is conditioned on
satisfaction of customary closing conditions and on the Company terminating its Shareholder Rights Plan, and must be consummated
on or prior to August 15, 2017. The definitive agreements relating to the Private Placement will include customary representations,
warranties and covenants. The Company agreed to file a resale registration statement promptly after the closing of the Private
Placement to register the resale of the shares of common stock issued in the Private Placement.
The MOU is intended to be binding
upon both the Company and Pecos. In the event that the Company fails to perform any of its obligations under the MOU or
otherwise breaches the MOU, subject to certain exceptions, Pecos may terminate the MOU, and the Company must pay a
termination fee of $500,000.
The MOU is filed as Exhibit 10.1 to this
Current Report on Form 8-K. The foregoing summary of the MOU is subject to, and qualified in its entirety by, the text of the MOU,
which is incorporated herein by reference.
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Item
3.02.
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Unregistered
Sale of Equity Securities.
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The information contained above in Item
1.01 related to the shares of common stock, the shares of Preferred Stock and the Warrants is hereby incorporated by reference
into this Item 3.02. The shares of common stock, the Warrants (including shares of common stock issuable upon exercise of the Warrants)
and the shares of Preferred Stock (including shares of common stock issuable upon conversion of the Preferred Stock) will be sold
and issued without registration under the Securities Act of 1933 (the “Securities Act”) in reliance on the exemptions
provided by Section 4(a)(2) of the Securities Act as transactions not involving a public offering and Rule 506 promulgated
under the Securities Act as sales to accredited investors, and in reliance on similar exemptions under applicable state laws.
On June 27, 2017, the Company issued a
press release announcing its entry into the MOU with Pecos. The full text of the press release is attached hereto as Exhibit 99.1
to this Current Report on Form 8-K.
The information in this Item 8.01 of this
Current Report on Form 8-K, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for purposes of Section
18 of the United States Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities
of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except
as shall be expressly set forth by specific reference in such a filing.
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Item
9.01.
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Financial
Statements and Exhibits.
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Exhibit
Number
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Title
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10.1
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Memorandum of Understanding by and between Biostage, Inc. and First Pecos, LLC, dated June 26, 2017.
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99.1
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Press Release issued by Biostage, Inc. on June 27, 2017.
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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.
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BIOSTAGE, INC.
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(Registrant)
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June 27, 2017
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/s/ Thomas McNaughton
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(Date)
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Thomas McNaughton
Chief Financial Officer
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INDEX TO EXHIBITS
Exhibit
Number
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Title
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10.1
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Memorandum of Understanding by and between Biostage, Inc. and First Pecos, LLC, dated June 26, 2017.
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99.1
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Press Release issued by Biostage, Inc. on June 27, 2017.
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Exhibit 10.1
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding (“MOU”) is entered
into effective as of June 26, 2017 (the “Effective Date”) between Biostage, Inc., a Delaware corporation (the “Company”),
and First Pecos, LLC, a Texas limited liability company (“Investor”). The Company and Investor are at times individually
referred to herein as a “Party” and, collectively, as the “Parties.”
In consideration of the mutual covenants and agreements contained
herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree
to the terms and provisions of this MOU.
1.
Investor agrees to purchase, and the Company agrees to sell to Investor, 9,700,000 shares of the Company’s common
stock at a price per share of $0.315 or, to the extent limited by NASDAQ Rule 5635, shares of the Company’s preferred stock
(the “Preferred Stock”) at $1,000.00 per share. For example, if Investor is limited by Rule 5635 or any other regulation
to purchasing no more than 8,000,000 shares of the Company’s common stock at the price of $0.315, the Investor shall purchase
and the Company shall sell to Investor, 8,000,000 shares of common stock and 535.5 shares of Preferred Stock (that when properly
converted into common stock would result in the issuance of 1,700,000 shares of common stock). The Preferred Stock shall be convertible
into common stock at a conversion rate equivalent to $0.315 per share of common stock and bear a cumulative annual dividend at
the rate of 15% compounding annually, and shall not have any voting rights (provided the terms of the Preferred Stock may not be
amended without the consent of the holders of Preferred Stock), but shall otherwise be senior to all of the Company’s other
capital stock. The Preferred Stock shall be subject to a limitation on conversion to the extent required by NASDAQ Rule 5635 but
shall have a mandatory conversion upon shareholder approval in compliance with Rule 5635. As additional consideration for the purchase
by Investor of common stock (and Preferred Stock as applicable) the Company agrees to issue to the Investor warrants (the “Warrants”)
with a five year term to purchase 9,700,000 shares of the Company’s common stock (or to the extent limited by Rule 5635,
shares of Preferred Stock) at an exercise price of $0.315 per share, which such Warrants shall not be exercisable for six months
following the Closing (as defined below). To ensure compliance with NASDAQ Rule 5635, the Warrants shall have ownership caps that
restrict the exercise thereof until shareholder approval of the removal of such limitations in compliance with Rule 5635. The Warrants
shall also have provisions regarding participation in rights offerings similar to the warrants previously issued by the Company
or such other means that is the economic equivalent (provided that in no circumstance shall the number of shares underlying the
Warrants, or the exercise price thereof, change). The closing of the sale and issuance of common stock, Preferred Stock and Warrants
as noted above (the “Closing”) shall occur on or before August 15, 2017, unless otherwise agreed by the Parties.
