Item 1.01 – Entry into a Material Definitive Agreement.
Merger Agreement
On September 20, 2022, Sesen Bio, Inc., a Delaware corporation (“Sesen Bio”), Seahawk Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Sesen Bio (“Merger Sub”), and CARISMA Therapeutics Inc., a Delaware corporation (“Carisma”), entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), pursuant to which, among other things, and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, Merger Sub will merge with and into Carisma, with Carisma continuing as a wholly-owned subsidiary of Sesen Bio 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.
Subject to the terms and conditions of the Merger Agreement, at the closing of the Merger, (a) each then outstanding share of Carisma common stock and Carisma preferred stock (collectively, “Carisma capital stock”) (including shares of Carisma common stock issued in connection with the pre-closing financing transaction described below) will be converted into the right to receive a number of shares of Sesen Bio common stock calculated in accordance with the Merger Agreement (the “Exchange Ratio”), and (b) each then outstanding Carisma stock option to purchase Carisma common stock will be assumed by Sesen Bio, subject to adjustment as set forth in the Merger Agreement.
Under the Exchange Ratio formula in the Merger Agreement, upon the closing of the Merger, on a pro forma basis and based upon the number of shares of Sesen Bio common stock expected to be issued in connection with the Merger, pre-Merger Sesen Bio stockholders are expected to own approximately 41.7% of the combined company and pre-Merger Carisma stockholders are expected to own approximately 58.3% of the combined company, in each case before giving effect to the pre-closing financing transaction and the conversion of Carisma’s $35.0 million outstanding convertible note. For purposes of calculating the Exchange Ratio, all shares of Sesen Bio common stock underlying outstanding Sesen Bio stock options, restricted stock units and warrants outstanding as of immediately prior to the closing of the Merger will be deemed to be outstanding and all shares of Carisma common stock (a) underlying outstanding Carisma stock options, and (b) to be issued in connection with the pre-closing financing transaction will be deemed to be outstanding. The Exchange Ratio will be adjusted to the extent that Sesen Bio’s net cash at closing is less than or greater than $125.0 million and based on the amount of the pre-closing financing transaction, as further described in the Merger Agreement. Under the terms of the Merger Agreement, the Sesen Bio board of directors may take action to accelerate the vesting of Sesen Bio stock options or restricted stock units that are outstanding as of immediately prior to the closing of the Merger, in accordance with the terms of the Merger Agreement.
In connection with the Merger, Sesen Bio will seek the approval of its stockholders to, among other things, (a) issue the shares of Sesen Bio common stock issuable in connection with the Merger under the rules of The Nasdaq Stock Market LLC (“Nasdaq”), and (b) amend its certificate of incorporation to effect a reverse stock split of the outstanding shares of Sesen Bio common stock at a ratio as mutually agreed to by Sesen Bio and Carisma and approved by the Sesen Bio board of directors prior to the closing of the Merger (clauses (a) and (b), collectively, the “Sesen Bio Voting Proposals”).
Each of Sesen Bio and Carisma has agreed to customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants relating to (a) using reasonable best efforts to obtain the requisite approval of its stockholders, (b) non-solicitation of alternative acquisition proposals, (c) the conduct of their respective businesses during the period between the date of signing the Merger Agreement and the closing of the Merger, (d) Sesen Bio using commercially reasonable efforts to maintain the existing listing of Sesen Bio common stock on Nasdaq and to obtain approval of the listing of the combined company’s common stock on Nasdaq, and (e) Sesen Bio filing with the U.S. Securities and Exchange Commission (the “SEC”) and causing to become effective a registration statement on Form S-4 to register the shares of Sesen Bio common stock to be issued in connection with the Merger (the “Registration Statement”).
Consummation of the Merger is subject to certain closing conditions, including, among other things, (a) approval by Sesen Bio stockholders of the Sesen Bio Voting Proposals, (b) approval by Carisma stockholders of, among other things, the adoption of the Merger Agreement, (c) Nasdaq’s approval of the listing of the shares of Sesen Bio common stock to be issued in connection with the Merger, (d) the effectiveness of the Registration Statement, and
(e) Sesen Bio having net cash as of closing of the Merger greater than or equal to $100.0 million. Each party’s obligation to consummate the Merger is also subject to other specified customary conditions, including regarding the accuracy of the representations and warranties of the other party and the performance in all material respects by the other party of its obligations under the Merger Agreement required to be performed on or prior to the date of the closing of the Merger.
The Merger Agreement contains certain termination rights of each of Sesen Bio and Carisma. Upon termination of the Merger Agreement under specified circumstances, Sesen Bio may be required to pay Carisma a termination fee of $7.6 million and/or reimburse Carisma’s expenses up to a maximum of $1.75 million, and Carisma may be required to pay Sesen Bio a termination fee of $5.49 million and/or reimburse Sesen Bio’s expenses up to a maximum of $1.75 million.
At the effective time of the Merger (the “Effective Time”), the board of directors of Sesen Bio is expected to consist of seven members, six of whom will be designated by Carisma and one of whom will be designated by Sesen Bio.
Pre-Closing Financing Transaction
Concurrently with the execution and delivery of the Merger Agreement, certain parties entered into agreements with Carisma pursuant to which they have agreed, subject to the terms and conditions of such agreements, to purchase prior to the consummation of the Merger shares of Carisma common stock for an aggregate purchase price of approximately $30.0 million. The consummation of the transactions contemplated by such agreements is conditioned on the satisfaction or waiver of the conditions set forth in the Merger Agreement. Shares of Carisma common stock issued pursuant to this pre-closing financing transaction will be converted into shares of Sesen Bio common stock in the Merger in accordance with the Exchange Ratio.
Contingent Value Rights Agreement
At or prior to the Effective Time, Sesen Bio will enter into a Contingent Value Rights Agreement (the “CVR Agreement”) with a rights agent (“Rights Agent”) pursuant to which Sesen Bio stockholders of record immediately prior to the Effective Time will receive one contingent value right in the form of a dividend (each, a “CVR”) for each outstanding share of Sesen Bio common stock held by such stockholders on such date. Each CVR will represent the contractual right to receive contingent cash payments upon the receipt by Sesen Bio of certain proceeds payable by Roche (as defined herein), if any, pursuant to the Asset Purchase Agreement by and among Sesen Bio and F. Hoffmann-La Roche Ltd and Hoffman-La Roche Inc. (collectively “Roche”), dated July 15, 2022 (the “Asset Purchase Agreement”), upon the achievement by Roche of a specified milestone set forth in the Asset Purchase Agreement, subject to certain customary deductions, including for expenses and taxes.
The contingent payments under the CVR Agreement, if they become due, will be payable to the Rights Agent for subsequent distribution to the holders of the CVRs. In the event that no such proceeds are received, holders of the CVRs will not receive any payment pursuant to the CVR Agreement. There can be no assurance that any cash payment will be made or that any holders of CVRs will receive any amounts with respect thereto.
The right to the contingent payments contemplated by the CVR Agreement is a contractual right only and will not be transferable, except in the limited circumstances specified in the CVR Agreement. The CVRs will not be evidenced by a certificate or any other instrument and will not be registered with the SEC. The CVRs will not have any voting or dividend rights and will not represent any equity or ownership interest in Sesen Bio or any of its affiliates. No interest will accrue on any amounts payable in respect of the CVRs.
Support Agreements and Lock-Up Agreements
Concurrently with the execution of the Merger Agreement, (a) certain stockholders of Carisma (solely in their respective capacities as Carisma stockholders) holding approximately 97.83% of the outstanding shares of Carisma capital stock (subject to customary cutbacks in the event of certain triggering events by the Sesen Bio board of directors) have entered into support agreements with Sesen Bio and Carisma to vote, among other things, all of their shares of Carisma capital stock in favor of adoption of the Merger Agreement and the transactions contemplated thereby, and against any alternative acquisition proposals (the “Carisma Support Agreements”), and (b) certain stockholders of Sesen Bio have entered into support agreements with Sesen Bio and Carisma to vote, among other
things, all of their shares of Sesen Bio common stock in favor of the Sesen Bio Voting Proposals and against any alternative acquisition proposals (the “Sesen Bio Support Agreements”, and together with the Carisma Support Agreements, the “Support Agreements”).
Concurrently with the execution of the Merger Agreement, certain executive officers, directors and stockholders of Sesen Bio and Carisma (solely in their respective capacities as stockholders) have entered into lock-up agreements (the “Lock-Up Agreements”) pursuant to which, subject to specified exceptions, they agreed not to transfer their shares of Sesen Bio common stock issued in connection with the Merger for the 180-day period following the closing of the Merger.
The preceding summaries of the Merger Agreement, the CVR Agreement, the Support Agreements and the Lock-Up Agreements do not purport to be complete and are qualified in their entirety by reference to the Merger Agreement, the form of CVR Agreement, the form of Carisma Support Agreement, the form of Sesen Bio Support Agreement and the form of Lock-Up Agreement, which are filed as Exhibits 2.1, 10.1, 10.2, 10.3 and 10.4, respectively, to this Current Report on Form 8-K and which are incorporated herein by reference. The Merger Agreement has been attached as an exhibit to this Current Report on Form 8-K to provide investors and stockholders with information regarding its terms. It is not intended to provide any other factual information about Sesen Bio or Carisma or to modify or supplement any factual disclosures about Sesen Bio in its public reports filed with the SEC. The Merger Agreement includes representations, warranties and covenants of Sesen Bio, Carisma and Merger Sub made solely for the purpose of the Merger Agreement and solely for the benefit of the parties thereto in connection with the negotiated terms of the Merger Agreement. Moreover, certain of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different from those generally applicable to SEC filings or may have been used for purposes of allocating risk among the parties to the Merger Agreement, rather than establishing matters of fact. Investors and stockholders are not third-party beneficiaries under the Merger Agreement. Accordingly, investors should not rely on the representations, warranties and covenants in the Merger Agreement or any descriptions thereof as characterizations of the actual state of facts or conditions of Sesen Bio, Carisma or any of their respective affiliates.