2.
Investor agrees to serve as a backstopping party to, and shall purchase in such capacity up to the maximum amount offered
in, no more than two pro rata rights offerings conducted by the Company within twenty-four (24) months following the Closing Date
up to an aggregate maximum amount for all such rights offerings (including shares issued to non-backstopping parties) of $14.0 million
to provide for the funding of the Company’s 2017 and 2018 cash requirements as enumerated in the 2017 and 2018 Budgets (as
defined below) on terms acceptable to Investor. The Company is not obligated to conduct either or both of such rights offerings,
and any decision to conduct the same shall be in the sole and unfettered discretion of the Company.
3.
The Company agrees to appoint persons nominated by the Investor (collectively, the “Board Designees”) to its
Board of Directors and agrees to cause to be created vacancies for such purpose so that the number of Board Designees sitting on
the Board of Directors as a percentage of all members of the Board of Directors following such appointment shall be proportional
to the total aggregate percentage of the Company’s outstanding common stock owned by the Investor and its affiliates, with
the number of Board Designees rounded up or down to the nearest whole number. At each meeting of stockholders of the Company at
which directors are nominated and elected, the Company agrees to nominate for election at any such meeting, the respective Board
Designees that Investor is entitled to designate and to take all necessary action to support the election of each such Board Designee
and to oppose any challenges to any such Board Designee.
4.
The Company agrees to include a proposal in its definitive proxy statement for its 2018 annual meeting of stockholders to
approve the conversion of Preferred Stock and the issuance of common stock upon exercise of the Warrants in accordance with Rule
5635 and all other rules or regulations and agrees to use its best efforts to cause such proposal to be approved. If such proposal
is not approved, the Company agrees to seek such approval from its stockholders every six months thereafter.
5.
The obligations of Investor under this MOU are subject to the satisfaction of the following conditions (which may only be
waived specifically by Investor in writing): (i) the Company shall prepare and provide to Investor budgets reasonably acceptable
to Investor for years 2017 and 2018 (the “Budgets”); (ii) the Company shall have terminated its shareholder rights
plan; (iii) the Company shall provide to Investor all its contracts or agreements which provide for payments of $10,000 or
$1,000 or more per month or are otherwise material to the Company; (iv) Saverio La Francesca and James McGorry shall waive
any contractual rights they have to any compensation that is payable as a result of a change of control; (v) the Company’s
officers and directors shall have agreed to vote in favor of the election of the Board Designees and the proposals set forth in
paragraph 4 above; (vi) the Company’s common stock shall not have been delisted from NASDAQ prior to the Closing; and
(vii) a material adverse event shall not have occurred prior to the Closing. The obligations of the Company under this MOU
are subject to the Investor making customary representations and warranties, including without limitation, those required to ensure
compliance with private placement regulations as well as that the Investor has sufficient capital to fund the initial private placement
as well as the full backstop of the rights offerings, if conducted by the Company.
6.
The definitive documentation will include covenants which provide that, (a) without the written consent of the Investor,
the Company agrees: (i) not to make any material expenditure which is not in the Budgets or make expenditures for items in
amounts which are materially in excess of the amounts set forth in the Budgets (materiality being defined as 0.005% of such amount)
or (ii) terminate any key employee, except if termination is for cause as determined by the Board of Directors. To the extent
permissible under applicable securities laws and regulations (including any applicable share limitations), the Company agrees to
file a resale registration statement promptly following the Closing for the common stock purchased in accordance with this MOU
and issuable upon exercise of the Warrants or conversion of the Preferred Stock and use its best efforts to maintain the effectiveness
of such registration statement and to use its best efforts to maintain its NASDAQ listing.
It is agreed that this MOU sets forth binding obligations of
the Parties. The Parties agree to enter into more extensive documents consistent with the terms hereof and containing customary
terms and provisions for similar transactions. However, the Parties acknowledge and agree that this MOU sets forth the fundamental
terms of their agreement and the failure to enter into more extensive documents shall not affect the binding nature of the terms,
provisions and obligations set forth in this binding MOU and the Parties agree to consummate the transactions contemplated herein
and perform their obligations in accordance with the terms hereof whether or not the Parties execute more extensive documents.
In the event the Company fails to perform any of its obligations under this MOU or otherwise breaches this MOU, Investor may terminate
this MOU by providing written notice to the Company and upon such termination the Company agrees to immediately pay the Investor
a termination fee of $500,000 . Failure of the Company to maintain its NASDAQ listing, or failure of the Company and Investor to
agree to any change in structure required in connection with NASDAQ approval thereof, shall not in any manner be deemed a breach
of this Agreement by either party and in any such instance, either party may terminate this MOU on or before August 15, 2017 (and
no termination fee shall be due hereunder) provided that such date shall be extended if necessary to obtain any NASDAQ approval.
The Parties acknowledge and agree that this MOU is binding on
the signatories hereto and constitutes the entire agreement and understanding of the signatories with respect to the subject matter
hereof and is not intended to confer on any other person any rights or remedies. Investor’s obligations hereunder may be
performed by its affiliates and designees if approved by the Company in its reasonable discretion. All questions concerning the
construction, validity, enforcement and interpretation of this MOU shall be governed by and construed and enforced in accordance
with the internal laws of the State of Texas, without regarding to the principles of conflicts of law thereof. Each Party agrees
that all legal proceedings concerning the interpretation and enforcement of this MOU shall be commenced exclusively in the state
and federal courts sitting in the City of Houston. The Company agrees to reimburse or otherwise pay the reasonable legal, accounting
and other expenses that the Investor actually incurs in connection with this MOU and the transactions contemplated hereunder, subject
to a cap of $50,000, whether or not the Closing occurs. The reimbursement of such expenses shall not be required in the event the
Company pays the Investor the termination fee.
IN WITNESS WHEREOF, the Parties have caused
this MOU to be executed by their respective officers thereunto duly authorized as of the date first above indicated.
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FIRST PECOS, LLC.
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BIOSTAGE, INC.
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By:
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/s/ Leon Greenblatt
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By:
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/s/ James McGorry
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Name: Leon Greenblatt
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Name: James McGorry
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Title: Manager
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Title: Chief Executive Officer
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Exhibit 99.1
Biostage Announces Agreement to Conduct
$3.1 Million Private Placement at Market
– Strategic investor provides opportunity
through future rights offering for additional gross proceeds up to $14 million –
–
Total proceeds will enable the
Company to advance first-in-human clinical study for Cellspan
™
Esophageal Implants program –
– Agreement lays foundation for
funding through the end of 2018 –
Holliston, MA,
June 27, 2017 –
Biostage, Inc. (Nasdaq: BSTG), ("Biostage" or the "Company"), a biotechnology company developing bioengineered
organ implants to treat cancers and other life-threatening conditions of the esophagus, bronchus and trachea, announced today the
entry into a binding Memorandum of Understanding (the “MOU”) with First Pecos, LLC (“Pecos”) for the private
placement of 9,700,000 shares of the Company’s common stock at a purchase price of $0.315 per share, being the closing price
of the Company’s common stock on the trading day prior to the execution of the MOU, and warrants to purchase 9,700,000 shares
of the Company’s common stock, for gross proceeds of approximately $3.1 million. The Warrants will have an exercise price
of $0.315 per share. In addition, under the terms of the MOU, Pecos has agreed to act as a backstopping party with respect to two
pro rata rights offerings that the Company may elect to conduct within two years following the closing of the private placement,
for gross proceeds of up to $14.0 million.
Jim McGorry, CEO of Biostage stated, “We
are delighted with the opportunity to extend Biostage’s horizon with a key investment from a long-term strategic investor.
This funding is instrumental as it gives the Company a clear bridge to clinical data. This agreement also helps us remove a financial
overhang and provides an opportunity for our shareholders to participate in future offerings while minimizing dilution. This path
forward will give the company a feasible financing plan into late 2018.”
Saverio La Francesca, M.D., Biostage’s
President and Chief Medical Officer, commented, “First Pecos has been a Biostage investor for the past three years. Through
many interactions over the course of this period, I have been impressed by their interest in and understanding of our technology,
and importantly, their belief in the potential Biostage has to provide an important solution to the unserved patient population
we are aiming to address. Their long-term commitment to Biostage, by helping us advance our technology to the clinic, is clearly
demonstrated by this MOU.”
The proceeds of the private placement will
be used toward the advancement of the Company’s development programs, including the Cellspan
™
Esophageal
Implant, as well as the filing of the Company’s Investigational New Drug (“IND”) application with the U.S. Food
and Drug Administration (“FDA”) and the Company’s pivot to a clinical-stage company with the commencement of
its first-in-human clinical trials in the fourth quarter of 2017.
To the extent the transaction would result
in Pecos and its affiliates owning more than 19.9% of the Company’s common stock at the time of closing, they will instead
receive shares of a new class of convertible preferred stock, which will automatically convert into shares of common stock upon
approval of the Company’s stockholders. Such approval will be sought at the Company’s next annual meeting of stockholders.
Until conversion, the convertible preferred stock will have a cumulative annual dividend of 15%. Similarly, to the extent exercise
of the warrants would result in Pecos and its affiliates owning more than 19.9% of the Company’s common stock at the time
of exercise, the warrants will instead be exercisable into shares of the new class of preferred stock.
Biostage has agreed to grant board representation
and nomination rights to Pecos, which will be proportional (rounded up or down to the nearest whole number) to the percentage of
the Company’s common stock owned by Pecos and its affiliates.
The private placement is conditioned on
satisfaction of customary closing conditions and on the Company terminating its Shareholder Rights Plan, and must be consummated
on or prior to August 15, 2017. The definitive agreements relating to the private placement will include customary representations,
warranties and covenants. The Company agreed to file a resale registration statement promptly after the closing of the private
placement to register the resale of the shares of common stock issuable in the private placement.
This press release shall not constitute
an offer to sell or the solicitation of an offer to buy, nor may there be any sale of these securities in any state or jurisdiction
in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of
any such state or jurisdiction.
About Cellspan
™
Esophageal
Implants
Cellspan Esophaeal Implants utilize the
Company's proprietary Cellframe technology and may offer improved outcomes for patients by potentially simplifying surgical techniques
to reduce post-operative complications and improve quality of life, by prompting regeneration of the patient's own esophagus. Cellspan
implants are intended to offer numerous advantages over standard surgical resection including: eliminating the use of the stomach
or intestine to create a mock esophagus, reduced complications and improved post-surgical morbidity.
About Biostage
Biostage is a biotechnology company developing
bioengineered organ implants based on the Company's new Cellframe
™
technology which combines a proprietary biocompatible
scaffold with a patient's own stem cells to create Cellspan organ implants. Cellspan implants are being developed to treat life-threatening
conditions of the esophagus, bronchus or trachea with the hope of dramatically improving the treatment paradigm for patients. Based
on its preclinical data, Biostage has selected life-threatening conditions of the esophagus as the initial clinical application
of its technology.
Cellspan implants are currently being advanced
and tested in collaborative preclinical studies. Preclinical, large-animal safety studies, conducted in compliance with the FDA
Good Laboratory Practice ("GLP") regulations, for the Company's Cellspan Esophageal Implant product candidate are ongoing,
in support of Biostage's goal of filing an Investigational New Drug application ("IND") with the U.S. FDA in the third
quarter of 2017. Upon IND approval, the Company plans to initiate its first-in-human clinical trials for its esophageal implant
product candidate by the end of 2017.
For more information, please visit www.biostage.com
and connect with the Company on Twitter and LinkedIn.
Forward-Looking
Statements:
Some of the statements in this press release
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 in this press release include, but are not limited to, statements relating
to the private placement, any rights offerings, development expectations and regulatory approval of any of our products, including
those utilizing our Cellframe technology, by the U.S. Food and Drug Administration, the European Medicines Agency or otherwise,
which closings, offerings, expectations or approvals may not be achieved or obtained on a timely basis or at all; or success with
respect to any collaborations, clinical trials and other development and commercialization efforts of our products, including those
utilizing our Cellframe technology, which such success may not be achieved or obtained on a timely basis or at all. These statements
involve risks and uncertainties that may cause results to differ materially from the statements set forth in this press release,
including, among other things, our ability to obtain and maintain regulatory approval for our products and our ability to complete
the private placement on a timely basis or at all; plus other factors described under the heading "Item 1A. Risk Factors"
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 or described in our other public filings. Our results
may also be affected by factors of which we are not currently aware. The forward-looking statements in this press release speak
only as of the date of this press release. Biostage 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.
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Investor Relations Contacts:
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Tom McNaughton
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Jenene Thomas
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Chief Financial Officer
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Jenene Thomas Communications LLC
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774-233-7321
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(908) 938-1475
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tmcnaughton@biostage.com
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jtc@jenenethomascommunications.com
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Media Contacts:
David Schull or Maggie Beller
Russo Partners LLC
212-845-4271 or 646-942-5631
Email: Maggie.beller@russopartnersllc.com